<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 16, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SL GREEN REALTY CORP.
(Exact name of registrant as specified in its governing instrument)
70 WEST 36TH STREET
NEW YORK, NY 10018
(Address of principal executive offices)
------------------------
STEPHEN L. GREEN
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
SL GREEN REALTY CORP.
70 WEST 36TH STREET
NEW YORK, NY 10018
(Name and address of agent for service)
------------------------
Copies to:
<TABLE>
<S> <C>
DOUGLAS A. SGARRO, ESQ. ALAN L. GOSULE, ESQ.
BROWN & WOOD LLP ROBERT E. KING, JR., ESQ.
ONE WORLD TRADE CENTER ROGERS & WELLS
NEW YORK, NEW YORK 200 PARK AVENUE
10048-0557 NEW YORK, NEW YORK
(212) 839-5300 (212) 878-8000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. /X/
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS AMOUNT BEING OFFERING PRICE AGGREGATE OFFERING REGISTRATION
OF SECURITIES BEING REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
<S> <C> <C> <C> <C>
Common Stock, $.01 par value per
share.............................. 9,315,000 shares $20.00 $186,300,000 $56,454.55
</TABLE>
(1) Includes 1,215,000 shares that are issuable upon exercise of the
Underwriters' over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE>
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION LOCATION OR HEADING IN PROSPECTUS
- ---------------------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
1. Forepart of Registration Statement and Outside Front Forepart of Registration Statement and Outside Front
Cover Page of Prospectus Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of Inside Front and Outside Back Cover Pages of
Prospectus Prospectus
3. Summary Information, Risk Factors and Ratio of Prospectus Summary; The Company; Risk Factors
Earnings to Fixed Charges
4. Determination of Offering Price Outside Front Cover Page; Underwriting
5. Dilution Dilution
6. Selling Security Holders Not applicable
7. Plan of Distribution Outside Front Cover Page; Underwriting
8. Use of Proceeds Use of Proceeds; Structure and Formation of the
Company
9. Selected Financial Data Selected Financial Information
10. Management's Discussion and Analysis of Financial Management's Discussion and Analysis of Financial
Condition and Results of Operations Condition and Results of Operations
11. General Information as to Registrant Outside Front Cover Page; Prospectus Summary; The
Company; Management; Structure and Formation of the
Company; Capital Stock
12. Policy with Respect to Certain Activities Prospectus Summary; The Company; Policies with
Respect to Certain Activities; Partnership Agreement;
Capital Stock; Additional Information
13. Investment Policies of Registrant Prospectus Summary; The Company; Business and Growth
Strategies; Policies with Respect to Certain
Activities
14. Description of Real Estate Prospectus Summary; The Properties
15. Operating Data The Company; The Properties; Financial Statements
16. Tax Treatment of Registrant and its Security Holders Prospectus Summary; Federal Income Tax Consequences
17. Market Price of and Dividends on the Registrant's Risk Factors; Distributions; The Company; Structure
Common Equity and Related Stockholder Matters and Formation of the Company
18. Description of Registrant's Securities Capital Stock
19. Legal Proceedings The Properties
20. Security Ownership of Certain Beneficial Owners and Principal Stockholders
Management
21. Directors and Executive Officers Management
22. Executive Compensation Management
23. Certain Relationships and Related Transactions The Company; Management; Structure and Formation of
the Company; Certain Relationships and Transactions
24. Selection, Management and Custody of Registrant's Outside Front Cover Page; Prospectus Summary; The
Investments Company; The Properties
25. Policies with Respect to Certain Transactions Policies with Respect to Certain Activities
26. Limitations of Liability The Company; Capital Stock; Management
27. Financial Statements and Information Prospectus Summary; Selected Financial Information;
Financial Statements
28. Interests of Named Experts and Counsel Experts; Legal Matters
29. Disclosure of Commission Position on Indemnification Management
for Securities Act Liabilities
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JUNE 16, 1997
PROSPECTUS
8,100,000 SHARES
SL GREEN REALTY CORP.
[LOGO]
COMMON STOCK
--------------------------
SL Green Realty Corp. (together with its subsidiaries, the "Company") has
been formed for the purpose of continuing the commercial real estate business of
S.L. Green Properties, Inc., and its affiliated partnerships and entities ("SL
Green"). For more than 17 years, SL Green has been engaged in the business of
owning, managing, leasing, acquiring and repositioning Class B office properties
in Manhattan. Upon completion of the Offering, the Company will own or have
contracted to acquire interests in eight Class B office properties encompassing
approximately 1.9 million rentable square feet located in midtown Manhattan (the
"Properties") and will manage 28 office properties (including the Properties)
encompassing approximately 6.1 million rentable square feet. The Company will
operate as a fully integrated, self-administered and self-managed real estate
investment trust (a "REIT"). Management expects that the Company will be the
first publicly-traded real estate company to invest primarily in Manhattan
office properties.
All of the shares of Common Stock, par value $.01 per share, of the Company
("Common Stock") offered hereby are being sold by the Company. Upon completion
of the Offering, approximately 13% of the equity in the Company will be
beneficially owned by officers and directors of the Company and certain other
affiliated parties, on a fully diluted basis.
Prior to the Offering, there has been no public market for the Common Stock.
It is currently anticipated that the initial public offering price per share
will be between $19.00 and $21.00. See "Underwriting" for a discussion of the
factors to be considered in determining the initial public offering price.
Application will be made to list the Common Stock, subject to official notice of
issuance, on the New York Stock Exchange under the symbol "SLG."
--------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR CERTAIN FACTORS RELEVANT TO AN
INVESTMENT IN THE COMMON STOCK, INCLUDING, AMONG OTHERS:
- Concentration of all of the Company's properties in midtown Manhattan, and
the dependence of such properties on the conditions of the New York
metropolitan economy and the midtown Manhattan office market.
- Absence of arm's length negotiations with respect to the Company's
interests in the properties and other assets to be contributed by SL Green
to the Company in connection with its formation, resulting in the risk
that the consideration to be paid by the Company for such assets may
exceed the fair market value of such assets and other potential conflicts
of interest relating to the formation of the Company and the operation of
its ongoing business.
- Recent and expected growth requiring the Company to integrate successfully
new acquisitions.
- Limitations on the Company's ability to sell, or reduce the amount of
mortgage indebtedness on, two of the Properties.
- Limitations on the stockholders' ability to change control of the Company,
including restrictions on ownership of more than 9.0% of the outstanding
shares of Common Stock.
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
<S> <C> <C> <C>
Per Share................................................ $ $ $
Total(3)................................................. $ $ $
</TABLE>
(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at approximately
$5,600,000.
(3) The Company has granted the Underwriters an option to purchase up to an
aggregate of 1,215,000 shares of Common Stock to cover over-allotments. If
all of such shares are purchased, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
--------------------------
The shares of Common Stock offered by this Prospectus are offered by the
Underwriters subject to prior sale, withdrawal, cancellation or modification of
the offer without notice to, delivery to and acceptance by the Underwriters and
to certain further conditions. It is expected that delivery of the shares of
Common Stock offered hereby will be made at the offices of Lehman Brothers Inc.,
New York, New York, on or about , 1997.
--------------------------
LEHMAN BROTHERS PRUDENTIAL SECURITIES INCORPORATED
, 1997
<PAGE>
[MAP OF MIDTOWN MANHATTAN SHOWING PROPERTY LOCATIONS]
[PICTURES OF THE PROPERTIES]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SUCH
TRANSACTIONS MAY INCLUDE THE PURCHASE OF SHARES OF COMMON STOCK TO COVER A
SYNDICATE SHORT POSITION IN THE COMMON STOCK OR FOR THE PURPOSE OF MAINTAINING
THE PRICE OF THE COMMON STOCK AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY.................... 1
The Company........................... 1
Risk Factors.......................... 2
Business and Growth Strategies........ 4
The Properties........................ 6
Structure and Formation of the
Company............................. 7
The Offering.......................... 10
Distributions......................... 10
Tax Status of the Company............. 11
Summary Selected Financial
Information......................... 11
RISK FACTORS.......................... 13
Dependence on Midtown Markets Due to
Limited Geographic
Diversification..................... 13
No Assurance of Fair Price for
Company's Assets.................... 13
Conflicts of Interest in the Formation
Transactions and the Business of the
Company............................. 13
Risks Associated with Rapid Growth;
Risks Associated with the
Acquisition of Substantial New
Properties; Lack of Operating
History............................. 14
Limitations on Ability to Sell or
Reduce the Mortgage Indebtedness on
Certain Properties.................. 15
Limits on Changes in Control.......... 16
Real Estate Investment Risks.......... 17
Risks of Adverse Effect on Company
from Debt Servicing and Refinancing,
Increases in Interest Rates,
Financial Covenants and Absence of
Limitation on Debt.................. 20
Immediate and Substantial Dilution.... 21
Risks of Failure to Qualify as a REIT
and Other Tax Liabilities........... 21
Competition........................... 22
Risks of Third-Party Property
Management, Leasing and Construction
Businesses.......................... 23
Possible Environmental Liabilities.... 23
Other Risks of Ownership of Common
Stock............................... 24
Dependence on Key Personnel........... 25
Historical Losses of the Operations of
the SL Green Predecessors........... 26
Changes in Policies Without
Stockholder Approval................ 26
Uninsured Loss........................ 26
Benefits to Managing Underwriter...... 26
Costs of Compliance with Americans
with Disabilities Act and Similar
Laws................................ 26
THE COMPANY........................... 28
BUSINESS AND GROWTH STRATEGIES........ 30
The Market Opportunity................ 30
Growth Strategies..................... 31
USE OF PROCEEDS....................... 36
DISTRIBUTIONS......................... 37
CAPITALIZATION........................ 41
DILUTION.............................. 42
SELECTED FINANCIAL INFORMATION........ 44
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 46
Overview.............................. 46
Results of Operations................. 46
Pro Forma Operating Results........... 50
Liquidity and Capital Resources....... 51
Cash Flows............................ 52
Funds from Operations................. 53
Inflation............................. 53
MARKET OVERVIEW....................... 54
New York Economy...................... 54
Manhattan Office Market............... 56
THE PROPERTIES........................ 61
The Portfolio......................... 61
673 First Avenue...................... 67
470 Park Avenue South................. 70
36 West 44th Street (The Bar
Building)........................... 72
70 West 36th Street................... 74
1414 Avenue of the Americas........... 76
29 West 35th Street................... 78
Acquisition Properties................ 80
The Option Property................... 84
General Terms of Leases in the Midtown
Markets............................. 85
Mortgage Indebtedness................. 85
Credit Facility....................... 86
Environmental Matters................. 86
Property Management and Leasing
Services............................ 87
</TABLE>
i
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<TABLE>
<S> <C>
Construction Services................. 87
Employees............................. 88
Transfer of Properties................ 88
Assets Not Being Transferred to the
Company............................. 88
Competition........................... 89
Regulation............................ 90
Insurance............................. 90
Legal Proceedings..................... 90
MANAGEMENT............................ 91
Directors, Director Nominees and
Executive Officers.................. 91
Committees of the Board of
Directors........................... 93
Compensation of Directors............. 94
Executive Compensation................ 94
Employment and Noncompetition
Agreements.......................... 95
Stock Option Plan..................... 95
Incentive Compensation Plan........... 96
401(k) Plan........................... 96
Limitation of Liability and
Indemnification..................... 96
STRUCTURE AND FORMATION OF THE
COMPANY............................. 98
The Operating Entities of the
Company............................. 98
Formation Transactions................ 99
Consequences of the Offering and the
Formation Transactions.............. 100
Benefits to Related Parties........... 100
POLICIES WITH RESPECT TO CERTAIN
ACTIVITIES.......................... 101
Investment Policies................... 102
Disposition Policies.................. 103
Financing Policies.................... 103
Conflict of Interest Policies......... 104
Interested Director and Officer
Transactions........................ 104
Business Opportunities................ 105
Policies with Respect to Other
Activities.......................... 105
CERTAIN RELATIONSHIPS AND
TRANSACTIONS........................ 106
Formation Transactions................ 106
Cleaning Services..................... 106
Security Services..................... 106
PARTNERSHIP AGREEMENT................. 106
Operational Matters................... 106
Liability and Indemnification......... 110
Transfers of Interests................ 110
PRINCIPAL STOCKHOLDERS................ 112
CAPITAL STOCK......................... 113
General............................... 113
Common Stock.......................... 113
Preferred Stock....................... 113
Excess Stock.......................... 114
Power to Issue Additional Shares of
Common Stock and Preferred Stock.... 114
Restrictions on Transfer.............. 114
Transfer Agent and Registrar.......... 116
CERTAIN PROVISIONS OF MARYLAND LAW AND
THE COMPANY'S CHARTER AND BYLAWS.... 117
Classification and Removal of Board of
Directors; Other Provisions......... 117
Business Combination Statute.......... 118
Control Share Acquisition Statute..... 118
Amendments to the Charter............. 119
Advance Notice of Director Nominations
and New Business.................... 119
Anti-takeover Effect of Certain
Provisions of Maryland Law and of
the Charter and Bylaws.............. 119
Rights to Purchase Securities and
Other Property...................... 119
SHARES AVAILABLE FOR FUTURE SALE...... 120
General............................... 120
Registration Rights................... 120
FEDERAL INCOME TAX CONSEQUENCES....... 121
General............................... 121
Taxation of the Company............... 121
Taxation of Stockholders.............. 126
Other Tax Considerations.............. 129
State and Local Tax................... 131
UNDERWRITING.......................... 132
EXPERTS............................... 134
LEGAL MATTERS......................... 134
ADDITIONAL INFORMATION................ 135
GLOSSARY OF SELECTED TERMS............ 136
INDEX TO FINANCIAL STATEMENTS......... F-1
</TABLE>
ii
<PAGE>
CAUTIONARY STATEMENT
INFORMATION CONTAINED IN THIS PROSPECTUS CONTAINS "FORWARD-LOOKING
STATEMENTS" RELATING TO, WITHOUT LIMITATION, FUTURE ECONOMIC PERFORMANCE, PLANS
AND OBJECTIVES OF MANAGEMENT FOR FUTURE OPERATIONS AND PROJECTIONS OF REVENUE
AND OTHER FINANCIAL ITEMS, WHICH CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING
TERMINOLOGY SUCH AS "MAY," "WILL," "SHOULD," "EXPECT," "ANTICIPATE," "ESTIMATE"
OR "CONTINUE" OR THE NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE
TERMINOLOGY. THE CAUTIONARY STATEMENTS SET FORTH UNDER THE CAPTION "RISK
FACTORS" AND ELSEWHERE IN THE PROSPECTUS IDENTIFY IMPORTANT FACTORS WITH RESPECT
TO SUCH FORWARD-LOOKING STATEMENTS, INCLUDING CERTAIN RISKS AND UNCERTAINTIES
THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN SUCH FORWARD-
LOOKING STATEMENTS.
iii
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION INCLUDED ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED,
THE INFORMATION CONTAINED IN THIS PROSPECTUS ASSUMES THAT (I) THE INITIAL PUBLIC
OFFERING PRICE IS $20.00 PER SHARE (THE MIDPOINT OF THE PRICE RANGE SET FORTH ON
THE COVER PAGE OF THIS PROSPECTUS), (II) THE TRANSACTIONS DESCRIBED UNDER
"STRUCTURE AND FORMATION OF THE COMPANY" ARE CONSUMMATED, AND (III) THE
UNDERWRITERS' OVERALLOTMENT OPTION IS NOT EXERCISED. AS USED HEREIN, (I) THE
"COMPANY" MEANS SL GREEN REALTY CORP., A MARYLAND CORPORATION, AND ONE OR MORE
OF ITS SUBSIDIARIES (INCLUDING SL GREEN OPERATING PARTNERSHIP, L.P.), AND THE
PREDECESSORS THEREOF OR, AS THE CONTEXT MAY REQUIRE, SL GREEN REALTY CORP. ONLY
OR SL GREEN OPERATING PARTNERSHIP, L.P. ONLY AND (II) "SL GREEN" MEANS SL GREEN
PROPERTIES, INC., A NEW YORK CORPORATION, AS WELL AS THE AFFILIATED PARTNERSHIPS
AND OTHER ENTITIES THROUGH WHICH STEPHEN L. GREEN HAS HISTORICALLY CONDUCTED
COMMERCIAL REAL ESTATE ACTIVITIES. SEE "GLOSSARY OF SELECTED TERMS" FOR THE
DEFINITIONS OF CERTAIN TERMS USED IN THIS PROSPECTUS.
THE COMPANY
The Company has been formed for the purpose of continuing the commercial
real estate business of SL Green. For more than 17 years, SL Green has been
engaged in the business of owning, managing, leasing, acquiring and
repositioning Class B office properties in Manhattan. Upon completion of the
Offering, the Company will own or have contracted to acquire interests in eight
Class B office properties encompassing approximately 1.9 million rentable square
feet located in midtown Manhattan (the "Properties") and will manage 28 office
properties (including the Properties) encompassing approximately 6.1 million
rentable square feet. Of these Properties, interests in six office Properties
encompassing approximately 1.2 million rentable square feet are currently owned
and managed by SL Green (the "Core Portfolio") and interests in two office
Properties encompassing approximately 700,000 rentable square feet will be
acquired upon completion of the Offering (the "Acquisition Properties"). As of
March 31, 1997, the weighted average occupancy rate of the Core Portfolio was
95% and of the Acquisition Properties was 88%. Also, upon completion of the
Offering, the Company expects to own an option to acquire an additional 333,000
rentable square foot Class B office property in midtown Manhattan. See "The
Properties--The Option Property." The Company will operate as a fully
integrated, self-administered and self-managed real estate investment trust (a
"REIT"). Management expects that the Company will be the first publicly-traded
real estate company to invest primarily in Manhattan office properties.
The term "Class B" is generally used in the Manhattan office market to
describe office properties which are more than 25 years old but which are in
good physical condition, enjoy widespread acceptance by high-quality tenants and
are situated in desirable locations in Manhattan. Examples of Class B Manhattan
office properties (other than the Properties) include the Graybar Building, the
Kent Building, the Lincoln Building, the Fred French Building and Five and Seven
Penn Plaza. Class B office properties can be distinguished from Class A
properties in that Class A properties are generally newer properties with higher
finishes and obtain the highest rental rates within their markets.
A variety of tenants who do not require, desire or cannot afford Class A
space are attracted to Class B office properties due to their prime locations,
excellent amenities, distinguished architecture and relatively less expensive
rental rates. Class B office space has historically attracted many smaller
growth oriented firms (many of which have fueled the recent growth in the New
York City metropolitan economy) and has played a critical role in satisfying the
space requirements of particular industry groups in Manhattan, such as the
advertising, apparel, business services, engineering, not-for-profit, "new
media" and publishing industries. In addition, several areas of Manhattan,
including many in which particular trades or industries traditionally
congregate, are dominated by Class B office space and contain no or very limited
Class A office space. Examples of such areas include the Garment District (where
three of the Properties are located), the Flatiron District (where one of the
Properties is located), the areas immediately south and north of Houston Street
("Soho" and "Noho", respectively), Chelsea, and the area surrounding the United
Nations (where one of the Properties is located). Businesses significantly
concentrated in certain of these areas include those in the following
industries: new media, garment, apparel, toy, jewelry, interior decoration,
antiques, giftware, contract furnishing and UN-related businesses. The
concentration of
1
<PAGE>
businesses creates strong demand for the available Class B office space in those
locations. Tenants that currently occupy space in SL Green owned or managed
properties include MCI, NationsBank, New York Hospital, Omnicom Group Ltd., Sara
Lee Corp. and UNICEF. Other tenants occupying Class B office space in Manhattan
include Coca Cola, EMI, Forbes Inc., John Hancock, Mattel Toys and Young &
Rubicam.
As described herein, current developments in the New York City metropolitan
economy provide an attractive environment for owning, operating and acquiring
Class B office properties in Manhattan. See "Market Overview." These
developments have resulted in growing demand for midtown Manhattan office space
(particularly Class B space), declining vacancy rates (the Class B vacancy rate
in the midtown and midtown south submarkets of the Manhattan office market
(together, the "Midtown Markets") declined from 17.3% at year-end 1992 to 11.7%
at March 31, 1997) and appreciation in rental rates and property values. The
Company believes there will be a continued strengthening of the Class B office
market driven by expected job growth in Manhattan, particularly among smaller
companies which are, in many instances, Class B tenants. Additionally, the
Company believes that a number of high quality tenants will likely seek to
relocate from Class A space to Class B space as a result of the rising cost of
Class A space. The Company will seek to capitalize on these growth opportunities
by acquiring Class B office properties on a selective basis and, when necessary,
enhancing their value after acquisition through repositioning of the properties
in their respective submarkets. As described more fully below, the Company may
have certain competitive advantages over other potential acquirors of Class B
office space due to its local market expertise, historical institutional
relationships, enhanced access to capital as a public company and ability to
offer tax-advantaged acquisition structures. Additionally, the Company will seek
to optimize its properties' cash flow through ongoing intensive management and
leasing. See "Business and Growth Strategies."
SL Green was founded in 1980 by Stephen L. Green, its Chairman, President
and Chief Executive Officer. Since that time, SL Green has become a full
service, fully integrated real estate company with a portfolio of over six
million square feet of Class B office properties under management. Throughout
its history, SL Green has been involved in the acquisition of 31 Class B office
properties in Manhattan containing approximately four million square feet and
the management of 50 Class B office properties in Manhattan containing
approximately 10.5 million square feet.
SL Green has offices in midtown and downtown Manhattan and has established a
staff of more than 50 persons, including 40 professionals with experience in all
aspects of commercial real estate. The Company will be led by, in addition to
Stephen L. Green, five senior executives that average more than nine years with
SL Green and more than 19 years in the commercial real estate business. This
management team has developed a comprehensive knowledge of the Manhattan Class B
office market, an extensive network of tenant and other business relationships
and experience in acquiring underperforming office properties and repositioning
them into profitable Class B properties through intensive full service
management and leasing efforts. Upon completion of the Offering, approximately
13% of the equity of the Company, on a fully diluted basis, will be beneficially
owned by officers and directors of the Company and other affiliated persons.
RISK FACTORS
An investment in the Common Stock involves various risks, and prospective
investors should carefully consider the matters discussed under "Risk Factors"
prior to making an investment in the Company. Such risks include, among others:
- concentration of all of the Properties in midtown Manhattan, and the
dependence of the Properties on the conditions of the New York
metropolitan economy and the Midtown Markets, which increases the risk of
the Company's being adversely affected by a downturn in the New York
metropolitan economy or the Midtown Markets;
- absence of arm's length negotiations with respect to the Company's
interests in the Properties and the other assets to be contributed by SL
Green to the Company in connection with its formation,
2
<PAGE>
resulting in the risks that the consideration to be paid by the Company
for such assets may exceed the fair market value of such assets and that
the market value of the Common Stock may exceed the stockholders'
proportionate share of the aggregate fair market value of such assets;
- conflicts of interest in connection with the Formation Transactions (as
defined below), including the fact that officers, directors and affiliates
of the Company will receive equity interests in the Company and the
Operating Partnership (as defined below) with a value of approximately
$25.4 million, based on the assumed initial public offering price;
- conflicts of interest involving officers and directors of the Company in
business decisions regarding the Company, including conflicts associated
with sales and refinancings of Properties and the prepayment of debt
secured by the Properties and conflicts associated with the provision of
cleaning and security services with respect to the Properties by entities
controlled by related parties;
- risks of integrating recent or expected acquisitions, including the risk
that certain of these properties may have characteristics or deficiencies
unknown to the Company that affect their valuation or revenue potential;
- limitations on the ability of the Company to sell, or reduce the amount of
mortgage indebtedness on, two of the Properties (673 First Avenue and 470
Park Avenue South) for up to 12 years following the completion of the
Offering (the "Lock-out Period"), except in certain circumstances (the
"Lock-out Provisions"), even if any such sale or reduction in mortgage
indebtedness would be in the best interests of the Company's stockholders,
and the possibility that future property acquisitions in which the Company
uses partnership interests as consideration will include comparable
limitations;
- the anti-takeover effect of limiting actual or constructive ownership of
Common Stock to 9.0% of the number of outstanding shares, subject to
certain exceptions, and of certain other provisions contained in the
organizational documents of the Company and the Operating Partnership,
which could have the effect of delaying, deferring or preventing a
transaction or change in control of the Company that might involve a
premium price for the Common Stock or otherwise would be in the best
interests of the Company's stockholders;
- risks associated with real estate investments, such as the effect of the
large number of competitive office properties in the Midtown Markets, the
need to renew leases or re-lease space upon lease expirations and to pay
renovation and re-leasing costs in connection therewith, the effect of
economic and other conditions on office property cash flows and values,
the ability of tenants to make lease payments, the ability of a property
to generate revenue sufficient to meet operating expenses (including
future debt service), potential environmental liabilities, the illiquidity
of real estate investments and the possibility that acquired properties
fail to perform as expected;
- risks associated with borrowing, such as the inability to refinance
outstanding indebtedness upon maturity or refinance such indebtedness on
favorable terms and the risk of rising interest rates in connection with
variable rate debt;
- immediate and substantial dilution of $6.54 in the net tangible book value
per share of the shares of Common Stock purchased in the Offering; and
- taxation of the Company as a corporation if it fails to qualify as a REIT
for Federal income tax purposes, and the Company's liability for certain
Federal, state and local income taxes in such event and the resulting
decrease in cash available for distribution.
3
<PAGE>
BUSINESS AND GROWTH STRATEGIES
The Company's primary business objective is to maximize total return to
stockholders through growth in distributable cash flow and appreciation in the
value of its assets. The Company plans to achieve this objective by capitalizing
on the external and internal growth opportunities described below and continuing
the operating strategies historically practiced by SL Green.
THE MARKET OPPORTUNITY
- The Company believes that the continuing recovery of the New York
commercial real estate market from the downturn of the late 1980s and
early 1990s creates an attractive environment for owning, operating and
acquiring Class B office properties in Manhattan.
- In particular, recent net private sector job growth (especially in smaller
companies), an improving business environment and "quality of life"
enhancements in New York City have led to growing demand for office space
in Manhattan.
- The Midtown Markets in particular have benefited from the growth in
smaller companies that have traditionally been attracted to Class B space
in the Midtown Markets due to its prime locations and relatively less
expensive rental rates (as compared to Class A space) and from the
relocation of larger firms from Class A space to Class B space.
- The Company expects the supply of office space in the Midtown Markets to
remain relatively stable for the foreseeable future because new
construction generally is not economically feasible at current market
rental rates and property values, there are relatively few sites available
for construction and the lead time required for construction typically
exceeds three years.
- As a result of these positive supply and demand fundamentals, the Class B
office vacancy rate in the Midtown Markets declined to 11.7% as of March
31, 1997 from its 1990s high of 17.3% in 1992 and asking rental rates for
Class B office in the Midtown Markets increased to $23.88 per square foot
as of March 31, 1997 from their 1990s low of $21.89 per square foot as of
year-end 1993. These developments coupled with projected continuing
decreases in vacancy rates and increases in rental rates create attractive
opportunities for owning and acquiring Class B office properties in
Manhattan.
GROWTH STRATEGIES
- The Company will seek to capitalize on current opportunities in the Class
B Manhattan office market through (i) property acquisitions--continuing to
acquire Class B office properties at significant discounts to replacement
costs that provide attractive initial yields and the potential for cash
flow growth, (ii) property repositioning--repositioning acquired
properties that are underperforming through renovations, active management
and proactive leasing and (iii) integrated leasing and property
management.
- PROPERTY ACQUISITIONS. In acquiring properties, the Company believes that
it will have the following advantages over its competitors: (i) over 17
years experience as a full service, fully integrated real estate company
focused on the Class B office market in Manhattan, (ii) enhanced access to
capital as a public company, (as compared to the generally fragmented and
far less institutional ownership of competing Manhattan Class B office
properties) and (iii) the ability to offer tax-advantaged structures to
sellers. In addition, the Company may benefit from the recent abolition of
the New York State Real Property Transfer Gains Tax and from recent tax
law developments reducing the transfer tax rates applicable to certain
REIT acquisition transactions.
- PROPERTY REPOSITIONING. The Company believes that there are a significant
number of potential acquisitions that could greatly benefit from
management's experience in enhancing property cash
4
<PAGE>
flow and value by renovating and repositioning properties to be among the
best in their submarkets. In considering such an acquisition, the Company
determines the amount of capital required to be invested in a property to
achieve the repositioning. The Company then judges the benefit of a
repositioning on a total return basis, such that for the Company to
undertake the project the present value of the projected future increase
in net cash flow and property value must exceed the cost of the capital
expenditure required to achieve the repositioning.
- INTEGRATED LEASING AND PROPERTY MANAGEMENT. The Company will seek to
capitalize on management's extensive knowledge of the Class B Manhattan
marketplace and the needs of the tenants therein by continuing SL Green's
proactive approach to leasing and management, which includes (i) the use
of in-depth market research, (ii) the utilization of an extensive network
of third-party brokers, (iii) comprehensive building management analysis
and planning and (iv) a commitment to tenant satisfaction and providing
"Class A" tenant services. The Company believes that SL Green's proactive
leasing efforts have contributed to average occupancy rates at the
Properties that are above the market average. During the period between
1994 and 1996, properties owned by SL Green for more than one year
averaged occupancy rates of 94.3%, which exceeded the average of 87.2% for
Class B Manhattan office space in the Midtown Markets by 8.1% over the
comparable period. In addition, SL Green's commitment to tenant service
and satisfaction is evidence by the renewal of approximately 78% of the
expiring rentable square footage (77% of the expiring leases determined by
number of leases) at the Properties in the Core Portfolio owned and
managed by SL Green during the period from January 1, 1993 through March
31, 1997.
5
<PAGE>
THE PROPERTIES
THE PORTFOLIO
GENERAL. Upon the completion of the Offering, the Company will own or have
contracted to acquire interests in eight Class B office Properties located in
midtown Manhattan which contain approximately 1.9 million rentable square feet.
Of these Properties, six office properties encompassing approximately 1.2
million rentable square feet are currently owned and managed by SL Green and two
office properties encompassing approximately 700,000 rentable square feet will
be acquired on or after completion of the Offering. See "Structure and Formation
of the Company--Formation Transactions." Upon completion of the Offering, the
Company will effectively own 100% of the economic interest in all of the
Properties. Certain of the Properties include at least a small amount of retail
space on the lower floors, as well as basement/storage space. One Property (673
First Avenue) includes an underground parking garage. In addition to the
foregoing, upon completion of the Offering, the Company will own an option to
acquire an additional 333,000 rentable square foot office property in midtown
Manhattan. See "The Properties--The Option Property."
The following table sets forth certain information with respect to each of
the Properties as of March 31, 1997:
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
OF OF
APPROXIMATE PORTFOLIO PORTFOLIO
YEAR RENTABLE RENTABLE ANNUAL ANNUAL
BUILT/ SQUARE SQUARE PERCENT ESCALATED ESCALATED
RENOVATED SUBMARKET FEET FEET LEASED RENT(1) RENT
---------- -------------- ------------ ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
CORE PORTFOLIO
673 First Ave................ 1928/1990 Grand Central 422,000 22.4% 100% $10,692,472 25.2%
South
470 Park Ave. S.(4).......... 1912/1994 Park Avenue 260,000(4) 13.8 95 5,568,931 13.1
South/Flatiron
Bar Building(5).............. 1922/1985 Rockefeller 165,000(5) 8.8 81(5) 3,937,435 9.3
Center
70 W. 36th St................ 1923/1994 Garment 150,000 8.0 96 2,752,439 6.5
1414 Ave. of Ams............. 1923/1990 Rockefeller 111,000 5.9 98 3,378,804 8.0
Center
29 W. 35th St................ 1911/1985 Garment 78,000 4.1 92 1,433,221 3.4
------------ ----- ----- ----------- -----
1,186,000 63.0 95 27,763,302 65.5
ACQUISITION PROPERTIES
1372 Broadway................ 1914/1985 Garment 508,000 26.9 85 9,552,088 22.6
1140 Ave. of Ams............. 1926/1951 Rockefeller 191,000 10.1 98 5,035,514 11.9
Center
------------ ----- ----- ----------- -----
Total/Weighted Average....... 1,885,000(6) 100.0% 92.5% $42,350,904 100.0%
------------ ----- ----- ----------- -----
------------ ----- ----- ----------- -----
<CAPTION>
ANNUAL
ANNUAL NET
ESCALATED EFFECTIVE
RENT RENT
PER PER
NUMBER LEASED LEASED
OF SQUARE SQUARE
LEASES FOOT(2) FOOT(3)
----------- ----------- -----------
<S> <C> <C> <C>
CORE PORTFOLIO
673 First Ave................ 16 $ 25.33 $ 21.79
470 Park Ave. S.(4).......... 25 22.61 19.57
Bar Building(5).............. 52 29.37 26.09
70 W. 36th St................ 39 19.14 15.94
1414 Ave. of Ams............. 31 31.01 31.04
29 W. 35th St................ 8 20.09 16.20
--- ----------- -----------
171 24.63 21.60
ACQUISITION PROPERTIES
1372 Broadway................ 31 22.21 21.35
1140 Ave. of Ams............. 40 26.93 24.92
--- ----------- -----------
Total/Weighted Average....... 242 $ 24.29 $ 28.03
--- ----------- -----------
--- ----------- -----------
</TABLE>
- ------------------------
(1) As used throughout this Prospectus, Annual Escalated Rent represents the
annualized monthly base rent in effect as of March 31, 1997 (after giving
effect to any contractual increases in monthly base rent that have occurred
up to such date) including annualized monthly tenant pass-throughs of
operating and other expenses (but excluding tenant electricity costs) under
each lease executed as of March 31, 1997, or, if such monthly rent has been
reduced by a temporary rent concession, the monthly rent that would have
been in effect at such date in the absence of such concession.
(2) Annual Escalated Rent Per Leased Square Foot, as used throughout this
Prospectus, represents Annual Escalated Rent, as described in footnote (1)
above, presented on a per leased square foot basis.
(3) As used throughout this Prospectus, Annual Net Effective Rent Per Leased
Square Foot represents (a) for leases in effect at the time an interest in
the relevant property was first acquired by SL Green, the remaining lease
payments under the lease divided by the number of months remaining under the
lease multiplied by 12 and (b) for leases entered into after an interest in
the relevant property was first acquired by SL Green and for leases at the
Acquisition Properties, all lease payments under the lease divided by the
number of months in the lease multiplied by 12, and, in the case of both (a)
and (b), adjusted for tenant improvement costs and leasing commissions, if
any, paid or payable by SL Green and presented on a per leased square foot
basis. In certain cases, Annual Net Effective Rent Per Leased Square Foot
may exceed Annual Escalated Rent Per Leased Square Foot as a result of the
provision for future contractual increases in rental payments in the Annual
Net Effective Rent Per Leased Square Foot data.
(4) 470 Park Avenue South is comprised of two buildings, 468 Park Avenue South
(a 17-story office building) and 470 Park Avenue South (a 12-story office
building).
(5) SL Green first acquired an interest in the Bar Building in October 1996. SL
Green has commenced an aggressive leasing program at the Property and as of
May 31, 1997, approximately 93% of the rentable square feet in the Property
was leased. The Bar Building is comprised of two buildings, 36 West 44th
Street (a 14-story building) and 35 West 43rd Street (a four-story
building).
(6) Includes approximately 1,718,000 square feet of rentable office space,
137,000 square feet of rentable retail space and 30,000 square feet of
garage space.
6
<PAGE>
STRUCTURE AND FORMATION OF THE COMPANY
STRUCTURE OF THE COMPANY
The Company will be the sole general partner of SL Green Operating
Partnership, L.P., a Delaware limited partnership (the "Operating Partnership").
The Company will conduct substantially all of its business, and will hold all of
its interests in the Properties, through the Operating Partnership. As the sole
general partner of the Operating Partnership, the Company will have exclusive
power to manage and conduct the business of the Operating Partnership, subject
to certain exceptions (including the Lock-out Provisions). See "Partnership
Agreement."
The following diagram depicts the ownership structure of the Company upon
completion of the Offering and the Formation Transactions (as defined below):
[DIAGRAM REGARDING OWNERSHIP STRUCTURE OF COMPANY]
7
<PAGE>
FORMATION TRANSACTIONS
Certain transactions have been consummated or will be consummated
concurrently with the completion of the Offering. These transactions (the
"Formation Transactions") include the following:
- The Company was organized as a Maryland corporation and the Operating
Partnership was organized as a Delaware limited partnership in June 1997.
- Lehman Brothers Holdings Inc. ("LBHI"), an affiliate of Lehman Brothers
Inc., entered into a credit agreement with SL Green pursuant to which LBHI
agreed to loan to SL Green up to $40 million (the "LBHI Loan") which will
be used to acquire interests in the Core Portfolio and the Acquisition
Properties, to fund property related operating expenses, to fund
organizational expenses of the Company and to purchase short-term United
States Treasury instruments ("Treasury Securities"). The LBHI Loan will be
secured by partnership interests in certain Property-owning entities and
the Treasury Securities.
- The Company will sell 8,100,000 shares of Common Stock in the Offering and
will contribute the net proceeds therefrom to the Operating Partnership in
exchange for 8,100,000 Units (representing approximately an 84% economic
interest in the Operating Partnership after the Offering).
- The Operating Partnership will receive a contribution of its interests in
the Core Portfolio as well as 95% of the economic interest in S.L. Green
Management Corp. (the "Management Corporation"), S.L. Green Realty, Inc.
(the "Leasing Corporation") and Emerald City Construction Corp. (the
"Construction Corporation", and together with the Management Corporation
and the Leasing Corporation, the "Service Corporations") from the
Property-owning entities, the partners or members of such entities and the
holders of interests in the Service Corporations. As consideration
therefor, the Operating Partnership will issue to such entities, partners
or members and holders 1,130,395 Units (having an aggregate value of
approximately $22.6 million, based on the assumed initial offering price)
and approximately $6.4 million.
- The management and leasing business of SL Green with respect to the
Properties in which the Company will have a 100% membership interest will
be transferred to SL Green Management LLC (the "Management LLC" and,
together with the Management Corporation, the "Management Entities"), a
limited liability company in which the Company will own all of the
economic interest.
- The Operating Partnership will obtain for $500,000 an option to acquire 50
West 23rd Street, a 333,000 rentable square foot office property in
midtown Manhattan (the "Option Property") from an unaffiliated seller for
a purchase price of $36 million in cash. See "The Properties--The Option
Property."
- The Operating Partnership will acquire interests in the Acquisition
Properties for an aggregate purchase price of approximately $73.4 million,
to be funded with net proceeds from the Offering and mortgage financing.
- The Operating Partnership will use approximately $74.1 million of net
proceeds from the Offering to repay mortgage debt encumbering the Core
Portfolio and the LBHI Loan (including $1.7 million in prepayment
penalties, fees and other costs and excluding approximately $7.5 million
in proceeds drawn under the LBHI Loan to fund purchase of the Acquisition
Properties).
- The Company will issue to Victor Capital Group, L.P. ("Victor Capital")
45,495 shares of restricted Common Stock and the Operating Partnership
will pay $900,000 (funded with borrowings under the LBHI Loan and proceeds
from the Offering) to Victor Capital as consideration for financial
advisory services rendered to the Company in connection with the Formation
Transactions.
Additional information regarding the Formation Transactions is set forth
under "Structure and Formation of the Company--Formation Transactions."
8
<PAGE>
BENEFITS TO RELATED PARTIES
Certain affiliates of the Company will realize certain material benefits in
connection with the Formation Transactions and the Offering, including the
following:
- Certain SL Green entities (including entities owned by Stephen L. Green)
will receive 887,895 Units in consideration for their interests in the
Properties, Property-owning entities and the management, leasing and
construction businesses of SL Green with a total value of approximately
$17.8 million, based on the assumed initial public offering price
(representing approximately 9.2% of the equity of the Company on a
fully-diluted basis).
- The Operating Partnership will use $20 million to repay a portion of the
LBHI Loan that was made to an SL Green entity (which is indirectly owned
by Stephen L. Green) and invested in Treasury Securities pledged as
collateral therefor (which, upon repayment of the LBHI Loan, will be
released to such SL Green entity).
- Certain members of SL Green management (including Nancy A. Peck, Steven H.
Klein, Benjamin P. Feldman, Gerard Nocera and Louis A. Olsen) own an
aggregate of 383,110 shares of restricted Common Stock that initially will
have a value of $7.7 million, based on the assumed initial public offering
price.
- Certain members of SL Green management (including Stephen L. Green, Nancy
A. Peck, Steven H. Klein, Benjamin P. Feldman, Gerard Nocera and Louis A.
Olsen) will become officers and/or directors of the Company. In addition,
each of such persons will enter into three year employment and
noncompetition agreements with the Company. See "Management--Employment
and Noncompetition Agreements." Also, the Company will grant to directors,
officers and employees of the Company options to purchase an aggregate of
660,000 shares of Common Stock at the initial public offering price under
the Company's stock option plan, subject to certain vesting requirements.
See "Management."
- The structure of the Formation Transactions will provide the Unit
recipients (including the members of management referred to above) the
opportunity for deferral of the tax consequences of their contribution to
the Operating Partnership of their interests in the Properties,
Property-owning entities and Service Corporations.
- An SL Green entity will own all of the voting stock of each of the Service
Corporations (representing a 5% equity interest therein).
- Pursuant to the Lock-out Provisions, the Company will be restricted in its
ability to sell, or reduce the amount of mortgage indebtedness on, two of
the Properties (673 First Avenue and 470 Park Avenue South) for up to 12
years following the completion of the Offering, which could enable certain
participants in the Formation Transactions (including certain SL Green
entities) to defer certain tax consequences associated with the Formation
Transactions.
- Persons or entities receiving Units in the Formation Transactions
(including entities owned by Stephen L. Green) will have registration
rights with respect to shares of Common Stock issued in exchange for
Units.
Additional information concerning benefits to related parties is set forth
under "Structure and Formation of the Company--Benefits to Related Parties."
9
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company.......... 8,100,000 shares
Common Stock Outstanding After the 8,528,605 shares(1)
Offering...................................
Common Stock and Units Outstanding After the 9,659,000 shares and Units (2)
Offering...................................
Use of Proceeds.............................. To repay mortgage indebtedness, to acquire
interests in the Properties, to pay Formation
Transaction expenses and to repay $39.4
million outstanding under the LBHI Loan.
Proposed NYSE Symbol......................... "SLG"
</TABLE>
- ------------------------
(1) Includes 428,605 shares of restricted Common Stock to be issued in the
Formation Transactions.
(2) Includes 1,130,395 Units expected to be issued in connection with the
Formation Transactions that may be exchanged for cash or, at the option of
the Company, shares of Common Stock on a one-for-one basis generally
commencing two years after completion of the Offering. Excludes 1,215,000
shares that are issuable upon exercise of the Underwriters' over-allotment
option and 660,000 shares reserved for issuance upon the exercise of stock
options to be granted pursuant to the Company's 1997 Stock Option Plan
concurrently with the Offering.
DISTRIBUTIONS
The Company intends to make regular quarterly distributions to holders of
its Common Stock. The initial distribution, covering a partial quarter
commencing on the date of the closing of the Offering and ending on September
30, 1997, is expected to be $ per share, which represents a pro rata
distribution based upon a full quarterly distribution of $.3625 per share and an
annual distribution of $1.45 per share (or an annual distribution rate of
approximately 7.25%, based on an assumed initial public offering price of
$20.00). See "Distributions."
The Company intends initially to distribute annually approximately % of
estimated cash available for distribution. The Company's estimate of cash
available for distribution for the twelve months ending March 31, 1998 is based
upon pro forma Funds from Operations (as defined below) for the 12 months ended
March 31, 1997, with certain adjustments as described in "Distributions." The
Company anticipates that approximately % (or $ per share) of the
distributions intended to be paid by the Company for the 12-month period
following the completion of Offering will represent a return of capital for
Federal income tax purposes and in such event will not be subject to Federal
income tax under current law to the extent such distributions do not exceed a
stockholder's basis in his Common Stock. The Company intends to maintain its
initial distribution rate for the 12-month period following the completion of
the Offering unless actual results of operations, economic conditions or other
factors differ materially from the assumptions used in its estimate.
Distributions by the Company will be determined by the Board of Directors and
will be dependent upon a number of factors, including revenue received from the
Company's properties, the operating expenses of the Company, interest expense,
the ability of tenants at the Company's properties to meet their financial
obligations and unanticipated capital expenditures. The Company believes that
its estimate of cash available for distribution is reasonable; however, no
assurance can be given that the estimate will prove accurate, and actual
distributions may therefore be significantly different from expected
distributions. See "Distributions." The Company does not intend to reduce the
expected distribution per share if the Underwriters' over-allotment option is
exercised.
10
<PAGE>
TAX STATUS OF THE COMPANY
The Company intends to elect to be taxed as a REIT under Sections 856
through 860 of the Internal Revenue Code of 1986, as amended (the "Code"),
commencing with its taxable year ending December 31, 1997, and believes its
organization and proposed method of operation will enable it to meet the
requirements for qualification as a REIT. To maintain REIT status, an entity
must meet a number of organizational and operational requirements. In addition,
in order to maintain its qualification as a REIT under the Code, the Company
generally will be required each year to distribute at least 95% of its net
taxable income (excluding any net capital gain). See "Federal Income Tax
Consequences--Taxation of the Company--Annual Distribution Requirements." As a
REIT, the Company generally will not be subject to Federal income tax on net
income it distributes currently to its stockholders. If the Company fails to
qualify as a REIT in any taxable year, it will be subject to Federal income tax
at regular corporate rates. See "Federal Income Tax Consequences--Taxation of
the Company--Failure to Qualify" and "Risk Factors-- Tax Risks--Failure to
Qualify as a REIT." Even if the Company qualifies for taxation as a REIT, the
Company may be subject to certain Federal, state and local taxes on its income
and property.
SUMMARY SELECTED FINANCIAL INFORMATION
The following table sets forth summary selected financial and operating
information on a pro forma basis for the Company, and on a historical combined
basis for the SL Green Predecessor (as defined below), and should be read in
conjunction with all of the financial statements and notes thereto included in
this Prospectus. The combined historical balance sheet information as of
December 31, 1996 and 1995 and statements of income for the years ended December
31, 1996, 1995, and 1994 of the SL Green Predecessor have been derived from the
historical combined financial statements audited by Ernst & Young LLP,
independent auditors, whose report with respect thereto is included elsewhere in
this Prospectus. The operating data for the three months ended March 31, 1997
and 1996 and the years ended December 31, 1993 and 1992 have been derived from
the unaudited combined financial statements of the SL Green Predecessor. In the
opinion of management of the SL Green Predecessor, the operating data for the
three months ended March 31, 1997 and 1996 and the years ended December 31, 1993
and 1992 include all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the information set forth therein. The
results of operations for the interim periods ended March 31, 1997 and 1996 are
not necessarily indicative of the result to be obtained for the full fiscal
year.
The "SL Green Predecessor" consists of 100% of the net assets and results of
operations of two Properties, 1414 Avenue of the Americas and 70 West 36th
Street, equity interests in four other Properties, 673 First Avenue, 470 Park
Avenue South, 29 West 35th Street and the Bar Building (which interests are
accounted for under the equity method) and 100% of the net assets and results of
operations of the Service Corporations.
The unaudited pro forma financial and operating information for the Company
as of and for the three months ended March 31, 1997 and the year ended December
31, 1996 assumes completion of the Offering and the Formation Transactions as of
the beginning of the periods presented for the operating data and as of the
stated date for the balance sheet data. The pro forma financial information is
not necessarily indicative of what the actual financial position and results of
operations of the Company would have been as of and for the period indicated,
nor does it purport to represent the Company's future financial position and
results of operations.
11
<PAGE>
THE COMPANY (PRO FORMA) AND THE SL GREEN PREDECESSOR (HISTORICAL)
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
THREE MONTHS ENDED MARCH 31, HISTORICAL
------------------------------------------- ----------------------------------------------
PRO FORMA PRO FORMA
1997 1997 1996 1996 1996 1995 1994
------------- ------------- ------------- ------------- --------- --------- ---------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
TOTAL REVENUE................. $ 12,525 $ 3,971 $ 2,307 $ 45,837 $ 10,182 $ 6,564 $ 6,600
------------- ------ ------ ------------- --------- --------- ---------
PROPERTY OPERATING EXPENSE.... 3,667 814 733 14,908 3,197 2,505 2,009
REAL ESTATE TAXES............. 1,769 243 118 7,242 703 496 543
INTEREST...................... 1,479 345 221 5,935 1,357 1,212 1,555
DEPRECIATION AND
AMORTIZATION................ 1,509 271 175 6,248 975 775 931
MARKETING, GENERAL AND
ADMINISTRATION.............. 257 896 1,079 1,027 3,250 3,052 2,351
------------- ------ ------ ------------- --------- --------- ---------
TOTAL EXPENSES................ 8,681 2,569 2,326 35,360 9,482 8,040 7,389
------------- ------ ------ ------------- --------- --------- ---------
OPERATING INCOME (LOSS)....... 3,844 1,402 (19) 10,477 700 (1,476) (789)
EQUITY IN NET INCOME (LOSS) OF
UNCOMBINED JOINT VENTURES... (76) (287) (475) (247) (1,408) (1,914) (1,423)
------------- ------ ------ ------------- --------- --------- ---------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM AND
MINORITY INTEREST........... $ 3,768 $ 1,115 $ (494) $ 10,230 $ (708) $ (3,390) $ (2,212)
------------- ------ ------ ------------- --------- --------- ---------
------------- ------ ------ ------------- --------- --------- ---------
INCOME BEFORE EXTRAORDINARY
ITEM AND MINORITY INTEREST
PER SHARE................... $ .39 $ 1.06
------------- -------------
<CAPTION>
1993 1992
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING DATA:
TOTAL REVENUE................. $ 5,926 $ 5,516
------ -------------
PROPERTY OPERATING EXPENSE.... 1,741 1,431
REAL ESTATE TAXES............. 592 676
INTEREST...................... 1,445 1,440
DEPRECIATION AND
AMORTIZATION................ 850 773
MARKETING, GENERAL AND
ADMINISTRATION.............. 1,790 1,531
------ -------------
TOTAL EXPENSES................ 6,418 5,851
------ -------------
OPERATING INCOME (LOSS)....... (492) (335)
EQUITY IN NET INCOME (LOSS) OF
UNCOMBINED JOINT VENTURES... 88 (2,227)
------ -------------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM AND
MINORITY INTEREST........... $ (404) $ (2,562)
------ -------------
------ -------------
INCOME BEFORE EXTRAORDINARY
ITEM AND MINORITY INTEREST
PER SHARE...................
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
--------------------------
PRO FORMA HISTORICAL
----------- -------------
AS OF DECEMBER 31,
-------------------------------------------------------------
PRO FORMA HISTORICAL HISTORICAL
----------- ----------- -----------------------------------
1996 1996 1995 1994 1993
----------- ----------- --------- --------- -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
COMMERCIAL REAL ESTATE, BEFORE
ACCUMULATED DEPRECIATION.............. $ 210,010 $ 26,396 $ 209,424 $ 26,284 $ 15,559 $ 15,761 $ 15,352
TOTAL ASSETS............................ 219,101 30,515 222,045 30,072 16,084 15,098 16,218
MORTGAGES AND NOTES PAYABLE............. 47,196 16,544 47,611 16,610 12,700 12,699 12,699
ACCRUED INTEREST PAYABLE................ 92 90 92 90 2,894 12,699 1,576
MINORITY INTEREST....................... 15,746 0 15,780 0 0 0 0
OWNERS EQUITY (DEFICIT)................. 118,832 (7,563) 119,096 (8,405) (18,848) (15,520) (13,486)
OTHER DATA:
FUND FROM OPERATIONS.................... 5,239 -- 16,282 --
NET CASH PROVIDED BY OPERATING
ACTIVITIES............................ -- 769 -- 272
NET CASH PROVIDED BY FINANCING
ACTIVITIES............................ -- (339) -- 11,960
NET CASH (USED IN) INVESTING
ACTIVITIES............................ -- (112) -- (12,375)
<CAPTION>
1992
-------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
COMMERCIAL REAL ESTATE, BEFORE
ACCUMULATED DEPRECIATION.............. $ 16,080
TOTAL ASSETS............................ 15,645
MORTGAGES AND NOTES PAYABLE............. 9,500
ACCRUED INTEREST PAYABLE................ 4,757
MINORITY INTEREST....................... 0
OWNERS EQUITY (DEFICIT)................. (8,449)
OTHER DATA:
FUND FROM OPERATIONS....................
NET CASH PROVIDED BY OPERATING
ACTIVITIES............................
NET CASH PROVIDED BY FINANCING
ACTIVITIES............................
NET CASH (USED IN) INVESTING
ACTIVITIES............................
</TABLE>
- ------------------------
(1) The Company generally considers Funds from Operations an appropriate measure
of liquidity of an equity REIT because industry analysts have accepted it as
a performance measure of equity REITs. "Funds from Operations" as defined by
the National Association of Real Estate Investment Trusts ("NAREIT") means
net income (computed in accordance with generally accepted accounting
principles ("GAAP")) excluding gains (or losses) from debt restructuring and
sales of property, plus depreciation and amortization on real estate assets,
and after adjustments for unconsolidated partnerships and joint ventures.
The Company's Funds from Operations are not comparable to Funds from
Operations reported by other REITs that do not define the term using the
current NAREIT definition or that interpret the current NAREIT definition
differently than does the Company. The Company believes that in order to
facilitate a clear understanding of the combined historical operating
results of the SL Green Predecessor and the Company, Funds from Operations
should be examined in conjunction with net income as presented in the
audited combined financial statements and information included elsewhere in
this Prospectus. Funds from Operations does not represent cash generated
from operating activities in accordance with GAAP and should not be
considered as an alternative to net income as an indication of the Company's
performance or to cash flows as a measure of liquidity or ability to make
distributions. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity--Funds from Operations."
12
<PAGE>
RISK FACTORS
An investment in the Common Stock involves various risks. Prospective
investors should carefully consider the following information in conjunction
with the other information contained in this Prospectus before making a decision
to purchase Common Stock in the Offering.
DEPENDENCE ON MIDTOWN MARKETS DUE TO LIMITED GEOGRAPHIC DIVERSIFICATION
All of the Properties are located in midtown Manhattan. Like other office
markets, the Midtown Markets have experienced downturns in the past, including
most recently in the late 1980s and early 1990s, and future declines in the New
York metropolitan economy or the Midtown Markets could adversely affect the
Company's financial performance. The Company's financial performance and its
ability to make distributions to stockholders are therefore dependent on
conditions in the New York metropolitan economy and the Midtown Markets. The
Company's revenue and the value of its properties may be affected by a number of
factors, including the economic climate in metropolitan New York (which may be
adversely affected by business layoffs or downsizing, industry slowdowns,
relocations of businesses, changing demographics, increased telecommuting,
infra-structure quality, New York State and New York City budgetary constraints
and priorities and other factors) and conditions in the Midtown Markets (such as
oversupply of or reduced demand for office space). There can be no assurance as
to the continued growth of the New York metropolitan economy, the continued
strength of the Midtown Markets or the future growth rate of the Company.
NO ASSURANCE OF FAIR PRICE FOR COMPANY'S ASSETS
The amount of consideration in the Company to be received by SL Green and
certain related parties in the Formation Transactions was not determined as a
result of arm's length negotiations with such persons or with purchasers in the
Offering. The amount of consideration to be paid by the Company to acquire
interests in the Properties was determined by SL Green, and certain related
persons will receive substantial economic benefits as a result of the
consummation of the Formation Transactions and the Offering. See "Structure and
Formation of the Company--Benefits to Related Parties." No independent
valuations or appraisals of the Properties were obtained by the Company in
connection with the acquisition of property interests in the Formation
Transactions. Accordingly, there can be no assurance that the consideration to
be paid by the Company for these interests represents the fair market value
thereof or that such consideration does not exceed the estimates of value.
The valuation of the Company has not been determined by a valuation of its
assets, but instead has been determined by SL Green and the Underwriters based
upon a capitalization of the Company's pro forma Funds from Operations,
estimated cash available for distribution and potential for growth, and the
other factors discussed under "Underwriting." In determining the estimated
initial public offering price, certain assumptions were made concerning the
estimate of revenue to be derived from the Properties. See "Distributions." This
methodology has been used because management believes that it is appropriate to
value the Company as an ongoing business, rather than with a view to values that
could be obtained from a liquidation of the Company or of individual assets
owned by the Company. There can be no assurance that the price paid by the
Company for its interests in the Properties and for its other assets will not
exceed the fair market value of such assets, and it is possible that the market
value of the Common Stock may exceed stockholders' proportionate share of the
aggregate fair market value of such assets.
CONFLICTS OF INTEREST IN THE FORMATION TRANSACTIONS AND THE BUSINESS OF THE
COMPANY
TAX CONSEQUENCES UPON SALE OR REDUCTION IN MORTGAGE INDEBTEDNESS. Certain
holders of Units may experience different and more adverse tax consequences
compared to those experienced by holders of shares of Common Stock or other
holders of Units upon the sale of, or reduction of mortgage indebtedness on, any
of the Company's properties. Therefore, such holders and the Company, may have
different
13
<PAGE>
objectives regarding the appropriate pricing and timing of any sale of, or
reduction of mortgage indebtedness on, the Company's Properties, and regarding
the appropriate characteristics of additional properties to be considered for
acquisition. Certain directors and officers of the Company will be holders of
Units, and their status as holders of Units may influence the Company not to
sell particular properties, or not to pay down mortgage indebtedness on
particular properties, even though such sales or debt paydowns might otherwise
be financially advantageous to the Company and its stockholders. See
"--Limitations on Ability to Sell or Reduce the Mortgage Indebtedness on Certain
Properties" below.
RISK OF LESS VIGOROUS ENFORCEMENT OF TERMS OF CONTRIBUTION AND OTHER
AGREEMENTS. Certain SL Green entities have ownership interests in the
Properties and in the other assets to be acquired by the Company. Following the
completion of the Offering and the Formation Transactions, the Company, under
the agreements relating to the contribution of such interests, will be entitled
to indemnification and damages in the event of breaches of representations or
warranties made by such SL Green entities. In addition, Stephen L. Green, Nancy
A. Peck, Steven H. Klein, Benjamin P. Feldman, Gerard Nocera and Louis A. Olsen
will enter into employment and noncompetition agreements with the Company
pursuant to which they will agree, among other things, not to engage in certain
business activities in competition with the Company. See "Management--Employment
and Noncompetition Agreements." To the extent that the Company chooses to
enforce its rights under any of these contribution, employment and
noncompetition agreements, it may determine to pursue available remedies, such
as actions for damages or injunctive relief, less vigorously than it otherwise
might because of its desire to maintain its ongoing relationship with the
individual involved.
FUTURE DEALINGS WITH AFFILIATES OF THE COMPANY. After the completion of the
Offering and the Formation Transactions, two SL Green entities owned by a son of
Stephen L. Green may provide cleaning and security services to office
properties, including the Company's Properties. Although the Company believes
that the terms and conditions of the contracts pursuant to which these services
would be provided, taken as a whole, would not be less favorable to the Company
than those which could have been obtained from a third party-providing
comparable services, such contracts will not be the result of arm's length
negotiations and, therefore, there can be no assurance to this effect. The
Company has adopted certain policies relating to conflicts of interest. These
policies include a resolution adopted by the Company's Board of Directors which
requires all transactions in which executive officers or directors have a
material conflicting interest to that of the Company to be approved by a
majority of the disinterested directors or by the holders of a majority of the
shares of Common Stock held by disinterested stockholders. There can be no
assurance, however, that the Company's policies will be successful in
eliminating the influence of such conflicts, and if they are not successful,
decisions could be made that might fail to reflect fully the interests of all
stockholders. See "Policies with Respect to Certain Activities--Conflict of
Interest Policies."
OUTSIDE INTERESTS OF OFFICERS AND DIRECTORS. Certain officers and directors
of the Company will continue to own direct and indirect interests in office
properties and other real estate assets, which interests may give rise to
certain conflicts of interest concerning the fulfillment of their
responsibilities as officers and directors of the Company. See "The
Properties--Assets Not Being Transferred to the Company." For a discussion of
the role of the Company's disinterested directors and the Company's policies and
agreements designed to minimize any adverse effects from these conflicts of
interest, see "Policies with Respect to Certain Activities--Conflict of Interest
Policies."
RISKS ASSOCIATED WITH RAPID GROWTH; RISKS ASSOCIATED WITH THE ACQUISITION OF
SUBSTANTIAL
NEW PROPERTIES; LACK OF OPERATING HISTORY
The Company is experiencing a period of rapid growth. The Company's ability
to manage its growth effectively will require it to integrate successfully its
new acquisitions. Including the Acquisition Properties, two of the Properties
have relatively short or no operating history under management by SL Green. SL
Green has had limited control over the operation of these Properties, and such
Properties may have
14
<PAGE>
characteristics or deficiencies unknown to the Company affecting their valuation
or revenue potential. No assurance can be given as to the future operating
performance of these Properties under the Company's management.
The Company is currently under contract to acquire two Class B office
properties encompassing approximately 700,000 rentable square feet. See "The
Properties--The Acquisition Properties." In addition, the Company expects to own
an option to purchase an additional 333,000 rentable square foot Class B office
property. See "The Properties--The Option Property." In the future, the Company
expects to acquire additional office properties. As noted above, acquisitions
entail the risk that investments will fail to perform in accordance with
expectations, including operating and leasing expectations. The Company
anticipates that certain of its acquisitions will be financed using the proceeds
of periodic equity or debt offerings, lines of credit or other forms of secured
or unsecured financing that will result in a risk that permanent financing for
newly acquired projects might not be available or would be available only on
disadvantageous terms. If permanent debt or equity financing is not available on
acceptable terms to refinance acquisitions undertaken without permanent
financing, further acquisitions may be curtailed or cash available for
distribution may be adversely affected. In addition, it is anticipated that
acquisition risks may be heightened for acquisitions of Manhattan office
properties due to the large size of many Manhattan office properties and the
complexity of acquisition transactions in the Manhattan office market. See
"--Other Risks of Ownership of Common Stock--Dependence on External Sources of
Capital" below.
LIMITATIONS ON ABILITY TO SELL OR REDUCE THE MORTGAGE INDEBTEDNESS ON CERTAIN
PROPERTIES
In connection with the solicitation of approval of partners or members in
the various Property-owning entities to transfer their interests to the Company,
the Company agreed to certain restrictions relating to future capital
transactions involving two of the Properties. Pursuant to the Lock-out
Provisions, the Company may not sell its interest in (except in certain events,
including certain transactions that would not result in the recognition of any
gain for tax purposes) or, earlier than one year prior to its maturity, reduce
the mortgage indebtedness (other than pursuant to scheduled amortization) on 673
First Avenue or 470 Park Avenue South during the Lock-out Period without, in the
case of each such Property, the consent of holders of 75% of the Units
originally issued to limited partners in the Operating Partnership who
immediately prior to completion of the Formation Transactions owned direct or
indirect interests in such Property that remain outstanding at the time of such
vote (other than Units held by the Company and Units the adjusted tax basis of
which have been increased to reflect fair market value through a taxable
disposition or otherwise). (This vote requirement does not apply to a sale of
all or substantially all of the assets of the Operating Partnership, but such a
transaction during the Lock-out Period generally would require the approval of
the holders, as a group, of 75% of the aggregate Units originally issued with
respect to 673 First Avenue and 470 Park Avenue South that remain outstanding
(excluding Units held by the Company and Units the adjusted tax basis of which
have been increased to reflect fair market value through a taxable disposition
or otherwise) unless the transaction would not result in the recognition of any
gain for tax purposes with respect to such Units and certain other conditions
are satisfied.) In addition, during the Lock-out Period, the Company is
obligated to use commercially reasonable efforts, commencing one year prior to
the stated maturity, to refinance at maturity (on a basis that is nonrecourse to
the Operating Partnership and the Company, with the least amount of principal
amortization as is available on commercially reasonable terms) the mortgage
indebtedness secured by each of these two Properties at not less than the
principal amount outstanding on the maturity date. Finally, during the Lock-out
Period, the Company may not incur debt secured by either of these two Properties
if the amount of the new debt would exceed the greater of 75% of the value of
the Property securing the debt or the amount of existing debt being refinanced
(plus costs associated therewith). Thus, the Lock-out Provisions materially
restrict the Company from selling or otherwise disposing of its interest in, or
refinancing indebtedness encumbering, 673 First Avenue and 470 Park Avenue South
without obtaining such consents. The Lock-out Provisions apply even if it would
otherwise be in the best interest of the stockholders for the Company to
15
<PAGE>
sell its interest in these two Properties, reduce the outstanding indebtedness
with respect to either of these Properties or not refinance such indebtedness on
a nonrecourse basis at maturity, or increase the amount of indebtedness with
respect to these two Properties.
The Lock-out Provisions may impair the ability of the Company to take
actions during the Lock-out Period that would otherwise be in the best interests
of the Company's stockholders and, therefore, may have an adverse impact on the
value of the Common Stock (relative to the value that would result if the
Lock-out Provisions did not exist). In particular, the Lock-out Provisions could
preclude the Operating Partnership (and thus the Company) from participating in
certain major transactions that could result in a disposition of the Operating
Partnership's assets or a change in control of the Company that would result in
the recognition of gain with respect to the holders of Units issued with respect
to 673 First Avenue or 470 Park Avenue South even though such disposition or
change in control might be in the best interests of the stockholders. See
"Partnership Agreement--Operational Matters--Sales of Assets."
The Company anticipates that, in connection with future acquisitions of
interests in properties in which the Company uses Units as consideration, the
Company may agree to limitations on its ability to sell, or reduce the amount of
mortgage indebtedness on, such acquired properties, which may increase the
Company's leverage. Such limitations may impair the Company's ability to take
actions that would otherwise be in the best interests of its stockholders and,
therefore, may have an adverse impact on the value of the Common Stock (relative
to the value that would result if such limitations did not exist). Such possible
future limitations, together with the Lock-out Provisions, may restrict the
ability of the Company to sell substantially all of its assets, even if such a
sale would be in the best interests of its stockholders.
LIMITS ON CHANGES IN CONTROL
POTENTIAL EFFECTS OF OWNERSHIP LIMITATION. In order to maintain its
qualification as a REIT, not more than 50% in value of the outstanding capital
stock of the Company may be owned, directly or indirectly, by five or fewer
individuals (as defined in the Code to include certain entities) during the last
half of a taxable year (other than the first year) (the "Five or Fewer
Requirement"). In order to protect the Company against the risk of losing REIT
status due to a concentration of ownership among its stockholders, the Company's
Articles of Incorporation (the "Charter") limits ownership of the issued and
outstanding Common Stock by any single stockholder to 9.0% of the lesser of the
number or value of the outstanding shares of Common Stock from time to time (the
"Ownership Limit"). See "Capital Stock--Restrictions on Transfer." Although the
Board of Directors presently has no intention of doing so, the Board of
Directors could waive these restrictions if evidence satisfactory to the Board
of Directors and the Company's tax counsel was presented that the changes in
ownership will not then or in the future jeopardize the Company's status as a
REIT and the Board of Directors otherwise decided such action would be in the
best interests of the Company. Shares acquired or transferred in breach of the
limitation will be automatically transferred to a trust for the exclusive
benefit of one or more charitable organizations and the purchaser-transferee
shall not be entitled to vote or to participate in dividends or other
distributions. In addition, shares of Common Stock acquired or transferred in
breach of the limitation may be purchased from such trust by the Company for the
lesser of the price paid and the average closing price for the ten trading days
immediately preceding redemption. A transfer of shares to a person who, as a
result of the transfer, violates the Ownership Limit will be void. See "Capital
Stock--Restrictions on Transfer" for additional information regarding the
Ownership Limit.
The Ownership Limit may have the effect of delaying, deferring or preventing
a transaction or a change in control of the Company that might involve a premium
price for the Common Stock or otherwise be in the best interests of the
stockholders. See "Capital Stock--Restrictions on Transfer."
POTENTIAL EFFECTS OF STAGGERED BOARD. The Company's Board of Directors will
be divided into three classes. The initial terms of the first, second and third
classes will expire in 1998, 1999 and 2000, respectively. Beginning in 1998,
directors of each class will be chosen for three-year terms upon the
16
<PAGE>
expiration of their current terms and each year one class of directors will be
elected by the stockholders. The staggered terms for directors may reduce the
possibility of a tender offer or an attempt to effect a change in control of the
Company, even if a tender offer or a change in control would be in the best
interests of the stockholders.
FUTURE ISSUANCES OF COMMON STOCK. The Charter authorizes the Board of
Directors to issue additional shares of Common Stock without shareholder
approval. Any such issuance could have the effect of diluting existing
shareholders' interests in the Company.
PREFERRED STOCK. The Charter authorizes the Board of Directors to issue up
to 25 million shares of preferred stock, $.01 par value per share (the
"Preferred Stock" and, together with the Common Stock, the "Stock"), to
reclassify unissued shares of Stock, and to establish the preferences,
conversion and other rights, voting powers, restrictions, limitations and
restrictions on ownership, limitations as to dividends or other distributions,
qualifications, and terms and conditions of redemption for each such class or
series of any Preferred Stock issued. No shares of Preferred Stock will be
issued or outstanding as of the closing of the Offering.
LIMITATIONS ON ACQUISITION OF AND CHANGES IN CONTROL PURSUANT TO MARYLAND
LAW. Certain provisions of the Maryland General Corporation Law (the "MGCL")
may have the effect of inhibiting a third party from making an acquisition
proposal for the Company or of impeding a change in control of the Company under
circumstances that otherwise could provide the holders of shares of Common Stock
with the opportunity to realize a premium over the then-prevailing market price
of such shares. See "Certain Provisions of Maryland Law and the Company's
Charter and ByLaws."
REAL ESTATE INVESTMENT RISKS
REAL ESTATE OWNERSHIP RISKS. Real estate investments are subject to varying
degrees of risk. The yields available from equity investments in real estate and
the Company's ability to service debt depend in large part on the amount of
income generated, expenses incurred and capital expenditures required. The
Company's income and ability to make distributions to its stockholders is
dependent upon the ability of its property to generate income in excess of its
requirements to meet operating expenses, including debt service and capital
expenditures. The Company's income from office properties and the value of its
properties may be significantly adversely affected by a number of factors,
including national, state and local economic climates and real estate conditions
(such as an oversupply of or a reduction in demand for office space in the area;
the perceptions of tenants and prospective tenants of the safety, convenience
and attractiveness of the Company's properties; the Company's ability to provide
adequate management, maintenance and insurance; the quality, philosophy and
performance of the Company's management; competition from comparable properties;
the occupancy rate of the Company's properties; the ability to collect on a
timely basis all rent from tenants; the effects of any bankruptcies or
insolvencies of major tenants; the expense of periodically renovating, repairing
and re-leasing space (including, without limitation, substantial tenant
improvement costs and leasing costs of re-leasing office space); and increasing
operating costs (including increased real estate taxes) which may not be passed
through fully to tenants). In addition, income from properties and real estate
values also are affected by such factors as the cost of compliance with laws,
including zoning and tax laws, the potential for liability under applicable
laws, interest rate levels and the availability of financing. Certain
significant expenditures associated with equity investments in real estate (such
as mortgage payments, real estate taxes, insurance and maintenance costs) also
may not be reduced if circumstances cause a reduction in income from a property.
If any of the above occurred, the Company's ability to make expected
distributions to its stockholders could be adversely affected.
TENANT DEFAULTS AND BANKRUPTCY. Substantially all of the Company's income
will be derived from rental income from its properties and, consequently, the
Company's distributable cash flow and ability to make expected distributions to
stockholders would be adversely affected if a significant number of tenants
17
<PAGE>
at its properties failed to meet their lease obligations. At any time, a tenant
at a property in which the Company has an interest may seek the protection of
the bankruptcy laws, which could result in delays in rental payments or in the
rejection and termination of such tenant's lease, thereby causing a reduction in
the Company's cash flow and, possibly, the amounts available for distribution to
stockholders. No assurance can be given that tenants will not file for
bankruptcy protection in the future or, if any tenants file, that they will
affirm their leases and continue to make rental payments in a timely manner. In
addition, a tenant from time to time may experience a downturn in its business
which may weaken its financial condition and result in the failure to make
rental payments when due. If tenant leases are not affirmed following bankruptcy
or if a tenant's financial condition weakens, the Company's cash flow and
ability to make expected distributions to its stockholders could be adversely
affected. While SL Green has not experienced any significant interruption of its
cash flow due to tenant defaults in the past five years, no assurance can be
given that the Company will not experience significant tenant defaults in the
future.
RISKS OF LEASE RENEWAL AND RE-LEASING OF SPACE. The Company will be subject
to the risk that upon expiration of leases for space located in the Properties,
the leases may not be renewed, the space may not be re-leased or the terms of
renewal or re-leasing (including the cost of required renovations) may be less
favorable than current lease terms.
ILLIQUIDITY OF REAL ESTATE. Real estate investments are relatively illiquid
and, therefore, will tend to limit the ability of the Company to sell and
purchase properties promptly in response to changes in economic or other
conditions. In addition, the Code places limits on the Company's ability to sell
properties held for fewer than four years, and the Lock-out Provisions impose
certain special restrictions with respect to the sale of certain of the
Properties during the Lock-out Period. These considerations could make it
difficult for the Company to sell properties, even if a sale were in the best
interests of the Company's stockholders.
OPERATING RISKS. The Properties will be subject to operating risks common
to commercial real estate in general, any and all of which may adversely affect
occupancy or rental rates. The Properties are subject to increases in operating
expenses such as cleaning; electricity; heating, ventilation and air
conditioning ("HVAC"); elevator repair and maintenance; insurance and
administrative costs; and other general costs associated with security, repairs
and maintenance. While the Company's tenants generally are currently obligated
to pay a portion of these escalating costs, there can be no assurance that
tenants will agree to pay such costs upon renewal or that new tenants will agree
to pay such costs. If operating expenses increase, the local rental market may
limit the extent to which rents may be increased to meet increased expenses
without decreasing occupancy rates. While the Company implements cost saving
incentive measures at each of its Properties, if any of the above occurs, the
Company's ability to make distributions to stockholders could be adversely
affected.
RISKS OF INVESTMENTS IN MORTGAGE LOANS. To the extent the Company invests
in mortgage loans, such mortgage loans may or may not be recourse obligations of
the borrower and generally will not be insured or guaranteed by governmental
agencies or otherwise. In the event of a default under such obligations, the
Company may have to foreclose its mortgage or protect its investment by
acquiring title to a property and thereafter making substantial improvements or
repairs in order to maximize the property's investment potential. Borrowers may
contest enforcement of foreclosure or other remedies, seek bankruptcy protection
against such enforcement and/or bring claims for lender liability in response to
actions to enforce mortgage obligations. Relatively high "loan-to-value" ratios
and declines in the value of the property may prevent the Company from realizing
an amount equal to its mortgage loan upon foreclosure. Upon completion of the
Formation Transactions, the Company will acquire a mortgage interest in the Bar
Building and 1372 Broadway, which mortgage interests will provide the Company
with substantially all control over and economic interest derived from such
Properties. See "The Properties--36 West 44th Street (The Bar Building)" and
"--Acquisition Properties--1372 Broadway."
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<PAGE>
LACK OF CONTROL AND OTHER RISKS OF JOINT VENTURE INVESTMENTS. The Company
may co-invest with third parties through partnerships, joint ventures or other
entities, acquiring non-controlling interests in or sharing responsibility for
managing the affairs of a property, partnership, joint venture or other entity
and, therefore, will not be in a position to exercise sole decision-making
authority regarding the property, partnership, joint venture or other entity.
Investments in partnerships, joint ventures, or other entities may, under
certain circumstances, involve risks not present were a third party not
involved, including the possibility that the Company's partners or co-venturers
might become bankrupt or otherwise fail to fund their share of required capital
contributions, that such partners or co-venturers might at any time have
economic or other business interests or goals which are inconsistent with the
business interests or goals of the Company, and that such partners or
co-venturers may be in a position to take action contrary to the instructions or
the requests of the Company and contrary to the Company's policies or
objectives. Such investments may also have the potential risk of impasses on
decisions, such as a sale, because neither the Company nor the partner or
co-venturer would have full control over the partnership or joint venture.
Consequently, actions by such partner or co-venturer might result in subjecting
properties owned by the partnership or joint venture to additional risk. In
addition, the Company may in certain circumstances be liable for the actions of
its third-party partners or co-venturers. The Company will seek to maintain
sufficient control of such entities to permit it to achieve its business
objectives.
NET LEASES. As described herein, upon completion of the Offering, with
respect to three of the Properties (35 West 43rd Street (a part of the Bar
Building), 673 First Avenue and 1140 Avenue of the Americas), the Company will
hold a long-term leasehold interest in the land and the improvements.
Accordingly, unless the Company can purchase the subject real estate or extend
the terms of these leases before their expiration, the Company will lose its
interest in the improvements and land upon expiration of the leases, the
remaining terms of which exceeds 83 years in the case of 35 West 43rd Street, 40
years in the case of 673 First Avenue and 19 years (with an option to extend for
a further 50 year term) in the case of 1140 Avenue of the Americas. The lease
for 35 West 43rd Street contains a right of first refusal (which will run for
the benefit of the Company), to purchase fee title to the land and building if
the owner desires to sell its interest. The lease for 673 First Avenue contains
a right of first offer (which will run for the benefit of the Company), whereby
if the current fee owner of the Property wishes to create a new underlying lease
of the land and building (the term of which would extend beyond the term of the
existing lease), then the Company will have a right of first offer to enter into
the new underlying lease. See "The Properties."
RELIANCE ON MAJOR TENANTS. On a pro forma basis (giving effect to signed
leases in effect as of March 31, 1997) during the year ended March 31, 1997, two
tenants (Kallir Philips Ross, a subsidiary of The Omnicom Group Ltd. and New
York Hospital) each accounted for more than 4% of the Company's pro forma total
annual escalated rental revenues, and 11 tenants collectively accounted for
approximately 36.2% of the Company's pro forma total annual escalated rental
revenues. In addition, New York Hospital occupied 65,000 rentable square feet of
additional space pursuant to subleases. See "The Properties--The
Portfolio--Tenant Diversification." The Company would be adversely affected in
the event of a bankruptcy or insolvency of, or a downturn in the business of,
any major tenant which resulted in a failure or delay in such tenant's rent
payments.
19
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RISKS OF ADVERSE EFFECT ON COMPANY FROM DEBT SERVICING AND REFINANCING,
INCREASES IN INTEREST RATES, FINANCIAL COVENANTS AND ABSENCE OF LIMITATION ON
DEBT
DEBT FINANCING. The Company is subject to the risks normally associated
with debt financing, including the risk that the Company's cash flow will be
insufficient to meet required payments of principal and interest, the risk of
violating loan covenants, the risk of rising interest rates on the Company's
variable rate debt and the risk that the Company will not be able to repay or
refinance existing indebtedness on its properties at maturity (which generally
will not have been fully amortized at maturity) or that the terms of such
refinancing will not be as favorable as the terms of existing indebtedness.
There can be no assurance that the Company will be able to refinance any
indebtedness it may incur or otherwise obtain funds by selling assets or raising
equity to make required payments on indebtedness. In addition, the Company's
ability to sell certain Properties or refinance indebtedness encumbering such
Properties will be restricted by the Lock-Out Provisions.
If one or more properties are mortgaged to secure payment of indebtedness
and the Company is unable to generate funds to cover debt service, the mortgage
securing such properties could be foreclosed upon by, or such properties could
otherwise be transferred to, the mortgagee with a consequent loss of income and
asset value to the Company. Although no Property owned or controlled by SL Green
has been subject to bankruptcy proceedings, during the downturn in the real
estate market in the late 1980s and early 1990s, certain real estate assets
(including one office property in Manhattan and one office property in
Hempstead, New York) owned by partnerships affiliated with SL Green did not
generate sufficient cash flow to service the debt secured by such properties. As
a result, the partnerships which owned these properties have transferred or
agreed to transfer the properties to the lenders in satisfaction of the loans.
RISK OF RISING INTEREST RATES. Advances under the Credit Facility (defined
below) will bear interest at a variable rate. In addition, the Company may incur
indebtedness in the future that also bears interest at a variable rate or may be
required to refinance its debt at higher rates. Accordingly, increases in
interest rates could increase the Company's interest expense, which could
adversely affect the Company's ability to pay expected distributions to
stockholders.
CREDIT FACILITY REQUIREMENTS. The Company currently is engaged in
discussions with various lenders regarding the establishment of a revolving
credit facility (the "Credit Facility") that will be used to facilitate
acquisitions and for working capital purposes. Although the Company expects that
the Credit Facility will be established shortly after the completion of the
Offering, there can be no assurance at this time as to whether the Company will
be successful in obtaining the Credit Facility or, if the Credit Facility is
established, the terms thereof.
It is anticipated that borrowings under the Credit Facility will be secured
by a first mortgage lien on certain Properties in which the Operating
Partnership will acquire interests therein in connection with the Formation
Transactions. If payments required under the Credit Facility cannot be made or
if there should occur other events of default, the lender may seek to foreclose
on those assets securing borrowings under the Credit Facility which could have a
material adverse effect on the ability of the Company to make expected
distributions to stockholders and distributions required by the REIT provisions
of the Code. In addition, upon expiration of the term of the Credit Facility, it
is anticipated that the Operating Partnership will be required to obtain an
extension or renewal of the Credit Facility or refinance borrowings thereunder
through the issuance of debt or equity securities or alternative lending
sources. See "The Properties--The Credit Facility."
NO LIMITATION ON DEBT. Upon completion of the Offering and the Formation
Transactions, the debt to market capitalization ratio ("Debt Ratio") of the
Company will be approximately 19.4%. The Company currently has a policy of
incurring debt only if upon such incurrence the Company's Debt Ratio would be
50% or less. However, the organizational documents of the Company do not contain
any limitation on the amount of indebtedness the Company may incur. Accordingly,
the Board of Directors could alter or
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eliminate this policy and would do so, for example, if it were necessary in
order for the Company to continue to qualify as a REIT. If this policy were
changed, the Company could become more highly leveraged, resulting in an
increase in debt service that could adversely affect the Company's cash
available for distribution to stockholders and could increase the risk of
default on the Company's indebtedness. See "Policies with Respect to Certain
Activities--Financing Policies."
The Company has established its debt policy relative to the total market
capitalization of the Company rather than relative to the book value of its
assets. The Company has used total market capitalization because it believes
that the book value of its assets (which to a large extent is the depreciated
original cost of real property, the Company's primary tangible assets) does not
accurately reflect its ability to borrow and to meet debt service requirements.
The market capitalization of the Company, however, is more variable than book
value, and does not necessarily reflect the fair market value of the underlying
assets of the Company at all times. The Company also will consider factors other
than market capitalization in making decisions regarding the incurrence of
indebtedness, such as the purchase price of properties to be acquired with debt
financing, the estimated market value of its properties upon refinancing and the
ability of particular properties and the Company as a whole to generate cash
flow to cover expected debt service.
IMMEDIATE AND SUBSTANTIAL DILUTION
As set forth more fully under "Dilution," the pro forma net tangible book
value per share of the assets of the Company after the Offering will be
substantially less than the estimated initial public offering price per share in
the Offering. Accordingly, purchasers of the Common Stock offered hereby will
experience immediate and substantial dilution of $6.54 in the net tangible book
value of the Common Stock from the assumed initial public offering price. See
"Dilution."
RISKS OF FAILURE TO QUALIFY AS A REIT AND OTHER TAX LIABILITIES
FAILURE TO QUALIFY AS A REIT. The Company intends to operate so as to
qualify as a REIT for Federal income tax purposes. The Company expects to
qualify as a REIT, but no assurance can be given that it will so qualify or be
able to remain so qualified. The Company has received an opinion of its counsel,
Brown & Wood LLP, that, based on certain assumptions and representations, the
Company is organized in conformity with the requirements for qualification as a
REIT under the Code and the Company's proposed method of operation will enable
it to meet the requirements for qualification and taxation as a REIT. Investors
should be aware, however, that opinions of counsel are not binding on the IRS or
any court. The REIT qualification opinion only represents the view of counsel to
the Company based on counsel's review and analysis of existing law, which
includes no controlling precedent. Furthermore, both the validity of the opinion
and the qualification of the Company as a REIT will depend on the Company's
continuing ability to meet various requirements concerning, among other things,
the ownership of its outstanding stock, the nature of its assets, the sources of
its income and the amount of its distributions to its stockholders. Because the
Company has no history of operating so as to qualify as a REIT, there can be no
assurance that the Company will do so successfully. See "Federal Income Tax
Consequences--Taxation of the Company--Failure to Qualify."
If the Company were to fail to qualify as a REIT for any taxable year, the
Company would not be allowed a deduction for distributions to its stockholders
in computing its taxable income and would be subject to Federal income tax
(including any applicable minimum tax) on its taxable income at regular
corporate rates. Unless entitled to relief under certain Code provisions, the
Company also would be disqualified from treatment as a REIT for the four taxable
years following the year during which qualification was lost. As a result, cash
available for distribution would be reduced for each of the years involved. In
addition, although the Company intends to operate in a manner designed to
qualify as a REIT, it is possible that future economic, market, legal, tax or
other considerations may cause the Board of Directors, with the consent of
stockholders holding at least a majority of all of the outstanding shares of
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Common Stock, to revoke the REIT election. Furthermore, no assurance can be
given that new legislation, Treasury Regulations, administrative interpretations
or court decisions will not significantly change the tax laws with respect to
the Company's qualification as a REIT or the Federal income tax consequences of
such qualification. See "Federal Income Tax Consequences."
REIT MINIMUM DISTRIBUTION REQUIREMENTS. In order to qualify as a REIT, the
Company generally will be required each year to distribute to its stockholders
at least 95% of its net taxable income (excluding any net capital gain). In
addition, the Company may be subject to income and excise tax if the Company
does not meet certain distribution requirements. See "Federal Income Tax
Consequences--Taxation of the Company--Annual Distribution Requirements."
The Company intends to make distributions to its stockholders to comply with
the 95% distribution requirement and to avoid income and excise tax. The
Company's income will consist primarily of its share of the income of the
Operating Partnership, and the cash available for distribution by the Company to
its stockholders will consist of its share of cash distributions from the
Operating Partnership. Differences in timing between (i) the actual receipt of
income and actual payment of deductible expenses, and (ii) the inclusion of such
income and deduction of such expenses in arriving at taxable income of the
Company, could require the Company, through the Operating Partnership, to borrow
funds on a short-term basis to meet the 95% distribution requirement and to
avoid income and excise tax. The requirement to distribute a substantial portion
of the Company's net taxable income could cause the Company to distribute
amounts that otherwise would be spent on future acquisitions, unanticipated
capital expenditures or repayment of debt, which could require the Company to
borrow funds or to sell assets to fund the costs of such items.
OTHER TAX LIABILITIES. Even if the Company qualifies as a REIT, it will be
subject to certain Federal, state and local taxes on its income and property. In
particular, the Company will derive a portion of its operating cash flow from
the activities of the Service Corporations, which will be subject to Federal,
state and local income tax. See "Federal Income Tax Consequences--Other Tax
Considerations--Service Corporations."
COMPETITION
All of the Properties are located in highly developed areas of midtown
Manhattan that include a large number of other office properties. Manhattan is
by far the largest office market in the United States and contains more rentable
square feet than the next six largest central business district office markets
in the United States combined. Of the total inventory of 378 million rentable
square feet in Manhattan, approximately 173 million rentable square feet is
comprised of Class B office space and 205 million rentable square feet is
comprised of Class A office space. Class A office properties are generally newer
than Class B office properties, have higher finishes and command higher rental
rates. Many tenants have been attracted to Class B properties in part because of
their relatively less expensive rental rates (as compared to Class A properties)
and the tightening of the Class A office market in midtown Manhattan. See
"Market Overview." Consequently, an increase in vacancy rates and/or a decrease
in rental rates for Class A office space would likely have an adverse effect on
rental rates for Class B office space. Also, the number of competitive Class B
office properties in Manhattan (some of which are newer and better located)
could have a material adverse effect on the Company's ability to lease office
space at its properties, and on the effective rents the Company is able to
charge.
In addition, the Company may compete with other property owners that have
greater resources than the Company. In particular, although currently no other
publicly traded REITs have been formed primarily to own, operate and acquire
Manhattan Class B office properties, the Company may in the future compete with
such other REITs. In addition, the Company may face competition from other real
estate companies (including other REITs that currently invest in markets other
than Manhattan) that have greater financial resources than the Company or that
are willing to acquire properties in transactions which are more highly
leveraged than the Company is willing to undertake. The Company also will face
competition from other
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real estate companies that provide management, leasing, construction and other
services similar to those to be provided by the Service Corporations. In
addition, certain requirements for REIT qualification may in the future limit
the Company's ability to increase operations conducted by the Service
Corporations without jeopardizing the Company's qualification as a REIT. See
"Federal Income Tax Consequences-- Other Tax Considerations--Service
Corporations."
RISKS OF THIRD-PARTY PROPERTY MANAGEMENT, LEASING AND CONSTRUCTION BUSINESSES
The Company will be subject to the risks associated with the management,
leasing and construction businesses that will be conducted by the Service
Corporations. These risks include the risk that management and leasing contracts
with third party property owners will not be renewed upon expiration (or will be
canceled pursuant to cancellation options) or will not be renewed on terms at
least as favorable to the Company as current terms, that the rental revenues
upon which management, leasing and construction fees are based will decline as a
result of general real estate market conditions or specific market factors
affecting properties serviced by the Company, and that leasing and construction
activity generally will decline. Each of these developments could adversely
affect the revenues of the Management Corporation, the Leasing Corporation and
the Construction Corporation and could adversely affect the ability of the
Company to make expected distributions to its stockholders.
In order to maintain its qualification as a REIT, the Company will not have
voting control over the Service Corporations. It currently is anticipated that
an SL Green entity will own 100% of the voting common stock of each of the
Service Corporations. As a result, the Company will not have the ability to
elect or remove any members of the board of directors of the Management
Corporation, the Leasing Corporation or the Construction Corporation, and,
therefore, its ability to influence the day-to-day decisions of the Service
Corporations will be limited. As a result, the boards of directors or management
of the Service Corporations may implement business policies or decisions that
might not have been implemented by persons elected by the Company and that are
adverse to the interests of the Company or that lead to adverse financial
results, which could adversely affect the ability of the Company to make
expected distributions to the Company's stockholders.
POSSIBLE ENVIRONMENTAL LIABILITIES
Under various Federal, state and local laws, ordinances and regulations, a
current or previous owner or operator of real estate may be required to
investigate and clean up certain hazardous substances released at a property,
and may be held liable to a governmental entity or to third parties for property
damage or personal injuries and for investigation and clean-up costs incurred by
the parties in connection with any contamination. In addition, some
environmental laws create a lien on a contaminated site in favor of the
government for damages and costs it incurs in connection with the contamination.
Such laws often impose such liability without regard to whether the owner or
operator knew of, or was responsible for, the release of hazardous substances.
The cost of any required remediation and the owner's liability therefore as to
any property is generally not limited under such enactments and could exceed the
value of the property and/or the aggregate assets of the owner. The presence of
contamination or the failure to remediate contamination may adversely affect the
owner's ability to sell or lease real estate or to borrow using the real estate
as collateral. No assurances can be given that (i) a prior owner, operator or
occupant, such as a tenant, did not create a material environmental condition
not known to the Company or SL Green, (ii) a material environmental condition
with respect to any Property does not exist, or (iii) future uses or conditions
(including, without limitation, changes in applicable environmental laws and
regulations) will not result in the imposition of environmental liability.
The Company engaged independent environmental consulting firms to perform
Phase I environmental site assessments on the Properties in order to assess
existing environmental conditions. All of the Phase I assessments have been
conducted since March 1997, except for the Bar Building, where a Phase I
assessment was conducted in September 1996. All of the Phase I assessments met
the requirements of the
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American Society for Testing and Materials ("ASTM") Standard Practice for Phase
I Environmental Site Assessments (the "ASTM Standard"). Under the ASTM Standard,
a Phase I environmental site assessment consists of a site visit, a historical
record review, a review of regulatory agency data bases and records, interviews,
and a report, with the purpose of identifying potential environmental concerns
associated with real estate. The Phase I assessments conducted at the Properties
also addressed certain issues that are not covered by the ASTM Standard,
including asbestos, radon, lead-based paint and lead in drinking water. These
environmental site assessments did not reveal any known environmental liability
that the Company believes will have a material adverse effect on the Company's
financial condition or results of operations or would represent a material
environmental cost, nor is the Company aware of any such material environmental
liability. See "The Properties--Environmental Matters."
OTHER RISKS OF OWNERSHIP OF COMMON STOCK
ABSENCE OF PRIOR PUBLIC MARKET FOR COMMON STOCK. Prior to the completion of
the Offering, there has been no public market for the Common Stock and there can
be no assurance that an active trading market will develop or be sustained or
that shares of Common Stock will be resold at or above the assumed initial
public offering price. The initial public offering price of the Common Stock
will be determined by agreement among the Company and the underwriters and may
not be indicative of the market price for the Common Stock after the completion
of the Offering. See "Underwriting."
EFFECT ON COMMON STOCK PRICE OF SHARES AVAILABLE FOR FUTURE SALE. Sales of
a substantial number of shares of Common Stock, or the perception that such
sales could occur, could adversely affect prevailing market prices of the Common
Stock. Beginning up to two years after the completion of the Offering (or less
in certain circumstances), holders of Units may be able to sell shares of Common
Stock received upon exercise of their redemption right in the public market
pursuant to registration or available exemptions from registration. Furthermore,
a substantial number of shares of Common Stock will, pursuant to employee
benefit plans, be issued or reserved for issuance from time to time, including
shares of Common Stock reserved for issuance pursuant to options issued
concurrently with the completion of the Offering, and these shares of Common
Stock will be available for sale in the public market from time to time pursuant
to exemptions from registration or upon registration. No prediction can be made
about the effect that future sales of shares of Common Stock will have on the
market price of the Common Stock.
EFFECT ON COMMON STOCK PRICE OF MARKET CONDITIONS. As with other publicly
traded equity securities, the value of the Common Stock will depend upon various
market conditions, which may change from time to time. Among the market
conditions that may affect the value of the Common Stock are the following: the
extent to which a secondary market develops for the Common Stock following the
completion of the Offering; the extent of institutional investor interest in the
Company; the general reputation of REITs and the attractiveness of their equity
securities in comparison to other equity securities (including securities issued
by other real estate-based companies); the Company's financial performance; and
general stock and bond market conditions. Although the offering price of the
Common Stock will be determined by the Company in consultation with the
underwriters, there can be no assurance that the Common Stock will not trade
below the offering price following the completion of the offering.
EFFECT ON COMMON STOCK PRICE OF GROWTH POTENTIAL AND CASH DISTRIBUTIONS. It
is generally believed that the market value of the equity securities of a REIT
is based primarily upon the market's perception of the REIT's growth potential
and its current and potential future cash distributions, whether from
operations, sales or refinancings, and is secondarily based upon the value of
the underlying assets. For that reason, shares of Common Stock may trade at
prices that are higher or lower than the net asset value per share of Common
Stock or per Unit. To the extent the Company retains operating cash flow for
investment purposes, working capital reserves or other purposes, these retained
funds, while increasing the value of the Company's underlying assets, may not
correspondingly increase the market price of the Common Stock. The failure of
the Company to meet the market's expectation with regard to future earnings and
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cash distributions likely would adversely affect the market price of the Common
Stock. If the market price of the Common Stock declined significantly, the
Company might breach certain covenants with respect to future debt obligations,
which breach might adversely affect the Company's liquidity and the Company's
ability to make future acquisitions.
EFFECT ON COMMON STOCK PRICE OF MARKET INTEREST RATES. One of the factors
that will influence the price of the Common Stock will be the dividend yield on
the Common Stock (as a percentage of the price of the Common Stock) relative to
market interest rates. Thus, an increase in market interest rates may lead
prospective purchasers of Common Stock to expect a higher dividend yield, which
would adversely affect the market price of the Common Stock.
EFFECT ON COMMON STOCK PRICE OF UNRELATED EVENTS. As with other publicly
traded equity securities, the value of the Common Stock will depend upon various
market conditions, including conditions unrelated to the New York metropolitan
economy, the Manhattan office market or real estate investments generally. Thus,
events which depress equity market prices may not have any effect on real estate
market values, and shares of Common Stock may trade at prices below the
Company's net asset value.
DEPENDENCE ON EXTERNAL SOURCES OF CAPITAL. In order to qualify as a REIT
under the Code, the Company generally is required each year to distribute at
least 95% of its net taxable income (excluding any net capital gain). See
"Federal Income Tax Considerations--Taxation of the Company--Annual Distribution
Requirements." Because of these distribution requirements, it is unlikely that
the Company will be able to fund all future capital needs, including capital
needs in connection with acquisitions, from cash retained from operations. As a
result, to fund future capital needs, the Company likely will have to rely on
third-party sources of capital, which may or may not be available on favorable
terms or at all. The Company's access to third-party sources of capital will
depend upon a number of factors, including the market's perception of the
Company's growth potential and its current and potential future earnings and
cash distributions and the market price of the Common Stock. Moreover,
additional equity offerings may result in substantial dilution of stockholders'
interests in the Company, and additional debt financing may substantially
increase the Company's leverage. See "Policies with Respect to Certain
Activities--Financing Policies."
INFLUENCE OF OFFICERS, DIRECTORS AND SIGNIFICANT STOCKHOLDERS. Upon the
completion of the Offering, management of the Company collectively will
beneficially own approximately 13% of the issued and outstanding shares of
Common Stock and Units (which will be exchangeable by the holders for cash or,
at the election of the Company, shares of Common Stock on a one-for-one basis
generally after two years). See "Principal Stockholders." In addition, Stephen
L. Green and Benjamin P. Feldman will serve on the initial board of directors of
the Company. Accordingly, such persons will have substantial influence on the
Company, which influence may not be consistent with the interests of other
stockholders, and may in the future have a substantial influence on the outcome
of any matters submitted to the Company's stockholders for approval if all or a
significant number of their Units are exchanged for shares of Common Stock. In
addition, although there is no current agreement, understanding or arrangement
for these stockholders to act together on any matter, these stockholders would
be in a position to exercise significant influence over the affairs of the
Company if they were to act together in the future.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the efforts of its executive officers. The loss
of their services could have a material adverse effect on the operations of the
Company. Prior to the completion of the Offering, each of the executive officers
will enter into an employment and noncompetition agreement with the Company. See
"Management--Employment and Noncompetition Agreements."
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HISTORICAL LOSSES OF THE OPERATIONS OF THE SL GREEN PREDECESSOR
The SL Green Predecessor had losses before extraordinary items of
approximately $708,000 and $3.4 million in the years ended December 31, 1996 and
1995, respectively, and had a cumulative deficit in owners' equity of
approximately $7.6 million as of March 31, 1997. These net losses reflect
certain non-cash charges such as depreciation and amortization. These historical
results are not indicative of future results. Nonetheless, there can be no
assurance that the Company will not incur net losses in the future.
CHANGES IN POLICIES WITHOUT STOCKHOLDER APPROVAL
The investment, financing, borrowing and distribution policies of the
Company and its policies with respect to all other activities, including
qualification as a REIT, growth, debt, capitalization and operations, will be
determined by the Board of Directors. Although it has no present intention to do
so, the Board of Directors may amend or revise these policies at any time and
from time to time at its discretion without a vote of the stockholders of the
Company. A change in these policies could adversely affect the Company's
financial condition, results of operations or the market price of the Common
Stock.
UNINSURED LOSS
The Company initially will carry comprehensive liability, fire, flood,
extended coverage and rental loss (for rental losses extending up to 12 months)
with respect to its properties with policy specifications and insured limits
customarily carried for similar properties. Certain types of losses (such as
from wars, environmental hazards and employee discrimination claims), however,
may be either uninsurable or not economically insurable. Should an uninsured
loss or a loss in excess of insured limits occur, the Company could lose both
its capital invested in, and anticipated profits from, one or more of its
properties, and may continue to be obligated on the mortgage indebtedness or
other obligations related to the property. Any such loss may adversely affect
the business of the Company and its financial condition and results of
operations.
It is anticipated that new owner's title insurance policies will not be
obtained for two of the Properties in the Core Portfolio (the Bar Building and
1414 Avenue of the Americas) in connection with the Formation Transactions. Each
of these Properties is covered by existing title insurance policies insuring the
interests of the Property-owning entities. Further, each title insurance policy
covering each such Property is for an amount which is less than the current
value of the Property. In the event of a loss with respect to a Property
relating to a title defect that is in excess of the amount of such title
insurance policy, the Company could lose both its capital invested in and
anticipated profits from such property.
BENEFITS TO MANAGING UNDERWRITER
Lehman Brothers Inc. ("Lehman"), the lead managing underwriter of the
Offering, and certain of its affiliates will receive material benefits from the
Offering and the Formation Transactions in addition to underwriting discounts
and commissions. The Company will pay Lehman an advisory fee equal to 0.75% of
the gross proceeds of the Offering (including any exercise of the Underwriters'
overallotment option) for advisory services in connection with the evaluation,
analysis and structuring of the Company's formation as a REIT. Affiliates of
Lehman will be repaid the LBHI Loan in the aggregate principal amount of
approximately $39 million made to certain affiliates of the Company prior to the
Offering. See "Use of Proceeds," "Management's Discussion and Analysis of
Financial Condition and Results of Operations-- Liquidity and Capital Resources"
and "Underwriting."
COSTS OF COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT AND SIMILAR LAWS
AMERICANS WITH DISABILITIES ACT. Under the Americans with Disabilities Act
of 1980 (the "ADA"), places of public accommodation and commercial facilities
are required to meet certain Federal requirements related to access and use by
disabled persons. These requirements became effective in 1992.
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Although management of the Company believes that the Properties are
substantially in compliance with present requirements of the ADA, the Company
may incur additional costs of compliance in the future. A number of additional
Federal, state and local laws exist which impose further burdens or restrictions
on owners with respect to access by disabled persons and may require
modifications to the Properties, or restrict certain further renovations
thereof, with respect to access by disabled persons. Final regulations under the
ADA have not yet been promulgated and the ultimate amount of the cost compliance
with the ADA or other such laws is not currently ascertainable. While such costs
are not expected to have a material effect on the Company, they could be
substantial. If required changes involve greater expense than the Company
currently anticipates, the Company's ability to make expected distributions
could be adversely affected.
OTHER LAWS. The Properties are also subject to various Federal, state and
local regulatory requirements, such as state and local fire and life safety
requirements. Failure to comply with these requirements could result in the
imposition of fines by governmental authorities or awards of damages to private
litigants. The Company believes that the Properties are currently in compliance
with all such regulatory requirements. However, there can be no assurance that
these requirements will not be changed or that new requirements will not be
imposed which would require significant unanticipated expenditures by the
Company and could have an adverse effect on the Company's Funds from Operations
and expected distributions.
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THE COMPANY
The Company has been formed for the purpose of continuing the commercial
real estate business of SL Green. For more than 17 years, SL Green has been
engaged in the business of owning, managing, leasing, acquiring and
repositioning Class B office properties in Manhattan. Upon completion of the
Offering, the Company will own or have contracted to acquire interests in eight
Class B office properties encompassing approximately 1.9 million rentable square
feet located in midtown Manhattan (the "Properties") and will manage 28 office
properties (including the Properties) encompassing approximately 6.1 million
rentable square feet. Of these Properties, interests in six office Properties
encompassing approximately 1.2 million rentable square feet are currently owned
and managed by SL Green (the "Core Portfolio") and interests in two office
Properties encompassing approximately 700,000 rentable square feet will be
acquired upon completion of the Offering (the "Acquisition Properties"). As of
March 31, 1997, the weighted average occupancy rate of the Core Portfolio was
95% and of the Acquisition Properties was 88%. Also, upon completion of the
Offering, the Company expects to own an option to acquire an additional 333,000
rentable square foot Class B office property in midtown Manhattan. See "The
Properties--The Option Property". The Company will operate as a fully
integrated, self-administered and self-managed REIT. Management expects that the
Company will be the first publicly-traded real estate company to invest
primarily in Manhattan office properties.
The term "Class B" is generally used in the Manhattan office market to
describe office properties which are more than 25 years old but which are in
good physical condition, enjoy widespread acceptance by high-quality tenants and
are situated in desirable locations in Manhattan. Examples of Class B Manhattan
office properties (other than the Properties) include the Graybar Building, the
Kent Building, the Lincoln Building, the Fred French Building and Five and Seven
Penn Plaza. Class B office properties can be distinguished from Class A
properties in that Class A properties are generally newer properties with higher
finishes and obtain the highest rental rates within their markets.
A variety of tenants who do not require, desire or cannot afford Class A
space are attracted to Class B office properties due to their prime locations,
excellent amenities, distinguished architecture and relatively less expensive
rental rates. Class B office space has historically attracted many smaller
growth oriented firms (many of which have fueled the recent growth in the New
York City metropolitan economy) and has played a critical role in satisfying the
space requirements of particular industry groups in Manhattan, such as the
advertising, apparel, business services, engineering, not-for-profit, new media
and publishing industries. In addition, several areas of Manhattan, including
many in which particular trades or industries traditionally congregate, are
dominated by Class B office space and contain no or very limited Class A office
space. Examples of such areas include the Garment District (where three of the
Properties are located), the Flatiron District (where one Property is located),
Soho, Noho, Chelsea, and the area surrounding the United Nations (where one
Property is located). Businesses significantly concentrated in certain of these
areas include those in the following industries: new media, garment, apparel,
toy, jewelry, interior decoration, antiques, giftware, contract furnishing and
UN-related businesses. The concentration of businesses creates strong demand for
the available Class B office space in those locations. Tenants that currently
occupy space in SL Green owned or managed Properties include MCI, NationsBank,
New York Hospital, Omnicom Group Ltd., Sara Lee Corp. and UNICEF. Other tenants
occupying Class B office space in Manhattan include Coca Cola, EMI, Forbes Inc.,
John Hancock, Mattel Toys and Young & Rubicam.
As described herein, current developments in the New York City economy
provide an attractive environment for owning, operating and acquiring Class B
office properties in Manhattan. See "Market Overview." These developments have
resulted in growing demand for midtown Manhattan office space (particularly
Class B space), declining vacancy rates (the Class B vacancy rate in the Midtown
Markets declined from 17.3% at year-end 1992 to 11.7% at March 31, 1997) and
appreciation in rental rates and property values. The Company believes there
will be a continued strengthening of the Class B office market driven by
expected job growth in Manhattan, particularly among smaller companies which
are, in
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many instances, Class B tenants. Additionally, the Company believes that a
number of high quality tenants will likely seek to relocate from Class A space
to Class B space in the Midtown Markets as a result of the rising cost of Class
A space. The Company will seek to capitalize on these growth opportunities by
acquiring Class B office properties on a selective basis and, when necessary,
enhancing their value after acquisition through repositioning of the properties
in their respective submarkets. As described more fully below, the Company may
have certain competitive advantages over other potential acquirors of Class B
office space due to its local market expertise, historical institutional
relationships, enhanced access to capital as a public company and ability to
offer tax-advantaged acquisition structures. Additionally, the Company will seek
to optimize its properties' cash flow through ongoing intensive management and
leasing. See "Business and Growth Strategies."
SL Green was founded in 1980 by Stephen L. Green, its Chairman, President
and Chief Executive Officer. Since that time, SL Green has become a full
service, fully integrated real estate company with a portfolio of over six
million square feet of Class B office properties under management. Throughout
its history, SL Green has been involved in the acquisition of 31 Class B office
properties in Manhattan containing approximately four million square feet and
the management of 50 Class B office properties in Manhattan containing
approximately 10.5 million square feet.
SL Green has offices in midtown and downtown Manhattan and has established a
staff of more than 50 persons, including 40 professionals with experience in all
aspects of commercial real estate. The Company will be led by, in addition to
Stephen L. Green, five senior executives that average more than nine years with
SL Green and more than 19 years in the commercial real estate business. This
management team has developed a comprehensive knowledge of the Manhattan Class B
office market, an extensive network of tenant and other business relationships
and experience in acquiring underperforming office properties and repositioning
them into profitable Class B properties through intensive full service
management and leasing efforts. Upon completion of the Offering, approximately
13% of the equity of the Company, on a fully diluted basis, will be beneficially
owned by officers and directors of the Company and other affiliated persons.
SL Green consists of six operating divisions, each of which is headed by an
executive team comprised of industry experts with substantial experience in
either the leasing, marketing, asset and property management, construction
management, legal or accounting aspects of the real estate business. The
integration of this expertise allows SL Green to provide high quality, cost
effective leasing and management services essential to enhancing the value of
its office properties.
The Company was incorporated in the State of Maryland on June 10, 1997. Its
executive offices are located at 70 West 36th Street, New York, New York
10018-8007 and its telephone number is (212) 594-2700.
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BUSINESS AND GROWTH STRATEGIES
The Company's primary business objective is to maximize total return to
stockholders through growth in distributable cash flow and appreciation in the
value of its assets. The Company plans to achieve this objective by capitalizing
on the external and internal growth opportunities described below and continuing
the operating strategies historically practiced by SL Green.
THE MARKET OPPORTUNITY
Management believes that current developments in the New York City economy
provide an attractive environment for owning, operating and acquiring Class B
office properties in Manhattan. The New York commercial real estate market is
currently recovering from the sustained downturn of the late 1980s and early
1990s. Specifically, the New York City metropolitan economy has recently
benefited from consistent net private sector job growth, an improving business
environment and enhancements in the "quality of life" afforded to city
residents. In that regard, private sector employment gained an average of almost
44,000 jobs per year between 1994 and 1996 for an average annual growth rate of
1.4%; between March of 1996 and 1997, private sector employment growth was 1.9%,
which is the highest growth rate in more than ten years. Much of this private
sector job growth has been concentrated among smaller companies involved in
growth oriented industries. Smaller companies have traditionally been attracted
to Class B office properties in the Midtown Markets due to their prime locations
and relatively less expensive rental rates (as compared to Class A office
properties). These smaller companies conduct business in industries including:
business services, software, advertising, audio recording, trade sectors (e.g.,
apparel and other textile products), major media (e.g., television, magazines
and publishing), new media (e.g., entertainment software, online/Internet
services, CD-ROM title development and web site design) and engineering, as well
as nonprofit endeavors.
The combination of a growing office space demand fueled by a strengthening
New York City economy and limited recent and projected new supply of office
space has resulted in a recovery in the Midtown Markets. The combined vacancy
rate for Class A and Class B office space in the Midtown Markets declined to
11.1% at March 31, 1997 from a 1990s high of 16.8% at year-end 1991. The Class B
segment of the market which tightened to a vacancy rate of 11.7% at March 31,
1997 from its 1990s high of 17.3% at year-end 1992, a 32% decline. According to
Rosen Consulting Group, a nationally recognized real estate consulting company,
the outlook in the New York metropolitan area is for healthy private sector
employment growth of 1.3% per annum in 1997 and 1998, followed by 1.0% growth
per annum through 2001, which is expected to generate significant demand for
office space. Specifically, Rosen Consulting Group projects vacancy rates in the
Class B Midtown Markets to further drop to 6.0% by 2001, resulting in projected
average asking market rents of $30.53 per square foot, a 28% increase over
average asking rents as of March 31, 1997 of $23.88 per square foot. See "Market
Overview". However, conditions in the New York City metropolitan economy and the
Midtown Markets are subject to change and there can be no assurance that any
such projections will approximate actual results. See "Risk Factors--Dependence
on Midtown Markets Due to Limited Geographical Diversification."
The Company believes the pronounced recovery of Class B space is being
driven by the growth of smaller companies, the relocation of large firms from
Class A space to Class B as a result of the dearth of available Class A space,
particularly in large blocks, and the heightened cost consciousness of large
tenants. In that regard, as of September 1995, there were 30 blocks of 150,000
or more rentable square feet of Class A space available for lease in the Midtown
Markets. As of March 31, 1997 the number of such available blocks had declined
to 12. Recent examples of large, traditional Class A tenants relocating into SL
Green owned or managed Class B midtown office space are Newbridge
Communications, a subsidiary of K-III Communications moving to 49,000 square
feet of space at 673 First Avenue, Kallir Philips Ross, a subsidiary of The
Omnicom Group Ltd. moving to 80,000 square feet at 673 First Avenue, Revere
National Corp. moving to 2,743 square feet at 70 West 36th Street, The Really
Useful Company (a subsidiary of Andrew Lloyd Weber's enterprises) moving to
3,033 square feet at the Bar Building and Guidepost
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Associates, the publishing division of The Norman Vincent Peale Foundation
moving to 17,400 square feet at 16 East 34th Street. Additionally, examples of
other prominent tenants relocating to Class A space are EMI Records recent move
to 49,380 square feet of space at 304 Park Avenue South and America Online's
announcement that it will be locating in Manhattan for the first time in 10,149
square feet of space at a Class B midtown building at 620 Avenue of the
Americas. As the supply of Class A space continues to contract, management
believes that it is likely that more high quality tenants will locate in
well-located Class B office properties, many of which offer comparable amenities
to Class A buildings at a significant discount to Class A costs.
Improving supply and demand fundamentals in the Midtown Markets have
generated increasingly favorable rental terms from a property owner's
perspective. According to Rosen Consulting Group, asking rental rates for Class
B space in the Midtown Markets have increased to $23.88 per square foot as of
March 31, 1997 from their 1990s low of $21.89 per square foot as of year-end
1993.
Management believes that opportunities to acquire Class B office properties
in Manhattan on economically attractive terms will be available to the Company.
The Rosen Consulting Group estimates that the replacement cost of Class A office
space in Manhattan (no Class B space is built in Manhattan) is approximately
$358 per square foot, which is substantially above the estimated current
acquisition price of Class A space of $225 to $300 per square foot and the
estimated current acquisition price for Class B space of $90 to $200 per square
foot. Furthermore, even if rental rates were to approach a level that would
justify new construction, there are few development sites available in Manhattan
and the regulatory approval process is both costly and lengthy. The Company
believes that as the Class A market continues to recover, rental rates and
corresponding property values should increase to a level that may justify new
construction. The Company also believes that property values and rental rates in
the Class B market have historically tracked those of the Class A market and,
consequently, there is potential for rental rate and property value increases in
the Class B marketplace.
Further, the Company believes that the recent abolition of the New York
State Real Property Transfer Gains Tax, which effectively reduced the cost of
sales involving commercial properties that have appreciated in value, may create
an increase in the number of properties available for acquisition. Prior to such
abolition, a seller of commercial property in New York was subject to a
substantial New York State gains tax (in addition to income tax). As described
more fully below, the Company may have certain competitive advantages over other
potential acquirors of Class B office space due to its local market expertise,
historical institutional relationships, enhanced access to capital as a public
company and ability to offer tax-advantaged acquisition structures.
GROWTH STRATEGIES
Management will seek to capitalize on current opportunities in the Class B
Manhattan office market through (i) property acquisitions -- continuing to
acquire Class B office properties at significant discounts to replacement costs
that provide attractive initial yields and the potential for cash flow growth,
(ii) property repositioning -- repositioning acquired properties that are
underperforming through renovations, active management and proactive leasing and
(iii) integrated leasing and property management.
PROPERTY ACQUISITIONS
The Company will seek to continue SL Green's ability to capitalize on
favorable market conditions for acquiring Manhattan Class B office properties
and management's experience in enhancing the value of its properties. In
assessing acquisition candidates, the Company will evaluate the following
factors: (i) the property's strategic location in its marketplace and its
strategic fit within the Company's portfolio, (ii) current and projected
occupancy and market rental rates and the ability to operate the property
profitably at competitive rental rates, (iii) the purchase price as compared to
the replacement cost of the property, (iv) the potential to modify and/or
upgrade and reposition the property in its market to increase returns
31
<PAGE>
and (v) the quality of the construction and presence of existing and/or
potential deferred maintenance issues.
The Company believes that it will have the following competitive advantages
over its competitors, primarily private companies and individuals, in acquiring
Class B properties in Manhattan:
LOCAL MARKET EXPERTISE. Since its inception in 1980, SL Green has developed
into a full service, fully integrated real estate company which manages over six
million square feet of Class B office space in Manhattan. Consequently,
management has accumulated an extensive working knowledge of the Class B
Manhattan office market with a substantial base of information concerning
current and prospective tenants, effective rental rates, property management and
renovation costs, the complicated regulatory processes characteristic of the
Manhattan office market, as well as other factors relevant to the sourcing and
evaluation of potential acquisition properties. The depth and expertise of SL
Green management is unusual in the Class B marketplace, which has historically
attracted far less institutional interest than the Class A property sector.
ENHANCED ACCESS TO CAPITAL. Management believes that upon completion of the
Offering, the Company should obtain better access to capital than is generally
available to private real estate firms, especially those that compete for
Manhattan Class B properties. In that regard, management believes that ownership
of Class B office space in Manhattan is more fragmented and far less
institutional in nature than ownership of Class A Manhattan office space. As a
public company, the Company will have the potential to raise capital through
subsequent issuances of securities in the public and private marketplace. The
Company also intends to finance property acquisitions through single asset debt
financings and to obtain, upon completion of the Offering, a revolving credit
facility for up to $50 million to finance acquisitions. However, no assurances
can be made as to the availability of any such financing sources.
UNIT ACQUISITIONS. Upon completion of the Offering, management believes
that the Company will be the first publicly-traded real estate company to focus
primarily on the Manhattan Class B office market. As an "UPREIT", the Company
will have the ability to acquire properties for Units and thereby provide
sellers with deferral of income taxes that would otherwise be payable upon a
cash sale. In addition, Units afford property sellers diversification and
liquidity of investment as well as certain estate planning benefits. Management
believes that the Company operates in an established and mature real estate
market in which many property owners have owned their properties for many years
and therefore have a low tax basis in such properties. Consequently, the ability
to offer Units may afford the Company certain competitive advantages over other
potential acquirors who are unable to offer tax-efficient consideration.
HISTORICAL INSTITUTIONAL RELATIONSHIPS. Through its 17 year operating
history, SL Green has established relationships with numerous financial
institutions for which it acts as landlord or as a property manager. In
particular, SL Green's substantial third-party management business affords the
Company access to numerous institutional owners of property that may in the
future seek to divest property holdings. For
example, within six weeks of taking over the management and leasing
responsibilities at 36 West 44th Street (The Bar Building), a 165,000 square
foot Class B office property in midtown Manhattan, SL Green contracted to
purchase a mortgage interest encumbering the property from an insurance company.
This mortgage interest is convertible by the Company, at its option, into fee
ownership. The ability of SL Green to assess quickly the current and potential
value and physical condition of this property enabled SL Green to make a
pre-emptive offer to purchase the property. Consequently, the property was taken
off the market, precluding prospective purchasers from engaging in acquisition
discussions with the insurance company.
RECENT TAX LAW DEVELOPMENTS. Recently, the New York State legislature voted
to abolish the New York State Real Property Transfer Gains Tax, which
effectively reduced the cost of sales involving commercial properties that have
appreciated in value. Prior to such abolition, sellers of commercial properties
located in New York State were subject to a special 10% tax (2.5% in the case of
certain
32
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transfers to REITs) on their gains. Further, the Company will have a competitive
tax advantage due to recent tax law amendments affecting REITs. Under recent
amendments to the New York State and New York City transfer tax laws, transfer
tax rates applicable to certain REIT acquisition transactions were reduced 50%
through August 1999 (from 3.025% to 1.5125% in the aggregate). Consequently, the
Company may be able to structure acquisitions that qualify for these reduced
rates and thereby enhance its attractiveness to sellers.
PROPERTY REPOSITIONING
The Company believes that, consistent with its core operating philosophy of
maximizing asset value, it can reposition future acquisition properties, where
warranted, in order to enhance property cash flow and value. To achieve these
goals, the Company works to increase occupancy and rental rates by repositioning
buildings to be among the best in their submarkets. The Company considers the
amount of capital required to be invested in a property to achieve the
repositioning. The Company then judges the benefit of a repositioning on a total
return basis, such that for the Company to undertake the project the present
value of the projected future increase in net cash flow and property value must
exceed the cost of the capital expenditure required to achieve the
repositioning.
The repositionings pursued by SL Green in the past have consisted of both
intensive large scale renovations as well as smaller scale repositionings. In
the case of an intensive large scale renovation, either a property's use is
changed (e.g., from light industrial/warehouse to office) or a property is
completely rehabilitated. In the case of a smaller scale repositioning,
generally cosmetic renovations are made to targeted areas of a building,
deferred maintenance is corrected and an intensive leasing program is commenced.
The Company believes there are a significant number of potential acquisitions
for which this strategy can be successfully implemented due to the large number
of Manhattan office properties that have significant deferred maintenance or
have been undermanaged. The Company believes this situation has resulted from
fragmented ownership that is generally non-institutional and has limited access
to capital.
An important component of the Company's repositioning strategy is its
construction management capability. SL Green's construction management division
has renovated approximately two million square feet of office space, including
entire building renovations, at an aggregate cost exceeding $100 million. In the
past, SL Green has implemented successful repositioning programs which have
involved significant capital investments to improve the physical condition with
respect to building facade, entrance and lobby, mechanical systems (including
HVAC, fire/safety and elevators) and tenant space layout, while maintaining cost
control with respect to these activities. Additionally, SL Green has benefited
in its repositioning efforts from its fully-integrated real estate operations.
The Company believes that its in-house leasing, property management and
construction management capabilities provide it with valuable information
regarding the cost of accommodating tenant preferences and the potential rental
revenues achievable from various repositioning options.
Examples of successful implementation of this strategy within the Core
Portfolio include 673 First Avenue and the Bar Building. At 673 First Avenue, SL
Green converted a distribution and warehouse facility into an office property to
take advantage of desirable 40,000 square foot floor plates and a strategic
location near the United Nations complex. To accomplish the repositioning, SL
Green invested approximately $25 million in the Property for (i) a new building
entrance, lobby and storefronts, (ii) complete replacement of the elevator
systems, (iii) the creation of common areas, (iv) entirely reconfigured HVAC and
electrical systems and (v) the build-out of tenant spaces. The repositioning
resulted in the conversion of a 43% occupied warehouse/distribution facility
into a 97% occupied Class B office building within 24 months. The Property's net
operating income (NOI) increased dramatically from approximately $466,000 per
annum upon acquisition to approximately $7.6 million per annum following
repositioning and lease-up (exclusive of net lease payments and debt service
payments). SL Green is currently pursuing a similar strategy at the Bar
Building. This Property also suffers from deferred maintenance and is
underperforming relative to its market potential. West Forty-Fourth Street,
between Fifth Avenue and Avenue of the
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Americas, where the Bar Building is located, has many attractive buildings and
prominent clubs which, by association, enhance the value of this Property.
Therefore, in order to capitalize on the location of the building, a distinctive
facade will be created to attract the attention of high quality tenants. Also, a
"pre-built" tenant space program has been undertaken as well as public corridor
renovations, all which have resulted in the execution of 12 leases encompassing
24,500 square feet since acquisition.
INTEGRATED LEASING AND PROPERTY MANAGEMENT
The Company intends to continue SL Green's strategy of seeking to optimize
long-term cash flow from its properties through the implementation and
integration of targeted leasing and management programs.
PROACTIVE LEASING PROGRAM. The Company will seek to capitalize on its
market position and relationships with an extensive network of brokers and
tenants to implement a proactive leasing program. Management believes that its
extensive knowledge of the Class B Manhattan office market enhances its ability
to monitor, understand and anticipate the current and future space needs of
tenants in its submarkets. The leasing process for an acquisition property
begins with extensive market research in order to determine the strengths and
weaknesses of the property. This review includes an analysis of the building's
physical characteristics, aesthetic attributes, floor plate sizes, services,
elevators and mechanical systems, followed by an in-depth market analysis to
determine the property's competitive position in the marketplace and perception
in the brokerage community. The results of these analyses are used to develop
the appropriate marketing strategy and the appropriate program to communicate
the positive attributes and key features of the property or space to the
marketplace and the brokerage community. These strategies may include the
development of marketing tools such as brochures, listing sheets, fliers,
signage and advertising copy.
The utilization of third-party brokerage firms in implementing a successful
leasing program is an integral component of the Company's leasing strategy. By
closing transactions quickly and at market terms and paying commissions
promptly, SL Green has created a network of relationships with leasing
professionals who regularly bring tenants to SL Green owned and managed
properties.
An example of SL Green's implementation of its proactive leasing strategy is
16 East 34th Street. When SL Green was hired by new ownership in September, 1991
as the leasing and managing agent for 16 East 34th Street, a 330,000 square foot
Class B midtown Manhattan office property, the property was only 50% occupied
and suffered from a poor image in its marketplace. The SL Green team developed a
cost effective building redevelopment program and a related marketing program
designed to reposition quickly the property in its marketplace. The
implementation of these programs resulted in over 150,000 square feet of
executed leases to high quality tenants within 18 months, bringing occupancy to
90% during a period of rising and historically high vacancy rates in Manhattan
office properties.
The Company believes that SL Green's proactive leasing efforts have
contributed to average occupancy rates at the Properties that are above the
market average. During the period between 1994 and 1996, properties owned by SL
Green for more than one year averaged occupancy rates of 94.3%, which exceeded
the average of 87.2% for Class B Manhattan office space in the Midtown Markets
by 8.1% over the comparable period.
Another key component of the SL Green leasing strategy that will be
continued by the Company is a commitment to tenant retention. Each leasing
executive regularly conducts in-person interviews with existing tenants in order
to gain insight into each tenant's business objectives, financial position and
strength and future space requirements. This knowledge, in addition to a full
understanding of each tenant's current lease obligation, is utilized to develop
a plan to retain existing tenants in order to maximize long term cash flow. SL
Green's commitment to tenant service and satisfaction is evidenced by the
renewal of approximately 78% of the expiring rentable square footage (77% of the
expiring leases
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determined by number of leases) at the Properties in the Core Portfolio owned
and managed by SL Green during the period from January 1, 1993 through March 31,
1997.
IMPLEMENTATION OF STRATEGIC MANAGEMENT SYSTEMS. SL Green's proactive
management begins with a comprehensive operational and physical analysis of a
property followed by a preventive maintenance assessment. SL Green professionals
evaluate all service contracts, survey electrical capacity and costs and, after
interviewing all building personnel, appraise personnel resources and payroll
costs on an ongoing basis. Based on the results of the analysis of the
contractual lease obligations, building position in the market and the
capital/aesthetic improvements needed to bring the property to its desired level
relative to its competition, SL Green develops and implements a management
program designed to provide tenants with the highest level of service while
maintaining the lowest cost to ownership.
An example of SL Green successfully implementing its strategic management
systems is the Bar Building. Upon purchasing a mortgage interest in the
Property, SL Green implemented a strategic property management program which
reduced operating expenses by more than $400,000 per annum. Specifically, the
management professionals at SL Green rebid the cleaning and security contracts,
evaluated the staffing at the property, and determined the associated costs that
could be reduced while improving service. The aggregate contractual operating
expense reduction was in excess of $300,000. Meanwhile, SL Green's in-house
counsel vigorously managed the real estate tax certiorari process which resulted
in an approximately $100,000 real estate tax reduction.
MAXIMIZING TENANT SATISFACTION. SL Green seeks to provide tenants with a
level of service more typically found in Class A properties. Characteristics of
SL Green office property redevelopments include upgraded or new entrances,
lobbies, elevator cabs/mechanicals, hallways, bathrooms, windows, telecom
systems and tenant spaces. Additionally, SL Green seeks to provide certain
tenant amenities typically associated only with Class A properties. For example,
SL Green maintains flowers in its buildings' lobbies and also provides uniformed
concierges focused on tenant service as opposed to the security guards found at
many Class B Manhattan office buildings. Within particular submarkets, SL Green
arranges for the provision of cleaning and 24 hour, seven days per week security
services to its tenants. The Company believes that this level of service is
unusual in the Class B market, in large part due to the highly fragmented nature
of Class B ownership and management. RELocate, a real estate market research
firm, estimates that the 630 Class B buildings in the Midtown Markets are owned
by over 500 different entities, many of whom own a single property or a few
properties. The Company believes that the relatively large size of its
operations and focus on the Class B market enables it to provide a level of
service superior to that typically provided by the smaller owner/operators that
permeate the Class B Manhattan marketplace.
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USE OF PROCEEDS
The net cash proceeds to the Company from the Offering, after deducting the
underwriting discounts and commissions are estimated to be approximately $150.7
million (approximately $173.3 million if the Underwriters' over-allotment option
is exercised in full), based upon the assumed initial public offering price of
$20.00 per share.
The net cash proceeds of the Offering will be used by the Company as
follows: (i) approximately $42.2 million to repay mortgage indebtedness
encumbering the Core Portfolio, including approximately $1.5 million in
prepayment penalties and other financing fees and expenses, (ii) approximately
$6.4 million to purchase the direct or indirect interests of certain
participants in the Formation Transactions in the Properties, (iii)
approximately $59.4 million to acquire the Acquisition Properties, (iv)
approximately $3.1 million to pay certain expenses incurred in the Formation
Transactions, (v) $31.9 million to repay the LBHI Loan (including $2.5 million
and $200,000 borrowed under the LBHI Loan to fund Offering expenses and
prepayment penalties, respectively, and excluding approximately $7.5 million
incurred to finance purchase of the Acquisition Properties) and, (vi) $7.7
million to fund capital expenditures and for general working capital needs.
If the Underwriters' over-allotment option to purchase 1,215,000 additional
shares of Common Stock is exercised in full, the Company expects to use the
additional net proceeds (which will be approximately $22.6 million) to acquire
additional properties and/or for working capital.
Pending application of the net proceeds of the Offering, the Company will
invest such portion of the net proceeds in interest-bearing accounts and/or
short-term, interest-bearing securities which are consistent with the Company's
intention to qualify for taxation as a REIT.
The LBHI Loan was incurred within the 12 month period preceding the date of
this Prospectus. Borrowings under the LBHI Loan bear interest at a weighted
average interest rate of 6.8% and have an average remaining term to maturity of
approximately 10 months as of May 31, 1997. The proceeds of the LBHI Loan were
used to acquire interests in the Core Portfolio and Acquisition Properties, to
fund property related operating expenses, to fund organizational expenses and to
purchase Treasury Securities. See "Structure and Formation of the
Company--Benefits to Related Parties."
The mortgages and other indebtedness to be repaid upon the completion of the
Offering (excluding the LBHI Loan) had a weighted average interest rate of
approximately 9.05% and an average remaining term to maturity of 11 years as of
March 31, 1997. The following table sets forth the amount of existing mortgage
debt (excluding the LBHI Loan) to be repaid upon completion of the Offering.
<TABLE>
<CAPTION>
PROCEEDS USED FOR REPAYMENT
UPON COMPLETION OF THE
OFFERING
PROPERTY (IN THOUSANDS) (1)
- ---------------------------------------------------------------------------------- ------------------------------
<S> <C>
673 First Avenue.................................................................. $ 1,000
470 Park Avenue South............................................................. $ 13,033
Bar Building...................................................................... $ 10,200
70 W. 36th Street................................................................. $ 6,552
1414 Ave. of Americas............................................................. $ 9,866
-------
Total......................................................................... $ 40,651
-------
-------
</TABLE>
- ------------------------
(1) Exact repayment amounts may differ due to amortization. The figures are
estimated as of July 31, 1997 and exclude prepayment penalties estimated to
aggregate approximately $1.5 million.
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DISTRIBUTIONS
Subsequent to the completion of the Offering, the Company intends to make
regular quarterly distributions to the holders of its Common Stock. The initial
distribution, covering a partial quarter commencing on the date of completion of
the Offering and ending on September 30, 1997, is expected to be $ per share,
which represents a pro rata distribution based on a full quarterly distribution
of $.3625 per share and an annual distribution of $1.45 per share (or an annual
distribution rate of approximately 7.25%, based on an assumed initial public
offering price of $20.00). The Company does not intend to reduce the expected
distribution per share if the Underwriters' over-allotment option is exercised.
The following discussion and the information set forth in the table and
footnotes below should be read in conjunction with the financial statements and
notes thereto, the pro forma financial information and notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-- Liquidity and Capital Resources" included elsewhere in this
Prospectus.
The Company intends initially to distribute annually approximately % of
estimated Cash Available for Distribution. The estimate of Cash Available for
Distribution for the 12 months ending March 31, 1998 is based upon pro forma
Funds from Operations for the 12 months ended March 31, 1997, adjusted for (i)
certain known events and/or contractual commitments that either have occurred or
will occur subsequent to March 31, 1997 or during the 12 months ended March 31,
1997, but were not effective for the full 12 months, and (ii) for certain
non-GAAP adjustments consisting of (A) revisions to historical rent estimates
from a GAAP basis to amounts currently being paid or due from tenants, (B) pro
forma amortization of financing costs, and (C) an estimate of amounts
anticipated for recurring tenant improvements, leasing commissions and capital
expenditures. No effect was given to any changes in working capital resulting
from changes in current assets and current liabilities (which changes are not
anticipated to be material) or the amount of cash estimated to be used for (i)
investing activities for acquisition and other activities and (ii) financing
activities. The estimate of Cash Available for Distribution is being made solely
for the purpose of setting the initial distribution and is not intended to be a
projection or forecast of the Company's results of operations or its liquidity,
nor is the methodology upon which such adjustments were made necessarily
intended to be a basis for determining future distributions. Future
distributions by the Company will be at the discretion of the Board of
Directors. There can be no assurance that any distributions will be made or that
the estimated level of distributions will be maintained by the Company.
The Company anticipates that its distributions will exceed earnings and
profits for Federal income tax reporting purposes due to non-cash expenses,
primarily depreciation and amortization, to be incurred by the Company.
Therefore, it is expected that approximately % (or $ per share) of
the distributions anticipated to be paid by the Company for the 12-month period
following the completion of the Offering will represent a return of capital for
Federal income tax purposes and in such event will not be subject to Federal
income tax under current law to the extent such distributions do not exceed a
stockholder's basis in his Common Stock. The nontaxable distributions will
reduce the stockholder's tax basis in the Common Stock and, therefore, the gain
(or loss) recognized on the sale of such Common Stock or upon liquidation of the
Company will be increased (or decreased) accordingly. The percentage of
stockholder distributions that represents a nontaxable return of capital may
vary substantially from year to year.
The Code generally requires that a REIT distribute annually at least 95% of
its net taxable income (excluding any net capital gain). See "Federal Income Tax
Consequences--Annual Distribution Requirements." The estimated Cash Available
for Distribution is anticipated to be in excess of the annual distribution
requirements applicable to REITs under the Code. Under certain circumstances,
the Company may be required to make distributions in excess of Cash Available
for Distribution in order to meet such distribution requirements. For a
discussion of the tax treatment of distributions to holders of Common Stock, see
"Federal Income Tax Consequences--Taxation of Stockholders."
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<PAGE>
The Company believes that its estimate of Cash Available for Distribution
constitutes a reasonable basis for setting the initial distribution, and the
Company intends to maintain its initial distribution rate for the 12-month
period following the completion of the Offering unless actual results of
operations, economic conditions or other factors differ materially from the
assumptions used in its estimate. The Company's actual results of operations
will be affected by a number of factors, including the revenue received from its
properties, the operating expenses of the Company, interest expense, the ability
of tenants of the Company's properties to meet their financial obligations and
unanticipated capital expenditures. Variations in the net proceeds from the
Offering as a result of a change in the initial public offering price or the
exercise of the Underwriters' over-allotment option may affect Cash Available
for Distribution, the payout ratio based on Cash Available for Distribution and
available reserves. No assurance can be given that the Company's estimate will
prove accurate. Actual results may vary substantially from the estimate.
The following table describes the calculation of pro forma Funds from
Operations for the 12 months ended March 31, 1997 and the adjustments to pro
forma Funds from Operations for the 12 months ended March 31, 1997 in estimating
initial Cash Available for Distribution for the 12 months ending March 31, 1998:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS,
EXCEPT PER
SHARE DATA)
-----------
<S> <C>
Pro forma net income before minority interest for the year ended December 31, 1996................... $ 10,230
Plus: Pro forma net income before minority interest for the three months ended
March 31, 1997................................................................................... 3,768
Less: Pro forma net income before minority interest for the three months ended
March 31, 1996................................................................................... (2,336)
-----------
Pro forma net income before minority interest for the 12 months ended March 31, 1997................. 11,662
Plus: Pro forma real estate depreciation for the 12 months ended March 31, 1997 (1)................ 5,856
Plus: Pro forma amortization (excluding financing costs) for the 12 months ended
March 31, 1997 (2)............................................................................... 349
-----------
Pro forma Funds from Operations for the 12 months ended March 31, 1997 (3)........................... 17,867
Adjustments:
Net increases in rental income (4)................................................................. 2,414
Provision for lease expirations, assuming no renewals (5).......................................... (432)
Non-recurring lease surrender income and real estate tax refund (6)................................ (2,120)
Estimated adjusted pro forma Funds from Operations for the 12 months ending March 31, 1998........... 17,729
Net effect of straight-line rents (7).............................................................. (2,520)
Pro forma amortization of financing costs for the 12 months ending March 31, 1997 (8).............. 199
Estimated recurring capitalized tenant improvements and leasing commissions (9).................... (957)
Estimated recurring capital expenditures (10)...................................................... (773)
Effect of non-cash transaction (11)................................................................ 1,395
Scheduled mortgage loan principal payments (12)....................................................
-----------
Estimated Cash Available for Distribution for the 12 months ending March 31, 1998....................
-----------
The Company's share of estimated Cash Available for Distribution (13)..............................
Minority interest's share of estimated Cash Available for Distribution.............................
Total estimated initial annual cash distributions.................................................... 14,006
Estimated initial annual distribution per share (14)............................................... 1.45
Payout ratio based on estimated Cash Available for Distribution (15)............................... %
</TABLE>
38
<PAGE>
- ------------------------
(1) Pro forma real estate depreciation for the year ended December 31, 1996 of
$5,724 minus pro forma real estate depreciation for the three months ended
March 31, 1996 of $1,314 plus pro forma real estate depreciation for the
three months ended March 31, 1997 of $1,446.
(2) Pro forma amortization (excluding financing costs) for the year ended
December 31, 1996 of $328 minus pro forma amortization (excluding financing
costs) for the three months ended March 31, 1996 of $81 plus pro forma
amortization (excluding financing costs) for the three months ended March
31, 1997 of $102.
(3) The Company generally considers Funds from Operations an appropriate measure
of liquidity of an equity REIT because industry analysts have accepted it as
a performance measure of equity REITs. "Funds from Operations" as defined by
NAREIT means net income (computed in accordance with GAAP) excluding gains
(or losses) from debt restructuring and sales of property, plus depreciation
and amortization on real estate assets, and after adjustments for
unconsolidated partnerships and joint ventures. The Company's Funds from
Operations are not comparable to Funds from Operations reported by other
REITs that do not define the term using the current NAREIT definition or
that interpret the current NAREIT definition differently than does the
Company. The Company believes that in order to facilitate a clear
understanding of the combined historical operating results of the SL Green
Predecessors and the Company, Funds from Operations should be examined in
conjunction with net income as presented in the combined financial
statements and information included elsewhere in this Prospectus. Funds from
Operations does not represent cash generated from operating activities in
accordance with GAAP and should not be considered as an alternative to net
income as an indication of the Company's performance or to cash flows as a
measure of liquidity or ability to make distributions.
(4) Represents the net increases in rental income from (i) new leases and
renewals that were not in effect for the entire 12-month period ended March
31, 1997 of $1,330 and (ii) new leases and renewals that went into effect
between April 1, 1997 and May 31, 1997 of $1,084.
(5) Assumes no lease renewals or new leases (other than month-to-month leases)
for leases expiring after March 31, 1997 unless a new or renewal lease has
been entered into by May 31, 1997. The $552 decrease represents the loss in
net rental income assuming all leases of space expiring between April 1,
1997 and March 31, 1998 for which no renewals or new leases have been
entered into by May 31, 1997 expire in accordance with their terms and space
covered by such expiring leases is not re-leased; the decrease is partially
offset by a net increase of $120 of rental income from tenants on
month-to-month leases which are assumed to continue throughout the period.
(6) The non-recurring transactions consist of lease surrender income at 1372
Broadway and a real estate tax refund at 1140 Avenue of the Americas.
(7) Represents the effect of adjusting straight-line rental revenue included in
pro forma net income from the straight-line accrual basis to amounts
currently being paid or due from tenants.
(8) Pro forma amortization of financing costs for the year ended December 31,
1996 of $196 minus pro forma amortization of financing costs for the three
months ended March 31, 1996 of $35 plus pro forma amortization of financing
costs for the three months ended March 31, 1997 of $38. Financing costs for
periods are based on principal mortgage indebtedness outstanding of $47,196.
See "The Properties--Mortgage Indebtedness."
(9) Reflects recurring tenant improvements and leasing commissions anticipated
for the 12 months ending March 31, 1998 which have been calculated by
multiplying (i) the weighted average tenant improvements and leasing
commissions expenditures for renewed and retenanted space at the Properties
incurred during 1994, 1995, 1996 and the three months ended March 31, 1997
of $9.04 per square foot (assuming a renewal rate of 75% of expiring square
footage as compared to the actual weighted average renewal rate of 78.3%
during the period from January 1, 1994 through March 31,
39
<PAGE>
1997-- See "The Properties--The Portfolio--Historical Tenant Improvements
and Leasing Commissions"), by (ii) 106,000 (the average annual square feet
of leased space for which leases expire during the years ending December 31,
1997 through December 31, 2002). The weighted average annual per square foot
cost of tenant improvements and leasing commission expenditures is presented
below:
<TABLE>
<CAPTION>
WEIGHTED
THREE MONTHS AVERAGE
YEAR ENDED DECEMBER 31, ENDED JANUARY 1,
------------------------------- MARCH 31, 1994-
1994 1995 1996 1997 MARCH 31, 1997
--------- --------- --------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
RENEWALS:
Tenant improvement costs ("TI") per square
foot......................................... $1.84 $ 0.00 $ 2.38 $ 0.00 $ 1.85
Leasing commission costs ("LC") per square
foot......................................... $1.64 $ 1.98 $ 3.45 $ 0.94 $ 2.97
--------- --------- --------- ------ ------
Total Renewal TI and LC per square foot........ $3.48 $ 1.98 $ 5.83 $ 0.94 $ 4.82
RE-TENANTED OR NEWLY TENANTED SPACE:
TI per square foot............................. $16.41 $ 22.73 $ 13.77 $ 6.06 $ 14.80
LC per square foot............................. $7.27 $ 4.55 $ 9.42 $ 5.03 $ 6.88
--------- --------- --------- ------ ------
Total Re-tenanted TI and LC per square foot.... $23.69 $ 27.28 $ 23.19 $ 11.09 $ 21.68
--------- --------- --------- ------ ------
--------- --------- --------- ------ ------
</TABLE>
<TABLE>
<CAPTION>
3 1/4 YEAR AVERAGE
WEIGHTED ANNUAL
AVERAGE TI AND SQUARE FOOTAGE RATE OF
LC PER SQUARE EXPIRING IN RENEWALS/ TOTAL
FOOT 1997-2002 RE-TENANTED COST
----------------- -------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Renewal.......................... $ 4.82 x 106,000 x 75%(i) = $ 383
Re-tenanted...................... $ 21.68 x 106,000 x 25% = $ 574
---------
$ 957
---------
---------
</TABLE>
--------------------------------
(i) The historical weighted average renewal rate, based on square
footage, for the Company from January 1, 1994 through March 31, 1997
is 78.3%.
(10) Estimated recurring capital expenditures have been calculated by
multiplying (i) $0.41 (the weighted average of capital expenditures per
square foot for the Core Portfolio during the period January 1, 1994 through
December 31, 1996) by (ii) 1,885 (the aggregate square footage of the Core
Portfolio and the Acquisition Properties). See "The Properties--The
Portfolio--Historical Capital Expenditures." For the 12 months ending March
31, 1998, the estimated cost of recurring building improvements and
equipment upgrades and replacements (excluding costs of tenant improvements)
at the Properties is approximately $773. Following completion of the
Formation Transactions and the Offering, the Company expects to have
remaining net proceeds of $7.7 million available for capital expenditures
and working capital purposes.
(11) The non-cash transaction relates to the capital lease on 673 First Avenue.
(12) Scheduled mortgage loan principal payments for the 12 months ended March
31, 1998.
(13) The Company's share of estimated Cash Available for Distribution and
estimated initial annual cash distributions to stockholders of the Company
is based on its approximate 88.3% aggregate partnership interest in the
Operating Partnership.
(14) Based on a total of 8,528,605 shares of Common Stock to be outstanding
after the Offering (8,100,000 shares to be sold in the Offering, assuming no
exercise of the Underwriters' over-allotment option, and 428,605 additional
shares to be issued in the Formation Transactions.)
(15) Calculated as estimated initial annual cash distributions to stockholders
of the Company divided by the Company's share of estimated Cash Available
for Distribution for the 12 months ending March 31, 1998. The payout ratio
based on estimated adjusted pro forma Funds from Operations is 79%.
40
<PAGE>
CAPITALIZATION
The following table sets forth the combined historical capitalization of the
SL Green Predecessors as of March 31, 1997 and on a pro forma basis giving
effect to the Formation Transactions, the Offering, and use of the net proceeds
from the Offering as set forth under "Use of Proceeds." The information set
forth in the table should be read in conjunction with the financial statements
and notes thereto, the pro forma financial information and notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1997
------------------------
<S> <C> <C>
COMBINED
HISTORICAL PRO FORMA
----------- -----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Mortgage debt............................................................................. $ 16,544 $ 47,197
Minority interests in Operating Partnership............................................... -- 15,746
Stockholders' equity:
Preferred Stock, $.01 par value; 25,000 shares authorized; none issued and
outstanding........................................................................... -- --
Common Stock, $.01 par value; 100,000 shares authorized; 8,529 issued and outstanding
(1)................................................................................... -- 85
Additional paid-in capital.............................................................. -- 118,747
Owners' deficit......................................................................... (7,563) --
----------- -----------
Total owners' (deficit)/stockholders' equity.......................................... (7,563) 118,832
----------- -----------
Total capitalization................................................................ $ 8,981 $ 181,775
----------- -----------
----------- -----------
</TABLE>
- ------------------------
(1) Includes 8,528,605 shares of Common Stock to be issued in the Formation
Transactions and the Offering. Does not include (i) 1,130,395 shares of
Common Stock that may be issued upon the exchange of Units issued in
connection with the Formation Transactions beginning two years following the
completion of the Offering (or earlier in certain circumstances), (ii)
660,000 shares of Common Stock subject to options being granted concurrently
with the Offering under the Company's stock option plans or (iii) 1,215,000
shares of Common Stock that are issuable upon exercise of the Underwriters'
over-allotment option.
41
<PAGE>
DILUTION
At March 31, 1997, the Company had a deficiency in net tangible book value
attributable to continuing investors of approximately $8.7 million. After giving
effect to (i) the sale of the shares of Common Stock offered hereby (at an
assumed initial public offering price of $20.00 per share) and the receipt by
the Company of approximately $147 million in net proceeds from the Offering,
after deducting the Underwriters' discounts and commissions and other estimated
expenses of the Offering, (ii) the repayment of approximately $80 million of
mortgage indebtedness secured by certain of the Properties and the LBHI Loan,
and (iii) the other Formation Transactions, the pro forma net tangible book
value at March 31, 1997 would have been approximately $114.7 million, or $13.46
per share of Common Stock. This amount represents an immediate increase in net
tangible book value of $24.40 per share to the continuing investors and an
immediate and substantial dilution in pro forma net tangible book value of $6.54
per share of Common Stock to new investors. The following table illustrates this
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $ 20.00
Deficiency in net tangible book value per share prior to the
Offering attributable to continuing investors (1)......... (10.94)
Increase in net tangible book value per share attributable
to the
Offering (2).............................................. 24.40
Pro forma net tangible book value after the Offering (3).... 13.46
---------
Dilution in net tangible book value per share of Common
Stock to new investors (4)................................ $ 6.54
</TABLE>
- ------------------------
(1) Deficiency in net tangible book value per share prior to the Offering
attributable to continuing investors is determined by dividing net tangible
book value of the Company attributable to continuing investors (based on the
March 31, 1997 net book value of the tangible assets (consisting of total
assets less intangible assets consisting of deferred lease fees and loan
costs and after the Formation Transactions, net of liabilities to be
assumed) by the sum of the number of shares of Common Stock (i) issued and
outstanding and (ii) issuable (upon the exchange of all Units to be issued)
to continuing investors in the Formation Transactions.
(2) Based on an assumed initial public offering price of $20.00 per share and
after deducting Underwriters' discounts and commissions and estimated
expenses of the Offering and the Formation Transactions.
(3) Based on total pro forma net tangible book value of $114.7 million divided
by the total number of shares of Common Stock outstanding after the
completion of the Offering (8,528,605 shares), and excluding shares that may
be issuable upon exercise of stock options. There is no impact on dilution
attributable to the issuance of Common Stock in exchange for Units to be
issued to the continuing investors in the Formation Transactions because
such Units would be exchanged for Common Stock on a one-for-one basis.
(4) Dilution is determined by subtracting net tangible book value per share of
Common Stock after the Offering from an assumed initial public offering
price of $20.00.
The following table summarizes, on a pro forma basis giving effect to the
Offering and the Formation Transactions, the number of shares of Common Stock to
be sold by the Company in the Offering and the number of shares of Common Stock
and Units to be issued to the continuing investors in the Formation
Transactions, the deficiency in the net tangible book value as of March 31, 1997
of the assets contributed by
42
<PAGE>
the continuing investors in the Formation Transactions and the net tangible book
value of the average contribution per share based on total contributions.
<TABLE>
<CAPTION>
PURCHASE
COMMON STOCK/ CASH/ PRICE(1)
UNITS ISSUED BOOK VALUE OF BOOK VALUE OF
------------------------ CONTRIBUTIONS AVERAGE
SHARES/ --------------------- CONTRIBUTION
UNITS PERCENT $ PERCENT PER SHARE/UNIT
----------- ----------- ---------- --------- --------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS EXCEPT PERCENTAGES)
New investors in the Offering........................... 8,100 84% $ 147,028 113% $ 20.00(1)
Common Stock issued to continuing investors............. 429 4% (4,685) (4)% $ (10.94)
Units issued to continuing investors.................... 1,130 12% (12,367) (9)% $ (10.94)
----- --- ---------- ---------
Total............................................... 9,659 100% $ 129,976 100%
----- --- ---------- ---------
----- --- ---------- ---------
</TABLE>
- ------------------------
(1) Before deducting Underwriters' discounts and commissions and other estimated
expenses of the Offering and the Formation Transactions.
(2) Based on the March 31, 1997 net book value of the assets, less net book
value of deferred financing and leasing cost to be contributed in connection
with the Formation Transactions, net of liabilities to be assumed.
43
<PAGE>
SELECTED FINANCIAL INFORMATION
The following table sets forth summary selected financial and operating
information on a pro forma basis for the Company, and on a historical combined
basis for the SL Green Predecessor (as defined below), and should be read in
conjunction with all of the financial statements and notes thereto included in
this Prospectus. The combined historical balance sheet information as of
December 31, 1996 and 1995 and statements of income for the years ended December
31, 1996, 1995, and 1994 of the SL Green Predecessor have been derived from the
historical combined financial statements audited by Ernst & Young LLP,
independent auditors, whose report with respect thereto is included elsewhere in
this Prospectus. The operating data for the three months ended March 31, 1997
and 1996 and the years ended December 31, 1993 and 1992 have been derived from
the unaudited combined financial statements of the SL Green Predecessor. In the
opinion of management of the SL Green Predecessor, the operating data for the
three months ended March 31, 1997 and 1996 and the years ended December 31, 1993
and 1992 include all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the information set forth therein. The
results of operations for the interim periods ended March 31, 1997 and 1996 are
not necessarily indicative of the results to be obtained for the full fiscal
year.
Historical operating results may not be comparable to future operating
results. In addition, the Company believes that the book value of the
Properties, which reflects historical costs of such real estate assets less
accumulated depreciation, is not indicative of the fair value of the Properties.
The "SL Green Predecessors" consists of 100% of the net assets and results
of operations of two Properties, 1414 Avenue of the Americas and 70 West 36th
Street, equity interests in four other Properties, 673 First Avenue, 470 Park
Avenue South, 29 West 35th Street and the Bar Building (which interests are
accounted for under the equity method) and 100% of the net assets and results of
operations of the Service Corporations.
The unaudited pro forma financial and operating information for the Company
as of and for the three months ended March 31, 1997 and the year ended December
31, 1996 assumes completion of the Offering and the Formation Transactions as of
the beginning of the periods presented for the operating data and as of the
stated date for the balance sheet data. The pro forma financial information is
not necessarily indicative of what the actual financial position and results of
operations of the Company would have been as of and for the period indicated,
nor does it purport to represent the Company's future financial position and
results of operations.
44
<PAGE>
THE COMPANY (PRO FORMA) AND THE SL GREEN PREDECESSOR (HISTORICAL)
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31,
------------------------------------------- ----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
HISTORICAL
----------------------------------------------
PRO FORMA PRO FORMA
1997 1997 1996 1996
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) 1996 1995 1994
------------- ------------- ------------- ------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total Revenue............... $ 12,525 $ 3,971 $ 2,307 $ 45,837 $ 10,182 $ 6,564 $ 6,600
------------- ------ ------ ------------- --------- --------- ---------
Property Operating
Expense................... 3,667 814 733 14,908 3,197 2,505 2,009
Real Estate Taxes........... 1,769 243 118 7,242 703 496 543
Interest.................... 1,479 345 221 5,935 1,357 1,212 1,555
Depreciation and
Amortization.............. 1,509 271 175 6,248 975 775 931
Marketing, General and
Administration............ 257 896 1,079 1,027 3,250 3,052 2,351
------------- ------ ------ ------------- --------- --------- ---------
Total Expenses.............. 8,681 2,569 2,326 35,360 9,482 8,040 7,389
------------- ------ ------ ------------- --------- --------- ---------
Operating Income(Loss)...... 3,844 1,402 (19) 10,477 700 (1,476) (789)
Equity in Net Income (Loss)
of Uncombined Joint
Ventures.................. (76) (287) (475) (247) (1,408) (1,914) (1,423)
------------- ------ ------ ------------- --------- --------- ---------
Income (Loss) Before
Extraordinary Item and
Minority Interest......... $ 3,768 $ 1,115 $ (494) $ 10,230 $ 708 $ (3,390) $ (2,212)
------------- ------ ------ ------------- --------- --------- ---------
Income Before Extraordinary
Item and Minority Interest
Per Share................. $ .39 $ 1.06
------------- -------------
<CAPTION>
<S> <C> <C>
1993 1992
(UNAUDITED) (UNAUDITED)
------------- -------------
<S> <C> <C>
OPERATING DATA:
Total Revenue............... $ 5,926 $ 5,516
------ -------------
Property Operating
Expense................... 1,741 1,431
Real Estate Taxes........... 592 676
Interest.................... 1,445 1,440
Depreciation and
Amortization.............. 850 773
Marketing, General and
Administration............ 1,790 1,531
------ -------------
Total Expenses.............. 6,418 5,851
------ -------------
Operating Income(Loss)...... (492) (335)
Equity in Net Income (Loss)
of Uncombined Joint
Ventures.................. 88 (2,227)
------ -------------
Income (Loss) Before
Extraordinary Item and
Minority Interest......... $ (404) $ (2,562)
------ -------------
Income Before Extraordinary
Item and Minority Interest
Per Share.................
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997 AS OF DECEMBER 31,
-------------------------- -----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
PRO FORMA HISTORICAL PRO FORMA HISTORICAL HISTORICAL
----------- ------------- ----------- ----------- ---------------------------------
1996 1993
(UNAUDITED) (UNAUDITED) (UNAUDITED) 1996 1995 1994 (UNAUDITED)
----------- ------------- ----------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Commercial Real Estate, Before
Accumulated Depreciation.......... $ 210,000 $ 26,396 $ 209,424 $ 26,284 $ 15,559 $ 15,761 $ 15,352
Total Assets........................ 219,101 30,515 222,045 30,072 16,084 15,098 16,218
Mortgages and Notes Payable......... 47,196 16,544 47,611 16,610 12,700 12,699 12,699
Accrued Interest Payable............ 92 90 92 90 2,894 12,699 1,576
Minority Interest................... 15,746 0 15,780 0 0 0 0
Owners Equity (Deficit)............. 118,832 (7,563) 119,096 (8,405) (18,848) (15,520) (13,486)
OTHER DATA:
Fund from Operations................ 5,239 -- 16,282 --
Net Cash Provided by Operating
Activities........................ -- 769 -- 272
Net Cash Provided by Financing
Activities........................ -- (339) -- 11,960
Net Cash (Used in) Investing
Activities........................ -- (112) -- (12,375)
<CAPTION>
<S> <C>
1992
(UNAUDITED)
-------------
<S> <C>
BALANCE SHEET DATA:
Commercial Real Estate, Before
Accumulated Depreciation.......... $ 16,080
Total Assets........................ 15,645
Mortgages and Notes Payable......... 9,500
Accrued Interest Payable............ 4,757
Minority Interest................... 0
Owners Equity (Deficit)............. (8,449)
OTHER DATA:
Fund from Operations................
Net Cash Provided by Operating
Activities........................
Net Cash Provided by Financing
Activities........................
Net Cash (Used in) Investing
Activities........................
</TABLE>
- ------------------------
(1) The Company generally considers Funds from Operations an appropriate measure
of liquidity of an equity REIT because industry analysts have accepted it as
a performance measure of equity REITs. "Funds from Operations" as defined by
the National Association of Real Estate Investment Trusts ("NAREIT") means
net income (computed in accordance with generally accepted accounting
principles ("GAAP")) excluding gains (or losses) from debt restructuring and
sales of property, plus depreciation and amortization on real estate assets,
and after adjustments for unconsolidated partnerships and joint ventures.
The Company's Funds from Operations are not comparable to Funds from
Operations reported by other REITs that do not define the term using the
current NAREIT definition or that interpret the current NAREIT definition
differently than does the Company. The Company believes that in order to
facilitate a clear understanding of the combined historical operating
results of the SL Green Predecessor and the Company, Funds from Operations
should be examined in conjunction with net income as presented in the
audited combined financial statements and information included elsewhere in
this Prospectus. Funds from Operations does not represent cash generated
from operating activities in accordance with GAAP and should not be
considered as an alternative to net income as an indication of the Company's
performance or to cash flows as a measure of liquidity or ability to make
distributions. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity--Funds from Operations."
45
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with the Selected
Financial Information, the Historical Combined Financial Statements and the Pro
Forma Combined Balance Sheet and Pro Forma Combined Statements of Income of the
Company contained in this Prospectus.
The Combined Financial Statements of the SL Green Predecessor include 100%
of the net assets and results of operations of two Properties, 1414 Avenue of
the Americas and 70 West 36th Street, equity interests in four other properties,
673 First Avenue, 470 Park Avenue South, 29 West 35th Street and the Bar
Building (which interests are accounted for under the equity method) and 100% of
the net assets and results of operations of the Service Corporations.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1997 TO THREE MONTHS ENDED MARCH
31, 1996
Rental revenue increased $752,000 or 115.9%, to $1,401,000 from $649,000 for
the three months ended March 31, 1997 compared to the three months ended March
31, 1996. The increase was due primarily to the acquisition of 1414 Avenue of
the Americas during July 1996 which had rental revenue of $867,000, partially
offset by a decrease in rental revenue of $27,000 at 70 West 36th Street.
Escalations and reimbursement revenues increased $117,000, or 97.5%, to
$237,000 from $120,000 for the three months ended March 31, 1997 compared to the
three months ended March 31, 1996. The increase was due primarily to the
acquisition of 1414 Avenue of the Americas, offset by a decrease at 70 West 36th
Street due to reduced porter wage escalations revenue. New leases with more
current base years utilized to calculate the escalations account for the
decreased escalation revenue.
Management revenues increased $270,000, or 53.0% to $779,000 from $509,000
for the three months ended March 31, 1997 compared to the three months ended
March 31, 1996. The increase in revenue is attributable to the addition of
several buildings under service contracts.
Leasing commission revenues increased $595,000, or 67.6%, to $1,475,000 from
$880,000 for the three months ended March 31, 1997 compared to the three months
ended March 31, 1996 due to the addition of several buildings under service
contracts and intensified efforts to perform leasing services for unaffiliated
third parties.
Construction revenue increased by $74,000, to $75,000 for the three months
ended March 31, 1997 compared to the three months ended March 31, 1996. Overall
construction revenue remained constant but a larger amount related to
property-owning partnerships in the quarter ended March 31, 1996 and was
eliminated pursuant to the equity method of accounting.
Other income for the quarter ended March 31, 1997 consisted of $5,000 of
interest.
Equity in net loss of uncombined joint ventures decreased $188,000, or
39.6%, to $287,000 from $475,000 for the quarter ended March 31, 1997 compared
to the quarter ended March 31, 1996 as follows:
<TABLE>
<CAPTION>
INCREASE
PROPERTY (DECREASE)
- --------------------------------------------------------------------------------- -----------
<S> <C>
673 First Avenue................................................................. $ (129,000)
470 Park Avenue South............................................................ (65,000)
29 West 35th Street.............................................................. 9,000
-----------
Bar Building..................................................................... (3,000)
-----------
-----------
$ (188,000)
</TABLE>
46
<PAGE>
The decrease in net loss for 673 First Avenue was due primarily to lower
interest expense as a result of mortgage loan principal amortization and lower
amortization expense as a result of deferred leasing commissions written off
during 1995 for a tenant that vacated.
The decrease in net loss for 470 Park Avenue South was due primarily to a
general reduction in operating expenses.
The decrease in net income of uncombined joint ventures for 29 West 35th
Street was due primarily to reduced porter wage escalation revenue as a result
of new leases with more current base years utilized in the calculation of the
escalation.
The increase in net income for the Bar Building was due to the acquisition
of the Property during September 1996.
Operating expenses increased $81,000, or 11.1%, to $814,000 for the three
months ended March 31, 1997 compared to the three months ended March 31, 1996.
The increase was due primarily to the inclusion of 1414 Avenue of the Americas
which was acquired during July 1996, offset by reductions at 70 West 36th Street
and the Leasing Corporation.
Interest expense increased $124,000 or 56.1%, to $345,000 for the three
months ended March 31, 1997 compared to the three months ended March 31, 1996.
The increase was due to the inclusion of 1414 Avenue of the Americas offset by
the forgiveness of debt at 70 West 36th Street as of December 31, 1996.
Depreciation and amortization increased $96,000, or 54.9%, to $271,000 from
$175,000 for the quarter ended March 31, 1997 compared to the quarter ended
March 31, 1996. The increase was due primarily to the inclusion of 1414 Avenue
of the Americas.
Real estate taxes increased $125,000, or 105.9% to 243,000 from $$118,000
for the three months ended March 31, 1997 compared to the three months ended
March 31, 1996. The increase was due primarily to the inclusion of 1414 Avenue
of the Americas.
Marketing, general and administrative expenses decreased $183,000, or 17.0%,
to $896,000 for the quarter ended March 31, 1997 compared to the quarter ended
March 31, 1996. The decrease was primarily due to reduced expenses at the
Management and Leasing Corporations.
As a result of the foregoing, net income increased $1,609,000 to $1,115,000
from a loss of $494,000 for the quarter ended March 31, 1997 compared to the
quarter ended March 31, 1996.
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31, 1995
Rental revenue increased $1,783,000, or 73.8%, to $4,199,000 from $2,416,000
for the year ended December 31, 1996 compared to the year ended December 31,
1995. The increase was due primarily to the acquisition of 1414 Avenue of the
Americas during July 1996 which had rental revenue of $1,612,000 and increased
occupancy plus contractual rent increases amounting to $152,000 at 70 West 36th
Street.
Escalations and reimbursement revenues increased $293,000, or 38.6%, to
$1,051,000 from $758,000 for the year ended December 31, 1995. The acquisition
of 1414 Avenue of the Americas accounted for an increase of $428,000 which was
offset by a decrease of $166,000 at 70 West 36th Street due to reduced real
estate tax escalations and porter wage escalation revenue. New leases with more
current base years utilized to calculate the escalations and a reduction in real
estate tax expense accounted for the decreased escalation revenue.
Management revenues remained substantially unchanged with a slight increase
for the year ended December 31, 1996 compared to the year ended December 31,
1995.
Leasing commission revenues increased $1,475,000, or 164.4%, to $2,372,000
from $897,000 for the year ended December 31, 1996 compared to the year ended
December 31, 1995 due to the addition of
47
<PAGE>
several buildings under service contracts and intensified efforts to perform
leasing services for unaffiliated third parties.
Construction revenue decreased by $132,000, or 56.7%, to $101,000 from
$233,000 for the year ended December 31, 1996 compared to the year ended
December 31, 1995. Overall construction revenue remained constant but a larger
amount related to property-owning partnerships and was eliminated pursuant to
the equity method of accounting.
Other income for the year ended December 31, 1996 was $123,000 which
consisted of miscellaneous consulting fees and interest.
Equity in net loss of uncombined joint ventures decreased $506,000 or 26.4%
to $1,408,000 from $1,914,000 for the year ended December 31, 1996 compared to
the year ended December 31, 1995 as follows:
<TABLE>
<CAPTION>
INCREASE
PROPERTY (DECREASE)
- --------------------------------------------------------------------------------- -----------
<S> <C>
673 First Avenue................................................................. $ (392,000)
470 Park Avenue South............................................................ (130,000)
29 West 35th Street.............................................................. 22,000
-----------
Bar Building..................................................................... (6,000)
-----------
-----------
$ (506,000)
</TABLE>
The decrease in net loss for 673 First Avenue was due primarily to lower
interest expense as a result of mortgage loan principal amortization and lower
amortization expense as a result of deferred leasing commissions written off
during 1995 for a tenant that vacated.
The decrease in net loss for 470 Park Avenue South was due primarily to a
reduction in real estate tax expense as a result of a decrease in assessed
valuation.
The decrease in net income for 29 West 35th Street was due primarily to
reduced rental revenue as a result of a vacancy.
The increase in net income for the Bar Building was due to the acquisition
of the Property during October 1996.
Operating expenses increased $691,000, or 27.6%, to $3,197,000 for the year
ended December 31, 1996 compared to the year ended December 31, 1995 due
substantially to the inclusion of 1414 Avenue of the Americas which was acquired
during July 1996.
Interest expense increased $146,000 or 12.0%, to $1,357,000 from $1,212,000
for the year ended December 31, 1996 compared to the year ended December 31,
1995. The inclusion of 1414 Avenue of the Americas accounted for an increase of
$446,000 which was offset by a decrease of $300,000 for 70 West 36th Street due
to refinancing at a lower interest rate.
Depreciation and amortization increased $200,000, or 25.9%, to $975,000 from
$775,000 for the year ended December 31, 1996 compared to the year ended
December 31, 1995. The increase was due primarily to the inclusion of 1414
Avenue of the Americas.
Real estate taxes increased $207,000 or 41.7%, to $703,461 from $497,000 for
the year ended December 31, 1996 compared to year ended December 31, 1995. The
increase was due to the inclusion of $290,000 for 1414 Avenue of the Americas
offset by a decrease of $83,000 for 70 West 36th Street which resulted from a
reduction in property assessment.
48
<PAGE>
Marketing, general and administrative expenses increased $197,000, or 6.5%,
to $3,250,000 from $3,053,000 for the year ended December 31, 1996 compared to
the year ended December 31, 1995, due primarily to staff increases for the
Leasing Corporation.
As a result of the foregoing, net loss decreased $2,682,000, or 79.1%, to
$708,000 from $3,390,000 for the year ended December 31, 1996 compared to the
year ended December 31, 1995.
COMPARISON OF YEAR ENDED DECEMBER 31, 1995 TO YEAR ENDED DECEMBER 31, 1994
Rental revenue decreased by $189,000, or 7.2%, to $2,416,000 from $2,605,000
for the year ended December 31, 1995 compared to the year ended December 31,
1994 due to several vacancies at 70 West 36th Street.
Escalation and reimbursed revenues decreased $44,000, or 5.4%, to $758,000
from $802,000 for the year ended December 31, 1995 compared to the year ended
December 31, 1994 due primarily to a decrease in electric and sundry charges at
70 West 36th Street.
Management revenues increased $300,000, or 15.3%, to $2,260,000 from
$1,960,000 for the year ended December 31, 1995 as compared to the year ended
December 31, 1994 due to an increase in unaffiliated third party management
assignments.
Leasing commission revenue remained consistent with a slight increase for
the year ended December 31, 1995 as compared to the year ended December 31,
1994.
Construction revenue decreased $111,000, or 32.2%, to $233,000 from $344,000
for the year ended December 31, 1995 as compared to the year ended December 31,
1994 due to a decrease in tenant installation work at non-affiliated third party
buildings.
Equity in net loss of uncombined joint ventures increased by $491,000, or
34.5%, to $1,914,000 from $1,423,000 for the year ended December 31, 1995 as
compared to the year ended December 31, 1994 as follows:
<TABLE>
<CAPTION>
INCREASE
PROPERTY (DECREASE)
- --------------------------------------------------------------------------------- -----------
<S> <C>
673 First Avenue................................................................. $ 399,000
470 Park Avenue South............................................................ 106,000
29 West 35th Street.............................................................. (14,000)
-----------
$ 491,000
-----------
-----------
</TABLE>
The increase in net loss for 673 First Avenue was due primarily to reduced
revenue as a result of a vacancy during 1995 and the write off of related
deferred leasing commissions.
The increase in net loss for 470 Park Avenue South was due primarily to
increased miscellaneous income in 1994 as result of a tenant buying out of its
lease.
The increase in net income for 29 West 35th Street was due primarily to
reduced operating expenses.
Operating expenses increased $470,000, or 24.7%, to $2,505,000 from
$2,009,000 for the year ended December 31, 1995 compared to the year ended
December 31, 1994 due primarily to staff increases in the corporations which
provide management, construction and leasing services.
Interest expense decreased $344,000 or 22.1%, to $1,212,000 from $1,555,000
for the year ended December 31, 1995 compared to the year ended December 31,
1994. The decrease was due to a loan restructuring at 70 West 36th Street.
Depreciation and amortization decreased $157,000, or 16.8%, to $775,000 from
$931,000 for the year ended December 31, 1995 compared to the year ended
December 31, 1994 due to the write off of deferred
49
<PAGE>
leasing commissions and tenant installation work related to vacated tenants
during 1994 at 70 West 36th Street.
Real estate taxes decreased $46,000, or 8.5%, to $497,000 from $543,000 for
the year ended December 31, 1995 as compared to the year ended December 31, 1994
due to a decrease in assessed valuation for 70 West 36th Street.
Marketing, general and administrative expenses increased $701,000, or 29.8%,
to $3,053,000 from $2,351,000 for the year ended December 31, 1995 compared to
the year ended December 31, 1994. The increase was due to additional staff and
other expense increases, necessitated by increased business, for the
corporations which provide management construction and leasing services.
As a result of the foregoing, net loss increased $1,178,000, or 53.2%, to
$3,390,000 from $2,212,000 for the year ended December 31, 1995 compared to the
year ended December 31, 1994.
PRO FORMA OPERATING RESULTS
THREE MONTHS ENDED MARCH 31, 1997
On a pro forma basis, after giving effect to the Offering, income before
minority interest would have been $3,768,000 for the quarter ended March 31,
1997, representing an increase of $2,653,000 over the historical combined income
before minority interest for the same period. The increase is accounted for as
follows:
<TABLE>
<S> <C>
INCREASES TO INCOME:
Decrease in interest expense due to mortgage loans repaid or
forgiven...................................................... $1,319,000
Additional income due to the acquisition of 1372 Broadway....... 2,505,000
Additional income due to the inclusion of 1140 Avenue of the
Americas...................................................... 392,000
Straight line rent adjustments related to the acquisition of
other partners' interests..................................... 188,000
Net increase in depreciation and amortization due to acquisition
other partners' interests acquisition of new debt and
repayment or forgiveness of mortgage loans.................... 45,000
DECREASES TO INCOME:
Interest expense related to new mortgage loans.................. (289,000)
Additional general and administrative expenses associated with a
public company................................................ (257,000)
Other partners share of net losses for properties historically
accounted for under the equity method......................... (98,000)
Elimination of the Service Corporations' income under the equity
method of accounting.......................................... (1,127,000)
Straight line adjustment to 673 First Avenue net lease due to
acquisition of non-continuing partners' interest.............. (25,000)
----------
$2,653,000
----------
----------
</TABLE>
50
<PAGE>
YEAR ENDED DECEMBER 31, 1996
On a pro forma basis, after giving effect to the Offering, income before
minority interest would have been $10,230,000 for the year ended December 31,
1996, representing an increase of $10,938,000 over the historical combined
income before minority interest and extraordinary income on debt forgiveness for
the same period. The increase is accounted for as follows:
<TABLE>
<S> <C>
INCREASES TO INCOME:
Decrease in interest expense due to mortgage loans repaid or
forgiven..................................................... $4,699,000
Additional income due to the acquisition of 1372 Broadway...... 5,544,000
Additional income due to the inclusion of 1140 Avenue of the
Americas..................................................... 1,699,000
Additional net income due to the inclusion of the Bar Building
for the full year............................................ 1,132,000
Straight line rent adjustments related to the acquisition of
other partners' interests.................................... 787,000
Net increase in depreciation and amortization due to
acquisition other partners' interests, acquisition of new
debt and repayment or forgiveness of mortgage loans.......... (68,000)
DECREASES TO INCOME:
Interest expense related to new mortgage loans................. (1,155,000)
Additional general and administrative expenses associated with
a public company............................................. (1,027,000)
Other partners' share of net losses for properties historically
accounted for under the equity method........................ (425,000)
Elimination of the Service Corporations' income under the
equity method of accounting.................................. (284,000)
Straight line adjustment to 673 First Avenue net lease due to
acquisition of non-continuing partners' interest............. (100,000)
----------
$10,938,000
----------
----------
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The SL Green Predecessor historically relied on fixed and floating rate
mortgage financing plus the use of its capital for the acquisition,
redevelopment and renovation of the Properties. The proceeds from the Offering
as well as $14 million in new mortgage loans, which will be secured by 1140
Avenue of the Americas, will be utilized to repay existing mortgage loans,
acquire properties, pay transaction expenses and provide working capital. See
"Use of Proceeds". The mortgage loans currently secured by the Properties, which
will be consolidated in the financial statements of the Company, will be reduced
from $91.4 million to $33.2 million as a result of the repayment and
cancellation of certain mortgage loans. Total mortgage loans including new
mortgage loans will amount to $46.5 million as a result of the Formation
Transactions. All mortgage loans assigned to the Company by the Properties have
fixed interest rates ranging from 8.25% to 9.0% and it is anticipated that the
new mortgage loan will also bear interest at fixed rates. At maturity, the
principal balance of the loan encumbering 673 First Avenue will be $2 million
and the principal balance of the loan encumbering 470 Park Avenue South will be
$8.3 million. Subsequent to the Formation Transactions the mortgage loans would
represent approximately 19.4% of the Company's market capitalization based on an
estimated total market capitalization of $240 million.
The Company is currently negotiating with several lenders for the Credit
Facility, which the Company expects to be in place by the completion of the
Offering although there is no assurance that this will be the case. The Credit
Facility will be utilized to facilitate acquisitions and fund associated
renovations, tenant
51
<PAGE>
improvements and leasing commissions. After paying down mortgage debt as well as
expenses of the transaction, the Company expects to have working capital of
approximately $7.6 million, which will be used to fund anticipated capital
improvements on the Bar Building and general corporate purposes. The Company
estimates that for the 12 months ending March 31, 1998, it will incur
approximately $2.5 million of expenses attributable to non-incremental revenue
generating capital expenditures which includes $1.3 million for the Acquisition
Properties, $823,000 for the Bar Building and $419,000 for the balance of the
Core Portfolio.
The Company expects to make distributions to its stockholders primarily
based on its distribution from the Operating Partnership. The Operating
Partnership income will be derived primarily from lease revenue from the
Properties and, to a limited extent, from fees generated by the Service
Corporations.
The Company also expects to acquire properties in the future. Such
acquisitions may require substantial capital leasing of a property. The Company
expects that a portion of such costs will be funded from draws under the Credit
Facility, to the extent the Credit Facility is obtained, from additional
borrowings secured by the target property and from future issuances of equity.
In the long term, the Company expects that capital needs will be met through a
combination of net cash provided by operations, borrowings and additional equity
issuances.
CASH FLOWS
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1997 TO THREE MONTHS ENDED MARCH
31, 1996
Net cash provided by operating activities increased $596,000 to $769,000
from $173,000 for the quarter ended March 31, 1997 compared to the quarter ended
March 31, 1996. The increase was due primarily to the acquisition of 1414 Avenue
of the Americas, an increase in leasing commission income and a decrease in the
equity in net losses of uncombined joint ventures. Net cash used in investing
activities increased $53,000 to $112,000 from $59,000 for the quarter ended
March 31, 1997 compared to the quarter ended March 31, 1996. The increase was
due primarily to the acquisition of 1414 Avenue of the Americas. Net cash used
in financing activities increased $164,000 to $339,000 from $175,000 for the
quarter ended March 31, 1997 compared to the quarter ended March 31, 1996. The
increase was due primarily to the acquisition of 1414 Avenue of the Americas,
the refinancing of the mortgage on 70 West 36th Street and net cash distribution
to owners.
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31, 1995.
Net cash provided by operating activities increased $506,000 to $272,000
from a deficit of $234,000 for the year ended December 31, 1996 compared to the
year ended December 31, 1995. The increase was due primarily to the acquisition
of 1414 Avenue of the Americas, an increase in leasing commission income and a
decrease in the equity in net losses of uncombined joint ventures. Net cash used
in inventory activities increased $11,943,000 to $12,375,000 from $432,000 for
the year ended December 31, 1996 compared to the year ended December 31, 1995.
The increase was due primarily to the acquisition of 1414 Avenue of the Americas
plus contributions to the partnerships that own 470 Park Avenue South and the
Bar Building. Net cash provided by financing activities increased $11,987,000 to
$11,960,000 form $63,000 for the year ended December 31, 1996 compared to the
year ended December 31, 1995. The increase was due primarily to the acquisition
of 1414 Avenue of the Americas, the refinancing of the mortgage on 70 West 36th
Street and net cash contribution from owners.
COMPARISON OF YEAR ENDED DECEMBER 31, 1995 TO YEAR ENDED DECEMBER 31, 1994.
Net cash used in operating activities increased by $1,173,000 to a deficit
of $234,000 from a positive cash flow of $939,000 for the year ended December
31, 1995 compared to the year ended December 31, 1994. The increase was due
primarily to an increase in the share of net loss of uncombined joint ventures,
operating expense increases related to the Service Corporations and additional
marketing, general and
52
<PAGE>
administrative expenses for the Service Corporations. Net cash used in investing
activities decreased $135,000 to $432,000 from $567,000 for the year ended
December 31, 1995 compared to the year ended December 31, 1994. The decrease was
due primarily to reduced investments in building improvements and reduced
contributions to investee partnerships. Cash provided by financing activities
decreased $115,000 to $63,000 from $178,000 due to reduced contributions from
owners.
FUNDS FROM OPERATIONS
The Company generally considers Funds from Operations an appropriate measure
of liquidity of an equity REIT because industry analysts have accepted it as a
performance measure of equity REITs. "Funds from Operations" as defined by
NAREIT means net income (computed in accordance with GAAP) excluding gains (or
losses) from debt restructuring and sales of property, plus depreciation and
amortization on real estate assets, and after adjustments for unconsolidated
partnerships and joint ventures. The Company's Funds from Operations are not
comparable to Funds from Operatins reported by other REITs that do not define
the term using the current NAREIT definition or that interpret the current
NAREIT definition differently than does the Company. The Company believes that
in order to facilitate a clear understanding of the combined historical
operating results of the SL Green Predecessor and the Company, Funds from
Operatios should be examined in conjunction with net income as presented in the
audited combined financial statements and information included elsewhere in this
Prospectus. Funds from Operations does not represent cash generated from
operating activities in accordance with GAAP and should not be considered as an
alternative to net income as an indication of the Company's performance or to
cash flows as a measure of liquidity or ability to make distributions.
On a pro forma basis after giving effect to the Offering, Funds from
Operations for the three months ended March 31, 1997 and for the year ended
December 31, 1996, respectively, are as follows:
<TABLE>
<CAPTION>
PRO FORMA
---------------------------
<S> <C> <C>
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
1997 1996
------------- ------------
Net income before minority interest and extraordinary item...... $ 3,768 $ 10,230
Add:
Depreciation and amortization................................. 1,509 6,248
Amortization of deferred financing costs and depreciation of
non-rental real estate assets............................... (38) (196)
------ ------------
Funds from Operations........................................... $ 5,239 $ 16,282
------ ------------
------ ------------
</TABLE>
INFLATION
Substantially all of the office leases provide for separate real estate tax
and operating expense escalations over a base amount. In addition, many of the
leases provide for fixed base rent increases or indexed escalations. The Company
believes that inflationary increases may be at least partially offset by the
contractual rent increases described above.
53
<PAGE>
MARKET OVERVIEW
UNLESS INDICATED OTHERWISE, INFORMATION CONTAINED HEREIN CONCERNING THE NEW
YORK METROPOLITAN ECONOMY AND THE MANHATTAN OFFICE MARKET IS DERIVED FROM A
REPORT COMMISSIONED BY THE COMPANY AND PREPARED BY THE ROSEN CONSULTING GROUP, A
NATIONALLY KNOWN REAL ESTATE CONSULTING COMPANY, AND IS INCLUDED HEREIN (THE
"ROSEN MARKET STUDY"), WITH THE CONSENT OF THE ROSEN CONSULTING GROUP.
The Company believes that the strength of the New York metropolitan economy
and the current supply/demand fundamentals in the Manhattan office market
provide an attractive environment for acquiring, owning and operating Class B
office properties.
NEW YORK ECONOMY
New York City is a leading international city with a large, dynamic and
diverse economy. According to the U.S. Bureau of Economic Analysis, as of July
1994, the economy of the New York consolidated metropolitan statistical area
("CMSA") was larger than the economies of the next two largest U.S. CMSAs
combined (Los Angeles and Chicago), and larger than the economy of any
individual state except California, based on aggregate personal income (which
the Company believes is a good proxy for overall economic output). Strong growth
of the national economy has benefited New York City, causing the New York
metropolitan area (including Bronx, Kings, New York, Putnam, Queens, Richmond,
Rockland and Westchester counties) economy to improve significantly in recent
years. Private sector employment gained an average of almost 44,000 jobs per
year between 1994 and 1996 for an average annual growth rate of 1.4%; between
March of 1996 and 1997, private sector employment growth was an even stronger
1.9%, which is the strongest growth rate in more than ten years. In July of
1996, Inc. magazine named New York City as the "Best Place to Do Business,"
stating that urban, compact areas promote interaction among companies, suppliers
and customers.
With its unique appeal, New York City is headquarters to many of the leading
corporations and service firms in the U.S., including:
- more Fortune 500 companies (47) than any other U.S. city;
- three of the four largest U.S. commercial banks (400 international banks
have offices in New York City--more than any other city in the world);
- 23 of the 25 largest U.S. securities firms;
- four of the 10 largest U.S. money managers;
- 27 of the 100 largest U.S. law firms (64 of the 100 largest U.S. law firms
have offices in New York City);
- four of the "Big Six" accounting firms; and
- four of the largest U.S. entertainment/media conglomerates.
New York is also a world leader in the advertising industry and contains a
large base of nonprofit organizations. It also has the largest consulate
community in the world, contributing to its position as an international center
of business and politics.
In addition to its diverse base of large businesses, Manhattan also has a
large base of small companies. The New York City Office of the Comptroller
reports that small businesses (which are defined as businesses with fewer than
500 employees) comprise approximately 99.7% of all businesses in New York City
and employ approximately 70.7% of the private-sector work force. In the three
years between 1994 and 1996, during which period some 132,000 private sector
jobs were added in the New York metropolitan area (an average of approximately
44,000 each year), the percentage of jobs added from small business has
54
<PAGE>
grown increasingly more significant, especially in New York City, where small
businesses added approximately 69,000 jobs during 1994 and 1995 and
approximately 22,000 jobs between the third quarters of 1995 and 1996.
The single fastest-growing employment sector in the New York metropolitan
economy is the services sector, which grew at a rate of 3.4% during the year
ended in March of 1997. With more than 1.4 million jobs, the services sector
currently represents 37% of the New York metropolitan area's total employment
base and 44% of its private sector employment base. Important components of the
services sector are business services, legal services, engineering and
management services and membership organizations (including approximately 20,000
nonprofit organizations which are based in New York City). One of the largest
components of the services industry is business services, which supplied
approximately 285,000 jobs as of March 1997, representing 19.9% of total
services employment. Between 1992 and 1996, growth in business services
employment averaged 4% per year, and between March 1996 and March 1997, business
services employment grew 6.1%. Fueling the growth in the business services
sector are the advertising industry, audio recording, software industries and
agencies providing temporary workers. One very active sector of business
services is the new media industry that is centered south of 41st Street in what
is known as midtown south's "Silicon Alley." The companies that work in this
industry include entertainment software, online/Internet services, CD-ROM title
developers, and web site designers. Roughly 1,250 firms in Manhattan belong to
the new media industry, and employment growth in this sector is estimated to be
30% per year through 1998.
The trade sector is the second largest and fastest growing part of the
metropolitan economy, with an employment gain of 8,800 jobs during the 12 months
ended March 31, 1997, representing a 1.3% annual growth rate. Approximately 68%
of the metropolitan area's trade jobs are in the retail sector, where growth was
an even stronger 2.2% during the same period. The retail industry has benefited
from improved city services, reduced crime and an increase in the number of
visitors and their spending volume.
Part of New York City's appeal to employers is a highly educated work-force.
Over 40% of New York County's residents over the age of 25 have received a
college degree and nearly half of those residents have received a graduate or
professional degree, rates that are well above the national average. In
addition, with a population of approximately 7.4 million, including
approximately 169,000 households that have an annual income in excess of
$150,000, New York City also provides a large base of potential consumers with
significant disposable income, which is of particular appeal to businesses
providing goods and services. Increased spending by local residents combined
with a higher level of visitor spending caused retail sales growth in New York
City to average 3.2% annually during the period January 1, 1994 to December 31,
1996.
New York City is an international financial and cultural capital that, in
addition to housing the United Nations and numerous foreign missions, attracts
tourism, is a center for international investment and a favored North American
base for many multinational corporations headquartered overseas. The lower cost
of office rents when compared internationally with other major cities is a
competitive advantage in attracting such overseas companies to New York City.
Midtown Manhattan ranks 13th among major business centers around the world in
terms of office rental rates, after such cities as Tokyo, London, Paris, Hong
Kong and Singapore, while downtown Manhattan ranked 37th.
New York City is the consummate "24-hour city," featuring a wide variety of
restaurants, entertainment and cultural offerings, such as Broadway theater and
productions at Carnegie Hall and Lincoln Center. In addition, many of the
world's finest museums, including The Metropolitan Museum of Art, The Museum of
Modern Art, The Guggenheim Museum, The Whitney Museum and The Museum of Natural
History, are located in New York City. New York City is also home to major
educational institutions, including Columbia University, Fordham University, New
York University and Rockefeller University.
The quality of life in New York City also has improved with the
implementation of various public/ private ventures and government initiatives.
For example, Business Improvement Districts ("BIDs"), which
55
<PAGE>
are public/private ventures that provide security, sanitation and other services
within their boundaries, operate in the Grand Central Station, Penn Station and
Times Square areas and in thirty-three additional areas within New York City. In
addition, crime in New York City has declined. Preliminary estimates for 1996
show that New York City ranked 159th out of the 198 largest U.S. cities in terms
of total crimes, lower than such cities as Atlanta (1), Miami (8), Phoenix (42),
Milwaukee (83) and Philadelphia (114). According to the New York City Police
Department, New York City's crime rate decreased 16% during 1996, and the seven
felony categories have declined a cumulative 39% since 1993 (a greater decrease
than any other large U.S. city during the last three years).
The New York City government is "reinventing" itself in an effort to
streamline its operations and attract and retain businesses. For example, the
New York Economic Development Council has been actively involved in encouraging
businesses to remain in New York City. New York City also has recently reduced
or eliminated numerous taxes, including the real property transfer tax, the
unincorporated businesses tax, the commercial rent tax, the hotel occupancy tax
and the sidewalk vault tax. New York City also was influential in eliminating
the New York State real property gains tax. Even with the reduction or
elimination of numerous taxes, New York City estimates a budget surplus for its
fiscal year ending June 30, 1997 of approximately $856 million, as a result of
savings in operating expenses and improvements in the New York City economy.
With its dynamic and diverse base of businesses, New York City is poised to
continue its course of steady growth and economic improvement. Private sector
job creation in the New York metropolitan area is anticipated to continue at an
average rate of 1.3% per annum, or approximately 42,000 private sector jobs per
annum through 1998, and continue to increase at approximately 1.0% annually
through 2001.
MANHATTAN OFFICE MARKET
OVERVIEW. The Company believes that current supply/demand fundamentals in
the Manhattan office market provide an attractive environment for acquiring,
owning and operating Class B Manhattan office properties. Specifically, the
Midtown Markets have the following favorable characteristics: (i) the Class A
and Class B sectors of the Midtown Markets, collectively, have experienced four
consecutive years of positive net absorption and declining vacancy rates; (ii)
there have been virtually no new additions to supply in the Midtown Markets
since 1992; and (iii) significant new office development is unlikely at the
current time because there are relatively few sites available for construction,
the lead time required for construction typically exceeds three years and new
construction generally is not economically feasible given current market rental
rates.
The Manhattan office market consists primarily of midtown, midtown south and
downtown submarkets. According to Rosen Consulting Group, the Midtown Markets
extends from the north side of 32nd Street to 62nd Street; midtown south is
defined as Canal Street to the south side of 32nd Street; and downtown is
defined as Battery to Canal Street. In each case the submarkets are defined from
the East River on the east to the Hudson River on the west. As referred to
herein, the Midtown Markets collectively consist of midtown and midtown south.
56
<PAGE>
SIZE OF MARKET. The Manhattan office market, with an overall stock of
approximately 378 million square feet, is the largest office market in the U.S
and is larger than the next six largest U.S. central business district office
markets combined (Chicago, Washington, D.C., Boston, San Francisco, Philadelphia
and Los Angeles). The following chart sets forth the size of the Manhattan
office market and the size of certain other U.S. office markets, as of December
31, 1996:
1996 COMPARATIVE OFFICE STOCK
<TABLE>
<CAPTION>
STOCK
SQUARE
FEET
RANK METROPOLITAN STATISTICAL AREA (000)
- ----------- ------------------------------------------------ ---------
<C> <S> <C>
1......... New York, NY (includes all of Manhattan) 378,000
2......... Chicago, IL 118,820
3......... Washington, DC 78,801
4......... Boston, MA 47,390
5......... San Francisco, CA 39,940
6......... Philadelphia, PA-NJ 38,525
7......... Los Angeles-Long Beach, CA 36,563
8......... Houston, TX 36,410
9......... Dallas, TX 30,580
10........ Pittsburgh, PA 29,390
</TABLE>
Within Manhattan, 46% of the office space is classified as Class B space;
almost half of the Class B space is located in midtown, and approximately
one-fourth of the Class B space is located in each of midtown south and
downtown. The following table sets forth the relative sizes of the Class A and
Class B office markets and the rents and vacancy rates as of March 31, 1997
existing in such markets:
MANHATTAN OFFICE MARKET OVERVIEW
<TABLE>
<CAPTION>
% OF CLASS A 1ST QUARTER 1997 1ST QUARTER 1997
AND CLASS B STOCK VACANCY RATE RENT/SQUARE FEET
------------------------ ------------------------ --------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
----------- ----------- ----------- ----------- --------- ---------
Midtown Markets (1)..................... 70.2% 73.9% 10.6% 11.7% $ 35.49 $ 23.88
Midtown................................. 67.9% 48.3% 10.4% 11.6% $ 35.93 $ 25.87
Midtown South........................... 2.4% 25.7% 17.2% 11.9% $ 27.84 $ 20.21
Downtown................................ 29.8% 26.1% 15.2% 18.0% $ 28.54 $ 21.94
Total................................... 54.3%(2) 45.7%(2) 12.0% 13.3% $ 32.87 $ 23.20
</TABLE>
- ------------------------
(1) Consists of midtown and midtown south submarkets.
(2) Represents proportion of total Class A stock and Class B stock in the
Manhattan office market.
HISTORICAL PERSPECTIVE. The Midtown Markets experienced rapid growth both
in demand for, and supply of, office space during the 1980s. A wave of new
construction peaked in the late 1980s and, between 1985 and 1992, 39 buildings
containing approximately 20.3 million square feet of space were built. However,
since 1992, there has been very little new construction in the Midtown Markets.
57
<PAGE>
NEW CONTRUCTION OF OFFICE SPACE
MIDTOWN MARKETS
[Bar chart showing new construction from 1980
through the projection for 1998]
Source: Real Estate Board of New York (historical); Rosen Consulting Group
(projections).
In the late 1980s and early 1990s, as much of the new supply of office space
was being delivered, the demand for space in the Midtown Markets fell off
abruptly as a result of the general downturn in the economy and subsequent
corporate downsizings. As a result of the increase in inventory and the
significant decrease in employment in Manhattan, Class A vacancy rates in the
Midtown Markets increased into the double digits, reaching 17.8% in 1991 and
Class B vacancy rates in the Midtown Markets increased to 17.3% in 1992.
In the early 1990s, however, conditions began to improve in the Midtown
Markets, as a result of the following factors: new jobs were created as the
national and New York metropolitan economies recovered from their downturns;
existing midtown Manhattan businesses expanded, resulting in an increased need
for office space; and some traditional downtown Manhattan tenants, such as banks
and securities firms, moved to the Midtown Markets in search of greater
amenities and improved access to transportation.
LIMITED SUPPLY OF NEW OFFICE SPACE. The Company expects the supply of
office space in the Midtown Markets to remain relatively stable for the
foreseeable future because there are relatively few sites available for
construction, the lead time required for construction typically exceeds three
years and new construction generally is not economically feasible at current
market rental rates. Virtually no new construction of office space in the
Midtown Markets is anticipated in the near term, except one major Class A
development, containing approximately 1.5 million square feet, scheduled to be
completed in 1999, which has substantial grandfathered tax benefits. (The
Company does not believe that this property will have a material impact on the
market because it represents less than 1% of the total Class A midtown office
space and is already substantially preleased to two tenants.) In the absence of
tax incentives, the Company believes that rents generally would have to increase
significantly to justify the cost of new construction. Assuming development
costs of approximately $358 per square foot (as estimated by Rosen
58
<PAGE>
Consulting Group), a market base rent in excess of $55 per square foot would be
needed to make construction economically viable. This suggests that, in order to
justify new construction, market base rents (not taking into account any tax
benefits that may apply) generally would have to increase to at least 42% more
than current asking rents for Class A office space in midtown Manhattan (as
estimated by Rosen Consulting Group).
INCREASING DEMAND FOR OFFICE SPACE IN THE MIDTOWN MARKETS. In addition, net
absorption as calculated by Rosen Consulting Group ("Net Absorption") of Class B
office space in the Midtown Markets has been positive since 1992 and surged in
1994, 1995 and 1996, reaching 3.0 million, 1.5 million and 1.7 million square
feet, respectively. Net Absorption was slightly negative at 250,000 square feet
during the first quarter of 1997, but Net Absorption in the Midtown Markets is
forecasted to reach 2.0 million square feet for all of 1997. An average of
28,400 office space-consuming jobs are projected to be created annually from
1997 until 2001, leading to an estimated average annual Net Absorption of Class
B office space in the Midtown Markets of 1.4 million square feet in 1998 and
1999.
NET ABSORPTION OF CLASS B OFFICE SPACE
MIDTOWN MARKETS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SQUARE FEET
(MILLIONS)
<S> <C>
1993 1.1
1994 3.0
1995 1.5
1996 1.7
1997 proj. 2.0
1998 proj. 1.5
1999 proj. 1.3
2000 proj. 1.0
</TABLE>
As a result of sustained positive Net Absorption coupled with virtually no
new construction since 1992, the Class A office vacancy rate in the Midtown
Markets had fallen to 10.6% as of March 31, 1997 from its 1990s high of 17.8% in
1991 and the Class B office vacancy rate in the Midtown Markets had fallen to
11.7% from its 1990s high of 17.3% in 1992. As a result of the projected
economic strength and private sector job growth, combined with a lack of
projected new construction through 1998, Rosen Consulting Group projects that
the Class A vacancy rate in the midtown markets will fall to 8.2% in 1998 and
further to 6.4% in 2001; similarly, Rosen Consulting Group projects that the
Class B vacancy rate in the Midtown Markets will fall to 8.8% in 1998 and
further to 6.0% in 2001. The Company believes the demand for Class B space will
increase as a result of the expectation of the following factors: (i) growth in
the office space demands of small businesses, which generally choose to locate
in office space with lower occupancy costs, (ii) the continued desire of larger
corporations to reduce office occupancy costs and (iii) growth in key
office-consuming sectors such as finance, securities, legal services and
accounting which would reduce the availability of Class A office space.
59
<PAGE>
The following chart shows the history and projections of vacancy rates and
asking rents for Class B office space in the Midtown Markets. According to Rosen
Consulting Group, rent growth is inversely related to vacancy rates. When market
conditions tighten and the market vacancy rate falls below the optional vacancy
rate, rent growth accelerates. The optimal vacancy rate is the vacancy rate at
which neither excess supply nor excess demand exists, and it is determined by
examining the historical relationship between vacancy rates and rent growth. As
shown in the chart below, the Class B vacancy rate in the Midtown Markets rose
to its highest level in 1992, at which time average asking rents continued to
decline to their lowest levels in 1993. Since 1992, the Class B vacancy rate has
decreased, and as the actual vacancy rate has approached the optimal vacancy
rate, average asking rents stabilized and began to rise in 1995.
The chart further shows that as vacancy rates decline below the optimal rate
of 10% (as is projected to occur over the next four years), projected asking
rents begin to increase at an accelerated rate over current levels. In light of
the supply and demand fundamentals outlined above and the estimate of Class A
base rental rates required to justify new office construction (in excess of $55
per square foot), the Company believes the estimate in the chart below of Class
B asking rents in the $30 per square foot range at a projected vacancy level of
6% to be reasonable. However, conditions in the Midtown Markets are subject to
change and there can be no assurance that any projections will approximate
actual results. See "Risk Factors--Dependence on Midtown Markets Due to Limited
Geographic Diversification."
OFFICE VACANCY RATES AND ASKING RENTS
MIDTOWN MARKETS CLASS B
[Bar chart showing vacancy rates and asking rents for 1991
through the projection for 2001]
POSITIVE OUTLOOK FOR EFFECTIVE RENTAL RATES. As discussed above, the
Company anticipates continued growth in the demand for Class A and Class B
office space in the Midtown Markets and relatively little new supply of such
space being delivered over the next several years. Accordingly, the Company
believes that vacancy rates among Class A and Class B properties in the Midtown
Markets should continue to decrease, which the Company believes should result in
increased rental rates and decreased re-leasing costs in well-managed,
well-located Class A and Class B office properties. However, there can be no
assurance that any of these expectations will be met.
60
<PAGE>
THE PROPERTIES
THE PORTFOLIO
GENERAL. Upon the completion of the Offering, the Company will own or have
contracted to acquire interests in eight Class B office Properties located in
midtown Manhattan which contain approximately 1.9 million rentable square feet.
Of these Properties, six office properties encompassing 1.2 million rentable
square feet are currently owned and managed by SL Green and two office
properties encompassing approximately 700,000 rentable square feet will be
acquired on or after completion of the Offering. See "Structure and Formation of
the Company--Formation Transactions." Upon completion of the Offering, the
Company will effectively own 100% of the economic interest in each of the
Properties. Certain of the Properties include at least a small amount of retail
space on the lower floors, as well as basement/storage space. One Property (673
First Avenue) includes an underground parking garage. The Company believes that
each of the Properties is adequately covered by property and liability
insurance. In addition, upon completion of the Offering, the Company expects to
own an option to acquire 50 West 23rd Street, a 333,000 rentable square foot
Class B office building in midtown Manhattan. See "--The Option Property" below.
As noted above under "Market Overview," the Manhattan office market is
predominantly segregated into two distinct categories: Class A and Class B. The
Class B category generally includes office properties that are more than 25
years old, in good physical condition, attract high-quality tenants and are
situated in desirable locations in Manhattan. Class B properties can be
distinguished from Class A properties in that Class A properties are generally
newer properties with higher finishes and obtain the highest rental rates in
their markets.
The following table sets forth certain information with respect to each of
the Properties as of March 31, 1997:
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
OF OF
APPROXIMATE PORTFOLIO PORTFOLIO
YEAR RENTABLE RENTABLE ANNUAL ANNUAL
BUILT/ SQUARE SQUARE PERCENT ESCALATED ESCALATED
RENOVATED SUBMARKET FEET FEET LEASED RENT(1) RENT
---------- ---------------- ------------ ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
CORE PORTFOLIO
- --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
673 First Ave....... 1928/1990 Grand Central 422,000 22.4% 100% $10,692,472 25.2%
South
470 Park Ave. 1912/1994 Park Avenue 260,000(4) 13.8 95 5,568,931 13.1
S.(4)............. South/Flatiron
Bar Building (5).... 1922/1985 Rockefeller 165,000(5) 8.8 81(5) 3,937,435 9.3
Center
70 W. 36th St....... 1923/1994 Garment 150,000 8.0 96 2,752,439 6.5
1414 Ave. of Ams.... 1923/1990 Rockefeller 111,000 5.9 98 3,378,804 8.0
Center
29 W. 35th St....... 1911/1985 Garment 78,000 4.1 92 1,433,221 3.4
------------ ----- --- ----------- -----
1,186,000 63.0 95 27,763,302 65.5
<CAPTION>
ACQUISITION
PROPERTIES
- --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1372 Broadway....... 1914/1985 Garment 508,000 26.9 85 9,552,088 22.6
1140 Ave. of Ams.... 1926/1951 Rockfeller 191,000 10.1 98 5,035,514 11.9
Center
------------ ----- --- ----------- -----
Total/Weighted 1,885,000(6) 100.0% 92.5% $42,350,904 100.0%
Average........... ------------ ----- --- ----------- -----
------------ ----- --- ----------- -----
<CAPTION>
ANNUAL
ANNUAL NET
ESCALATED EFFECTIVE
RENT RENT
PER PER
NUMBER LEASED LEASED
OF SQUARE SQUARE
LEASES FOOT(2) FOOT(3)
----------- ----------- -----------
<S> <C> <C> <C>
CORE PORTFOLIO
- --------------------
<S> <C> <C> <C>
673 First Ave....... 16 $ 25.33 $ 21.79
470 Park Ave. 25 22.61 19.57
S.(4).............
Bar Building (5).... 52 29.37 26.09
70 W. 36th St....... 39 19.14 15.94
1414 Ave. of Ams.... 31 31.01 31.04
29 W. 35th St....... 8 20.09 16.20
--- ----------- -----------
171 24.93 21.60
ACQUISITION
PROPERTIES
- --------------------
<S> <C> <C> <C>
1372 Broadway....... 31 22.21 21.35
1140 Ave. of Ams.... 40 26.93 24.92
--- ----------- -----------
Total/Weighted 242 $ 24.29 $ 28.03
Average........... --- ----------- -----------
--- ----------- -----------
</TABLE>
- ----------------------------------
(1) As used throughout this Prospectus, Annual Escalated Rent represents the
annualized monthly base rent in effect as of March 31, 1997 (after giving
effect to any contractual increases in monthly base rent that have occurred
up to such date) including annualized monthly tenant pass-throughs of
operating and other expenses (but excluding tenant electricity costs) under
each lease executed as of March 31,
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
61
<PAGE>
(FOOTNOTES CONTINUED FROM PRECEDING PAGE)
1997, or, if such monthly rent has been reduced by a temporary rent
concession, the monthly rent that would have been in effect at such date in
the absence of such concession.
(2) Annual Escalated Rent Per Leased Square Foot, as used throughout this
Prospectus, represents Annual Escalated Rent, as described in footnote (1)
above, presented on a per leased square foot basis.
(3) As used throughout this Prospectus, Annual Net Effective Rent Per Leased
Square Foot represents (a) for leases in effect at the time an interest in
the relevant property was first acquired by SL Green, the remaining lease
payments under the lease divided by the number of months remaining under the
lease multiplied by 12 and (b) for leases entered into after an interest in
the relevant property was first acquired by SL Green and for leases at the
Acquisition Properties, all lease payments under the lease divided by the
number of months in the lease multiplied by 12, and, in the case of both (a)
and (b), adjusted for tenant improvement costs and leasing commissions, if
any, paid or payable by SL Green and presented on a per leased square foot
basis. In certain cases, Annual Net Effective Rent Per Leased Square Foot
may exceed Annual Escalated Rent Per Leased Square Foot as a result of the
provision for future contractual increases in rental payments in the Annual
Net Effective Rent Per Leased Square Foot data.
(4) 470 Park Avenue South is comprised of two buildings, 468 Park Avenue South
(a 17-story office building) and 470 Park Avenue South (a 12-story office
building).
(5) SL Green first acquired an interest in the Bar Building in October 1996. SL
Green has commenced an aggressive leasing program at the Property. The Bar
Building is comprised of two buildings, 36 West 44th Street (a 14-story
building) and 35 West 43rd Street (a four-story building).
(6) Includes approximately 1,718,000 square feet of rentable office space,
137,000 square feet of rentable retail space and 30,000 square feet of
garage space.
HISTORICAL OCCUPANCY. The Properties in the Core Portfolio historically
have achieved consistently higher occupancy rates in comparison to the overall
Class B Midtown Markets, as shown in the following table:
<TABLE>
<CAPTION>
OCCUPANCY RATE OF CLASS B
PERCENT OFFICE PROPERTIES
LEASED AT THE IN THE MIDTOWN
PROPERTIES (1) MARKETS (2)
----------------- -----------------------------
<S> <C> <C>
March 31, 1997...................................... 95% 88%
December 31, 1996................................... 95 89
December 31, 1995................................... 95 87
December 31, 1994................................... 98 86
December 31, 1993................................... 96 84
December 31, 1992................................... 93 83
</TABLE>
- ------------------------
(1) Includes space for leases that were executed as of the relevant date in
Properties owned by SL Green as of that date.
(2) Includes vacant space available for direct lease, but does not include
vacant space available for sublease; including vacant space available for
sublease would reduce the occupancy rate as of each date shown. Sources:
RELocate, Rosen Consulting Group.
LEASE EXPIRATIONS. Leases at the Properties, as at many other Manhattan
office properties, typically extend for a term of ten or more years, compared to
typical lease terms of 5-10 years in other large U.S. office markets. From
January 1, 1994 through March 31, 1997, SL Green renewed approximately 77% of
the leases scheduled to expire at the Properties in the Core Portfolio owned and
managed by SL Green during such period, constituting renewal of approximately
78% of the expiring rentable square footage during such period. As a result of
these re-leasing efforts, through December 31, 2002, the average annual rollover
at the Properties is approximately 111,000 square feet, representing an average
annual expiration of 6.3% of the total leased square feet at the Properties per
year (assuming no tenants exercise renewal or cancellation options and no tenant
bankruptcies or other tenant defaults).
62
<PAGE>
The following table sets out a schedule of the annual lease expirations at
the Properties (including the Acquisition Properties) with respect to leases in
place as of March 31, 1997 for each of the next ten years and thereafter
(assuming that no tenants exercise renewal or cancellation options and that
there are no tenant bankruptcies or other tenant defaults):
<TABLE>
<CAPTION>
ANNUAL ANNUAL
ESCALATED ESCALATED
RENT RENT PER
PERCENTAGE ANNUAL PER LEASED
SQUARE OF ESCALATED LEASED SQUARE FOOT
NUMBER FOOTAGE TOTAL RENT SQUARE OF EXPIRING
OF OF LEASED OF FOOT OF LEASES WITH
EXPIRING EXPIRING SQUARE EXPIRING EXPIRING FUTURE
YEAR OF LEASE EXPIRATION LEASES LEASES FEET LEASES(1) LEASES (2) STEP-UPS(3)
- ------------------------------------------- ----------- ---------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
March 31 through December 31, 1997......... 29 79,099 4.5% $ 2,199,148 $ 27.80(4) $ 28.00(4)
1998....................................... 27 72,650 4.2 2,065,204 28.43 30.03
1999....................................... 29 119,407 6.9 3,232,203 27.07 27.87
2000....................................... 23 144,460 8.3 2,742,167 25.90 27.39
2001....................................... 27 83,447 4.8 2,221,181 26.62 29.47
2002....................................... 22 136,683 7.8 2,813,700 20.59 22.02
2003....................................... 24 238,929 13.7 5,581,806 23.36 29.42
2004....................................... 20 317,704 18.2 7,532,635 23.71 28.62
2005....................................... 10 185,634 10.6 4,212,456 22.69 25.34
2006....................................... 15 139,528 8.0 3,745,237 26.84 32.17
2007 and thereafter........................ 16 226,081 13.0 5,005,163 22.14 28.34
--- ---------- ----- ------------- ----------- -----------
TOTAL.................................. 242 1,743,622 100.0% $ 42,350,900 $ 24.29(5) $ 28.03
--- ---------- ----- ------------- ----------- -----------
--- ---------- ----- ------------- ----------- -----------
</TABLE>
- ------------------------
(1) Annual Escalated Rent of Expiring Leases, as used throughout this
Prospectus, represents the annualized monthly base rent in effect as of
March 31, 1997 (after giving effect to any contractual increases in
annualized monthly base rent that have occurred up to such date) including
monthly tenant pass-throughs of operating and other expenses (but excluding
tenant electricity costs) under each lease executed as of March 31, 1997
which expires in the applicable year or, if such monthly rent has been
reduced by a temporary rent concession, the monthly rent that would have
been in effect at such date in the absence of such concession.
(2) Annual Escalated Rent Per Leased Square Foot of Expiring Leases, as used
throughout this Prospectus, represents Annual Escalated Rent of Expiring
Leases, as described in footnote (1) above, presented on a per leased square
foot basis.
(3) Annual Escalated Rent Per Leased Square Foot of Expiring Leases With Future
Step-Ups represents Annual Escalated Rent Per Leased Square Foot of Expiring
Leases, as described in footnote (2) above, adjusted to reflect contractual
increases in monthly base rent that occur after March 31, 1997.
(4) For comparison purposes, the Direct Weighted Average Rental Rate for the
Class B Midtown Markets, according to RELocate (as adjusted by the Company
to weight the representation of the Properties in the Grand Central South,
Garment, Park Avenue South/Flatiron and Rockefeller Center submarkets), was
$23.56 as of March 31, 1997. The Direct Weighted Average Rental Rate
represents the weighted average of asking rental rates for direct Class B
office space as it relates to the Properties. Asking rental rates generally
are higher than actual rental rates (which generally are not publicly
available). In addition, the Direct Weighted Average Rental Rate represents
a large number of Class B properties in various locations within the Midtown
Markets, and, therefore, may not be representative of asking or actual
rental rates at the Properties.
63
<PAGE>
(5) Excluding rental payments attributable to retail space at the Properties,
the Weighted Average Annual Escalated Rent Per Leased Square Foot of
Expiring Leases would be $23.69.
TENANT DIVERSIFICATION. The Properties (including the Acquisition
Properties) currently are leased to over 200 tenants which are engaged in a
variety of businesses, including publishing, health services, retailing and
banking. The following table sets forth information regarding the leases with
respect to the 20 largest tenants at the Properties, based on the amount of
square footage leased by such tenants as of March 31, 1997:
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
OF OF
AGGREGATE AGGREGATE
PORTFOLIO PORTFOLIO
REMAINING LEASED ANNUAL ANNUAL
LEASE TERM TOTAL LEASED SQUARE ESCALATED ESCALATED
TENANT PROPERTY IN MONTHS SQUARE FEET FEET RENT RENT
- -------------------------------- ---------------------- ------------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Kallir, Philips, Ross........... 673 First Avenue 87 80,000 4.6% $ 2,394,175 5.7%
New York Hospital(1)............ 673 First Avenue 113 76,000 4.4 1,852,156 4.4
Cygne........................... 1372 Broadway 160 70,098 4.0 1,242,838 2.9
Capital-Mercury................. 1372 Broadway 100 64,122 3.7 1,292,732 3.1
Ann Taylor...................... 1372 Broadway 160 58,975 3.4 1,169,118 2.8
NationsBank..................... 1372 Broadway 36 55,238 3.2 1,364,343 3.2
Newbridge Communications(2)..... 673 First Avenue 103 49,000 2.8 1,456,518 3.4
UNICEF.......................... 673 First Avenue 81 40,300 2.3 1,070,667 2.5
U.S. Committee for UNICEF....... 673 First Avenue 81 40,000 2.3 1,078,259 2.5
Franklin Strategic.............. 673 First Avenue 85 40,000 2.3 1,308,407 3.1
Republic of South Africa........ 673 First Avenue 85 40,000 2.3 1,108,913 2.6
Henry Siegel.................... 1372 Broadway 101 34,045 2.0 578,765 1.4
Meredith Garage Corp............ 673 First Avenue 88 30,000 1.7 372,058 0.9
Ross Stores(3).................. 1372 Broadway 67 29,949 1.7 566,246 1.3
AJ Contracting.................. 470 Park Ave. So. 153 27,870 1.6 635,803 1.5
Cowles Business Media........... 470 Park Ave. So. 71.5 24,767 1.4 582,774 1.4
Workbench....................... 470 Park Ave. So. 69 22,000 1.3 375,000 0.9
House of Ronnie................. 1372 Broadway 72 20,500 1.2 429,987 1.0
Institute for Office
Management.................... 29 W 35th St. 84 19,500 1.1 535,322 1.3
1140 Avenue of the
Solomon Page (4)................ Americas 96 18,800 1.1 476,956 1.1
----- ------------ --- ------------- ---
Total/Weighted Average(5)....... 95 841,164 48.2% $ 19,891,037 47.0%
----- ------------ --- ------------- ---
----- ------------ --- ------------- ---
</TABLE>
- ------------------------
(1) This tenant occupies an additional 65,000 square feet of space at 673 First
Avenue pursuant to two subleases expiring December 31, 2003 and April 29,
2004.
(2) This tenant occupies an additional 13,000 square feet of space at 673 First
Avenue pursuant to a sublease expiring April 29, 2004.
(3) Since March 31, 1997, this tenant has contracted to lease an additional
18,655 square feet at 1372 Broadway and has extended its lease with respect
to the space indicated in the table to June 30, 2007.
(4) Since March 31, 1997, this tenant has contracted to lease an additional
9,400 square feet at 1140 Avenue of the Americas.
(5) Weighted average calculation based on total rentable square footage leased
by each tenant.
64
<PAGE>
LEASE DISTRIBUTION. The following table sets forth information relating to
the distribution of leases at the Properties (including the Acquisition
Properties), based on rentable square feet under lease, as of March 31, 1997:
<TABLE>
<CAPTION>
PERCENTAGE
PERCENTAGE OF
OF AGGREGATE AGGREGATE
PORTFOLIO PORTFOLIO
LEASED ANNUAL ANNUAL
SQUARE FEET NUMBER OF PERCENT OF TOTAL LEASED SQUARE ESCALATED ESCALATED
UNDER LEASE LEASES ALL LEASES SQUARE FEET FEET RENT RENT
------------- ------------- ----------- ------------ ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
2,500 or less............................ 106 43.8% 147,478 8.5% $ 4,422,650 10.4%
2,501-5,000.............................. 55 22.7 190,095 10.9 5,136,717 12.1
5,001-7,500.............................. 19 7.9 117,891 6.8 2,905,392 6.9
7,501-10,000............................. 21 8.7 190,946 10.9 4,491,121 10.6
10,001-20,000............................ 23 9.5 303,368 17.4 7,248,676 17.1
20,001-39,999............................ 7 2.9 189,131 10.8 3,540,633 8.4
40,000 +................................. 11 4.5 604,733 34.7 14,605,174 34.5
--- ----- ------------ ----- ------------- -----
TOTAL.................................... 242 100.0% 1,743,642 100.0% $ 42,350,903 100.0%
--- ----- ------------ ----- ------------- -----
--- ----- ------------ ----- ------------- -----
</TABLE>
TENANT RETENTION AND HISTORICAL LEASE RENEWALS. The Company works closely
with its tenants to provide a high level of tenant services. The Company
continually seeks to improve its tenant roster by attracting high-quality
tenants to the Properties and seeks to stabilize its rent roll through the early
extension of near-term expiring leases. From January 1, 1994 through March 31,
1997, SL Green renewed 77% of the leases scheduled to expire at the Properties
in the Core Portfolio owned and managed by SL Green during such period,
constituting renewal of approximately 78% of the expiring rentable square
footage in the Core Portfolio during such period. The following table sets forth
certain historical information regarding tenants at the Properties in the Core
Portfolio who renewed an existing lease at or prior to the expiration of such
lease:
<TABLE>
<CAPTION>
TOTAL/
WEIGHTED
THREE AVERAGE
MONTHS JANUARY 1,
ENDED 1994-
MARCH 31, MARCH 31,
1994 1995 1996 1997 1997
--------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Number of leases expired during calendar year or
period.......................................... 5 12 31 4 52
Number of leases renewed.......................... 5 7 26 2 40
Percentage of leases renewed...................... 100.00% 58.33% 83.87% 50.00% 76.92%
Aggregate rentable square footage of expiring
leases.......................................... 14,223 38,008 136,582 5,683 194,496
Aggregate rentable square footage of lease
renewals........................................ 14,223 28,055 107,408 2,564 152,250
Percentage of expiring rentable square foot
renewed......................................... 100.00% 73.81% 78.64% 45.12% 78.28%
</TABLE>
65
<PAGE>
HISTORICAL TENANT IMPROVEMENTS AND LEASING COMMISSIONS. The following table
sets forth certain historical information regarding tenant improvement and
leasing commission costs for tenants at the Properties in the Core Portfolio for
the years 1994 through 1996 and for the first quarter of 1997:
<TABLE>
<CAPTION>
THREE TOTAL/WEIGHTED
MONTHS AVERAGE
ENDED JANUARY 1,
MARCH 31, 1994-MARCH 31,
1994 1995 1996 1997 1997
--------- --------- --------- ----------- --------------
<S> <C> <C> <C> <C> <C>
RENEWALS
Number of leases............................................. 5 7 26 2 40
Square feet.................................................. 14,223 28,055 107,408 2,564 152,250
Tenant improvement costs per square foot..................... $ 1.84 $ 0.00 $ 2.38 $ 0.00 $ 1.85
Leasing commission costs per square foot..................... $ 1.64 $ 1.98 $ 3.45 $ 0.94 $ 2.97
--------- --------- --------- ----------- -------
Total tenant improvement and leasing commission costs per
square foot.............................................. $ 3.48 $ 1.98 $ 5.83 $ 0.94 $ 4.82
--------- --------- --------- ----------- -------
--------- --------- --------- ----------- -------
RE-TENANTED OR NEWLY TENANTED SPACE
Number of leases............................................. 8 7 11 9 35
Square feet.................................................. 42,632 25,787 36,911 26,890 132,220
Tenant improvement costs per square foot..................... $ 16.41 $ 22.73 $ 13.77 $ 6.06 $ 14.80
Leasing commission costs per square foot..................... $ 7.27 $ 4.55 $ 9.42 $ 5.03 $ 6.88
--------- --------- --------- ----------- -------
Total tenant improvement and leasing commission costs per
square foot.............................................. $ 23.69 $ 27.28 $ 23.19 $ 11.09 $ 21.68
--------- --------- --------- ----------- -------
--------- --------- --------- ----------- -------
TOTAL
Number of leases............................................. 13 14 37 11 75
Square feet.................................................. 56,855 53,842 144,319 29,454 284,470
Tenant improvement costs per square foot..................... $ 12.77 $ 10.89 $ 5.29 $ 5.53 $ 7.87
Leasing commission costs per square foot..................... $ 5.86 $ 3.21 $ 4.98 $ 4.67 $ 4.79
--------- --------- --------- ----------- -------
Total tenant improvement and leasing commission costs per
square foot.............................................. $ 18.63 $ 14.10 $ 10.27 $ 10.21 $ 12.66(1)
--------- --------- --------- ----------- -------
--------- --------- --------- ----------- -------
</TABLE>
- ------------------------
(1) The cost of leasing vacant space (i.e., newly-tenating) generally exceeds
the cost of renewing or retenating occupied space. During the period January
1, 1994 through March 31, 1997, certain of the Properties were in a lease-up
phase. In the event the weighted average of total tenant improvement costs
and leasing commission per square foot were calculated assuming a 75%
renewal rate on expiring square footage and an occupancy rate throughout
such period equal to 92.5% (the occupancy rate at the Properties as of March
31, 1997), such weighted average per share amount would be $9.04.
HISTORICAL CAPITAL EXPENDITURES. Each property within the Core Portfolio,
except for the Bar Building, has been substantially renovated. Within the next
18 months the Company anticipates spending $5.3 million in capital improvements
at the Properties, of which approximately $1.1 million is designated for the Bar
Building, an interest in which was first purchased by SL Green in October 1996,
and approximately $3.0 million is designated for the Acquisition Properties. See
"--36 West 44th Street (The Bar Building)" and "--Acquisition Properties" below.
These costs are expected to be paid from remaining net proceeds from the
Offering after completion of the Formation Transactions (estimated to be $7.7
million) and/or from operating cash flows. See "Use of Proceeds."
Prior to acquisition each property under consideration is evaluated to
determine an initial capital budget. The extent of these improvements is
predicated on the physical condition and vacancy at the property, and the
anticipated target market rent. Ongoing capital budgets are determined annually
and are geared toward addressing tenant rollover and changing target market
rent.
66
<PAGE>
The following table sets forth information regarding historical capital
expenditures at the Properties in the Core Portfolio (except for the Bar
Building, an interest in which was first acquired by SL Green in October 1996)
for the years 1994 through 1996:
<TABLE>
<CAPTION>
1994 1995 1996 TOTAL
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
673 First Ave....................................... $ 10,929 $ 52,369 $ 15,636 $ 78,934
470 Park Ave. So. .................................. $ 241,923(1) $ -- $ 130,700(2) $ 372,623
70 W. 36th St. ..................................... $ 129,721(3) $ 24,717 $ 178,521(4) $ 332,959
1414 Ave. of Americas (5)........................... $ -- $ -- $ 132,459(6) $ 132,459
29 W. 35th St. ..................................... $ 68,585 $ 176,123(7) $ 98,786(8) $ 343,494
---------- ---------- ---------- ------------
Total............................................. $ 451,158 $ 253,209 $ 556,102 $ 1,260,469
---------- ---------- ---------- ------------
---------- ---------- ---------- ------------
Total Square Feet................................... 1,021,000 1,021,000 1,021,000 1,021,000
Capital Expenditures Per Square Foot................ $0.44 $0.25 $0.54 $0.41
---------- ---------- ---------- ------------
---------- ---------- ---------- ------------
</TABLE>
- ------------------------
(1) Expenditures included asbestos abatement, new boiler and new roof-top
structures.
(2) Expenditures included partial elevator modernization.
(3) Expenditures included elevator modernization.
(4) Expenditures included new boiler, exit signs and fire doors.
(5) SL Green's interest in 1414 Avenue of the Americas was acquired in May,
1996; however, SL Green managed the Property for prior ownership since
December 1989.
(6) Expenditures included floor renovations, ADA bathrooms, new windows and
parapet.
(7) Expenditures included elevator modernization.
(8) Expenditures included new roof.
673 FIRST AVENUE
673 First Avenue is a 12-story office building that occupies the entire
block front on the west side of First Avenue between East 38th Street and East
39th Street in the Grand Central South submarket of the Manhattan office market.
673 First Avenue contains approximately 422,000 rentable square feet (including
approximately 366,600 square feet of office space, 26,000 square feet of retail
space and a 30,000 square foot garage), with floor plates of approximately
40,000 square feet on all but the top two floors. The building, located three
blocks from the United Nations, was completed in 1928 and converted from a
warehouse/distribution facility to an office building by SL Green in 1989 and
1990. SL Green acquired a net leasehold interest (which expires in 2037) in the
Property and a ground leasehold interest (which expires in 2037) in the land
underlying the Property in 1988. Upon completion of the Formation Transactions,
such leasehold interests will be transferred to the Company.
At 673 First Avenue, SL Green converted a distribution and warehouse
facility into an office property to take advantage of desirable 40,000 square
foot floor plates and a strategic location near the United Nations complex. To
accomplish the repositioning, SL Green invested approximately $25 million in the
Property for (i) new building entrance, lobby and storefronts, (ii) complete
replacement of the elevator systems, (iii) the creation of common areas, (iv)
entirely reconfigured HVAC and electrical systems and (v) the build-out of
tenant spaces. The repositioning resulted in the conversion of a 43% occupied
warehouse/distribution facility into a 100% occupied Class B office building
within 24 months. The Property's net operating income (NOI) increased
dramatically from approximately $466,000 per annum upon acquisition to
approximately $7.6 million per annum following repositioning and lease-up
(exclusive of net lease payments and debt service payments).
67
<PAGE>
As of March 31, 1997, 100% of the rentable square footage in 673 First
Avenue was leased. The following table sets forth certain information with
respect to the Property:
<TABLE>
<CAPTION>
ANNUAL NET
EFFECTIVE
ANNUAL ESCALATED RENT
RENT PER LEASED PER LEASED
YEAR-END PERCENT LEASED SQUARE FOOT SQUARE FOOT
- ----------------------------------------------------------------- ----------------- ----------------- -------------
<S> <C> <C> <C>
1997(1).......................................................... 100% $ 25.33 $ 21.79
1996............................................................. 100 25.12 21.79
1995............................................................. 97 24.83 21.66
1994............................................................. 100 23.83 21.47
1993............................................................. 100 23.48 21.50
1992............................................................. 100 22.18 21.50
</TABLE>
- ------------------------
(1) Information is as of March 31, 1997.
As of March 31, 1997, 673 First Avenue was leased to 16 tenants operating in
various industries, including healthcare, advertising and publishing, three of
whom occupied 10% or more of the rentable square footage at the Property. A
major New York City hospital occupied approximately 141,000 square feet
(approximately 33% of the Property) under two leases expiring on August 31, 2006
and two subleases expiring December 31, 2003 and April 29, 2004, respectively,
that provide for an aggregate annualized base rent as of March 31, 1997 of
approximately $3.05 million (approximately $21.63 per square foot) and renewal
options for five years on the two direct leases. In addition to annualized base
rent, this tenant pays real estate tax escalations and operating escalations in
excess of a base year amount.
In addition, an advertising firm occupied approximately 80,000 square feet
(approximately 19% of the Property) under a lease expiring on June 30, 2004 that
provides for annualized base rent as of March 31, 1997 of approximately $1.8
million (approximately $22.00 per square foot). In addition to annualized base
rent, this tenant pays real estate tax escalations and operating escalations in
excess of a base year amount.
Also, a publishing company occupied approximately 62,000 square feet
(approximately 14.7% of the Property) under two leases expiring on October 31,
2005 and a sublease expiring on April 30, 2004 that provide for an aggregate
annualized base rent as of March 31, 1997 of approximately $1.66 million
(approximately $26.77 per square foot). In addition to annualized base rent,
this tenant pays real estate tax escalations and operating escalations in excess
of a base year payment.
68
<PAGE>
The following table sets out a schedule of the annual lease expirations at
673 First Avenue for leases executed as of March 31, 1997 with respect to each
of the next ten years and thereafter (assuming that no tenants exercise renewal
or cancellation options and that there are no tenant bankruptcies or other
tenant defaults):
<TABLE>
<CAPTION>
ANNUAL
ANNUAL ESCALATED
ESCALATED RENT PER
PERCENTAGE ANNUAL RENT LEASED
SQUARE OF ESCALATED PER SQUARE FOOT
NUMBER FOOTAGE TOTAL RENT LEASED OF EXPIRING
OF OF LEASED OF SQUARE FOOT LEASES WITH
EXPIRING EXPIRING SQUARE EXPIRING OF EXPIRING FUTURE
YEAR OF LEASE EXPIRATION LEASES LEASES FEET LEASES LEASES (1) STEP-UPS
- ----------------------------------------------- ----------- --------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
March 31 through December 31, 1997............. -- -- -- -- -- --
1998........................................... -- -- -- -- -- --
1999........................................... 1 1,018 0.20% $ 10,180 $ 10.00 $ 10.00
2000........................................... 1 100 0.02 44,223 442.00(2) 511.94(2)
2001........................................... -- -- -- -- -- --
2002........................................... 1 1,046 0.20 21,480 20.53 24.57
2003........................................... 2 80,300 19.00 2,148,926 26.76 36.25
2004........................................... 6 203,944 48.00 4,893,855 24.00 28.64
2005........................................... 2 49,000 12.00 1,456,518 29.73 32.48
2006........................................... 1 76,000 18.00 1,852,156 24.37 27.58
2007 and thereafter............................ 2 10,659 2.50 265,134 24.87 35.55
--- --------- ----------- -------------
SUBTOTAL/WEIGHTED AVERAGE...................... 16 422,067 100.00% $ 10,692,472 $ 25.33 $ 30.57(3)
Unleased at 3/31/97............................ 0
--- --------- ----------- ------------- ----------- -----------
TOTAL...................................... 422,067 100.00%
--------- -----------
--------- -----------
</TABLE>
- ------------------------
(1) For comparison purposes, according to RELocate, the Direct Weighted Average
Rental Rate for the direct Class B Grand Central South submarket (which,
according to RELocate is the area bounded by 32nd Street to 40th Street,
Fifth Avenue east to the East River) was $26.75 as of March 31, 1997. Direct
Weighted Average Rental Rate represents the weighted average of asking
rental rates for direct Class B space. Asking rental rates generally are
higher than actual rental rates (which generally are not publicly
available). Therefore, the Direct Weighted Average Rental Rate may not be
representative of asking or actual rental rates at 673 First Avenue.
(2) These rental rates reflect the lease of approximately 100 square feet of
roof and office space at the Property for the placement of cellular
telephone antennas and equipment.
(3) The differential between Annual Escalated Rent Per Leased Square Foot of
Expiring Leases and Annual Escalated Rent Per Leased Square Foot of Expiring
Leases with Future Step-Ups is attributable to significant contractual
step-ups in base rental rates that exist in certain leases at this Property.
The aggregate undepreciated tax basis of depreciable real property at 673
First Avenue for Federal income tax purposes was $22,583,658 as of December 31,
1996. Depreciation and amortization are computed for Federal income tax purposes
on the straight-line method over lives which range up to 39 years.
The current real estate tax rate for all Manhattan office properties is
$10.252 per $100 of assessed value. The total annual tax for 673 First Avenue at
this rate for the 1996-97 tax year is $1,235,469 (at a taxable assessed value of
$12,051,000).
69
<PAGE>
470 PARK AVENUE SOUTH
470 Park Avenue South is comprised of two buildings, 468 Park Avenue South
(a 17-story building) and 470 Park Avenue South (a 12-story building), that
occupy the entire blockfront on the west side of Park Avenue South between East
31st and East 32nd Streets in the Park Avenue South/Flatiron submarket of the
Manhattan office market. The buildings are joined together by a single lobby and
common base building systems. 468 Park Avenue South was completed in 1912 and
470 Park Avenue South was completed in 1917. Various portions of the common
areas of both buildings were substantially renovated in 1987, 1990 and 1994. SL
Green acquired a 100% fee simple interest in the Property in 1986. Upon
completion of the Formation Transactions, this fee simple interest will be
transferred to the Company. The Property contains an aggregate of approximately
260,000 rentable square feet (including approximately 232,000 square feet of
office space and approximately 28,000 square feet of retail space), with floor
plates of approximately 8,400 square feet in the 468 building and floor plates
of approximately 9,735 square feet in the 470 building.
As of March 31, 1997, 95% of the rentable square footage in 470 Park Avenue
South was leased (including space for leases that were executed as of March 31,
1997). The office space was 94% leased and the retail space was 100% leased. The
following table sets forth certain information with respect to the Property:
<TABLE>
<CAPTION>
ANNUAL NET
EFFECTIVE
ANNUAL ESCALATED RENT RENT
PER LEASED PER LEASED
YEAR-END PERCENT LEASED SQUARE FOOT SQUARE FEET
- ------------------------------------------------------------ ------------------- --------------------- -------------
<S> <C> <C> <C>
1997(1)..................................................... 95% $ 22.61 $ 19.57
1996........................................................ 95 21.93 19.57
1995........................................................ 93 21.79 18.50
1994........................................................ 99 21.23 17.82
1993........................................................ 98 21.15 17.62
1992........................................................ 84 21.48 17.36
</TABLE>
- ------------------------
(1) Information is as of March 31, 1997.
As of March 31, 1997, 470 Park Avenue South was leased to 25 tenants
operating in various industries, including financial services, publishing and
general contracting, one of whom leased 10% or more of the Property's rentable
square feet. A general contractor occupied approximately 27,870 square feet
(approximately 11% of the Property) under a lease expiring on December 31, 2009
that provides for annualized base rent as of March 31, 1997 of approximately
$636,000 (approximately $22.81 per square foot). In addition to annualized base
rent, this tenant pays real estate tax escalations and operating escalations in
excess of a base year amount.
70
<PAGE>
The following table sets out a schedule of the annual lease expirations at
470 Park Avenue South with respect to leases executed as of March 31, 1997 for
each of the next ten years and thereafter (assuming that no tenants exercise
renewal or cancellation options and that there are no tenant bankruptcies or
other tenant defaults):
<TABLE>
<CAPTION>
ANNUAL
ANNUAL ESCALATED
ESCALATED RENT PER
RENT LEASED
PERCENTAGE ANNUAL PER SQUARE FOOT
SQUARE OF ESCALATED LEASED OF EXPIRING
NUMBER FOOTAGE TOTAL RENT SQUARE LEASES
OF OF LEASED OF FOOT OF WITH
EXPIRING EXPIRING SQUARE EXPIRING EXPIRING FUTURE
YEAR OF LEASE EXPIRATION LEASES LEASES FOOT LEASES LEASES(1) STEP-UPS
- --------------------------------------------- ----------- ----------- ---------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
March 31 through December 31, 1997 -- -- -- -- -- --
1998......................................... 2 3,536 1.4% $ 80,466 $22.76 $23.22
1999......................................... 3 18,800 7.2 435,594 23.17 24.38
2000......................................... 2 18,135 7.0 412,446 22.74 27.17
2001......................................... 2 18,135 7.0 442,369 24.39 28.64
2002......................................... 5 51,310 19.7 1,135,858 22.14 24.11
2003......................................... 5 61,062 23.5 1,290,923 21.14 26.47
2004......................................... 2 18,364 7.1 316,582 17.24 21.56
2005......................................... 1 9,735 3.7 198,096 20.35 22.40
2006......................................... 1 16,400 6.3 464,792 28.34 37.06
2007 and thereafter.......................... 2 30,870 11.9 791,803 25.65 33.90
--- ----------- --- ---------- --------- -----------
SUBTOTAL/WEIGHTED AVERAGE.................... 25 246,347 94.8% $5,568,931 $22.61 $27.09(2)
Unleased at 3/31/97.......................... 13,602 5.2%
--- ----------- --- ---------- --------- -----------
TOTAL.................................... 259,949 100%
----------- ---
----------- ---
</TABLE>
- ------------------------
(1) For comparison purposes, according to RELocate, the Direct Weighted Average
Rental Rate for the direct Class B Park Avenue South/Flatiron submarket
(which, according to RELocate, is the area bounded by the northside of 32nd
Street, the southside of 20th Street, First Avenue and east to Fifth Avenue
from 20th Street to 23rd Street and Broadway from 24th Street to 32nd
Street) was $21.99 as of March 31, 1997. Direct Weighted Average Rental Rate
represents the weighted average of asking rental rates for direct Class B
space. Asking rental rates generally are higher than actual rental rates
(which generally are not publicly available). Therefore, the Direct Weighted
Average Rental Rate may not be representative of asking or actual rental
rates at 470 Park Avenue South.
(2) The differential between Annual Escalated Rent Per Leased Square Foot of
Expiring Leases and Annual Escalated Rent Per Leased Square Foot of Expiring
Leases with Future Step-Ups is attributable to significant contractual
step-ups in base rental rates that exist in certain leases at this Property.
In 1987, 1990 and 1994, 470 Park Avenue South was substantially renovated by
SL Green to upgrade the building's amenities and services to accommodate first
class office use. The renovations were completed at a total cost of
approximately $2.6 million and included a significant restoration of the
exterior of the building, a new lobby, a cosmetic upgrade of the elevator cabs,
modernization of the elevator machinery, new plumbing risers, electrical service
upgrades, heating plant replacement, asbestos abatement, installation of a new
roofing system and new windows and replacement of the bathrooms and HVAC systems
on a floor by floor basis. Over the next 18 months, the Company anticipates
replacing the sidewalk in front of the building, upgrading the elevators,
completing a modest facade restoration and scraping and painting the windows, at
an estimated aggregate cost of $337,000.
The aggregate undepreciated tax basis of depreciable real property at 470
Park Avenue South for Federal income tax purposes was $15,265,099 as of March
31, 1997. Depreciation and amortization are computed on the straight-line method
over 39 years.
71
<PAGE>
The current real estate tax rate for all Manhattan office properties is
$10.252 per $100 of assessed value. The total annual tax for 470 Park Avenue
South at this rate for the 1996-97 tax year is $673,556 (at an assessed value of
$6,570,000).
36 WEST 44TH STREET (THE BAR BUILDING)
36 West 44th Street (the Bar Building) is comprised of two buildings, 36
West 44th Street (a 14-story building) and 35 West 43rd Street (a four-story
building), located on the south side of West 44th Street through to the north
side of West 43rd Street between Fifth and Avenue of the Americas in the
Rockefeller Center submarket of the Manhattan office market. The buildings were
completed in 1922 and, as discussed below, a renovation is scheduled for
1997/1998. The Property contains approximately 165,000 rentable square feet
(including approximately 148,500 square feet of office space and approximately
16,500 square feet of retail space), with floor plates of approximately 12,000
square feet at the 44th Street building and floor plates of approximately 2,200
square feet at the 43rd Street building. A limited liability company owned by SL
Green and an unaffiliated real estate fund (the "Bar Building Joint Venture")
acquired non-performing mortgage indebtedness encumbering the Property from an
institutional lender in October 1996. Pursuant to a subsequent agreement with
the mortgagor, the Bar Building Joint Venture obtained the right to foreclose on
the Bar Building no earlier than September 30, 1998. Upon recording of the
conveyancing instruments, the Bar Building Joint Venture is required to pay to
the mortgagor and/or its affiliates the sum of $350,000, and to pay the New York
City and New York State Real Property Transfer Gains Taxes imposed upon
recording of the conveyancing instruments. Upon completion of the Formation
Transactions, the Company will acquire all of the mortgage indebtedness
encumbering the Property (representing effectively a 100% economic interest
therein) as well as such right of foreclosure. Upon exercising such right of
foreclosure, the Company would obtain a leasehold interest (which expires in
2080) in the land and building at 35 West 43rd Street and fee simple title to
the building at 36 West 44th Street.
The Bar Building is centrally located on 44th Street between Fifth Avenue
and Avenue of the Americas, in the heart of midtown Manhattan, a block that
includes the headquarters of the Association of the Bar of the City of New York,
the University of Pennsylvania Alumni Club, the Harvard Club, the Algonquin
Hotel, the Royalton Hotel and the Mansfield Hotel. A new Sofitel hotel is
planned for the vacant parcel of land located across the street from the Bar
Building. This location is within two and one half blocks of Grand Central
Terminal, four blocks of Rockefeller Center and five blocks of the Port
Authority Bus Terminal, a major transportation hub for commuters from New
Jersey.
When SL Green first purchased its interest in the Bar Building in October
1996, approximately 35,000 square feet of space was vacant and approximately
70,000 square feet of space was subject to leases expiring within 18 months. The
Property was nearing the end of a consensual foreclosure process during which
little capital was spent on preventive maintenance or leasing incentives. Since
the purchase of its interest, SL Green has implemented an aggressive leasing and
marketing campaign in conjunction with a strategic property-wide renovation
program. The Company is planning to spend $1.1 million over the next 18 months
on this upgrade and renovation program at the Property, which expense will be
funded out of the net proceeds of the Offering. Some of this work includes roof
repair, facade restoration and steam cleaning, window upgrade, entrance and
lobby upgrade, sidewalk replacement and public corridor renovations. As of May
15, 1997, approximately 11,800 square feet of space at the Property was vacant
and approximately 64% of the expiring leases were renewed.
As of March 31, 1997, approximately 81% of the rentable square footage in
The Bar Building was leased. The office space was 80% leased and the retail
space was 89% leased. As noted above, SL Green has commenced an aggressive
leasing program at the Property and as of May 31, 1997, approximately 93%
72
<PAGE>
of the rentable square feet in the Property was leased. The following table sets
forth certain information with respect to the Property:
<TABLE>
<CAPTION>
ANNUAL NET
EFFECTIVE
ANNUAL ESCALATED RENT
RENT PER LEASED PER LEASED
YEAR-END PERCENT LEASED SQUARE FOOT SQUARE FOOT
- ----------------------------------------------------------------- ------------------- ----------------- -------------
<S> <C> <C> <C>
1997(1).......................................................... 81% $ 29.37 $ 26.09
1996............................................................. 78 29.56 26.56
</TABLE>
- ------------------------
(1) Information is as of March 31, 1997.
As of March 31, 1997, the Bar Building was leased to 52 tenants operating in
various businesses, including legal, not-for-profit and the theater, one of whom
occupied 10% or more of the rentable square footage at the Property. A
professional organization for lawyers occupied approximately 16,777 square feet
(approximately 10.7% of the Property) under two leases expiring on September 30,
1999 that provide for an aggregate annualized base rent as of March 31, 1997 of
approximately $403,000 (approximately $24.00 per square foot). In addition to
annualized base rent, this tenant pays real estate tax escalations and operating
escalations in excess of a base year amount.
The following table sets out a schedule of the annual lease expirations at
The Bar Building with respect to leases executed as of March 31, 1997 for each
of the next ten years and thereafter (assuming that no tenants exercise renewal
or cancellation options and that there are no tenant bankruptcies or other
tenant defaults):
<TABLE>
<CAPTION>
ANNUAL
ANNUAL ESCALATED
ESCALATED RENT PER
RENT LEASED
PERCENTAGE ANNUAL PER SQUARE FOOT
SQUARE OF ESCALATED LEASED OF EXPIRING
NUMBER FOOTAGE TOTAL RENT SQUARE LEASES
OF OF LEASED OF FOOT OF WITH
EXPIRING EXPIRING SQUARE EXPIRING EXPIRING FUTURE
YEAR OF LEASE EXPIRATION LEASES LEASES FEET LEASES LEASES(1) STEP-UPS
- ---------------------------------------------- --------------- --------- --------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
March 31 through December 31, 1997............ 13 32,023 23.9% $ 934,815 $ 29.19 $ 29.23
1998.......................................... 5 5,136 3.8 141,589 27.57 28.41
1999.......................................... 5 22,176 16.5 864,628 38.99 39.59
2000.......................................... 10 23,223 17.3 661,586 28.49 29.66
2001.......................................... 8 16,702 12.5 463,699 27.76 31.04
2002.......................................... 3 7,967 5.9 200,370 25.15 26.75
2003.......................................... 3 8,069 6.0 156,424 19.39 22.99
2004.......................................... 2 9,982 7.4 273,645 27.41 29.40
2005.......................................... -- -- -- -- -- --
2006.......................................... 2 8,095 6.0 209,407 25.87 28.74
2007 and thereafter........................... 1 700 0.5 31,272 44.67 83.03
--
--------- ----- ------------ ----------- -----------
SUBTOTAL/WEIGHTED AVERAGE..................... 52 134,073 81.4% $ 3,937,435 $ 29.37(2) $ 30.93
--
------------ ----------- -----------
Unleased at 3/31/97........................... 30,711 18.6%
--------- -----
TOTAL..................................... 164,784 100.0%
--------- -----
--------- -----
</TABLE>
- ------------------------
(1) For comparison purposes, according to RELocate, the Direct Weighted Average
Rental Rate for the direct Class B Rockefeller Center submarket (which,
according to RELocate, is the area between 40th Street to 59th Street along
Avenue of the Americas and 40th Street to 52nd Street between 5th Avenue and
Avenue of the Americas) was $27.09 per square foot as of March 31, 1997.
Direct
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
73
<PAGE>
(FOOTNOTES CONTINUED FROM PRECEDING PAGE)
Weighted Average Rental Rate represents the weighted average of asking
rental rates for direct Class B space. Asking rental rates generally are
higher than actual rental rates (which generally are not publicly
available). Therefore, the Direct Weighted Average Rental Rate may not be
representative of asking or actual rental rates at the Bar Building.
(2) Excluding rental payments attributable to retail space at this Property, the
weighted average Annual Escalated Rent Per Leased Square Foot of Expiring
Leases would be $28.38.
The aggregate tax basis of the mortgage indebtedness encumbering The Bar
Building for Federal income tax purposes was $11,063,546 as of March 31, 1997.
The current real estate tax rate for all Manhattan office properties is
$10.252 per $100 of assessed value. The total annual tax for The Bar Building at
this rate for the 1996-97 tax year is $838,409 (at an assessed value of
$8,178,000).
70 WEST 36TH STREET
70 West 36th Street is a 16-story office building located on the south side
of West 36th Street between Fifth Avenue and Sixth Avenue in the Garment
submarket of the Manhattan office market. The building, situated between Grand
Central Terminal and Penn Station, was completed in 1923 and various portions of
the common areas were renovated in 1985, 1993 and 1994. SL Green acquired a 100%
fee simple interest in the Property in 1984. Upon completion of the Formation
Transaction, this fee simple interest will be transferred to the Company. The
Property contains approximately 150,000 rentable square feet (including
approximately 129,000 square feet of office space and approximately 21,000
square feet of retail space including the basement), with floor plates ranging
from 6,500 square feet to 10,000 square feet. The Company's headquarters is
located at 70 West 36th Street.
As of March 31, 1997, approximately 96% of the rentable square footage in 70
West 36th Street was leased (including space for leases that were executed as of
March 31, 1997). The office space was 95% leased and the retail space was 100%
leased. The following table sets forth certain information with respect to the
Property:
<TABLE>
<CAPTION>
ANNUAL NET
EFFECTIVE
ANNUAL ESCALATED RENT RENT
PER LEASED PER LEASED
YEAR-END PERCENT LEASED SQUARE FOOT SQUARE FOOT
- ---------------------------------------- ------------------- --------------------- -------------
<S> <C> <C> <C>
1997(1)................................. 96% $ 19.14 $ 15.94
1996.................................... 95 19.50 15.92
1995.................................... 94 21.13 16.08
1994.................................... 92 21.31 16.09
1993.................................... 89 21.99 16.59
1992.................................... 92 22.08 16.31
</TABLE>
- ------------------------
(1) Information is as of March 31, 1997.
As of March 31, 1997, 70 West 36th Street was leased to 39 tenants operating
in various industries, including textiles, not-for-profit and advertising, one
of whom occupied 10% or more of the rentable square footage at the Property. A
textile company occupied approximately 16,222 square feet (approximately 10.8%
of the Property) under one lease expiring on December 31, 2003 that provides for
an aggregate annualized base rent as of March 31, 1997 of approximately $266,000
(approximately $25.83 per square foot). In addition to annualized base rent,
this tenant pays real estate tax escalations and operating escalations in excess
of a base year amount.
74
<PAGE>
The following table sets out a schedule of the annual lease expirations at
70 West 36th Street with respect to leases executed as of March 31, 1997 for
each of the next ten years and thereafter (assuming that no tenants exercise
renewal or cancellation options and that there are no tenant bankruptcies or
other tenant defaults):
<TABLE>
<CAPTION>
ANNUAL
ANNUAL ESCALATED
ESCALATED RENT PER
RENT LEASED
PERCENTAGE ANNUAL PER SQUARE FOOT
SQUARE OF ESCALATED LEASED OF EXPIRING
NUMBER FOOTAGE TOTAL RENT SQUARE LEASES
OF OF LEASED OF FOOT OF WITH
EXPIRING EXPIRING SQUARE EXPIRING EXPIRING FUTURE
YEAR OF LEASE EXPIRATION LEASES LEASES FEET LEASES LEASES(1) STEP-UPS
- -------------------------------------------------- ------------- --------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
March 31 through December 31, 1997................ 5 14,179 9.5% $ 304,819 $ 21.50 $ 21.50
1998.............................................. 7 24,314 16.3 487,373 20.05 21.88
1999.............................................. 3 7,078 4.7 117,575 16.61 17.15
2000.............................................. 2 7,245 4.8 141,864 19.58 19.95
2001.............................................. 7 12,147 8.1 243,276 20.03 21.17
2002.............................................. 6 19,122 12.8 358,489 18.75 20.28
2003.............................................. 3 29,714 19.9 536,014 18.04 20.01
2004.............................................. 1 2,589 1.7 58,017 22.41 22.41
2005.............................................. 2 9,047 6.1 178,309 19.71 20.47
2006.............................................. 3 18,356 12.3 326,702 17.80 23.42
2007 and thereafter............................... -- -- -- -- -- --
--
--------- ----- ------------ ----------- -----------
SUBTOTAL/WEIGHTED AVERAGE......................... 39 143,791 96.2% $ 2,752,439 $ 19.14 $ 20.80
--
------------ ----------- -----------
Unleased at 3/31/97 5,732 3.8%
--------- -----
TOTAL......................................... 149,523 100.0%
--------- -----
--------- -----
</TABLE>
- ------------------------
(1) For comparison purposes, according to RELocate the Direct Weighted Average
Rental Rate for the direct Class B Garment Center submarket (which,
according to RELocate is the area from 32nd Street to 40th Street, west of
Avenue of the Americas to the Hudson River) was $22.27 as of March 31, 1997.
Direct Weighted Average Rental Rate represents the weighted average of
asking rental rates for direct Class B space. Asking rental rates generally
are higher than actual rental rates (which generally are not publicly
available). Therefore, the Direct Weighted Average Rental Rate may not be
representative of asking or actual rental rates at 70 West 36th Street.
In 1984, a complete renovation of 70 West 36th Street was commenced to
convert the Property from a manufacturing loft building into an office building.
The conversion included the creation of a new lobby and building entrance,
installation of office quality public corridors and lavatories, steam cleaning
and repainting of the Property's facade and upgrading and reconfiguration of the
building's plumbing system and electric service. In addition, a monitored,
state-of-the-art security system was installed for the building's entrance and
all tenant spaces. In 1994, further renovations included a new heating plant,
asbestos abatement and elevator modernization, including new cabs. The aggregate
cost of these renovations was approximately $3 million.
70 West 36th Street is located in the Fashion Center Business Improvement
District (BID). The Fashion Center BID encompasses the area bordered to the
north and south by 41st Street and 35th Street, respectively, and to the east
and west by Avenue of the Americas and Ninth Avenue, respectively. The BID
includes approximately 450 buildings with over 5,000 fashion-related tenants
occupying more than 34 million square feet of office space. The Fashion Center
BID provides a private, uniformed security force for on-street, five-day-per
week surveillance and response and a private, uniformed sanitation force. In
75
<PAGE>
addition, the BID has been responsible for the implementation of various special
projects in the area, including the construction of handicapped access curbs and
the installation of enhanced street lighting.
The aggregate undepreciated tax basis of depreciable real property at 70
West 36th Street for Federal income tax purposes was $6,749,498 as of March 31,
1997. Depreciation and amortization are computed on the straight-line method
over 39 years.
The current real estate tax rate for all Manhattan office properties is
$10.252 per $100 of assessed value. The total annual tax for 70 West 36th Street
at this rate for the 1996-97 tax year, including the applicable BID tax, is
$383,955 (at an assessed value of $3,645,000).
1414 AVENUE OF THE AMERICAS
1414 Avenue of the Americas is a 19-story office building located on the
southeast corner of Avenue of the Americas (Sixth Avenue) and West 58th Street
in the Rockefeller Center submarket of the Manhattan office market. The
building, situated one block from Central Park, was completed in 1923 and a
renovation program is scheduled for 1997/1998. The program will include new
windows, lobby and entrance as well as steam cleaning of the facade, at an
estimated aggregate cost of $660,000. SL Green acquired a 100% fee simple
interest in the Property in 1996. Upon completion of the Formation Transactions,
such fee simple interest will be transferred to the Company. The Property
contains approximately 111,000 rentable square feet (including approximately
103,000 square feet of office space and approximately 8,000 square feet of
retail space), with floor plates of approximately 6,400 square feet on all but
the top floor.
Located on the easterly blockfront of Sixth Avenue between 57th and 58th
Streets, the Property is at the heart of the Avenue of the Americas corridor
which is host to many of world's most recognizable corporate names in domestic
and international banking, legal services, manufacturing, securities, printing,
publishing, advertising and communications. The Property also benefits from
being strategically located one block north of 57th Street. 57th Street has
become the focal point of the resurgence of high end and specialty retail
development in New York in recent years. Warner Brothers recently expanded their
successful company store on 57th Street and Fifth Avenue. In addition, the Nike
Town Store recently opened on 57th Street between Fifth and Madison Avenues.
High-profile theme retail restaurants such as the Harley Davidson Cafe, the Hard
Rock Cafe, the Motown Cafe, Planet Hollywood and the Jekyll and Hyde Cafe have
all also opened restaurant/theme stores on 57th Street and Avenue of the
Americas. These developments have made the 57th Street corridor a major shopping
and tourist destination which accommodates clientele generated by the area's
concentration of businesses and tourist attractions.
As of March 31, 1997, approximately 98% of the rentable square footage in
1414 Avenue of the Americas was leased (including space for leases that were
executed as of March 31, 1997). The office space was 98% leased and the retail
space was 100% leased. The following table sets forth certain information with
respect to the Property:
<TABLE>
<CAPTION>
ANNUAL NET
EFFECTIVE
ANNUAL ESCALATED RENT RENT
PER LEASED PER LEASED
YEAR-END PERCENT LEASED SQUARE FOOT SQUARE FOOT
- ---------------------------------------- ------------------- --------------------- -------------
<S> <C> <C> <C>
1997(1)................................. 98% $ 31.01 $ 31.04
1996.................................... 97 30.40 31.11
</TABLE>
- ------------------------
(1) Information is as of March 31, 1997.
As of March 31, 1997, 1414 Avenue of the Americas was leased to 31 tenants
operating in various industries including financial services, shoe manufacturing
and travel, two of whom occupied 10% or more of the rentable square footage at
the Property. A shoe manufacturer and retailer occupied approximately 12,200
square feet (approximately 11% of the Property) under a lease expiring on
September 30, 1998 that
76
<PAGE>
provides for annualized base rent as of March 31, 1997 of approximately $420,268
(approximately $34.45 per square foot) and a cancellation option that has been
exercised and takes effect as of September 30, 1998. All of the space subject to
the expiration has been released to two tenants. In addition to annualized base
rent, this tenant pays real estate tax escalations and operating escalations in
excess of a base year amount.
In addition, an entertainment product developer occupied approximately
13,975 square feet (approximately 12.5% of the Property) under a lease expiring
on May 31, 2004 that provides for annualized base rent as of March 31, 1997 of
approximately $305,725 (approximately $21.88 per square foot). In addition to
annualized base rent, this tenant pays real estate tax escalations and operating
escalations in excess of a base year amount.
The following table sets out a schedule of the annual lease expirations at
1414 Avenue of the Americas with respect to leases executed as of March 31, 1997
for each of the next ten years and thereafter (assuming that no tenants exercise
renewal or cancellation options and that there are no tenant bankruptcies or
other tenant defaults:
<TABLE>
<CAPTION>
ANNUAL
ANNUAL ESCALATED
ESCALATED RENT PER
RENT LEASED
PERCENTAGE ANNUAL PER SQUARE FOOT
SQUARE OF ESCALATED LEASED OF EXPIRING
NUMBER FOOTAGE TOTAL RENT SQUARE LEASES
OF OF LEASED OF FOOT OF WITH
EXPIRING EXPIRING SQUARE EXPIRING EXPIRING FUTURE
YEAR OF LEASE EXPIRATION LEASES LEASES FEET LEASES LEASES(1) STEP-UPS
- ------------------------------------------------- ------------- ---------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
March 31 through December 31, 1997............... 4 6,480 5.8% $ 162,912 $ 25.14 $ 27.42
1998............................................. 6 12,533(2) 19.3 853,235 39.62 43.01
1999............................................. 2 12,300 11.0 432,980 35.20 38.94
2000............................................. 2 4,200 3.8 108,985 25.95 32.92
2001............................................. 5 14,265 12.8 378,614 26.54 31.64
2002............................................. 1 1,100 1.0 26,400 24.00 26.50
2003............................................. 5 21,465 19.3 575,602 26.82 35.09
2004............................................. 1 13,975 12.6 355,950 25.47 31.84
2005............................................. 1 2,187 2.0 59,150 27.05 34.66
2006............................................. 2 3,100 2.8 82,600 26.65 39.62
2007 and thereafter.............................. 2 8,346 7.5 342,375 41.02 59.98
--
---------- ----- ------------ ----------- -----------
SUBTOTAL/WEIGHTED AVERAGE........................ 31 108,951 97.8% $ 3,378,804 $ 31.01(3) $ 37.62(4)
--
------------ ----------- -----------
Unleased at 3/31/97 2,400 2.2%
---------- -----
TOTAL........................................ 111,351 100.0%
---------- -----
---------- -----
</TABLE>
- ------------------------
(1) For comparison purposes, according to RELocate the Direct Weighted Average
Rental Rate for the direct Class B Rockefeller Center submarket (which,
according to RELocate, is the area between 40th Street to 59th Street along
Avenue of the Americas and 40th Street to 52nd Street between Fifth Avenue
and Avenue of the Americas) was $27.09 as of March 31, 1997. Direct Weighted
Average Rental Rate represents the weighted average of asking rental rates
for direct Class B space. Asking rental rates generally are higher than
actual rental rates (which generally are not publicly available). Therefore,
the Direct Weighted Average Rental Rate may not be representative of asking
or actual rental rates at 1414 Avenue of the Americas.
(2) As noted above, 12,200 square feet of the space expiring during 1998 has
been released to two tenants.
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
77
<PAGE>
(FOOTNOTES CONTINUED FROM PRECEDING PAGE)
(3) Excluding rental payments attributable to retail space at this Property, the
weighted average Annual Escalated Rent Per Leased Square Foot of Expiring
Leases would be $28.34.
(4) The differential between Annual Escalated Rent Per Leased Square Foot of
Expiring Leases and Annual Escalated Rent Per Leased Square Foot of Expiring
Leases with Future Step-Ups is attributable to significant contractual
step-ups in base rental rates that exist in certain leases at this Property.
The aggregate undepreciated tax basis of depreciable real property at 1414
Avenue of the Americas for Federal income tax purposes was $11,888,660 as of
March 31, 1997. Depreciation and amortization are computed on the straight-line
method over 39 years.
The current real estate tax rate for all Manhattan office properties is
$10.252 per $100 of assessed value. The total annual tax for 1414 Avenue of the
Americas at this rate for the 1996-97 tax year is $576,675 (at an assessed value
of $5,625,000).
29 WEST 35TH STREET
29 West 35th Street is a 12-story building located on the north side of West
35th Street between Fifth Avenue and Sixth Avenue in the Garment submarket of
the Manhattan office market. The building, situated between Grand Central
Terminal and Penn Station, was completed in 1911 and substantially renovated in
1985. SL Green acquired a 100% fee simple interest in the Property in 1983. Upon
completion of the Formation Transactions, such fee simple interest will be
transferred to the Company. The Property contains approximately 78,000 rentable
square feet (including approximately 72,000 square feet of office space and
approximately 6,000 square feet of retail space), with floor plates of
approximately 6,500 square feet.
As of March 31, 1997, approximately 92% of the rentable square footage in 29
West 35th Street was leased (including space for leases executed as of March 31,
1997). The office space was 90% leased and the retail space was 100% leased. The
following table sets forth certain information with respect to the Property:
<TABLE>
<CAPTION>
ANNUAL NET
EFFECTIVE
ANNUAL ESCALATED RENT
RENT PER LEASED PER LEASED
YEAR-END PERCENT LEASED SQUARE FOOT SQUARE FOOT
- --------------------------------------------- ------------------- ----------------- -------------
<S> <C> <C> <C>
1997(1)...................................... 92% $ 20.09 $ 16.20
1996......................................... 92 21.06 15.60
1995......................................... 92 21.26 15.77
1994......................................... 100 19.90 15.77
1993......................................... 88 19.53 15.94
1992......................................... 92 19.13 15.75
</TABLE>
- ------------------------
(1) Information is as of March 31, 1997.
As of March 31, 1997, 29 West 35th Street was leased to eight tenants
operating in the publishing, executive recruiting and specialty apparel
industries, three of whom occupied 10% or more of the rentable square footage at
the Property. A publishing company occupied approximately 19,500 square feet
(approximately 25% of the Property) under three leases expiring on April 8, 2004
that provide for an aggregate annualized base rent as of March 31, 1997 of
approximately $522,000 (approximately $26.75 per square foot). In addition to
annualized base rent, this tenant pays real estate tax escalations and operating
escalation in excess of a base year amount.
78
<PAGE>
Also, a second publishing company occupied approximately 16,250 square feet
(approximately 20.9% of the Property) under a lease expiring on December 31,
1999 that provides for annualized base rent as of March 31, 1997 of
approximately $260,000 (approximately $16.00 per square foot). In addition to
annualized base rent, this tenant pays real estate tax escalations and operating
escalation in excess of a base year amount.
In addition, an executive recruiting firm occupied approximately 9,750
square feet (approximately 12.5% of the Property) under a lease expiring on
August 14, 1998 that provides for annualized base rent as of March 31, 1997 of
approximately $184,000 (approximately $18.85 per square foot). In addition to
annualized base rent, this tenant pays real estate tax escalations and operating
escalations in excess of a base year amount.
The following table sets out a schedule of the annual lease expirations at
29 West 35th Street with respect to leases executed as of March 31, 1997 for
each of the next ten years and thereafter (assuming that no tenants exercise
renewal or cancellation options and that there are no tenant bankruptcies or
other tenant defaults):
<TABLE>
<CAPTION>
ANNUAL
ANNUAL ESCALATED
ESCALATED RENT PER
RENT LEASED
PERCENTAGE ANNUAL PER SQUARE FOOT
SQUARE OF ESCALATED LEASED OF EXPIRING
NUMBER FOOTAGE TOTAL RENT SQUARE LEASES
OF OF LEASED OF FOOT OF WITH
EXPIRING EXPIRING SQUARE EXPIRING EXPIRING FUTURE
YEAR OF LEASE EXPIRATION LEASES LEASES FEET LEASES LEASES(1) STEP-UPS
- ------------------------------------------------- ------------- ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
March 31 through December 31, 1997............... 1 3,835 4.9% $ 108,112 $ 28.19 $ 28.19
1998............................................. 1 9,750 12.5 184,122 18.88 20.42
1999............................................. 1 16,250 20.9 268,533 16.53 16.53
2000............................................. -- -- -- -- -- --
2001............................................. -- -- -- -- -- --
2002............................................. -- -- -- -- -- --
2003............................................. -- -- -- -- -- --
2004............................................. 3 28,500 36.6 696,953 24.45 33.74
2005............................................. -- -- -- -- -- --
2006............................................. -- -- -- -- -- --
2007 and thereafter.............................. 2 13,000 16.7 175,500 13.50 17.56
--
----------- ----- ------------ ----------- -----------
SUBTOTAL/WEIGHTED AVERAGE........................ 8 71,335 91.6% $ 1,433,222 $ 20.09 $ 24.75(2)
--
--
------------ ----------- -----------
------------ ----------- -----------
Unleased at 3/31/97.............................. 6,500 8.4%
----------- -----
TOTAL........................................ 77,835 100.0%
----------- -----
----------- -----
</TABLE>
- ------------------------
(1) For comparison purposes, according to RELocate, the Direct Weighted Average
Rental Rate for the direct Class B Garment submarket (which, according to
RELocate, is the area from 32nd Street to 40th Street west of Avenue of the
Americas to the Hudson River) was $22.27 as of March 31, 1997. Direct
Weighted Average Rental Rate represents the weighted average of asking
rental rates for direct Class B space. Asking rental rates generally are
higher than actual rental rates (which generally are not publicly
available). Therefore, the Direct Weighted Average Rental Rate may not be
representative of asking or actual rental rates at 29 West 35th Street.
(2) The differential between Annual Escalated Rent Per Leased Square Foot of
Expiring Leases and Annual Escalated Rent Per Leased Square Foot of Expiring
Leases with Future Step-Ups is attributable to significant contractual
step-ups in base rental rates that exist in certain leases at this Property.
79
<PAGE>
In 1985, 29 West 35th Street was substantially renovated by SL Green at a
total cost of approximately $1 million. The program included the renovation of
the building's lobby, entrance and storefronts, modernization of the elevator
equipment, including new cabs, new electric service and distribution, code
compliant lavatories and fire protection system and a new roof and sidewalk.
29 West 35th Street is located in the Fashion Center BID, which encompasses
the area bordered to the north and south by 41st Street and 35th Street and to
the east and west by Avenue of the Americas and Ninth Avenue, respectively. The
BID includes approximately 450 buildings with over 5,000 fashion-related tenants
occupying more than 34 million square feet of office space. The Fashion Center
BID provides a private, uniformed security force for on-street, five-day-per
week surveillance and response and a private, uniformed sanitation force. In
addition, the BID has been responsible for the implementation of various special
projects in the area, including the construction of handicapped access curbs and
the installation of enhanced street lighting.
The aggregate undepreciated tax basis of depreciable real property at 29
West 35th Street for Federal income tax purposes was $1,478,769 as of March 31,
1997. Depreciation and amortization are computed on the straight-line method
over 39 years.
The current real estate tax rate for all Manhattan office properties is
$10.252 per $100 of assessed value. The total annual tax for 29 West 35th Street
at this rate for the 1996-97 tax year, including the applicable BID tax, is
$179,654 (at an assessed value of $1,705,500).
ACQUISITION PROPERTIES
1372 BROADWAY. The Company has contracted to acquire a 100% fee interest in
1372 Broadway from an unaffiliated seller. Pursuant to a contractual arrangement
with the seller, the closing for the acquisition of such fee interest may not
occur prior to January 1998. However, the Company has also contracted to
acquire, at the time of the closing of the Offering, from an unaffiliated
institutional lender, certain mortgage indebtedness that will effectively
entitle the Company to receive all of the cash flow derived from the Property.
The aggregate purchase price for such fee interest and such mortgage
indebtedness is approximately $52.5 million.
1372 Broadway is a 21-story office building located on the northeast corner
of West 37th Street in the Garment submarket of the Manhattan office market. The
building, situated within four blocks of the Port Authority Bus Terminal and
Penn Station, was completed in 1914 and a renovation is anticipated to commence
in the fall of 1997. The Property contains approximately 508,000 rentable square
feet (including approximately 475,000 square feet of office space, approximately
24,000 square feet of retail space and 9,000 square feet of mezzanine space),
with floor plates ranging from 34,000 square feet to 11,000 square feet.
The Property is located within five blocks of Times Square, arguably the
most vibrant development area in New York City. Times Square has undergone
large-scale redevelopment in recent years that has transformed the area into a
popular family entertainment destination.
The Company has targeted the Fall of 1997 for commencement of a $2 million
capital improvement program geared toward enhancing the infrastructure and
marketability of the Property. Included in this renovation is a new lobby,
elevator cab modernization, freight elevator upgrade, facade restoration and
cleaning, sidewalk replacement and asbestos abatement.
80
<PAGE>
As of March 31, 1997, approximately 85% of the rentable square footage in
1372 Broadway was leased (including space for leases that were executed as of
March 31, 1997). As of May 15, 1997, approximately 83% of the rentable square
feet in the Property was leased. The following table sets forth certain
information with respect to the Property:
<TABLE>
<CAPTION>
ANNUAL NET
ANNUAL ESCALATED EFFECTIVE
RENT RENT
PER LEASED PER LEASED
YEAR-END PERCENT LEASED SQUARE FOOT SQUARE FOOT
- ----------------------------------------------------------------- ------------------- ----------------- -------------
<S> <C> <C> <C>
1997(1).......................................................... 85% $ 22.21 $ 21.35
1996............................................................. 89 22.05 21.20
</TABLE>
- ------------------------
(1) Information is as of March 31, 1997.
As of March 31, 1997, 1372 Broadway was leased to 31 tenants operating in
various industries including financial services, textiles and retailing, four of
whom occupied 10% or more of the rentable square footage at the Property. A
clothing manufacturer occupied approximately 70,098 square feet (approximately
13.8% of the Property) under a lease expiring on March 31, 2010 that provides
for annualized base rent as of March 31, 1997 of approximately $1.24 million
(approximately $17.73 per square foot). In addition to annualized base rent,
this tenant pays real estate tax escalations and operating escalations in excess
of a base year amount.
In addition, a shirt manufacturer occupied approximately 64,000 square feet
(approximately 12.6% of the Property) under a lease expiring on July 31, 2005
that provides for annualized base rent as of March 31, 1997 of approximately
$1.28 million (approximately $20.00 per square foot). In addition to annualized
base rent, this tenant pays real estate tax escalations and operating
escalations in excess of a base year amount.
Also, a women's fashion retailer occupied approximately 58,975 square feet
(approximately 11.6% of the Property) under a lease expiring on July 31, 2010
that provides for annualized base rent as of March 31, 1997 of approximately
$1.17 million (approximately $19.82 per square foot). In addition to annualized
base rent, this tenant pays real estate tax escalations and operating
escalations in excess of a base year amount.
In addition, a commercial bank occupied approximately 55,238 square feet
(approximately 10.9% of the Property) under a lease expiring on March 31, 2000
that provides for annualized base rent as of March 31, 1997 of approximately
$1.24 million (approximately $22.37 per square foot). In addition to annualized
base rent, this tenant pays real estate tax escalations and operating
escalations in excess of a base year amount.
81
<PAGE>
The following table sets out a schedule of the annual lease expirations at
1372 Broadway with respect to leases executed as of March 31, 1997 for each of
the next ten years and thereafter (assuming that no tenants exercise renewal or
cancellation options and that there are no tenant bankruptcies or other tenant
defaults):
<TABLE>
<CAPTION>
ANNUAL
ESCALATED
ANNUAL RENT PER
PERCENTAGE ANNUAL ESCALATED LEASED
SQUARE OF ESCALATED RENT PER SQUARE FOOT
NUMBER FOOTAGE TOTAL RENT LEASED OF EXPIRING
OF OF LEASED OF SQUARE FOOT LEASES WITH
EXPIRING EXPIRING SQUARE EXPIRING OF EXPIRING FUTURE
YEAR OF LEASE EXPIRATION LEASES LEASES FEET LEASES LEASES (1) STEP-UPS
- ------------------------------------------------ ----------- --------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
March 31 through December 31, 1997.............. 1 506 0.1% $ 11,119 $ 21.97 $ 21.97
1998............................................ 2 2,847 0.6 138,128 48.52 48.67
1999............................................ 5 10,266 2.0 233,683 27.76 23.66
2000............................................ 4 78,157 15.4 1,996,071 25.54 26.14
2001............................................ -- -- -- -- -- --
2002............................................ 6 56,138 11.1 1,071,103 19.08 19.90
2003............................................ 1 20,500 4.0 429.987 20.97 21.97
2004............................................ -- -- -- -- -- --
2005............................................ 2 98,167 19.3 1,871,498 19.06 21.41
2006............................................ 4 8,177 1.6 595,542 72.83 86.90
2007 and thereafter............................. 6 155,331 30.6 3,204,957 20.63 25.47
----------- --------- ----------- ------------ ----------- -----------
SUBTOTAL/WEIGHTED AVERAGE....................... 31 430,089 84.7% $ 9,552,088 $ 22.21(2) $ 25.05(3)
----------- ------------ ----------- -----------
Unleased at 3/31/97............................. 77,849 15.3%
--------- -----------
TOTAL....................................... 507,938 100.0%
--------- -----------
--------- -----------
</TABLE>
- ------------------------
(1) For comparison purposes, according to RELocate, the Direct Weighted Average
Rental Rate for the direct Class B Garment submarket (which, according to
RELocate is the area from 32nd Street to 40th Street, west of Avenue of the
Americas to the Hudson River) was $22.27 as of March 31, 1997. Direct
Weighted Average Rental Rate represents the weighted average of asking
rental rates for direct Class B space. Asking rental rates generally are
higher than actual rental rates (which generally are not publicly
available). Therefore, the Direct Weighted Average Rental Rate may not be
representative of asking or actual rental rates at 1372 Broadway.
(2) Excluding rental payments attributable to retail space at this Property, the
weighted average Annual Escalated Rent Per Leased Square Foot of Expiring
Leases would be $20.36.
(3) The differential between Annual Escalated Rent Per Leased Square Foot of
Expiring Leases and Annual Escalated Rent Per Leased Square Foot of Expiring
Leases with Future Step-Ups is attributable to significant contractual
step-ups in base rental rates that exist in certain leases at this Property.
1372 Broadway is located in the Fashion Center BID, which encompasses the
area bordered to the north and south by 41st Street and 35th Street,
respectively, and to the east and west by Avenue of the Americas and Ninth
Avenue, respectively. The BID includes approximately 450 buildings with over
5,000 fashion-related tenants occupying more than 34 million square feet of
office space. The Fashion Center BID provides a private, uniformed security
force for on-street, five-day-per week surveillance and response and a private,
uniformed sanitation force. In addition, the BID has been responsible for the
implementation of various special projects in the area, including the
construction of handicapped access curbs and the installation of enhanced street
lighting.
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1140 AVENUE OF THE AMERICAS. The Company has contracted to acquire a 100%
interest in the leasehold position in 1140 Avenue of the Americas from an
unaffiliated seller for an aggregate cash purchase price of approximately $20.9
million. The Company intends to encumber the Property with an approximately $14
million first mortgage loan at the time of closing of the Offering and is
currently negotiating the terms of such loan with prospective lenders. 1140
Avenue of the Americas is a 22-story office building completed in 1926 and
renovated in 1951 and located in the Rockefeller Center submarket of the
Manhattan office market. The Property contains approximately 191,000 rentable
square feet (including approximately 175,000 square feet of office space,
approximately 7,600 square feet of retail space and 8,400 square feet of
mezzanine space), with floor plates ranging from 3,500 square feet to 9,400
square feet.
1140 Avenue of the Americas is centrally located at the northeast corner of
West 44th Street and Avenue of the Americas, in the heart of midtown Manhattan,
at the end of a block that includes the headquarters of the Association of the
Bar of the City of New York, the University of Pennsylvania Alumni Club, the
Harvard Club, the Algonquin Hotel, the Royalton Hotel and the Mansfield Hotel. A
new Sofitel hotel is planned for a vacant parcel of land located on the block.
The location is within three blocks of Grand Central Terminal, four blocks of
Rockefeller Center and five blocks of the Port Authority Bus Terminal, a major
transportation hub for commuters from New Jersey.
As of March 31, 1997, approximately 98% of the rentable square footage in
1140 Avenue of the Americas was leased (including space for leases that were
executed as of March 31, 1997). The following table sets forth certain
information with respect to the Property:
<TABLE>
<CAPTION>
ANNUAL NET
ANNUAL ESCALATED EFFECTIVE
RENT RENT
PER LEASED PER LEASED
YEAR-END PERCENT LEASED SQUARE FOOT SQUARE FOOT
- ----------------------------------------------------------------- ------------------- ----------------- -------------
<S> <C> <C> <C>
1997(1).......................................................... 98% $ 26.93 $ 24.92
1996............................................................. 99 27.77 24.91
</TABLE>
- ------------------------
(1) Information is as of March 31, 1997.
As of March 31, 1997, 1140 Avenue of the Americas was leased to 40 tenants
operating in various industries including executive placement, financial
services and precious stones, none of whom occupied 10% or more of the rentable
square footage at the Property.
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<PAGE>
The following table sets out a schedule of the annual lease expirations at
1140 Avenue of the Americas with respect to leases executed as of March 31, 1997
for each of the next ten years and thereafter (assuming that no tenants exercise
renewal or cancellation options and that there are no tenant bankruptcies or
other tenant defaults):
<TABLE>
<CAPTION>
ANNUAL
ESCALATED
ANNUAL RENT PER
PERCENTAGE ANNUAL ESCALATED LEASED
SQUARE OF ESCALATED RENT PER SQUARE FOOT
NUMBER FOOTAGE TOTAL RENT LEASED OF EXPIRING
OF OF LEASED OF SQUARE FOOT LEASES WITH
EXPIRING EXPIRING SQUARE EXPIRING OF EXPIRING FUTURE
YEAR OF LEASE EXPIRATION LEASES LEASES FEET LEASES LEASES (1) STEP-UPS
- ------------------------------------------------ ----------- --------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
March 31 through December 31, 1997.............. 5 22,076 11.6% $ 677,371 $ 30.68 $ 30.68
1998............................................ 4 5,534 2.9 180,291 32.58 33.04
1999............................................ 9 31,519 16.5 869,030 27.57 27.57
2000............................................ 2 13,400 7.0 376,992 28.13 29.73
2001............................................ 5 22,198 11.6 693,223 31.23 32.10
2002............................................ -- -- -- -- -- --
2003............................................ 5 17,819 9.3 443,930 24.91 29.30
2004............................................ 5 40,370 21.4 937,632 23.23 27.20
2005............................................ 3 17,498 9.2 448,885 25.65 30.43
2006............................................ 1 9,400 4.9 214,038 27.77 30.77
2007 and thereafter............................. 1 7,175 3.8 194,122 27.06 33.06
--- --------- ----------- ------------ ----------- -----------
SUBTOTAL/WEIGHTED AVERAGE....................... 40 186,989 97.9% $ 5,035,514 $ 26.93(2) $ 29.52(3)
--- ------------ ----------- -----------
Unleased at 3/31/97............................. 3,982 2.1%
--------- -----------
TOTAL....................................... 190,971 100.0%
--------- -----------
--------- -----------
</TABLE>
- ------------------------
(1) For comparison purposes, according to RELocate the Direct Weighted Average
Rental Rate for the direct Class B Rockefeller Center submarket (which,
according to RELocate, is the area between 40th Street to 59th Street along
Avenue of the Americas and 40th Street to 52nd Street between Fifth Avenue
and Avenue of the Americas) was $27.09 as of March 31, 1997. Direct Weighted
Average Rental Rate represents the weighted average of asking rental rates
for direct Class B space. Asking rental rates generally are higher than
actual rental rates (which generally are not publicly available). Therefore,
the Direct Weighted Average Rental Rate may not be representative of asking
or actual rental rates at 1140 Avenue of the Americas.
(2) Excluding rental payments attributable to retail space at this Property, the
weighted average Annual Escalated Rent Per Leased Square Foot of Expiring
Leases would be $25.65.
(3) The differential between Annual Escalated Rent Per Leased Square Foot of
Expiring Leases and Annual Escalated Rent Per Leased Square Foot of Expiring
Leases with Future Step-Ups is attributable to significant contractual
step-ups in base rental rates that exist in certain leases at this Property.
THE OPTION PROPERTY
SL Green expects to obtain an option from an unaffiliated seller to acquire
a 100% fee interest in 50 West 23rd Street, a 330,000 rentable square foot
13-story Class B office building located in the Chelsea submarket of Manhattan.
The cost of obtaining the option is expected to be $500,000 and the purchase
price for the property is expected to be approximately $36 million. In
connection with the Formation Transactions, the option, if acquired, will be
assigned to the Operating Partnership at cost and will be
84
<PAGE>
exercisable through July 31, 1997. The term of the option is expected to be
extendable for up to three successive one month periods (I.E., through October
31, 1997) at a cost of $100,000 per extension.
GENERAL TERMS OF LEASES IN THE MIDTOWN MARKETS
Leases entered into for space in the Midtown Markets typically contain terms
which may not be contained in leases in other U.S. office markets. The initial
term of leases entered into for space in excess of 10,000 square feet in the
Midtown Markets generally is ten to 15 years. The tenant often will negotiate an
option to extend the term of the lease for one or two renewal periods of five
years each. The base rent during the initial term often will provide for agreed
upon increases periodically over the term of the lease. Base rent for renewal
terms, and base rent for the final years of a long-term year lease (in those
leases which do not provide an agreed upon rent during such final years), often
is based upon a percentage of the fair market rental value of the premises
(determined by binding arbitration in the event the landlord and the tenant are
unable to mutually agree upon the fair market value) but not less than the base
rent payable at the end of the prior period. Leases typically do not provide for
increases in rent based upon increases in the consumer price index.
In addition to base rent, the tenant also generally will pay the tenant's
pro rata share of increases in real estate taxes and operating expenses for the
building over a base year. In some leases, in lieu of paying additional rent
based upon increases in building operating expenses, the tenant will pay
additional rent based upon increases in the wage rate paid to porters over the
porters' wage rate in effect during a base year.
Electricity is most often supplied by the landlord either on a submetered
basis or rent inclusion basis (i.e., a fixed fee is included in the rent for
electricity, which amount may increase based upon increases in electricity rates
or increases in electrical usage by the tenant). Base building services other
than electricity (such as heat, air-conditioning and freight elevator service
during business hours, and base building cleaning) typically are provided at no
additional cost, with the tenant paying additional rent only for services which
exceed base building services or for services which are provided other than
during normal business hours.
In a typical lease for a new tenant, the landlord, at its expense, will
deliver the premises with all existing improvements demolished and any asbestos
abated. The landlord also typically will provide a tenant improvement allowance,
which is a fixed sum which the landlord will make available to the tenant to
reimburse the tenant for all or a portion of the tenant's initial construction
of its premises. Such sum typically is payable as work progresses, upon
submission of invoices for the cost of construction. However, in certain leases
(most often for relatively small amounts of space), the landlord will construct
the premises for the tenant.
MORTGAGE INDEBTEDNESS
Upon completion of the Offering, the Company expects to have outstanding
approximately $46.5 million of indebtedness secured by four of the Properties.
The Company currently is negotiating with each of its lenders (and the
Property-owning entities are negotiating with each of their lenders) regarding
the terms of the indebtedness that will be outstanding after the Offering. The
following table sets forth the mortgage debt of the Company expected to be
outstanding after completion of the Offering and the Formation Transactions and
the Company's best estimate of the expected terms of such indebtedness.
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<PAGE>
MORTGAGE INDEBTEDNESS TO BE OUTSTANDING AFTER THE COMPLETION OF THE OFFERING
<TABLE>
<CAPTION>
ESTIMATED EXPECTED ESTIMATED ESTIMATED ESTIMATED
INTEREST PRINCIPAL ANNUAL MATURITY BALANCE AT
PROPERTY RATE BALANCE(1) DEBT SERVICE DATE MATURITY
- ---------------------------------------------- ----------- ------------- ------------ --------- -------------
<S> <C> <C> <C> <C> <C>
673 First Avenue.............................. 9.0% $ 18,618,630 $ 3,140,964 12/13/03 $ 2,000,000
470 Park Avenue South......................... 8.25 10,934,798 1,206,528 04/14/04 8,284,863
29 West 35th Street........................... 8.46 2,991,454 323,912 02/01/01 2,704,409
1140 Avenue of the Americas (2)............... 8.25(3) 14,000,000 1,155,000 07/31/07 14,000,000
------------- ------------ -------------
Total....................................... $ 46,544,882 $ 5,826,404 $ 26,989,272
------------- ------------ -------------
------------- ------------ -------------
</TABLE>
- ------------------------
(1) As of August 1, 1997.
(2) The Company expects to encumber this Acquistion Property with a first
mortgage loan upon approximately the terms set forth in this table.
(3) Estimated based upon current market interest rates.
CREDIT FACILITY
The Company currently is engaged in discussions with various lenders
regarding the establishment of a revolving Credit Facility that will be used to
facilitate acquisitions and for working capital purposes. Although the Company
expects that the Credit Facility will be established shortly after the
completion of the Offering, there can be no assurance at this time as to whether
the Company will be successful in obtaining the Credit Facility, or, if the
Credit Facility is established, the terms governing the Credit Facility.
ENVIRONMENTAL MATTERS
The Company engaged independent environmental consulting firms to perform
Phase I environmental site assessments on the Properties, in order to assess
existing environmental conditions. All of the Phase I assessments have been
conducted since March 1997, except for the Bar Building, where a Phase I
assessment was conducted in September 1996. All of the Phase I assessments met
the ASTM Standard. Under the ASTM Standard, a Phase I environmental site
assessment consists of a site visit, a historical record review, a review of
regulatory agency data bases and records, interviews, and a report, with the
purpose of identifying potential environmental concerns associated with real
estate. The Phase I assessments conducted at the Properties also addressed
certain issues that are not covered by the ASTM Standard, including asbestos,
radon, lead-based paint and lead in drinking water. These environmental site
assessments did not reveal any known environmental liability that the Company
believes will have a material adverse effect on the Company's financial
condition or results of operations or would represent a material environmental
cost.
The following summarizes certain environmental issues described in the Phase
I environmental site assessment reports:
The asbestos surveys conducted as part of the Phase I site assessments
identified immaterial amounts of damaged, friable asbestos-containing material
("ACM") in isolated locations in three of the Core Properties (470 Park Avenue
South, 29 West 35th Street and the Bar Building) and in the Acquisition
Properties (1140 Avenue of the Americas and 1372 Broadway). At each of these
Properties, the environmental consultant recommended abatement of the damaged,
friable ACM. At all of the Properties except 50 West 23rd Street, non-friable
ACM, in good condition, was identified. For each of these Properties, the
consultant recommended preparation and implementation of an asbestos Operations
and Maintenance ("O & M") program, to monitor the condition of ACM and to ensure
that any ACM that becomes friable
86
<PAGE>
and damaged is properly addressed. The Company does not believe that any risks
associated with ACM are likely to have a material adverse effect on the
Company's business.
The Phase I environmental site assessments identified minor releases of
petroleum products at the Bar Building and at 70 West 36th Street. The
consultant recommended implementation of certain measures to further
investigate, and to clean up, these releases. The Company does not believe that
any actions that may be required as a result of these releases will have a
material adverse effect on the Company's business.
PROPERTY MANAGEMENT AND LEASING SERVICES
The Company (through the Management Entities and the Leasing Corporation)
will conduct its management and leasing business largely in the same manner as
it currently is conducted by SL Green. SL Green currently provides management
and leasing services for 28 properties (including the Properties in the Core
Portfolio) in the New York metropolitan area. Of these properties, SL Green
currently has an ownership interest in the six Properties in the Core Portfolio
to be owned by the Company.
SL Green's management and leasing business is an established office property
management and leasing business with extensive experience. SL Green has been
managing and leasing Manhattan office properties since 1981. SL Green seeks to
provide tenants with a level of service more typically found in Class A
properties. The Company's comprehensive tenant service program and property
amenities have been designed to maximize tenant satisfaction and retention as
well as to establish long-term relationships with its tenant base. See "Business
and Growth Strategies" above.
The Company believes that its fully integrated management structure enhances
its ability to respond to tenant needs and permits the Company to maintain
control over certain costs associated with the management and renovation of its
properties. The Company maintains a staff of 40 professionals experienced in the
management of Manhattan Class B office properties. This management team has
developed a comprehensive knowledge of the Class B Manhattan office market, an
extensive network of local tenant and other business relationships and is
experienced in acquiring office properties and repositioning them into
profitable Class B properties through intensive full service management and
leasing efforts.
In addition, the Company seeks to capitalize on its market position and
relationships with an extensive network of brokers and tenants to implement a
proactive leasing program. Management believes that its extensive knowledge of
the Class B Manhattan office market enhances its ability to monitor, understand
and anticipate the current and future space needs of tenants in its submarkets.
See "Business and Growth Strategies" above.
After the completion of the Offering and the Formation Transactions, the
Company (through the Management LLC) will provide management and leasing
services for the Properties to be owned by the Company. In addition, it is
anticipated that the Company (through the Management Corporation and the Leasing
Corporation) will provide management and leasing services for properties in
which the Company owns no interest.
CONSTRUCTION SERVICES
The Company (through the Construction Corporation and the Management
Entities) will conduct the construction business largely in the same manner as
it currently is conducted by SL Green. Construction services will be provided
both as a part of the Company's management business and through the Construction
Corporation as a general contractor.
CONSTRUCTION MANAGEMENT AS PART OF MANAGEMENT SERVICE AGREEMENTS. A fee
from 1.5% to 5% of costs incurred for capital improvements or tenant
installations is paid to the Management Entities for construction management
services. These services are comprised of (i) preconstruction scope of work
development
87
<PAGE>
and preliminary cost estimating for the leasing department in connection with
potential leasing transactions, plan review and approval of proposed tenant
installation plans; coordination with property management with respect to tenant
installation construction as it relates to building systems; and, coordination
and supervision of tenant's architects, engineers and contractors in managed
properties from the beginning of lease workletter negotiations through
construction of the tenant's build-out to move-in and (ii) capital improvement
programs, including major building renovations, system upgrades, local law
compliance requirements, and completion of deferred maintenance items requiring
replacement (rather than repair).
GENERAL CONTRACTOR SERVICES PROVIDED THROUGH THE CONSTRUCTION
CORPORATION. The Construction Corporation will charge from 5% to 10% over the
costs of construction for the building of tenant installations in properties
managed and leased by the Management Entities and the Leasing Corporation. This
service enables the leasing agent to offer "turn-key" and "prebuilt" spaces to
prospective tenants who want to have space prepared for them to move into
without having to go through the designing/building process, while holding down
the costs of tenant improvements.
EMPLOYEES
The Company initially intends to employ approximately 50 persons. Of such 50
employees, approximately 48 will be "home office" executive and administrative
personnel and approximately two will be on-site management and administrative
personnel. Following the completion of the Offering and the Formation
Transactions, the Company currently expects that none of these employees will be
represented by a labor union.
TRANSFER OF PROPERTIES
Interests in the Properties in the Core Portfolio will be acquired by the
Company (through the Operating Partnership) pursuant to agreements for
contribution of interests (each a "Contribution Agreement"). The acquisitions
are subject to all of the terms and conditions of such agreements. The holders
of interests in the Property-owning entities (which own partial or complete
interests in the individual Properties) will transfer their interests to
entities controlled by the Company for cash or Units. The Company will assume
all the rights, obligations and responsibilities of the contributors of
interests. The transfer of ownership interests in each Property is subject to
the completion of the Offering.
The Contribution Agreements generally contain representations only with
respect to the ownership of the interests by the holders thereof and certain
other limited matters. Pursuant to a Supplemental Representations and Warranties
Agreement (the "Supplemental Agreement"), certain SL Green entities will agree
to indemnify the Company against certain breaches of representations and
warranties made by such SL Green entities with respect to the Properties and the
management, leasing and construction businesses being transferred to the Company
for a period of 12 months following the completion of the Offering. The maximum
aggregate liability of such SL Green entities under the Supplemental Agreement
is limited to the value of the Units received by the SL Green entities in the
Formation Transactions, with no liability being assumed until the aggregate
liability exceeds $250,000. Recourse for any liabilities under the Supplemental
Agreement will be limited to Units received by such SL Green entities in the
Formation Transactions. Certain SL Green entities will pledge an aggregate of
approximately $17.75 million of Units (based on the initial public offering
price of shares of Common Stock) to secure their indemnification obligations
under the Supplemental Agreement.
ASSETS NOT BEING TRANSFERRED TO THE COMPANY
In addition to the interests of SL Green in the Properties which are being
acquired by the Company, SL Green also owns interests in certain other
properties which the Company will not acquire at the time of the completion of
the Offering and the Formation Transactions. These interests are (i) a portion
of a net leasehold interest scheduled to expire in 2000, in a substantially
vacant showroom building located at 305
88
<PAGE>
East 63rd Street in Manhattan which is slated for conversion to residential
space, (ii) a one-third non-controlling interest in a loft building located at
133 West 21st Street in Manhattan substantially occupied by one tenant pursuant
to leases scheduled to expire in the near term, (iii) the net leasehold of an
office building located at 215 Park Avenue South in Manhattan, the equity in
which is controlled by the leasehold mortgagee and which the Company believes
has no value to SL Green, (iv) interests in ground floor retail and other
non-office commercial space in various predominantly residential buildings
located in Manhattan (830/832 Broadway, 5 East 16th Street, 12 East 12th Street,
8 East 12th Street and 30 West 15th Street), (v) an 89% interest in a
warehouse/distribution center in Bethlehem, Pennsylvania and (vi) a 12% interest
in a limited liability company that owns a mortgage interest in a 300,000 square
foot office building in midtown Manhattan, which interest cannot be transferred
to the Company without the consent of the owner of the remaining 88% interest.
The Company also will not acquire at the time of the completion of the
Offering any interest in certain office property service businesses currently
conducted by companies which are owned by a son of Stephen L. Green. These
services include office cleaning (and related) services and security services
with respect to the Company's properties and properties in which the Company
will not own any interest, as well as facilities management services with
respect to third parties. The interests in these service businesses are not
being transferred to the Company at the time of the completion of the Offering
in order to maintain the Company's qualification as a REIT for Federal income
tax purposes or because the Company does not believe such services are directly
related or material to the Company's business strategy.
After the completion of the Offering, the Company may retain two entities
(both of which are owned by a son of Stephen L. Green) to provide cleaning and
security services for the Properties. Such services would be provided to the
Company at competitive rates.
The Company expects these services would be provided under contracts with
such SL Green entities with an initial one-year term, but will be terminable by
either party upon 30 days' notice. Any actions with respect to the contracts to
provide these services that may be taken by the Company in the future would need
to be approved by a vote of the disinterested members of the Board of Directors
of the Company. See "Policies with Respect to Certain Activities--Conflict of
Interest Policies." After the completion of the Offering, certain employees of
the Management LLC will supervise the provision of cleaning and security
services by SL Green entities with respect to the Company's properties.
COMPETITION
All of the Properties are located in highly developed areas of midtown
Manhattan that include a large number of other office properties. Manhattan is
by far the largest office market in the United States and contains more rentable
square feet than the next six largest central business district office markets
in the United States combined. Of the total inventory of 378 million rentable
square feet in Manhattan approximately 205 million rentable square feet is
comprised of Class A office space and 173 million of Class B office space. Class
A office properties are generally newer than Class B office properties, have
higher finishes and command higher rental rates. Many tenants have been
attracted to Class B properties in part because of their relatively less
expensive rental rates and the tightening of the Class A office market in
midtown Manhattan. See "Market Overview." Consequently, an increase in vacancy
rates and/or a decrease in rental rates for Class A office space would likely
have an adverse effect on rental rates for Class B office space. Also, the
number of competitive Class B office properties in Manhattan (some of which are
newer and better located) could have a material adverse effect on the Company's
ability to lease office space at its properties, and on the effective rents the
Company is able to charge. In addition, the Company may compete with other
property owners that have greater resources than the Company. See "Risk
Factors--Competition."
89
<PAGE>
REGULATION
GENERAL. Office properties in Manhattan are subject to various laws,
ordinances and regulations, including regulations relating to common areas. The
Company believes that each Property has the necessary permits and approvals to
operate its business.
AMERICANS WITH DISABILITIES ACT. The Company's properties must comply with
Title III of the ADA to the extent that such properties are "public
accommodations" as defined by the ADA. The ADA may require removal of structural
barriers to access by persons with disabilities in certain public areas of the
Company's properties where such removal is readily achievable. The Company
believes that the Properties are in substantial compliance with the ADA and that
it will not be required to make substantial capital expenditures with respect to
the Properties to address the requirements of the ADA. However, noncompliance
with the ADA could result in imposition of fines or an award of damages to
private litigants. The obligation to make readily achievable accommodations is
an ongoing one, and the Company will continue to assess its properties and to
make alterations as appropriate in this respect.
ENVIRONMENTAL MATTERS. Under various Federal, state and local laws,
ordinances and regulations, a current or previous owner or operator of real
estate may be required to investigate and clean up certain hazardous substances
released at a property, and may be held liable to a governmental entity or to
third parties for property damage or personal injuries and for investigation and
clean-up costs incurred by the parties in connection with the contamination.
Such laws often impose liability without regard to whether the owner or operator
knew of, or was responsible for, the release of such hazardous substances. The
presence of contamination or the failure to remediate contamination may
adversely affect the owner's ability to sell or lease real estate or to borrow
using the real estate as collateral. See "Risk Factors."
INSURANCE
The Operating Partnership carries comprehensive liability, fire, extended
coverage and rental loss insurance covering all of the Properties, with policy
specifications and insured limits which the Company believes are adequate and
appropriate under the circumstances. There are, however, certain types of losses
that are not generally insured because they are either uninsurable or not
economically feasible to insure. Should an uninsured loss or a loss in excess of
insured limits occur, the Operating Partnership could lose its capital invested
in the property, as well as the anticipated future revenues from the property
and, in the case of debt which is with recourse to the Operating Partnership,
would remain obligated for any mortgage debt or other financial obligations
related to the property. Any such loss would adversely affect the Company.
Moreover, as a general partner of the Operating Partnership, the Company will
generally be liable for any unsatisfied obligations other than non-recourse
obligations. The Company believes that the Properties will be adequately
insured; however no assurance can be given that material losses in excess of
insurance proceeds will not occur in the future.
LEGAL PROCEEDINGS
The Company currently is not a party to any legal proceedings. Certain SL
Green entities are parties to a variety of legal proceedings relating to their
ownership of the Properties in the Core Portfolio and SL Green's activities with
regard to its construction, management and leasing businesses, respectively,
arising in the ordinary course of business. Because the Company may be acquiring
certain of the Properties subject to associated liabilities, it may therefore
become a successor party-in-interest to certain of these proceedings as a result
of the Formation Transactions. The Company believes that substantially all of
this liability is covered by insurance. All of these matters, taken together,
are not expected to have a material adverse impact on the Company.
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MANAGEMENT
DIRECTORS, DIRECTOR NOMINEES AND EXECUTIVE OFFICERS
The Board of Directors of the Company will be expanded immediately following
the completion of the Offering to include the director nominees named below,
each of whom has been nominated for election and has consented to serve. Upon
election of the director nominees, a majority of directors will not be employees
or affiliates of the Company or SL Green. Pursuant to the Company's Charter, the
Board of Directors is divided into three classes of directors. The initial terms
of the first, second and third classes will expire in 1998, 1999 and 2000,
respectively. Beginning in 1998, directors of each class will be chosen for
three-year terms upon the expiration of their current terms and each year one
class of directors will be elected by the stockholders. The Company believes
that classification of the Board of Directors will help to assure the continuity
and stability of the Company's business strategies and policies as determined by
the Board of Directors. Holders of shares of Common Stock will have no right to
cumulative voting in the election of directors. Consequently, at each annual
meeting of stockholders, the holders of a majority of the shares of Common Stock
will be able to elect all of the successors of the class of directors whose
terms expire at that meeting.
The following table sets forth certain information with respect to the
directors, director nominees and executive officers of the Company immediately
following the completion of the Offering:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Stephen L. Green..................................... 59 Chairman of the Board, Chief Executive Officer and
President (term will expire in 2000)
Nancy Ann Peck....................................... 53 Executive Vice President--Development and Operations
Steven H. Klein...................................... 37 Executive Vice President--Acquisitions
Benjamin P. Feldman.................................. 45 Executive Vice President, General Counsel and
Director (term will expire in 1999)
Gerard Nocera........................................ 40 Executive Vice President--Leasing
Louis A. Olsen....................................... 53 Treasurer and Chief Financial Officer
Edwin Thomas Burton, III............................. 54 Director Nominee (term will expire in 1998)
John S. Levy......................................... 61 Director Nominee (term will expire in 1999)
John J. Robbins...................................... 58 Director Nominee (term will expire in 2000)
</TABLE>
STEPHEN L. GREEN will serve as the Chairman of the Board of Directors, Chief
Executive Officer and President of the Company. Stephen L. Green founded S.L.
Green Real Estate in 1980. Since then he has been involved in the acquisition of
over 30 Manhattan office buildings containing in excess of four million square
feet and the management of 50 Manhattan office buildings containing in excess of
10 million square feet. His clients have included Aldrich Eastman & Waltch, Bank
of New York, CalPERS, Dai-lchi Kangyo Bank, and CS First Boston. Mr. Green is a
Governor of the Real Estate Board of New York and an at-large member of the
Executive Committee of the Board of Governors of the Real Estate Board of New
York. Additionally, Mr. Green is a Co-Chairman of the Real Estate Tax Fairness
Coalition. Mr. Green received a B.A. degree from Hartwick College and a J.D.
degree from Boston College Law School. Mr. Green is the husband of Nancy A.
Peck.
NANCY ANN PECK will serve as Executive Vice President-Development and
Operations of the Company. Since 1983, Ms. Peck has supervised redevelopment of
the SL Green projects and has overseen the management and construction of all
properties owned and managed by SL Green. Prior to joining SL Green, Ms. Peck
served as project coordinator for projects valued inexcess of $500 million, one
of which was the renovation and conversion of the two million square foot
American Furniture Mart in Chicago into a multi-use complex. Ms. Peck worked for
McKeon Construction Corp., Paul Properties and Shelter Rock Holdings Corp. She
recently was appointed to the Board of Directors of the Real Estate Board of New
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York, Management Division. Ms. Peck received a B.A. degree from the University
of California at Berkeley and an MBA in finance from New York University
Business Scool. She is the wife of Stephen L. Green.
STEVEN H. KLEIN will serve as Executive Vice President-Acquisitions of the
Company. Mr. Klein has overseen the Asset Management division of SL Green since
1991 and participates in acquisition, sale and investment analysis decisions.
Mr. Klein has played a major role in the redevelopment of SL Green's managed
portfolio. Prior to joining SL Green, Mr. Klein worked at Gallin Realty Company
in marketing and leasing. Mr. Klein received a B.A. degree from the University
of Michigan.
BENJAMIN P. FELDMAN will serve as Executive Vice President and General
Counsel of the Company and as a Director of the Company. He has served as
General Counsel of SL Green since 1987. Mr. Feldman handles the legal aspects of
all leasing, financing and acquisition decisions. Prior to joining the Company,
Mr. Feldman was vice-president and general counsel for Bruce Berger Realty. Mr.
Feldman received a B.A. degree from Columbia University and a J.D. degree from
Columbia University School of Law.
GERARD NOCERA will serve as Executive Vice President-Leasing of the Company.
Since 1991, Mr. Nocera has been responsible for the development and
implementation of marketing and leasing programs at SL Green owned and managed
properties. Prior to joining SL Green, Mr. Nocera worked for The Cohen Brothers
as a landlord representative. Mr. Nocera is a member of the Real Estate Board of
New York. Mr. Nocera received a B.A. degree from Duquesne University.
LOUIS A. OLSEN will serve as Treasurer and Chief Financial Officer of the
Company. Since 1988, Mr. Olsen has overseen all financial and accounting
functions at SL Green. Before joining SL Green, Mr. Olsen was vice president and
comptroller of the management division of Edward S. Gordon Company where he was
responsible for the financial accounting of an 8 million square foot commercial
office portfolio managed by Edward S. Gordon. Mr. Olsen also served for four
years as vice president of Chase Manhattan Bank where he was responsible for
financial reporting for the $200 million Real Estate Owned Portfolio. Mr. Olsen
also worked as a manager in the real estate department at Peat, Marwick &
Mitchell. Mr. Olsen received a B.S. degree in accounting from Bloomfield College
and an M.B.A. degree in accounting and taxation from Fairleigh Dickenson
University. Mr. Olsen is a licensed New York State Certified Public Accountant.
EDWIN THOMAS BURTON, III has been Chairman of the Board of Trustees and a
member of the Investment Advisory Committee of the Virginia Retirement System
("VRS") for state and local employees of the Commonwealth of Virginia ($25
billion in assets) since 1994. Mr. Burton also served as the Chairman of the VRS
Special Committee on the sale of RF&P Corporation, a $70 million real estate
company. He is also currently a visiting professor of commerce and economics at
the University of Virginia, where he has received several awards of distinction.
From 1994 until 1995, Mr. Burton served as Senior Vice President, Managing
Director and member of the Board of Directors of Interstate Johnson Lane,
Incorporated, an investment banking firm where he was responsible for the
Corporate Finance and Public Finance Divisions. From 1987 to 1994, Mr. Burton
served as President of Rothschild Financial Services, Incorporated (a subsidiary
of Rothschild, Inc. of North America), an investment banking company
headquartered in New York City that is involved in proprietary trading,
securities lending and other investment activities. From 1985 until 1987, Mr.
Burton was a partner of First Capital Strategists, a partnership that managed
security lending and investment activities for large endowment portfolios. Mr.
Burton also served as a consultant to the American Stock Exchange from 1985
until 1986 and a senior vice president with Smith Barney (or its corporate
predecessor) from 1976 until 1984. Mr. Burton currently serves on the Board of
Directors of Capstar, a publicly traded hotel company and SNL Securities, a
private securities date company. He has held various teaching positions at York
College, Rice University and Cornell University and has written and lectured
extensively in the field of economics. Mr. Burton also serves as a member of the
Children's Medical Center Committee of the University of Virginia Hospital
Advisory Board, a member of the Jefferson Scholar Selection Committee at the
University of Virginia, a board member of
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Madison House in Charlottesville, Virginia and a member of the Governor's
Commission on Governmental Reform for the Commonwealth of Virginia. Mr. Burton
received a B.A. and an M.A. in economics from Rice University and a Ph.D in
economics from Northwestern University.
JOHN S. LEVY is a private investor. Mr. Levy was associated with Lehman
Brothers Inc. (or its corporate predecessors) from 1983 until 1995. During this
period, Mr. Levy served as Managing Director and Chief Administrative Officer of
the Financial Services Division, Senior Executive Vice President and Co-Director
of the International Division overseeing the International Branch System and
Managing Partner of the Equity Securities Division, where he managed the
International, Institutional, Retail and Research Departments. Prior to that
period, Mr. Levy was associated with A.G. Becker Incorporated (or its corporate
predecessors) from 1960 until 1983. During this period, Mr. Levy served as
Managing Director of the Execution Services Division, Vice President-Manager of
Institutional and Retail Sales, Manager of the Institutional Sales Division,
Manager of the New York Retail Office and a Registered Representative. Mr. Levy
received a B.A. degree from Dartmouth College.
JOHN J. ROBBINS has served as a Trustee of Keene Creditors Trust (a trust
which compensates holders of asbestos-related claims) since August 1996. He was
a partner of Kenneth Leventhal & Company from 1972 to 1992, serving as Managing
Partner of the firm's New York office from 1979 to 1992 and as a member of the
firm's Executive Committee from 1982 to 1992. Mr. Robbins is a member of the
American Institute of Certified Public Accountants ("AICPA") and served as a
member of the Accounting Standards Executive Committee of the AICPA, as well as
the AICPA Task Forces on Income Taxes and Interest Capitalization. He also
served as Chairman of the AICPA Task Forces on Bankruptcy and Consolidations. In
addition, Mr. Robbins was a member of the Emerging Issues Task Force of the
Financial Accounting Standards Board. Mr. Robbins received a B.A. in accounting
from the University of Texas.
COMMITTEES OF THE BOARD OF DIRECTORS
EXECUTIVE COMMITTEE. Promptly following the completion of the Offering, the
Board of Directors will establish an Executive Committee. Subject to the
Company's conflict of interest policies, the Executive Committee will be granted
the authority to acquire and dispose of real estate and the power to authorize,
on behalf of the full Board of Directors, the execution of certain contracts and
agreements, including those related to the borrowing of money by the Company
(and, consistent with the Partnership Agreement of the Operating Partnership, to
cause the Operating Partnership to take such actions). The Executive Committee
initially will consist of Stephen L. Green and at least two additional
directors.
AUDIT COMMITTEE. Promptly following the completion of the Offering, the
Board of Directors will establish an Audit Committee. The Audit Committee will
make recommendations concerning the engagement of independent public
accountants, review with the independent public accountants the scope and
results of the audit engagement, approve professional services provided by the
independent public accountants, review the independence of the independent
public accountants, consider the range of audit and non-audit fees and review
the adequacy of the Company's internal accounting controls. The Audit Committee
initially will consist of two or more independent directors.
COMPENSATION COMMITTEE. Promptly following the completion of the Offering,
the Board of Directors will establish a Compensation Committee consisting of at
least two independent directors to establish remuneration levels for executive
officers of the Company and to implement and administer the Company's stock
option plans and any other incentive programs.
The Board of Directors may from time to time establish certain other
committees to facilitate the management of the Company.
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COMPENSATION OF DIRECTORS
The Company intends to pay its non-employee directors annual compensation of
$12,000 for their services. In addition, non-employee directors will receive a
fee of $1,000 for each Board of Directors meeting attended (in person or by
telephone). Non-employee directors will receive an additional fee of $500 for
each committee meeting attended (in person or by telephone), unless the
committee meeting is held on the day of a meeting of the Board of Directors.
Non-employee directors also will be reimbursed for reasonable expenses incurred
to attend director and committee meetings. Compensation and fees may be paid to
non-employee directors in the form of cash or Common Stock, at the election of
each such director. Officers of the Company who are directors will not be paid
any director's compensation or fees. Pursuant to the Company's stock option
plan, non-employee directors will receive, upon initial election to the Board of
Directors, options to purchase 6,000 shares of Common Stock (at the initial
public offering price or, if elected following the completion of the Offering,
at the prevailing market price) which will vest after one year.
EXECUTIVE COMPENSATION
The following table sets forth the annual base salary rates and other
compensation expected to be paid in 1997 to the Company's Chief Executive
Officer and each of the Company's other four most highly compensated executive
officers.
<TABLE>
<CAPTION>
1997 BASE
SALARY RATE OPTIONS
NAME TITLE (1) ALLOCATED (2)
- ----------------------------------------- ----------------------------------------- -------------- -------------
<S> <C> <C> <C>
Stephen L. Green......................... Chairman of the Board, President and $ 250,000
Chief Executive Officer
Nancy A. Peck............................ Executive Vice President-- Development $ 150,000
and Operations
Steven H. Klein.......................... Executive Vice President-- Acquisitions $ 175,000
Benjamin P. Feldman...................... Executive Vice President and General $ 150,000
Counsel
Gerard Nocera............................ Executive Vice President--Leasing $ 175,000
</TABLE>
- ------------------------
(1) Does not include bonuses that may be paid to the above individuals. See
"--Incentive Compensation" below.
(2) Upon the effective date of the Offering, options to purchase a total of
660,000 shares of Common Stock will be granted to officers and other
employees of the Company under the Company's stock option plan at a price
equal to the initial public offering price. See "--Stock Option Plan"
below."
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OPTION GRANTS IN FISCAL YEAR 1997
<TABLE>
<CAPTION>
PERCENT OF
TOTAL
OPTIONS TO
OPTIONS BE GRANTED EXERCISE
TO BE TO EMPLOYEES PRICE EXPIRATION
NAME GRANTED(1) IN FISCAL YEAR PER SHARE(2) DATE
- ------------------------------------------- ----------------- --------------------- ------------------- -----------------
<S> <C> <C> <C> <C>
Stephen L. Green...........................
Nancy A. Peck..............................
Benjamin P. Feldman........................
Steven H. Klein............................
Gerard Nocera..............................
Louis A. Olsen.............................
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF SHARE
PRICE APPRECIATION FOR
OPTION TERM
----------------------
NAME 5% 10%
- ------------------------------------------- ---------- ----------
<S> <C> <C>
Stephen L. Green...........................
Nancy A. Peck..............................
Benjamin P. Feldman........................
Steven H. Klein............................
Gerard Nocera..............................
Louis A. Olsen.............................
</TABLE>
- ------------------------
(1) The options for one-third of the covered shares (disregarding fractional
shares, if any) will become exercisable on each of the first, second and
third anniversaries of the date of the grant.
(2) Based on the assumed initial public offering price. The exercise price per
share will be the initial public offering price.
EMPLOYMENT AND NONCOMPETITION AGREEMENTS
Each of Stephen L. Green, Nancy A. Peck, Steven H. Klein, Benjamin P.
Feldman, Gerard Nocera and Louis A. Olsen will enter into an employment and
noncompetition agreement with the Company which will be effective as of the
completion of the Offering. Each agreement will expire on the third anniversary
of the closing of the Offering, unless otherwise extended and provides for
certain severance payments in the event of the employee's death, disability,
termination without cause or resignation with good reason. The employment and
noncompetition agreements will, subject to certain exceptions, prohibit each of
such persons from engaging, directly or indirectly, during the term of his or
her employment, in any business which engages or attempts to engage in, directly
or indirectly, the acquisition, development, construction, operation, management
or leasing of any office real estate property within the New York City
metropolitan area (the "Competitive Activities"). Pursuant to the agreements,
each of such persons will devote substantially all of his or her business time
to the Company. The employment and noncompetition agreement of Stephen L. Green
will also, subject to certain exceptions, prohibit Mr. Green from engaging,
directly or indirectly, during the Noncompetition Period in any Competitive
Activities. The Noncompetition Period is the period beginning on the date of the
termination of employment and ending on the later of (i) three years from the
closing of the Offering and (ii) one year from the termination of his employment
with the Company.
STOCK OPTION PLAN
Prior to the Offering, the Board of Directors will adopt, and the
stockholders will approve, the 1997 Stock Option Plan. On and after the closing
of the Offering, the 1997 Stock Option Plan will be administered by the
Compensation Committee of the Board of Directors. Officers and certain other
employees of the Company and its subsidiaries generally will be eligible to
participate in the 1997 Stock Option Plan. Non-employee Directors of the Company
are eligible to receive stock options under the 1997 Stock Option Plan on a
limited basis. See "--Compensation of Directors."
The following summary of the 1997 Stock Option Plan is qualified in its
entirety by reference to the full text of the 1997 Stock Option Plan, a copy of
which has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part.
The 1997 Stock Option Plan authorizes (i) the grant of stock options that
qualify as incentive stock options under Section 422 of the Code ("ISOs"), (ii)
the grant of stock options that do not so qualify
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("NQSOs"), (iii) the grant of stock options in lieu of cash Directors' fees and
employee bonuses, (iv) grants of shares of Common Stock, in lieu of cash
compensation and (v) the making of loans to acquire shares of Common Stock, in
lieu of compensation. The exercise price of stock options will be determined by
the Compensation Committee, but may not be less than 100% of the fair market
value of the shares of Common Stock on the date of grant in the case of ISOs;
provided that, in the case of grants of NQSOs granted in lieu of cash Directors'
fees and employee bonuses, the exercise price may not be less than 50% of the
fair market value of the shares of Common Stock on the date of grant. The
Company has reserved 1,100,000 shares of Common Stock for issuance under the
1997 Stock Option Plan.
INCENTIVE COMPENSATION PLAN
Prior to the completion of the Offering, the Company intends to establish an
incentive compensation plan for key officers of the Company and the Company's
subsidiaries and affiliates. This plan will provide for payment of cash bonuses
to participating officers after an evaluation of the officer's performance and
the overall performance of the Company has been completed. The Chief Executive
Officer will make recommendations to the Compensation Committee of the Board of
Directors, which will make the final determination for the award of bonuses in
its sole discretion. The Compensation Committee will determine the amount of
such bonuses, if any, for the Chief Executive Officer in its sole discretion.
401(k) PLAN
Effective upon the completion of the Offering, the Company intends to
maintain a 401(k) Savings/ Retirement Plan (the "401(k) Plan") to cover eligible
employees of the Company and any designated affiliate.
The 401(k) Plan will permit eligible employees of the Company to defer up to
15% of their annual compensation, subject to certain limitations imposed by the
Code. The employees' elective deferrals are immediately vested and
non-forfeitable upon contribution to the 401(k) Plan.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The MGCL permits a Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability
resulting from (i) actual receipt of an improper benefit or profit in money,
property or services, or (ii) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. The Charter contains
such a provision which eliminates such liability to the maximum extent permitted
by the MGCL.
The Charter authorizes the Company, to the maximum extent permitted by
Maryland law, to obligate itself to indemnify and to pay or reimburse reasonable
expenses in advance of final disposition of a proceeding to (i) any present or
former director or officer, or (ii) any individual who, while a director of the
Company and at the request of the Company serves or has served another
corporation, limited liability company, partnership, joint venture, trust,
employee benefit plan or any other enterprise as a director, officer, member,
partner or trustee of such corporation, limited liability company, partnership,
joint venture, trust, employee benefit plan or other enterprise from and against
any claim or liability which such persons may incur by reason of his status as a
present or former stockholder, director or officer of the Company. The Bylaws
obligate the Company, to the maximum extent permitted by Maryland law, to
indemnify and to pay or reimburse reasonable expenses in advance of final
disposition of a proceeding to (i) any present or former director or officer who
is made a party to the proceeding by reason of his service in that capacity, or
(ii) any individual who while a director of the Company and at the request of
the Company serves or has served another corporation, limited liability company,
partnership, joint venture, trust, employee benefit plan or any other enterprise
as a director, officer, member, partner or trustee of such corporation, limited
liability company, partnership, joint venture, trust, employee benefit plan or
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other enterprise and who is made a party to the proceeding by reason of his
service in that capacity against any claim or liability to which he may become
subject by reason of such service. The Charter and the Bylaws also permit the
Company to indemnify and advance expenses to any person who served a predecessor
of the Company in any of the capacities described above and to any employee or
agent of the Company or a predecessor of the Company.
The MGCL requires a corporation (unless its charter provides otherwise,
which the Company's Charter does not) to indemnify a director or officer who has
been successful, on the merits or otherwise, in the defense of any proceeding to
which he is made a party by reason of his service in that capacity. The MGCL
permits a corporation to indemnify its present and former directors and
officers, among others, against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by them in connection with any proceeding
to which they may be made a party by reason of their service in those or other
capacities unless it is established that (i) the act or omission of the director
or officer was material to the matter giving rise to the proceeding and (A) was
committed in bad faith, or (B) was the result of active and deliberate
dishonesty, (ii) the director or officer actually received an improper personal
benefit in money, property or services, or (iii) in the case of any criminal
proceeding, the director or officer had reasonable cause to believe that the act
or omission was unlawful. However, a Maryland corporation may not indemnify for
an adverse judgment in a suit by or in the right of the corporation. In
addition, the MGCL requires the Company, as a condition to advancing expenses,
to obtain (i) a written affirmation by the director or officer of his good faith
belief that he has met the standard of conduct necessary for indemnification by
the Company as authorized by the Bylaws, and (ii) a written statement by or on
his behalf to repay the amount paid or reimbursed by the Company if it shall
ultimately be determined that the standard of conduct was not met.
The Partnership Agreement also provides for indemnification and advance of
expenses of the Company and its officers and directors to the same extent
indemnification and advance of expenses is provided to officers and directors of
the Company in the Charter and Bylaws, and limits the liability of the Company
and its officers and directors to the Operating Partnership and its partners to
the same extent liability of officers and directors of the Company to the
Company and its stockholders is limited under the Charter. See "Partnership
Agreement--Liability and Indemnification."
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STRUCTURE AND FORMATION OF THE COMPANY
THE OPERATING ENTITIES OF THE COMPANY
Following the completion of the Offering and the Formation Transactions, the
operations of the Company will be carried on through the Operating Partnership.
The Formation Transactions were designed to (i) enable the Company to raise the
necessary capital to acquire the Properties, repay certain mortgage indebtedness
secured by certain of the Properties and establish a working capital reserve,
(ii) provide a vehicle for future acquisitions, (iii) enable the Company to
comply with certain requirements under the Code (and the regulations promulgated
by the IRS thereunder (the "Treasury Regulations")) relating to REITs, and (iv)
preserve certain tax advantages for certain participants in the Formation
Transactions.
THE OPERATING PARTNERSHIP. Following the completion of the Offering and the
Formation Transactions, substantially all of the Company's assets will be held
by, and its operations conducted through, the Operating Partnership and its
subsidiaries and affiliates. The Company is the sole general partner of the
Operating Partnership and will have the exclusive power under the Partnership
Agreement to manage and conduct the business of the Operating Partnership.
Except with respect to the Lock-out Provisions, limited partners generally will
have only limited consent rights. See "Partnership Agreement." The Board of
Directors of the Company will manage the affairs of the Company by directing the
affairs of the Operating Partnership. The Operating Partnership will continue
until December 31, 2095, unless sooner dissolved or terminated. The Operating
Partnership cannot be dissolved for a period of 50 years without the consent of
the limited partners, except in connection with a sale of all or substantially
all of its assets, which also requires the consent of the limited partners. See
"Partnership Agreement." The Company's limited and general partner interests in
the Operating Partnership will entitle it to share in cash distributions from,
and in the profits and losses of, the Operating Partnership in proportion to the
Company's percentage interest therein and will entitle the Company to vote on
substantially all matters requiring a vote of the limited partners.
Following the completion of the Offering and the Formation Transactions, the
Company initially will own an approximate 88.3% interest in the Operating
Partnership. Certain participants in the Formation Transactions, including
entities owned by Stephen L. Green, will own the remaining Units. The Operating
Partnership anticipates that it will acquire additional properties in exchange
for Units in the future, in which case partners in the partnerships that own
such properties will become limited partners of the Operating Partnership.
After the completion of the Offering and the Formation Transactions, the
Operating Partnership expects to make regular quarterly cash distributions to
its partners (including the Company) in proportion to their percentage interests
in the Operating Partnership. The Company, in turn, will pay cash dividends to
its stockholders in an amount per share of Common Stock equal to the amount
distributed by the Operating Partnership per Unit. In addition, after a holding
period of up to two years following the completion of the Offering, and at any
time thereafter (for as long as the Operating Partnership is in existence and
subject to compliance with the securities laws and the ownership limits of the
Company's organizational documents), limited partners in the Operating
Partnership will be able to have their Units redeemed by the Operating
Partnership. In the event that the Company elects to acquire Units in exchange
for shares of Common Stock upon the exercise of a redemption right by a limited
partner, each such acquisition will increase the Company's percentage ownership
interest in the Operating Partnership and will decrease the aggregate percentage
ownership interest of the limited partners (other than the Company) in the
Operating Partnership.
THE MANAGEMENT CORPORATION. In order to maintain the Company's
qualification as a REIT while realizing income from management contracts with
third parties, all of the management operations with respect to properties in
which the Company will not own 100% of the interest will be conducted through
the Management Corporation. The Company, through the Operating Partnership, will
own 100% of the
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non-voting common stock (representing 95% of the total equity) of the Management
Corporation. Through dividends on its equity interest, the Operating Partnership
expects to receive substantially all of the cash flow from the Management
Corporation's operations. All of the voting common stock of the Management
Corporation (representing 5% of the total equity) will be held by an SL Green
affiliate. This controlling interest will give the SL Green affiliate the power
to elect all directors of the Management Corporation.
THE MANAGEMENT LLC. All of the management and leasing and construction
operations with respect to the Properties and properties to be acquired by the
Company will be conducted through the Management LLC. The Operating Partnership
will own a 100% interest in the Management LLC.
THE LEASING CORPORATION. In order to maintain the Company's qualification
as a REIT while realizing income from leasing and tenant representation services
performed for third parties, all of the leasing operations and tenant
representation services with respect to properties in which the Company will not
own 100% of the interest will be conducted through the Leasing Corporation. The
Company, through the Operating Partnership, will own 100% of the non-voting
common stock (representing 95% of the total equity) of the Leasing Corporation.
Through dividends on its equity interest, the Operating Partnership expects to
receive substantially all of the cash flow from the Leasing Corporation's
operations. All of the voting common stock of the Leasing Corporation
(representing 5% of the total equity) will be held by an SL Green affiliate.
This controlling interest will give the SL Green affiliate the power to elect
all directors of the Leasing Corporation.
THE CONSTRUCTION CORPORATION. In order to maintain the Company's
qualification as a REIT while realizing income from construction services all of
the Company's construction operations will be conducted through the Construction
Corporation. The Company, through the Operating Partnership, will own 100% of
the non-voting common stock (representing 95% of the total equity) of the
Construction Corporation. Through dividends on its equity interest, the
Operating Partnership expects to receive substantially all of the cash flow from
the Construction Corporation's operations. All of the voting common stock of the
Construction Corporation (representing 5% of the total equity) will be held by
an SL Green affiliate. This controlling interest will give the SL Green
affiliate the power to elect all directors of the Construction Corporation.
FORMATION TRANSACTIONS
The following Formation Transactions have been consummated or will be
consummated concurrently with the completion of the Offering.
- The Company was organized as a Maryland corporation and the Operating
Partnership was organized as a Delaware limited partnership in June 1997
- LBHI entered into the LBHI Loan with SL Green pursuant to which LBHI
agreed to loan to SL Green up to $40 million, which will be used to
acquire interests in the Core Portfolio and the Acquisition Properties, to
fund property related operating expenses, to fund organizational expenses
of the Company and to purchase Treasury Securities. The LBHI Loan will be
secured by partnership interests in certain Property-owning entities and
the Treasury Securities.
- The Company will sell 8,100,000 shares of Common Stock in the Offering and
will contribute the net proceeds therefrom to the Operating Partnership in
exchange for 8,100,000 Units (representing approximately an 84% economic
interest in the Operating Partnership after the Offering).
- The Operating Partnership will receive a contribution of its interests in
the Core Portfolio as well as 95% of the economic interest in the Service
Corporations from the Property-owning entities, the partners or members of
such entities and the holders of interests in the Service Corporations. As
consideration therefor, the Operating Partnership will issue to such
entities, partners or members
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and holders 1,130,395 Units (having an aggregate value of approximately
$22.6 million, based on the assumed initial offering price) approximately
and $6.4 million.
- The management and leasing business of SL Green with respect to the
Properties in which the Company will have a 100% membership interest will
be transferred to the Management LLC.
- The Operating Partnership will obtain for $500,000 an option to acquire 50
West 23rd Street, a 333,000 rentable square foot office property in
midtown Manhattan from an unaffiliated seller for a purchase price of $36
million in cash. See "The Properties--The Option Property."
- The Operating Partnership will acquire interests in the Acquisition
Properties for an aggregate purchase price of approximately $73.4 million,
to be funded with net proceeds from the Offering and mortgage financing.
- The Operating Partnership will use approximately $74.1 million of net
proceeds from the Offering to repay mortgage debt encumbering the Core
Portfolio and the LBHI Loan (including $1.7 million in prepayment
penalties, fees and other costs and excluding approximately $7.5 million
in proceeds drawn under the LBHI Loan to fund purchase of the Acquisition
Properties).
- The Company will issue to Victor Capital 45,495 shares of restricted
Common Stock and the Operating Partnership will pay $900,000 (funded with
borrowings under the LBHI Loan and proceeds from the Offering) to Victor
Capital as consideration for financial advisory services rendered to the
Company in connection with the Formation Transactions.
CONSEQUENCES OF THE OFFERING AND THE FORMATION TRANSACTIONS
The Offering and the Formation Transactions will have the following
consequences:
- The Operating Partnership directly or indirectly will own substantially
all of the interests in the Properties currently owned by SL Green and its
affiliates.
- The purchasers of the Common Stock offered in the Offering will own
approximately 95% of the outstanding Common Stock.
- The Company will be the general partner of, and will own approximately
88.3% of the ownership interests in, the Operating Partnership and 95% of
the non-voting stock in the Service Corporations.
If all limited partners in the Operating Partnership were to exchange their
Units for Common Stock immediately after the completion of the Offering
(notwithstanding the provision of the Partnership Agreement which prohibits such
exchange for up to two years following the completion of the Offering), but
subject to the Ownership Limit, then the participants in the Formation
Transactions would beneficially own approximately 11.7% of the outstanding
shares of Common Stock.
See "Risk Factors--Conflicts of Interests in the Formation Transactions and
the Business of the Company--Substantial Benefits to Related Parties" and
"Principal Stockholders."
BENEFITS TO RELATED PARTIES
Certain affiliates of the Company will realize certain material benefits in
connection with the Formation Transactions and the Offering, including the
following:
- Certain SL Green entities (including entities owned by Stephen L. Green)
will receive 887,895 Units in consideration for their interests in the
Properties, Property-owning entities and the management, leasing and
construction businesses of SL Green with a total value of approximately
$17.8 million, based on the assumed initial public offering price
(representing approximately 9.2% of the equity of the Company on a
fully-diluted basis).
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- The Operating Partnership will use $20 million to repay a portion of the
LBHI Loan that was made to an SL Green entity (which is indirectly owned
by Stephen L. Green) and invested in Treasury Securities pledged as
collateral therefor (which, upon repayment of the LBHI Loan, were released
to such SL Green entity).
- Certain members of SL Green management (including Nancy A. Peck, Steven H.
Klein, Benjamin P. Feldman, Gerard Nocera and Louis A. Olsen) own an
aggregate of 383,110 shares of restricted Common Stock that initially will
have a value of $7.7 million, based on the assumed initial public offering
price.
- Certain members of SL Green management (including Stephen L. Green, Nancy
A. Peck, Steven H. Klein, Benjamin P. Feldman, Gerard Nocera and Louis A.
Olsen) will become officers and/or directors of the Company. In addition,
each of such persons will enter into three year employment and
noncompetition agreements with the Company. See "Management--Employment
and Noncompetition Agreements." Also, the Company will grant to directors,
officers and employees of the Company options to purchase an aggregate of
660,000 shares of Common Stock at the initial public offering price under
the Company's stock option plan, subject to certain vesting requirements.
See "Management."
- The structure of the Formation Transactions will provide the Unit
recipients (including the members of management referred to above) the
opportunity for deferral of the tax consequences of their contribution to
the Operating Partnership of their interest in the Properties,
Property-owning entities and Service Corporations.
- An SL Green entity will own all of the voting stock of each of the Service
Corporations (representing a 5% equity interest therein).
- Pursuant to the Lock-out Provisions, the Company will be restricted in its
ability to sell, or reduce the amount of mortgage indebtedness on, two of
the Properties (673 First Avenue and 470 Park Avenue South) for up to 12
years following the completion of the Offering, which could enable certain
participants in the Formation Transactions (including the Green Group) to
defer certain tax consequences associated with the Formation Transactions.
- Persons or entities receiving Units in the Formation Transactions
(including entities owned by Stephen L. Green) will have registration
rights with respect to shares of Common Stock issued in exchange for
Units.
See "Risk Factors--Conflicts of Interests in the Formation Transactions and
the Business of the Company," "Management" and "Certain Relationships and
Transactions."
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
The following is a discussion of certain investment, financing and other
policies of the Company. These policies have been determined by the Company's
Board of Directors and may be amended or revised from time to time by the Board
of Directors without a vote of the stockholders, except that (i) the Company
cannot change its policy of holding its assets and conducting its business only
through the Operating Partnership and its affiliates without the consent of the
holders of Units as provided in the Partnership Agreement, (ii) changes in
certain policies with respect to conflicts of interest must be consistent with
legal requirements, and (iii) the Company cannot take any action intended to
terminate its qualification as a REIT without the approval of the holders of a
majority of the outstanding shares of Common Stock.
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INVESTMENT POLICIES
INVESTMENT IN REAL ESTATE OR INTERESTS IN REAL ESTATE. The Company will
conduct all of its investment activities through the Operating Partnership and
its affiliates. The Company's primary business objective is to maximize total
return to stockholders through growth in distributable cash flow and
appreciation in the value of its assets. For a discussion of the Properties and
the Company's corporate and growth strategies, see "The Properties" and
"Business and Growth Strategies."
The Company expects to pursue its investment objectives primarily through
the direct or indirect ownership by the Operating Partnership of the Properties
and other acquired office properties. The Company currently intends to invest
primarily in existing improved properties but may, if market conditions warrant,
invest in development projects as well. Furthermore, the Company currently
intends to invest in or develop commercial office properties, primarily in
midtown Manhattan. However, future investment or development activities will not
be limited to any geographic area or product type or to a specified percentage
of the Company's assets. The Company does not have any limit on the amount or
percentage of its assets that may be invested in any one property or any one
geographic area. The Company intends to engage in such future investment or
development activities in a manner which is consistent with the maintenance of
its status as a REIT for Federal income tax purposes. In addition, the Company
may purchase or lease income-producing commercial properties and other types of
properties for long-term investment, expand and improve the real estate
presently owned or other properties purchased, or sell such real estate or other
properties, in whole or in part, if and when circumstances warrant.
The Company also may participate with third parties in property ownership,
through joint ventures or other types of co-ownership. Such investments may
permit the Company to own interests in larger assets without unduly restricting
diversification and, therefore, may add flexibility in structuring its
portfolio. The Company will not, however, enter into a joint venture or
partnership to make an investment that would not otherwise meet its investment
policies.
Equity investments may be subject to existing mortgage financing and other
indebtedness or such financing or indebtedness as may be incurred in connection
with acquiring or refinancing these investments. Debt service on such financing
or indebtedness will have a priority over any distributions with respect to the
Common Stock. Investments also are subject to the Company's policy not to be
treated as an investment company under the Investment Company Act of 1940, as
amended (the "1940 Act").
INVESTMENTS IN REAL ESTATE MORTGAGES. While the Company's business
objectives emphasize equity investments in commercial real estate, the Company
may, in the discretion of the Board of Directors, invest in mortgages and other
types of equity real estate interests consistent with the Company's
qualification as a REIT. In that regard, upon completion of the Formation
Transactions, the Company will acquire mortgage interests in the Bar Building
and 1372 Broadway which will provide the Company with substantially all control
over, and economic interest derived from, such Properties. Although the Company
does not presently intend to emphasize investments in mortgages or deeds of
trust, it may invest in non-performing mortgages on an opportunistic basis in
order to acquire an equity interest in the underlying property or in
participating or convertible mortgages if the Company concludes that it would be
in the Company's interest to do so. Investments in real estate mortgages are
subject to the risk that one or more borrowers may default under such mortgages
and that the collateral securing such mortgages may not be sufficient to enable
an investor to recoup its full investment.
SECURITIES OR INTERESTS IN PERSONS PRIMARILY ENGAGED IN REAL ESTATE
ACTIVITIES AND OTHER ISSUERS. Subject to the percentage of ownership limitations
and gross income tests necessary for REIT qualification, the Company also may
invest in securities of other REITs, securities of other entities engaged in
real estate activities or securities of other issuers, including for the purpose
of exercising control over such entities. See "Federal Income Tax
Considerations--Taxation of the Company." No such investment will be made,
however, unless the Board of Directors determines that the proposed investment
would not cause the
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Company or the Operating Partnership to be an "investment company" within the
meaning of the 1940 Act. The Company may acquire all or substantially all of the
securities or assets of other REITs or similar entities if such investments
would be consistent with the Company's investment policies.
DISPOSITION POLICIES
The Company does not currently intend to dispose of any of the Properties,
although it reserves the right to do so, subject to the Lock-out Provisions, if,
based upon management's periodic review of the Company's portfolio, the Board of
Directors determines that such action would be in the best interests of the
Company. The tax consequences of the disposition of the Properties may, however,
influence the decision of certain directors and executive officers of the
Company who hold Units as to the desirability of a proposed disposition. See
"Risk Factors--Conflicts of Interests in the Formation Transactions and the
Business of the Company" and "--Limitations on Ability to Sell or Reduce the
Mortgage Indebtedness on Certain Properties."
Any decision to dispose of a Property must be approved by a majority of the
Board of Directors (and in accordance with the applicable partnership
agreement). In addition, under the Lock-out Provisions contained in the
Partnership Agreement, the Company may not sell (except in certain events,
including certain transactions that would not result in the recognition of any
gain for tax purposes) 673 First Avenue and 470 Park Avenue South during the
Lock-out Period without, in the case of either Property, the consent of holders
of 75% of the Units originally issued to limited partners in the Operating
Partnership who immediately prior to completion of the Formation Transactions
owned direct or indirect interests in such Property that remain outstanding at
the time of such vote (other than Units held by the Company and excluding any
such Units the adjusted tax basis of which has been increased, in the hands of
the holder or any predecessor holder thereof, to reflect fair market value
through a taxable disposition or otherwise). The Lock-out Provisions apply even
if it would otherwise be in the best interest of the stockholders for the
Company to sell one or more of these three Properties.
FINANCING POLICIES
As a general policy, the Company intends to limit its total consolidated
indebtedness, and its pro rata share of unconsolidated indebtedness, so that at
the time any debt is incurred, the Company's Debt Ratio does not exceed 50%.
Upon the completion of the Offering and the Formation Transactions, the Debt
Ratio of the Company will be approximately 19.4%. The Charter and Bylaws do not,
however, limit the amount or percentage of indebtedness that the Company may
incur. In addition, the Company may from time to time modify its debt policy in
light of current economic conditions, relative costs of debt and equity capital,
market values of its Properties, general conditions in the market for debt and
equity securities, fluctuations in the market price of its Common Stock, growth
and acquisition opportunities and other factors. Accordingly, the Company may
increase its Debt Ratio beyond the limits described above. If this policy were
changed, the Company could become more highly leveraged, resulting in an
increased risk of default on its obligations and a related increase in debt
service requirements that could adversely affect the financial condition and
results of operations of the Company and the Company's ability to make
distributions to stockholders.
The Company has established its debt policy relative to the total market
capitalization of the Company computed at the time the debt is incurred, rather
than relative to the book value of its assets, a ratio that is frequently
employed, because it believes the book value of its assets (which to a large
extent is the depreciated value of real property, the Company's primary tangible
asset) does not accurately reflect its ability to borrow and to meet debt
service requirements. Total market capitalization, however, is subject to
greater fluctuation than book value, and does not necessarily reflect the fair
market value of the underlying assets of the Company at all times. Moreover, due
to fluctuations in the value of the Company's portfolio of properties over time,
and since any measurement of the Company's total consolidated
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indebtedness, and its pro rata share of unconsolidated indebtedness incurred, to
total market capitalization is made only at the time debt is incurred, the Debt
Ratio could exceed the 50% level.
The Company has not established any limit on the number or amount of
mortgages that may be placed on any single property or on its portfolio as a
whole.
Although the Company will consider factors other than total market
capitalization in making decisions regarding the incurrence of debt (such as the
purchase price of properties to be acquired with debt financing, the estimated
market value of properties upon refinancing, and the ability of particular
properties and the Company as a whole to generate sufficient cash flow to cover
expected debt service), there can be no assurance that the Debt Ratio, or any
other measure of asset value, at the time the debt is incurred or at any other
time will be consistent with any particular level of distributions to
stockholders.
CONFLICT OF INTEREST POLICIES
The Company has adopted certain policies and entered into agreements with
its executive officers designed to eliminate or minimize certain potential
conflicts of interest. See "Management--Employment and Noncompetition
Agreements." In that regard, the Company has adopted a policy that, without the
approval of a majority of the disinterested Directors, it will not (i) acquire
from or sell to any director, officer or employee of the Company, or any entity
in which a director, officer or employee of the Company beneficially owns more
than a 1% interest, or acquire from or sell to any affiliate of any of the
foregoing, any of the assets or other property of the Company, (ii) make any
loan to or borrow from any of the foregoing persons or (iii) engage in any other
transaction with any of the foregoing persons.
In addition, the Company's Board of Directors is subject to certain
provisions of Maryland law, which are designed to eliminate or minimize certain
potential conflicts of interest. There can be no assurance, however, that these
policies and provisions or these agreements always will be successful in
eliminating the influence of such conflicts, and if they are not successful,
decisions could be made that may fail to reflect fully the interests of all
stockholders.
INTERESTED DIRECTOR AND OFFICER TRANSACTIONS
Under Maryland law, a contract or other transaction between the Company and
a director or between the Company and any other corporation or other entity in
which a director is a director or has a material financial interest is not void
or voidable solely on the grounds of such common directorship or interest, the
presence of the director at the meeting at which the contract or transaction is
authorized, approved or ratified or the counting of the director's vote in favor
thereof if (i) the transaction or contract is authorized, approved or ratified
by the board of directors or a committee of the board, after disclosure of the
common directorship or interest, by the affirmative vote of a majority of
disinterested directors, even if the disinterested directors constitute less
than a quorum, or by a majority of the votes cast by disinterested stockholders,
or (ii) the transaction or contract is fair and reasonable to the Company.
Under Delaware law (where the Operating Partnership is formed), the Company,
as general partner, has a fiduciary duty to the Operating Partnership and,
consequently, such transactions also are subject to the duties of care and
loyalty that the Company, as general partner, owes to limited partners in the
Operating Partnership (to the extent such duties have not been eliminated
pursuant to the terms of the Partnership Agreement). The Company will adopt a
policy which requires that all contracts and transactions between the Company,
the Operating Partnership or any of its subsidiaries, on the one hand, and a
director or executive officer of the Company or any entity in which such
director or executive officer is a director or has a material financial
interest, on the other hand, must be approved by the affirmative vote of a
majority of the disinterested directors. Where appropriate in the judgment of
the disinterested directors, the Board of Directors may obtain a fairness
opinion or engage independent counsel to represent the interests of
non-affiliated security holders, although the Board of Directors will have no
obligation to do so.
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BUSINESS OPPORTUNITIES
Pursuant to Maryland law, each director is obligated to offer to the Company
any business opportunity (with certain limited exceptions) that comes to him and
that the Company reasonably could be expected to have an interest in pursuing.
After the Formation Transactions, SL Green will continue to own interests in
certain other properties as well as entities that will provide cleaning (and
related) services to office properties and security services to office
properties, including the Properties. The Company will not have any interest in
these properties or businesses. See "The Properties--Assets Not Being
Transferred to the Company."
POLICIES WITH RESPECT TO OTHER ACTIVITIES
The Company and the Operating Partnership have authority to offer Common
Stock, Preferred Stock, Units, preferred Units or options to purchase capital
stock or Units in exchange for property and to repurchase or otherwise acquire
its Common Stock or Units or other securities in the open market or otherwise
and may engage in such activities in the future. Except in connection with the
Formation Transactions, the Company has not issued Common Stock, Units or any
other securities in exchange for property or any other purpose, and the Board of
Directors has no present intention of causing the Company to repurchase any
Common Stock. The Company may issue Preferred Stock from time to time, in one or
more series, as authorized by the Board of Directors without the need for
stockholder approval. See "Capital Stock--Preferred Stock." The Company has not
engaged in trading, underwriter or agency distribution or sale of securities of
other issuers other than the Operating Partnership, nor has the Company invested
in the securities of other issuers other than the Operating Partnership for the
purposes of exercising control, and does not intend to do so. At all times, the
Company intends to make investments in such a manner as to qualify as a REIT,
unless because of circumstances or changes in the Code (or the Treasury
Regulations), the Board of Directors determines that it is no longer in the best
interest of the Company to qualify as a REIT and such determination is approved
by a majority vote of the Company's stockholders, as required by the Charter.
The Company has not made any loans to third parties, although it may in the
future make loans to third parties, including, without limitation, to joint
ventures in which it participates. The Company intends to make investments in
such a way that it will not be treated as an investment company under the 1940
Act. The Company's policies with respect to such activities may be reviewed and
modified or amended from time to time by the Company's Board of Directors
without a vote of the stockholders.
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CERTAIN RELATIONSHIPS AND TRANSACTIONS
FORMATION TRANSACTIONS
The terms of the acquisitions of interests in the Properties and the Service
Corporations by the Operating Partnership are described in "Structure and
Formation of the Company--The Formation Transactions."
CLEANING SERVICES
First Quality Maintenance, L.P. ("First Quality") provides cleaning and
related services with respect to the Properties. First Quality is owned by Gary
Green, a son of Stephen L. Green. The cost of cleaning and related services
generally is passed through to tenants as part of the operating expense
escalation clause under leases. First Quality also provides additional services
directly to tenants on a separately negotiated basis. The aggregate amount of
fees to First Quality for services provided (excluding services provided
directly to tenants) was approximately $188,000 in 1994, $164,000 in 1995 and
$296,000 in 1996. After the completion of the Offering, the Company may retain
First Quality to provide cleaning and related services for the Company's
properties at market rates. In addition, the cleaning entity will continue to
have the non-exclusive opportunity to provide cleaning and related services to
individual tenants at the Company's properties on a basis separately negotiated
with any tenant seeking such additional services. The cleaning entity will
provide such services to individual tenants pursuant to agreements on customary
terms (including at market rates). First Quality leases 3,740 square feet of
space at 70 West 36th Street pursuant to a lease that expires on December 31,
2005 and provides for annual rental payments of approximately $68,660.
SECURITY SERVICES
Class Security LLC ("Classic Security") provides security services with
respect to the Properties. Classic Security is owned by Gary Green, a son of
Stephen L. Green. The aggregate amount of fees for such services was
approximately $24,000 in 1996 (no fees were paid to such entity in 1994 or
1995). After the completion of the Offering, Classic Security may continue to
provide security services for the Company's properties at market rates.
PARTNERSHIP AGREEMENT
THE FOLLOWING SUMMARY OF THE AGREEMENT OF LIMITED PARTNERSHIP OF THE
OPERATING PARTNERSHIP (THE "PARTNERSHIP AGREEMENT"), INCLUDING THE DESCRIPTIONS
OF CERTAIN PROVISIONS SET FORTH ELSEWHERE IN THIS PROSPECTUS, IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE PARTNERSHIP AGREEMENT, WHICH IS FILED AS AN
EXHIBIT TO THE REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A PART.
OPERATIONAL MATTERS
GENERAL. Holders of Units (other than the Company in its capacity as
general partner) will hold a limited partnership interest in the Operating
Partnership, and all holders of Units (including the Company in its capacity as
general partner) will be entitled to share in cash distributions from, and in
the profits and losses of, the Operating Partnership. Each Unit generally will
receive distributions in the same amount paid on each share of Common Stock. See
"Distributions."
Holders of Units will have the rights to which limited partners are entitled
under the Partnership Agreement and, to the extent not limited by the
Partnership Agreement, the Delaware Revised Uniform Limited Partnership Act (the
"Act"). The Units have not been and are not expected to be registered pursuant
to any Federal or state securities laws or listed on any exchange or quoted on
any national market system. The Partnership Agreement imposes certain
restrictions on the transfer of Units, as described below.
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PURPOSES, BUSINESS AND MANAGEMENT. The purpose of the Operating Partnership
includes the conduct of any business that may be lawfully conducted by a limited
partnership formed under the Act, except that the Partnership Agreement requires
the business of the Operating Partnership to be conducted in such a manner that
will permit the Company to be classified as a REIT under Section 856 of the
Code, unless the Company ceases to qualify as a REIT for reasons other than the
conduct of the business of the Operating Partnership. Subject to the foregoing
limitation, the Operating Partnership may enter into partnerships, joint
ventures or similar arrangements and may own interests directly or indirectly in
any other entity.
The Company, as the general partner of the Operating Partnership, has the
exclusive power and authority to conduct the business of the Operating
Partnership, subject to the consent of the limited partners in certain limited
circumstances discussed below. No limited partner may take part in the
operation, management or control of the business of the Operating Partnership by
virtue of being a holder of Units.
The Company may not conduct any business other than the business of the
Operating Partnership without the consent of the holders of a majority of the
limited partnership interests (not including the limited partnership interests
held by the Company in its capacity as a limited partner in the Operating
Partnership).
DISTRIBUTIONS. The Partnership Agreement provides for the quarterly
distribution of Available Cash (as defined below), as determined in the manner
provided in the Partnership Agreement, to the Company and the limited partners
in proportion to their percentage interests in the Operating Partnership.
"Available Cash" is generally defined as net income plus any reduction in
reserves and minus interest and principal payments on debt, capital
expenditures, any additions to reserves and other adjustments. Neither the
Company nor the limited partners are entitled to any preferential or
disproportionate distributions of Available Cash.
BORROWING BY THE OPERATING PARTNERSHIP. The Company is authorized to cause
the Operating Partnership to borrow money and to issue and guarantee debt as it
deems necessary for the conduct of the activities of the Operating Partnership.
Such debt may be secured by mortgages, deeds of trust, liens or encumbrances on
properties of the Operating Partnership. The Company also may cause the
Operating Partnership to borrow money to enable the Operating Partnership to
make distributions, including distributions in an amount sufficient to permit
the Company, as long as it qualifies as a REIT, to avoid the payment of any
Federal income tax. See "Policies with Respect to Certain Activities--Financing
Policies." Pursuant to the Lock-out Provisions, the Operating Partnership may
not, earlier than one year prior to its maturity, repay the mortgage
indebtedness on 673 First Avenue or 470 Park Avenue South and may not consent to
any such prepayment of mortgage indebtedness on 673 First Avenue or 470 Park
Avenue South (other than pursuant to scheduled amortization) during the Lock-out
Period without, in the case of each such Property, the consent of holders of 75%
of the Units originally issued to limited partners in the Operating Partnership
who immediately prior to completion of the Formation Transactions owned direct
or indirect interests in such Property that remain outstanding at the time of
such vote (whether held by the original recipient of such Units or by a
successor or transferee of the original recipient, but excluding Units held by
the Company and excluding any such Units the adjusted tax basis of which has
been increased, in the hands of the holder or any predecessor holder thereof, to
reflect fair market value through a taxable disposition or otherwise) unless the
repayment is in connection with either a refinancing of the outstanding debt (on
a basis that is nonrecourse to the Operating Partnership and providing for the
least amount of principal amortization that is available on commercially
reasonable terms and permitting certain guarantees by the holders of the Units
originally issued with respect to the affected Property) or an involuntary sale
pursuant to foreclosure of a mortgage securing the debt (or other similar
event). In addition, during the Lock-out Period, the Company is obligated to use
commercially reasonable efforts, commencing one year prior to the stated
maturity, to refinance at maturity (on a basis that is nonrecourse to the
Operating Partnership and providing for the least amount of principal
amortization that is available on commercially reasonable terms and permitting
certain guarantees by the holders of the Units originally issued with
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respect to the affected Property) the mortgage indebtedness secured by each of
these two Properties at not less than the principal amount outstanding on the
maturity date. Finally, during the Lock-out Period, the Company may not incur
debt secured by either of these two Properties if the amount of the new debt
would exceed the greater of 75% of the value of the Property securing the debt
or the amount of existing debt being refinanced (plus the costs associated
therewith).
REIMBURSEMENT OF THE COMPANY; TRANSACTIONS WITH THE COMPANY AND ITS
AFFILIATES. The Company will not receive any compensation for its services as
general partner of the Operating Partnership. The Company, however, as a partner
in the Operating Partnership, has the same right to allocations and
distributions as other partners in the Operating Partnership. In addition, the
Operating Partnership will reimburse the Company for substantially all expenses
it incurs relating to the ongoing operation of the Company and offerings of
Units or shares of Common Stock (or rights, options, warrants or convertible or
exchangeable securities).
Except as expressly permitted by the Partnership Agreement, affiliates of
the Company will not engage in any transactions with the Operating Partnership
except on terms that are fair and reasonable and no less favorable to the
Operating Partnership than would be obtained from an unaffiliated third party.
SALES OF ASSETS. Under the Partnership Agreement, the Company generally has
the exclusive authority to determine whether, when and on what terms the assets
of the Operating Partnership (including the Properties) will be sold, subject to
the Lock-out Provisions. A sale of all or substantially all of the assets of the
Operating Partnership (or a merger of the Operating Partnership with another
entity) generally requires an affirmative vote of the holders of a majority of
the outstanding Units (including Units held by the Company), but also is subject
to the Lock-out Provisions.
Under the Lock-out Provisions, the Operating Partnership may not sell or
otherwise dispose of 673 First Avenue or 470 Park Avenue South (or any direct or
indirect interest therein) during the Lock-out Period (except pursuant to a sale
or other disposition of all or substantially all of the Operating Partnership's
assets approved as described below, an involuntary sale pursuant to foreclosure
of a mortgage secured by one of these Properties or a bankruptcy proceeding, and
certain transactions, including a "Section 1031 like-kind exchange," that would
not result in the recognition of any gain for tax purposes by the holders of
Units issued in the Formation Transactions with respect to these Properties)
without, in the case of each such Property, the consent of holders of 75% of the
Units originally issued to limited partners in the Operating Partnership who
immediately prior to the completion of the Formation Transactions owned direct
or indirect interests in such Property that remain outstanding at the time of
such vote (whether held by the original recipient of such Units or by a
successor or transferee of the original recipient, but excluding Units held by
the Company and excluding any such Units the adjusted tax basis of which has
been increased, in the hands of the holder or any predecessor holder thereof, to
reflect fair market value through a taxable disposition or otherwise). Under the
Lock-out Provisions, a sale or other disposition of all or substantially all of
the assets of the Operating Partnership during the Lock-out Period generally
would require the approval of the holders, as a group, of 75% of the aggregate
Units originally issued with respect to 673 First Avenue and 470 Park Avenue
South that remain outstanding (whether held by the original recipient of such
Units or by a successor or transferee of the original recipient, but excluding
Units held by the Company and excluding any such Units the adjusted tax basis of
which has been increased, in the hands of the holder or any predecessor holder
thereof, to reflect fair market value through a taxable disposition or
otherwise). The consent requirement under the Lockout Provisions, however, would
not apply in the event of a merger or consolidation involving the Operating
Partnership and substantially all of its assets if (i) the transaction would not
result in the recognition of any gain with respect to the Units originally
issued with respect to 673 First Avenue and 470 Park Avenue South, (ii) the
Lock-out Provisions would continue to apply with respect to each of these two
Properties, and (iii) the surviving entity agrees to a number of restrictions
and conditions for the benefit of the holders of such Units designed to preserve
the benefit of certain provisions and restrictions in the Partnership Agreement
for the holders of such Units.
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NO REMOVAL OF THE GENERAL PARTNER. The Partnership Agreement provides that
the limited partners may not remove the Company as general partner of the
Operating Partnership with or without cause (unless neither the General Partner
nor its parent entity is a "public company," in which case the General Partner
may be removed for cause).
ISSUANCE OF LIMITED PARTNERSHIP INTERESTS. The Company is authorized,
without the consent of the limited partners, to cause the Operating Partnership
to issue Units to the Company, to the limited partners or to other persons for
such consideration and upon such terms and conditions as the Company deems
appropriate. The Operating Partnership also may issue partnership interests in
different series or classes, which may be senior to the Units. If Units are
issued to the Company, then the Company must issue shares of Common Stock and
must contribute to the Operating Partnership the proceeds received by the
Company from such issuance. In addition, the Company may cause the Operating
Partnership to issue to the Company partnership interests in different series or
classes of equity securities, which may be senior to the Units, in connection
with an offering of securities of the Company having substantially similar
rights upon the contribution of the proceeds therefrom to the Operating
Partnership. Consideration for partnership interests may be cash or any property
or other assets permitted by the Act. No limited partner has preemptive,
preferential or similar rights with respect to capital contributions to the
Operating Partnership or the issuance or sale of any partnership interests
therein.
AMENDMENT OF THE PARTNERSHIP AGREEMENT. Generally, the Partnership
Agreement may be amended with the approval of the Company, as general partner,
and limited partners (including the Company) holding a majority of the Units.
Certain provisions regarding, among other things, the rights and duties of the
Company as general partner or the dissolution of the Operating Partnership, may
not be amended without the approval of a majority of the Units not held by the
Company. Notwithstanding the foregoing, the Company, as general partner, has the
power, without the consent of the limited partners, to amend the Partnership
Agreement in certain circumstances. Certain amendments that would affect the
fundamental rights of a limited partner must be approved by the Company and each
limited partner that would be adversely affected by such amendment. In addition,
any amendment that would affect the Lock-out Provisions with respect to 673
First Avenue or 470 Park Avenue South during the Lock-out Period would require,
in the case of each such Property affected by the Amendment, the consent of
holders of 75% of the Units originally issued with respect to such Property that
remain outstanding at the time of such vote (whether held by the original
recipient of such Units or by a successor or transferee of the original
recipient, but excluding Units held by the Company and excluding any such Units
the adjusted tax basis of which has been increased, in the hands of the holder
or any predecessor holder thereof, to reflect fair market value through a
taxable disposition or otherwise).
DISSOLUTION, WINDING UP AND TERMINATION. The Operating Partnership will
continue until December 31, 2095, unless sooner dissolved and terminated. The
Operating Partnership will be dissolved prior to the expiration of its term, and
its affairs wound up upon the occurrence of the earliest of: (i) the withdrawal
of the Company as general partner without the permitted transfer of the
Company's interest to a successor general partner (except in certain limited
circumstances); (ii) the sale of all or substantially all of the Operating
Partnership's assets and properties (subject to the Lock-out Provisions during
the Lockout Period); (iii) the entry of a decree of judicial dissolution of the
Operating Partnership pursuant to the provisions of the Act; (iv) the entry of a
final non-appealable order for relief in a bankruptcy proceeding of the general
partner, or the entry of a final non-appealable judgment ruling that the general
partner is bankrupt or insolvent (except that, in either such case, in certain
circumstances the limited partners (other than the Company) may vote to continue
the Operating Partnership and substitute a new general partner in place of the
Company); and (v) on or after January 1, 2046, at the option of the Company, in
its sole and absolute discretion. Upon dissolution, the Company, as general
partner, or any liquidator will proceed to liquidate the assets of the Operating
Partnership and apply the proceeds therefrom in the order of priority set forth
in the Partnership Agreement.
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LIABILITY AND INDEMNIFICATION
LIABILITY OF THE COMPANY AND LIMITED PARTNERS. The Company, as general
partner of the Operating Partnership, is liable for all general recourse
obligations of the Operating Partnership to the extent not paid by the Operating
Partnership. The Company is not liable for the nonrecourse obligations of the
Operating Partnership. Assuming that a limited partner does not take part in the
control of the business of the Operating Partnership and otherwise acts in
conformity with the provisions of the Partnership Agreement and the Act, the
liability of a limited partner for obligations of the Operating Partnership
under the Partnership Agreement and the Act will be limited, subject to certain
exceptions, generally to the loss of such limited partner's investment in the
Operating Partnership represented by his Units. The Operating Partnership will
operate in a manner that the Company deems reasonable, necessary or appropriate
to preserve the limited liability of the limited partners.
EXCULPATION AND INDEMNIFICATION OF THE COMPANY. The Partnership Agreement
generally provides that the Company, as general partner of the Operating
Partnership, will incur no liability to the Operating Partnership or any limited
partner for losses sustained, liabilities incurred or benefits not derived as a
result of errors in judgment or mistakes of fact or law or of any act or
omission, if the Company carried out its duties in good faith. In addition, the
Company is not responsible for any misconduct or negligence on the part of its
agents, provided the Company appointed such agents in good faith.
The Partnership Agreement also provides for indemnification (including, in
certain circumstances, the advancement of expenses) of the Company, the
directors and officers of the Company and such other persons as the Company may
from time to time designate against any judgments, penalties, fines, settlements
and reasonable expenses that are actually (or will be) incurred by such person
in connection with a proceeding in which any such person is involved, or is
threatened to be involved, as a party or otherwise, unless it is established
that: (i) the act or omission of the indemnified person was material to the
matter giving rise to the proceeding and either was committed in bad faith or
was the result of active and deliberate dishonesty; (ii) the indemnified person
actually received an improper personal benefit in money, property or services;
or (iii) in the case of any criminal proceeding, the indemnified person had
reasonable cause to believe that the act or omission was unlawful.
TRANSFERS OF INTERESTS
RESTRICTIONS ON TRANSFER OF THE COMPANY'S INTEREST. The Company may not
transfer any of its interests as general or limited partner in the Operating
Partnership, except in connection with a merger or sale of all or substantially
all of its assets, in which (i) the limited partners in the Operating
Partnership either will receive, or will have the right to receive,
substantially the same consideration as holders of shares of Common Stock, and
(ii) such transaction has been approved by the holders of a majority of the
interests in the Operating Partnership (including interests held by the
Company). The Lock-out Provisions do not apply to a sale or other transfer by
the Company of its interests as a partner in the Operating Partnership, but they
would apply to transfers of assets of the Operating Partnership undertaken
during the Lock-out Period in connection with or as part of any such transaction
by the Company. See "--Operational Matters--Sales of Assets" above.
RESTRICTIONS ON TRANSFERS OF UNITS BY LIMITED PARTNERS. For up to two years
after the completion of the Offering, a limited partner may not transfer any of
his rights as a limited partner without the consent of the Company, which
consent the Company may withhold in its sole discretion. Any attempted transfer
in violation of this restriction will be void ab initio and without any force or
effect. Beginning two years after the completion of the Offering, limited
partners (other than the Company) will be permitted to transfer all or any
portion of their Units without restriction as long as they satisfy certain
requirements set forth in the Partnership Agreement. In addition, limited
partners will be permitted to dispose of their Units following the expiration of
up to a two-year period following the completion of the Offering by exercising
the redemption right described below. See "--Redemption of Units" below.
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The right of any permitted transferee of Units to become a substituted
limited partner is subject to the consent of the Company, which consent the
Company may withhold in its sole and absolute discretion. If the Company does
not consent to the admission of a transferee of Units as a substituted limited
partner, then the transferee will succeed to all economic rights and benefits
attributable to such Units (including the redemption right described below), but
will not become a limited partner or possess any other rights of limited
partners (including the right to vote).
REDEMPTION OF UNITS. Subject to certain limitations and exceptions, holders
of Units (other than the Company) have the right to have each of their Units
redeemed by the Operating Partnership at any time beginning two years after the
completion of the Formation Transactions. Unless the Company elects to assume
and perform the Operating Partnership's obligation with respect to the
redemption right, as described below, the limited partner will receive cash from
the Operating Partnership in an amount equal to the market value of the Units to
be redeemed. The market value of a Unit for this purpose will be equal to the
average of the closing trading price of a share of Common Stock on the NYSE for
the ten trading days before the day on which the redemption notice was given to
the Operating Partnership of exercise of the redemption right. In lieu of the
Operating Partnership's acquiring the Units for cash, the Company will have the
right (except as described below, if the Common Stock is not publicly traded) to
elect to acquire the Units directly from a limited partner exercising the
redemption right, in exchange for either cash or shares of Common Stock, and,
upon such acquisition, the Company will become the owner of such Units. The
redemption generally will occur on the tenth business day after the notice to
the Operating Partnership, except that no redemption or exchange can occur if
delivery of shares of Common Stock would be prohibited either under the
provisions of the Company's Charter designed primarily to protect the Company's
qualification as a REIT or under applicable Federal or state securities laws as
long as the shares of Common Stock are publicly traded. See "Capital
Stock--Restrictions on Transfer--Ownership Limits."
In the event that the Common Stock is not publicly traded but another entity
whose stock is publicly traded owns more than 50% of the capital stock of the
Company (referred to as the "Parent Entity"), the redemption right will be
determined by reference to the publicly traded stock of the Parent Entity and
the Company will have the right to elect to acquire the Units to be redeemed for
publicly traded stock of the Parent Entity. In the event that the Common Stock
is not publicly traded and there is no Parent Entity with publicly traded stock,
the redemption right will be based upon the fair market value of the Operating
Partnership's assets at the time the redemption right is exercised (as
determined in good faith by the Company based upon a commercially reasonable
estimate of the amount that would be realized by the Operating Partnership if
each asset of the Operating Partnership were sold to an unaffiliated purchaser
in an arm's length transaction where neither the purchaser nor the seller were
under economic compulsion to enter into the transaction), and the Company and
the Operating Partnership will be obligated to satisfy the redemption right in
cash (unless the redeeming partner, in such partner's sole and absolute
discretion, consents to the receipt of Common Stock), payable on the thirtieth
business day after notice was given to the Operating Partnership of exercise of
the redemption right.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock (or Common Stock for which Units are exchangeable) by
(i) each director (and director nominee) of the Company, (ii) each executive
officer of the Company, (iii) all directors (including director nominees) and
executive officers of the Company as a group, and (iv) each person or entity
which is expected to be the beneficial owner of 5% or more of the outstanding
shares of Common Stock immediately following the completion of the Offering.
Except as indicated below, all of such Common Stock is owned directly, and the
indicated person or entity has sole voting and investment power. The extent to
which a person will hold shares of Common Stock as opposed to Units is set forth
in the footnotes below.
<TABLE>
<CAPTION>
NUMBER OF
SHARES AND UNITS PERCENT OF
BENEFICIALLY PERCENT OF ALL SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED ALL SHARES(1) AND UNITS(2)
- ------------------------------------------------------------------ ----------------- ------------- -------------
<S> <C> <C> <C>
Stephen L. Green (3).............................................. 887,895 9.4% 9.2%
Nancy A. Peck (4)................................................. 136,825 1.6% 1.4%
Steven H. Klein (4)............................................... 54,730 0.1% 0.1%
Benjamin P. Feldman (4)........................................... 82,095 0.1% 0.1%
Gerard Nocera (4)................................................. 54,730 0.1% 0.1%
Louis A. Olsen (4)................................................ 54,730 0.1% 0.1%
Edwin Thomas Burton, III.......................................... 0 N/A N/A
John S. Levy...................................................... 0 N/A N/A
John J. Robbins................................................... 0 N/A N/A
All directors, director nominees and executive officers as a group
(9 persons)..................................................... 1,271,005 13.5% 13.2%
</TABLE>
- ------------------------
(1) Assumes 8,528,605 shares of Common Stock outstanding immediately following
the Offering. Assumes that all Units held by the person are redeemed for
shares of Common Stock. The total number of shares of Common Stock
outstanding used in calculating this percentage assumes that none of the
Units held by other persons are redeemed for shares of Common Stock.
(2) Assumes a total of 9,659,000 shares of Common Stock and Units outstanding
immediately following the Offering (8,528,605 shares of Common Stock and
1,130,395 Units, which may be redeemed for cash or shares of Common Stock
under certain circumstances). Assumes that all Units held by the person are
redeemed for shares of Common Stock. The total number of shares of Common
Stock outstanding used in calculating this percentage assumes that all of
the Units held by other persons are redeemed for shares of Common Stock.
(3) Represents Units issued in the Formation Transactions.
(4) Represents shares of restricted Common Stock.
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CAPITAL STOCK
GENERAL
The Company's Charter provides that the Company may issue up to 100 million
shares of common stock, $.01 par value per share ("Common Stock"), 25 million
shares of preferred stock, $.01 par value per share ("Preferred Stock"), and 75
million shares of excess stock, $.01 par value per share ("Excess Stock"). Upon
completion of the Offering, 8,528,605 shares of Common Stock will be issued and
outstanding (9,743,605 shares if the Underwriters' over-allotment option is
exercised in full) and no shares of Preferred Stock will be issued and
outstanding. Under Maryland law, stockholders generally are not liable for the
corporation's debts or obligations.
COMMON STOCK
All shares of Common Stock offered hereby will be duly authorized, fully
paid and nonassessable. Subject to the preferential rights of any other shares
or series of stock and to the provisions of the Charter regarding Excess Stock,
holders of shares of Common Stock are entitled to receive dividends on such
stock if, as and when authorized and declared by the Board of Directors of the
Company out of assets legally available therefor and to share ratably in the
assets of the Company legally available for distribution to its stockholders in
the event of its liquidation, dissolution or winding up after payment of or
adequate provision for all known debts and liabilities of the Company.
Subject to the provisions of the Charter regarding Excess Stock, each
outstanding share of Common Stock entitles the holder to one vote on all matters
submitted to a vote of stockholders, including the election of directors, and,
except as provided with respect to any other class or series of stock, the
holders of such shares will possess the exclusive voting power. There is no
cumulative voting in the election of directors, which means that the holders of
a majority of the outstanding shares of Common Stock can elect all of the
directors then standing for election and the holders of the remaining shares
will not be able to elect any directors.
Holders of shares of Common Stock have no preference, conversion, exchange,
sinking fund, redemption or appraisal rights and have no preemptive rights to
subscribe for any securities of the Company. Subject to the provisions of the
Charter regarding Excess Stock, shares of Common Stock will have equal dividend,
liquidation and other rights.
The Charter authorizes the Board of Directors to reclassify any unissued
shares of Common Stock into other classes or series of classes of stock and to
establish the number of shares in each class or series and to set the
preferences, conversion and other rights, voting powers, restrictions,
limitations and restrictions on ownership, limitations as to dividends or other
distributions, qualifications and terms or conditions of redemption for each
such class or series.
PREFERRED STOCK
The Charter authorizes the Board of Directors to classify any unissued
shares of Preferred Stock and to reclassify any previously classified but
unissued shares of Preferred Stock of any series. Prior to issuance of shares of
each series the Board is required by the MGCL and the Charter to set, subject to
the provisions of the Charter regarding Excess Stock, the terms, preferences,
conversion or other rights, voting powers, restrictions, limitations and
restrictions on ownership, limitations as to dividends or other distributions,
qualifications and terms or conditions of redemption for each such series. Thus,
the Board could authorize the issuance of shares of Preferred Stock with terms
and conditions which could have the effect of delaying, deferring or preventing
a transaction or a change in control of the Company that might involve a premium
price for holders of Common Stock or otherwise be in their best interest. As of
the date hereof, no shares of Preferred Stock are outstanding and the Company
has no present plans to issue any Preferred Stock.
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EXCESS STOCK
For a description of Excess Stock, see "--Restrictions on Transfer."
POWER TO ISSUE ADDITIONAL SHARES OF COMMON STOCK AND PREFERRED STOCK
The Company believes that the power of the Board of Directors to issue
additional authorized but unissued shares of Common Stock or Preferred Stock and
to classify or reclassify unissued shares of Common Stock or Preferred Stock and
thereafter to cause the Company to issue such classified or reclassified shares
of stock will provide the Company with increased flexibility in structuring
possible future financings and acquisitions and in meeting other needs which
might arise. The additional classes or series, as well as the Common Stock, will
be available for issuance without further action by the Company's stockholders,
unless such action is required by applicable law or the rules of any stock
exchange or automated quotation system on which the Company's securities may be
listed or traded. Although the Board of Directors has no intention at the
present time of doing so, it could authorize the Company to issue a class or
series that could, depending upon the terms of such class or series, delay,
defer or prevent a transaction or a change of control of the Company that might
involve a premium price for holders of Common Stock or otherwise be in their
best interest.
The Company intends to furnish its stockholders with annual reports
containing audited consolidated financial statements and an opinion thereon
expressed by an independent public accounting firm and quarterly reports for the
first three quarters of each fiscal year containing unaudited financial
information.
RESTRICTIONS ON TRANSFER
For the Company to qualify as a REIT under the Code, among other things, not
more than 50% in value of its outstanding capital stock may be owned, directly
or indirectly, by five or fewer individuals (defined in the Code to include
certain entities) during the last half of a taxable year (other than the first
taxable year) (the "Five or Fewer Requirement"), and such shares of capital
stock must be beneficially owned by 100 or more persons during at least 335 days
of a taxable year of 12 months (other than the first taxable year) or during a
proportionate part of a shorter taxable year. Pursuant to the Code, Common Stock
held by certain types of entities, such as pension trusts qualifying under
Section 401(a) of the Code, United States investment companies registered under
the Investment Company Act of 1940, partnerships, trusts and corporations, will
be attributed to the beneficial owners of such entities for purposes of the Five
or Fewer Requirement (I.E., the beneficial owners of such entities will be
counted as persons). See "Federal Income Tax Consequences." In order to protect
the Company against the risk of losing it status as a REIT due to a
concentration of ownership among its stockholders, the Charter, subject to
certain exceptions, provides that no stockholder may own, or be deemed to own by
virtue of the attribution provisions of the Code, more than 9.0% (the "Ownership
Limit") of the aggregate number or value of the Company's outstanding shares of
Common Stock. In the event the Company issues Preferred Stock, it may, in the
Articles Supplementary creating such Preferred Stock, determine a limit on the
ownership of such stock. Any direct or indirect ownership of shares of stock in
excess of the Ownership Limit or that would result in the disqualification of
the Company as a REIT, including any transfer that results in shares of capital
stock being owned by fewer than 100 persons or results in the Company being
"closely held" within the meaning of Section 856(h) of the Code, shall be null
and void, and the intended transferee will acquire no rights to the shares of
capital stock. The foregoing restrictions on transferability and ownership will
not apply if the Board of Directors determines that it is no longer in the best
interests of the Company to attempt to qualify, or to continue to qualify, as a
REIT. The Board of Directors may, in its sole discretion, waive the Ownership
Limit if evidence satisfactory to the Board of Directors and the Company's tax
counsel is presented that the changes in ownership will not then or in the
future jeopardize the Company's REIT status and the Board of Directors otherwise
decides that such action is in the best interest of the Company.
114
<PAGE>
Shares of capital stock owned, or deemed to be owned, or transferred to a
stockholder in excess of the Ownership Limit will automatically be converted
into shares of Excess Stock that will be transferred, by operation of law, to
the trustee of a trust for the exclusive benefit of one or more charitable
organizations described in Section 170(b)(1)(A) and 170(c) of the Code (the
"Charitable Beneficiary"). The trustee of the trust will be deemed to own the
Excess Stock for the benefit of the Charitable Beneficiary on the date of the
violative transfer to the original transferee-stockholder. Any dividend or
distribution paid to the original transferee-stockholder of Excess Stock prior
to the discovery by the Company that capital stock has been transferred in
violation of the provisions of the Company's Charter shall be repaid to the
trustee upon demand. Any dividend or distribution authorized and declared but
unpaid shall be rescinded as void ab initio with respect to the original
transferee-stockholder and shall instead be paid to the trustee of the trust for
the benefit of the Charitable Beneficiary. Any vote cast by an original
transferee-stockholder of shares of capital stock constituting Excess Stock
prior to the discovery by the Company that shares of capital stock have been
transferred in violation of the provisions of the Company's Charter shall be
rescinded as void ab initio. While the Excess Stock is held in trust, the
original transferee-stockholder will be deemed to have given an irrevocable
proxy to the trustee to vote the capital stock for the benefit of the Charitable
Beneficiary. The trustee of the trust may transfer the interest in the trust
representing the Excess Stock to any person whose ownership of the shares of
capital stock converted into such Excess Stock would be permitted under the
Ownership Limit. If such transfer is made, the interest of the Charitable
Beneficiary shall terminate and the proceeds of the sale shall be payable to the
original transferee-stockholder and to the Charitable Beneficiary as described
herein. The original transferee-stockholder shall receive the lesser of (i) the
price paid by the original transferee-stockholder for the shares of capital
stock that were converted into Excess Stock or, if the original
transferee-stockholder did not give value for such shares (E.G., the stock was
received through a gift, devise or other transaction), the average closing price
for the class of shares from which such shares of capital stock were converted
for the ten trading days immediately preceding such sale or gift, and (ii) the
price received by the trustee from the sale or other disposition of the Excess
Stock held in trust. The trustee may reduce the amount payable to the original
transferee-stockholder by the amount of dividends and distributions relating to
the shares of Excess Stock which have been paid to the original
transferee-stockholder and are owned by the original transferee-stockholder to
the trustee. Any proceeds in excess of the amount payable to the original
transferee-stockholder shall be paid by the trustee to the Charitable
Beneficiary. Any liquidation distributions relating to Excess Stock shall be
distributed in the same manner as proceeds of a sale of Excess Stock. If the
foregoing transfer restrictions are determined to be void or invalid by virtue
of any legal decision, statue, rule or regulation, then the original
transferee-stockholder of any shares of Excess Stock may be deemed, at the
option of the Company, to have acted as an agent on behalf of the Company in
acquiring the shares of Excess Stock and to hold the shares of Excess Stock on
behalf of the Company.
In addition, the Company will have the right, for a period of 90 days during
the time any shares of Excess Stock are held in trust, to purchase all or any
portion of the shares of Excess Stock at the lesser of (i) the price initially
paid for such shares by the original transferee-stockholder, or if the original
transferee-stockholder did not give value for such shares (E.G., the shares were
received through a gift, devise or other transaction), the average closing price
for the class of stock from which such shares of Excess Stock were converted for
the ten trading days immediately preceding such sale or gift, and (ii) the
average closing price for the class of stock from which such shares of Excess
Stock were converted for the ten trading days immediately preceding the date the
Company elects to purchase such shares. The Company may reduce the amount
payable to the original transferee-stockholder by the amount of dividends and
distributions relating to the shares of Excess Stock which have been paid to the
original transferee-stockholder and are owed by the original
transferee-stockholder to the trustee. The Company may pay the amount of such
reductions to the trustee for the benefit of the Charitable Beneficiary. The
90-day period begins on the later date of which notice is received of the
violative transfer if the original transferee-stockholder gives notice to the
Company of the transfer or, if no such notice is given, the date the Board of
Directors determines that a violative transfer has been made.
115
<PAGE>
These restrictions will not preclude settlement of transactions through the
New York Stock Exchange.
All certificates representing shares of stock will bear a legend referring
to the restrictions described above.
Each stockholder shall upon demand be required to disclose to the Company in
writing any information with respect to the direct, indirect and constructive
ownership of capital stock of the company as the Board of Directors deems
necessary to comply with the provisions of the Code applicable to REITs, to
comply with the requirements of any taxing authority or governmental agency or
to determine any such compliance.
The Ownership Limit may have the effect of delaying, deferring or preventing
a change in control of the Company unless the Board of Directors determines that
maintenance of REIT status is no longer in the best interest of the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is .
116
<PAGE>
CERTAIN PROVISIONS OF MARYLAND LAW AND THE COMPANY'S CHARTER AND BYLAWS
THE FOLLOWING SUMMARY OF CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE
CHARTER AND BYLAWS OF THE COMPANY DOES NOT PURPORT TO BE COMPLETE AND IS SUBJECT
TO AND QUALIFIED IN ITS ENTIRETY BY REFERENCE TO MARYLAND LAW AND THE CHARTER
AND BYLAWS OF THE COMPANY, COPIES OF WHICH ARE EXHIBITS TO THE REGISTRATION
STATEMENT OF WHICH THIS PROSPECTUS IS A PART.
The Charter and the bylaws of the Company (the "Bylaws") contain certain
provisions that could make more difficult an acquisition or change in control of
the Company by means of a tender offer, a proxy contest or otherwise. These
provisions are expected to discourage certain types of coercive takeover
practices and inadequate takeover bids and to encourage persons seeking to
acquire control of the Company to negotiate first with the Board of Directors.
The Company believes that the benefits of these provisions outweigh the
potential disadvantages of discouraging such proposals because, among other
things, negotiation of such proposals might result in an improvement of their
terms. The description set forth below is intended as a summary only and is
qualified in its entirety by reference to the Charter and the Bylaws, which have
been filed as exhibits to the Registration Statement of which this Prospectus is
a part. See also "Capital Stock--Restrictions on Transfer."
CLASSIFICATION AND REMOVAL OF BOARD OF DIRECTORS; OTHER PROVISIONS
The Company's Charter provides for the Board of Directors to be divided into
three classes of directors, with each class to consist as nearly as possible of
an equal number of directors. The term of office of the first class of directors
will expire at the 1998 annual meeting of stockholders; the term of the second
class of directors will expire at the 1999 annual meeting of stockholders; and
the term of the third class will expire at the 2000 annual meeting of
stockholders. At each annual meeting of stockholders, the class of directors to
be elected at such meeting will be elected for a three-year term, and the
directors in the other two classes will continue in office. Because stockholders
will have no right to cumulative voting for the election of directors, at each
annual meeting of stockholders the holders of a majority of the shares of Common
Stock will be able to elect all of the successors to the class of directors
whose term expires at that meeting.
The Company's Charter also provides that, except for any directors who may
be elected by holders of a class or series of capital stock other than the
Common Stock, directors may be removed only for cause and only by the
affirmative vote of stockholders holding at least two-thirds of all the votes
entitled to be cast for the election of directors. Vacancies on the Board of
Directors may be filled by the affirmative vote of the remaining directors and,
in the case of a vacancy resulting from the removal of a director, by the
stockholders by a majority of the votes entitled to be cast for the election of
directors. A vote of stockholders holding at least two-thirds of all the votes
entitled to be cast thereon is required to amend, alter, change, repeal or adopt
any provisions inconsistent with the foregoing classified board and director
removal provisions. Under the Charter, the power to amend the Bylaws of the
Company is vested exclusively in the Board of Directors, and the stockholders do
not have any power to adopt, alter or repeal the Bylaws absent amendment to the
Charter to confer such power. These provisions may make it more difficult and
time-consuming to change majority control of the Board of Directors of the
Company and, thus, may reduce the vulnerability of the Company to an unsolicited
proposal for the takeover of the Company or the removal of incumbent management.
Because the Board of Directors will have the power to establish the
preferences and rights of additional series of capital stock without stockholder
vote, the Board of Directors may afford the holders of any series of senior
capital stock preferences, powers and rights, voting or otherwise, senior to the
rights of holders of shares of Common Stock. The issuance of any such senior
capital stock could have the effect of delaying or preventing a change in
control of the Company. The Board of Directors, however, currently does not
contemplate the issuance of any series of capital stock other than shares of
Common Stock.
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See "Management--Directors, Director Nominees and Executive Officers" for a
description of the limitations on liability of directors of the Company and the
provisions for indemnification of directors and officers provided for under
applicable Maryland law and the Charter.
BUSINESS COMBINATION STATUTE
The MGCL establishes special requirements with respect to "business
combinations" between Maryland corporations and "interested stockholders" unless
exemptions are applicable. Among other things, the law prohibits for a period of
five years a merger and other specified or similar transactions between a
company and an interested stockholder and requires a super majority vote for
such transactions after the end of the five-year period.
For this purpose, "interested stockholders" are all persons owning
beneficially, directly or indirectly, 10% or more of the outstanding voting
stock of a Maryland corporation, and affiliates and associates of the Maryland
corporation (which are, generally, any entities controlling, controlled by, or
under common control with, the Maryland corporation) which owned beneficially,
directly or indirectly, 10% or more of the outstanding voting stock of such
Maryland corporation. "Business combinations" include any merger or similar
transaction subject to a statutory vote and additional transactions involving
transfers of assets or securities in specified amounts to interested
stockholders or their affiliates. Unless an exemption is available, transactions
of these types may not be consummated between a Maryland corporation and an
interested stockholder or its affiliates for a period of five years after the
date on which the stockholder first became an interested stockholder.
Thereafter, the transaction may not be consummated unless recommended by the
board of directors and approved by the affirmative vote of at least 80% of the
votes entitled to be cast by all holders of outstanding shares of voting stock
and two-thirds of the votes entitled to be cast by all holders of outstanding
shares of voting stock other than the interested stockholder. A business
combination with an interested stockholder that is approved by the board of
directors of a Maryland corporation at any time before an interested stockholder
first becomes an interested stockholder is not subject to the special voting
requirements. An amendment to a Maryland corporation's charter electing not to
be subject to the foregoing requirements must be approved by the affirmative
vote of at least 80% of the votes entitled to be cast by all holders of
outstanding shares of voting stock and two-thirds of the votes entitled to be
cast by holders of outstanding shares of voting stock who are not interested
stockholders. Any such amendment is not effective until 18 months after the vote
of stockholders and does not apply to any business combination of a corporation
with a stockholder who was an interested stockholder on the date of the
stockholder vote. The Company has opted out of the business combination
provisions of the MGCL, but the Board of Directors may elect to adopt these
provisions of the MGCL in the future.
CONTROL SHARE ACQUISITION STATUTE
Maryland law imposes certain limitations on the voting rights in a "control
share acquisition." The MGCL considers a "control share acquisition" to occur at
each of the 20%, 33 1/3% and 50% acquisition levels, and requires the
affirmative vote of at least two-thirds of the votes entitled to be cast by
holders of outstanding shares of voting stock (excluding shares owned by the
acquiring person and certain members of management) to accord voting rights to
capital stock acquired in a control share acquisition. The statute also requires
Maryland corporations to hold a special meeting at the request of an actual or
proposed control share acquirer generally within 50 days after a request is made
by means of the submission of an "acquiring person statement," but only if the
acquiring person (i) posts a bond for the cost of a meeting (not including the
expenses of opposing approval of the voting rights) and (ii) submits a
definitive financing agreement with respect to the proposed control share
acquisition to the extent that financing is not provided by the acquiring
person. In addition, unless its charter or bylaws provide otherwise, the statute
gives a Maryland corporation, within certain time limitations, various
redemption rights if there is a stockholder vote on the issue and the grant of
voting rights is not approved, or if an acquiring person statement is not
delivered to the corporation within 10 days following an actual control share
acquisition.
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Moreover, unless the charter or bylaws provide otherwise, the statute provides
that if, before a control share acquisition occurs, voting rights are accorded
to control shares that result in the acquiring persons having majority voting
power, then minority stockholders have certain appraisal rights. An acquisition
of shares may be exempted from the control share statute, provided that a
charter or bylaw provision is adopted for such purpose prior to the control
share acquisition. The Company has opted out of the control share provisions of
the MGCL, but the Board of Directors may elect to adopt these provisions of the
MGCL in the future.
AMENDMENTS TO THE CHARTER
The Charter, including its provisions on classification of the Board of
Directors, restrictions on transferability of shares of Common Stock and removal
of directors, may be amended only by the affirmative vote of the holders of not
less than two-thirds of all of the votes entitled to be cast on the matter.
However, the provisions of the Charter relating to authorized shares of stock
and the classification and reclassification of shares of Common Stock and
Preferred Stock may be amended by the affirmative vote of the holders of not
less than a majority of the votes entitled to be cast on the matter.
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
The Bylaws of the Company provide that (i) with respect to an annual meeting
of stockholders, nominations of persons for election to the Board of Directors
and the proposal of business to be considered by stockholders may be made only
(A) pursuant to the Company's notice of the meeting, (B) by the Board of
Directors or (C) by a stockholder who is entitled to vote at the meeting and has
complied with the advance notice procedures set forth in the Bylaws and (ii)
with respect to special meetings of the stockholders, only the business
specified in the Company's notice of meeting may be brought before the meeting
of stockholders and nominations of persons for election to the Board of
Directors may be made only (A) pursuant to the Company's notice of the meeting,
(B) by the Board of Directors or (C) provided that the Board of Directors has
determined that directors shall be elected at such meeting, by a stockholder who
is entitled to vote at the meeting and has complied with the advance notice
provisions set forth in the Bylaws.
ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE CHARTER
AND BYLAWS
The business combination provisions and the control share acquisition
provisions of the MGCL, the provisions of the Charter on classification of the
Board of Directors and removal of directors and the advance notice provisions of
the Bylaws could delay, defer or prevent a transaction or a change in control of
the Company that might involve a premium price for holders of Common Stock or
otherwise be in their best interests.
RIGHTS TO PURCHASE SECURITIES AND OTHER PROPERTY
The Charter authorizes the Board of Directors to create and issue rights
entitling the holders thereof to purchase from the Company shares of capital
stock or other securities or property. The times at which and terms upon which
such rights are to be issued would be determined by the Board of Directors and
set forth in the contracts or instruments that evidence such rights. This
provision is intended to confirm the Board of Directors' authority to issue
share purchase rights, which might have terms that could impede a merger, tender
offer or other takeover attempt, or other rights to purchase shares or
securities of the Company or any other corporation.
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SHARES AVAILABLE FOR FUTURE SALE
GENERAL
Upon the completion of the Offering, the Company will have outstanding
8,528,605 shares of Common Stock (9,743,605 shares if the Underwriters'
overallotment option is exercised in full). In addition, 1,130,395 shares of
Common Stock are reserved for issuance upon exchange of Units. The shares of
Common Stock issued in the Offering will be freely tradeable by persons other
than "affiliates" of the Company without restriction under the Securities Act,
subject to the limitations on ownership set forth in the Charter. See "Capital
Stock--Restrictions on Transfer." The shares of Common Stock received by the
participants in the Formation Transactions or acquired by any participant in
redemption of Units (the "Restricted Shares") will be "restricted" securities
under the meaning of Rule 144 promulgated under the Securities Act ("Rule 144")
and may not be sold in the absence of registration under the Securities Act
unless an exemption from registration is available, including exemptions
contained in Rule 144. As described below under "--Registration Rights," the
Company has granted certain holders registration rights with respect to their
shares of Common Stock.
In general, under Rule 144, if one year has elapsed since the later of the
date of acquisition of Restricted Shares from the Company or any "affiliate" of
the Company, as that term is defined under the Securities Act, the acquiror or
subsequent holder thereof is entitled to sell within any three-month period a
number of shares that does not exceed the greater of 1% of the then outstanding
shares of Common Stock or the average weekly trading volume of the Common Stock
during the four calendar weeks immediately preceding the date on which notice of
the sale is filed with the Securities and Exchange Commission (the
"Commission"). Sales under Rule 144 also are subject to certain manner of sales
provisions, notice requirements and the availability of current public
information about the Company. If two years have elapsed since the date of
acquisition of Restricted Shares from the Company or from any "affiliate" of the
Company, and the acquiror or subsequent holder thereof is deemed not to have
been an affiliate of the Company at any time during the 90 days immediately
preceding a sale, such person is entitled to sell such shares in the public
market under Rule 144(k) without regard to the volume limitations, manner of
sale provisions, public information requirements or notice requirements.
The Company has established a stock option plan for the purpose of
attracting and retaining highly qualified directors, executive officers and
other key employees. See "Management--Stock Option Plan" and "--Compensation of
Directors." The Company intends to issue options to purchase approximately
660,000 shares of Common Stock to directors, officers and certain key employees
prior to the completion of the Offering and has reserved 440,000 additional
shares for future issuance under the plan. On or prior to the expiration of the
initial 12-month period following the completion of the Offering, the Company
expects to file a registration statement with the Commission with respect to the
shares of Common Stock issuable under these plans, which shares may be resold
without restriction, unless held by affiliates.
Prior to the Offering, there has been no public market for the Common Stock.
Trading of the Common Stock on the New York Stock Exchange is expected to
commence immediately following the completion of the Offering. No prediction can
be made as to the effect, if any, that future sales of shares, or the
availability of shares for future sale, will have on the market price prevailing
from time to time. Sales of substantial amounts of Common Stock (including
shares issued upon the exercise of options), or the perception that such sales
could occur, could adversely affect prevailing market prices of the Common
Stock. See "Risk Factors--Other Risks of Ownership of Common Stock" and
"Partnership Agreement-- Transfer of Interests."
REGISTRATION RIGHTS
The Company has granted the participants in the Formation Transactions who
received Units in the Formation Transactions certain registration rights with
respect to the shares of Common Stock owned by them or acquired by them in
connection with the exercise of the redemption right under the Partnership
Agreement. These registration rights require the Company to register all such
shares of Common Stock upon request. The Company will bear expenses incident to
its registration requirements under the registration rights, except that such
expenses shall not include any underwriting discounts or commissions or transfer
taxes, if any, relating to such shares.
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FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following discussion summarizes the material Federal income tax
consequences that are generally applicable to all prospective stockholders of
the Company. The specific tax consequences of owning Common Stock will vary for
stockholders because of the different circumstances of stockholders and the
discussion contained herein does not purport to address all aspects of federal
income taxation that may be relevant to particular holders in light of their
personal investment or tax circumstances. Therefore, it is imperative that a
stockholder review the following discussion and consult with his own tax
advisors to determine the interaction of his individual tax situation with the
anticipated tax consequences of owning Common Stock.
The information in this section and the opinions of Brown & Wood LLP are
based on the Code, existing and proposed Treasury Regulations thereunder,
current administrative interpretations and court decisions. No assurance can be
given that future legislation, Treasury Regulations, administrative
interpretations and court decisions will not significantly change current law or
affect existing interpretations of current law in a manner which is adverse to
stockholders. Any such change could apply retroactively to transactions
preceding the date of change. The Company and the Operating Partnership do not
plan to obtain any rulings from the IRS concerning any tax issue with respect to
the Company. Thus, no assurance can be provided that the opinions and statements
set forth herein (which do not bind the IRS or the courts) will not be
challenged by the IRS or will be sustained by a court if so challenged. The
following description does not constitute tax advice.
This summary does not give a detailed discussion of state, local or foreign
tax considerations. Except where indicated, the discussion below describes
general Federal income tax considerations applicable to individuals who are
citizens or residents of the United States. Accordingly, the following
discussion has limited application to domestic corporations and persons subject
to specialized Federal income tax treatment, such as foreign persons, trusts,
estates, tax-exempt entities, regulated investment companies and insurance
companies.
As used in this section, the term "Company" refers solely to SL Green Realty
Corp. and the term "Operating Partnership" refers solely to SL Green Operating
Partnership, L.P.
PROSPECTIVE STOCKHOLDERS ARE STRONGLY URGED TO CONSULT WITH THEIR OWN TAX
ADVISORS WITH REGARD TO THE APPLICATION OF THE FEDERAL INCOME TAX LAWS TO SUCH
STOCKHOLDERS' RESPECTIVE PERSONAL TAX SITUATIONS, AS WELL AS ANY TAX
CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING
JURISDICTION.
TAXATION OF THE COMPANY
GENERAL. The Company will make an election to be taxed as a REIT under
Sections 856 through 860 of the Code effective for its taxable year ending
December 31, 1997. The Company believes that, commencing with such taxable year,
it will be organized and will operate in such a manner as to qualify for
taxation as a REIT under the Code and the Company intends to continue to operate
in such a manner. Although the Company has been structured so as to qualify to
be treated as a REIT, no assurance can be given that the Company will operate in
a manner so as to qualify or remain qualified as a REIT.
In the opinion of Brown & Wood LLP, commencing with the Company's taxable
year ending December 31, 1997, the Company will be organized in conformity with
the requirements for qualification and taxation as a REIT under the Code. This
opinion is based on various assumptions relating to the organization and
operation of the Company, the Operating Partnership, the Management LLC, the
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Management Corporation (together with the Management LLC, the "Management
Entities"), the Leasing Corporation and the Construction Corporation and upon
certain representations made by the Company, the Operating Partnership, the
Management Entities, the Leasing Corporation and the Construction Corporation as
to certain relevant factual matters, including matters related to the
organization and expected manner of operation of the Company, the Operating
Partnership, the Property-owning entities, the Management Entities, the Leasing
Corporation and the Construction Corporation. Moreover, such qualification and
taxation as a REIT will depend upon the Company's ability to meet on a
continuing basis, through actual annual operating results, distribution levels,
and diversity of stock ownership, the various qualification tests imposed under
the Code (discussed below). Brown & Wood LLP will not review compliance with
these tests on a continuing basis. Accordingly, no assurance can be given that
the Company will satisfy such tests on a continuing basis. See "--Failure to
Qualify" below.
The following is a general summary of the material Code provisions that
govern the Federal income tax treatment of a REIT and its stockholders. These
provisions of the Code are highly technical and complex.
If the Company qualifies for taxation as a REIT, it generally will not be
subject to Federal corporate income taxes on net income that it distributes
currently to stockholders. This treatment substantially eliminates the "double
taxation" (taxation at both the corporate and stockholder levels) that generally
results from investment in a corporation. However, the Company will be subject
to Federal income and excise tax in certain circumstances, including the
following. First, the Company will be taxed at regular corporate rates on any
undistributed REIT taxable income, including undistributed net capital gains.
Second, under certain circumstances, the Company may be subject to the
"alternative minimum tax" on its items of tax preference. Third, if the Company
has (i) net income from the sale or other disposition of "foreclosure property"
(which is, in general, property acquired by foreclosure or otherwise on default
of a loan secured by the property) held primarily for sale to customers in the
ordinary course of business or (ii) other non-qualifying income from foreclosure
property, the Company will be subject to tax at the highest corporate rate on
such income. Fourth, if the Company has net income from prohibited transactions
(which are, in general, certain sales or other dispositions of property (other
than foreclosure property) held primarily for sale to customers in the ordinary
course of business), such income will be subject to a 100% tax. Fifth, if the
Company fails to satisfy either the 75% gross income test or the 95% gross
income test (both of which are discussed below), but nonetheless maintains its
qualification as a REIT because certain other requirements have been met, it
will be subject to a 100% tax on the greater of the amount by which the Company
fails the 75% or 95% test, multiplied by a fraction intended to reflect the
Company's profitability. Sixth, if the Company fails to distribute during each
calendar year at least the sum of (i) 85% of its REIT ordinary income for such
year, (ii) 95% of its REIT capital gain net income for such year and (iii) any
undistributed taxable income from prior years, the Company will be subject to a
4% excise tax on the excess of such required distribution over the amounts
actually distributed. Seventh, if the Company acquires any asset from a C
corporation (i.e., a corporation generally subject to full corporate level tax)
in a transaction in which the basis of the asset in the Company's hands is
determined by reference to the basis of the asset (or any other property) in the
hands of the C corporation and the Company recognizes gain on the disposition of
such asset during the ten-year period (the "Recognition Period") beginning on
the date on which such asset was acquired by the Company, then, to the extent of
such property's "built-in" gain (the excess of the fair market value of such
property at the time of acquisition by the Company over the adjusted basis in
such property at such time), such gain will be subject to tax at the highest
regular corporate rate applicable (the "Built-In Gain Rule").
REQUIREMENTS FOR QUALIFICATION. The Code defines a REIT as a corporation,
trust, or association (i) that is managed by one or more trustees or directors;
(ii) the beneficial ownership of which is evidenced by transferable shares or by
transferable certificates of beneficial interest; (iii) that would be taxable as
a domestic corporation, but for Section 856 through 859 of the Code; (iv) that
is neither a financial institution nor an insurance company subject to certain
provisions of the Code; (v) the beneficial
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ownership of which is held by 100 or more persons; (vi) during the last half of
each taxable year not more than 50% in value of the outstanding stock of which
is owned, directly or indirectly, by five or fewer individuals (as defined in
the Code to include certain entities); and (vii) that meets certain other tests,
described below, regarding the nature of its income and assets. The Code
provides that conditions (i) through (iv), inclusive, must be met during the
entire taxable year and that condition (v) must be met during at least 335 days
of a taxable year of 12 months, or during a proportionate part of a taxable year
of less than 12 months. Conditions (v) and (vi), however, will not apply until
after the first taxable year for which an election is made to be taxed as a
REIT. The Company anticipates issuing sufficient shares of Common Stock in the
Offering with sufficient diversity of ownership to allow the Company to satisfy
conditions (v) and (vi) immediately following the Offering. In addition, the
Company's Charter will include restrictions regarding the transfer of its shares
of capital stock that are intended to assist the Company in continuing to
satisfy the share ownership requirements described in (v) and (vi) above. See
"Capital Stock--Restrictions on Transfer."
In addition, a corporation may not elect to become a REIT unless its taxable
year is the calendar year. The Company's taxable year will be the calendar year.
If a REIT owns a corporate subsidiary that is a "qualified REIT subsidiary,"
that subsidiary is disregarded for Federal income tax purposes and all assets,
liabilities and items of income, deduction and credit of the subsidiary are
treated as assets, liabilities and items of the REIT itself. (A qualified REIT
subsidiary is a corporation all of the capital stock of which has been owned by
the REIT from the commencement of such corporate existence.) Similarly, a single
member limited liability company owned by the REIT or by the Operating
Partnership is disregarded as a separate entity for Federal income tax purposes.
In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that for purposes of the gross income tests and asset tests
the REIT will be deemed to own its proportionate share (based on its interest in
partnership capital) of the assets of the partnership and will be deemed to be
entitled to the income of the partnership attributable to such share. In
addition, the assets and gross income of the partnership will retain the same
character in the hands of the REIT for purposes of Section 856 of the Code,
including satisfying the gross income tests and asset tests, that they have in
the hands of the Partnership. Thus, the Company's proportionate share of the
assets, liabilities and items of gross income of the Operating Partnership will
be treated as assets, liabilities and items of gross income of the Company for
purposes of applying the requirements described herein.
INCOME TESTS. In order to maintain qualification as a REIT, three gross
income tests must be satisfied annually. First, at least 75% of the REIT's gross
income (excluding gross income from "prohibited transactions") for each taxable
year must be derived directly or indirectly from investments relating to real
property or mortgages on real property (including "rents from real property"
and, in certain circumstances, interest) or from certain types of temporary
investments. Second, at least 95% of the REIT's gross income (excluding gross
income from prohibited transactions) for each taxable year must be derived from
such real property investments described above and from dividends, interest and
gain from the sale or disposition of stock or securities, or from any
combination of the foregoing. Third, gain from the sale or other disposition of
stock or securities held for less than one year, gain from prohibited
transactions and gain on the sale or other disposition of real property held for
less than four years (apart from involuntary conversions and sales of
foreclosure property) must represent less than 30% of the REIT's gross income
(including gross income from prohibited transactions) for each taxable year. For
purposes of applying the 30% gross income test, the holding period of Properties
and other assets acquired in the Formation Transactions will be deemed to have
commenced on the date of the Formation Transactions.
Rents received by a REIT will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in whole
or in part on the income or profits of any person. However, an amount received
or
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accrued generally will not be excluded from the term "rents from real property"
solely by reason of being based on a fixed percentage or percentages of receipts
or sales. Second, rents received from a tenant will not qualify as "rents from
real property" in satisfying the gross income tests if the REIT, or a direct or
indirect owner of 10% or more of the REIT, directly or constructively, owns 10%
or more of such tenant (a "Related Party Tenant"). Third, if rent attributable
to personal property, leased in connection with a lease of real property, is
greater than 15% of the total rent received under the lease, then the portion of
rent attributable to such personal property will not qualify as "rents from real
property." Finally, in order for rents received with respect to a property to
qualify as "rents from real property," the REIT generally must not operate or
manage the property or furnish or render services to tenants, except through an
"independent contractor" who is adequately compensated and from whom the Company
derives no income. The "independent contractor" requirement, however, does not
apply to the extent the services provided by the REIT are "usually or
customarily rendered" in connection with the rental of space for occupancy only
and are not otherwise considered "rendered to the occupant."
The Company does not anticipate charging rent that is based in whole or in
part on the income or profits of any person (except by reason of being based on
a fixed percentage or percentages of receipts of sales consistent with the rule
described above). The Company does not anticipate deriving rent attributable to
personal property leased in connection with real property that exceeds 15% of
the total rents.
The Company will provide certain services with respect to the Properties,
but the Company believes (and has represented to Brown & Wood LLP ) that all
such services will be considered "usually or customarily rendered" in connection
with the rental of space for occupancy only, so that the provision of such
services will not jeopardize the qualification of rent from the Properties as
"rents from real property." In rendering its opinion on the Company's ability to
qualify as a REIT, Brown & Wood LLP is relying on such representations. In the
case of any services that are not "usual and customary" under the foregoing
rules, the Company intends to employ "independent contractors" to provide such
services.
The Operating Partnership may receive certain types of income, including
rent from Related Party Tenants, with respect to the properties it owns that
will not qualify under the 75% or 95% gross income test. In particular,
dividends on the Operating Partnership's stock in the Service Corporations will
not qualify under the 75% gross income test. The Company believes, however, that
the aggregate amount of such items and other non-qualifying income in any
taxable year will not cause the Company to exceed the limits on non-qualifying
income under the 75% and 95% gross income tests.
The Management LLC will receive managements fees from the Operating
Partnership with respect to properties that are wholly-owned by the Operating
Partnership. In the opinion of Brown & Wood LLP, such fees will not constitute
gross income of the Operating Partnership.
If the Company fails to satisfy one or both of the 75% or the 95% gross
income tests for any taxable year, it nevertheless may qualify as a REIT for
such year if it is entitled to relief under certain provisions of the Code.
These relief provisions generally will be available if the Company's failure to
meet any such tests was due to reasonable cause and not due to willful neglect,
the Company attaches a schedule of the sources of its income to its Federal
corporate income tax return and any incorrect information on the schedule was
not due to fraud with intent to evade tax. It is not possible, however, to state
whether in all circumstances the Company would be entitled to the benefit of
these relief provisions. As discussed in "--General" above, even if these relief
provisions were to apply, a tax would be imposed with respect to the excess net
income. Moreover, these relief provisions are unavailable if the Company fails
the 30% gross income test.
ASSET TESTS. The Company must also satisfy three tests relating to the
nature of its assets at the close of each quarter of its taxable year. First, at
least 75% of the value of the Company's total assets must be represented by real
estate assets (including (i) its allocable share of real estate assets held by
the Operating Partnership or any partnerships in which the Operating Partnership
owns an interest and (ii) stock or debt instruments held for not more than one
year purchased with the proceeds of a stock offering or long-term (i.e., at
least five-year) public debt offering of the Company), cash, cash items and
government securities.
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Second, of the investments not included in the 75% asset class, the value of any
one issuer's securities owned by the Company may not exceed 5% of the value of
the Company's total assets. Third, of the investments not included in the 75%
asset class, the Company may not own more than 10% of any one issuer's
outstanding voting securities.
After initially meeting the asset tests at the close of any quarter, the
Company will not lose its status as a REIT for failure to satisfy the asset
tests at the end of a later quarter solely by reason of changes in asset values.
If the failure to satisfy the asset tests results from an acquisition of
securities or other property during a quarter, the failure can be cured by
disposition of sufficient non-qualifying assets within 30 days after the close
of that quarter. The Company intends to maintain adequate records of the value
of its assets to ensure compliance with the asset tests and to take such other
action within 30 days after the close of any quarter as may be required to cure
any noncompliance.
Based on the foregoing, the 5% test must generally be met for any quarter in
which the Company acquires securities of an issuer. Thus, this requirement must
be satisfied not only on the date the Company acquires securities of the Service
Corporations, but also each time the Company increases its ownership of
securities of a Service Corporation (including as a result of increasing its
interest in the Operating Partnership as limited partners exercise their
redemption rights).
The Operating Partnership will own all of the non-voting stock of each of
the Service Corporations, which stock represents 95% of the equity of the
Service Corporations. See "Structure and Formation of the Company--The Operating
Entities of the Company--The Service Corporations." By virtue of its ownership
of Units, the Company will be considered to own its pro rata share of the assets
of the Operating Partnership, including the securities of the Service
Corporations described above. The Operating Partnership will not own more than
10% of the voting securities of the Service Corporations and, therefore, the
Company will not own more than 10% of the voting securities of the Service
Corporations. In addition, the Company and senior management believe that the
Company's pro rata share of the value of the securities of the Service
Corporations will not exceed, for each service Corporation, as of the completion
of the Offering, 5% of the total value of the Company's assets. The Company's
belief is based in part upon its analysis of the anticipated operating cash
flows of the Service Corporations. There can be no assurance, however, that the
IRS will not contend that the value of the securities of a Service Corporation
exceeds the 5% value limitation. Brown & Wood LLP, in rendering its opinion
regarding the qualification of the Company as a REIT, will rely on the
conclusions of the Company and its senior management as to the value of the
securities of the Service Corporations.
As noted above, the 5% value requirement must be satisfied at or within 30
days after the end of each quarter during which the Company increases its
(direct or indirect) ownership of securities of the Service Corporations
(including as a result of increasing its interest in the Operating Partnership).
Although the Company plans to take steps to ensure that it satisfies the 5%
value test for any quarter with respect to which retesting is to occur, there
can be no assurance that such steps always will be successful or will not
require a reduction in the Operating Partnership's overall interest in a service
Corporation.
Although currently the IRS will not rule regarding compliance with the 10%
voting securities test, in the opinion of Brown & Wood LLP the Company's
proposed structure will meet the current statutory requirements with respect to
the 10% voting securities test.
ANNUAL DISTRIBUTION REQUIREMENTS. The Company, in order to qualify as a
REIT, is required to distribute dividends (other than capital gain dividends) to
its stockholders in an amount at least equal to (i) the sum of (A) 95% of the
Company's "REIT taxable income" (computed without regard to the dividends paid
deduction and the REIT's net capital gain) and (B) 95% of the net income (after
tax), if any, from foreclosure property, minus (ii) the sum of certain items of
noncash income. Such distributions must be paid during the taxable year to which
they relate (or during the following taxable year, if declared before the
Company timely files its tax return for the preceding year and paid on or before
the first regular dividend payment after such declaration). To the extent that
the Company does not distribute all of its net
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capital gain or distributes at least 95%, but less than 100%, of its "REIT
taxable income," as adjusted, it will be subject to tax on the undistributed
amount at regular corporate capital gains rates and ordinary income tax rates.
Furthermore, if the Company fails to distribute during each calendar year at
least the sum of (i) 85% of its REIT ordinary income of such year, (ii) 95% of
its REIT capital gain income for such year and (iii) any undistributed taxable
income from prior periods, the Company will be subject to a 4% excise tax on the
excess of such amounts over the amounts actually distributed. In addition, if
the Company disposes of any asset subject to the Built-In Gain Rule during its
Recognition Period, the Company will be required to distribute at least 95% of
the built-in gain (after tax), if any, recognized on the disposition.
The Company intends to make timely distributions sufficient to satisfy the
annual distribution requirements. In this regard, it is expected that the
Company's REIT taxable income will be less than its cash flow due to the
allowance of depreciation and other noncash charges in the computing of REIT
taxable income. Moreover, the Partnership Agreement of the Operating Partnership
authorizes the Company, as general partner, to take such steps as may be
necessary to cause the Operating Partnership to make distributions to its
partners of amounts sufficient to permit the Company to meet these distribution
requirements. It is possible, however, that the Company, from time to time, may
not have sufficient cash or other liquid assets to meet the 95% distribution
requirement due to timing differences between the actual receipt of income and
actual payment of deductible expenses and the inclusion of such income and
deduction of such expenses in arriving at REIT taxable income of the Company, or
due to an excess of nondeductible expenses such as principal amortization or
capital expenditures over noncash deductions such as depreciation. In the event
that such circumstances do occur, then in order to meet the 95% distribution
requirement, the Company may cause the Operating Partnership to arrange for
short-term, or possibly long-term, borrowings to permit the payment of required
dividends.
Under certain circumstances, the Company may be able to rectify a failure to
meet the distribution requirement for a year by paying "deficiency dividends" to
stockholders in a later year that may be included in the Company's deduction for
dividends paid for the earlier year. Thus, the Company may be able to avoid
being taxed on amounts distributed as deficiency dividends. However, the Company
would be required to pay to the IRS interest based upon the amount of any
deduction taken for deficiency dividends.
FAILURE TO QUALIFY. If the Company fails to qualify for taxation as a REIT
in any taxable year and certain relief provisions do not apply, the Company will
be subject to tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates. Unless entitled to relief under
specific statutory provisions, the Company also will be disqualified from
taxation as a REIT for the four taxable years following the year during which
qualification was lost. It is not possible to state whether in all circumstances
the Company would be entitled to such statutory relief.
Distributions to stockholders in any year in which the Company fails to
qualify as a REIT will not be deductible by the Company, nor will the Company be
required to make distributions. If the Company makes distributions, such
distributions will be taxable as ordinary income to the extent of the Company's
current and accumulated earnings and profits. Subject to certain limitations in
the Code, corporate distributees may be eligible for the dividends received
deduction.
TAXATION OF STOCKHOLDERS
TAXATION OF DOMESTIC STOCKHOLDERS. As long as the Company qualifies as a
REIT, distributions made to the Company's taxable domestic stockholders out of
current or accumulated earnings and profits (and not designated as capital gain
dividends) will be taken into account by them as ordinary income and corporate
stockholders will not be eligible for the dividends received deduction as to
such amounts. Distributions that are designated as capital gain dividends will
be taxed as long-term capital gains (to the extent they do not exceed the
Company's actual net capital gain for the taxable year) without regard to the
period for which the stockholder has held its stock. However, corporate
stockholders may be required to treat up to 20% of certain capital gain
dividends as ordinary income. Distributions in excess of current and accumulated
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earnings and profits will not be taxable to a stockholder to the extent that
they do not exceed the adjusted basis of the stockholder's shares of Common
Stock, but rather will reduce the adjusted basis of a stockholder's shares of
Common Stock. To the extent that such distributions exceed the stockholder's
adjusted basis in its shares of Common Stock, they will be included in income as
long-term capital gain (or short-term capital gain if the shares have been held
for one year or less), assuming the shares of Common Stock are a capital asset
in the hands of the stockholder.
Any dividend declared by the Company in October, November or December of any
year payable to a stockholder of record on a specific date in any such month
shall be treated as both paid by the Company and received by the stockholder on
December 31 of such year, if the dividend is actually paid by the Company during
January of the following calendar year.
Stockholders may not include in their individual income tax returns net
operating losses or capital losses of the Company. In addition, distributions
from the Company and gain from the disposition of shares of Common Stock will
not be treated as "passive activity" income and, therefore, stockholders will
not be able to use passive losses to offset such income.
In general, any loss upon a sale or exchange of shares of Common Stock by a
stockholder which has held such shares of Common Stock for six months or less
(after applying certain holding period rules) will be treated as a long-term
capital loss to the extent of distributions from the Company required to be
treated by such stockholder as long-term capital gains.
BACKUP WITHHOLDING. The Company will report to its domestic stockholders and
the IRS the amount of dividends paid during each calendar year and the amount of
tax withheld, if any, with respect thereto. Under the backup withholding rules,
a stockholder may be subject to backup withholding at the rate of 31% with
respect to dividends paid unless such holder (i) is a corporation or comes
within certain other exempt categories and, when required, demonstrates this
fact, or (ii) provides a taxpayer identification number and certifies as to no
loss of exemption, and otherwise complies with the applicable requirements of
the backup withholdings rules. Any amount paid as backup withholding will be
creditable against the stockholder's income tax liability. The United States
Treasury has recently issued proposed regulations regarding the withholding and
information reporting rules discussed above. In general, the proposed
regulations do not alter the substantive withholding and information reporting
requirements but unify current certification procedures and forms and clarify
and modify reliance standards. If finalized in their current form, the proposed
regulations would generally be effective for payments made after December 31,
1997, subject to certain transition rules.
In addition, the Company may be required to withhold a portion of capital
gain distributions made to any stockholders which fail to certify their non
foreign status to the Company. See "--Taxation of Foreign Stockholders" below.
TAXATION OF TAX-EXEMPT STOCKHOLDERS. The IRS has ruled that amounts
distributed as dividends by a qualified REIT generally do not constitute
unrelated business taxable income ("UBTI") when received by a tax-exempt entity.
Based on that ruling, the dividend income from the Common Stock will not be UBTI
to a tax-exempt stockholder, provided that a tax-exempt stockholder has not held
its shares of Common Stock as "debt financed property" within the meaning of the
Code and such shares are not otherwise used in a trade or business. Similarly,
income from the sale of Common Stock will not constitute UBTI unless such
tax-exempt stockholder has held such shares as "debt financed property" within
the meaning of the Code or has used the shares in a trade or business.
Notwithstanding the above, however, a portion of the dividends paid by a
"pension held REIT" will be treated as UBTI as to any trust which is described
in Section 401(a) of the Code and is tax-exempt under Section 501(a) of the Code
(a "qualified trust") and which holds more than 10% (by value) of the interests
in the REIT. A REIT is a "pension held REIT" if (i) it would not have qualified
as a REIT but for the application of a "look-through" exception to the "not
closely held" requirement applicable to qualified
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trusts, and (ii) either (A) at least one such qualified trust holds more than
25% (by value) of the interests in the REIT, or (B) one or more such qualified
trusts, each of which owns more than 10% (by value) of the interests in the
REIT, hold in the aggregate more than 50% (by value) of the interests in the
REIT. The percentage of any REIT dividend treated as UBTI is equal to the ratio
of (i). the gross income (less direct expenses related thereto) of the REIT from
unrelated trades or businesses (determined as if the REIT were a qualified
trust) to (ii) the total gross income (less direct expenses related thereto) of
the REIT. A de minimis exception applies where this percentage is less than 5%
for any year. The provisions requiring qualified trusts to treat a portion of
REIT distributions as UBTI will not apply if the REIT is able to satisfy the
"not closely held" requirement without relying upon the "look-through" exception
with respect to qualified trusts. As a result of certain limitations on transfer
and ownership of Common Stock contained in the Charter, the Company does not
expect to be classified as a "pension held REIT."
TAXATION OF FOREIGN STOCKHOLDERS. The rules governing U.S. Federal income
taxation of nonresident alien individuals, foreign corporations, foreign
partnerships and other foreign stockholders (collectively, "Non-U.S.
Stockholders") are complex and no attempt will be made herein to provide more
than a limited summary of such rules. Prospective Non-U.S. Stockholders should
consult with their own tax advisors to determine the impact of U.S. Federal,
state and local income tax laws with regard to an investment in shares of Common
Stock, including any reporting requirements.
ORDINARY DIVIDENDS. Distributions, other than distributions that are treated
as attributable to gain from sales or exchanges by the Company of U.S. real
property interests (discussed below) and other than distributions designated by
the Company as capital gain dividends, will be treated as ordinary income to the
extent that they are made out of current or accumulated earnings and profits of
the Company. Such distributions to foreign stockholders will ordinarily be
subject to a withholding tax equal to 30% of the gross amount of the
distribution, unless an applicable tax treaty reduces that tax rate. However, if
income from the investment in the shares of Common Stock is treated as
effectively connected with the Non-U.S. Stockholder's conduct of a U.S. trade or
business, the Non-U.S. Stockholder generally will be subject to a tax at
graduated rates in the same manner as U.S. stockholders are taxed with respect
to such dividends (and may also be subject to the 30% branch profits tax if the
stockholder is a foreign corporation). The Company expects to withhold U.S.
income tax at the rate of 30% on the gross amount of any dividends, other than
dividends treated as attributable to gain from sales or exchanges of U.S. real
property interests and capital gain dividends, paid to a Non-U.S. Stockholder,
unless (i) a lower treaty rate applies and the required form evidencing
eligibility for that reduced rate is filed with the Company or (ii) the Non-U.S.
Stockholder files an IRS Form 4224 (or its future equivalent) with the Company
claiming that the distributions are "effectively connected" income.
Pursuant to current Treasury Regulations, dividends paid to an address in a
country outside the United States are generally presumed to be paid to a
resident of such country for purposes of determining the applicability of
withholding discussed above and the applicability of a tax treaty rate. Under
proposed Treasury Regulations, not currently in effect, however, a Non-U.S.
Stockholder who wishes to claim the benefit of an applicable treaty rate would
be required to satisfy certain certification and other requirements.
RETURN OF CAPITAL. Distributions in excess of current and accumulated
earnings and profits of the Company, which are not treated as attributable to
the gain from disposition by the Company of a U.S. real property interest, will
not be taxable to a Non-U.S. Stockholder to the extent that they do not exceed
the adjusted basis of the Non-U.S. Stockholder's shares of Common Stock, but
rather will reduce the adjusted basis of such shares of Common Stock. To the
extent that such distributions exceed the adjusted basis of a Non-U.S.
Stockholder's shares of Common Stock, they will give rise to tax liability if
the Non-U.S. Stockholder otherwise would be subject to tax on any gain from the
sale or disposition of its shares of Common Stock, as described below. If it
cannot be determined at the time a distribution is made whether such
distribution will be in excess of current and accumulated earnings and profits,
the distribution will be subject to withholding at the rate applicable to
dividends. However, the Non-U.S. Stockholder may seek a
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refund of such amounts from the IRS if it is subsequently determined that such
distribution was, in fact, in excess of current and accumulated earnings and
profits of the Company.
CAPITAL GAIN DIVIDENDS. For any year in which the Company qualifies as a
REIT, distributions that are attributable to gain from sales or exchanges by the
Company of U.S. real property interests will be taxed to a Non-U.S. Stockholder
under the provisions of the Foreign Investment in Real Property Tax Act of 1980,
as amended ("FIRPTA"). Under FIRPTA, these distributions are taxed to a Non-U.S.
Stockholder as if such gain were effectively connected with a U.S. business.
Thus, Non-U.S. Stockholders will be taxed on such distributions at the same
capital gain rates applicable to U.S. stockholders (subject to any applicable
alternative minimum tax and special alternative minimum tax in the case of
nonresident alien individuals), without regard to whether such distributions are
designated by the Company as capital gain dividends. Also, distributions subject
to FIRPTA may be subject to a 30% branch profits tax in the hands of a corporate
Non-U.S. Stockholder not entitled to treaty relief or exemption. The Company is
required by applicable Treasury Regulations under FIRPTA to withhold 35% of any
distribution that could be designated by the Company as a capital gain dividend.
COMMON STOCK SALES. Gain recognized by a Non-U.S. Stockholder upon a sale or
exchange of shares of Common Stock generally will not be taxed under FIRPTA if
the Company is a "domestically controlled REIT," defined generally as a REIT in
respect of which at all times during a specified testing period less than 50% in
value of the stock was held directly or indirectly by foreign persons. It is
currently anticipated that the Company will be a "domestically controlled REIT"
and that therefore the sale of shares of Common Stock will not be subject to
taxation under FIRPTA. However, gain not subject to FIRPTA will be taxable to a
Non-U.S. Stockholder if (i) investment in the shares of Common Stock is treated
as "effectively connected" with the Non-U.S. Stockholder's U.S. trade or
business, in which case the Non-U.S. Stockholder will be subject to the same
treatment as U.S. stockholders with respect to such gain, or (ii) the Non U.S.
Stockholder is a nonresident alien individual who was present in the United
States for 183 days or more during the taxable year and has a "tax home" in the
United States, or maintains an office or a fixed place of business in the United
States to which the gain is attributable, in which case the nonresident alien
individual will be subject to a 30% tax on the individual's capital gains. A
similar rule will apply to capital gain dividends not subject to FIRPTA.
Although the Company anticipates that it will qualify as a domestically
controlled REIT, because the Common Stock will be publicly traded, no assurance
can be given that the Company will continue to so qualify. If the Company were
not a domestically controlled REIT, whether or not a Non-U.S. Stockholder's sale
of shares of Common Stock would be subject to tax under FIRPTA would depend on
whether or not the shares of Common Stock were regularly traded on an
established securities market (such as the NYSE, on which the Company has
applied for the listing of the shares of Common Stock) and on the size of the
selling Non-U.S. Stockholder's interest in the Company. If the gain on the sale
of shares of Common Stock were to be subject to tax under FIRPTA, the Non-U.S.
Stockholder would be subject to the same treatment as U.S. stockholders with
respect to such gain (subject to any applicable alternative minimum tax and a
special alternative minimum tax in the case of nonresident alien individuals)
and the purchaser of such shares of Common Stock may be required to withhold 10%
of the gross purchase price.
OTHER TAX CONSIDERATIONS
EFFECT OF TAX STATUS OF OPERATING PARTNERSHIP AND OTHER ENTITIES ON REIT
QUALIFICATION. All of the Company's significant investments are held through the
Operating Partnership. The Operating Partnership may hold interests in certain
Properties through Property-owning entities. The Operating Partnership and the
Property-owning entities, as well as the Management LLC, involve special tax
considerations. These tax considerations include: (i) allocations of income and
expense items of the Operating Partnership and the Property-owning entities,
which could affect the computation of taxable income of the Company, (ii) the
status of the Operating Partnership, the Property-owning entities and the
Management LLC as partnerships or entities that are disregarded as entities
separate from their owners (as opposed to associations
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taxable as corporations) for income tax purposes and (iii) the taking of actions
by the Operating Partnership or any of the Property-owning entities that could
adversely affect the Company's qualification as REIT.
In the opinion of Brown & Wood LLP, based on certain representations of the
Company and the Operating Partnership, for Federal income tax purposes, the
Operating Partnership will be treated as a partnership and neither the
Management LLC nor any of the Property-owning entities will be treated as an
association taxable as a corporation. If, however, the Operating Partnership or
any of such other entities were treated as an association taxable as a
corporation, the Company would fail to qualify as a REIT for a number of
reasons.
The Partnership Agreement requires that the Operating Partnership be
operated in a manner that will enable the Company to satisfy the requirements
for classification as a REIT. In this regard, the Company will control the
operation of the Operating Partnership through its rights as the sole general
partner of the Operating Partnership.
TAX ALLOCATIONS WITH RESPECT TO THE PROPERTIES. When property is contributed
to a partnership in exchange for an interest in the partnership, the partnership
generally takes a carryover basis in that property for tax purposes (i.e., the
partnership's basis is equal to the adjusted basis of the contributing partner
in the property), rather than a basis equal to the fair market value of the
property at the time of contribution. Pursuant to Section 704(c) of the Code,
income, gain, loss and deductions attributable to such contributed property must
be allocated in a manner such that the contributing partner is charged with, or
benefits from, respectively, the unrealized gain or unrealized loss associated
with the property at the time of the contribution. The amount of such unrealized
gain or unrealized loss is generally equal to the difference between the fair
market value of the contributed property at the time of contribution and the
adjusted tax basis of such property at the time of contribution (a "Book-Tax
Difference"). Such allocations are solely for Federal income tax purposes and do
not affect the book capital accounts or other economic or legal arrangements
among the partners. The Operating Partnership will be funded by way of
contributions of appreciated property to the Operating Partnership in the
Formation Transactions. Consequently, the Operating Partnership Agreement will
require such allocations to be made in a manner consistent with Section 704(c)
of the Code and the regulations thereunder (the "Section 704(c) Regulations").
The Section 704(c) Regulations require partnerships to use a "reasonable
method" for allocation of items affected by Section 704(c) of the Code and
outline three methods which may be considered reasonable for these purposes. The
Operating Partnership intends to use the "traditional method" of Section 704(c)
allocations, which is the least favorable method from the Company's perspective
because of certain technical limitations. Under the traditional method,
depreciation with respect to a contributed Property for which there is a
Book-Tax Difference first will be allocated to the Company and other partners
who did not have an interest in such Property until they have been allocated an
amount of depreciation equal to what they would have been allocated if the
Operating Partnership had purchased such property for its fair market value at
the time of contribution. In addition, if such a Property is sold, gain equal to
the Book-Tax Difference at the time of sale will be specially allocated to the
Purchaser who contributed the Property. These allocations will tend to eliminate
the Book-Tax Differences with respect to the contributed Properties over the
life of the Operating Partnership. However, they may not always entirely
eliminate the Book-Tax Difference on an annual basis or with respect to a
specific taxable transaction such as a sale. This could cause the Company (i) to
be allocated lower amounts of depreciation deduction for tax purposes than would
be allocated to the Company if all Properties were to have a tax basis equal to
their fair market value at the time of contribution and (ii) to be allocated
lower amounts of taxable loss in the event of a sale of such contributed
interests in the Properties at a book loss, than the economic or book loss
allocated to the Company as a result of such sale, with a corresponding benefit
to the other partners in the Operating Partnership. These allocations possibly
might adversely affect the Company's ability to comply with REIT distribution
requirements, although the Company does not anticipate that this will occur.
These allocations
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may also affect the earnings and profits of the Company for purposes of
determining the portion of distributions taxable as a dividend income. See
"--Taxation of U.S. Stockholders". The application of these rules over time may
result in a higher portion of distributions being taxed as dividends than would
have occurred had the Company purchased its interests in the Properties at their
agreed values.
Interests in the Properties purchased by the Operating Partnership for cash
simultaneously with or subsequent to the admission of the Company to the
Operating Partnership initially will have a tax basis equal to their fair market
value. Thus, Section 704(c) of the Code will not apply to such interests.
SERVICE CORPORATIONS. A portion of the amounts to be used by the Operating
Partnership to fund distributions to stockholders is expected to come from the
Service Corporations, through dividends on non-voting stock of the Service
Corporations to be held by the Operating Partnership. The Service Corporations
will not qualify as RETs and thus will pay Federal, state and local income taxes
on its net income at normal corporate rates. To the extent that the Service
Corporations are required to pay Federal, state and local income taxes, the cash
available for distribution to the Company's stockholders will be reduced
accordingly.
As described above, the value of the securities of any Service Corporation
held by the Operating Partnership cannot exceed 5% of the value of the Operating
Partnership's assets at a time when the Company is considered to acquire
additional securities of the Service Corporation. See "--Taxation of the
Company--Asset Tests." This limitation may restrict the ability of the Service
Corporations to increase the sizes of their businesses unless the value of the
assets of the Operating Partnership is increasing at a commensurate rate.
STATE AND LOCAL TAX
The Company and its stockholders may be subject to state and local tax in
states and localities in which it does business or owns property. The tax
treatment of the Company and the stockholders in such jurisdications may differ
from the Federal income tax treatment described above.
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UNDERWRITING
The underwriters of the Offering (the "Underwriters"), for whom Lehman
Brothers Inc. and Prudential Securities Incorporated are acting as
representatives (the "Representatives"), have severally agreed, subject to the
terms and conditions contained in the Underwriting Agreement (the form of which
is filed as an exhibit to the Registration Statement of which this Prospectus
forms a part) to purchase from the Company and the Company has agreed to sell to
each Underwriter, the aggregate number of shares of Common Stock set forth below
opposite the name of each such Underwriter.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
Lehman Brothers Inc..............................................................
Prudential Securities Incorporated...............................................
----------
Total........................................................................ 8,100,000
----------
----------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase shares of Common Stock are subject to certain
conditions, and that if any of the shares of Common Stock are purchased by the
Underwriters pursuant to the Underwriting Agreement, all of the shares agreed to
be purchased by the Underwriters under the Underwriting Agreement must be so
purchased.
The Company has been advised that the Underwriters propose to offer the
shares of Common Stock directly to the public at the initial public offering
price set forth on the cover page of this Prospectus, and to certain selected
dealers who may include the Underwriters at such public offering price less a
selling concession not in excess of $ per share. The selected dealers
may reallow a concession not in excess of $ per share to certain brokers
or dealers. After the Offering, the public offering price, the concession to
selected dealers and the reallowance may be changed by the Representatives.
The Company has granted to the Underwriters an option to purchase up to an
additional 1,215,000 shares of Common Stock at the public offering price less
the aggregate underwriting discounts and commissions shown on the cover page of
this Prospectus, solely to cover overallotments, if any. Such option may be
exercised at any time within 30 days after the date of the Underwriting
Agreement. To the extent that such option is exercised, each Underwriter will be
committed, subject to certain conditions, to purchase a number of additional
shares of Common Stock proportionate to such Underwriter's initial commitment as
indicated in the preceding table.
The Company has agreed that it will not, without the prior written consent
of Lehman Brothers Inc., offer for sale, contract to sell, sell or otherwise
dispose of (or enter into any transaction or device which is designed to, or
could be expected to, result in the disposition by any person at any time in the
future of), directly or indirectly, any shares of Common Stock (other than
shares offered hereby, shares issued pursuant to the 1997 Stock Option Plan and
any Units or shares of Common Stock that may be issued in connection with any
acquisition of a property), or sell or grant options, rights or warrants with
respect to any shares of Common Stock (other than the grant of options pursuant
to the 1997 Stock Option Plan), for a period of 180 days after the date of this
Prospectus.
In addition, certain SL Green entities and certain officers of the Company
have agreed that they will not, without the prior written consent of the Company
and Lehman Brothers Inc., subject to certain exceptions, offer for sale,
contract to sell, sell or otherwise dispose of (or enter into any transaction or
device which is designed to, or could be expected to, result in the disposition
by any person at any time in the future of), directly or indirectly, any shares
of Common Stock or Units received by them in connection with the Formation
Transactions or the Offering, for an initial period of one year after the date
of this Prospectus, after which time one-third of such Common Stock or Units
held by each such entity or person shall no longer be subject to such
restrictions and an additional one-third thereof shall be released from such
restrictions on each of the second and third anniversaries of the date of this
Prospectus. Also, Victor
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Capital has agreed to similar restrictions with respect to the shares of Common
Stock received by it in connection with the Formation Transactions for a period
of one year after the date of this Prospectus.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended,
or to contribute to the payments they may be required to make in respect
thereto.
The Underwriters do not intend to confirm sales of Common Stock to any
account over which they exercise discretionary authority.
Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price will be determined through negotiations
between the Company and the Representatives. Among the factors to be considered
in such negotiations, in addition to prevailing market conditions, are
distribution rates and financial characteristics of publicly traded REITs that
the Company and the Representatives believe to be comparable to the Company, the
expected results of operations of the Company (which are based on the results of
operations of the Properties in recent periods), estimates of future business
potential and earnings prospects of the Company as a whole and the current state
of the real estate market in the Midtown Markets and the economy as a whole. The
initial price per share to the public set forth on the cover page of this
Prospectus should not, however, be considered an indication of the actual value
of the Common Stock. Such price is subject to change as a result of market
conditions and other factors.
Application has been made to list the shares of Common Stock on the NYSE
under the symbol "SLG."
Until the distribution of the Common Stock is completed, rules of the
Commission may limit the ability of the Underwriters and certain selling group
members to bid for and purchase the Common Stock. As an exception to these
rules, the Representatives are permitted to engage in certain transactions that
stabilize the price of the Common Stock. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with the offering, I.E., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus, the Representatives may
reduce that short position by purchasing Common Stock in the open market. The
Representatives may also elect to reduce any short position by exercising all or
part of the over-allotment option described herein.
The Representatives may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of Common Stock in the open market to reduce the Underwriters' short
position or to stabilize the price of the Common Stock, they may reclaim the
amount of the selling concession from the Underwriters and selling group members
who sold those shares as part of the Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security by purchasers in an offering.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor any of the Underwriters makes any representation that the
Representatives will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
Certain of the Underwriters and their affiliates have from time to time
performed, and may continue to perform in the future, various investment banking
and other services for the Company, for which
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customary compensation has been, and will be, received. The Company will pay an
advisory fee equal to 0.75% of the gross proceeds of the Offering (including any
exercise of the Underwriters' overallotment option) to Lehman Brothers Inc. for
advisory services in connection with the evaluation, analysis and structuring of
the Company's formation as a REIT. In connection with the Offering, an affiliate
of Lehman Brothers Inc. will receive $39.4 million of the net proceeds in
repayment of amounts outstanding under the LBHI Loan. See "Use of Proceeds",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Certain Relationships and
Transactions".
The Underwriters have reserved for sale at the public offering price up to
931,500 shares of Common Stock to directors, officers, employees and consultants
of the Company, their business affiliates and related parties who have expressed
an interest in purchasing shares. The number of shares available for sale to the
general public will be reduced to the extent such persons purchase the reserved
shares. Any reserved shares not so purchased will be offered by the Underwriters
to the general public on the same basis as the others have been offered hereby.
EXPERTS
The balance sheet of SL Green Realty Corp. as of June 12, 1997, the combined
financial statements of the SL Green Predecessor as of December 31, 1996 and
1995 and for each of the three years in the period ended December 31, 1996, the
combined financial statements of the uncombined joint ventures of the SL Green
Predecessor as of December 31, 1996 and 1995 and for each of the three years in
the period ended December 31, 1996, the statements of revenues and certain
expenses for each of the Properties at (i) 36 West 44th Street, (ii) 1372
Broadway and (iii) 1140 Avenue of the Americas in the Borough of Manhattan for
the year ended December 31, 1996 and the statement of revenues and certain
expenses for the property at 1414 Avenue of the Americas in the Borough of
Manhattan for the year ended December 31, 1995, all appearing in this Prospectus
and Registration Statement, have been audited by Ernst & Young LLP, independent
auditors, as set forth in these reports thereon appearing elsewhere herein, and
are included in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.
The Rosen Market Study was prepared for the Company by Rosen Consulting
Group, which is a real estate consulting firm with significant expertise
relating to the New York metropolitan area economy and the Manhattan office
market and the various submarkets therein. Information relating to the New York
economy and the Manhattan office market set forth on "Market Overview" is
derived from the Rosen Market Study and is included in reliance on the Rosen
Consulting Group's authority as experts on such matters.
LEGAL MATTERS
The validity of the shares of Common Stock and certain tax matters will be
passed upon for the Company by Brown & Wood LLP. In addition, the description of
Federal income tax consequences under the heading "Federal Income Tax
Consequences" is based upon the opinion of Brown & Wood LLP. Certain legal
matters will be passed upon for the Underwriters by Rogers & Wells, New York,
New York. Rogers & Wells may rely on the opinion of Brown & Wood LLP as to
certain matters of Maryland law.
134
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form S
- -11 (of which this Prospectus is a part) under the Securities Act with respect
to the securities offered hereby. This Prospectus does not contain all
information set forth in the Registration Statement, certain portions of which
have been omitted as permitted by the rules and regulations of the Commission.
Statements contained in this Prospectus as to the content of any contract or
other document are not necessarily complete, and in each instance reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement is qualified in all respects by such
reference and the exhibits and schedules hereto. For further information
regarding the Company and the Common Stock offered hereby, reference is hereby
made to the Registration Statement and such exhibits and schedules, which may be
obtained from the Commission as its principal office at 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon payment of the fees prescribed by the Commission.
The Commission maintains a website at http:/www.sec.gov containing reports,
proxy and information statements and other information regarding registrants,
including the Company, that file electronically with the Commission. In
addition, the Company intends to file an application to list the Common Stock on
the New York Stock Exchange and, if the Common Stock is listed on the New York
Stock Exchange, similar information concerning the Company can be inspected and
copied at the offices of the New York Stock Exchange, 20 Broad Street, New York,
New York 10005.
The Company intends to furnish its stockholders with annual reports
containing audited combined financial statements and a report thereon by
independent certified public accountants.
135
<PAGE>
GLOSSARY OF SELECTED TERMS
Unless the context otherwise requires, the following capitalized terms shall
have the meanings set forth below for the purposes of this Prospectus:
"ACMS" means asbestos containing materials.
"ADA" means the Americans with Disabilities Act, as amended.
"ACQUISITION PROPERTIES" means the two office properties which the Company
has contracted to acquire on or after completion of the Offering.
"BlDS" means Business Improvement Districts (public/private ventures that
provide security, sanitation and other services within their boundaries).
"BOOK-TAX DIFFERENCE" means the difference between the fair market value of
a contributed property at the time of contribution and the adjusted tax basis of
such property at the time of contribution.
"BYLAWS" means the Company's bylaws, as supplemented or amended.
"CHARTER" means the Company's articles of incorporation, as supplemented or
amended.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means shares of the Company's Common Stock, $.01 par value
per share.
"COMPANY" means SL Green Realty Corp., a Maryland corporation, and one or
more of its subsidiaries (including the Operating Partnership), and the
predecessors thereof or, as the context may require, SL Green Realty Corp. only
or the Operating Partnership only.
"CONSTRUCTION CORPORATION" means the corporation which following completion
of the Offering will conduct the construction business with respect to
properties in which the Company has no ownership interest.
"CORE PORTFOLIO" means the six office properties that will be acquired by
the Company from SL Green upon completion of the Offering.
"CREDIT FACILITY" means the revolving credit facility which the Company
expects to establish in order to facilitate acquisitions of properties and for
working capital purposes.
"EXCESS STOCK" means the separate class of stock of the Company into which
shares of stock of the Company owned, or deemed to be owned, or transferred to a
stockholder in excess of the Ownership Limit will automatically be converted.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FIRPTA" means the Foreign Investment in Real Property Tax Act of 1980, as
amended.
"FORMATION TRANSACTIONS" means the transactions described in "Structure and
Formation of the Company--Formation Transactions."
"401(K) PLAN" means the Company's Section 401(k) Savings/Retirement Plan.
"FUNDS FROM OPERATIONS" means net income (computed in accordance with GAAP)
excluding gains (or losses) from debt restructuring and sales of property, plus
depreciation and amortization on real estate assets, and after adjustments for
unconsolidated partnerships and joint ventures.
"GAAP" means generally accepted accounting principles.
136
<PAGE>
"INTERESTED STOCKHOLDER" means, with respect to the business combination
provisions of the MGCL, any person who beneficially owns 10% or more of the
voting power of a corporation's shares.
"IRA" means an individual retirement account or annuity.
"IRS" means the United States Internal Revenue Service.
"LEASING CORPORATION" means the corporation which following completion of
the Offering will conduct the leasing business with respect to properties in
which the Company has no interest.
"LOCK-OUT PERIOD" means the period, up to 12 years following the completion
of the Offering, during which the Lock-out Provisions will be in effect.
"LOCK-OUT PROVISIONS" means the limitations on the ability of the Company to
sell, or reduce the amount of mortgage indebtedness on, two of the Properties
(673 First Avenue and 470 Park Avenue South) for up to 12 years following the
completion of the Offering, except in certain circumstances.
"MANAGEMENT CORPORATION" means the corporation which following completion of
the Offering will conduct the management business with respect to properties in
which the Company has no ownership interest.
"MANAGEMENT ENTITIES" means the Management Corporation and the Management
LLC.
"MANAGEMENT LLC" means the limited liability company to which SL Green will
transfer its management and leasing business with respect to the Properties
owned by the Company.
"MGCL" means the Maryland General Corporation Law.
"NAREIT" means the National Association of Real Estate Investment Trusts.
"1940 ACT" means the Investment Company Act of 1940, as amended.
"NON-U.S. STOCKHOLDERS" means nonresident alien individuals, foreign
corporations, foreign partnerships and other foreign stockholders.
"OFFERING" means this offering of shares of Common Stock of the Company
pursuant to and as described in this Prospectus.
"OPERATING PARTNERSHIP" means SL Green Operating Partnership, L.P., a
Delaware limited partnership.
"OWNERSHIP LIMIT" means the restriction contained in the Company's Charter
providing that, subject to certain exceptions, no holder may own, or be deemed
to own by virtue of the attribution provision of the Code, more than 9.0% of the
aggregate number or value of shares of Common Stock of the Company.
"PARENT ENTITY" means an entity whose stock is publicly traded and which
owns more than 50% of the capital stock of the Company.
"PARTNERSHIP AGREEMENT" means the Agreement of Limited Partnership of the
Operating Partnership, as amended from time to time.
"PCBS" means polychlorinated biphenyls.
"PREFERRED STOCK" means one or more classes of Preferred Stock of the
Company as designated and issued by the Board of Directors from time to time.
"PROPERTIES" means the eight Class B properties located in midtown Manhattan
in which the Company will own interests upon completion of the Offering.
"REIT" means a real estate investment trust as defined by Sections 856
through 860 of the Code and applicable Treasury Regulations.
137
<PAGE>
"RELATED PARTY TENANT" means, for purposes of determining whether rents
received by the Company will qualify as "rents from real property" for
satisfying the gross income requirements for a REIT, a tenant in which the
Company, or an owner of 10% or more of the Company, directly or constructively
has at least a 10% ownership interest.
"RESTRICTED SHARES" means the shares of Common Stock received by the
participants in the Formation Transactions or acquired by any participant in the
Formation Transactions as a result of the redemption of Units.
"SECTION 704(c) REGULATIONS" means the regulations promulgated by the IRS
under Section 704(c) of the Code.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SERVICE CORPORATIONS" means the Management Corporation, the Leasing
Corporation and the Construction Corporation.
"TREASURY REGULATIONS" means the regulations promulgated by the IRS under
the Code.
"TRUSTEE" means the trustee appointed by the Company, but not affiliated
with the Company, who will name a charitable trust for the benefit of a
charitable organization to receive any shares of Common Stock purportedly
transferred to a stockholder in violation of the applicable Ownership Limit or
Existing Holder Limit.
"UBTI" means unrelated business taxable income.
"UNDERWRITERS" means the underwriters of the Offering, for whom Lehman
Brothers Inc. and Prudential Securities Incorporated are acting as
representatives.
"UNITS" means units of partnership interest in the Operating Partnership.
"UPREIT" means a REIT conducting business through a partnership.
138
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
SL GREEN REALTY CORP.
Pro Forma Combined Financial Statements (unaudited).................................. F-3
Pro Forma Combined Balance Sheet as of March 31, 1997............................ F-4
Pro Forma Combined Statement of Income for the Three Months Ended
March 31, 1997................................................................. F-5
Pro Forma Combined Statement of Income for the Year Ended December 31, 1996...... F-6
Notes to Pro Forma Combined Financial Information................................ F-7
Historical
Report of Independent Auditors................................................... F-16
Balance Sheet as of June 12, 1997................................................ F-17
Notes to Balance Sheet........................................................... F-18
THE SL GREEN PREDECESSOR
Combined Financial Statements
Report of Independent Auditors................................................... F-21
Combined Balance Sheets as of March 31, 1997 (unaudited) and
December 31, 1996 and 1995..................................................... F-22
Combined Statements of Operations for the Three Months Ended March 31, 1997 and
1996 (unaudited) and the Years Ended December 31, 1996, 1995, and 1994.......... F-23
Combined Statements of Owners' Deficit for the Three Months Ended March 31, 1997
(unaudited) and the Years Ended December 31, 1996, 1995, and 1994............... F-24
Combined Statements of Cash Flows for the Three Months Ended March 31, 1997
and 1996 (unaudited) and the Years Ended December 31, 1996, 1995, and 1994..... F-25
Notes to the Combined Financial Statements....................................... F-26
Schedule III
Real Estate and Accumulated Depreciation as of December 31, 1996................. F-36
Uncombined Joint Ventures--Combined Financial Statements
Report of Independent Auditors................................................... F-38
Combined Balance Sheets as of March 31, 1997 (unaudited) and
December 31, 1996 and 1995..................................................... F-39
Combined Statements of Operations for the Three Months Ended March 31, 1997 and
1996 (unaudited) and the Years Ended December 31, 1996, 1995, and 1994.......... F-40
Combined Statements of Owners' Deficit for the Three Months Ended March 31, 1997
(unaudited) and Years Ended December 31, 1996, 1995, and 1994................... F-41
Combined Statements of Cash Flows for the Three Months Ended March 31, 1997 and
1996 (unaudited) and the Years Ended December 31, 1996, 1995, and 1994.......... F-42
Notes to the Combined Financial Statements....................................... F-43
Schedule III
Real Estate and Accumulated Depreciation as of December 31, 1996................. F-53
</TABLE>
F-1
<PAGE>
INDEX TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
1414 AVENUE OF THE AMERICAS
<S> <C>
Report of Independent Auditors................................................ F-55
Statement of Revenues and Certain Expenses for the Six Months Ended
June 30, 1996 (unaudited) and the Year Ended December 31, 1995.............. F-56
Notes to Statement of Revenues and Certain Expenses........................... F-57
36 WEST 44TH STREET
Report of Independent Auditors................................................ F-59
Statement of Revenues and Certain Expenses for the Three Months Ended
March 31, 1997 (unaudited) and the Year Ended December 31, 1996............. F-60
Notes to Statement of Revenues and Certain Expenses........................... F-61
1372 BROADWAY
Report of Independent Auditors................................................ F-63
Statement of Revenues and Certain Expenses for the Three Months Ended
March 31, 1997 (unaudited) and the Year Ended December 31, 1996............. F-64
Notes to Statement of Revenues and Certain Expenses........................... F-65
1140 AVENUE OF THE AMERICAS
Report of Independent Auditors................................................ F-67
Statement of Revenues and Certain Expenses For Three Months Ended
March 31, 1997 (unaudited) and the Year ended December 31, 1996............. F-68
Notes to Statement of Revenues and Certain Expenses........................... F-69
</TABLE>
F-2
<PAGE>
SL GREEN REALTY CORP.
PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
The unaudited pro forma financial and operating information as of March 31,
1997 and for the three months ended March 31, 1997 and the year ended December
31, 1996 is presented as if the Offering and the Formation Transactions all had
occurred on March 31, 1997 with respect to the combined balance sheet and at the
beginning of each of the periods presented for the combined statements of
income. The pro forma March 31, 1997 balance sheet information also gives effect
to the recording of minority interests for Operating Partnership Units, as if
these transactions occurred on March 31, 1997.
The pro forma financial statements do not purport to represent what the
Company's financial position or results of operations would have been assuming
the completion of the Formation Transactions and the Offering on such date or at
the beginning of the period indicated, nor do they purport to project the
Company's financial position or results of operations at any future date or for
any future period.
F-3
<PAGE>
SL GREEN REALTY CORP.
PRO FORMA COMBINED BALANCE SHEET
AS OF MARCH 31, 1997
<TABLE>
<CAPTION>
SL GREEN ELIMINATION OF
SL GREEN PREDECESSOR THE ACQUISITION SERVICE
REALTY HISTORICAL OFFERING PROPERTIES CORPORATIONS PRO FORMA
CORP. (A) (B) (C) (D) ADJUSTMENTS
------------- ------------- ----------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS :
Commercial Real Estate Property at
Cost..................................
Land.................................... $ 4,465 $ 15,018 $ 7,366
Buildings and Improvements.............. 21,931 60,072 84,358
Property Under Capital Lease............ 4,592 12,208
--- ------------- ----------- ----------- ------- -----------
26,396 79,682 103,932
Less Accumulated Depreciation......... (5,941) (1,958) (14,185)
--- ------------- ----------- ----------- ------- -----------
20,455 77,724 89,747(E)
Cash and Cash Equivalents............... 1 794 $ 147,028 (66,390) $ (309) (72,240)(F)
Restricted Cash......................... 1,242 2,597(G)
Tenant Receivables...................... 1,583 (1,505) 259(G)
Related Party Receivables............... 835 (30) (G)
Deferred Rents Receivable............... 1,502 9,462(H)
Investment in Partnerships.............. 1,607 (554) (2,269)(G)
Deferred Lease Fees and Loan Costs...... 1,145 3,456(I)
Other Assets............................ 1,351 (989) 2,599(G)
--- ------------- ----------- ----------- ------- -----------
Total Assets.......................... 1 $ 30,514 $ 147,028 $ 11,334 $ (3,387) $ 33,611
--- ------------- ----------- ----------- ------- -----------
--- ------------- ----------- ----------- ------- -----------
LIABILITIES AND EQUITY :
Mortgage Loans Payable.................. $ 16,544 $ 30,652(J)
Accrued Interest Payable................ 89 3(J)
LBHI Loan Payable....................... $ 8,700 (8,700)(K)
Capitalized Lease Obligations........... 4,592 14,587(L)
Deferred Land Lease Payable............. 11,485(L)
Accrued Expenses and Accounts Payable... 810 $ (550) 902(G)
Accounts Payable to Related Parties..... 1,767 (1,758) 479(G)
Excess of Distributions and Share of
Losses
Over Amounts Invested in
Partnership........................... 17,627 (64) (16,564)(G)
Security Deposits....................... 1,240 2,682(G)
--- ------------- ----------- ----------- ------- -----------
Total Liabilities..................... 38,077 13,292 (2,372) 35,526
--- ------------- ----------- ----------- ------- -----------
Minority Interest in Operating
Partnerships.......................... 15,746(M)
Common Stock............................ 1 $ 1 (2)(N)
Additional Paid-In Capital.............. 147,027 (44,460)(N)
SL Green Group.......................... (7,450) (1,958) (1,015) 26,688(N)
Other Partners.......................... (113) 113(N)
--- ------------- ----------- ----------- ------- -----------
Total Equity.......................... 1 (7,563) 147,028 (1,958) (1,015) (1,915)
--- ------------- ----------- ----------- ------- -----------
Total Liabilities and Equity.......... 1 $ 30,514 $ 147,028 $ 11,334 $ (3,387) $ 33,611
--- ------------- ----------- ----------- ------- -----------
--- ------------- ----------- ----------- ------- -----------
<CAPTION>
COMPANY
PRO FORMA
-----------
<S> <C>
ASSETS :
Commercial Real Estate Property at
Cost..................................
Land.................................... $ 26,849
Buildings and Improvements.............. 166,361
Property Under Capital Lease............ 16,800
-----------
210,010
Less Accumulated Depreciation......... (22,084)
-----------
187,926
Cash and Cash Equivalents............... 8,884
Restricted Cash......................... 3,839
Tenant Receivables...................... 337
Related Party Receivables............... 805
Deferred Rents Receivable............... 10,964
Investment in Partnerships.............. (1,216)
Deferred Lease Fees and Loan Costs...... 4,601
Other Assets............................ 2,961
-----------
Total Assets.......................... $ 219,101
-----------
-----------
LIABILITIES AND EQUITY :
Mortgage Loans Payable.................. $ 47,196
Accrued Interest Payable................ 92
LBHI Loan Payable.......................
Capitalized Lease Obligations........... 19,179
Deferred Land Lease Payable............. 11,485
Accrued Expenses and Accounts Payable... 1,162
Accounts Payable to Related Parties..... 488
Excess of Distributions and Share of
Losses
Over Amounts Invested in
Partnership........................... 999
Security Deposits....................... 3,922
-----------
Total Liabilities..................... 84,523
-----------
Minority Interest in Operating
Partnerships.......................... 15,746
Common Stock............................
Additional Paid-In Capital.............. 118,832
SL Green Group..........................
Other Partners..........................
-----------
Total Equity.......................... 134,578
-----------
Total Liabilities and Equity.......... $ 219,101
-----------
-----------
</TABLE>
F-4
<PAGE>
SL GREEN REALTY CORP.
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED
MARCH 31, 1997
<TABLE>
<CAPTION>
SL GREEN ELIMINATION
SL GREEN PREDECESSOR ACQUISITION OF SERVICE
REALTY HISTORICAL THE PROPERTIES CORPORATIONS
CORP. (O) OFFERING (P) (Q)
----------- ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Rental Revenue............................... $ 1,489 $ 3,341
Escalations and Reimbursement Revenues....... 149 1,896
Management Revenues.......................... 779 $ (779)
Leasing Commissions.......................... 1,475 (1,475)
Construction Revenues........................ 74 (74)
Investment Income............................
Other Income................................. 5
----------- ------ ----- ------ -------------
Total Revenues............................. 3,971 5,237 (2,328)
----------- ------ ----- ------ -------------
Share of Net Loss of Investees............... 287 76
------ -------------
EXPENSES:
Operating Expenses........................... 814 1,051 (380)
Ground Rent.................................. 78
Interest..................................... 345 95
Depreciation and Amortization................ 271 314
Real Estate Taxes............................ 243 802
Marketing, General and Administrative........ 896 (896)
----------- ------ ----- ------ -------------
Total Expenses............................. 2,596 2,340 (1,276)
----------- ------ ----- ------ -------------
Income (Loss) Before Minority Interest and
Extraordinary Item....................... 1,115 2,897 (1,128)
Minority Interest in Operating Partnership
(X)........................................
----------- ------ ----- ------ -------------
Income (Loss) Before Extraordinary Item.... $ 1,115 $ 2,897 ($ 1,128)
----------- ------ ----- ------ -------------
----------- ------ ----- ------ -------------
Income Before Extraordinary Item Per Common
Share (Y)..................................
<CAPTION>
COMPANY
PRO FORMA PRO
ADJUSTMENTS FORMA
------------- -----------
<S> <C> <C>
REVENUES:
Rental Revenue............................... $ 5,254(R) $ 10,084
Escalations and Reimbursement Revenues....... 381(R) 2,426
Management Revenues..........................
Leasing Commissions..........................
Construction Revenues........................
Investment Income............................ (R)
Other Income................................. 10(R) 15
------ -----------
Total Revenues............................. 5,645 12,525
------ -----------
Share of Net Loss of Investees............... (287) (S) 76
------ -----------
EXPENSES:
Operating Expenses........................... 1,123(T) 2,608
Ground Rent.................................. 981(T) 1,059
Interest..................................... 1,039(U) 1,479
Depreciation and Amortization................ 924(V) 1,509
Real Estate Taxes............................ 724(T) 1,769
Marketing, General and Administrative........ 257(W) 257
------ -----------
Total Expenses............................. 5,048 8,681
------ -----------
Income (Loss) Before Minority Interest and
Extraordinary Item....................... 884 3,768
Minority Interest in Operating Partnership
(X)........................................ (441) (441)
------ -----------
Income (Loss) Before Extraordinary Item.... $ 443 $ 3,327
------ -----------
------ -----------
Income Before Extraordinary Item Per Common
Share (Y).................................. $ 0.39
-----------
-----------
</TABLE>
F-5
<PAGE>
SL GREEN REALTY CORP.
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SL GREEN ELIMINATION
SL GREEN PREDECESSOR ACQUISITION OF SERVICE
REALTY HISTORICAL THE PROPERTIES CORPORATIONS PRO FORMA
CORP. (O) OFFERING (P) (Q) ADJUSTMENTS
----------- ----------------- ----------- --------------- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Rental Revenue.............. $ 4,199 $ 13,787 $ 20,985(D)
Escalations and
Reimbursement Revenues.... 1,051 2,558 2,304(D)
Management Revenues......... 2,336 $ (2,336)
Leasing Commissions......... 2,372 (2,372)
Construction Revenues....... 101 (101)
Investment Income........... 15(D)
Other Income................ 123 894 (92) 13(D)
----------- ------- ----------- ------- ------- -------
Total Revenues............ 10,182 17,239 (4,901) 23,317
----------- ------- ----------- ------- ------- -------
Share of Net Loss of
Investees................. 1,408 247 (1,408)(E)
------- ------- -------
EXPENSES:
Operating Expenses.......... 3,197 4,700 (1,522) 4,608(F)
Ground Rent................. 3,925(F)
Interest.................... 1,357 379 4,199(G)
Depreciation and
Amortization.............. 975 1,566 (92) 3,799(H)
Real Estate Taxes........... 703 3,350 3,189(F)
Marketing, General and
Administrative............ 3,250 (3,250) 1,027(I)
----------- ------- ----------- ------- ------- -------
Total Expenses............ 9,482 9,995 (4,864) 20,747
----------- ------- ----------- ------- ------- -------
Income (Loss) Before
Minority Interest
Extraordinary and
Item.................... (708) 7,244 (284) 3,978
Minority Interest
in Operating Partnership
(J)....................... (1,197)
----------- ------- ----------- ------- ------- -------
Income (Loss)
Before Extraordinary
Item.................... ($ 708) $ 7,244 ($ 284) $ 2,781
----------- ------- ----------- ------- ------- -------
----------- ------- ----------- ------- ------- -------
Income Before
Extraordinary Item Per
Common Share (K)........
<CAPTION>
COMPANY
PRO
FORMA
-----------
<S> <C>
REVENUES:
Rental Revenue.............. $ 38,971
Escalations and
Reimbursement Revenues.... 5,913
Management Revenues.........
Leasing Commissions.........
Construction Revenues.......
Investment Income........... 15
Other Income................ 938
-----------
Total Revenues............ 45,837
-----------
Share of Net Loss of
Investees................. 247
-----------
EXPENSES:
Operating Expenses.......... 10,983
Ground Rent................. 3,925
Interest.................... 5,935
Depreciation and
Amortization.............. 6,248
Real Estate Taxes........... 7,242
Marketing, General and
Administrative............ 1,027
-----------
Total Expenses............ 35,360
-----------
Income (Loss) Before
Minority Interest
Extraordinary and
Item.................... 10,230
Minority Interest
in Operating Partnership
(J)....................... (1,197)
-----------
Income (Loss)
Before Extraordinary
Item.................... $ 9,033
-----------
-----------
Income Before
Extraordinary Item Per
Common Share (K)........ $ 1.06
-----------
-----------
</TABLE>
F-6
<PAGE>
SL GREEN REALTY CORP.
NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION
MARCH 31, 1997
(UNAUDITED)
(IN THOUSANDS)
ADJUSTMENTS TO THE PRO FORMA COMBINED BALANCE SHEET
(A) To reflect the S.L. Green Predecessor historical combined balance sheet
as of March 31, 1997. The real estate and other assets and the assumption of
liabilities and deficit of the S.L. Green Predecessor will be transferred at
their historical amounts to the Operating Partnership.
(B) To reflect the issuance of 8,100 shares of common stock at an assumed
price of $20 per share. Equity is reduced by the estimated costs of the common
stock Offering of $15,093 of which $2,926 was paid prior to the date of
offering.
(C) To reflect the purchase price and estimated closing costs of 1372
Broadway and 1140 Avenue of the Americas as follows:
<TABLE>
<CAPTION>
1140 TOTAL
1372 AVENUE OF ACQUISITION
BROADWAY THE AMERICAS PROPERTIES
----------- ------------- -----------
<S> <C> <C> <C>
Land................................................... $ 10,828 $ 4,190 $ 15,018
Building............................................... 43,312 16,760 60,072
Property under capital lease........................... 0 4,592 4,592
Accumulated Depreciation............................... (1,354) (604) (1,958)
----------- ------------- -----------
52,786 24,938 77,724
Net Property
Cash................................................... (47,440) (18,950) (66,390)
Capitalized Lease Obligation........................... 0 4,592 4,592
LBHI Loan Payable...................................... 6,700 2,000 8,700
----------- ------------- -----------
----------- ------------- -----------
</TABLE>
(D) To reflect adjustments required to record the Company's investments in
the Management Corporations under the equity method of accounting as a result of
noncontrolling interests held after the formation transactions.
(E) To reflect 673 First Avenue, 470 Park Avenue South, 29 West 35th Street
and 36 West 44th Street ("The Equity Properties") as consolidated entities
rather than equity method investees due to the acquisition of additional
partnership interests and to record payment of transfer costs on the transfer of
the properties to the operating partnership as follows:
<TABLE>
<CAPTION>
EQUITY PARTNERSHIP TRANSFER
CONVERSION ACQUISITION COSTS TOTAL
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
673 First Avenue............................... $ 29,602 $ 9,294 $ 416 $ 39,312
470 Park Avenue South.......................... 25,027 2,836 235 28,098
29 West 35th Street............................ 2,941 2,262 62 5,265
36 West 44th Street............................ 13,980 2,704 100 16,784
70 West 36th Street............................ 0 0 124 124
1414 Avenue of the Americas.................... 0 0 164 164
----------- ----------- ----------- ---------
$ 71,550 $ 17,096 $ 1,101 $ 89,747
----------- ----------- ----------- ---------
----------- ----------- ----------- ---------
</TABLE>
F-7
<PAGE>
SL GREEN REALTY CORP.
NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION (CONTINUED)
MARCH 31, 1997
(UNAUDITED)
(IN THOUSANDS)
(F) To reflect the reduction in cash as follows:
<TABLE>
<S> <C>
LBHI Loan Repayment............................................... $ (39,251)
Less Transaction Costs Deducted From Offering Proceeds............ 2,726
Mortgage Loan Repayments.......................................... (40,773)
Accrued Interest Payable.......................................... (142)
Mortgage Loan Borrowings.......................................... 14,000
Repayment Penalties/Transfer Fees................................. (1,530)
Acquisition of Partners' Interests................................ (6,359)
Distribution To Partners.......................................... (1,400)
Real Property Transfers Taxes..................................... (1,078)
Fund Security Deposit............................................. (1,000)
Payment Of Amounts Due Affiliates................................. (75)
Cash Balances Per Equity Conversion............................... 2,642
---------
$ (72,240)
---------
---------
</TABLE>
(G) To reflect various assets and liabilities of The Equity Properties on
consolidated basis rather than equity method investees due to the acquisition of
additional partnership interests.
(H) Increase in deferred rent receivable
<TABLE>
<S> <C>
Additions in straight line and free rent to reflect The Equity
Properties as consolidated entities.............................. $ 14,972
Reductions in straight line and free rent as a result of the
purchase of partners interest in the Equity properties........... (5,510)
---------
Net Increase in Deferred Rent Receivable........................... $ 9,462
---------
---------
</TABLE>
(I) Increase in deferred lease fees and loan costs
<TABLE>
<S> <C>
Additions in deferred lease fees and loan costs to reflect
The Equity Properties as consolidated entities................... $ 4,774
Reduction in deferred lease fees and loan costs as a result of the
purchase of partners interest in The Equity Properties mentioned
above............................................................ (1,318)
---------
$ 3,456
---------
---------
</TABLE>
F-8
<PAGE>
SL GREEN REALTY CORP.
NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION (CONTINUED)
MARCH 31, 1997
(UNAUDITED)
(IN THOUSANDS)
(J) Increase in Mortgage Loans Payable and Decrease in Accrued Interest
Payable
<TABLE>
<CAPTION>
MORTGAGE ACCRUED
LOANS INTEREST
PAYABLE PAYABLE
----------- ---------
<S> <C> <C>
Additions to reflect The Equity Properties as
consolidated entities rather than Equity Method Investees
673 First Avenue...................................................... $ 36,039 $ 5,499
470 Park Avenue South................................................. 25,113 10,497
29 West 35th Street................................................... 3,023 21
36 West 44th Street................................................... 10,200 0
New Mortgage Loans Payable
Secured by 1140 Sixth Avenue.......................................... 14,000 0
Amounts repaid.......................................................... (40,773) (142)
Decrease as a result of the purchase of partners
interest in the Equity Properties..................................... (5,994) (7,393)
Debt forgiven........................................................... (10,956) (8,479)
----------- ---------
$ 30,652 $ 3
----------- ---------
----------- ---------
</TABLE>
(K) To eliminate a portion of acquisition costs, $6,700 for 1372 Broadway
and $2,000 for 1140 Sixth Avenue, which were borrowed under the LBHI loan.
(L) To reflect the lease obligation of 673 First Avenue as a consolidated
entity rather than an equity method investee due to the acquisition of the
minority partners' interests.
(M) To establish minority interests based on approximately
<TABLE>
<S> <C>
1,130,395 units issued to the continuing partners in operating
partnership representing a 11.7% ownership interest............ $ 15,746
---------
---------
</TABLE>
(N) Decrease in additional paid--in capital
<TABLE>
<S> <C>
Additions:
Debt forgiveness.................................................. $ 19,435
Net increase to reflect The Equity Properties as consolidated
entities rather than equity method investees due to the
acquisition of additional partnership interests................. 1,250
Deductions:
Minority interest in operating partnership........................ (15,746)
Repayment of LBHI Loan............................................ (20,000)
Preformation distribution of excess working capital............... (1,400)
Buy out of mortgagee's profit participation on 1414
Avenue of the Americas............................................ (1,200)
---------
$ (17,661)
---------
---------
</TABLE>
(O) To reflect the S.L. Green Predecessors historical combined statement of
operations for the quarter ended March 31, 1997.
F-9
<PAGE>
SL GREEN REALTY CORP.
NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION (CONTINUED)
MARCH 31, 1997
(UNAUDITED)
(IN THOUSANDS)
(P) To reflect the operations of 1372 Broadway and 1140 Avenue of the
Americas for the quarter ended March 31, 1997 as follows :
<TABLE>
<CAPTION>
1140 TOTAL
1372 AVENUE OF ACQUISITION
BROADWAY THE AMERICAS PROPERTIES
----------- ------------- -----------
<S> <C> <C> <C>
Rental Revenue......................................... $ 2,164 $ 1,177 $ 3,341
Escalation and Reimbursement Revenue................... 1,737 159 1,896
----------- ------ -----------
Total Revenue.................................... 3,901 1,336 5,237
Operating Expenses..................................... 569 482 1,051
Interest............................................... 0 95 95
Depreciation and Amortization.......................... 271 121 392
Real Estate Taxes...................................... 557 245 802
----------- ------ -----------
Total Expenses................................... 1,397 943 2,340
----------- ------ -----------
Income Before Minority Interest........................ $ 2,504 $ 393 $ 2,897
----------- ------ -----------
----------- ------ -----------
</TABLE>
(Q) To reflect the adjustments required to the operations for the quarter
ended March 31, 1997 of the service corporations under the equity method of
accounting as a result of non controlling interests held after the formation
transactions.
(R) To reflect the revenues for the quarter ended March 31,1997 of The
Equity Properties as consolidated entities rather than equity method investees
due to the acquisition of additional partnership interests.
<TABLE>
<CAPTION>
ESCALATION
AND
RENTAL REIMBURSEMENT INVESTMENT OTHER
REVENUE REVENUE INCOME INCOME
----------- ----------------- ------------- ---------
<S> <C> <C> <C> <C>
673 First Avenue............................. $ 2,722 $ 150 $ 0 $ 2,872
470 Park Avenue South........................ 1,354 45 10 1,409
29 West 35th Street.......................... 336 51 0 387
36 West 44th Street.......................... 842 135 0 977
----------- ----- --- ---------
$ 5,254 $ 381 $ 10 $ 5,645
----------- ----- --- ---------
----------- ----- --- ---------
</TABLE>
(S) To reflect the elimination of equity in net income of investees for The
Equity Properties which are reported as consolidated entities due to the
acquisition of additional partnership interests.
F-10
<PAGE>
SL GREEN REALTY CORP.
NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION (CONTINUED)
MARCH 31, 1997
(UNAUDITED)
(IN THOUSANDS)
(T) To reflect the expenses for the quarter ended March 31, 1997 of The
Equity Properties as consolidated entities rather than equity method investees
due to the acquisition of additional partnership interests.
<TABLE>
<CAPTION>
OPERATING GROUND REAL ESTATE
EXPENSES RENT TAX
----------- ----------- -------------
<S> <C> <C> <C>
673 First Avenue............................................ $ 326 $ 958 $ 304
470 Park Avenue South....................................... 257 0 168
29 West 35th Street......................................... 160 0 45
36 West 44th Street......................................... 380 23 207
----------- ----- -----
$ 1,123 $ 981 $ 724
----------- ----- -----
----------- ----- -----
</TABLE>
(U) To reflect interest expense for The Equity Properties as consolidated
entities, to eliminate interest expense on debt paid off or forgiven and to
record interest expense on new mortgage loans.
<TABLE>
<CAPTION>
EQUITY INTEREST NEW
METHOD EXPENSE INTEREST
CONVERSION ELIMINATED EXPENSE TOTAL
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
673 First Avenue................................. $ 1,166 $ (392) $ 0 $ 774
470 Park Avenue South............................ 613 (356) 0 257
29 West 35th Street.............................. 64 0 0 64
36 West 44th Street.............................. 226 (226) 0 0
70 West 36th Street.............................. 0 (91) 0 (91)
1414 Avenue of the Americas...................... 0 (254) 0 (254)
New Mortgage Interest............................ 0 0 289 289
----------- ----------- ----- ---------
$ 2,069 $ (1,319) $ 289 $ 1,039
----------- ----------- ----- ---------
----------- ----------- ----- ---------
</TABLE>
(V) To reflect depreciation and amortization expense for The Equity
Properties as consolidated entities and depreciation and amortization
adjustments for changes in book value due to the acquisition of other partners'
interests, decreases in amortization for deferred loan costs related to debt
paid off or forgiven and increases in amortization for new deferred loan costs.
<TABLE>
<CAPTION>
NEW
EQUITY BOOK DEBT DEFERRED
METHOD VALUE PAID OFF COST
CONVERSION CHANGES FORGIVEN AMORTIZATION TOTAL
------------- ----------- ----------- --------------- ---------
<S> <C> <C> <C> <C> <C>
673 First Avenue...................... $ 452 $ 10 $ 0 $ 12 $ 474
470 Park Avenue South................. 353 (23) 0 3 333
29 West 35th Street................... 57 (3) 0 2 56
36 West 44th Street................... 106 7 (24) 0 89
70 West 36th Street................... 0 0 (18) 1 (17)
1414 Avenue of the Americas........... 0 0 (12) 1 (11)
----- --- --- --- ---------
$ 968 $ (9) $ (54) $ 19 $ 924
----- --- --- --- ---------
----- --- --- --- ---------
</TABLE>
F-11
<PAGE>
SL GREEN REALTY CORP.
NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION (CONTINUED)
MARCH 31, 1997
(UNAUDITED)
(IN THOUSANDS)
(W) To reflect the net increase in marketing, general and administrative
expenses related to operations of a public company.
(X) Represents the 11.7% interest of the minority in the Operating
Partnership.
(Y) Pro Forma net income per common share is based upon 8,528,605 shares of
common stock expected to be outstanding after the Offering. As each Operating
Partnership unit is redeemable for cash, or at the company's election, for one
share of common stock, the calculation of earnings per share upon redemption
will be unaffected as unitholders and stockholders share equally on a per unit
and per share basis in the net income of the Company. In February 1997, the
Financial Accounting Standards Board issued Statement No. 128, Earnings per
Share, which is required to be adopted on December 31, 1997. At that time the
Company will be required to change the method currently used to compute earnings
per share and to restate all prior periods. Under the new requirements for
calculating primary earnings per share, the dilutive effect of stock options
will be excluded. Management does not believe the adoption of Statement No. 128
will have a material impact on earnings per share.
F-12
<PAGE>
SL GREEN REALTY CORP.
NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION
DECEMBER 31, 1996
(UNAUDITED)
(IN THOUSANDS)
(A) To reflect the S.L. Green Predecessor historical combined statement of
operations for the year ended December 31, 1996.
(B) To reflect the operations of 1372 Broadway and 1140 Avenue of the
Americas for the year ended December 31, 1996 as follows:
<TABLE>
<CAPTION>
1140 TOTAL
1372 AVENUE OF ACQUISITION
BROADWAY THE AMERICAS PROPERTIES
----------- ------------- -----------
<S> <C> <C> <C>
Rental Revenue......................................... $ 9,236 $ 4,551 $ 13,787
Escalation and Reimbursement Revenue................... 1,842 716 2,558
Other Income........................................... 690 204 894
----------- ------ -----------
Total Revenue.................................... 11,768 5,471 17,239
----------- ------ -----------
Operating Expenses..................................... 2,797 1,902 4,699
Interest on Capitalized Lease.......................... 0 379 379
Depreciation and Amortization.......................... 1,083 484 1,567
Real Estate Taxes...................................... 2,343 1,007 3,350
----------- ------ -----------
Total Expenses................................... 6,223 3,772 9,995
----------- ------ -----------
----------- ------ -----------
Income Before Minority Interest........................ $ 5,545 $ 1,699 $ 7,244
----------- ------ -----------
</TABLE>
(C) To reflect the adjustments required to the operations for the year ended
December 31, 1996 of the service corporations under the equity method of
accounting as a result of non controlling interests held after the formation
transactions.
(D) To reflect the revenues for the year ended December 31,1996 of The
Equity Properties as consolidated entities rather than equity method investees
due to the acquisition of additional partnership interests.
<TABLE>
<CAPTION>
ESCALATION
AND
RENTAL REIMBURSEMENT INVESTMENT OTHER
REVENUE REVENUE INCOME INCOME
--------- --------------- ------------- -----------
<S> <C> <C> <C> <C>
673 First Avenue............................. $ 10,699 $ 392 $ 0 $ 0
470 Park Avenue South........................ 5,302 366 0 13
29 West 35th Street.......................... 1,347 418 15 0
36 West 44th Street.......................... 3,637 1,128 0 0
--------- ------ --- ---
$ 20,985 $ 2,304 $ 15 $ 13
--------- ------ --- ---
--------- ------ --- ---
</TABLE>
F-13
<PAGE>
SL GREEN REALTY CORP.
NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION (CONTINUED)
DECEMBER 31, 1996
(UNAUDITED)
(IN THOUSANDS)
(E) To reflect the elimination of equity in net income of investees for The
Equity Properties which are reported as consolidated entities due to the
acquisition of additional partnership interests.
(F) To reflect the expenses for the year ended December 31, 1996 of The
Equity Properties as conslidated entities rather than equity method investees
due to the acquisition of additional partnership interests.
<TABLE>
<CAPTION>
OPERATING GROUND REAL ESTATE
EXPENSES RENT TAXES
----------- --------- -----------
<S> <C> <C> <C>
673 First Avenue............................................ $ 1,334 $ 3,832 $ 1,254
470 Park Avenue South....................................... 1,017 0 672
29 West 35th Street......................................... 598 0 181
36 West 44th Street......................................... 1,659 93 1,082
----------- --------- -----------
$ 4,608 $ 3,925 $ 3,189
----------- --------- -----------
----------- --------- -----------
</TABLE>
(G) To reflect interest expense for The Equity Properties as consolidated
entities, to eliminate interest expense on debt paid off or forgiven and to
record interest expense on new mortgage loans.
<TABLE>
<CAPTION>
EQUITY INTEREST NEW
METHOD EXPENSE INTEREST
CONVERSION ELIMINATED EXPENSE TOTAL
----------- ----------- --------- ---------
<S> <C> <C> <C> <C>
673 First Avenue................................. $ 4,774 $ (1,571) $ 0 $ 3,203
470 Park Avenue South............................ 2,466 (1,537) 0 929
29 West 35th Street.............................. 269 0 0 269
36 West 44th Street.............................. 234 (234) 0 0
70 West 36th Street.............................. 0 (911) 0 (911)
1414 Avenue of the Americas...................... 0 (446) 0 (446)
New Mortgage Interest............................ 0 0 1,155 1,155
----------- ----------- --------- ---------
$ 7,743 $ (4,699) $ 1,155 $ 4,199
----------- ----------- --------- ---------
----------- ----------- --------- ---------
</TABLE>
F-14
<PAGE>
SL GREEN REALTY CORP.
NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION (CONTINUED)
DECEMBER 31, 1996
(UNAUDITED)
(IN THOUSANDS)
(H) To reflect depreciation and amortization expense for The Equity
Properties as consolidated entities and depreciation and amortization
adjustments for changes in book value due to the acquisition of other partners'
interests, decreases in amortization for deferred loan costs related to debt
paid off or forgiven and increases in amortization for new deferred loan costs.
<TABLE>
<CAPTION>
NEW
EQUITY BOOK DEBT DEFERRED
METHOD VALUE PAID OFF COST
CONVERSION CHANGES FORGIVEN AMORTIZATION TOTAL
----------- ----------- ----------- --------------- ---------
<S> <C> <C> <C> <C> <C>
673 First Avenue..................... $ 1,804 $ 40 $ 0 $ 49 $ 1,893
470 Park Avenue South................ 1,441 (101) 0 15 1,355
29 West 35th Street.................. 240 (22) 0 8 226
36 West 44th Street.................. 383 47 (22) 0 408
70 West 36th Street.................. 0 0 (66) 4 (62)
1414 Avenue of the Americas.......... 0 0 (23) 2 (21)
----------- ----- ----- --- ---------
$ 3,868 $ (36) $ (111) $ 78 $ 3,799
----------- ----- ----- --- ---------
----------- ----- ----- --- ---------
</TABLE>
(I) To reflect the net increase in marketing, general and administrative
expenses related to operations of a public company.
(J) Represents the 11.7% interest of the minority in the Operating
Partnership.
(K) Pro Forma net income per common share is based upon 8,528,605 shares of
common stock expected to be outstanding after the Offering. As each Operating
Partnership unit is redeemable for cash, or at the company's election, for one
share of common stock, the calculation of earnings per share upon redemption
will be unaffected as unitholders and stockholders share equally on a per unit
and per share basis in the net income of the Company. In February 1997, the
Financial Accounting Standards Board issued Statement No. 128, Earnings per
Share, which is required to be adopted on December 31, 1997. At that time the
Company will be required to change the method currently used to compute earnings
per share and to restate all prior periods. Under the new requirements for
calculating primary earnings per share, the dilutive effect of stock options
will be excluded. Management does not believe the adoption of Statement No. 128
will have a material impact on earnings per share.
F-15
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
SL Green Realty Corp.
We have audited the accompanying balance sheet of SL Green Realty Corp. as
of June 12, 1997. This balance sheet is the responsibility of SL Green Realty
Corp. Our responsibility is to express an opinion on the balance sheet based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet presents fairly, in all material respects,
the financial position of SL Green Realty Corp. at June 12, 1997 in conformity
with generally accepted accounting principles.
/S/ Ernst & Young LLP
New York, New York
June 12, 1997
F-16
<PAGE>
SL GREEN REALTY CORP.
BALANCE SHEET
JUNE 12, 1997
<TABLE>
<S> <C>
ASSETS
Cash (NOTE 1)....................................................................... $ 1,000
---------
Total assets........................................................................ $ 1,000
---------
---------
LIABILITIES AND STOCKHOLDER'S EQUITY
Commitments and contingencies (NOTE 3)
Common stock, $.01 par value, 100,000,000 shares authorized, 1,000 shares issued and
outstanding (NOTES 1, 2 AND 3).................................................... $ 10
Paid in capital..................................................................... 990
Retained earnings (NOTE 2)
---------
Total liabilities and stockholder's equity.......................................... $ 1,000
---------
---------
</TABLE>
See accompanying notes.
F-17
<PAGE>
SL GREEN REALTY CORP.
NOTES TO BALANCE SHEET
JUNE 12, 1997
1. ORGANIZATION AND FORMATION TRANSACTIONS
FORMATION AND INITIAL PUBLIC OFFERING
SL Green Realty Corp. (the "Company"), a Maryland corporation, and SL Green
Operating Partnership, L.P., (the "Operating Partnership"), were formed in June
1997 for the purpose of combining the commercial real estate business of S.L.
Green Properties, Inc. and its affiliated partnerships and entities ("SL
Green"). The Operating Partnership will receive a contribution of interests in
the real estate properties as well as 95% of the economic interest in the
management, leasing and construction companies (the "Service Corporations"). The
Company expects to qualify as a real estate investment trust ("REIT") under the
Internal Revenue Code of 1986, as amended; and will operate as a fully
integrated, self-administered, self-managed REIT. A REIT is a legal entity that
holds real estate interests and, through payments of dividends to shareholders,
is permitted to reduce or avoid the payment of federal income taxes at the
corporate level.
The Company has authorized the issuance of up to 100 million shares of
Common Stock, $.01 par value per share, 75 million shares of Excess Stock, at
$.01 par value per share, and 25 million shares of Preferred Stock, par value
$.01 per share. In connection with the formation of the Company, the Company
issued 1,000 shares of Common Stock to Stephen L. Green at $1 per share, for an
aggregate consideration of $1,000 consisting of cash. At the conclusion of the
Offering such shares of stock will be repurchased by the Company at cost. As of
June 12, 1997, no shares of Excess Stock or Preferred Stock are issued and
outstanding. The Company expects to issue 8.1 million shares of its Common Stock
to the public through a public offering (the "Offering"). In addition, the
Company expects to issue to its executive officers approximately 383,110 shares,
as founders' shares.
Substantially all of the Company's assets will be held by, and its
operations conducted through, the Operating Partnership, a newly formed Delaware
limited partnership. The Company will be the sole managing general partner of
the Operating Partnership. Continuing investors will expect to hold, in the
aggregate, a 11.7% limited partnership interest in the Operating Partnership.
MANAGEMENT
In order to maintain the Company's qualification as a REIT while realizing
income from management leasing and construction contracts from third parties,
all of the management operations with respect to properties in which the Company
will not own 100% of the interest will be conducted through the Service
Corporations. The Company, through the Operating Partnership, will own 100% of
the non-voting common stock (representing 95% of the total equity) of the
Service Corporations. Through dividends on its equity interest, the Operating
Partnership expects to receive substantially all of the cash flow from the
Service Corporations' operations. All of the voting common stock of the Service
Corporations (representing 5% of the total equity) will be held by an SL Green
affiliate. This controlling interest will give the SL Green affiliate the power
to elect all directors of the Service Corporations. All of the management and
leasing with respect to the properties to be contributed and to be acquired by
the Company will be conducted through the Management LLC. The Operating
Partnership will own a 100% interest in the Management LLC. The Company will
account for its investment in the Service Corporations on the equity basis of
accounting. For further description, see the caption "Structure and Formation of
the Company".
F-18
<PAGE>
SL GREEN REALTY CORP.
NOTES TO BALANCE SHEET
JUNE 12, 1997
1. ORGANIZATION AND FORMATION TRANSACTIONS (CONTINUED)
PARTNERSHIP AGREEMENT
In accordance with the partnership agreement of the Operating Partnership
(the "Operating Partnership Agreement"), all allocations of distributions and
profits and losses are to be made in proportion to the percentage ownership
interests of their respective partners. As the managing general partner of the
Operating Partnership, the Company will be required to take such reasonable
efforts, as determined by it in its sole discretion, to cause the Operating
Partnership to distribute sufficient amounts to enable the payment of sufficient
distributions by the Company to avoid any federal income or excise tax at the
Company level as a consequence of a sale of a SL Green property.
Under the Operating Partnership agreement each limited partner will have the
right to redeem limited partnership interest for cash, or if the Company so
elects shares of common stock, as described further under the caption
"Partnership Agreement Transfer of Interest--Redemption of Units".
INITIAL PUBLIC OFFERING AND USE OF PROCEEDS
The net cash proceeds to be received by the Company from the Offering (after
deducting underwriting discounts) are estimated to be approximately $150.7
million. Of this amount the Company expects that approximately $42.2 million to
repay mortgage indebtedness encumbering the properties, including $1.5 million
for prepayment penalties and other financing fees and expenses, approximately
$6.4 million to purchase the direct or indirect interests of certain
participants in the Formation Transactions in the properties, approximately
$59.4 million to acquire properties, approximately $3.1 million to pay certain
expenses incurred in the Formation Transactions, $31.9 million to repay the
Lehman Brothers Holdings Inc. loan (including $2.5 million and $200,000 borrowed
under the loan to fund offering expenses and prepayment penalties, respectively,
and excluding approximately $7.5 million incurred to finance purchase of
acquisition properties) and the balance for capital expenditures and general
working capital needs.
If the underwriters' over-allotment option to purchase 1.215 million shares
of Common Stock is exercised, the Company will use the additional net proceeds
(estimated to be approximately $22.6 million if the option is exercised in full)
to acquire an additional interest in the Operating Partnership which will be
used to acquire additional properties and/or for working capital.
2. STOCKHOLDER'S EQUITY
COMMON STOCK
The authorized capital stock of the Company will consist of 200,000,000
shares of capital stock, $.01 par value, of which 100 million shares initially
will be designated as shares of Common Stock. Under the Company's Charter, the
Board of Directors will have authority to issue, without any further action by
the stockholders, shares of capital stock in one or more series having such
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption as the Board of Directors may determine.
RETAINED EARNINGS
The Company has not engaged in any operations from inception in 1997.
F-19
<PAGE>
SL GREEN REALTY CORP.
NOTES TO BALANCE SHEET
JUNE 12, 1997
3. COMMITMENTS AND CONTINGENCIES
STOCK OPTION PLAN
The Company intends to adopt a stock option plan designed to attract, retain
and motivate executive officers of the Company and other key employees and the
plan will authorize the issuance of shares of common stock pursuant to options
granted under the plan, as described further under the caption "Stock Option
Plan."
INCENTIVE COMPENSATION PLAN
The Company intends to establish an incentive compensation plan for key
officers of the Company and its subsidiaries and affiliates. This plan will
provide for payment of cash bonuses to participating officers after an
evaluation of the officer's performance and the overall performance of the
Company. The Compensation Committee of Board of Directors will make the
determination for the award of the bonuses.
EMPLOYMENT AGREEMENTS
The Company will enter into employment and non-competition agreements with
certain executive officers, as described further under the caption "Employment
and Non-Competition Agreements."
CREDIT FACILITY
The Company currently is engaged in discussions with various lenders
regarding the establishment of a revolving Credit Facility that will be used to
facilitate acquisitions and for working capital purposes. Although the Company
expects that the Credit Facility will be established shortly after the
completion of the Offering, there can be no assurance at this time as to whether
the Company will be successful in obtaining the Credit Facility, or, if the
Credit Facility is established, the terms governing the Credit Facility.
F-20
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Partners, Members and Stockholders
SL Green Predecessor
We have audited the accompanying combined balance sheets of SL Green
Predecessor as of December 31, 1996 and 1995, and the related combined
statements of operations, owners' deficit and cash flows for each of the three
years in the period ended December 31, 1996. We have also audited the financial
statement schedule listed on the Index to Financial Statements included in the
Prospectus. These financial statements and financial statement schedule are the
responsibility of SL Green Predecessor's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of SL Green
Predecessor at December 31, 1996 and 1995, and the combined results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
Also, in our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be set
forth therein.
/S/ Ernst & Young LLP
New York, New York
April 16, 1997, except for
Note 9, as to which date is
May 27, 1997
F-21
<PAGE>
SL GREEN PREDECESSOR
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
MARCH 31, --------- ---------
1997
-----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Commercial real estate properties, at cost (NOTE 4)
Land........................................................................... $ 4,465 $ 4,465 $ 1,517
Buildings and improvements..................................................... 21,931 21,819 14,042
----------- --------- ---------
26,396 26,284 15,559
Less accumulated depreciation.................................................. (5,941) (5,721) (5,025)
----------- --------- ---------
20,455 20,563 10,534
Cash and cash equivalents...................................................... 794 476 619
Restricted cash................................................................ 1,242 1,227 664
Receivables.................................................................... 1,583 914 383
Related party receivables (NOTE 7)............................................. 835 1,186 1,016
Deferred rents receivable...................................................... 1,304 1,265 904
Investment in uncombined joint venture (NOTE 2)................................ 1,607 1,730 369
Deferred costs, net (NOTE 3)................................................... 1,344 1,371 449
Other assets................................................................... 1,351 1,340 1,146
----------- --------- ---------
Total assets................................................................... $ 30,515 $ 30,072 $ 16,084
----------- --------- ---------
----------- --------- ---------
LIABILITIES AND OWNERS' DEFICIT
Mortgage notes payable (NOTE 4)................................................ $ 16,544 $ 16,610 $ 12,700
Accrued interest payable (NOTE 4).............................................. 90 90 2,894
Accounts payable and accrued expenses.......................................... 810 1,037 756
Accounts payable to related parties (NOTE 7)................................... 1,767 2,213 2,092
Excess of distributions and share of losses over investments in uncombined
joint ventures (NOTE 2)...................................................... 17,627 17,300 15,826
Security deposits.............................................................. 1,240 1,227 664
----------- --------- ---------
Total liabilities.............................................................. 38,078 38,477 34,932
Commitments, contingencies and other matters (NOTES 6, 8, 9 AND 10)
Owners' deficit................................................................ (7,563) (8,405) (18,848)
----------- --------- ---------
Total liabilities and owners' deficit.......................................... $ 30,515 $ 30,072 $ 16,084
----------- --------- ---------
----------- --------- ---------
</TABLE>
See accompanying notes.
F-22
<PAGE>
SL GREEN PREDECESSOR
COMBINED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues
Rental revenue............................... $ 1,401 $ 649 $ 4,199 $ 2,416 $ 2,605
Escalation and reimbursement revenues........ 237 120 1,051 758 802
Management revenues, including $134 (March
1997 (unaudited)), $447 (1996), $449
(1995), and $531 (1994) from affiliates
(NOTE 7)................................... 779 509 2,336 2,260 1,959
Leasing commissions.......................... 1,475 880 2,372 897 890
Construction revenues, net, including $62
(March 1997 (unaudited)), $35 (1996), $82
(1995), and $134 (1994) from affiliates
(NOTE 7)................................... 74 -- 101 233 344
Other income................................. 5 149 123 -- --
--------- --------- --------- --------- ---------
Total revenues................................. 3,971 2,307 10,182 6,564 6,600
--------- --------- --------- --------- ---------
Share of net loss from uncombined joint
ventures (NOTE 2)............................ 287 475 1,408 1,914 1,423
--------- --------- --------- --------- ---------
Expenses
Operating expenses........................... 814 733 3,197 2,505 2,009
Interest (NOTE 4)............................ 345 221 1,357 1,212 1,555
Depreciation and amortization................ 271 175 975 775 931
Real estate taxes............................ 243 118 703 496 543
Marketing, general and administrative........ 896 1,079 3,250 3,052 2,351
--------- --------- --------- --------- ---------
Total expenses................................. 2,569 2,326 9,482 8,040 7,389
--------- --------- --------- --------- ---------
Income (loss) before extraordinary item........ 1,115 (494) (708) (3,390) (2,212)
Extraordinary income on forgiveness of debt
(NOTE 4)..................................... -- -- 8,961 -- --
--------- --------- --------- --------- ---------
Net income (loss).............................. $ 1,115 $ (494) $ 8,253 $ (3,390) $ (2,212)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See accompanying notes.
F-23
<PAGE>
SL GREEN PREDECESSOR
COMBINED STATEMENTS OF OWNERS' DEFICIT
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
BALANCE AT JANUARY 1, 1994........................................................ $ (13,487)
Distributions................................................................... --
Contributions................................................................... 178
Net loss for the year ended December 31, 1994................................... (2,212)
---------
BALANCE AT DECEMBER 31, 1994...................................................... (15,521)
Distributions................................................................... --
Contributions................................................................... 63
Net loss for the year ended December 31, 1995................................... (3,390)
---------
BALANCE AT DECEMBER 31, 1995...................................................... (18,848)
Distributions................................................................... (552)
Contributions................................................................... 2,742
Net income for the year ended December 31, 1996................................. 8,253
---------
BALANCE AT DECEMBER 31, 1996...................................................... (8,405)
Distributions (Unaudited)....................................................... (286)
Contributions (Unaudited)....................................................... 13
Net income for the three months ended March 31, 1997 (Unaudited)................ 1,115
---------
BALANCE AT MARCH 31, 1997 (UNAUDITED)............................................. $ (7,563)
---------
---------
</TABLE>
See accompanying notes.
F-24
<PAGE>
SL GREEN PREDECESSOR
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)................................. $ 1,115 $ (494) $ 8,253 $ (3,390) $ (2,212)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities
Depreciation and amortization................... 271 175 975 775 931
Share of net loss from uncombined joint
ventures...................................... 376 562 1,763 2,249 1,800
Deferred rents receivable....................... (39) 29 (362) 87 (424)
Extraordinary gain on the forgiveness of debt... (8,961)
Changes in operating assets and liabilities:
Restricted cash................................. (15) 64 (563) (38) (64)
Receivables..................................... (669) (288) (531) 47 (117)
Related party receivables....................... 351 (636) (170) (299) 157
Deferred costs.................................. 27 66 (1,108) (465) 171
Other assets.................................... 12 477 (287) (858) 1,253
Accounts payable and accrued expenses........... (227) (363) 280 (180) (1,034)
Accounts payable to related parties............. (446) 760 121 948 (69)
Security deposits payable 13 (64) 564 29 90
Accrued interest payable........................ -- (115) 298 861 457
--------- --------- --------- --------- ---------
Net cash provided by (used in) operating
activities...................................... 769 173 272 (234) 939
--------- --------- --------- --------- ---------
INVESTING ACTIVITIES
Additions to land, buildings and improvements..... (112) (59) (10,725) (369) (389)
Contributions to partnership investments.......... -- -- (1,650) (63) (178)
--------- --------- --------- --------- ---------
Net cash used in investing activities............. (112) (59) (12,375) (432) (567)
--------- --------- --------- --------- ---------
FINANCING ACTIVITIES
Proceeds from mortgage notes payable.............. -- -- 16,680 -- --
Payments of mortgage notes payable................ (66) -- (6,910) -- --
Cash distributions to owners...................... (286) (175) (552) -- --
Cash contributions from owners.................... 13 -- 2,742 63 178
--------- --------- --------- --------- ---------
Net cash provided by financing activities......... (339) (175) 11,960 63 178
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and cash
equivalents..................................... 318 (61) (143) (603) 550
Cash and cash equivalents at beginning of
period.......................................... 476 619 619 1,222 672
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of period........ $ 794 $ 558 $ 476 $ 619 $ 1,222
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Supplemental cash flow disclosures
Interest paid..................................... $ 345 $ 336 $ 1,059 $ 351 $ 1,098
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Income taxes paid $ -- $ -- $ -- $ 35 $ 31
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See accompanying notes.
F-25
<PAGE>
SL GREEN PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1996
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
SL Green Predecessor is engaged in the business of owning, managing,
leasing, acquiring and repositioning of Class B office properties in Manhattan,
New York.
PROPOSED TRANSACTIONS
Concurrently with the consummation of an initial public offering of SL Green
Realty Corp., (the "REIT") Common Stock (the "Offering"), which is expected to
be completed in 1997, the REIT and a newly formed limited partnership, SL Green
Operating Partnership, L.P. (the "Operating Partnership"), together with the
partners and members of the affiliated partnerships of the SL Green Predecessor
and other parties which hold ownership interests in the properties
(collectively, the "Participants"), will engage in certain formation
transactions (the "Formation Transactions"). The Formation Transactions are
designed to (i) enable the REIT to raise the necessary capital to acquire the
remaining interests in the Properties (see note 2), repay certain mortgage debt
relating thereto and pay other indebtedness, (ii) enable the REIT to acquire
properties, (iii) fund costs, capital expenditures, and working capital, (iv)
provide a vehicle for future acquisitions, (v) enable the REIT to comply with
certain requirements under the Federal income tax laws and regulations relating
to real estate investment trusts, and (vi) preserve certain tax advantages for
certain Participants.
The operations of the REIT will be carried on primarily through the
Operating Partnership in order to assist the REIT and the Participants in
forming the REIT under the Internal Revenue Code of 1986. The REIT will be the
sole general partner in the Operating Partnership. The Operating Partnership
will receive a contribution of interests in the real estate properties sold, as
well as 95% of the economic interest in the management, leasing and construction
companies (the "Service Corporations") for third party properties, in exchange
for units of limited partnership interests in the Operating Partnership and/or
cash. The REIT will be fully integrated, self-administered and self-managed.
PRINCIPLES OF COMBINATION
The SL Green Predecessor is not a legal entity but rather a combination of
real estate properties and affiliated real estate management, construction and
leasing entities under common control and interests in entities accounted for on
the equity method (see note 2) that are organized as partnerships and a limited
liability company. The operations of the properties are included in the
financial statements from the date of acquisition by the SL Green Predecessor.
All significant intercompany transactions and balances have been eliminated in
combination.
Capital contributions, distributions and profits and losses are allocated in
accordance with the terms of the applicable agreements.
F-26
<PAGE>
SL GREEN PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1996
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The accompanying combined financial statements include partnerships and
corporations which are under common control as follows:
<TABLE>
<CAPTION>
ENTITY PROPERTY/SERVICE
- ---------------------------------------------- ----------------------------------------------
<S> <C>
Office Property Entities
64-36 Realty Associates 70 West 36th Street
1414 Management Associates, LP 1414 Avenue of the Americas
Service Corporations
SL Green Management, Corp. Management
SL Green Realty, Inc. Management and leasing
Emerald City Construction Corp. Construction
</TABLE>
For the entities accounted for on the equity method, the SL Green
Predecessor's records its investments in partnerships and limited liability
company at cost and adjusts the investment accounts for its share of the
entities' income or loss and for cash distributions and contributions (see note
2).
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
REAL ESTATE
Financial Accounting Standards Board Statement of Financial Accounting
Standards ("SFAS") No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. SFAS No. 121 also addresses
the accounting for long-lived assets that are expected to be disposed of. The SL
Green Predecessor, adopted SFAS No. 121 in the first quarter of 1996. Through
March 31, 1997 (unaudited) and December 31,1996 no indicators of impairment were
present and no impairment losses have been recorded in any of the periods
presented.
DEPRECIATION OF REAL ESTATE PROPERTIES
Depreciation and amortization is computed on the straight-line method as
follows.
<TABLE>
<CAPTION>
CATEGORY TERM
- ---------------------------------------------- ----------------------------------------------
<S> <C>
Building 40 years
Building improvements remaining life of the building
Furniture and fixtures four to seven years
Tenant improvements remaining life of the lease
</TABLE>
Depreciation expense amounted to $788, $579 and $638 in 1996, 1995 and 1994
respectively. For the unaudited three months ended March 31, 1997 depreciation
expense amounted to $249.
F-27
<PAGE>
SL GREEN PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1996
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
The SL Green Predecessor considers highly liquid investments with a maturity
of three months or less when purchased to be cash equivalents.
RESTRICTED CASH
Restricted cash consists of security deposits.
REVENUE RECOGNITION
Rental revenue is recognized on a straight-line basis over the term of the
lease. The excess of rents recognized over amounts contractually due pursuant to
the underlying leases are included in deferred rents receivable on the
accompanying combined balance sheets. Contractually due but unpaid rents are
included in receivables on the accompanying combined balance sheets.
DEFERRED LEASE COSTS
Deferred lease costs consist of fees and direct costs incurred to initiate
and renew operating leases and are amortized on a straight-line basis over the
initial lease term or renewal period as appropriate.
DEFERRED FINANCING COSTS
Deferred financing costs are amortized over the terms of the respective
agreements. Unamortized deferred financing costs are expensed when the
associated debt is refinanced before maturity.
DEFERRED OFFERING COSTS
The SL Green Predecessor have incurred costs related to its proposed
offering. The deferred offering costs will be charged to the equity of the REIT
at the time of the completion of the public offering.
INCOME TAXES
The partnerships in the SL Green Predecessor are not taxpaying entities for
Federal income tax purposes, and, accordingly, no provision or credit has been
made in the accompanying financial statements for Federal income taxes. Owners'
allocable shares of taxable income or loss are reportable on their income tax
returns. The management, leasing and construction entities are C-Corporations,
which have had minimal income during the three years ended December 31, 1996 and
therefore have paid minimal federal and state income taxes.
CREDIT RISK
Management of the SL Green Predecessor performs on going credit evaluation
of its tenants and requires certain tenants to provide security deposits.
Although the SL Green Predecessors' buildings are all located in Mid-town
Manhattan, the tenants operate in various industries and there is no dependence
upon any single tenant.
F-28
<PAGE>
SL GREEN PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1996
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CAPITALIZATION
The Service Corporations (three) each have 200 shares of no par value common
stock authorized and issued for $1,000, with no addition paid in capital at
December 31, 1996 and 1995.
INTERIM UNAUDITED FINANCIAL INFORMATION
The accompanying interim unaudited financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosure normally included in the financial
statements prepared in accordance with generally accepted accounting principles
may have been condensed or omitted pursuant to such rules and regulations,
although management believes that the disclosures are adequate to make the
information presented not misleading. The unaudited financial statements as of
March 31, 1997 and for the three month periods ended March 31, 1997 and 1996
include, in the opinion of management, all adjustments, consisting of normal
recurring adjustments, necessary to present fairly the financial information set
forth herein.
2. INVESTMENT IN UNCOMBINED JOINT VENTURES
The SL Green Predecessor's investments in three partnerships and a limited
liability company, have been accounted for under the equity method since control
is shared with other parties. The investment in partnerships and limited
liability company are as follows:
<TABLE>
<CAPTION>
PARTNERSHIPS/LIMITED GREEN GROUP
LIABILITY COMPANY PROPERTY PERCENTAGE OWNERSHIP
- ----------------------------------------------------- -------------------------- -----------------------
<S> <C> <C>
673 First Realty Company............................. 673 First Avenue 67 %
470 Park South Associates, LP........................ 470 Park Avenue South 65 %
29/35 Realty Associates, LP.......................... 29 West 35th Street 21.5%
Praedium Bar Associates, LLC......................... 36 West 44th Street 10 %(A)
("Praedium Bar")
</TABLE>
- ------------------------
(A) Praedium Bar acquired the first mortgage related to the property in October,
1996 and has the sole right to purchase the fee interest, (the property deed
is in escrow), for a nominal cost; accordingly SL Green Predecessor has
accounted for Praedium Bar investment as a ownership interest in the
property.
F-29
<PAGE>
SL GREEN PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1996
2. INVESTMENT IN UNCOMBINED JOINT VENTURES (CONTINUED)
Condensed combined financial statements of the partnerships and the limited
liability company, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, --------------------
1997 1996 1995
----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
CONDENSED BALANCE SHEETS
Commercial real estate property, net......................... $ 72,551 $ 72,958 $ 61,092
Deferred rent receivable..................................... 14,971 14,860 14,337
Cash and cash equivalents, including restricted cash of
$1,597 (March 1997 (unaudited)) $1,588 (1996) and $1,205
(1995)..................................................... 3,239 3,811 3,275
Deferred costs and other assets.............................. 7,357 7,271 6,196
----------- --------- ---------
Total assets................................................. $ 98,118 $ 98,900 $ 84,900
----------- --------- ---------
----------- --------- ---------
Mortgages and accrued interest payable....................... $ 90,392 $ 90,245 $ 80,750
Obligations under capital lease.............................. 14,319 14,265 14,060
Deferred rent payable........................................ 11,727 11,459 10,387
Accounts payable and other liabilities....................... 4,237 4,560 3,475
Owners' deficit
SL Green Predecessor....................................... (16,020) (15,570) (15,457)
Other partners............................................. (6,537) (6,059) (8,315)
----------- --------- ---------
Total owners' deficit........................................ (22,557) (21,629) (23,772)
----------- --------- ---------
Total liabilities and owner's deficit........................ $ 98,118 $ 98,900 $ 84,900
----------- --------- ---------
----------- --------- ---------
</TABLE>
F-30
<PAGE>
SL GREEN PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1996
2. INVESTMENT IN UNCOMBINED JOINT VENTURES (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONDENSED STATEMENTS OF OPERATIONS
Rental revenue and escalations................... $ 5,447 $ 4,393 $ 18,874 $ 17,934 $ 18,235
Other revenue.................................... 10 -- 28 18 129
--------- --------- --------- --------- ---------
Total revenues................................... 5,457 4,393 18,902 17,952 18,364
--------- --------- --------- --------- ---------
Interest......................................... 2,069 1,879 7,743 7,785 7,721
Depreciation and amortization.................... 969 832 3,580 3,768 3,401
Operating and other expenses..................... 2,972 2,497 10,036 9,552 9,750
--------- --------- --------- --------- ---------
Total expenses................................... 6,010 5,208 21,359 21,105 20,872
--------- --------- --------- --------- ---------
Loss before outside partner's interest........... (553) (815) (2,457) (3,153) (2,508)
Elimination of inter-company management fees..... 89 87 355 335 377
Other partner share of the loss.................. 177 253 694 904 708
--------- --------- --------- --------- ---------
Loss allocated to the SL Green Predecessor....... $ (287) $ (475) $ (1,408) $ (1,914) $ (1,423)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
There are several business relationships with related parties which involve
management, leasing and construction fee revenues and maintenance expense.
Transactions relative to the aforementioned condensed combined statements of
operations and balance sheets for the equity investees include the following
before elimination of intercompany transactions:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Management fee expenses............... $ 159 $ 138 $ 622 $ 563 $ 624
Leasing commission expenses........... 55 43 218 48 80
Construction fees..................... 413 95 185 376 809
Maintenance expenses.................. 50 83 227 132 164
</TABLE>
F-31
<PAGE>
SL GREEN PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1996
3. DEFERRED COSTS
Deferred costs consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
1997 1996 1995
----------- --------- ---------
<S> <C> <C> <C>
(UNAUDITED)
Deferred financing......................................... $ 817 $ 982 $ 206
Deferred lease............................................. 1,773 1,613 1,365
Deferred offering.......................................... 87 87 --
----------- --------- ---------
2,677 2,682 1,571
Less accumulated amortization.............................. (1,333) (1,311) (1,122)
----------- --------- ---------
$ 1,344 $ 1,371 $ 449
----------- --------- ---------
----------- --------- ---------
</TABLE>
4. MORTGAGE NOTES PAYABLE
The mortgage notes payable collateralized by the respective properties and
assignment of leases at March 31, 1997 and December 31, 1996 and 1995 are as
follows:
<TABLE>
<CAPTION>
MORTGAGE ACCRUED
PAYABLE INTEREST MORTGAGE ACCRUED MORTGAGE
MORTGAGE NOTES MARCH 31, MARCH 31, PAYABLE INTEREST PAYABLE
PROPERTY WITH FIXED INTEREST 1997 1997 1996 1996 1995
- ------------------ ------------------------------------- ----------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
1414 Avenue of the First mortgage note with interest
Americas payable at 7.875%, due June 1,
2006(A).............................. $ 9,912 $ 90 $ 9,946 $ 90 $ --
----------- --- ----------- --- -----------
Total Fixed Rate Notes............... 9,912 90 9,946 90 --
----------- --- ----------- --- -----------
<CAPTION>
MORTGAGE NOTES
WITH VARIABLE INTEREST
-------------------------------------
<S> <C> <C> <C> <C> <C> <C>
70 W 36th Street First mortgage note with interest
payable at LIBOR plus 2%, due January
29, 2001............................. 6,632 -- 6,664 -- 12,700
----------- --- ----------- --- -----------
Total Variable Rate Notes............ 6,632 -- 6,664 -- 12,700
----------- --- ----------- --- -----------
Total Mortgage Notes Payable......... $ 16,544 $ 90 $ 16,610 $ 90 $ 12,700
----------- --- ----------- --- -----------
----------- --- ----------- --- -----------
<CAPTION>
ACCRUED
INTEREST
PROPERTY 1995
- ------------------ -----------
<S> <C>
1414 Avenue of the
Americas
$ --
-----------
--
-----------
<S> <C>
70 W 36th Street
2,894
-----------
2,894
-----------
$ 2,894
-----------
-----------
</TABLE>
- ------------------------------
(A) SL Green Predecessor does not have the right to prepay the principal balance
of the mortgage, in whole or in part, prior to May 31, 2004. If the mortgage
is prepaid prior to May 31, 2004 a prepayment fee will be required based
upon the greater of 1% of the outstanding principal balance of the mortgage
or yield maintenance as defined by the mortgage agreement.
(B) In December 1996 the holder of the second mortgage on 70 West 36th Street
forgave the indebtedness for no consideration; as a result SL Green
Predecessor recognized extraordinary income of $8,961.
F-32
<PAGE>
SL GREEN PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
4. MORTGAGE NOTES PAYABLE (CONTINUED)
PRINCIPAL MATURITIES
Combined aggregate principal maturities of mortgages and notes payable as of
December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997............................................................... $ 330
1998............................................................... 341
1999............................................................... 353
2000............................................................... 367
2001............................................................... 6,085
Thereafter......................................................... 9,134
---------
$ 16,610
---------
---------
</TABLE>
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures of estimated fair value were determined by
management, using available market information and appropriate valuation
methodologies. Considerable judgment is necessary to interpret market data and
develop estimated fair value. Accordingly, the estimates presented herein are
not necessarily indicative of the amounts the SL Green Predecessor could realize
on disposition of the financial instruments. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.
Cash equivalents and variable rate mortgages are carried at amounts which
reasonably approximate their fair values.
Estimated fair value is based on anticipated settlements in connection with
the REIT formation, interest rates and other related factors currently available
to the SL Green Predecessor for issuance of debt with similar terms and
remaining maturities. The fair value for each mortgage approximates its carrying
amount.
Disclosure about fair value of financial instruments is based on pertinent
information available to management as of December 31, 1996. Although management
is not aware of any factors that would significantly affect the reasonable fair
value amounts, such amounts have not been comprehensively revalued for purposes
of these financial statements since that date and current estimates of fair
value may differ significantly from the amounts presented herein.
6. RENTAL INCOME
The Properties are being leased to tenants under operating leases with
expiration dates ranging from 1997 to 2011. The minimum rental amounts due under
the leases are generally either subject to scheduled fixed increases or
adjustments. The leases generally also require that the tenants reimburse the SL
Green Predecessor for increases in certain operating costs and real estate taxes
above their base year costs.
F-33
<PAGE>
SL GREEN PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
6. RENTAL INCOME (CONTINUED)
Approximate future minimum rents to be received over the next five years and
thereafter for leases in effect at December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997............................................................... $ 5,000
1998............................................................... 5,000
1999............................................................... 4,000
2000............................................................... 4,000
2001............................................................... 3,000
Thereafter......................................................... 11,000
---------
$ 32,000
---------
---------
</TABLE>
7. RELATED PARTY TRANSACTIONS
There are several business relationships with related parties, exclusive of
the uncombined joint ventures (see note 2) which involve management, leasing,
and construction fee revenues, rental income and maintenance expenses in the
ordinary course of business. Transactions include the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
-------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1996 1995 1994
--------------- --------------- --------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Management revenues........................ $ 64 $ 33 $ 180 $ 221 $ 284
Leasing commission revenues................ 11 15 37 36 64
Construction fees.......................... -- -- 25 69 107
Rental income.............................. 19 27 33 25 --
Maintenance expense........................ 29 17 93 32 24
</TABLE>
Amounts due from related parties consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31 --------------------
1997 1996 1995
------------- --------- ---------
<S> <C> <C> <C>
(UNAUDITED)
SL Green Properties Inc...................................... $ 507 $ 507 $ 517
First Quality Maintenance.................................... 160 160 374
250 PAS, Associates, LP...................................... 3 363 --
Officers..................................................... 165 156 125
----- --------- ---------
$ 835 $ 1,186 $ 1,016
----- --------- ---------
----- --------- ---------
</TABLE>
Due to related parties, represents amounts due to SL Green Properties Inc.
8. BENEFIT PLAN
The building employees of the individual partnerships are covered by
multi-employer defined benefit pension plans and post-retirement health and
welfare plans. Contributions to these plans amounted to $30, $7 and $7 in 1996,
1995 and 1994, respectively; and $12 for the three months ended March 31, 1997.
F-34
<PAGE>
SL GREEN PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
8. BENEFIT PLAN (CONTINUED)
Separate actuarial information regarding such plans is not made available to the
contributing employers by the union administrators or trustees, since the plans
do not maintain separate records for each reporting unit.
9. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
On May 23, 1997 SL Green Predecessor entered into an agreement to purchase a
mortgage, which is encumbered by the property located at 1372 Broadway,
Manhattan New York, for approximately $52 million (with the right to acquire the
fee interest for no additional consideration subsequent to December 31, 1997).
On May 27, 1997 SL Green Predecessor entered into an agreement to purchase the
net lease on the property located at 1140 Avenue of the Americas, Manhattan New
York, for approximately $20.9 million. It is anticipated that both transactions
will close at the time of the Offering.
CONTINGENCIES
SL Green Predecessor is party to a variety of legal proceedings relating to
the ownership of the properties and it's activities with regard to its
construction, management and leasing businesses, arising in the ordinary course
of business. SL Green Predecessor's management believes that substantially all
of these liabilities are covered by insurance. All of these matters, taken
together, are not expected to have a material adverse impact on the SL Green
Predecessor's financial position, results of operations or cash flows .
10. ENVIRONMENTAL MATTERS
The management of SL Green Predecessor believes that the properties are in
compliance in all material respects with applicable federal, state and local
ordinances and regulations regarding environmental issues. Management is not
aware of any environmental liability that management believes would have a
material adverse impact on SL Green Predecessor's financial position, results of
operations or cash flows. Management is unaware of any instances in which it
would incur significant environmental cost if any of the properties were sold.
11. SUBSEQUENT EVENTS
Lehman Brothers Holdings Inc. ("LBHI"), an affiliate of Lehman Brothers
Inc., entered into a credit agreement with Green Realty LLC, an affiliate of SL
Green Predecessor, pursuant to which LBHI agreed to loan to Green Realty LLC up
to $35 million (the "LBHI Loan") which will be used to acquire the remaining
interests in the investment partnerships (see note 2) and certain acquisition
properties, to fund property related operating expenses, to fund organizational
expenses of the REIT and to purchase short-term United States Treasury
Instruments. The LBHI Loan is secured by certain partnerships interest in SL
Green Predecessor, the treasury securities and the stock of SL Green Properties
Inc., an affiliate of SL Green Predecessor, and has been guaranteed by SL Green
Management Corp. and SL Green Properties, Inc.
F-35
<PAGE>
SL GREEN PREDECESSOR
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN D
-------------------
COLUMN C COST CAPITALIZED
--------------------
SUBSEQUENT TO
INITIAL COST ACQUISITION
COLUMN A COLUMN B -------------------- -------------------
- ---------------------------- ------------- BUILDING AND BUILDING AND
DESCRIPTION ENCUMBRANCE LAND IMPROVEMENTS LAND IMPROVEMENTS
- ---------------------------- ------------- ------ ------------ ---- ------------
<S> <C> <C> <C> <C> <C>
70 West 36th St., $ 6,664 $1,517 $ 7,700 $0 $7,063
New York, NY (1 mortgage)
1414 Avenue of the Americas, 10,036 2,948 6,790 0 266
New York, NY (1 mortgage)
------------- ------ ------------ ---- ------
(1) $16,700 $4,465 $14,490 $0 $7,329
------------- ------ ------------ ---- ------
------------- ------ ------------ ---- ------
<CAPTION>
COLUMN E
------------------------------
GROSS AMOUNT AT WHICH CARRIED
AT CLOSE OF PERIOD
COLUMN A ------------------------------
- ---------------------------- BUILDING AND
DESCRIPTION LAND IMPROVEMENTS TOTAL
- ---------------------------- ------ ------------ -------
<S> <C> <C>
70 West 36th St., $1,517 $14,763 $16,280
New York, NY
1414 Avenue of the Americas, 2,948 7,056 10,004
New York, NY
------ ------------ -------
$4,465 $21,819 $26,284
------ ------------ -------
------ ------------ -------
<CAPTION>
COLUMN F COLUMN G
COLUMN A ----------- ------------
- ---------------------------- ACCUMULATED DATE OF
DESCRIPTION DEPRECIATION CONSTRUCTION
- ---------------------------- ----------- ------------
70 West 36th St., $5,625
New York, NY
1414 Avenue of the Americas, 96
New York, NY
-----------
$5,721
-----------
-----------
<CAPTION>
COLUMN I
COLUMN H ---------------
COLUMN A -------- LIFE ON WHICH
- ---------------------------- DATE DEPRECIATION IS
DESCRIPTION ACQUIRED COMPUTED
- ---------------------------- -------- ---------------
70 West 36th St., 12/19/84 Various
New York, NY
1414 Avenue of the Americas, 6/18/96 Various
New York, NY
</TABLE>
- ------------------------
(1) Encumbrance includes accrued interest of $90
F-36
<PAGE>
SL GREEN PREDECESSOR
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
(DOLLARS IN THOUSANDS)
The changes in real estate for the three years ended December 31, 1996 are
as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Balance at beginning of period............................... $ 15,559 $ 15,190 $ 14,801
Improvements................................................. 10,725 369 389
--------- --------- ---------
Balance at end of period..................................... $ 26,284 $ 15,559 $ 15,190
--------- --------- ---------
--------- --------- ---------
</TABLE>
The aggregate cost of land, buildings and improvements for Federal income
tax purposes at December 31, 1996 was approximately $26,284.
The changes in accumulated depreciation, exclusive of amounts relating to
equipment, autos, and furniture and fixtures, for the three years ended December
31, 1996 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Balance at beginning of period................................... $ 5,025 $ 4,508 $ 3,930
Depreciation for period.......................................... 696 517 578
--------- --------- ---------
Balance at end of period......................................... $ 5,721 $ 5,025 $ 4,508
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-37
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Partners, Members and Stockholders
SL Green Predecessor
We have audited the accompanying combined balance sheets of the uncombined
joint ventures of SL Green Predecessor as of December 31, 1996 and 1995 and the
related combined statements of operations, owners' deficit and cash flows for
each of the three years in the period ended December 31, 1996. We have also
audited the financial statement schedule listed on the Index to financial
statements included in the Prospectus. These financial statements and financial
statement schedule are the responsibility of SL Green Predecessor's management.
Our responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly in all material respects, the combined financial position of the
uncombined joint ventures of SL Green Predecessor at December 31, 1996 and 1995,
and the combined results of its operations and its cash flows for each of the
three years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles. Also, in our opinion the financial statement
schedule referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects, the
information required to be set forth therein.
/S/ Ernst & Young LLP
New York, New York
April 16, 1997
F-38
<PAGE>
UNCOMBINED JOINT VENTURES OF
SL GREEN PREDECESSOR
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, --------------------
1997 1996 1995
----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Commercial real estate properties, at cost (NOTES 2 AND 5):
Land..................................................... $ 6,366 $ 6,366 $ 3,666
Buildings and improvements............................... 75,729 75,307 63,224
Property under capital lease............................. 12,208 12,208 12,208
----------- --------- ---------
94,303 93,881 79,098
Less accumulated depreciation............................ (21,752) (20,923) (18,006)
----------- --------- ---------
72,551 72,958 61,092
Cash and cash equivalents.................................... 1,642 2,223 2,070
Restricted cash.............................................. 1,597 1,588 1,205
Deferred rents receivable.................................... 14,971 14,860 14,337
Deferred costs, net (NOTE 3)................................. 4,774 4,812 4,771
Other assets................................................. 2,583 2,459 1,425
----------- --------- ---------
Total assets................................................. $ 98,118 $ 98,900 $ 84,900
----------- --------- ---------
----------- --------- ---------
LIABILITIES AND OWNERS' DEFICIT
Mortgages and note payable (NOTE 2).......................... $ 74,375 $ 74,827 $ 66,301
Accrued interest payable (NOTE 2)............................ 16,017 15,418 14,449
Obligations under capital lease (NOTE 5)..................... 14,319 14,265 14,060
Deferred rent payable........................................ 11,727 11,459 10,387
Accounts payable and accrued expenses........................ 901 1,200 432
Accounts payable to related parties (NOTE 6)................. 654 688 779
Security deposits............................................ 2,682 2,672 2,264
----------- --------- ---------
Total liabilities............................................ 120,675 120,529 108,672
Commitments, contingencies and other comments
(NOTES 5, 7, 8 AND 9)
Owners' deficit:
SL Green Predecessor....................................... (16,020) (15,570) (15,457)
Other partners............................................. (6,537) (6,059) (8,315)
----------- --------- ---------
Total owners' deficit........................................ (22,557) (21,629) (23,772)
----------- --------- ---------
Total liabilities and owners' deficit........................ $ 98,118 $ 98,900 $ 84,900
----------- --------- ---------
----------- --------- ---------
</TABLE>
See accompanying notes.
F-39
<PAGE>
UNCOMBINED JOINT VENTURES OF
SL GREEN PREDECESSOR
COMBINED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Rental revenue (NOTE 5).................. $ 5,066 $ 4,106 $ 17,386 $ 16,519 $ 16,559
Escalation and reimbursement revenues
(NOTE 5)............................... 381 287 1,488 1,415 1,676
Other income............................. 10 -- 28 18 129
--------- --------- --------- --------- ---------
Total revenues............................. 5,457 4,393 18,902 17,952 18,364
--------- --------- --------- --------- ---------
Expenses:
Operating expenses:
Other.................................. 1,083 821 3,115 2,931 3,014
Related parties........................ 209 221 849 695 788
Real estate taxes........................ 724 522 2,316 2,183 2,215
Rent expense (NOTE 5).................... 956 933 3,756 3,743 3,733
Interest (NOTE 2)........................ 2,069 1,879 7,743 7,785 7,721
Depreciation and amortization............ 969 832 3,580 3,768 3,401
--------- --------- --------- --------- ---------
Total expenses............................. 6,010 5,208 21,359 21,105 20,872
--------- --------- --------- --------- ---------
Net loss................................... $ (553) $ (815) $ (2,457) $ (3,153) $ (2,508)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See accompanying notes.
F-40
<PAGE>
UNCOMBINED JOINT VENTURES OF
SL GREEN PREDECESSOR
COMBINED STATEMENTS OF OWNERS' DEFICIT
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
BALANCE AT JANUARY 1, 1994........................................................ $ (19,033)
Distributions................................................................... --
Contributions................................................................... 797
Net loss for the year ended December 31, 1994................................... (2,508)
---------
BALANCE AT DECEMBER 31, 1994...................................................... (20,744)
Distributions................................................................... --
Contributions................................................................... 125
Net loss for the year ended December 31, 1995................................... (3,153)
---------
BALANCE AT DECEMBER 31, 1995...................................................... (23,772)
Distributions................................................................... (1,150)
Contributions................................................................... 5,750
Net loss for the year ended December 31, 1996................................... (2,457)
---------
BALANCE AT DECEMBER 31, 1996...................................................... (21,629)
Distributions (unaudited)....................................................... (400)
Contributions (unaudited)....................................................... 25
Net loss for the three months ended March 31, 1997 (unaudited).................. (553)
---------
BALANCE AT MARCH 31, 1997 (UNAUDITED)............................................. $ (22,557)
---------
---------
</TABLE>
See accompanying notes.
F-41
<PAGE>
UNCOMBINED JOINT VENTURES OF
SL GREEN PREDECESSOR
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (553) $ (815) $ (2,457) $ (3,153) $ (2,508)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization.............. 969 832 3,580 3,768 3,401
Deferred rents receivable.................. (111) (102) (524) (370) (985)
Changes in operating assets and liabilities:
Restricted cash............................ (9) 64 (383) 70 90
Deferred costs............................. (94) 59 (705) (54) (640)
Other assets............................... (125) 285 (1,033) (75) 432
Accounts payable and accrued expenses...... (298) (48) 768 (192) (757)
Accounts payable to related parties........ (34) (2) (91) (124) (353)
Security deposits.......................... 9 (64) 409 (102) (315)
Accrued interest on mortgage notes
payable.................................. 599 93 969 1,781 1,585
--------- --------- --------- --------- ---------
Net cash provided by (used in) operating
activities................................. 353 302 533 1,549 (50)
--------- --------- --------- --------- ---------
INVESTING ACTIVITIES
Additions to land, buildings and
improvements............................... (429) (32) (4,583) (690) (1,963)
--------- --------- --------- --------- ---------
Net cash used in investing activities........ (429) (32) (4,583) (690) (1,963)
--------- --------- --------- --------- ---------
FINANCING ACTIVITIES
Proceeds from mortgage notes payable......... -- -- -- -- 11,899
Payments of mortgage notes payable........... (452) (402) (1,674) (1,531) (13,176)
Cash distributions to owners................. (400) -- (1,150) -- --
Cash contributions from owners............... 25 -- 5,750 125 797
Capitalized lease obligations................ 322 317 1,277 1,532 1,628
--------- --------- --------- --------- ---------
Net cash provided by (used in) financing
activities................................. (505) (85) 4,203 126 1,148
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and cash
equivalents................................ (581) 185 153 985 (865)
Cash and cash equivalents at beginning of
period..................................... 2,223 2,070 2,070 1,085 1,950
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of period... $ 1,642 $ 2,255 $ 2,223 $ 2,070 $ 1,085
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Supplemental cash flow disclosures
Interest paid................................ $ 1,470 $ 1,786 $ 6,774 $ 6,004 $ 6,136
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Supplemental schedule of non cash investing
and financing activities:
Assumption of mortgage in connection with
property acquisition..................... -- -- $ 10,200 -- --
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See accompanying notes.
F-42
<PAGE>
UNCOMBINED JOINT VENTURES OF
SL GREEN PREDECESSOR
NOTES TO COMBINED STATEMENTS
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1996
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
The uncombined joint ventures of SL Green Predecessor are engaged in the
business of owning, managing and leasing, and repositioning Class B office
properties in Manhattan, New York.
PROPOSED TRANSACTIONS
Concurrently with the consummation of an initial public offering of SL Green
Realty Corp. (the "REIT") Common Stock (the "Offering"), which is expected to be
completed in 1997 the REIT and a newly formed limited partnership, SL Green
Operating Partnership, L.P. (the "Operating Partnership"), together with the
partners and members of the affiliated partnerships of the SL Green Predecessor
and other parties which hold ownership interests in the properties
(collectively, the "Participants"), will engage in certain formation
transactions (the "Formation Transactions"). The Formation Transactions are
designed to (i) enable the REIT to raise the necessary capital to acquire the
remaining interests in the properties and repay certain mortgage debt relating
thereto and pay other indebtedness, (ii) enable the REIT to acquire properties,
(iii) fund costs, capital expenditures, and working capital, (iv) provide a
vehicle for future acquisitions, (v) enable the REIT to comply with certain
requirements under the Federal income tax laws and regulations relating to real
estate investment trusts, and (vi) preserve certain tax advantages for certain
Participants.
The operations of the REIT will be carried on primarily through the
Operating Partnership in order to assist the REIT and the Participants in
forming the REIT under the Internal Revenue Code of 1986. The REIT will be the
sole general partner in the Operating Partnership. The Operating Partnership
will receive a contribution of interests in the real estate properties as well
as 95% of the economic interest in the management, leasing and construction
companies (the "Service Corporations") which service third party properties, in
exchange for units of limited partnership interests in the Operating Partnership
and/or cash. The REIT will be fully integrated self-administered and
self-managed.
PRINCIPLES OF COMBINATION
The uncombined joint ventures of the SL Green Predecessor is not a legal
entity but rather a combination of real estate properties (collectively, the
"Properties") and interests in entities that are organized as partnerships and a
limited liability company. The operations of the properties are included in the
financial statements of the SL Green Predecessor from the date of acquisition.
All significant intercompany transactions and balances have been eliminated in
combination.
Capital contributions, distributions and profits and losses are allocated to
the owners in accordance with the terms of the applicable agreements.
F-43
<PAGE>
UNCOMBINED JOINT VENTURES OF
SL GREEN PREDECESSOR
NOTES TO COMBINED STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1996
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The joint ventures included in the accompanying combined financial
statements include partnerships and a limited liability company which are not
controlled by the SL Green Predecessor, are as follows:
<TABLE>
<CAPTION>
PARTNERSHIPS/LIMITED SL GREEN PREDECESSOR
LIABILITY COMPANY PROPERTY PERCENTAGE OWNERSHIP
- ---------------------------------------------- ----------------------- ---------------------
<S> <C> <C>
673 First Realty Company...................... 673 First Avenue 67.0%
29/35 Realty Associates, LP................... 29 West 35th Street 21.5%
470 Park South Associates, LP................. 470 Park Avenue South 65.0%
Praedium Bar Associates, LLC.................. 36 West 44th Street 10.0%(A)
("Praedium Bar")
</TABLE>
- ------------------------
(A) Praedium Bar acquired the first mortgage related to the property in October,
1996 and has the sole right to purchase the fee interest, (the property deed
is in escrow), for a nominal cost; accordingly SL Green Predecessor has
accounted for Praedium Bar investment as an ownership in the property.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
REAL ESTATE
Financial Accounting Standards Board Statement of Financial Accounting
Standards ("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of, requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. SFAS No. 121 also addresses
the accounting for long-lived assets that are expected to be disposed of. The SL
Green Predecessor adopted SFAS No. 121 in the first quarter of 1996. Through
March 31,1997 (unaudited), December 31, 1996 no indicators of impairment were
present and no impairment losses have been recorded in any of the periods
presented.
DEPRECIATION OF REAL ESTATE PROPERTIES
Depreciation and amortization is computed on the straight-line method as
follows:
<TABLE>
<CAPTION>
CATEGORY TERM
- ---------------------------------------------- ----------------------------------------------
<S> <C>
Building...................................... 40 years
Property under capital lease.................. 49 years
Building improvements......................... remaining life of the building
Tenant improvements........................... remaining life of the lease
</TABLE>
F-44
<PAGE>
UNCOMBINED JOINT VENTURES OF
SL GREEN PREDECESSOR
NOTES TO COMBINED STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1996
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Depreciation expense including the amortization of the capital lease
amounted to $2,917, $2,999 and $2,869 in 1996, 1995 and 1994 respectively. For
the unaudited three months ended March 31, 1997 depreciation expense amounted to
$836.
CASH AND CASH EQUIVALENTS
The SL Green Predecessor considers highly liquid investments with a maturity
of three months or less when purchased to be cash equivalents.
RESTRICTED CASH
Restricted cash consists of security deposits.
REVENUE RECOGNITION
Rental revenue is recognized on a straight-line basis over the term of the
lease. The excess of rents recognized over amounts contractually due pursuant to
the underlying leases are included in deferred rents receivable on the
accompanying combined balance sheets. Contractually due but unpaid rents are
included in other assets on the accompanying combined balance sheets. Certain
lease agreements provide for reimbursement of real estate taxes, insurance and
certain common area maintenance costs and rental increases tied to increases in
certain economic indexes.
DEFERRED LEASE COSTS
Deferred lease costs consist of fees and direct costs incurred to initiate
and renew operating leases, and are amortized on a straight-line basis over the
initial lease term or renewal period as appropriate.
DEFERRED FINANCING COSTS
Deferred financing costs are amortized over the terms of the respective
agreements. Unamortized deferred financing costs are expensed when the
associated debt is retired before maturity.
CAPITALIZED INTEREST
Interest for borrowings used to fund development and construction is
capitalized to individual property costs.
RENT EXPENSE--LAND
Rent expense is recognized on a straight-line basis over the initial term of
the lease. The excess of the rent expense recognized over the amounts
contractually due pursuant to the underlining lease is included in the deferred
lease payable in the accompanying combined balance sheets.
F-45
<PAGE>
UNCOMBINED JOINT VENTURES OF
SL GREEN PREDECESSOR
NOTES TO COMBINED STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1996
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The entities in the SL Green Predecessor are not taxpaying entities for
Federal income tax purposes, and, accordingly, no provision or credit has been
made in the accompanying financial statements for Federal income taxes. Owners'
allocable shares of taxable income or loss are reportable on their income tax
returns.
CONCENTRATION OF REVENUE AND CREDIT RISK
Approximately 60% of the SL Green Predecessor's revenue for the three years
ended December 31, 1996 were derived from 673 First Avenue. The loss or a
material decrease in revenues from this building for any reason may have a
material adverse effect on the SL Green Predecessor. In addition approximately
30% of the SL Green Predecessor's revenue for the three years ended December 31,
1996 were derived from three tenants, (Society of NY Hospital, Kallir, Phillips,
Ross, Inc. and UNICEF), which lease space in the 673 First Avenue building.
Management of the SL Green Predecessor performs on going credit evaluations
of its tenants and requires certain tenants to provide security deposits.
INTERIM UNAUDITED FINANCIAL INFORMATION
The accompanying interim unaudited financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosure normally included in the financial
statements prepared in accordance with generally accepted accounting principles
may have been condensed or omitted pursuant to such rules and regulations,
although management believes that the disclosures are adequate to make the
information presented not misleading. The unaudited financial statements as of
March 31, 1997 and for the three months ended March 31, 1997 and 1996 include,
in the opinion of management, all adjustments, consisting of normal recurring
adjustments, necessary to present fairly the financial information set forth
herein.
F-46
<PAGE>
UNCOMBINED JOINT VENTURES OF
SL GREEN PREDECESSOR
NOTES TO COMBINED STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
2. MORTGAGE NOTES PAYABLE
The mortgage notes payable collateralized by the respective properties and
assignment of leases at December 31, 1996 and 1995 and March 31, 1997 are as
follows:
<TABLE>
<CAPTION>
MORTGAGE ACCRUED
PAYABLE INTEREST MORTGAGE ACCRUED MORTGAGE ACCRUED
MORTGAGE NOTES WITH FIXED MARCH 31, MARCH 31, PAYABLE INTEREST PAYABLE INTEREST
PROPERTY INTEREST 1997 1997 1996 1996 1995 1995
- -------------------------------------------------- --------- --------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
29 W 35th Street First mortgage note with
interest payable at
8.464%, due February 1,
2001 $ 3,023 $ 22 $ 3,040 $ 21 $ 3,096 $ 28
673 First Avenue First mortgage note with
interest payable at
9.0%, due December 13,
2003 19,089 -- 19,439 -- 20,736 --
470 Park Avenue South First mortgage note with
interest payable at
8.25%, due April 1,
2004 11,060 77 11,132 77 11,407 78
470 Park Avenue South Second mortgage note with
interest payable at
10.0%, due October 31,
1999 1,054 8 1,067 9 1,113 --
(A) 470 Park Avenue South Third mortgage note with
interest payable at
10.98%, due September
30, 2001 13,000 10,411 13,000 10,204 13,000 10,376
--------- --------- -------- ------- -------- -------
Total Fixed Rate Notes 47,226 10,518 47,678 10,311 49,352 10,482
--------- --------- -------- ------- -------- -------
<CAPTION>
MORTGAGE NOTES WITH
VARIABLE INTEREST
-------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
36 W 44th Street First mortgage note with
interest based on LIBOR
+ 3.4%, due September
30, 1998 10,200 -- 10,200 -- -- --
673 First Avenue Second mortgage note with
interest based on
adjusted LIBOR rate, as
defined by the mortgage
agreement, or Prime +
1.0%, due January 1,
2014 15,180 4,925 15,180 4,574 15,180 --
--------- --------- -------- ------- --------
Total Variable Rate Notes 25,380 4,925 25,380 4,574 15,180 --
--------- --------- -------- ------- --------
<CAPTION>
UNSECURED NOTE
-------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
673 First Avenue Unsecured note with
interest based on Prime
plus1.0%, due January
1, 2014 1,769 574 1,769 533 1,769 3,967
--------- --------- -------- ------- -------- -------
Total Unsecured Note 1,769 574 1,769 533 1,769 3,967
--------- --------- -------- ------- -------- -------
Total Mortgage and Note
Payable $74,375 $16,017 $74,827 $15,418 $66,301 $14,449
--------- --------- -------- ------- -------- -------
--------- --------- -------- ------- -------- -------
</TABLE>
F-47
<PAGE>
UNCOMBINED JOINT VENTURES OF
SL GREEN PREDECESSOR
NOTES TO COMBINED STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
2. MORTGAGE NOTES PAYABLE (CONTINUED)
An analysis of the mortgages is as follows:
<TABLE>
<CAPTION>
MORTGAGE ACCRUED
PAYABLE INTEREST MORTGAGE ACCRUED MORTGAGE ACCRUED
MARCH 31 MARCH 31 PAYABLE INTEREST PAYABLE INTEREST
MORTGAGE TYPE 1997 1997 1996 1996 1995 1995
- -------------------------------------------------- --------- --------- -------- ------- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
First mortgages $43,372 $ 99 $43,811 $ 98 $35,239 $ 106
Second mortgages 16,234 4,933 16,247 4,583 16,293 --
Third mortgage 13,000 10,411 13,000 10,204 13,000 10,376
Unsecured note 1,769 574 1,769 533 1,769 3,967
--------- --------- -------- ------- -------- -------
$74,375 $16,017 $74,827 $15,418 $66,301 $14,449
--------- --------- -------- ------- -------- -------
--------- --------- -------- ------- -------- -------
</TABLE>
- ------------------------
(A) 470 PARK AVENUE SOUTH
The third mortgage requires the monthly payment of minimum interest at 6%.
The difference between the minimum interest and the base interest of 10.98%
may be deferred until the maturity of the mortgage. The mortgage requires
additional interest of 50% of adjusted gross revenue, as defined in the
mortgage agreement, of the property for the applicable loan year. If the
total loan balance exceeds 90% of the appraised value in lieu of payments of
additional interest all of the adjusted gross revenue shall be paid and
applied as a reduction of the principal indebtedness until such time as the
loan balance is reduced to 90% of the appraised value. Upon payment of the
outstanding principal balance at maturity or on another date shared
appreciation interest, as defined in the mortgage agreement will be due. The
holder of the mortgage is entitled to an annual rate of return on the
mortgage of 13%. If the annual rate of return is less than 13%, the share
appreciation interest will be increased to the percentage necessary to
provide the mortgage holder with such return. Additional interest of $19 and
$55 were due in 1996 and 1994 respectively. These amounts were unpaid as of
December 31, 1996.
F-48
<PAGE>
UNCOMBINED JOINT VENTURES OF
SL GREEN PREDECESSOR
NOTES TO COMBINED STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
2. MORTGAGE NOTES PAYABLE (CONTINUED)
PRINCIPAL MATURITIES
Combined aggregate principal maturities of mortgages and notes payable as of
December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997............................................................... $ 1,841
1998............................................................... 12,208
1999............................................................... 2,183
2000............................................................... 3,216
2001............................................................... 4,448
Thereafter......................................................... 50,931
---------
$ 74,827
---------
---------
</TABLE>
3. DEFERRED COSTS
Deferred costs consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
1997 1996 1995
----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Deferred financing............................. $ 3,421 $ 3,372 $ 3,108
Deferred lease................................. 7,492 7,415 7,001
----------- --------- ---------
10,913 10,787 10,109
Less accumulated amortization.................. (6,139) (5,975) (5,338)
----------- --------- ---------
$ 4,774 $ 4,812 $ 4,771
----------- --------- ---------
----------- --------- ---------
</TABLE>
4. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures of estimated fair value were determined by
management, using available market information and appropriate valuation
methodologies. Considerable judgment is necessary to interpret market data and
develop estimated fair value. Accordingly, the estimates presented herein are
not necessarily indicative of the amounts the SL Green Predecessor could realize
on disposition of financial instruments. The use of different market assumptions
and/or estimation methodologies may have a material effect on the estimated fair
value amounts.
Cash equivalents and variable rate mortgages are carried at amounts which
reasonably approximate their fair values.
Estimated fair value is based on anticipated settlement in connection with
the REIT formation, interest rates and other related factors currently available
to the SL Green Predecessor for issuance of debt with similar terms and
remaining maturities. The fair value by mortgage type as of December 31, 1996 is
as follows:
<TABLE>
<CAPTION>
MORTGAGE TYPE CARRYING AMOUNT FAIR VALUE
- ---------------------------------------------------------------- ---------------- -----------
<S> <C> <C>
First Mortgages................................................. $ 43,811 $ 44,369
Second Mortgages................................................ 16,247 6,067
Third Mortgages................................................. 13,000 12,000
Unsecured Note.................................................. 1,769 0
</TABLE>
F-49
<PAGE>
UNCOMBINED JOINT VENTURES OF
SL GREEN PREDECESSOR
NOTES TO COMBINED STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
4. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Disclosure about fair value of financial instruments is based on pertinent
information available to management as of December 31, 1996. Although management
is not aware of any factors that would significantly affect the reasonable fair
value amounts, such amounts have not been comprehensively revalued for purposes
of these financial statements since that date and current estimates of fair
value may differ significantly from the amounts presented herein.
5. LEASE AGREEMENTS
OPERATING LEASE
The SL Green Predecessor is the lessor and sub-lessor of commercial
buildings under operating leases with expiration dates ranging from 1997 to
2031. The minimum rental amounts due under the leases are generally either
subject to scheduled fixed increases or adjustments. The leases generally also
require that the tenants reimburse the SL Green Predecessor for increases in
certain operating costs and real estate taxes above their base year costs.
Approximate future minimum rents to be received over the next five years and
thereafter for leases in effect at December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997.............................................................. $ 18,466
1998.............................................................. 18,463
1999.............................................................. 18,713
2000.............................................................. 18,468
2001.............................................................. 18,188
Thereafter........................................................ 54,085
---------
$ 146,383
---------
---------
</TABLE>
CAPITAL LEASE
In April 1988, the SL Green Predecessor entered into a lease agreement for
property at 673 First Avenue in New York City, which has been capitalized for
financial statement purposes. Land was estimated to be approximately 70% of the
fair market value of the property. The portion of the lease attributed to land
is classified as an operating lease and the remainder as a capital lease. The
initial lease term is 49 years with an option for an additional 26 years.
Beginning in lease year 11 and 25, the lessor is entitled to additional rent as
defined by the lease agreement.
Future minimum rental payments under two land operating leases as of
December 31, 1996 were as follows:
<TABLE>
<S> <C>
1997.............................................................. $ 2,753
1998.............................................................. 2,753
1999.............................................................. 2,753
2000.............................................................. 2,870
2001.............................................................. 3,103
Thereafter........................................................ 156,820
---------
$ 171,052
---------
---------
</TABLE>
F-50
<PAGE>
UNCOMBINED JOINT VENTURES OF
SL GREEN PREDECESSOR
NOTES TO COMBINED STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
5. LEASE AGREEMENTS (CONTINUED)
Rent expense amounted to approximately $3.7 million for each year ended
December 31, 1996, 1995 and 1994, respectively. For the unaudited three months
ended March 31, 1997 rent expense amounted to approximately $925.
CAPITAL LEASE--BUILDING
Leased property consists of the following:
<TABLE>
<CAPTION>
MARCH 31,
1997 1996 1995
----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Building....................................... $ 12,208 $ 12,208 $ 12,208
Less accumulation amortization................. 2,097 2,035 1,785
Leased property, net........................... $ 10,111 $ 10,173 $ 10,423
</TABLE>
Future minimum payments under the capitalized building lease, including the
present value of net minimum lease payments as of December 31, 1996 are as
follows:
<TABLE>
<S> <C>
1997.............................................................. $ 1,140
1998.............................................................. 1,140
1999.............................................................. 1,140
2000.............................................................. 1,177
2001.............................................................. 1,290
Thereafter........................................................ 64,176
---------
Total minimum lease payments...................................... 70,063
Amount representing interest...................................... (55,798)
---------
Present value of net minimum capital lease payments............... $ 14,265
---------
---------
</TABLE>
6. RELATED PARTY TRANSACTIONS
There are several business relationships with related parties which involve
management, leasing, and construction fee revenues and maintenance expenses in
the ordinary course of business. Transactions include the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- ---------------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Management expenses............... $ 159 $ 138 $ 622 $ 563 $ 624
Leasing commission's.............. 55 43 218 48 80
Construction fees................. 413 95 185 376 809
Maintenance expenses.............. 50 83 227 132 164
</TABLE>
F-51
<PAGE>
UNCOMBINED JOINT VENTURES OF
SL GREEN PREDECESSOR
NOTES TO COMBINED STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
6. RELATED PARTY TRANSACTIONS (CONTINUED)
Amounts due to related parties consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, --------------------
1997 1996 1995
------------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
SL Green Management, Corp........................... $ 503 $ 512 $ 503
Other partners...................................... 151 176 276
----- --------- ---------
$ 654 $ 688 $ 779
----- --------- ---------
----- --------- ---------
</TABLE>
7. BENEFIT PLAN
The building employees of the individual partnerships are covered by
multi-employer defined benefit pension plans and post-retirement health and
welfare plans. Contributions to these plans amounted to $42, $30 and $32 in
1996, 1995 and 1994, respectively; and $11 for the three months ended March 31,
1997. Separate actuarial information regarding such plans is not made available
to the contributing employers by the union administrators or trustees, since the
plans do not maintain separate records for each reporting unit.
8. CONTINGENCIES
SL Green Predecessor is party to a variety of legal proceedings relating to
the ownership of the properties and SL Green Predecessor activities with regard
to its construction, management and leasing businesses respectively, arising in
the ordinary course of business. SL Green Predecessor management believes that
substantially all of these liabilities are covered by insurance. All of these
matters, taken together, are not expected to have a material adverse impact on
the uncombined joint venture of SL Green Predecessor's, financial position,
results of operations or cash flows.
9. ENVIRONMENTAL MATTERS
The management of SL Green Predecessor believes that the properties are in
compliance in all material respects with applicable federal, state and local
ordinances and regulations regarding environmental issues. Management is not
aware of any environmental liability that management believes would have a
material adverse impact on SL Green Predecessor's financial position, results of
operations or cash flows. Management is unaware of any instances in which it
would incur significant environmental cost if any of the properties were sold.
F-52
<PAGE>
THE UNCOMBINED JOINT VENTURES OF
SL GREEN PREDECESSOR
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN D
--------------------
COLUMN C COST CAPITALIZED
---------------------
SUBSEQUENT TO
INITIAL COST ACQUISITION
COLUMN A COLUMN B --------------------- --------------------
- ---------------------------- ------------- BUILDINGS AND BUILDINGS AND
DESCRIPTION ENCUMBRANCE LAND IMPROVEMENTS LAND IMPROVEMENTS
- ---------------------------- ------------- ------ ------------- ---- -------------
<S> <C> <C> <C> <C> <C>
673 First Avenue, $39,193) $ 0 $12,208 $0 $28,509
New York, NY (2 mortgages
29 West 35th Street 3,061) 216 1,945 0 2,539
New York, New York (1 mortgage
470 Park Avenue South 35,489) 3,450 22,184 0 9,015
New York, New York (3 mortgages
36 West 44th Street 10,200) 2,700 11,115 0 0
New York, New York (1 mortgage
------------- ------ ------------- ---- -------------
(1) $87,943 $6,366 $47,452 $0 $40,063
------------- ------ ------------- ---- -------------
------------- ------ ------------- ---- -------------
<CAPTION>
COLUMN E
-------------------------------
GROSS AMOUNT AT WHICH CARRIED
AT CLOSE OF PERIOD
COLUMN A -------------------------------
- ---------------------------- BUILDINGS AND
DESCRIPTION LAND IMPROVEMENTS TOTAL
- ---------------------------- ------ ------------- -------
<S> <C> <C>
673 First Avenue, $ 0 $40,717 $40,717
New York, NY
29 West 35th Street 216 4,484 4,700
New York, New York
470 Park Avenue South 3,450 31,199 34,649
New York, New York
36 West 44th Street 2,700 11,115 13,815
New York, New York
------ ------------- -------
$6,366 $87,515 $93,881
------ ------------- -------
------ ------------- -------
<CAPTION>
COLUMN F COLUMN G
COLUMN A ----------- ------------
- ---------------------------- ACCUMULATED DATE OF
DESCRIPTION DEPRECIATION CONSTRUCTION
- ---------------------------- ----------- ------------
673 First Avenue, $ 9,723
New York, NY
29 West 35th Street 1,765
New York, New York
470 Park Avenue South 9,369
New York, New York
36 West 44th Street 66
New York, New York
-----------
$20,923
-----------
-----------
<CAPTION>
COLUMN I
COLUMN H ---------------
COLUMN A -------- LIFE ON WHICH
- ---------------------------- DATE DEPRECIATION IS
DESCRIPTION ACQUIRED COMPUTED
- ---------------------------- -------- ---------------
673 First Avenue, 4/28/88 Various
New York, NY
29 West 35th Street 6/21/83 Various
New York, New York
470 Park Avenue South 9/15/86 Various
New York, New York
36 West 44th Street 10/01/96 Various
New York, New York
</TABLE>
- ------------------------
(1) Encumbrance includes accrued interest of $14,885 and excludes principal and
interest of an unsecured note of $2,302.
F-53
<PAGE>
THE UNCOMBINED JOINT VENTURES OF
SL GREEN PREDECESSOR
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
(DOLLARS IN THOUSANDS)
The changes in real estate for the three years ended December 31, 1996 are
as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Balance at beginning of period............................... $ 79,098 $ 78,408 $ 76,445
Improvements................................................. 14,783 690 1,963
--------- --------- ---------
Balance at end of period..................................... $ 93,881 $ 79,098 $ 78,408
--------- --------- ---------
--------- --------- ---------
</TABLE>
The aggregate cost of land, buildings and improvements for Federal income
tax purposes at December 31, 1996 was $81,673.
The changes in accumulated depreciation, exclusive of amounts relating to
equipment, autos, and furniture and fixtures, for the three years ended December
31, 1996 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Balance at beginning of period............................... $ 18,006 $ 15,007 $ 12,138
Depreciation for period...................................... 2,917 2,999 2,869
--------- --------- ---------
Balance at end of period..................................... $ 20,923 $ 18,006 $ 15,007
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-54
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Partners, Members, and Shareholders of
SL Green Realty Corp.
We have audited the statement of revenues and certain expenses of the
property at 1414 Avenue of the Americas as described in Note 1, for the year
ended December 31, 1995. The financial statement is the responsibility of
management of 1414 Avenue of the Americas. Our responsibility is to express an
opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared for
the purposes of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in Form S-11 of SL Green Realty Corp. and is
not intended to be a complete presentation of 1414 Avenue of the Americas'
revenues and expenses.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the revenues and certain expenses of 1414 Avenue of
the Americas, as described in Note 1 for the year ended December 31, 1995 in
conformity with generally accepted accounting principles.
/S/ Ernst & Young LLP
May 2, 1997
F-55
<PAGE>
1414 AVENUE OF THE AMERICAS
STATEMENT OF REVENUES AND CERTAIN EXPENSES
(DOLLARS IN THOUSANDS)
NOTE 1
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1995 JUNE 30, 1996
----------------- -----------------
<S> <C> <C>
(UNAUDITED)
Revenues
Rental revenue.................................................... $ 3,325 $ 1,663
Escalations and reimbursement revenue............................. 212 72
Other income...................................................... -- 299
------ ------
Total revenues...................................................... 3,537 2,034
------ ------
Certain Expenses
Property taxes.................................................... 685 339
Cleaning and security............................................. 351 159
Utilities......................................................... 300 101
Payroll and expenses.............................................. 205 105
Management fees................................................... 161 63
Repairs and maintenance........................................... 84 86
Other operating expenses.......................................... 52 29
------ ------
Total certain expenses.............................................. 1,838 882
------ ------
Revenues in excess of certain expenses.............................. $ 1,699 $ 1,152
------ ------
------ ------
</TABLE>
See accompanying notes.
F-56
<PAGE>
1414 AVENUE OF THE AMERICAS
NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1995
1. BASIS OF PRESENTATION
Presented herein is the statement of revenues and certain expenses related
to the operations of 1414 Avenue of the Americas, (the "Property"), located in
the borough of Manhattan in New York City.
The accompanying financial statement has been prepared in accordance with
the applicable rules and regulations of the Securities and Exchange Commission
for the acquisition of real estate properties. Accordingly, the financial
statements exclude certain expenses that may not be comparable to those expected
to be incurred by the SL Green Realty Corp. in the proposed future operations of
the aforementioned property. Items excluded consist of interest, ground rent,
amortization and depreciation.
On June 23, 1996, the SL Green Predecessor purchased the Property and the
underlining land lease.
2. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. REVENUE RECOGNITION
The Property is leased to tenants under operating leases. Minimum rental
income is generally recognized on a straight-line basis over the term of the
lease. The excess of amounts so recognized over amounts due pursuant to the
underlying leases amounted to approximately $208 and $58 (unaudited) for the
year ended December 31, 1995 and the six months ended June 30, 1996,
respectively.
4. CONCENTRATION OF REVENUE
Approximately 22% and 23% of 1414 Avenue of the Americas' revenue for the
year ended December 31, 1995 and the six months ended June 30, 1996,
respectively were derived from two tenants.
5. MANAGEMENT AGREEMENTS
During 1995 and the period ended June 23, 1996 the Property was managed by
SL Green Management Corp. as agent. During the period from January 1, 1995 to
April 30, 1995 the management fee was based on four percent (4%) of gross
collections of which 25% percent of the management fee has been accrued and is
payable when the net cash flow of the Property exceeds one million dollars. From
May 1, 1995 to June 23, 1996 the management fee was based on three percent (3%)
of gross collections from the Property.
6. LEASE AGREEMENTS
The Property is being leased to tenants under operating leases with term
expiration dates ranging from 1996 to 2010. The minimum rental amounts due under
the leases are generally subject to scheduled fixed increases. The leases
generally also require that the tenants reimburse the Property for increases in
certain operating costs and real estate taxes above their base year costs.
Approximate future minimum
F-57
<PAGE>
1414 AVENUE OF THE AMERICAS
NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES (CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1995
6. LEASE AGREEMENTS (CONTINUED)
rents to be received over the next five years and thereafter for non-cancelable
operating leases as of December 31, 1995 (exclusive of renewal option periods)
are as follows:
<TABLE>
<S> <C>
1996............................................................... $ 3,165
1997............................................................... 3,189
1998............................................................... 2,923
1999............................................................... 2,167
2000............................................................... 1,932
Thereafter......................................................... 6,972
---------
$ 20,348
---------
---------
</TABLE>
Prior to the acquisition, the Property was the lessee of a triple net ground
lease with term expiration date of 2036. The minimum rental amounts due under
the ground lease is subject to scheduled fixed increases. The ground lease
requires that the tenant is responsible for the payment for all expenses. In
connection with the acquisition of the property and underlining land on June 23,
1996, by SL Green Predecessor the ground lease was terminated.
7. INTERIM UNAUDITED FINANCIAL INFORMATION
The financial statement for the six months ended June 30, 1996 is unaudited,
however, in the opinion of management all adjustments, (consisting solely of
normal recurring adjustments), necessary for a fair presentation of the
financial statement for the interim period have been included. The results of
the interim period is not necessarily indicative of the results to be obtained
for a full fiscal year.
F-58
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Partners, Members, and Shareholders of
SL Green Realty Corp.
We have audited the statement of revenues and certain expenses of the
property at 36 West 44th Street ("Bar Building") as described in Note 1, for the
year ended December 31, 1996. The financial statement is the responsibility of
management of the Bar Building. Our responsibility is to express an opinion on
this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared for
the purposes of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in Form S-11 of SL Green Realty Corp. and is
not intended to be a complete presentation of the Bar Building's revenues and
expenses.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the revenues and certain expenses of the Bar Building,
as described in Note 1 for the year ended December 31, 1996 in conformity with
generally accepted accounting principles.
/S/ Ernst & Young LLP
May 7, 1997
F-59
<PAGE>
36 WEST 44TH STREET
STATEMENT OF REVENUES AND CERTAIN EXPENSES
(DOLLARS IN THOUSANDS)
NOTE 1
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1996 MARCH 31, 1997
----------------- ---------------------
<S> <C> <C>
(UNAUDITED)
Revenues
Rental revenue......................................................... $ 3,599 $ 753
Escalation and reimbursement revenue................................... 980 163
Other income........................................................... 53 2
------ -----
Total revenues........................................................... 4,632 918
------ -----
Certain Expenses
Property taxes......................................................... 872 207
Cleaning and security.................................................. 838 108
Utilities.............................................................. 358 81
Professional fees...................................................... 133 13
Payroll and expenses................................................... 74 76
Management fees........................................................ 61 29
Repairs and maintenance................................................ 40 22
Ground rent............................................................ 93 23
Other operating expenses............................................... 100 34
------ -----
Total certain expenses................................................... 2,569 593
------ -----
Revenues in excess of certain expenses................................... $ 2,063 $ 325
------ -----
------ -----
</TABLE>
See accompanying notes.
F-60
<PAGE>
36 WEST 44TH STREET
NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1996
1. BASIS OF PRESENTATION
Presented herein is the statement of revenues and certain expenses related
to the operations of the Bar Building, (the "Property"), located in the borough
of Manhattan in New York City.
The accompanying financial statement has been prepared in accordance with
the applicable rules and regulations of the Securities and Exchange Commission
for the acquisition of real estate properties. Accordingly, the financial
statements exclude certain expenses that may not be comparable to those expected
to be incurred by the SL Green Realty Corp. in the proposed future operations of
the aforementioned Property. Items excluded consist of interest, amortization
and depreciation.
On September 30, 1996 the SL Green Predecessor acquired its interest.
2. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. REVENUE RECOGNITION
The Property is leased to tenants under operating leases. Minimum rental
income is generally recognized on a straight-line basis over the term of the
lease. The excess of amounts due over amounts so recognized pursuant to the
underlying leases amounted to approximately $60 and $14 (unaudited) for the year
ended December 31, 1996 and the three months ended March 31, 1997, respectively.
4. CONCENTRATION OF REVENUE
Approximately 11% and 13% of the Bar Building's revenue for the year ended
December 31, 1996 and the three months ended March 31, 1997, respectively, was
derived from one tenant.
5. MANAGEMENT AGREEMENTS
There was no management fee incurred for the period January 1, through June
28, 1996. The compensation for management services incurred from June 28,
through September 30, 1996 included an initial one time start-up fee of $7,500
and thereafter, a monthly fixed fee of $7,500. For the period of October 1,
through December 31, 1996 the management fee was based on three percent (3%) of
gross receipts from the Property.
6. LEASE AGREEMENTS
The Property is being leased to tenants under operating leases with term
expiration dates ranging from 1997 to 2006. The minimum rental amounts due under
the leases are generally subject to scheduled fixed increases. The leases
generally also require that the tenants reimburse the Property for increases in
certain operating costs and real estate taxes above their base year costs.
Approximate future minimum
F-61
<PAGE>
36 WEST 44TH STREET
NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES (CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1996
6. LEASE AGREEMENTS (CONTINUED)
rents to be received over the next five years and thereafter for non-cancelable
operating leases as of December 31, 1996 (exclusive of renewal option periods)
are as follows:
<TABLE>
<S> <C>
1997............................................................... $ 2,886
1998............................................................... 2,335
1999............................................................... 2,110
2000............................................................... 1,434
2001............................................................... 859
Thereafter......................................................... 1,163
---------
$ 10,787
---------
---------
</TABLE>
The Property is the lessee of a triple net ground lease with term expiration
date of 2080. The minimum rental amounts due under the ground lease is subject
to scheduled increases, based on 33% of the percentage increase in the Consumer
Price Index. The ground lease requires that the tenant is responsible for the
payment for all expenses. Approximate future minimum rents to be paid over the
next five years and thereafter for the ground lease as of December 31, 1996 are
as follows:
<TABLE>
<S> <C>
1997................................................................ $ 93
1998................................................................ 93
1999................................................................ 93
2000................................................................ 93
2001................................................................ 93
Thereafter.......................................................... 7,347
---------
$ 7,812
---------
---------
</TABLE>
7. RELATED PARTY TRANSACTIONS
There are several business relationships with related parties which involve
management, leasing and maintenance expenses. Transactions include the
following:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1996 MARCH 31, 1997
--------------------- -----------------------
<S> <C> <C>
(UNAUDITED)
Leasing commission's................................. $ 40 $ 38
Management fees...................................... 31 29
Cleaning and security................................ 6 7
</TABLE>
8. INTERIM UNAUDITED FINANCIAL INFORMATION
The financial statement for the three months ended March 31, 1997 is
unaudited, however, in the opinion of management all adjustments, (consisting
solely of normal recurring adjustments), necessary for a fair presentation of
the financial statement for the interim period have been included. The results
of the interim period is not necessarily indicative of the results to be
obtained for a full fiscal year.
F-62
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Partners, Members, and Shareholders of
SL Green Realty Corp.
We have audited the statement of revenues and certain expenses of the
property at 1372 Broadway, as described in Note 1, for the year ended December
31, 1996. The financial statement is the responsibility of management of 1372
Broadway. Our responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared for
the purposes of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in Form S-11 of SL Green Realty Corp. and is
not intended to be a complete presentation of 1372 Broadways' revenues and
expenses.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the revenues and certain expenses of 1372 Broadway, as
described in Note 1 for the year ended December 31, 1996 in conformity with
generally accepted accounting principles.
/S/ Ernst & Young LLP
May 2, 1997
F-63
<PAGE>
1372 BROADWAY
STATEMENT OF REVENUES AND CERTAIN EXPENSES
(DOLLARS IN THOUSANDS)
NOTE 1
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1997
YEAR ENDED -------------------
DECEMBER 31, 1996
----------------- (UNAUDITED)
<S> <C> <C>
Revenues
Rental revenue (net)................................................... $ 8,580 $ 1,907
Escalations and reimbursement revenue.................................. 1,842 322
Other income........................................................... 690 1,415
------ ------
Total revenues........................................................... 11,112 3,644
------ ------
Certain Expenses
Property taxes......................................................... 2,343 557
Utilities.............................................................. 1,287 224
Management fees........................................................ 459 93
Marketing, general, and administrative................................. 335 77
Repairs and maintenance................................................ 950 220
Insurance.............................................................. 77 17
Security............................................................... 149 31
------ ------
Total certain expenses................................................... 5,600 1,219
------ ------
Revenues in excess of certain expenses................................... $ 5,512 $ 2,425
------ ------
------ ------
</TABLE>
See accompanying notes.
F-64
<PAGE>
1372 BROADWAY
NOTES TO COMBINED STATEMENT OF REVENUES AND CERTAIN EXPENSES
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1996
1. BASIS OF PRESENTATION
Presented herein is the statement of revenues and certain expenses related
to the operations of 1372 Broadway (the "Property"), located in the New York
City garment district, which is principally leased by garment, banking, and
retail tenants.
The accompanying financial statements have been prepared in accordance with
the applicable rules and regulations of the Securities and Exchange Commission
for the acquisition of real estate properties. Accordingly, the financial
statements exclude certain expenses that may not be comparable to those expected
to be incurred by the SL Green Realty Corp. in the proposed future operations of
the aforementioned property. Items excluded consist of interest, amortization
and depreciation.
2. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. REVENUE RECOGNITION
The Property is being leased to tenants under operating leases. Minimum
rental income is generally recognized on a straight-line basis over the term of
the lease. The excess of amounts so recognized over amounts due pursuant to the
underlying leases amounted to approximately $22 and $(92) (unaudited) for the
year ended December 31, 1996 and the three months ended March 31, 1997
respectively.
4. MANAGEMENT AGREEMENTS
The Property, as of May 1, 1997, is managed by Axiom Real Estate Management
("Axiom"), Inc. for a fixed annual amount of $37 plus an allocation of overhead
costs which were approximately $354 in 1996. Prior to May 1, 1997, was the
Property was managed by Winthrop Management for a fee of 5% of gross rental
receipts.
5. INSURANCE COSTS
Insurance costs represent 1372 Broadway's portion of an umbrella policy held
by Winthrop Management.
F-65
<PAGE>
1372 BROADWAY
NOTES TO COMBINED STATEMENT OF REVENUES AND CERTAIN EXPENSES (CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1996
6. LEASE AGREEMENTS
The Property is being leased to tenants under operating leases with
expiration dates ranging from 1997 to 2010. Most leases contain renewal options
at the election of the lessee. The lease agreements generally contain provisions
for reimbursements of real estate taxes and operating expenses over base year
amounts. Future minimum lease receipts under non-cancelable operating leases as
of December 31, 1996 (exclusive of renewal option periods) were as follows:
<TABLE>
<S> <C>
1997............................................... $ 8,253
1998............................................... 8,389
1999............................................... 8,421
2000............................................... 7,505
2001............................................... 7,084
Thereafter......................................... 36,787
---------
$ 76,439
---------
---------
</TABLE>
7. CONCENTRATION OF REVENUE
Approximately 54% of 1372 Broadway's revenue for the year ended December 31,
1996 were derived from four tenants.
8. CONTINGENCY
As of March 12, 1996, 1372 Broadway has been in legal proceedings related to
grievances filed by the Service Employees International Union for allegedly
violating the terms of their agreement for cleaning services. At this time
management can not estimate the loss, if any, associated with this litigation.
9. INTERIM UNAUDITED FINANCIAL INFORMATION
The financial statement for the three months ended March 31, 1997 is
unaudited, however, in the opinion of management all adjustments, (consisting
solely of normal recurring adjustments), necessary for a fair presentation of
the financial statement for the interim period have been included. The results
of the interim period is not necessarily indicative of the results to be
obtained for a full fiscal year.
10. SUBSEQUENT EVENT
On January 31, 1997, a tenant entered into an agreement whereby certain
space leased by the tenant was terminated for a fee of $1,350.
F-66
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Partners, Members, and Shareholders of
SL Green Realty Corp.
We have audited the statement of revenues and certain expenses of the
property at 1140 Avenue of the Americas, as described in Note 1, for the year
ended December 31, 1996. The financial statement is the responsibility of
management of 1140 Avenue of the Americas. Our responsibility is to express an
opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared for
the purposes of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in Form S-11 of S.L. Green Realty Corp. and is
not intended to be a complete presentation of 1140 Avenue of the Americas'
revenues and expenses.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the revenues and certain expenses of 1140 Avenue of
the Americas, as described in Note 1 for the year ended December 31, 1996 in
conformity with generally accepted accounting principles.
/S/ Ernst & Young LLP
May 23, 1997
F-67
<PAGE>
1140 AVENUE OF THE AMERICAS
STATEMENT OF REVENUES AND CERTAIN EXPENSES
(DOLLARS IN THOUSANDS)
NOTE 1
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1996 MARCH 31, 1997
----------------- -------------------
<S> <C> <C>
(UNAUDITED)
Revenues
Rental revenue......................................................... $ 4,265 $ 1,086
Escalations and reimbursement revenue.................................. 716 155
Other income........................................................... 204 4
------- -------
Total revenues........................................................... 5,185 1,245
------- -------
Certain Expenses
Property taxes......................................................... 1,007 245
Utilities.............................................................. 720 175
Cleaning and security.................................................. 551 133
Payroll and expenses................................................... 241 63
Management fees........................................................ 205 49
Repairs and maintenance................................................ 180 44
Professional fees...................................................... 107 35
Interest--capital lease................................................ 56 14
Lease expense.......................................................... 14 3
Insurance.............................................................. 53 16
Other operating expenses............................................... 50 16
------- -------
Total certain expenses................................................... 3,184 793
------- -------
Revenues in excess of certain expenses................................... $ 2,001 $ 452
------- -------
------- -------
</TABLE>
See accompanying notes.
F-68
<PAGE>
1140 AVENUE OF THE AMERICAS
NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1996
1. BASIS OF PRESENTATION
Presented herein is the statement of revenues and certain expenses related
to the operations of 1140 Avenue of the Americas, (the "Property"), located in
the borough of Manhattan in New York City.
The accompanying financial statement has been prepared in accordance with
the applicable rules and regulations of the Securities and Exchange Commission
for the acquisition of real estate properties. Accordingly, the financial
statements exclude certain expenses that may not be comparable to those expected
to be incurred by the SL Green Realty Corp. in the proposed future operations of
the aforementioned property. Items excluded consist of non-capital lease
interest, amortization and depreciation.
2. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. REVENUE RECOGNITION
The Property is leased to tenants under operating leases. Minimum rental
income is generally recognized on a straight-line basis over the term of the
lease. The excess of amounts due pursuant to the underlying leases over amounts
so recognized amounted to approximately $59 and $27 (unaudited) for the year
ended December 31, 1996 and the three months ended March 31, 1997, respectively.
4. CONCENTRATION OF REVENUE
Approximately 10% of 1140 Avenue of the Americas' revenue for the year ended
December 31, 1996 and the three months ended March 31, 1997, respectively was
derived from one tenant.
5. MANAGEMENT AGREEMENTS
During 1996 and the period ended March 31, 1997 the Property was managed by
Murray Hill Property Management, Inc. During the period from January 1, 1996 to
March 31, 1997 the management and asset management fees were based on three
percent (3%) and one percent (1%) of gross collections from the Property,
respectively.
6. LEASE AGREEMENTS
The Property is being leased to tenants under operating leases with term
expiration dates ranging from 1997 to 2007. The minimum rental amounts due under
the leases are generally subject to scheduled fixed increases. The leases
generally also require that the tenants reimburse the Property for increases in
certain operating costs and real estate taxes above their base year costs.
Approximate future minimum
F-69
<PAGE>
1140 AVENUE OF THE AMERICAS
NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES (CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1996
rents to be received over the next five years and thereafter for non-cancelable
operating leases as of December 31, 1996 (exclusive of renewal option periods)
are as follows:
<TABLE>
<S> <C>
1997............................................................... $ 4,439
1998............................................................... 4,210
1999............................................................... 3,813
2000............................................................... 3,327
2001............................................................... 2,826
Thereafter......................................................... 7,638
---------
$ 26,253
---------
---------
</TABLE>
The Property operates under a net ground lease with a term expiration date
of 2016, with an option to renew for an additional 50 years. The minimum rental
amounts due under the ground lease is subject to increases every 21 years based
on four and a half percent (4%) of the fair and reasonable market value of the
unencumbered land. The current annual rent for the period commencing January 1,
1997 through December 31, 2016 is in arbitration due to a disagreement relating
to the market value of the land. The ground lease requires that the tenant is
responsible for the payment for all expenses.
7. INTERIM UNAUDITED FINANCIAL INFORMATION
The financial statement for the three months ended March 31, 1997 is
unaudited, however, in the opinion of management all adjustments, (consisting
solely of normal recurring adjustments), necessary for a fair presentation of
the financial statement for the interim period have been included. The results
of the interim period is not necessarily indicative of the results to be
obtained for a full fiscal year.
F-70
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO
WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO
ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
SUMMARY TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 1
Risk Factors................................... 13
The Company.................................... 28
Business and Growth Strategies................. 30
Use of Proceeds................................ 36
Distributions.................................. 37
Capitalization................................. 41
Dilution....................................... 42
Selected Financial Information................. 44
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 46
Market Overview................................ 54
The Properties................................. 61
Management..................................... 91
Structure and Formation of the Company......... 98
Policies with Respect to Certain Activities.... 101
Certain Relationships and Transactions......... 106
Partnership Agreement.......................... 106
Principal Stockholders......................... 112
Capital Stock.................................. 113
Certain Provisions of Maryland Law and the
Company's Charter and Bylaws................. 117
Shares Available for Future Sale............... 120
Federal Income Tax Consequences................ 121
Underwriting................................... 132
Experts........................................ 134
Legal Matters.................................. 134
Additional Information......................... 135
Glossary of Selected Terms..................... 136
Index to Financial Statements.................. F-1
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE SECURITIES OFFERED
HEREBY, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION
OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT
TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
8,100,000 SHARES
[LOGO]
SL GREEN REALTY CORP.
COMMON STOCK
---------------------
PROSPECTUS
, 1997
---------------------
LEHMAN BROTHERS
PRUDENTIAL SECURITIES INCORPORATED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 30. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table itemizes the expenses incurred by the Company in
connection with the Offering. All amounts are estimated except for the
Registration Fee and the NASD Fee.
<TABLE>
<S> <C>
Registration Fee................................................ $56,454.55
NASD Fee........................................................ 19,130.00
New York Stock Exchange Listing Fee............................. *
Printing and Engraving Expenses................................. *
Legal Fees and Expenses......................................... *
Accounting Fees and Expenses.................................... *
Blue Sky Fees and Expenses...................................... *
Financial Advisory Fee.......................................... *
Environmental and Engineering Expenses.......................... *
Miscellaneous...................................................
---------
Total................................................... $ *
---------
---------
</TABLE>
- ------------------------
* To be completed by amendment.
ITEM 31. SALES TO SPECIAL PARTIES
See Item 32.
ITEM 32. RECENT SALES OF UNREGISTERED SECURITIES
Upon Formation of the Registrant, Stephen L. Green was issued 1,000 shares
of Common Stock for total consideration of $1,000 in cash in order to provide
the initial capitalization of the Registrant. These shares will be repurchased
by the Registrant at cost upon completion of the Offering. In connection with
the Formation Transactions, certain officers of the Registrant were issued an
aggregate of 383,110 shares of Common Stock for total consideration of $3,831 in
cash. The issuance of securities described in this Item 32 were made in reliance
upon the exemption from registration provided by Section 4(2) under the
Securities Act of 1933.
ITEM 33. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's officers and directors are and will be indemnified under
Maryland and Delaware law, the Charter and Bylaws of the Company and the
Partnership Agreement of the Operating Partnership against certain liabilities.
The Company's Charter requires the Company to indemnify its directors and
officers to the fullest extent permitted from time to time under Maryland law.
The Company's Bylaws require it to indemnify (a) any present or former
director or officer who has been successful, on the merits or otherwise, in the
defense of a proceeding to which he was made a party by reason of his service in
that capacity, against reasonable expenses incurred by him in connection with
the proceeding and (b) any present or former director or officer against any
claim or liability unless it is established that (i) his act or omission was
committed in bad faith or was the result of active or deliberate dishonesty,
(ii) he actually received an improper personal benefit in money, property or
services or (iii) in the case of a criminal proceeding, he had reasonable cause
to believe that his act or omission was unlawful.
II-1
<PAGE>
In addition, the Company's Bylaws require the Company to pay or reimburse,
in advance of final disposition of a proceeding, reasonable expenses incurred by
a present or former director or officer made a party to a proceeding by reason
of his service as a director or officer provided that the Company shall have
received (i) a written affirmation by the director or officer of his good faith
belief that he has met the standard of conduct necessary for indemnification by
the Company as authorized by the Bylaws and (ii) a written understanding by or
on his behalf to repay the amount paid or reimbursed by the Company if it shall
ultimately be determined that the standard of conduct was not met. The Bylaws
also (i) permit the Company to provide indemnification and advance expenses to a
present or former director or officer who served a predecessor of the Company in
such capacity, and to any employee or agent of the Company or a predecessor of
the Company, (ii) provide that any indemnification or payment or reimbursement
of the expenses permitted or reimbursement of expenses under Section 2-418 of
the MGCL for directors of Maryland corporations and (iii) permit the Company to
provide such other and further indemnification or payment or reimbursement of
expenses as may be permitted by Section 2-418 of the MGCL for directors of
Maryland corporations.
Under Maryland law, a corporation formed in Maryland is permitted to limit,
by provision in its charter, the liability of directors and officers so that no
director of officer of the Company shall be liable to the Company or to any
stockholder for money damages except to the extent that (i) the director or
officer actually received an improper benefit in money, property or services,
for the amount of the benefit or profit in money, property or services actually
received, or (ii) a judgment or other final adjudication adverse to the director
or officer is entered in a proceeding based on a finding in a proceeding that
the director's or officer's action was the result of active and deliberate
dishonesty and was material to the cause of action adjudicated in the
proceeding. The Charter has incorporated the provisions of such law limiting the
liability of directors and officers.
The Partnership Agreement also provides for indemnification of the Company
and its officers and directors to the same extent indemnification is provided to
officers and directors of the Company in its organizational documents, and
limits the liability of the Company and its officers and directors to the
Operating Partnership and its partners to the same extent liability of officers
and directors of the Company to the Company and its stockholders is limited
under their organizational documents.
ITEM 34. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED
Not Applicable.
ITEM 35. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements, all of which are included in the Prospectus:
SL GREEN REALTY CORP.
Pro Forma Combined Financial Statements (unaudited)
Pro Forma Combined Balance Sheet as of March 31, 1997
Pro Forma Combined Statement of Income for the Three Months Ended
March 31, 1997
Pro Forma Combined Statement of Income for the Year Ended December 31, 1996
Notes to Pro Forma Combined Financial Information
Historical
Report of Independent Auditors
Balance Sheet as of June 12, 1997
Notes to Balance Sheet
II-2
<PAGE>
THE SL GREEN PREDECESSOR
Combined Financial Statements
Report of Independent Auditors
Combined Balance Sheets as of March 31, 1997 (unaudited) and
December 31, 1996 and 1995
Combined Statements of Operations for the Three Months Ended March 31, 1997
and
1996 (unaudited) and the Years Ended December 31, 1996, 1995, and 1994
Combined Statements of Owners' Deficit for the Three Months Ended March 31,
1997
(unaudited) and the Years Ended December 31, 1996, 1995, and 1994
Combined Statements of Cash Flows for the Three Months Ended March 31, 1997
and
1996 (unaudited) and the Years Ended December 31, 1996, 1995, and 1994
Notes to the Combined Financial Statements
Schedule III
Real Estate and Accumulated Depreciation as of December 31, 1996
Uncombined Joint Ventures--Combined Financial Statements
Report of Independent Auditors
Combined Balance Sheets as of March 31, 1997 (unaudited) and December 31,
1996
and 1995
Combined Statements of Operations for the Three Months Ended March 31, 1997
and
1996 (unaudited) and the Years Ended December 31, 1996, 1995, and 1994
Combined Statements of Owners' Deficit for the Three Months Ended March 31,
1997
(unaudited) and Years Ended December 31, 1996, 1995, and 1994
Combined Statements of Cash Flows for the Three Months Ended March 31, 1997
and
1996 (unaudited) and the Years Ended December 31, 1996, 1995, and 1994
Notes to the Combined Financial Statements
Schedule III
Real Estate and Accumulated Depreciation as of December 31, 1996
1414 AVENUE OF THE AMERICAS
Report of Independent Auditors
Statement of Revenues and Certain Expenses for the Six Months Ended
June 30, 1996 (unaudited) and the Year Ended December 31, 1995
Notes to Statement of Revenues and Certain Expenses
36 WEST 44TH STREET
Report of Independent Auditors
Statement of Revenues and Certain Expenses for the Three Months Ended
March 31, 1997 (unaudited) and the Year Ended December 31, 1996
Notes to Statement of Revenues and Certain Expenses
1372 BROADWAY
Report of Independent Auditors
Statement of Revenues and Certain Expenses for the Three Months Ended
March 31, 1997 (unaudited) and the Year Ended December 31, 1996
Notes to Statement of Revenues and Certain Expenses
II-3
<PAGE>
1140 AVENUE OF THE AMERICAS
Report of Independent Auditors
Statement of Revenues and Certain Expenses For the Three Months Ended March
31, 1997 (unaudited) and the Year Ended December 31, 1996
Notes to Statement of Revenues and Certain Expenses
(b) Exhibits
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement among Lehman Brothers Inc. and Prudential Securities
Incorporated, as representatives of the several Underwriters, the Company and the
Operating Partnership*
3.1 Articles of Incorporation of the Company
3.2 Bylaws of the Company
5.1 Opinion of Brown & Wood LLP regarding the validity of the securities being registered*
8.1 Opinion of Brown & Wood LLP regarding tax matters*
10.1 Form of Agreement of Limited Partnership of the Operating Partnership
10.2 Form of Articles of Incorporation and Bylaws of the Management Corporation*
10.3 Form of Articles of Incorporation and Bylaws of the Leasing Corporation*
10.4 Form of Articles of Incorporation and Bylaws of the Construction Corporation*
10.5 Form of Employment and Noncompetition Agreement among the Executive Officers and the
Company*
10.6 Form of Registration Rights Agreement between the Company and the persons named
therein
10.7 1997 Stock Option Plan*
10.8 Supplemental Representations and Warranties Agreement among the Company, the Operating
Partnership, and certain SL Green entities*
10.9 Omnibus Contribution Agreement
21.1 List of Subsidiaries
23.1 Consent of Brown & Wood LLP (included as part of Exhibit 5.1)*
23.2 Consent of Ernst & Young LLP
23.3 Consent of Rosen Consulting Group
24.1 Power of Attorney (included on the signature page at page II-7 hereof)
27.1 Financial Data Schedule
99.1 Consent of Edwin T. Burton, III to be named as a proposed director
99.2 Consent of John S. Levy to be named as a proposed director
99.3 Consent of John J. Robbins to be named as a proposed director
99.4 Rosen Market Study
</TABLE>
- ------------------------
* To be filed by amendment.
ITEM 36. UNDERTAKINGS
The Registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act
the information omitted from the form of Prospectus filed as part of the
Registration Statement in reliance upon Rule 430A and contained in the form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
(3) The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements
certificates in such denominations and registered in such names as required
by the underwriter to permit prompt delivery of each purchaser.
(4) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable ground to believe that it meets all of the
requirements for filing on Form S -11 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in New York, New York on this 16th day of June, 1997.
SL GREEN REALTY CORP.
/s/ Stephen L. Green
BY: __________________________________
Stephen L. Green
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated as of the 16th day of June, 1997.
Each person whose signature appears below hereby constitutes and appoints
each of Stephen L. Green, Benjamin P. Feldman and Steven H. Klein as his or her
attorney-in-fact and agent, with full power of substitution and resubstitution
for him or her in any and all capacities, to sign any or all amendments or
post-effective amendments to this Registration Statement, or any Registration
Statement for the same offering that is to be effective upon filing pursuant to
Rule 462(b) under the Securities Act of 1933, and to file the same, with
exhibits thereto and other documents in connection therewith or in connection
with the registration of the Common Stock under the Securities Act of 1934, as
amended, with the Securities and Exchange Commission, granting unto such
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary in connection with such matters and
hereby ratifying and confirming all that such attorney-in-fact and agent or his
substitutes may do or cause to be done by virtue hereof.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ STEPHEN L. GREEN Chief Executive Officer, June 16, 1997
- ------------------------------ President and Chairman of
Stephen L. Green the Board of Directors
(principal executive
officer)
/s/ LOUIS A. OLSEN Treasurer and Chief June 16, 1997
- ------------------------------ Financial Officer
Louis A. Olsen (principal financial
officer and principal
accounting officer)
/s/ BENJAMIN P. FELDMAN Director June 16, 1997
- ------------------------------
Benjamin P. Feldman
/s/ STEVEN H. KLEIN Director June 16, 1997
- ------------------------------
Steven H. Klein
II-6
<PAGE>
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
SL GREEN REALTY CORP.
---------------------
ARTICLE I
INCORPORATOR
The undersigned, James O'Connor, whose address is c/o Brown & Wood
LLP, One World Trade Center, New York, New York 10048, 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:
SL Green Realty Corp.
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 The Corporation Trust Incorporated, 32 South Street, Baltimore,
Maryland 21202. The name of the resident agent of the Corporation in the State
of Maryland is The Corporation Trust Incorporated, whose post address is 32
South Street, Baltimore, Maryland 21202. The resident agent is a corporation of
and resident of the State of Maryland.
ARTICLE V
PROVISIONS FOR DEFINING, LIMITING
AND REGULATING CERTAIN POWERS OF THE
CORPORATION AND OF THE STOCKHOLDERS AND DIRECTORS
Section 1. NUMBER AND CLASSIFICATION OF DIRECTORS. The business
and affairs of the Corporation shall be managed under the direction of the
Board of Directors of the Corporation (the "Board of Directors"). The number
of directors of the Corporation initially shall be three, which number may be
increased or decreased pursuant to the Bylaws, but shall never be less than
the minimum number required by the Maryland General Corporation Law. 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:
Stephen L. Green
Benjamin P. Feldman
Steven H. Klein
These directors may increase the number of directors and may fill any vacancy,
whether resulting from an increase in the number of
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directors or otherwise, on the Board of Directors prior to the first annual
meeting of stockholders in the manner provided in the Bylaws.
At any meeting of stockholders, the directors may be classified,
with respect to the terms for which they severally hold office, into three
classes, one class to hold office initially for a term expiring at the next
succeeding annual meeting of stockholders, another class to hold office
initially for a term expiring at the second succeeding annual meeting of
stockholders and another class to hold office initially for a term expiring
at the third succeeding annual meeting of stockholders, with the members of
each class to hold office until their successors are duly elected and
qualify. At each annual meeting of the stockholders, the successors to the
class of directors whose term expires at such meeting shall be elected to
hold office for a term expiring at the annual meeting of stockholders held in
the third year following the year of their election.
Section 2. 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, subject to such
restrictions or limitations, if any, as may be set forth in the charter or
the Bylaws.
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<PAGE>
Section 3. 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 Article VI, Section 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 4. INDEMNIFICATION. 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 of the Corporation and at the request of the
Corporation, serves or has served as a director, officer, partner or trustee
of another corporation, partnership, 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 its 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.
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<PAGE>
Section 5. 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 matters relating to the
acquisition, holding and disposition of any assets by the Corporation.
Section 6. REIT QUALIFICATION. If the Corporation elects to
qualify for federal income tax treatment as a REIT, the Board of Directors
shall use its reasonable best efforts to take
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<PAGE>
such actions as are necessary or appropriate to preserve the status of the
Corporation as a REIT; however, if the Board of Directors determines that it
is no longer in the best interests of the Corporation to continue to be
qualified as a REIT, the Board of Directors may revoke or otherwise terminate
the Corporation's REIT election pursuant to Section 856(g) of the Code.
Section 7. REMOVAL OF DIRECTORS. Any director, or the entire
Board of Directors, may be removed from office at any time, for cause only,
by the affirmative vote of a majority of the votes entitled to be cast for
the election of directors.
ARTICLE VI
STOCK
Section 1. AUTHORIZED SHARES. The Corporation has authority to
issue a total of 200,000,000 shares of stock, consisting of 100,000,000
shares of Common Stock, $0.01 par value per share ("Common Stock"),
25,000,000 shares of Preferred Stock, $0.01 par value per share ("Preferred
Stock"), and 75,000,000 shares of Excess Stock, $0.01 par value per share
("Excess Stock"). The aggregate par value of all authorized shares of stock
having par value is $2,000,000.
Section 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 in one or more classes or series of stock.
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<PAGE>
Section 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, in one or more series of stock.
Section 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, 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 and restrictions on ownership, 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
pursuant to clause (c) of this Section 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, events or variations shall operate upon the terms of such
class or series of
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<PAGE>
stock is clearly and expressly set forth in the articles supplementary filed
with the SDAT.
Section 5. CHARTER AND BYLAWS. All persons who shall acquire
stock in the Corporation shall acquire such stock subject to the provisions
of the charter and the Bylaws.
ARTICLE VII
RESTRICTION ON TRANSFER,
ACQUISITION AND REDEMPTION OF SHARES
Section 1. DEFINITIONS. For purposes 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 who is or would be an actual owner, for Federal income tax
purposes, of such shares of Equity Stock or who is or would be treated as a
constructive owner of such shares of Equity Stock under Section 542(a)(2) of
the Code either directly or constructively through the application of Section
544 of the Code, as modified by Sections 856(h)(1)(B) and 856(h)(3) of the
Code. For purposes of determining the percentage ownership of Common Stock
by any Person, shares of Common Stock that may be acquired upon conversion,
exchange or exercise of any securities of the Corporation or any debt
securities of SL Green Operating Partnership, L.P. directly or constructively
held by such Person, but not Common Stock issuable with respect to the
conversion, exchange or exercise of securities of the Corporation or debt
securities of SL Green Operating Partnership, L.P. held by other Persons,
shall be deemed to be outstanding prior to such conversion, exchange or
exercise. The terms "Beneficial Owner,"
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<PAGE>
"Beneficially Owns," "Beneficially Own" and "Beneficially Owned" shall have
the correlative meanings.
"Charitable Beneficiary" shall mean a beneficiary of the Trust as
determined pursuant to Section 14 of this Article VII.
"Effective Date" shall mean the date as of which the
Corporation's registration statement on Form S-11 (File No. 33-84324) is
declared effective by the Securities and Exchange Commission.
"Equity Stock" shall mean stock that is either Common Stock or
Preferred Stock.
"Market Price" as to any date shall mean the average of the last
sales price reported on the New York Stock Exchange, Inc. ("NYSE") of Common
Stock or Preferred Stock, as the case may be, on the ten trading days
immediately preceding the relevant date, or if not then traded on the New York
Stock Exchange, the average of the last reported sales price of the Common Stock
or Preferred Stock, as the case may be, on the ten trading days immediately
preceding the relevant date as reported on any exchange or quotation system over
which the Common Stock or Preferred Stock, as the case may be, may be traded, or
if not then traded over any exchange or quotation system, then the market price
of the Common Stock or Preferred Stock, as the case may be, on the relevant date
as determined in good faith by the Board of Directors.
"Ownership Limit" shall initially mean 9.0%, of the lesser of the
aggregate number or value of the outstanding shares of Common Stock of the
Corporation and, after any adjustment as set
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<PAGE>
forth in Section 9 of this Article VII, shall mean such percentage as so
adjusted. The Corporation may, in Articles Supplementary, determine a limit
on the ownership of one or more classes or series of its Preferred Stock (the
"Preferred Stock Limit"). From and after such determination, references to
the Ownership Limit herein will include the Preferred Stock Limit, as
applicable. The number and value of shares of the Equity Stock of the
Corporation shall be determined by the Board of Directors in good faith,
which determination shall be conclusive for all purposes hereof.
"Person" shall mean an individual, corporation, partnership,
estate, trust (including a trust qualified under Section 401(a) or 501(c)(17)
of the Code), 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; but does not include an underwriter which participated
in a public offering of the Common Stock and/or Preferred Stock for a period
of 30 days following the purchase by such underwriter of shares of the Common
Stock and/or Preferred Stock.
"Purported Beneficial Transferee" shall mean, with respect to
any purported Transfer which results in Excess Stock as described below in
Section 3 of this Article VII, the purported beneficial transferee for whom
the Purported Record Transferee
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<PAGE>
would have acquired shares of Equity Stock, if such Transfer had not been
void under Section 2 of this Article VII.
"Purported Record Transferee" shall mean, with respect to any
purported Transfer which results in Excess Stock as described below in
Section 3 of this Article VII, the record holder of the Equity Stock if such
Transfer had not been void under Section 2 of this Article VII.
"Restriction Termination Date" shall mean the first day after
the Effective Date on which the Board of Directors determines that it is no
longer in the best interests of the Corporation to attempt to, or continue
to, qualify as a REIT.
"Transfer" shall mean any issuance, sale, transfer, gift,
assignment, devise or other disposition of Equity Stock (including (i) the
granting of any option or entering into any agreement for the sale, transfer
or other disposition of Equity Stock or (ii) the sale, transfer, assignment
or other disposition of any securities or rights convertible into or
exchangeable for Equity Stock), whether voluntary or involuntary, whether of
record or beneficially and whether by operation of law or otherwise. The
terms "Transfers" and "Transferred" shall have the correlative meanings.
"Trust" shall mean the trust created pursuant to Section 14 of
this Article VII.
"Trustee" shall mean the Person that is appointed by the
Corporation pursuant to Section 14 of this Article VII to serve as trustee of
the Trust, and any successor thereto.
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<PAGE>
Section 2. OWNERSHIP LIMITATION. (i) Except as provided in Section
11 of this Article VII, from the Effective Date and prior to the Restriction
Termination Date, no Person shall Beneficially Own shares of Common Stock
and/or Preferred Stock in excess of the Ownership Limit.
(ii) Except as provided in Section 11 of this Article
VII, from the Effective Date and prior to the Restriction Termination Date,
any Transfer that, if effective, would result in any Person Beneficially
Owning Common Stock and/or Preferred Stock in excess of the Ownership Limit
shall be void AB INITIO as to the Transfer of such shares of Common Stock
and/or Preferred Stock which would be otherwise Beneficially Owned by such
Person in excess of the Ownership Limit; and the intended transferee shall
acquire no rights in such shares of Common Stock and/or Preferred Stock.
(iii) From the Effective Date and prior to the Restriction
Termination Date, any Transfer that, if effective, would result in the Common
Stock and/or Preferred Stock being Beneficially Owned by less than 100
Persons (determined without reference to any rules of attribution) shall be
void AB INITIO as to the Transfer of such shares of Common Stock and/or
Preferred Stock which would be otherwise Beneficially Owned by the
transferee; and the intended transferee shall acquire no rights in such
shares of Common Stock and/or Preferred Stock.
(iv) From the Effective Date and prior to the Restriction
Termination Date, any Transfer that, if effective,
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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 the
shares of Common Stock and/or Preferred 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
Common Stock and/or Preferred Stock.
Section 3. EXCESS STOCK. (i) If, notwithstanding the other
provisions contained in this Article VII, at any time after the date of the
Effective Date and prior to the Restriction Termination Date, there is a
purported Transfer or other change in the capital structure of the
Corporation such that any Person would Beneficially Own Common Stock and/or
Preferred Stock in excess of the applicable Ownership Limit, then, except as
otherwise provided in Section 11, such shares of Common Stock and/or
Preferred Stock in excess of such Ownership Limit (rounded up to the nearest
whole share) shall be converted into Excess Stock and be treated as provided
in this Article VII. Such conversion and treatment shall be effective as of
the close of business on the business day prior to the date of the purported
Transfer or change in capital structure.
(ii) If, notwithstanding the other provisions contained
in this Article VII, at any time after the date of the Effective Date and
prior to the Restriction Termination Date, there is a purported Transfer or
other change in the capital structure of the Corporation which, if effective,
would cause the Corporation to
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<PAGE>
become "closely held" within the meaning of Section 856(h) of the Code, then
the shares of Common Stock and/or Preferred Stock being Transferred which
would cause the Corporation to be "closely held" within the meaning of
Section 856(h) of the Code (rounded up to the nearest whole share) shall be
converted into Excess Stock and be treated as provided in this Article VII.
Such conversion and treatment shall be effective as of the close of business
on the business day prior to the date of the purported Transfer or change in
capital structure.
Section 4. PREVENTION OF TRANSFER. If the Board of Directors or
its designee shall at any time determine in good faith that a Transfer has
taken place in violation of Section 2 of this Article VII or that a Person
intends to acquire or has attempted to acquire beneficial ownership
(determined without reference to any rules of attribution) or Beneficial
Ownership of any shares of stock of the Corporation in violation of Section 2
of this Article VII, the Board of Directors or its designee shall take such
action as it deems advisable to refuse to give effect to or to prevent such
Transfer, including, but not limited to, refusing to give effect to such
Transfer on the books of the Corporation or instituting proceedings to enjoin
or rescind such Transfer; provided, however, that any Transfers or attempted
Transfers in violation of subparagraphs Section 2 (ii) and (iv) of this
Article VII shall automatically result in the conversion and treatment
described in Section 3, irrespective of any action (or non-action) by the
Board of Directors.
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Section 5. NOTICE TO CORPORATION. Any Person who acquires or
attempts to acquire shares in violation of Section 2 of this Article VII, or
any Person who is or attempts to become a transferee such that Excess Stock
results under Section 3 of this Article VII, shall immediately give written
notice or, in the event of a proposed or attempted Transfer, give at least 15
days prior 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 attempted Transfer
on the Corporation's status as a REIT.
Section 6. INFORMATION FOR CORPORATION. From the date of the
Effective Date and prior to the Restriction Termination Date, each Person who
is a Beneficial Owner of Common Stock and/or Preferred Stock and each Person
(including the stockholder of record) who is holding Common Stock and/or
Preferred Stock for a Beneficial Owner shall upon demand provide in writing
to the Corporation any information with respect to the direct, indirect and
constructive ownership of Equity Stock of the Corporation as the Board of
Directors deems necessary to comply with the provisions of the Code
applicable to REITs, to comply with the requirements of any taxing authority
or governmental agency or to determine any such compliance.
Section 7. OTHER ACTION BY BOARD. Subject to the provisions of
Section 19 of this Article VII, nothing contained in this Article VII shall
limit the authority of the Board of Directors to take such other action as it
deems necessary or
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advisable to protect the Corporation and the interests of its stockholders by
preservation of the Corporation's status as a REIT.
Section 8. AMBIGUITIES. In the case of an ambiguity in the
application of any of the provisions of this Article VII, including any
definition contained in Section 1, the Board of Directors 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.
Section 9. INCREASE IN OWNERSHIP LIMIT. Subject to the
limitations provided in Section 10 of this Article VII, the Board of
Directors may from time to time increase the Ownership Limit.
Section 10. LIMITATIONS ON CHANGES IN OWNERSHIP LIMIT. (i) The
Ownership Limit for a class or series of Equity Stock may not be increased
if, after giving effect to such increase, five or fewer Beneficial Owners of
Equity Stock would Beneficially Own, in the aggregate, more than 50.0% in
value of the outstanding shares of Equity Stock.
(ii) Prior to any modification of the Ownership Limit
pursuant to Section 9 of this Article VII, the Board of Directors may require
such opinions of counsel, affidavits, undertakings or agreements as it may
deem necessary or advisable in order to determine or ensure the Corporation's
status as a REIT.
Section 11. EXEMPTIONS BY BOARD. The Board of Directors may, in
its sole discretion, waive the Ownership Limit with respect to any particular
Person or Persons if evidence satisfactory to the
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Board of Directors and the Corporation's tax counsel is presented that the
changes in ownership pursuant to such waiver will not cause the Corporation
not to continue to be qualified as a REIT and are not reasonably likely to
cause the Corporation not to continue to be qualified as a REIT in the future
and the Board of Directors otherwise decides that such action is in the best
interest of the Corporation.
Section 12. LEGEND. (i) In addition to any other legend
required by applicable law, each certificate for shares of Common Stock shall
bear substantially the following legend:
THE SECURITIES 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 (A "REIT") UNDER THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED. EXCEPT AS
OTHERWISE PROVIDED PURSUANT TO THE CHARTER OF THE
CORPORATION, NO PERSON MAY BENEFICIALLY OWN SHARES
OF COMMON STOCK IN EXCESS OF 9.0% (OR SUCH GREATER
PERCENTAGE AS MAY BE DETERMINED BY THE BOARD OF
DIRECTORS OF THE CORPORATION) OF THE AGGREGATE
NUMBER OR VALUE OF THE OUTSTANDING SHARES OF COMMON
STOCK OF THE CORPORATION. ANY PERSON WHO ACQUIRES OR
ATTEMPTS TO ACQUIRE SHARES OF COMMON STOCK IN EXCESS OF
THE AFOREMENTIONED LIMITATION, OR ANY PERSON WHO IS OR
ATTEMPTS TO
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BECOME A TRANSFEREE SUCH THAT EXCESS STOCK
RESULTS UNDER THE PROVISIONS OF THE CHARTER, SHALL
IMMEDIATELY GIVE WRITTEN NOTICE OR, IN THE EVENT OF A
PROPOSED OR ATTEMPTED TRANSFER, GIVE AT LEAST 15 DAYS
PRIOR WRITTEN NOTICE TO THE CORPORATION OF SUCH EVENT AND
SHALL PROVIDE TO THE CORPORATION SUCH OTHER INFORMATION AS
IT MAY REQUEST IN ORDER TO DETERMINE THE EFFECT ON ANY SUCH
TRANSFER ON THE CORPORATION'S STATUS AS A REIT. ALL
CAPITALIZED TERMS IN THIS LEGEND HAVE THE MEANINGS DEFINED
IN THE CHARTER OF THE CORPORATION, A COPY OF WHICH, INCLUDING
THE RESTRICTIONS ON TRANSFER, WILL BE SENT TO ANY STOCKHOLDER
ON REQUEST AND WITHOUT CHARGE. IF THE RESTRICTIONS ON TRANSFER
ARE VIOLATED, THE SECURITIES REPRESENTED HEREBY WILL BE CONVERTED
INTO AND TREATED AS SHARES OF EXCESS STOCK THAT WILL BE
TRANSFERRED, BY OPERATION OF LAW, TO THE TRUSTEE OF A TRUST FOR
THE EXCLUSIVE BENEFIT OF ONE OR MORE CHARITABLE ORGANIZATIONS.
(ii) In addition to any other legend required by applicable
law, each certificate for shares of Preferred Stock shall bear such legend as
may be set forth in the Articles Supplementary with respect to the
transferability of such Preferred Stock.
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Section 13. SEVERABILITY. If any provision of this Article VII or
any application of any such provision is determined to be void, invalid or
unenforceable by virtue of any legal decision, statute, rule or regulation,
then the Purported Record Transferee may be deemed, at the option of the
Corporation, to have acted as an agent of the Corporation in acquiring such
shares of Excess Stock and to hold such shares of Excess Stock on behalf of
the Corporation and 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.
Section 14. TRUST FOR EXCESS STOCK. Upon any purported Transfer
that results in Excess Stock pursuant to Section 3 of this Article VII, such
Excess Stock shall be deemed to have been transferred by operation of law to
the Trustee of a trust (the "Trust") for the exclusive benefit of one or more
Charitable Beneficiaries. The Trustee shall be appointed by the Corporation,
and shall be a Person unaffiliated with the Corporation, any Purported
Beneficial Transferee or any Purported Record Transferee. By written notice
to the Trustee, the Corporation shall designate one or more non-profit
organizations to be the Charitable Beneficiary(ies) of the interest in the
Trust representing the Excess Stock such that (a) the shares of Equity Stock,
from which the shares of Excess Stock held in the Trust were so converted,
would not violate the restrictions set forth in Section 2 of this Article VII
in the hands of such Charitable Beneficiary and (b)
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each Charitable Beneficiary is an organization described in Sections
170(b)(1)(a), 170(c)(2) and 501(c)(3) of the Code. The Trustee of the Trust
will be deemed to own the Excess Stock for the benefit of the Charitable
Beneficiary on the date of the purported Transfer that results in Excess
Stock pursuant to Section 3 of this Article VII. Shares of Excess Stock so
held in trust shall be issued and outstanding stock of the Corporation. The
Purported Record Transferee shall have no rights in such Excess Stock except
as expressly provided for in the this Article VII.
Section 15. DIVIDENDS ON EXCESS STOCK. Shares of Excess Stock
will be entitled to dividends and distributions authorized and declared with
respect to the class or series of Equity Stock from which the Excess Stock
was converted and will be payable to the Trustee of the Trust in which such
Excess Stock is held, for the benefit of the Charitable Beneficiary.
Dividends and distributions will be authorized and declared with respect to
each share of Excess Stock in an amount equal to the dividends and
distributions authorized and declared on each share of stock of the class or
series of Equity Stock from which the Excess Stock was converted. Any
dividend or distribution paid to a Purported Record Transferee of Excess
Stock prior to the discovery by the Corporation that Equity Stock has been
transferred in violation of the provisions of the Charter shall be repaid by
the Purported Record Transferee to the Trustee upon demand. The Corporation
shall rescind any dividend or distribution authorized and declared but unpaid
as void AB INITIO with respect to the Purported Record
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Transferee, and the Corporation shall pay such dividend or distribution when
due to the Trustee of the trust for the benefit of the Charitable Beneficiary.
Section 16. LIQUIDATION DISTRIBUTIONS FOR EXCESS STOCK. Subject
to the preferential rights of the Preferred Stock, if any, as may be
determined by the Board of Directors, in the event of any voluntary or
involuntary liquidation, dissolution or winding up of, or any other
distribution of all or substantially all of the assets of the Corporation,
each holder of shares of Excess Stock shall be entitled to receive, in the
case of Excess Stock converted from Preferred Stock, ratably with each other
holder of Preferred Stock and Excess Stock converted from Preferred Stock and
having the same rights to payment upon liquidation, dissolution or winding up
as such Preferred Stock and, in the case of Excess Stock converted from
Common Stock, ratably with each other holder of Common Stock and Excess Stock
converted from Common Stock, that portion of the assets of the Corporation
available for distribution to its stockholders as the number of shares of the
Excess Stock held by such holder bears to the total number of shares of (i)
Preferred Stock and Excess Stock then outstanding (in the case of Excess
Stock converted from Preferred Stock) and (ii) Common Stock and Excess Stock
then outstanding (in the case of Excess Stock converted from Common Stock).
Any liquidation distributions to be distributed with respect to Excess
Stock shall be distributed in the same manner as
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proceeds from the sale of Excess Stock are distributed as set forth in
Section 18 of this Article VII.
Section 17. VOTING RIGHTS FOR EXCESS STOCK. Any vote cast by a
Purported Record Transferee of Excess Stock prior to the discovery by the
Corporation that Equity Stock has been transferred in violation of the
provisions of the Charter shall be void AB INITIO. While the Excess Stock is
held in trust, the Purported Record Transferee will be deemed to have given
an irrevocable proxy to the Trustee to vote the shares of Equity Stock which
have been converted into shares of Excess Stock for the benefit of the
Charitable Beneficiary.
Section 18. NON-TRANSFERABILITY OF EXCESS STOCK. Excess Stock
shall not be transferable. In its sole discretion, the Trustee of the Trust
may transfer the interest in the Trust representing shares of Excess Stock to
any Person if the shares of Excess Stock would not be Excess Stock in the
hands of such Person. If such transfer is made, the interest of the
Charitable Beneficiary in the Excess Stock shall terminate and the proceeds
of the sale shall be payable by the Trustee to the Purported Record
Transferee and to the Charitable Beneficiary as herein set forth. The
Purported Record Transferee shall receive from the Trustee the lesser of (i)
the price paid by the Purported Record Transferee for its shares of Equity
Stock that were converted into Excess Stock or, if the Purported Record
Transferee did not give value for such shares (E.G., the stock was received
through a gift, devise or other transaction), the average closing price for
the class of
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shares from which such shares of Excess Stock were converted for the ten
trading days immediately preceding such sale or gift, and (ii) the price
received by the Trustee from the sale or other disposition of the Excess
Stock held in trust. The Trustee may reduce the amount payable to the
Purported Record Transferee by the amount of dividends and distributions
which have been paid to the Purported Record Transferee and are owed by the
Purported Record Transferee to the Trustee pursuant to Section 15 of this
Article VII. Any proceeds in excess of the amount payable to the Purported
Record Transferee shall be paid by the Trustee to the Charitable Beneficiary.
Upon such transfer of an interest in the Trust, the corresponding shares of
Excess Stock in the Trust shall be automatically exchanged for an equal
number of shares of Common Stock and/or Preferred Stock, as applicable, and
such shares of Common Stock and/or Preferred Stock, as applicable, shall be
transferred of record to the transferee of the interest in the Trust if such
shares of Common Stock and/or Preferred Stock, as applicable, would not be
Excess Stock in the hands of such transferee. Prior to any transfer of any
interest in the Trust, the Corporation must have waived in writing its
purchase rights under Section 20 of this Article VII.
Section 19. NYSE TRANSACTIONS. Nothing in this Article VII shall
preclude the settlement of any transaction entered into through the
facilities of the NYSE. The fact that the settlement of any transaction may
occur shall not negate the effect of any other provision of this Article VII
and any transferee in such a
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transaction shall be subject to all of the provisions and limitations set
forth in this Article VII.
Section 20. CALL BY CORPORATION ON EXCESS STOCK. Shares of Excess
Stock shall be deemed to have been offered for sale to the Corporation, or
its designee, at a price per share payable to the Purported Record Transferee
equal to the lesser of (i) the price per share in the transaction that
created such Excess Stock (or, in the case of a devise or gift, the Market
Price at the time of such devise or gift) and (ii) the Market Price of the
Common Stock or Preferred Stock from which such Excess Stock was converted on
the date the Corporation, or its designee, accepts such offer. The
Corporation may reduce the amount payable to the Purported Record Transferee
by the amount of dividends and distributions which have been paid to the
Purported Record Transferee and are owed by the Purported Record Transferee
to the Trustee pursuant to Section 15 of this Article VII. The Corporation
may pay the amount of such reductions to the Trustee for the benefit of the
Charitable Beneficiary. The Corporation shall have the right to accept such
offer for a period of 90 days after the later of (i) the date of the
Corporation's receipt of notice pursuant to Section 5 of this Article VII and
(ii) if the Corporation does not receive a notice of such Transfer pursuant
to Section 5 of this Article VII, the date that the Board of Directors
determines in good faith that a Transfer resulting in Excess Stock has
occurred, but in no event later than a permitted Transfer pursuant to and in
compliance with the terms of Section 18 of this Article VII.
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Section 21. ENFORCEMENT. The Corporation is authorized
specifically to seek equitable relief, including injunctive relief, to
enforce the provisions of this Article VII.
Section 22. NON-WAIVER. No delay or failure on the part of the
Corporation or the Board of Directors in exercising any right hereunder shall
operate as a waiver of any right of the Corporation or the Board of
Directors, as the case may be, except to the extent specifically waived in
writing.
ARTICLE VIII
AMENDMENTS
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. Any amendment to the charter shall be valid
only if approved by the affirmative vote of two-thirds of all the votes
entitled to be cast on the matter.
ARTICLE IX
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
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Article IX, nor the adoption or amendment of any other provision of the
charter or Bylaws inconsistent with this Article IX, 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.
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IN WITNESS WHEREOF, I have signed these Articles of Incorporation and
acknowledge the same to be my act on this 9th day of June, 1997.
/S/ JAMES O'CONNOR
------------------
James O'Connor
<PAGE>
EXHIBIT 3.2
SL GREEN REALTY CORP.
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.
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.
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 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
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. Unless requested by the stockholders entitled to cast a majority of
all the votes entitled to be cast at such meeting, a special meeting need not be
called to consider any matter which is substantially
<PAGE>
the same as a matter voted on at any special meeting of the stockholders held
during the preceding twelve months.
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 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.
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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 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. 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 the president or a vice
president, 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
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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.
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.
Section 11. INSPECTORS. At any meeting of stockholders, the chairman
of the meeting may, or upon the request of any stockholder shall, 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 (except for stockholder proposals included in the proxy
materials pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) 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 at the time of giving of notice provided for in this
Section 12(a), who is entitled to vote at the meeting and who complied with the
notice procedures set forth in this Section 12(a).
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(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 principal
executive offices of the Corporation not less than 75 days nor more than 180
days prior to the first anniversary of the preceding year's annual meeting or
special meeting in lieu thereof; provided, however, that in the event that
the date of the annual meeting is advanced by more than seven calendar 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 180th day
prior to such annual meeting and not later than the close of business on the
later of the 75th day prior to such annual meeting or the twentieth day
following the earlier of the day on which public announcement of the date of
such meeting is first made or notice of the meeting is mailed to
stockholders. 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
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 85
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.
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(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 at the time of
giving of notice provided for in this Section 12(b), 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 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 180th day prior to such special meeting and not later than the close
of business on the later of the 75th 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
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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; QUALIFICATIONS. The business and affairs
of the Corporation shall be managed under the direction of its Board of
Directors.
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 (or
any co-chairman of the board if more than one), 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
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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.
The Board of 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 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.
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
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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 for the
unexpired term of the director he is replacing.
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 owned or to be acquired 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 adviser, 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 and other committees, composed of two or more directors,
to serve at the pleasure of the Board of Directors.
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 vacancies, to designate alternate members to replace any
absent or disqualified member or to dissolve any such committee.
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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 (or one or more co-chairmen of the board), a
vice chairman of the board, one or more executive vice presidents, one or
more senior vice presidents, one or more vice presidents, a chief operating
officer, a chief financial officer, a treasurer, 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 (or any co-chairman of the board if more than one), 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 (or, if more than
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one, the co-chairmen of the board 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 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 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 (or one or more co-chairmen 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. If there be
more than one, the co-chairmen designated by the Board of Directors will perform
such duties. 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. CHAIRMAN OF THE BOARD EMERITUS. The directors may elect
by a majority vote, from time to time, a chairman of the board emeritus (or one
or more co-chairmen of the board emeritus). The chairman of the board emeritus
shall be an honorary position and shall have no vote on any matter considered by
the directors. The chairman of the board emeritus shall serve for such term as
determined by the Board of Directors and may be removed by a majority role of
directors with or without cause.
Section 9. 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 10. 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,
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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 11. 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 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 12. 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.
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Section 13. 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 14. 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 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
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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 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.
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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 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
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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.
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
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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 "Corporate Seal
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 of the Corporation.
ARTICLE XII
INDEMNIFICATION AND ADVANCES FOR EXPENSES
To the maximum extent permitted by Maryland law in effect from time
to time, the Corporation, without requiring a preliminary determination of
the ultimate entitlement to indemnification, shall indemnify and 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, partnership, joint venture, trust, employee benefit plan
or any other enterprise as a director, officer, partner or trustee of such
corporation, 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
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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.
ARTICLE XIV
AMENDMENT OF BYLAWS
The Board of Directors shall have the exclusive power to adopt,
alter or repeal any provision of these Bylaws and to make new Bylaws.
<PAGE>
EXHIBIT 10.1
________________________________
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
SL GREEN OPERATING PARTNERSHIP, L.P.
________________________________
Dated as of________, 1997
<PAGE>
TABLE OF CONTENTS
ARTICLE I DEFINED TERMS.................................................... 1
ARTICLE II ORGANIZATIONAL MATTERS.......................................... 15
Section 2.1 Organization........................................ 15
Section 2.2 Name................................................ 15
Section 2.3 Registered Office and Agent; Principal Office....... 16
Section 2.4 Term................................................ 16
ARTICLE III PURPOSE........................................................ 16
Section 3.1 Purpose and Business................................ 16
Section 3.2 Powers.............................................. 17
Section 3.3 Partnership Only for Purposes Specified............. 17
ARTICLE IV CAPITAL CONTRIBUTIONS AND ISSUANCES
OF PARTNERSHIP INTERESTS......................................... 17
Section 4.1 Capital Contributions of the Partners............... 17
Section 4.2 Issuances of Partnership Interests.................. 18
Section 4.3 No Preemptive Rights................................ 20
Section 4.4 Other Contribution Provisions....................... 20
Section 4.5 No Interest on Capital.............................. 20
ARTICLE V DISTRIBUTIONS.................................................... 20
Section 5.1 Requirement and Characterization of Distributions... 20
Section 5.2 Amounts Withheld.................................... 23
Section 5.3 Distributions Upon Liquidation...................... 23
Section 5.4 Revisions to Reflect Issuance of Additional
Partnership Interests............................... 23
ARTICLE VI ALLOCATIONS..................................................... 23
Section 6.1 Allocations For Capital Account Purposes............ 23
Section 6.2 Revisions to Allocations to Reflect Issuance of
Additional Partnership Interests.................... 25
ARTICLE VII MANAGEMENT AND OPERATIONS OF BUSINESS.......................... 25
Section 7.1 Management.......................................... 25
Section 7.2 Certificate of Limited Partnership.................. 30
Section 7.3 Title to Partnership Assets......................... 30
Section 7.4 Reimbursement of the General Partner................ 30
Section 7.5 Outside Activities of the General Partner........... 32
Section 7.6 Transactions with Affiliates........................ 34
Section 7.7 Indemnification..................................... 34
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Section 7.8 Liability of the General Partner.................... 36
Section 7.9 Other Matters Concerning the General Partner........ 37
Section 7.10 Reliance by Third Parties........................... 38
Section 7.11 Restrictions on General Partner's Authority......... 38
Section 7.12 Loans by Third Parties.............................. 45
ARTICLE VIII RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS.................... 46
Section 8.1 Limitation of Liability............................. 46
Section 8.2 Management of Business.............................. 46
Section 8.3 Outside Activities of Limited Partners.............. 46
Section 8.4 Return of Capital................................... 47
Section 8.5 Rights of Limited Partners Relating to the
Partnership......................................... 47
Section 8.6 Redemption Right.................................... 48
ARTICLE IX BOOKS, RECORDS, ACCOUNTING AND REPORTS.......................... 51
Section 9.1 Records and Accounting.............................. 51
Section 9.2 Fiscal Year......................................... 51
Section 9.3 Reports............................................. 51
ARTICLE X TAX MATTERS...................................................... 52
Section 10.1 Preparation of Tax Returns.......................... 52
Section 10.2 Tax Elections....................................... 52
Section 10.3 Tax Matters Partner................................. 52
Section 10.4 Organizational Expenses............................. 54
Section 10.5 Withholding......................................... 54
ARTICLE XI TRANSFERS AND WITHDRAWALS....................................... 55
Section 11.1 Transfer............................................ 55
Section 11.2 Transfers of Partnership Interests of General
Partner............................................. 55
Section 11.3 Limited Partners' Rights to Transfer................ 56
Section 11.4 Substituted Limited Partners........................ 57
Section 11.5 Assignees........................................... 58
Section 11.6 General Provisions.................................. 58
ARTICLE XII ADMISSION OF PARTNERS.......................................... 60
Section 12.1 Admission of Successor General Partner.............. 60
Section 12.2 Admission of Additional Limited Partners............ 60
Section 12.3 Amendment of Agreement and Certificate of Limited
Partnership......................................... 61
ARTICLE XIII DISSOLUTION AND LIQUIDATION................................... 61
Section 13.1 Dissolution......................................... 61
Section 13.2 Winding Up.......................................... 62
Section 13.3 Compliance with Timing Requirements of Regulations.. 63
Section 13.4 Deemed Distribution and Recontribution.............. 64
Section 13.5 Rights of Limited Partners.......................... 64
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Section 13.6 Notice of Dissolution............................... 64
Section 13.7 Cancellation of Certificate of Limited Partnership.. 65
Section 13.8 Reasonable Time for Winding Up...................... 65
Section 13.9 Waiver of Partition................................. 65
Section 13.10 Liability of Liquidator............................. 65
ARTICLE XIV AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS................... 65
Section 14.1 Amendments.......................................... 65
Section 14.2 Meetings of the Partners............................ 67
ARTICLE XV GENERAL PROVISIONS.............................................. 68
Section 15.1 Addresses and Notice................................ 68
Section 15.2 Titles and Captions................................. 68
Section 15.3 Pronouns and Plurals................................ 69
Section 15.4 Further Action...................................... 69
Section 15.5 Binding Effect...................................... 69
Section 15.6 Creditors........................................... 69
Section 15.7 Waiver.............................................. 69
Section 15.8 Counterparts........................................ 69
Section 15.9 Applicable Law...................................... 69
Section 15.10 Invalidity of Provisions............................ 70
Section 15.11 Power of Attorney................................... 70
Section 15.12 Entire Agreement.................................... 71
Section 15.13 No Rights as Shareholders........................... 71
Section 15.14 Limitation to Preserve REIT Status.................. 71
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EXHIBIT A
---------
PARTNERS AND
PARTNERSHIP INTERESTS
EXHIBIT B
---------
CAPITAL ACCOUNT MAINTENANCE
EXHIBIT C
---------
SPECIAL ALLOCATION RULES
EXHIBIT D
---------
NOTICE OF REDEMPTION
EXHIBIT E
---------
VALUE OF CONTRIBUTED PROPERTY
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<PAGE>
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
SL GREEN OPERATING PARTNERSHIP, L.P.
THIS FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP, dated as
of ___________, 1997, is entered into by and among SL Green Realty Corp., a
Maryland corporation, as the General Partner of and a Limited Partner in the
Partnership, and the Persons (as defined below) whose names are set forth on
Exhibit A, as attached hereto (as it may be amended from time to time).
WHEREAS, the Partnership was formed on _____________, 1997, and, on
___________, 1997, the Partnership adopted an Agreement of Limited Partnership
(the "Prior Agreement"); and
WHEREAS, the parties hereto will make certain capital contributions to the
Partnership;
NOW, THEREFORE, in consideration of the mutual covenants set forth herein,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto hereby amend and restate the
Prior Agreement in its entirety and agree to continue the Partnership as a
limited partnership under the Delaware Revised Uniform Limited Partnership Act,
as amended from time to time, as follows:
ARTICLE I
DEFINED TERMS
The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this Agreement.
"ACT" means the Delaware Revised Uniform Limited Partnership Act, 6
DEL. C. Section 17-101, ET SEQ., as it may be amended from time to time, and any
successor to such statute.
"ADDITIONAL LIMITED PARTNER" means a Person admitted to the
Partnership as a Limited Partner pursuant to Section 12.2 hereof and who is
shown as such on the books and records of the Partnership.
"ADJUSTED CAPITAL ACCOUNT" means the Capital Account maintained for
each Partner as of the end of each Partnership Year (i) increased by any amounts
which such Partner is obligated to restore pursuant to any provision of this
Agreement or is deemed to be obligated to restore pursuant to the penultimate
sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5) and (ii)
decreased by the items described in Regulations Sections
1.704-l(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and 1.704-l(b)(2)(ii)(d)(6).
The foregoing definition of Adjusted Capital Account is intended to comply with
the provisions of Regulations Section 1.704-l(b)(2)(ii)(d) and shall be
interpreted consistently therewith.
<PAGE>
"ADJUSTED CAPITAL ACCOUNT DEFICIT" means, with respect to Partner, the
deficit balance, if any, in such Partner's Adjusted Capital Account as of the
end of the relevant Partnership Year.
"ADJUSTED PROPERTY" means any property the Carrying Value of which has
been adjusted pursuant to EXHIBIT B hereto.
"ADJUSTMENT DATE" has the meaning set forth in Section 4.2.B hereof.
"AFFILIATE" means, with respect to any Person, (i) any Person directly
or indirectly controlling, controlled by or under common control with such
Person, (ii) any Person owning or controlling ten percent (10%) or more of the
outstanding voting interests of such Person, (iii) any Person of which such
Person owns or controls ten percent (10%) or more of the voting interests or
(iv) any officer, director, general partner or trustee of such Person or any
Person referred to in clauses (i), (ii), and (iii) above. For purposes of this
definition, "control," when used with respect to any Person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise,
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"AGREED VALUE" means (i) in the case of any Contributed Property
contributed to the Partnership as part of or in connection with the
Consolidation, the amount set forth on Exhibit E attached hereto as the Agreed
Value of such Property; (ii) in the case of any other Contributed Property, the
704(c) Value of such property as of the time of its contribution to the
Partnership, reduced by any liabilities either assumed by the Partnership upon
such contribution or to which such property is subject when contributed; and
(iii) in the case of any property distributed to a Partner by the Partnership,
the Partnership's Carrying Value of such property at the time such property is
distributed, reduced by any indebtedness either assumed by such Partner upon
such distribution or to which such property is subject at the time of
distribution as determined under Section 752 of the Code and the Regulations
thereunder.
"AGREEMENT" means this First Amended and Restated Agreement of Limited
Partnership, as it may be amended, supplemented or restated from time to time.
"ARTICLES OF INCORPORATION" means the Articles of Incorporation or
other organizational document governing the General Partner, as amended or
restated from time to time.
"ASSIGNEE" means a Person to whom one or more Partnership Units have
been transferred in a manner permitted under this Agreement, but who has not
become a Substituted Limited Partner, and who has the rights set forth in
Section 11.5 hereof.
"AVAILABLE CASH" means, with respect to any period for which such
calculation is being made:
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(a) all cash revenues and funds received by the Partnership from
whatever source (excluding the proceeds of any Capital Contribution) plus the
amount of any reduction (including, without limitation, a reduction resulting
because the General Partner determines such amounts are no longer necessary) in
reserves of the Partnership, which reserves are referred to in clause (b)(iv)
below;
(b) less the sum of the following (except to the extent made with the
proceeds of any Capital Contribution):
(i) all interest, principal and other debt payments made
during such period by the Partnership,
(ii) all cash expenditures (including capital expenditures)
made by the Partnership during such period,
(iii) investments in any entity (including loans made thereto)
to the extent that such investments are permitted under this Agreement and are
not otherwise described in clauses (b)(i) or (ii), and
(iv) the amount of any increase in reserves established during
such period which the General Partner determines is necessary or appropriate in
its sole and absolute discretion.
Notwithstanding the foregoing, Available Cash shall not include any cash
received or reductions in reserves, or take into account any disbursements made
or reserves established, after commencement of the dissolution and liquidation
of the Partnership.
"BOOK-TAX DISPARITIES" means, with respect to any item of Contributed
Property or Adjusted Property, as of the date of any determination, the
difference between the Carrying Value of such Contributed Property or Adjusted
Property and the adjusted basis thereof for federal income tax purposes as of
such date. A Partner's share of the Partnership's Book-Tax Disparities in all
of its Contributed Property and Adjusted Property will be reflected by the
difference between such Partner's Capital Account balance as maintained pursuant
to EXHIBIT B hereto and the hypothetical balance of such Partner's Capital
Account computed as if it had been maintained, with respect to each such
Contributed Property or Adjusted Property, strictly in accordance with federal
income tax accounting principles.
"BUSINESS DAY" means any day except a Saturday, Sunday or other day on
which commercial banks in New York, New York are authorized or required by law
to close.
"CAPITAL ACCOUNT" means the Capital Account maintained for a Partner
pursuant to EXHIBIT B hereto.
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"CAPITAL CONTRIBUTION" means, with respect to any Partner, any cash,
cash equivalents or the Agreed Value of Contributed Property which such Partner
contributes or is deemed to contribute to the Partnership pursuant to Section
4.1 or 4.2 hereof.
"CARRYING VALUE" means (i) with respect to a Contributed Property or
Adjusted Property, the 704(c) Value of such property reduced (but not below
zero) by all Depreciation with respect to such Contributed Property or Adjusted
Property, as the case may be, charged to the Partners' Capital Accounts and (ii)
with respect to any other Partnership property, the adjusted basis of such
property for federal income tax purposes, all as of the time of determination.
The Carrying Value of any property shall be adjusted from time to time in
accordance with EXHIBIT B hereto, and to reflect changes, additions or other
adjustments to the Carrying Value for dispositions and acquisitions of
Partnership properties, as deemed appropriate by the General Partner.
"CASH AMOUNT" means an amount of cash equal to the Value on the
Valuation Date of the Shares Amount.
"CERTIFICATE" means the Certificate of Limited Partnership relating to
the Partnership filed in the office of the Delaware Secretary of State, as
amended from time to time in accordance with the terms hereof and the Act.
"CHARTER DOCUMENTS" has the meaning set forth in Section 7.11.D
hereof.
"CLASS A" has the meaning set forth in Section 5.1.C hereof.
"CLASS A SHARE" has the meaning set forth in Section 5.1.C hereof.
"CLASS A UNIT" means any Partnership Unit that is not specifically
designated by the General Partner as being of another specified class of
Partnership Units.
"CLASS B" has the meaning set forth in Section 5.1.C hereof.
"CLASS B SHARE" has the meaning set forth in Section 5.1.C hereof.
"CLASS B UNIT" means a Partnership Unit that is specifically
designated by the General Partner as being a Class B Unit.
"CODE" means the Internal Revenue Code of 1986, as amended and in
effect from time to time, as interpreted by the applicable regulations
thereunder. Any reference herein to a specific section or sections of the Code
shall be deemed to include a reference to any corresponding provision of future
law.
"CONSENT" means the consent or approval of a proposed action by a
Partner given in accordance with Section 14.2 hereof.
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"CONSENT OF CERTAIN LIMITED PARTNERS" means Consent of the holders of
75% in the aggregate of the 673 First Avenue Units and the 470 Park Avenue South
Units, collectively considered as one group.
"CONSENT OF THE OUTSIDE LIMITED PARTNERS" means the Consent of Limited
Partners (excluding for this purpose any Limited Partnership Interests held by
the General Partner, any Person of which the General Partner owns or controls
more than fifty percent (50%) of the voting interests and any Person owning or
controlling, directly or indirectly, more than fifty percent (50%) of the
outstanding voting interests of the General Partner) holding Percentage
Interests that are greater than fifty percent (50%) of the aggregate Percentage
Interest of all Limited Partners who are not excluded for the purposes hereof.
"CONSOLIDATION" means the transactions whereby the Partnership will
acquire interests in certain office properties located in midtown Manhattan and
certain property management and construction businesses, which provide services
to those properties and to other properties in the New York metropolitan area,
in exchange for Partnership Units upon completion of an initial public offering
by S.L. Green Realty Corporation.
"CONSOLIDATION TRANSACTION" has the meaning set forth in Section
7.11.C.(5) hereof.
"CONTRIBUTED PROPERTY" means each property or other asset contributed
to the Partnership, in such form as may be permitted by the Act, but excluding
cash contributed or deemed contributed to the Partnership. Once the Carrying
Value of a Contributed Property is adjusted pursuant to EXHIBIT B hereto, such
property shall no longer constitute a Contributed Property for purposes of
EXHIBIT B hereto, but shall be deemed an Adjusted Property for such purposes.
"CONVERSION FACTOR" means 1.0; provided that in the event that the
General Partner Entity (i) declares or pays a dividend on its outstanding Shares
in Shares or makes a distribution to all holders of its outstanding Shares in
Shares, (ii) subdivides its outstanding Shares or (iii) combines its outstanding
Shares into a smaller number of Shares, the Conversion Factor shall be adjusted
by multiplying the Conversion Factor by a fraction, the numerator of which shall
be the number of Shares issued and outstanding on the record date for such
dividend, distribution, subdivision or combination (assuming for such purposes
that such dividend, distribution, subdivision or combination has occurred as of
such time) and the denominator of which shall be the actual number of Shares
(determined without the above assumption) issued and outstanding on the record
date for such dividend, distribution, subdivision or combination; and PROVIDED,
FURTHER that in the event that an entity shall cease to be the General Partner
Entity (the "Predecessor Entity") and another entity shall become the General
Partner Entity (the "Successor Entity"), the Conversion Factor shall be adjusted
by multiplying the Conversion Factor by a fraction, the numerator of which is
the Value of one share of the Predecessor Entity, determined as of the time
immediately prior to when the Successor Entity becomes the General Partner
Entity, and the denominator of which is the Value of one Share of the Successor
Entity
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determined as of that same date. (For purposes of the second proviso in the
preceding sentence, in the event that any shareholders of the Predecessor Entity
will receive consideration in connection with the transaction in which the
Successor Entity becomes the General Partner Entity, the numerator in the
fraction described above for determining the adjustment to the Conversion Factor
(that is, the Value of one Share of the Predecessor Entity) shall be the sum of
the greatest amount of cash and the fair market value of any securities and
other consideration that the holder of one Share in the Predecessor Entity could
have received in such transaction (determined without regard to any provisions
governing fractional shares).) Any adjustment to the Conversion Factor shall
become effective immediately after the effective date of such event retroactive
to the record date, if any, for the event giving rise thereto; it being
intended that (x) adjustments to the Conversion Factor are to be made in order
to avoid unintended dilution or anti-dilution as a result of transactions in
which Shares are issued, redeemed or exchanged without a corresponding issuance,
redemption or exchange of Partnership Units and (y) if a Specified Redemption
Date shall fall between the record date and the effective date of any event of
the type described above, that the Conversion Factor applicable to such
redemption shall be adjusted to take into account such event.
"CONVERTIBLE FUNDING DEBT" has the meaning set forth in Section 7.5.F
hereof.
"DEBT" means, as to any Person, as of any date of determination, (i)
all indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services, (ii) all amounts owed by such Person to banks or
other Persons in respect of reimbursement obligations under letters of credit,
surety bonds and other similar instruments guaranteeing payment or other
performance of obligations by such Person, (iii) all indebtedness for borrowed
money or for the deferred purchase price of property or services secured by any
lien on any property owned by such Person, to the extent attributable to such
Person's interest in such property, even though such Person has not assumed or
become liable for the payment thereof, and (iv) obligations of such Person
incurred in connection with entering into a lease which, in accordance with
generally accepted accounting principles, should be capitalized.
"DEEMED PARTNERSHIP INTEREST VALUE" means, as of any date with respect
to any class of Partnership Interests, the Deemed Value of the Partnership
Interest of such class multiplied by the applicable Partner's Percentage
Interest of such class.
"DEEMED VALUE OF THE PARTNERSHIP INTEREST" means, as of any date with
respect to any class of Partnership Interests, (a) if the shares of common stock
(or other comparable equity interests) of the General Partner are Publicly
Traded (i) the total number of shares of capital stock (or other comparable
equity interest) of the General Partner corresponding to such class of
Partnership Interest (as provided for in Section 4.2.B hereof) issued and
outstanding as of the close of business on such date (excluding any treasury
shares) multiplied by the Value of a share of such capital stock (or other
comparable equity interest) on such date DIVIDED BY (ii) the Percentage Interest
of the General Partner in such class of Partnership Interests on such date, and
(b) otherwise, the aggregate Value of such class of Partnership Interests
determined as set forth in the fourth and fifth sentences of the definition of
Value.
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"DEPRECIATION" means, for each fiscal year, an amount equal to the
federal income tax depreciation, amortization, or other cost recovery deduction
allowable with respect to an asset for such year, except that if the Carrying
Value of an asset differs from its adjusted basis for federal income tax
purposes at the beginning of such year or other period, Depreciation shall be an
amount which bears the same ratio to such beginning Carrying Value as the
federal income tax depreciation, amortization, or other cost recovery deduction
for such year bears to such beginning adjusted tax basis; PROVIDED, HOWEVER,
that if the federal income tax depreciation, amortization, or other cost
recovery deduction for such year is zero, Depreciation shall be determined with
reference to such beginning Carrying Value using any reasonable method selected
by the General Partner.
"DISTRIBUTION PERIOD" has the meaning set forth in Section 5.1.C
hereof.
"EFFECTIVE DATE" means the date of the closing of the Consolidation.
"EQUITY MERGER" has the meaning set forth in Section 7.11.D hereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCHANGED PROPERTY" has the meaning set forth in Section 7.11.C
hereof.
"470 PARK SOUTH, L.P." means 470 Park Avenue South, L.P., a New York
limited partnership.
"470 PARK AVENUE SOUTH PROPERTY" has the meaning set forth in Section
7.11.C hereof.
"470 PARK AVENUE SOUTH UNITS" has the meaning set forth in Section
7.11.C hereof.
"FUNDING DEBT" means the incurrence of any Debt by or on behalf of the
General Partner for the purpose of providing funds to the Partnership.
"GENERAL PARTNER" means S.L. Green Realty Corporation, a Maryland
corporation, or its successors as general partner of the Partnership.
"GENERAL PARTNER ENTITY" means the General Partner; provided, however,
that if (i) the shares of common stock (or other comparable equity interests) of
the General Partner are at any time not Publicly Traded and (ii) the shares of
common stock (or other comparable equity interests) of an entity that owns,
directly or indirectly, fifty percent (50%) or more of the shares of common
stock (or other comparable equity interests) of the General Partner are Publicly
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Traded, the term "General Partner Entity" shall refer to such entity whose
shares of common stock (or other comparable equity securities) are Publicly
Traded. If both requirements set forth in clauses (i) and (ii) above are not
satisfied, then the term "General Partner Entity" shall mean the General
Partner.
"GENERAL PARTNER PAYMENT" has the meaning set forth in Section 15.14
hereof.
"GENERAL PARTNERSHIP INTEREST" means a Partnership Interest held by
the General Partner that is a general partnership interest. A General
Partnership Interest may be expressed as a number of Partnership Units.
"IRS" means the Internal Revenue Service, which administers the
internal revenue laws of the United States.
"IMMEDIATE FAMILY" means, with respect to any natural Person, such
natural Person's spouse, parents, descendants, nephews, nieces, brothers, and
sisters.
"INCAPACITY" or "INCAPACITATED" means, (i) as to any individual
Partner, death, total physical disability or entry by a court of competent
jurisdiction adjudicating such Partner incompetent to manage his or her Person
or estate, (ii) as to any corporation which is a Partner, the filing of a
certificate of dissolution, or its equivalent, for the corporation or the
revocation of its charter, (iii) as to any partnership which is a Partner, the
dissolution and commencement of winding up of the partnership, (iv) as to any
estate which is a Partner, the distribution by the fiduciary of the estate's
entire interest in the Partnership, (v) as to any trustee of a trust which is a
Partner, the termination of the trust (but not the substitution of a new
trustee) or (vi) as to any Partner, the bankruptcy of such Partner. For
purposes of this definition, bankruptcy of a Partner shall be deemed to have
occurred when (a) the Partner commences a voluntary proceeding seeking
liquidation, reorganization or other relief under any bankruptcy, insolvency or
other similar law now or hereafter in effect, (b) the Partner is adjudged as
bankrupt or insolvent, or a final and nonappealable order for relief under any
bankruptcy, insolvency or similar law now or hereafter in effect has been
entered against the Partner, (c) the Partner executes and delivers a general
assignment for the benefit of the Partner's creditors, (d) the Partner files an
answer or other pleading admitting or failing to contest the material
allegations of a petition filed against the Partner in any proceeding of the
nature described in clause (b) above, (e) the Partner seeks, consents to or
acquiesces in the appointment of a trustee, receiver or liquidator for the
Partner or for all or any substantial part of the Partner's properties, (f) any
proceeding seeking liquidation, reorganization or other relief under any
bankruptcy, insolvency or other similar law now or hereafter in effect has not
been dismissed within one hundred twenty (120) days after the commencement
thereof, (g) the appointment without the Partner's consent or acquiescence of a
trustee, receiver or liquidator has not been vacated or stayed within ninety
(90) days of such appointment or (h) an appointment referred to in clause (g) is
not vacated within ninety (90) days after the expiration of any such stay.
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"INDEMNITEE" means (i) any Person made a party to a proceeding or
threatened with being made a party to a proceeding by reason of its status as
(A) the General Partner, (B) a Limited Partner or (C) a director or officer of
the Partnership or the General Partner and (ii) such other Persons (including
Affiliates of the General Partner, a Limited Partner or the Partnership) as the
General Partner may designate from time to time (whether before or after the
event giving rise to potential liability), in its sole and absolute discretion.
"LIMITED PARTNER" means any Person named as a Limited Partner in
Exhibit A attached hereto, as such Exhibit may be amended and restated from time
to time, or any Substituted Limited Partner or Additional Limited Partner, in
such Person's capacity as a Limited Partner in the Partnership.
"LIMITED PARTNERSHIP INTEREST" means a Partnership Interest of a
Limited Partner in the Partnership representing a fractional part of the
Partnership Interests of all Limited Partners and includes any and all benefits
to which the holder of such a Partnership Interest may be entitled as provided
in this Agreement, together with all obligations of such Person to comply with
the terms and provisions of this Agreement. A Limited Partnership Interest may
be expressed as a number of Partnership Units.
"LIQUIDATING EVENT" has the meaning set forth in Section 13.1 hereof.
"LIQUIDATING TRANSACTION" has the meaning set forth in Section 7.11.C
hereof.
"LIQUIDATOR" has the meaning set forth in Section 13.2.A hereof.
"NET INCOME" means, for any taxable period, the excess, if any, of the
Partnership's items of income and gain for such taxable period over the
Partnership's items of loss and deduction for such taxable period. The items
included in the calculation of Net Income shall be determined in accordance with
EXHIBIT B hereto. If an item of income, gain, loss or deduction that has been
included in the initial computation of Net Income is subjected to the special
allocation rules in EXHIBIT C hereto, Net Income or the resulting Net Loss,
whichever the case may be, shall be recomputed without regard to such item.
"NET LOSS" means, for any taxable period, the excess, if any, of the
Partnership's items of loss and deduction for such taxable period over the
Partnership's items of income and gain for such taxable period. The items
included in the calculation of Net Loss shall be determined in accordance with
EXHIBIT B. If an item of income, gain, loss or deduction that has been included
in the initial computation of Net Loss is subjected to the special allocation
rules in EXHIBIT C hereto, Net Loss or the resulting Net Income, whichever the
case may be, shall be recomputed without regard to such item.
"NEW SECURITIES" means (i) any rights, options, warrants or
convertible or exchangeable securities having the right to subscribe for or
purchase shares of capital stock (or other comparable equity interest) of the
General Partner, excluding grants under any Stock
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Option Plan, or (ii) any Debt issued by the General Partner that provides any of
the rights described in clause (i).
"NONRECOURSE BUILT-IN GAIN" means, with respect to any Contributed
Properties or Adjusted Properties that are subject to a mortgage or negative
pledge securing a Nonrecourse Liability, the amount of any taxable gain that
would be allocated to the Partners pursuant to Section 2.B of EXHIBIT C hereto
if such properties were disposed of in a taxable transaction in full
satisfaction of such liabilities and for no other consideration.
"NONRECOURSE DEDUCTIONS" has the meaning set forth in Regulations
Section 1.704-2(b)(1), and the amount of Nonrecourse Deductions for a
Partnership Year shall be determined in accordance with the rules of Regulations
Section 1.704-2(c).
"NONRECOURSE LIABILITY" has the meaning set forth in Regulations
Section 1.752-1(a)(2).
"NOTICE OF REDEMPTION" means a Notice of Redemption substantially in
the form of EXHIBIT D attached hereto.
"PARTNER" means the General Partner or a Limited Partner, and
"Partners" means the General Partner and the Limited Partners.
"PARTNER MINIMUM GAIN" means an amount, with respect to each Partner
Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if
such Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Regulations Section 1.704-2(i)(3).
"PARTNER NONRECOURSE DEBT" has the meaning set forth in Regulations
Section 1.704-2(b)(4).
"PARTNER NONRECOURSE DEDUCTIONS" has the meaning set forth in
Regulations Section 1.704-2(i)(2), and the amount of Partner Nonrecourse
Deductions with respect to a Partner Nonrecourse Debt for a Partnership Year
shall be determined in accordance with the rules of Regulations Section
1.704-2(i)(2).
"PARTNERSHIP" means the limited partnership formed under the Act and
continued upon the terms and conditions set forth in this Agreement, and any
successor thereto.
"PARTNERSHIP INTEREST" means a Limited Partnership Interest or the
General Partnership Interest and includes any and all benefits to which the
holder of such a Partnership Interest may be entitled as provided in this
Agreement, together with all obligations of such Person to comply with the terms
and provisions of this Agreement. A Partnership Interest may be expressed as a
number of Partnership Units.
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"PARTNERSHIP MINIMUM GAIN" has the meaning set forth in Regulations
Section 1.704-2(b)(2), and the amount of Partnership Minimum Gain, as well as
any net increase or decrease in Partnership Minimum Gain, for a Partnership Year
shall be determined in accordance with the rules of Regulations Section
1.704-2(d).
"PARTNERSHIP RECORD DATE" means the record date established by the
General Partner either (i) for the distribution of Available Cash pursuant to
Section 5.1 hereof, which record date shall be the same as the record date
established by the General Partner Entity for a distribution to its shareholders
of some or all of its portion of such distribution received by the General
Partner if the shares of common stock (or comparable equity interests) of the
General Partner Entity are Publicly Traded, or (ii) if applicable, for
determining the Partners entitled to vote on or consent to any proposed action
for which the consent or approval of the Partners is sought pursuant to Section
14.2 hereof.
"PARTNERSHIP UNIT" means a fractional, undivided share of the
Partnership Interests of all Partners issued pursuant to, Sections 4.1 and 4.2
hereof, and includes Class A Units, Class B Units and any other classes or
series of Partnership Units established after the date hereof. The number of
Partnership Units outstanding and the Percentage Interests in the Partnership
represented by such Partnership Units are set forth in EXHIBIT A hereto, as such
Exhibit may be amended and restated from time to time. The ownership of
Partnership Units may be evidenced by a certificate in a form approved by the
General Partner.
"PARTNERSHIP YEAR" means the fiscal year of the Partnership, which
shall be the calendar year.
"PERCENTAGE INTEREST" means, as to a Partner holding a class of
Partnership Interests, its interest in such class, determined by dividing the
Partnership Units of such class owned by such Partner by the total number of
Partnership Units of such class then outstanding as specified in EXHIBIT A
attached hereto, as such exhibit may be amended and restated from time to time,
multiplied by the aggregate Percentage Interest allocable to such class of
Partnership Interests. In the event that the Partnership shall at any time have
outstanding more than one class of Partnership Interests, the Percentage
Interest attributable to each class of Partnership Interests shall be determined
as set forth in Section 4.2.B hereof.
"PERSON" means a natural person, partnership (whether general or
limited), trust, estate, association, corporation, limited liability company,
unincorporated organization, custodian, nominee or any other individual or
entity in its own or any representative capacity.
"PREDECESSOR ENTITY" has the meaning set forth in the definition of
"Conversion Factors herein.
"PUBLICLY TRADED" means listed or admitted to trading on the New York
Stock Exchange, the American Stock Exchange or another national securities
exchange or designated for quotation on the NASDAQ National Market, or any
successor to any of the foregoing.
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"QUALIFIED REIT SUBSIDIARY" means any Subsidiary of the General
Partner that is a "qualified REIT subsidiary" within the meaning Section 856(i)
of the Code.
"RECAPTURE INCOME" means any gain recognized by the Partnership
(computed without regard to any adjustment required by Section 743 of the Code)
upon the disposition of any property or asset of the Partnership, which gain is
characterized as ordinary income because it represents the recapture of
deductions previously taken with respect to such property or asset.
"REDEEMING PARTNER" has the meaning set forth in Section 8.6.A hereof.
"REDEMPTION AMOUNT" means either the Cash Amount or the Shares Amount,
as determined by the General Partner in its sole and absolute discretion;
provided that in the event that the Shares are not Publicly Traded at the time a
Redeeming Partner exercises its Redemption Right the Redemption Amount shall be
paid only in the form of the Cash Amount unless the Redeeming Partner, in its
sole and absolute discretion, consents to payment of the Redemption Amount in
the form of the Shares Amount. A Redeeming Partner shall have no right, without
the General Partner's consent, in its sole and absolute discretion, to receive
the Redemption Amount in the form of the Shares Amount.
"REDEMPTION RIGHT" has the meaning set forth in Section 8.6.A hereof.
"REGULATIONS" means the Income Tax Regulations promulgated under the
Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"REIT" means a real estate investment trust under Section 856 of the
Code.
"REIT REQUIREMENTS" has the meaning set forth in Section 5.1.A hereof.
"REPLACEMENT PROPERTY" has the meaning set forth in Section 7.11.C
hereof.
"RESIDUAL GAIN" or "RESIDUAL LOSS" means any item of gain or loss, as
the case may be, of the Partnership recognized for federal income tax purposes
resulting from a sale, exchange or other disposition of Contributed Property or
Adjusted Property, to the extent such item of gain or loss is not allocated
pursuant to Section 2.B.1(a) or 2.B.2(a) of EXHIBIT C hereto to eliminate
Book-Tax Disparities.
"SAFE HARBOR" has the meaning set forth in Section 11.6.F hereof.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"704(C) VALUE" of any Contributed Property means the fair market value
of such property at the time of contribution as determined by the General
Partner using such reasonable method of valuation as it may adopt. Subject to
EXHIBIT B hereto, the General Partner shall, in
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its sole and absolute discretion, use such method as it deems reasonable and
appropriate to allocate the aggregate of the 704(c) Values of Contributed
Properties in a single or integrated transaction among each separate property on
a basis proportional to their fair market values. The 704(c) Values of the
Contributed Properties contributed to the Partnership as part of or in
connection with the Consolidation are set forth on EXHIBIT E attached hereto.
"SHARE" means a share of capital stock (or other comparable equity
interest) of the General Partner Entity. Shares may be issued in one or more
classes or series in accordance with the terms of the Articles of Incorporation
(or, if the General Partner is not the General Partner Entity, the
organizational documents of the General Partner Entity). In the event that
there is more than one class or series of Shares, the term "Shares" shall, as
the context requires, be deemed to refer to the class or series of Shares that
correspond to the class or series of Partnership Interests for which the
reference to Shares is made. When used with reference to Class A Units, the
term "Shares" refers to shares of common stock (or other comparable equity
interest) of the General Partner Entity.
"SHARES AMOUNT" means a number of Shares equal to the product of the
number of Partnership Units offered for redemption by a Redeeming Partner times
the Conversion Factor; PROVIDED THAT, in the event the General Partner Entity
issues to all holders of Shares rights, options, warrants or convertible or
exchangeable securities entitling such holders to subscribe for or purchase
Shares or any other securities or property (collectively, the "rights"), then
the Shares Amount for any Partnership Units outstanding prior to the issuance of
such rights shall also include such rights that a holder of that number of
Shares would be entitled to receive; and PROVIDED, FURTHER that, the Shares
Amount shall be adjusted pursuant to Section 7.5 hereof in the event that the
General Partner acquires material assets other than on behalf of the
Partnership.
"673 FIRST AVENUE PROPERTY" has the meaning set forth in Section
7.11.C hereof.
"673 FIRST AVENUE REALTY COMPANY" means 673 First Realty Company, a
New York general partnership.
"673 FIRST AVENUE UNITS" has the meaning set forth in Section 7.11.C
hereof.
"SPECIFIED REDEMPTION DATE" means the tenth Business Day after receipt
by the General Partner of a Notice of Redemption; PROVIDED THAT, if the Shares
are not Publicly Traded, the Specified Redemption Date means the thirtieth
Business Day after receipt by the General Partner of a Notice of Redemption.
"STOCK OPTION PLAN" means any stock incentive plan of the General
Partner, the Partnership or any Affiliate of the Partnership or the General
Partner.
"SUBSIDIARY" means, with respect to any Person, any corporation,
limited liability company, partnership or joint venture, or other entity of
which a majority of (i) the voting
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power of the voting equity securities or (ii) the outstanding equity interests
is owned, directly or indirectly, by such Person.
"SUBSTITUTED LIMITED PARTNER" means a Person who is admitted as a
Limited Partner to the Partnership pursuant to Section 11.4 hereof.
"SUCCESSOR ENTITY" has the meaning set forth in the definition of
"Conversion Factor" herein.
"SUCCESSOR PARTNERSHIP" has the meaning set forth in Section 7.11.C
hereof.
"TENANT" means any tenant from which the General Partner derives rent,
either directly or indirectly through partnerships, including the Partnership,
or through any Qualified REIT Subsidiary.
"TERMINATING CAPITAL TRANSACTION" means any sale or other disposition
of all or substantially all of the assets of the Partnership for cash or a
related series of transactions that, taken together, result in the sale or other
disposition of all or substantially all of the assets of the Partnership for
cash.
"TERMINATION TRANSACTION" has the meaning set forth in Section 11.2.B
hereof.
"TRANSFERRED PROPERTY" has the meaning set forth in Section 7.11.C
hereof.
"UNREALIZED GAIN" attributable to any item of Partnership property
means, as of any date of determination, the excess, if any, of (i) the fair
market value of such property (as determined under EXHIBIT B hereto) as of such
date, over (ii) the Carrying Value of such property (prior to any adjustment to
be made pursuant to EXHIBIT B hereto) as of such date.
"UNREALIZED LOSS" attributable to any item of Partnership property
means, as of any date of determination, the excess, if any, of (i) the Carrying
Value of such property (prior to any adjustment to be made pursuant to EXHIBIT B
hereto) as of such date, over (ii) the fair market value of such property (as
determined under EXHIBIT B hereto) as of such date.
"VALUATION DATE" means the date of receipt by the General Partner of a
Notice of Redemption or, if such date is not a Business Day, the first Business
Day thereafter.
"VALUE" means, with respect to any outstanding Shares of the General
Partner Entity that are Publicly Traded, the average of the daily market price
for the ten (10) consecutive trading days immediately preceding the date with
respect to which value must be determined or, if such date is not a Business
Day, the immediately preceding Business Day. The market price for each such
trading day shall be the closing price, regular way, on such day, or if no such
sale takes place on such day, the average of the closing bid and asked prices on
such day. In the event that the outstanding Shares of the General Partner
Entity are Publicly Traded
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and the Shares Amount includes rights that a holder of Shares would be entitled
to receive, then the Value of such rights shall be determined by the General
Partner acting in good faith on the basis of such quotations and other
information as it considers, in its reasonable judgment, appropriate. In the
event that the Shares of the General Partner Entity are not Publicly Traded, the
Value of the Shares Amount per Partnership Unit offered for redemption (which
will be the Cash Amount per Partnership Unit offered for redemption payable
pursuant to Section 8.6.A hereof) means the amount that a holder of one
Partnership Unit would receive if each of the assets of the Partnership were to
be sold for its fair market value on the Specified Redemption Date, the
Partnership were to pay all of its outstanding liabilities, and the remaining
proceeds were to be distributed to the Partners in accordance with the terms of
this Agreement. Such Value shall be determined by the General Partner, acting
in good faith and based upon a commercially reasonable estimate of the amount
that would be realized by the Partnership if each asset of the Partnership (and
each asset of each Partnership, limited liability company, joint venture or
other entity in which the Partnership owns a direct or indirect interest) were
sold to an unrelated purchaser in an arms' length transaction where neither the
purchaser nor the seller were under economic compulsion to enter into the
transaction (without regard to any discount in value as a result of the
Partnership's minority interest in any property or any illiquidity of the
Partnership's interest in any property). In connection with determining the
Deemed Value of the Partnership Interest for purposes of determining the number
of additional Partnership Units issuable upon a Capital Contribution funded by
an underwritten public offering of shares of capital stock (or other comparable
equity interest) of the General Partner, the Value of such shares shall be the
public offering price per share of such class of the capital stock (or other
comparable equity interest) sold.
ARTICLE II
ORGANIZATIONAL MATTERS
SECTION 2.1 ORGANIZATION
The Partnership is a limited partnership organized pursuant to the
provisions of the Act and upon the terms and conditions set forth in the Prior
Agreement. The Partners hereby continue the Partnership and amend and restate
the Prior Agreement in its entirety. Except as expressly provided herein to the
contrary, the rights and obligations of the Partners and the administration and
termination of the Partnership shall be governed by the Act. The Partnership
Interest of each Partner shall be personal property for all purposes.
SECTION 2.2 NAME
The name of the Partnership is SL Green Operating Partnership, L.P.
The Partnership's business may be conducted under any other name or names deemed
advisable by the General Partner, including the name of the General Partner or
any Affiliate thereof. The words "Limited Partnership," "L.P.," "Ltd." or
similar words or letters shall be included in the Partnership's name where
necessary for the purposes of complying with the laws of any
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jurisdiction that so requires. The General Partner in its sole and absolute
discretion may change the name of the Partnership at any time and from time to
time and shall notify the Limited Partners of such change in the next regular
communication to the Limited Partners.
SECTION 2.3 REGISTERED OFFICE AND AGENT; PRINCIPAL OFFICE
The address of the registered office of the Partnership in the State
of Delaware shall be located at Corporation Trust Center, 1209 Orange Street,
Wilmington, County of New Castle, Delaware 19801, and the registered agent for
service of process on the Partnership in the State of Delaware at such
registered office shall be Corporation Trust Company. The principal office of
the Partnership shall be 70 West 36th Street, New York, New York 10018, or such
other place as the General Partner may from time to time designate by notice to
the Limited Partners. The Partnership may maintain offices at such other place
or places within or outside the State of Delaware as the General Partner deems
advisable.
SECTION 2.4 TERM
The term of the Partnership commenced on ______________, 1997, the
date on which the Certificate was filed in the office of the Secretary of State
of the State of Delaware in accordance with the Act, and shall continue until
December 31, 209__, unless it is dissolved sooner pursuant to the provisions of
Article XIII hereof or as otherwise provided by law.
ARTICLE III
PURPOSE
SECTION 3.1 PURPOSE AND BUSINESS
The purpose and nature of the business to be conducted by the
Partnership is (i) to conduct any business that may be lawfully conducted by a
limited partnership organized pursuant to the Act; PROVIDED, HOWEVER, that such
business shall be limited to and conducted in such a manner as to permit the
General Partner Entity at all times to be classified as a REIT, unless the
General Partner ceases to qualify or is not qualified as a REIT for any reason
or reasons not related to the business conducted by the Partnership; (ii) to
enter into any partnership, joint venture, limited liability company or other
similar arrangement to engage in any of the foregoing or the ownership of
interests in any entity engaged, directly or indirectly, in any of the
foregoing; and (iii) to do anything necessary or incidental to the foregoing.
In connection with the foregoing, the Partners acknowledge that the status of
the General Partner Entity as a REIT inures to the benefit of all the Partners
and not solely the General Partner or its Affiliates.
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SECTION 3.2 POWERS
The Partnership is empowered to do any and all acts and things
necessary, appropriate, proper, advisable, incidental to or convenient for the
furtherance and accomplishment of the purposes and business described herein and
for the protection and benefit of the Partnership, including, without
limitation, full power and authority, directly or through its ownership interest
in other entities, to enter into, perform and carry out contracts of any kind,
borrow money and issue evidences of indebtedness whether or not secured by
mortgage, deed of trust, pledge or other lien, acquire, own, manage, improve and
develop real property, and lease, sell, transfer and dispose of real property;
PROVIDED, HOWEVER, that the Partnership shall not take, or refrain from taking,
any action which, in the judgment of the General Partner, in its sole and
absolute discretion, (i) could adversely affect the ability of the General
Partner Entity to continue to qualify as a REIT, (ii) could subject the General
Partner Entity to any additional taxes under Section 857 or Section 4981 of the
Code or (iii) could violate any law or regulation of any governmental body or
agency having jurisdiction over the General Partner Entity or its securities,
unless such action (or inaction) shall have been specifically consented to by
the General Partner in writing.
SECTION 3.3 PARTNERSHIP ONLY FOR PURPOSES SPECIFIED
The Partnership shall be a partnership only for the purposes specified
in Section 3.1 above, and this Agreement shall not be deemed to create a
partnership among the Partners with respect to any activities whatsoever other
than the activities within the purposes of the Partnership as specified in
Section 3.1 above.
ARTICLE IV
CAPITAL CONTRIBUTIONS AND ISSUANCES
OF PARTNERSHIP INTERESTS
SECTION 4.1 CAPITAL CONTRIBUTIONS OF THE PARTNERS
A. INITIAL CAPITAL CONTRIBUTIONS AND RECAPITALIZATION OF THE
PARTNERSHIP ON THE EFFECTIVE DATE. On the Effective Date, the Partners will
make Capital Contributions to the Partnership in connection with the
Consolidation. On the Effective Date, the General Partner will complete EXHIBIT
A hereto to reflect the Capital Contributions made by each Partner, the
Partnership Units assigned to each Partner and the Percentage Interest in the
Partnership represented by such Partnership Units. The Capital Accounts of the
Partners and the Carrying Values of the Partnership's Assets shall be determined
as of the Effective Date pursuant to Section I.D of EXHIBIT B hereto to reflect
the Capital Contributions made on the Effective Date.
B. GENERAL PARTNERSHIP INTEREST. A number of Partnership Units held
by the General Partner equal to one percent (1%) of all outstanding Partnership
Units shall be deemed to be the General Partner Partnership Units and shall be
the General Partnership Interest. All
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other Partnership Units held by the General Partner shall be deemed to be
Limited Partnership Interests and shall be held by the General Partner in its
capacity as a Limited Partner in the Partnership.
C. CAPITAL CONTRIBUTIONS BY MERGER. To the extent the Partnership
acquires any property by the merger of any other Person into the Partnership,
Persons who receive Partnership Interests in exchange for their interests in the
Person merging into the Partnership shall become Partners and shall be deemed to
have made Capital Contributions as provided in the applicable merger agreement
and as set forth in EXHIBIT A hereto.
D. NO OBLIGATION TO MAKE ADDITIONAL CAPITAL CONTRIBUTIONS. Except
as provided in Sections 7.5 and 10.5 hereof, the Partners shall have no
obligation to make any additional Capital Contributions or provide any
additional funding to the Partnership (whether in the form of loans, repayments
of loans or otherwise). No Partner shall have any obligation to restore any
deficit that may exist in its Capital Account, either upon a liquidation of the
Partnership or otherwise.
SECTION 4.2 ISSUANCES OF PARTNERSHIP INTERESTS
A. GENERAL. The General Partner is hereby authorized to cause the
Partnership from time to time to issue to Partners (including the General
Partner and its Affiliates) or other Persons (including, without limitation, in
connection with the contribution of property to the Partnership) Partnership
Units or other Partnership Interests in one or more classes, or in one or more
series of any of such classes, with such designations, preferences and relative,
participating, optional or other special rights, powers and duties, including
rights, powers and duties senior to Limited Partnership Interests, all as shall
be determined, subject to applicable Delaware law, by the General Partner in its
sole and absolute discretion, including, without limitation, (i) the allocations
of items of Partnership income, gain, loss, deduction and credit to each such
class or series of Partnership Interests, (ii) the right of each such class or
series of Partnership Interests to share in Partnership distributions and (iii)
the rights of each such class or series of Partnership Interests upon
dissolution and liquidation of the Partnership; PROVIDED THAT, no such
Partnership Units or other Partnership Interests shall be issued to the General
Partner unless either (a) the Partnership Interests are issued in connection
with the grant, award or issuance of Shares or other equity interests in the
General Partner having designations, preferences and other rights such that the
economic interests attributable to such Shares or other equity interests are
substantially similar to the designations, preferences and other rights (except
voting rights) of the additional Partnership Interests issued to the General
Partner in accordance with this Section 4.2.A or (b) the Partnership Interests
are issued to all Partners holding Partnership Interests in the same class in
proportion to their respective Percentage Interests in such class. In the event
that the Partnership issues Partnership Interests pursuant to this Section
4.2.A, the General Partner shall make such revisions to this Agreement
(including but not limited to the revisions described in Section 5.4, Section
6.2 and Section 8.6 hereof) as it deems necessary to reflect the issuance of
such additional Partnership Interests.
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B. PERCENTAGE INTEREST ADJUSTMENTS IN THE CASE OF CAPITAL
CONTRIBUTIONS FOR PARTNERSHIP UNITS. Upon the acceptance of additional Capital
Contributions in exchange for Partnership Units, the Percentage Interest related
thereto shall be equal to a fraction, the numerator of which is equal to the
amount of cash, if any, plus the Agreed Value of Contributed Property, if any,
contributed with respect to such additional Partnership Units and the
denominator of which is equal to the sum of (i) the Deemed Value of the
Partnership Interests for all outstanding classes (computed as of the Business
Day immediately preceding the date on which the additional Capital Contributions
are made (an "Adjustment Date")) plus (ii) the aggregate amount of additional
Capital Contributions contributed to the Partnership on such Adjustment Date in
respect of such additional Partnership Units. The Percentage Interest of each
other Partner holding Partnership Interests not making a full pro rata Capital
Contribution shall be adjusted to a fraction the numerator of which is equal to
the sum of (i) the Deemed Partnership Interest Value of such Limited Partner
(computed as of the Business Day immediately preceding the Adjustment Date) plus
(ii) the amount of additional Capital Contributions (such amount being equal to
the amount of cash, if any, plus the Agreed Value of Contributed Property, if
any, so contributed), if any, made by such Partner to the Partnership in respect
of such Partnership Interest as of such Adjustment Date and the denominator of
which is equal to the sum of (i) the Deemed Value of the Partnership Interests
of all outstanding classes (computed as of the Business Day immediately
preceding such Adjustment Date) plus (ii) the aggregate amount of the additional
Capital Contributions contributed to the Partnership on such Adjustment Date in
respect of such additional Partnership Interests. For purposes of calculating a
Partner's Percentage Interest pursuant to this Section 4.2.B, cash Capital
Contributions by the General Partner will be deemed to equal the cash
contributed by the General Partner plus (a) in the case of cash contributions
funded by an offering of any equity interests in or other securities of the
General Partner, the offering costs attributable to the cash contributed to the
Partnership, and (b) in the case of Partnership Units issued pursuant to Section
7.5.E hereof, an amount equal to the difference between the Value of the Shares
sold pursuant to any Stock Option Plan and the net proceeds of such sale.
C. CLASSES OF PARTNERSHIP UNITS. From and after the Effective Date,
subject to Section 4.2.A above, the Partnership shall have two classes of
Partnership Units, entitled "Class A Units" and "Class B Units." Either Class A
Units or Class B Units, at the election of the General Partner, in its sole and
absolute discretion, may be issued to newly admitted Partners in exchange for
the contribution by such Partners of cash, real estate partnership interests,
stock, notes or other assets or consideration; PROVIDED, that all Partnership
Units issued to Partners in connection with the Consolidation shall be Class A
Units; and, PROVIDED, FURTHER, that any Partnership Unit that is not
specifically designated by the General Partner as being of a particular class
shall be deemed to be a Class A Unit. Each Class B Unit shall be converted
automatically into a Class A Unit on the day immediately following the
Partnership Record Date for the Distribution Period (as defined in Section 5.1.C
hereof) in which such Class B Unit was issued, without the requirement for any
action by either the Partnership or the Partner holding the Class B Unit.
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SECTION 4.3 NO PREEMPTIVE RIGHTS
Except to the extent expressly granted by the Partnership pursuant to
another agreement, no Person shall have any preemptive, preferential or other
similar right with respect to (i) additional Capital Contributions or loans to
the Partnership or (ii) issuance or sale of any Partnership Units or other
Partnership Interests.
SECTION 4.4 OTHER CONTRIBUTION PROVISIONS
In the event that any Partner is admitted to the Partnership and is
given a Capital Account in exchange for services rendered to the Partnership,
such transaction shall be treated by the Partnership and the affected Partner as
if the Partnership had compensated such Partner in cash, and the Partner had
contributed such cash to the capital of the Partnership.
SECTION 4.5 NO INTEREST ON CAPITAL
No Partner shall be entitled to interest on its Capital Contributions
or its Capital Account.
ARTICLE V
DISTRIBUTIONS
SECTION 5.1 REQUIREMENT AND CHARACTERIZATION OF DISTRIBUTIONS
A. GENERAL. The General Partner shall distribute at least quarterly
an amount equal to one hundred percent (100%) of Available Cash generated by the
Partnership during such quarter or shorter period to the Partners who are
Partners on the Partnership Record Date with respect to such quarter or shorter
period as provided in Sections 5.1.B, 6.1.C and 5.1.D below. Notwithstanding
anything to the contrary contained herein, in no event may a Partner receive a
distribution of Available Cash with respect to a Partnership Unit for a quarter
or shorter period if such Partner is entitled to receive a distribution out of
such Available Cash with respect to a Share for which such Partnership Unit has
been redeemed or exchanged. Unless otherwise expressly provided for herein or
in an agreement at the time a new class of Partnership Interests is created in
accordance with Article IV hereof, no Partnership Interest shall be entitled to
a distribution in preference to any other Partnership Interest. The General
Partner shall make such reasonable efforts, as determined by it in its sole and
absolute discretion and consistent with the qualification of the General Partner
Entity as a REIT, to distribute Available Cash (a) to Limited Partners so as to
preclude any such distribution or portion thereof from being treated as part of
a sale of property by a Limited Partner under Section 707 Code or the
Regulations thereunder; PROVIDED THAT, the General Partner and the Partnership
shall not have liability to a Limited Partner under any circumstances as a
result of any distribution to a Limited Partner being so treated, and (b) to the
General Partner in an amount sufficient to enable the General Partner Entity to
pay stockholder dividends that will (1) satisfy the requirements for
qualification as a
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REIT under the Code and the Regulations (the "REIT Requirements") and (2) avoid
any federal income or excise tax liability for the General Partner Entity.
B. METHOD. (i) Each holder of Partnership Interests that are
entitled to any preference in distribution shall be entitled to a distribution
in accordance with the rights of any such class of Partnership Interests (and,
within such class, pro rata in proportion to the respective Percentage Interests
on such Partnership Record Date); and
(ii) To the extent there is Available Cash remaining after the payment
of any preference in distribution in accordance with the foregoing clause (i),
with respect to Partnership Interests that are not entitled to any preference in
distribution, pro rata to each such class in accordance with the terms of such
class (and, within each such class, pro rata in proportion to the respective
Percentage Interests on such Partnership Record Date).
C. DISTRIBUTIONS WHEN CLASS B UNITS ARE OUTSTANDING. If for any
quarter or shorter period with respect to which a distribution is to be made (a
"Distribution Period") Class B Units are outstanding on the Partnership Record
Date for such Distribution Period, the General Partner shall allocate the
Available Cash with respect to such Distribution Period available for
distribution with respect to the Class A Units and Class B Units collectively
between the Partners who are holders of Class A Units ("Class A") and the
Partners who are holders of Class B Units ("Class B") as follows:
(1) Class A shall receive that portion of the Available Cash
(the "Class A Share") determined by multiplying the amount of
Available Cash by the following fraction:
A X Y
-------------------
(A x Y)+(B x X)
(2) Class B shall receive that portion of the Available Cash
(the "Class B Share") determined by multiplying the amount of
Available Cash by the following fraction:
B X X
-------------------
(A x Y)+(B x X)
(3) For purposes of the foregoing formulas, (i) "A" equals the
number of Class A Units outstanding on the Partnership Record Date for
such Distribution Period; (ii) "B" equals the number of Class B Units
outstanding on the Partnership Record Date for such Distribution
Period; (iii) "Y" equals the number of days in the Distribution
Period; and (iv) "X" equals the number of days in the Distribution
Period for which the Class B Units were issued and outstanding.
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The Class A Share shall be distributed among Partners holding Class A
Units on the Partnership Record Date for the Distribution Period in accordance
with the number of Class A Units held by each Partner on such Partnership Record
Date; PROVIDED THAT, in no event may a Partner receive a distribution of
Available Cash with respect to a Class A Unit if the Partner is entitled to
receive a distribution out of such Available Cash with respect to a Share for
which such Class A Unit has been redeemed or exchanged. The Class B Share shall
be distributed among the Partners holding Class B Units on the Partnership
Record Date for the Distribution Period in accordance with the number of Class B
Units held by each Partner on such Partnership Record Date. In no event shall
any Partner holding Class B Units be entitled to receive any distribution of
Available Cash with respect to such Units for any Distribution Period ending
prior to the date on which such Class B Units are issued.
D. DISTRIBUTIONS WHEN CLASS B UNITS HAVE BEEN ISSUED ON DIFFERENT
DATES. In the event that Class B Units which have been issued on different
dates are outstanding on the Partnership Record Date for any Distribution
Period, then the Class B Units issued on each particular date shall be treated
as a separate series of Partnership Units for purposes of making the allocation
of Available Cash for such Distribution Period among the holders of Partnership
Units (and the formula for making such allocation, and the definitions of
variables used therein, shall be modified accordingly). Thus, for example, if
two series of Class B Units are outstanding on the Partnership Record Date for
any Distribution Period, the allocation formula for each series, "Series B1" and
"Series B2" would be as follows:
(1) Series B1 shall receive that portion of the Available Cash
determined by multiplying the amount of Available Cash by the
following fraction:
B1 X X1
-----------------------------------
(A x Y)+(Bl x X1)+(B2 x X2)
(2) Series B2 shall receive that portion of the Available Cash
determined by multiplying the amount of Available Cash by the
following fraction:
B2 X X2
-----------------------------------
(A x Y)+(Bl x Xl)+(B2 x X2)
(3) For purposes of the foregoing formulas the definitions set
forth in Section 5.1.C.3 above remain the same except that (i) "Bl"
equals the number of Partnership Units in Series B1 outstanding on the
Partnership Record Date for such Distribution Period; (ii) "B2" equals
the number of Partnership Units in Series B2 outstanding on the
Partnership Record Date for such Distribution Period; (iii) "Xl"
equals the number of days in the Distribution Period for which the
Partnership Units in Series B1 were issued and outstanding; and (iv)
"X2"
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equals the number of days in the Distribution Period for which the
Partnership Units in Series B2 were issued and outstanding.
E. MINIMUM DISTRIBUTIONS IF GENERAL PARTNER NOT PUBLICLY TRADED. In
addition (and without regard to the amount of Available Cash), if the shares of
common stock (or other comparable equity interests) of the General Partner
Entity are not Publicly Traded, the General Partner shall make cash
distributions with respect to the Class A Units at least annually for each
taxable year of the Partnership beginning prior to the fifteenth (15th)
anniversary of the Effective Date in an aggregate amount with respect to each
such taxable year at least equal to 95% of the Partnership's taxable income for
such year allocable to the Class A Units, with such distributions to be made not
later than 60 days after the end of such year.
SECTION 5.2 AMOUNTS WITHHELD
All amounts withheld pursuant to the Code or any provisions of any
state or local tax law and Section 10.5 hereof with respect to any allocation,
payment or distribution to the General Partner, the Limited Partners or
Assignees shall be treated as amounts distributed to the General Partner,
Limited Partners or Assignees pursuant to Section 5.1 above for all purposes
under this Agreement.
SECTION 5.3 DISTRIBUTIONS UPON LIQUIDATION
Proceeds from a Terminating Capital Transaction shall be distributed
to the Partners in accordance with Section 13.2 hereof.
SECTION 5.4 REVISIONS TO REFLECT ISSUANCE OF ADDITIONAL PARTNERSHIP
INTERESTS
In the event that the Partnership issues additional Partnership
Interests to the General Partner or any Additional Limited Partner pursuant to
Article IV hereof, the General Partner shall make such revisions to this Article
V as it deems necessary to reflect the issuance of such additional Partnership
Interests.
ARTICLE VI
ALLOCATIONS
SECTION 6.1 ALLOCATIONS FOR CAPITAL ACCOUNT PURPOSES
For purposes of maintaining the Capital Accounts and in determining
the rights of the Partners among themselves, the Partnership's items of income,
gain, loss and deduction (computed in accordance with EXHIBIT B hereto) shall be
allocated among the Partners in each taxable year (or portion thereof) as
provided hereinbelow.
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A. NET INCOME. After giving effect to the special allocations set
forth in Section 1 of EXHIBIT C hereto, Net Income shall be allocated (i) first,
to the General Partner to the extent that Net Losses previously allocated to the
General Partner pursuant to the last sentence of Section 6.1.B below exceed Net
Income previously allocated to the General Partner pursuant to this clause (i)
of Section 6.1.A, (ii) second, to the holders of any Partnership Interests that
are entitled to any preference in distribution in accordance with the rights of
any such class of Partnership Interests until each such Partnership Interest has
been allocated, on a cumulative basis pursuant to this clause (ii), Net Income
equal to the sum of the amount of distributions received with respect to such
Partnership Interests pursuant to clause (i) of Section 5.1.B hereof and the
amount of any prior allocations of Net Losses to such class of Partnership
Interests pursuant to Section 6.1.B(i) below (and, within such class, pro rata
in proportion to the respective interests in such class as of the last day of
the period for which such allocation is being made) and (iii) third, with
respect to Partnership Interests that are not entitled to any preference in the
allocation of Net Income, pro rata to each such class in accordance with the
terms of such class (and, within such class, pro rata in proportion to the
respective interests in such class as of the last day of the period for which
such allocation is being made).
B. NET LOSSES. After giving effect to the special allocations set
forth in Section 1 of EXHIBIT C hereto, Net Losses shall be allocated (i) first,
to the holders of any Partnership Interests that are entitled to any preference
in distribution in accordance with the rights of any such class of Partnership
Interests to the extent that any prior allocations of Net Income to such class
of Partnership Interests pursuant to Section 6.1.A(ii) above exceed, on a
cumulative basis, distributions with respect to such Partnership Interests
pursuant to clause (i) of Section 5.1.B hereof (and, within such class, pro rata
in proportion to the respective interests in such class as of the last day of
the period for which such allocation is being made) and (ii) second, with
respect to classes of Partnership Interests that are not entitled to any
preference in distribution, pro rata to each such class in accordance with the
terms of such class (and, within such class, pro rata in proportion to the
respective interests in such class as of the last day of the period for which
such allocation is being made); PROVIDED THAT, Net Losses shall not be allocated
to any Limited Partner pursuant to this Section 6.1.B to the extent that such
allocation would cause such Limited Partner to have an Adjusted Capital Account
Deficit (or increase any existing Adjusted Capital Account Deficit) at the end
of such taxable year (or portion thereof). All Net Losses in excess of the
limitations set forth in this Section 6.1.B shall be allocated to the General
Partner.
C. ALLOCATION OF NONRECOURSE DEBT. For purposes of Regulations
Section 1.752-3(a), the Partners agree that Nonrecourse Liabilities of the
Partnership in excess of the sum of (i) the amount of Partnership Minimum Gain
and (ii) the total amount of Nonrecourse Built-in Gain shall be allocated among
the Partners in accordance with their respective Percentage Interests.
D. RECAPTURE INCOME. Any gain allocated to the Partners upon the
sale or other taxable disposition of any Partnership asset shall, to the extent
possible after taking into account other required allocations of gain pursuant
to EXHIBIT C hereto, be characterized as
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Recapture Income in the same proportions and to the same extent as such Partners
have been allocated any deductions directly or indirectly giving rise to the
treatment of such gains as Recapture Income.
SECTION 6.2 REVISIONS TO ALLOCATIONS TO REFLECT ISSUANCE OF ADDITIONAL
PARTNERSHIP INTERESTS
In the event that the Partnership issues additional Partnership
Interests to the General Partner or any Additional Limited Partner pursuant to
Article IV hereof, the General Partner shall make such revisions to this Article
VI as it deems necessary to reflect the terms of the issuance of such additional
Partnership Interests, including making preferential allocations to classes of
Partnership Interests that are entitled thereto. Such revisions shall not
require the consent or approval of any other Partner.
ARTICLE VII
MANAGEMENT AND OPERATIONS OF BUSINESS
SECTION 7.1 MANAGEMENT
A. POWERS OF GENERAL PARTNER. Except as otherwise expressly
provided in this Agreement, all management powers over the business and affairs
of the Partnership are and shall be exclusively vested in the General Partner,
and no Limited Partner shall have any right to participate in or exercise
control or management power over the business and affairs of the Partnership.
The General Partner may not be removed by the Limited Partners with or without
cause; PROVIDED, HOWEVER, that if the Shares (or comparable equity securities)
of the General Partner Entity are not Publicly Traded, the General Partner may
be removed with cause with the Consent of the Outside Limited Partners. In
addition to the powers now or hereafter granted a general partner of a limited
partnership under applicable law or which are granted to the General Partner
under any other provision of this Agreement, the General Partner, subject to
Sections 7.6 and 7.11 below, shall have full power and authority to do all
things deemed necessary or desirable by it to conduct the business of the
Partnership, to exercise all powers set forth in Section 3.2 hereof and to
effectuate the purposes set forth in Section 3.1 hereof, including, without
limitation:
(1) the making of any expenditures, the lending or borrowing
of money (including, without limitation, making
prepayments on loans and borrowing money to permit the
Partnership to make distributions to its Partners in such
amounts as are required under Section 5.1.E hereof or will
permit the General Partner Entity (as long as the General
Partner Entity qualifies as a REIT) to avoid the payment
of any federal income tax (including, for this purpose,
any excise tax pursuant to Section 4981 of the Code) and
to make distributions to its shareholders sufficient to
permit the General
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Partner Entity to maintain REIT status, the assumption or
guarantee of, or other contracting for, indebtedness and
other liabilities, the issuance of evidences of
indebtedness (including the securing of same by mortgage,
deed of trust or other lien or encumbrance on the
Partnership's assets) and the incurring of any obligations
the General Partner deems necessary for the conduct of the
activities of the Partnership;
(2) the making of tax, regulatory and other filings, or
rendering of periodic or other reports to governmental or
other agencies having jurisdiction over the business or
assets of the Partnership;
(3) the acquisition, disposition, mortgage, pledge,
encumbrance, hypothecation or exchange of any or all of
the assets of the Partnership (including the exercise or
grant of any conversion, option, privilege or subscription
right or other right available in connection with any
assets at any time held by the Partnership) or the merger
or other combination of the Partnership with or into
another entity, on such terms as the General Partner deems
proper;
(4) the use of the assets of the Partnership (including,
without limitation, cash on hand) for any purpose
consistent with the terms of this Agreement and on any
terms it sees fit, including, without limitation, the
financing of the conduct of the operations of the
Partnership or any of the Partnership's Subsidiaries, the
lending of funds to other Persons (including, without
limitation, the Partnership's Subsidiaries) and the
repayment of obligations of the Partnership and its
Subsidiaries and any other Person in which the Partnership
has an equity investment and the making of capital
contributions to its Subsidiaries;
(5) the management, operation, leasing, landscaping, repair,
alteration, demolition or improvement of any real property
or improvements owned by the Partnership or any Subsidiary
of the Partnership or any Person in which the Partnership
has made a direct or indirect equity investment;
(6) the negotiation, execution, and performance of any
contracts, conveyances or other instruments that the
General Partner considers useful or necessary to the
conduct of the Partnership's operations or the
implementation of the General Partner's powers under this
Agreement, including contracting with contractors,
developers, consultants, accountants, legal counsel, other
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professional advisors, and other agents and the payment of
their expenses and compensation out of the Partnership's
assets;
(7) the mortgage, pledge, encumbrance or hypothecation of any
assets of the Partnership, and the use of the assets of
the Partnership (including, without limitation, cash on
hand) for any purpose consistent with the terms of this
Agreement and on any terms it sees fit, including, without
limitation, the financing of the conduct or the operations
of the General Partners or the Partnership, the lending of
funds to other Persons (including, without limitation, any
Subsidiaries of the Partnership) and the repayment of
obligations of the Partnership, any of its Subsidiaries
and any other Person in which it has an equity investment;
(8) the distribution of Partnership cash or other Partnership
assets in accordance with this Agreement;
(9) the holding, managing, investing and reinvesting of cash
and other assets of the Partnership;
(10) the collection and receipt of revenues and income of the
Partnership;
(11) the selection, designation of powers, authority and duties
and dismissal of employees of the Partnership (including,
without limitation, employees having titles such as
"president," "vice president," "secretary" and
"treasurer") and agents, outside attorneys, accountants,
consultants and contractors of the Partnership, and the
determination of their compensation and other terms of
employment or hiring;
(12) the maintenance of such insurance for the benefit of the
Partnership and the Partners as it deems necessary or
appropriate;
(13) the formation of, or acquisition of an interest (including
non-voting interests in entities controlled by Affiliates
of the Partnership or third parties) in, and the
contribution of property to, any further limited or
general partnerships, joint ventures, limited liability
companies or other relationships that it deems desirable
(including, without limitation, the acquisition of
interests in, and the contributions of funds or property,
or the making of loans, to its Subsidiaries and any other
Person in which it has an equity investment from time to
time or the incurrence of indebtedness on behalf of such
Persons or the guarantee of obligations of such
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Persons); provided that, as long as the General Partner
has determined to qualify as a REIT, the Partnership may
not engage in any such formation, acquisition or
contribution that would cause the General Partner to fail
to qualify as a REIT);
(14) the control of any matters affecting the rights and
obligations of the Partnership, including the settlement,
compromise, submission to arbitration or any other form of
dispute resolution or abandonment of any claim, cause of
action, liability, debt or damages due or owing to or from
the Partnership, the commencement or defense of suits,
legal proceedings, administrative proceedings,
arbitrations or other forms of dispute resolution, the
representation of the Partnership in all suits or legal
proceedings, administrative proceedings, arbitrations or
other forms of dispute resolution, the incurring of legal
expense and the indemnification of any Person against
liabilities and contingencies to the extent permitted by
law;
(15) the determination of the fair market value of any
Partnership property distributed in kind, using such
reasonable method of valuation as the General Partner may
adopt;
(16) the exercise, directly or indirectly, through any
attorney-in-fact acting under a general or limited power
of attorney, of any right, including the right to vote,
appurtenant to any assets or investment held by the
Partnership;
(17) the exercise of any of the powers of the General Partner
enumerated in this Agreement on behalf of or in connection
with any Subsidiary of the Partnership or any other Person
in which the Partnership has a direct or indirect
interest, individually or jointly with any such Subsidiary
or other Person;
(18) the exercise of any of the powers of the General Partner
enumerated in this Agreement on behalf of any Person in
which the Partnership does not have any interest pursuant
to contractual or other arrangements with such Person;
(19) the making, executing and delivering of any and all deeds,
leases, notes, deeds to secure debt, mortgages, deeds of
trust, security agreements, conveyances, contracts,
guarantees, warranties, indemnities, waivers, releases or
other legal instruments or agreements in writing necessary
or appropriate in the judgment of
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the General Partner for the accomplishment of any of the
powers of the General Partner under this Agreement;
(20) the distribution of cash to acquire Partnership Units held
by a Limited Partner in connection with a Limited
Partner's exercise of its Redemption Right under Section
8.6 hereof; and
(21) the amendment and restatement of EXHIBIT A hereto to
reflect accurately at all times the Capital Contributions
and Percentage Interests of the Partners as the same are
adjusted from time to time to the extent necessary to
reflect redemptions, Capital Contributions, the issuance
of Partnership Units, the admission of any Additional
Limited Partner or any Substituted Limited Partner or
otherwise, which amendment and restatement,
notwithstanding anything in this Agreement to the
contrary, shall not be deemed an amendment of this
Agreement, as long as the matter or event being reflected
in EXHIBIT A hereto otherwise is authorized by this
Agreement.
B. NO APPROVAL BY LIMITED PARTNERS. Except as provided in Section
7.11 below, each of the Limited Partners agrees that the General Partner is
authorized to execute, deliver and perform the above-mentioned agreements and
transactions on behalf of the Partnership without any further act, approval or
vote of the Partners, notwithstanding any other provision of this Agreement, the
Act or any applicable law, rule or regulation, to the full extent permitted
under the Act or other applicable law. The execution, delivery or performance
by the General Partner or the Partnership of any agreement authorized or
permitted under this Agreement shall not constitute a breach by the General
Partner of any duty that the General Partner may owe the Partnership or the
Limited Partners or any other Persons under this Agreement or of any duty stated
or implied by law or equity.
C. INSURANCE. At all times from and after the date hereof, the
General Partner may cause the Partnership to obtain and maintain (i) casualty,
liability and other insurance on the properties of the Partnership, (ii)
liability insurance for the Indemnitees hereunder and (iii) such other insurance
as the General Partner, in its sole and absolute discretion, determines to be
necessary.
D. WORKING CAPITAL AND OTHER RESERVES. At all times from and after
the date hereof, the General Partner may cause the Partnership to establish and
maintain working capital reserves in such amounts as the General Partner, in its
sole and absolute discretion, deems appropriate and reasonable from time to
time, including upon liquidation of the Partnership pursuant to Section 13.2
hereof.
E. NO OBLIGATIONS TO CONSIDER TAX CONSEQUENCES OF LIMITED PARTNERS.
In exercising its authority under this Agreement, the General Partner may, but
shall be under no
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obligation to, take into account the tax consequences to any Partner (including
the General Partner) of any action taken (or not taken) by it. The General
Partner and the Partnership shall not have liability to a Limited Partner for
monetary damages or otherwise for losses sustained, liabilities incurred or
benefits not derived by such Limited Partner in connection with such decisions,
provided that the General Partner has acted in good faith and pursuant to its
authority under this Agreement.
SECTION 7.2 CERTIFICATE OF LIMITED PARTNERSHIP
The General Partner has previously filed the Certificate with the
Secretary of State of Delaware. To the extent that such action is determined by
the General Partner to be reasonable and necessary or appropriate, the General
Partner shall file amendments to and restatements of the Certificate and do all
the things to maintain the Partnership as a limited partnership (or a
partnership in which the limited partners have limited liability) under the laws
of the State of Delaware and each other state, the District of Columbia or other
jurisdiction in which the Partnership may elect to do business or own property.
Subject to the terms of Section 8.5.A(4) hereof, the General Partner shall not
be required, before or after filing, to deliver or mail a copy of the
Certificate or any amendment thereto to any Limited Partner. The General
Partner shall use all reasonable efforts to cause to be filed such other
certificates or documents as may be reasonable and necessary or appropriate for
the formation, continuation, qualification and operation of a limited
partnership (or a partnership in which the limited partners have limited
liability) in the State of Delaware and any other state, the District of
Columbia or other jurisdiction in which the Partnership may elect to do business
or own property.
SECTION 7.3 TITLE TO PARTNERSHIP ASSETS
Title to Partnership assets, whether real, personal or mixed and
whether tangible or intangible, shall be deemed to be owned by the Partnership
as an entity, and no Partners, individually or collectively, shall have any
ownership interest in such Partnership assets or any portion thereof. Title to
any or all of the Partnership assets may be held in the name of the Partnership,
the General Partner or one or more nominees, as the General Partner may
determine, including Affiliates of the General Partner. The General Partner
hereby declares and warrants that any Partnership assets for which legal title
is held in the name of the General Partner or any nominee or Affiliate of the
General Partner shall be held by the General Partner for the use and benefit of
the Partnership in accordance with the provisions of this Agreement; PROVIDED,
HOWEVER, that the General Partner shall use its best efforts to cause beneficial
and record title to such assets to be vested in the Partnership as soon as
reasonably practicable. All Partnership assets shall be recorded as the
property of the Partnership in its books and records, irrespective of the name
in which legal title to such Partnership assets is held.
SECTION 7.4 REIMBURSEMENT OF THE GENERAL PARTNER
A. NO COMPENSATION. Except as provided in this Section 7.4 and
elsewhere in this Agreement (including the provisions of Articles V and VI
hereof regarding distributions,
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payments and allocations to which it may be entitled), the General Partner shall
not be compensated for its services as general partner of the Partnership.
B. RESPONSIBILITY FOR PARTNERSHIP EXPENSES. The Partnership shall
be responsible for and shall pay all expenses relating to the Partnership's
organization, the ownership of its assets and its operations. The General
Partner shall be reimbursed on a monthly basis, or such other basis as the
General Partner may determine in its sole and absolute discretion, for all
expenses it incurs relating to the ownership and operation of, or for the
benefit of, the Partnership (including, without limitation, expenses related to
the management and administration of any Subsidiaries of the General Partner or
the Partnership or Affiliates of the Partnership such as auditing expenses and
filing fees); PROVIDED THAT, the amount of any such reimbursement shall be
reduced by (i) any interest earned by the General Partner with respect to bank
accounts or other instruments or accounts held by it as permitted in Section
7.5.A below and (ii) any amount derived by the General Partner from any
investments permitted in Section 7.5.A below; and, PROVIDED FURTHER, that the
General Partner shall not be reimbursed for (i) income tax liabilities or (ii)
filing or similar fees in connection with maintaining the General Partner's
continued corporate existence that are incurred by the General Partner. The
General Partner shall determine in good faith the amount of expenses incurred by
it related to the ownership and operation of, or for the benefit of, the
Partnership. In the event that certain expenses are incurred for the benefit of
the Partnership and other entities (including the General Partner), such
expenses will be allocated to the Partnership and such other entities in such a
manner as the General Partner in its sole and absolute discretion deems fair and
reasonable. Such reimbursements shall be in addition to any reimbursement to
the General Partner pursuant to Section 10.3.C hereof and as a result of
indemnification pursuant to Section 7.7 below. All payments and reimbursements
hereunder shall be characterized for federal income tax purposes as expenses of
the Partnership incurred on its behalf, and not as expenses of the General
Partner.
C. PARTNERSHIP INTEREST ISSUANCE EXPENSES. The General Partner
shall also be reimbursed for all expenses it incurs relating to any issuance of
additional Partnership Interests, Shares, Debt of the Partnership or the General
Partner or rights, options, warrants or convertible or exchangeable securities
pursuant to Article IV hereof (including, without limitation, all costs,
expenses, damages and other payments resulting from or arising in connection
with litigation related to any of the foregoing), all of which expenses are
considered by the Partners to constitute expenses of, and for the benefit of,
the Partnership.
D. PURCHASES OF SHARES BY THE GENERAL PARTNER. In the event that
the General Partner exercises its rights under the Articles of Incorporation to
purchase Shares or otherwise elects to purchase from its shareholders Shares in
connection with a stock repurchase or similar program or for the purpose of
delivering such Shares to satisfy an obligation under any dividend reinvestment
or stock purchase program adopted by the General Partner, any employee stock
purchase plan adopted by the General Partner or any similar obligation or
arrangement undertaken by the General Partner in the future, the purchase price
paid by the General Partner for such Shares and any other expenses incurred by
the General Partner in connection with such purchase shall be considered
expenses of the Partnership and shall be reimbursable to the
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General Partner, subject to the conditions that: (i) if such Shares subsequently
are to be sold by the General Partner, the General Partner pays to the
Partnership any proceeds received by the General Partner for such Shares
(provided that a transfer of Shares for Partnership Units pursuant to Section
8.6 hereof would not be considered a sale for such purposes); and (ii) if such
Shares are not retransferred by the General Partner within thirty (30) days
after the purchase thereof, the General Partner shall cause the Partnership to
cancel a number of Partnership Units of the appropriate class (rounded to the
nearest whole Partnership Unit) held by the General Partner equal to the product
attained by multiplying the number of such Shares by a fraction, the numerator
of which is one and the denominator of which is the Conversion Factor.
E. REIMBURSEMENT NOT A DISTRIBUTION. If and to the extent any
reimbursement made pursuant to this Section 7.4 is determined for federal income
tax purposes not to constitute a payment of expenses of the Partnership, the
amount so determined shall constitute a guaranteed payment with respect to
capital within the meaning of Section 707(c) of the Code, shall be treated
consistently therewith by the Partnership and all Partners and shall not be
treated as a distribution for purposes of computing the Partners' Capital
Accounts.
SECTION 7.5 OUTSIDE ACTIVITIES OF THE GENERAL PARTNER
A. GENERAL. Without the Consent of the Outside Limited Partners,
the General Partner shall not, directly or indirectly, enter into or conduct any
business other than in connection with the ownership, acquisition and
disposition of Partnership Interests as a General Partner or Limited Partner and
the management of the business of the Partnership and such activities as are
incidental thereto. Without the Consent of the Outside Limited Partners, the
assets of the General Partner shall be limited to Partnership Interests and
permitted debt obligations of the Partnership (as contemplated by Section 7.5.F
below), so that Shares and Partnership Units are completely fungible except as
otherwise specifically provided herein; PROVIDED, that the General Partner shall
be permitted to hold such bank accounts or similar instruments or account in its
own name as it deems necessary to carry out its responsibilities and purposes as
contemplated under this Agreement and its organizational documents; and,
PROVIDED, FURTHER, that the General Partner shall be permitted to acquire,
directly or through a Qualified REIT Subsidiary, up to a one percent (1%)
interest in any partnership or limited liability company at least ninety-nine
percent (99%) of the equity of which is owned by the Partnership. The General
Partner and any of its Affiliates may acquire Limited Partnership Interests and
shall be entitled to exercise all rights of a Limited Partner relating to such
Limited Partnership Interests. If, at any time, the General Partner acquires
material assets (other than on behalf of the Partnership), the definition of
"Shares Amount" shall be adjusted, as agreed to by the General Partner and the
Limited Partners (which agreement shall be evidenced by Consent of the Outside
Limited Partners), to reflect the value of a share of capital stock (or other
comparable equity interest) of the General Partner relative to the Deemed
Partnership Interest Value of the related Partnership Unit.
B. REPURCHASE OF SHARES. In the event the General Partner exercises
its rights under the Articles of Incorporation to purchase Shares or otherwise
elects to purchase from its
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shareholders Shares in connection with a stock repurchase or similar program or
for the purpose of delivering such shares to satisfy an obligation under any
dividend reinvestment or stock purchase program adopted by the General Partner,
any employee stock purchase plan adopted by the General Partner or any similar
obligation or arrangement undertaken by the General Partner in the future, then
the General Partner shall cause the Partnership to purchase from the General
Partner that number of Partnership Units of the appropriate class equal to the
product obtained by multiplying the number of Shares purchased by the General
Partner times a fraction, the numerator of which is one and the denominator of
which is the Conversion Factor, on the same terms and for the same aggregate
price that the General Partner purchased such Shares.
C. FORFEITURE OF SHARES. In the event the Partnership or the
General Partner acquires Shares as a result of the forfeiture of such Shares
under a restricted or similar share plan, then the General Partner shall cause
the Partnership to cancel that number of Partnership Units of the appropriate
class equal to the number of Shares so acquired times one divided by the
Conversion Factor, and, if the Partnership acquired such Shares, it shall
transfer such Shares to the General Partner for cancellation.
D. ISSUANCES OF SHARES. After the Effective Date, the General
Partner shall not grant, award, or issue any additional Shares (other than
Shares issued pursuant to Section 8.6 hereof or pursuant to a dividend or
distribution (including any stock split) of Shares to all of its shareholders),
other equity securities of the General Partner or New Securities unless (i) the
General Partner shall cause, pursuant to Section 4.2.A hereof, the Partnership
to issue to the General Partner Partnership Interests or rights, options,
warrants or securities of the Partnership having designations, preferences and
other rights, all such that the economic interests are substantially the same as
those of such additional Shares, other equity securities or New Securities, as
the case may be, and (ii) the General Partner transfers to the Partnership, as
an additional Capital Contribution, the proceeds from the grant, award, or
issuance of such additional Shares, other equity securities or New Securities,
as the case may be, or from the exercise of rights contained in such additional
Shares, other equity securities or New Securities, as the case may be. Without
limiting the foregoing, the General Partner is expressly authorized to issue
additional Shares, other equity securities or New Securities, as the case may
be, for less than fair market value, and the General Partner is expressly
authorized, pursuant to Section 4.2.A hereof, to cause the Partnership to issue
to the General Partner corresponding Partnership Interests, as long as (a) the
General Partner concludes in good faith that such issuance is in the interests
of the General Partner and the Partnership (for example, and not by way of
limitation, the issuance of Shares and corresponding Partnership Units pursuant
to a stock purchase plan providing for purchases of Shares, either by employees
or shareholders, at a discount from fair market value or pursuant to employee
stock options that have an exercise price that is less than the fair market
value of the Shares, either at the time of issuance or at the time of exercise)
and (b) the General Partner transfers all proceeds from any such issuance or
exercise to the Partnership as an additional Capital Contribution.
E. STOCK OPTION PLAN. If at any time or from time to time, the
General Partner sells Shares pursuant to any Stock Option Plan, the General
Partner shall transfer the
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net proceeds of the sale of such Shares to the Partnership as an additional
Capital Contribution in exchange for an amount of additional Partnership Units
equal to the number of Shares so sold divided by the Conversion Factor.
F. FUNDING DEBT. The General Partner may incur a Funding Debt,
including, without limitation, a Funding Debt that is convertible into Shares or
otherwise constitutes a class of New Securities, subject to the condition that
the General Partner lends to the Partnership the net proceeds of such Funding
Debt; PROVIDED, that the General Partner shall not be obligated to lend the net
proceeds of any Funding Debt to the Partnership in a manner that would be
inconsistent with the General Partner's ability to remain qualified as a REIT.
If the General Partner enters into any Funding Debt, the loan to the Partnership
shall be on comparable terms and conditions, including interest rate, repayment
schedule and costs and expenses, as are applicable with respect to or incurred
in connection with such Funding Debt.
SECTION 7.6 TRANSACTIONS WITH AFFILIATES
A. TRANSACTIONS WITH CERTAIN AFFILIATES. Except as expressly
permitted by this Agreement (other than Section 7.1.A hereof which shall not be
considered authority for a transaction that otherwise would be prohibited by
this Section 7.6.A), the Partnership shall not, directly or indirectly, sell,
transfer or convey any property to, or purchase any property from, or borrow
funds from, or lend funds to, any Partner or any Affiliate of the Partnership or
the General Partner or the General Partner Entity that is not also a Subsidiary
of the Partnership, except pursuant to transactions that are on terms that are
fair and reasonable and no less favorable to the Partnership than would be
obtained from an unaffiliated third party.
B. BENEFIT PLANS. The General Partner, in its sole and absolute
discretion and without the approval of the Limited Partners, may propose and
adopt on behalf of the Partnership employee benefit plans funded by the
Partnership for the benefit of employees of the General Partner, the
Partnership, Subsidiaries of the Partnership or any Affiliate of any of them in
respect of services performed, directly or indirectly, for the benefit of the
Partnership, the General Partner, or any of the Partnership's Subsidiaries.
C. CONFLICT AVOIDANCE. The General Partner is expressly authorized
to enter into, in the name and on behalf of the Partnership, a right of first
opportunity arrangement and other conflict avoidance agreements with various
Affiliates of the Partnership and General Partner on such terms as the General
Partner, in its sole and absolute discretion, believes are advisable.
SECTION 7.7 INDEMNIFICATION
A. GENERAL. The Partnership shall indemnify each Indemnitee from
and against any and all losses, claims, damages, liabilities, joint or several,
expenses (including, without limitation, attorneys fees and other legal fees and
expenses), judgments, fines, settlements and other amounts arising from or in
connection with any and all claims, demands,
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actions, suits or proceedings, civil, criminal, administrative or investigative
incurred by the Indemnitee and relating to the Partnership or the General
Partner or the formation or operations of, or the ownership of property by,
either of them as set forth in this Agreement in which any such Indemnitee may
be involved, or is threatened to be involved, as a party or otherwise, unless it
is established by a final determination of a court of competent jurisdiction
that: (i) the act or omission of the Indemnitee was material to the matter
giving rise to the proceeding and either was committed in bad faith or was the
result of active and deliberate dishonesty, (ii) the Indemnitee actually
received an improper personal benefit in money, property or services or (iii) in
the case of any criminal proceeding, the Indemnitee had reasonable cause to
believe that the act or omission was unlawful. Without limitation, the
foregoing indemnity shall extend to any liability of any Indemnitee, pursuant to
a loan guarantee, contractual obligations for any indebtedness or other
obligations or otherwise, for any indebtedness of the Partnership or any
Subsidiary of the Partnership (including, without limitation, any indebtedness
which the Partnership or any Subsidiary of the Partnership has assumed or taken
subject to), and the General Partner is hereby authorized and empowered, on
behalf of the Partnership, to enter into one or more indemnity agreements
consistent with the provisions of this Section 7.7 in favor of any Indemnitee
having or potentially having liability for any such indebtedness. The
termination of any proceeding by judgment, order or settlement does not create a
presumption that the Indemnitee did not meet the requisite standard of conduct
set forth in this Section 7.7.A. The termination of any proceeding by
conviction or upon a plea of NOLO CONTENDERE or its equivalent, or an entry of
an order of probation prior to judgment, creates a rebuttable presumption that
the Indemnitee acted in a manner contrary to that specified in this Section
7.7.A with respect to the subject matter of such proceeding. Any
indemnification pursuant to this Section 7.7 shall be made only out of the
assets of the Partnership, and any insurance proceeds from the liability policy
covering the General Partner and any Indemnitees, and neither the General
Partner nor any Limited Partner shall have any obligation to contribute to the
capital of the Partnership or otherwise provide funds to enable the Partnership
to fund its obligations under this Section 7.7.
B. ADVANCEMENT OF EXPENSES. Reasonable expenses expected to be
incurred by an Indemnitee shall be paid or reimbursed by the Partnership in
advance of the final disposition of any and all claims, demands, actions, suits
or proceedings, civil, criminal, administrative or investigative made or
threatened against an Indemnitee upon receipt by the Partnership of (i) a
written affirmation by the Indemnitee of the Indemnitee's good faith belief that
the standard of conduct necessary for indemnification by the Partnership as
authorized in this Section 7.7 A has been met and (ii) a written undertaking by
or on behalf of the Indemnitee to repay the amount if it shall ultimately be
determined that the standard of conduct has not been met.
C. NO LIMITATION OF RIGHTS. The indemnification provided by this
Section 7.7 shall be in addition to any other rights to which an Indemnitee or
any other Person may be entitled under any agreement, pursuant to any vote of
the Partners, as a matter of law or otherwise, and shall continue as to an
Indemnitee who has ceased to serve in such capacity unless otherwise provided in
a written agreement pursuant to which such Indemnitee is indemnified.
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D. INSURANCE. The Partnership may purchase and maintain insurance
on behalf of the Indemnitees and such other Persons as the General Partner shall
determine against any liability that may be asserted against or expenses that
may be incurred by such Person in connection with the Partnership's activities,
regardless of whether the Partnership would have the power to indemnify such
Person against such liability under the provisions of this Agreement.
E. BENEFIT PLAN FIDUCIARY. For purposes of this Section 7.7, (i)
the Partnership shall be deemed to have requested an Indemnitee to serve as
fiduciary of an employee benefit plan whenever the performance by it of its
duties to the Partnership also imposes duties on, or otherwise involves services
by, it to the plan or participants or beneficiaries of the plan, (ii) excise
taxes assessed on an Indemnitee with respect to an employee benefit plan
pursuant to applicable law shall constitute fines within the meaning of this
Section 7.7 and (iii) actions taken or omitted by the Indemnitee with respect to
an employee benefit plan in the performance of its duties for a purpose
reasonably believed by it to be in the interest of the participants and
beneficiaries of the plan shall be deemed to be for a purpose which is not
opposed to the best interests of the Partnership.
F. NO PERSONAL LIABILITY FOR LIMITED PARTNERS. In no event may an
Indemnitee subject any of the Partners to personal liability by reason of the
indemnification provisions set forth in this Agreement.
G. INTERESTED TRANSACTIONS. An Indemnitee shall not be denied
indemnification in whole or in part under this Section 7.7 because the
Indemnitee had an interest in the transaction with respect to which the
indemnification applies if the transaction was otherwise permitted by the terms
of this Agreement.
H. BENEFIT. The provisions of this Section 7.7 are for the benefit
of the Indemnitees, their heirs, successors, assigns and administrators and
shall not be deemed to create any rights for the benefit of any other Persons.
Any amendment, modification or repeal of this Section 7.7, or any provision
hereof, shall be prospective only and shall not in any way affect the limitation
on the Partnership's liability to any Indemnitee under this Section 7.7 as in
effect immediately prior to such amendment, modification or repeal with respect
to claims arising from or related to matters occurring, in whole or in part,
prior to such amendment, modification or repeal, regardless of when such claims
may arise or be asserted.
I. INDEMNIFICATION PAYMENTS NOT DISTRIBUTIONS. If and to the extent
any payments to the General Partner pursuant to this Section 7.7 constitute
gross income to the General Partner (as opposed to the repayment of advances
made on behalf of the Partnership), such amounts shall constitute guaranteed
payments within the meaning of Section 707(c) of the Code, shall be treated
consistently therewith by the Partnership and all Partners, and shall not be
treated as distributions for purposes of computing the Partners' Capital
Accounts.
SECTION 7.8 LIABILITY OF THE GENERAL PARTNER
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A. GENERAL. Notwithstanding anything to the contrary set forth in
this Agreement, the General Partner and its directors and officers shall not be
liable for monetary damages to the Partnership, any Partners or any Assignees
for losses sustained, liabilities incurred or benefits not derived as a result
of errors in judgment or mistakes of fact or law or of any act or omission if
the General Partner acted in good faith.
B. NO OBLIGATION TO CONSIDER SEPARATE INTERESTS OF LIMITED PARTNERS
OR SHAREHOLDERS. The Limited Partners expressly acknowledge that the General
Partner is acting on behalf of the Partnership and the General Partner's
shareholders collectively, that the General Partner is under no obligation to
consider the separate interests of the Limited Partners (including, without
limitation, the tax consequences to Limited Partners or Assignees or to such
shareholders) in deciding whether to cause the Partnership to take (or decline
to take) any actions and that the General Partner shall not be liable for
monetary damages or otherwise for losses sustained, liabilities incurred or
benefits not derived by Limited Partners in connection with such decisions,
provided that the General Partner has acted in good faith.
C. ACTIONS OF AGENTS. Subject to its obligations and duties as
General Partner set forth in Section 7.1.A above, the General Partner may
exercise any of the powers granted to it by this Agreement and perform any of
the duties imposed upon it hereunder either directly or by or through its
agents. The General Partner shall not be responsible for any misconduct or
negligence on the part of any such agent appointed by the General Partner in
good faith.
D. EFFECT OF AMENDMENT. Any amendment, modification or repeal of
this Section 7.8 or any provision hereof shall be prospective only and shall not
in any way affect the limitations on the General Partner's liability to the
Partnership and the Limited Partners under this Section 7.8 as in effect
immediately prior to such amendment, modification or repeal with respect to
claims arising from or relating to matters occurring, in whole or in part, prior
to such amendment, modification or repeal, regardless of when such claims may
arise or be asserted.
SECTION 7.9 OTHER MATTERS CONCERNING THE GENERAL PARTNER
A. RELIANCE ON DOCUMENTS. The General Partner may rely and shall be
protected in acting or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, consent, order, bond,
debenture or other paper or document believed by it in good faith to be genuine
and to have been signed or presented by the proper party or parties.
B. RELIANCE ON ADVISORS. The General Partner may consult with legal
counsel, accountants, appraisers, management consultants, investment bankers and
other consultants and advisors selected by it, and any act taken or omitted to
be taken in reliance upon the opinion of such Persons as to matters which the
General Partner reasonably believes to be within such Person's professional or
expert competence shall be conclusively presumed to have been done or omitted in
good faith and in accordance with such opinion.
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C. ACTION THROUGH AGENTS. The General Partner shall have the right,
in respect of any of its powers or obligations hereunder, to act through any of
its duly authorized officers and a duly appointed attorney or attorneys-in-fact.
Each such attorney shall, to the extent provided by the General Partner in the
power of attorney, have full power and authority to do and perform all and every
act and duty which is permitted or required to be done by the General Partner
hereunder.
D. ACTIONS TO MAINTAIN REIT STATUS OR AVOID TAXATION OF THE GENERAL
PARTNER ENTITY. Notwithstanding any other provisions of this Agreement or the
Act, any action of the General Partner on behalf of the Partnership or any
decision of the General Partner to refrain from acting on behalf of the
Partnership undertaken in the good faith belief that such action or omission is
necessary or advisable in order (i) to protect the ability of the General
Partner Entity to continue to qualify as a REIT or (ii) to allow the General
Partner Entity to avoid incurring any liability for taxes under Section 857 or
4981 of the Code, is expressly authorized under this Agreement and is deemed
approved by all of the Limited Partners.
SECTION 7.10 RELIANCE BY THIRD PARTIES
Notwithstanding anything to the contrary in this Agreement, any Person
dealing with the Partnership shall be entitled to assume that the General
Partner has full power and authority, without consent or approval of any other
Partner or Person, to encumber, sell or otherwise use in any manner any and all
assets of the Partnership, to enter into any contracts on behalf of the
Partnership and to take any and all actions on behalf of the Partnership, and
such Person shall be entitled to deal with the General Partner as if the General
Partner were the Partnership's sole party in interest, both legally and
beneficially. Each Limited Partner hereby waives any and all defenses or other
remedies which may be available against such Person to contest, negate or
disaffirm any action of the General Partner in connection with any such dealing.
In no event shall any Person dealing with the General Partner or its
representatives be obligated to ascertain that the terms of this Agreement have
been complied with or to inquire into the necessity or expedience of any act or
action of the General Partner or its representatives. Each and every
certificate, document or other instrument executed on behalf of the Partnership
by the General Partner or its representatives shall be conclusive evidence in
favor of any and every Person relying thereon or claiming thereunder that (i) at
the time of the execution and delivery of such certificate, document or
instrument, this Agreement was in full force and effect, (ii) the Person
executing and delivering such certificate, document or instrument was duly
authorized and empowered to do so for and on behalf of the Partnership, and
(iii) such certificate, document or instrument was duly executed and delivered
in accordance with the terms and provisions of this Agreement and is binding
upon the Partnership.
SECTION 7.11 RESTRICTIONS ON GENERAL PARTNER'S AUTHORITY
A. CONSENT REQUIRED. The General Partner may not take any action in
contravention of an express prohibition or limitation of this Agreement without
the written Consent of (i) all Partners adversely affected or (ii) such lower
percentage of the Limited
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Partnership Interests as may be specifically provided for under a provision of
this Agreement or the Act.
B. SALE OF ALL ASSETS OF THE PARTNERSHIP. Except as provided in
Article XIII hereof and subject to Section 7.11.C and Section 7.11.D below, the
General Partner may not, directly or indirectly, cause the Partnership to sell,
exchange, transfer or otherwise dispose of all or substantially all of the
Partnership's assets in a single transaction or a series of related transactions
(including by way of merger (including a triangular merger), consolidation or
other combination with any other Persons) (i) if such merger, sale or other
transaction is in connection with a Termination Transaction permitted under
Section 11.2.B hereof, without the Consent of the Partners holding a majority of
Percentage Interests (including the effect of any Partnership Units held by the
General Partner) or (ii) otherwise, without the Consent of the Outside Limited
Partners.
C. REQUIRED CONSENT OF CERTAIN PARTNERS. (i) The General Partner
may not, directly or indirectly, cause the Partnership to take any action
prohibited by this Section 7.11.C without the requisite approval as provided in
this Section 7.11.C.
(1) For a period of twelve (12) years following the Effective Date,
the General Partner may not, directly or indirectly, cause the
Partnership to sell, exchange or otherwise dispose of the
property located at 673 First Avenue, New York, New York or any
indirect interest therein (collectively, the "673 First Avenue
Property") (other than an involuntary sale pursuant to
foreclosure of the mortgage secured by the 673 First Avenue
Property or otherwise, including pursuant to a deed in lieu of
foreclosure (provided that the General Partner may not execute
any deed in lieu of foreclosure unless the maturity of the
indebtedness secured by the 673 First Avenue Property has been
accelerated) or a proceeding in connection with a bankruptcy)
without the consent of the Partners who at the time of the
proposed sale, exchange or other disposition (other than the
General Partner or the General Partner Entity or any Subsidiary
of either the General Partner or the General Partner Entity) hold
seventy-five percent (75%) of the Partnership Units which were
issued to or with respect to 673 First Realty Company in the
Consolidation and which remain outstanding (whether held by the
original recipient of such Partnership Units or by a successor or
transferee of the original recipient, but not including the
General Partner or the General Partner Entity or any Subsidiary
of either the General Partner or the General Partner Entity)
excluding any such Partnership Units the adjusted tax basis of
which has been increased, in the hands of the holder or any
predecessor holder thereof, to reflect fair market value through
a taxable disposition or otherwise (referred to as "673 First
Avenue Units"). In addition, during such twelve-year period, the
General Partner may not, directly or indirectly, cause the
Partnership to repay, earlier than one year prior to
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its stated maturity, any indebtedness secured by the 673 First
Avenue Property without the consent of Partners holding
seventy-five percent (75%) of the 673 First Avenue Units, unless
such repayment (a) is made in connection with the refinancing (on
a basis such that the new debt would be considered a Nonrecourse
Liability, or, as contemplated by clause (2) below, a Partner
Nonrecourse Debt) of such indebtedness for an amount not less
than the principal amount of such indebtedness on the date of
such refinancing, with such refinancing indebtedness (1)
providing for the least amount of principal amortization as is
available on commercially reasonable terms and (2) permitting
(but not requiring) a guarantee of such indebtedness by the
holders of the 673 First Avenue Units (or the direct or indirect
partners or members thereof) who elect to join in such guarantee
in a form and on terms consistent with any guarantees by the
holders of the 673 First Avenue Units (or the direct or indirect
partners or members thereof) that may be in effect immediately
prior to such refinancing, provided that the opportunity to
provide such guarantee may be obtained on commercially reasonable
terms, or (b) is made in connection with an involuntary sale
pursuant to foreclosure of the mortgage secured by the 673 First
Avenue Property or otherwise, including pursuant to a deed in
lieu of foreclosure (provided that the General Partner may not
execute any deed in lieu of foreclosure unless the maturity of
the indebtedness secured by the 673 First Avenue Property has
been accelerated) or a proceeding in connection with a
bankruptcy. During such twelve-year period, the General Partner
shall use commercially reasonable efforts during the one-year
period prior to the stated maturity of such indebtedness to cause
the Operating Partnership to refinance (on a basis such that the
new debt would be considered a Nonrecourse Liability, or, as
contemplated by clause (2) below, a Partner Nonrecourse Debt) the
indebtedness for an amount not less than the principal amount of
such indebtedness on the date of such refinancing, provided such
refinancing can be obtained on commercially reasonable terms,
with such refinancing indebtedness (1) providing for the least
amount of principal amortization as is available on commercially
reasonable terms and (2) permitting (but not requiring) a
guarantee of such indebtedness by the holders of the 673 First
Avenue Units (or the direct or indirect partners or members
thereof) who elect to join in such guarantee in a form and on
terms consistent with any guarantees by the holders of the 673
First Avenue Units (or the direct or indirect partners or members
thereof) that may be in effect immediately prior to such
refinancing, provided that the opportunity to provide such
guarantee may be obtained on commercially reasonable terms.
Finally, during such twelve-year period, the General Partner
shall not, without the consent of Partners holding seventy-five
percent (75%) of the 673 First Avenue Units, incur indebtedness
secured by the 673 First Avenue Property if, at
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the time such indebtedness is incurred, the aggregate amount of
the indebtedness secured by the 673 First Avenue Property would
exceed the greater of (i) seventy-five percent (75%) of the fair
market value of the 673 First Avenue Property (or the interest
therein) securing such indebtedness or (ii) the then outstanding
indebtedness being refinanced plus all costs (including
prepayment fees, "breakage" payments and similar costs) incurred
in connection with such refinancing.
(2) For a period of twelve (12) years following the Effective Date,
the General Partner may not, directly or indirectly, cause the
Partnership to sell, exchange or otherwise dispose of the
property located at 470 Park Avenue South, New York, New York or
any indirect interest therein (collectively, the "470 Park Avenue
South Property") (other than an involuntary sale pursuant to
foreclosure of the mortgage secured by the 470 Park Avenue South
Property or otherwise, including pursuant to a deed in lieu of
foreclosure (provided that the General Partner may not execute
any deed in lieu of foreclosure unless maturity of the
indebtedness secured by the 470 Park Avenue South Property has
been accelerated) or a proceeding in connection with a
bankruptcy) without the consent of the Partners who at the time
of the proposed sale, exchange or other disposition (other than
the General Partner or the General Partner Entity or any
Subsidiary of either the General Partner or the General Partner
Entity) hold seventy-five percent (75%) of the Partnership Units
which were issued to or with respect to the 470 Park Avenue
South, L.P. in the Consolidation and which remain outstanding
(whether held by the original recipient of such Partnership Units
or by a successor or transferee of the original recipient, but
not including the General Partner or the General Partner Entity
or any Subsidiary of either the General Partner or the General
Partner Entity) excluding any such Partnership Units the adjusted
tax basis of which has been increased, in the hands of the holder
or any predecessor holder thereof, to reflect fair market value
through a taxable disposition or otherwise (referred to as "470
Park Avenue South Units"). In addition, during such twelve-year
period, the General Partner may not, directly or indirectly,
cause the Partnership to repay, earlier than one year prior to
its stated maturity, any indebtedness secured by the 470 Park
Avenue South Property without the consent of Partners who hold
seventy-five percent (75%) of the 470 Park Avenue South Units,
unless such repayment (a) is made in connection with the
refinancing (on a basis such that the new debt would he
considered a Nonrecourse Liability, or, as contemplated by clause
(2) below, a Partner Nonrecourse Debt) of such indebtedness for
an amount not less than the principal amount of such indebtedness
on the date of such refinancing, with such refinancing
indebtedness (1) providing for the least amount of principal
amortization as is available on commercially reasonable terms and
(2) permitting (but
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not requiring) a guarantee of such indebtedness by the holders of
the 470 Park Avenue South Units (or the direct or indirect
partners or members thereof) who elect to join in such guarantee
in a form and on terms consistent with any guarantees by the
holders of the 470 Park Avenue South Units (or the direct or
indirect partners or members thereof) that may be in effect
immediately prior to such refinancing, provided that the
opportunity to provide such guarantee may be obtained on
commercially reasonable terms, or (b) is made in connection with
an involuntary sale pursuant to foreclosure of the mortgage
secured by the 470 Park Avenue South Property or otherwise,
including pursuant to a deed in lieu of foreclosure (provided
that the General Partner may not execute any deed in lieu of
foreclosure unless the maturity of the indebtedness secured by
the 470 Park Avenue South Property has been accelerated) or a
proceeding in connection with a bankruptcy. During such
twelve-year period, the General Partner shall use commercially
reasonable efforts during the one-year period prior to the stated
maturity of such indebtedness to cause the Operating Partnership
to refinance (on a basis such that the new debt would be
considered a Nonrecourse Liability, or, as contemplated by clause
(2) below, a Partner Nonrecourse Debt) the indebtedness for an
amount not less than the principal amount of such indebtedness on
the date of such refinancing, provided such refinancing can be
obtained on commercially reasonable terms, with such refinancing
indebtedness (1) providing for the least amount of principal
amortization as is available on commercially reasonable terms
and (2) permitting (but not requiring) a guarantee of such
indebtedness by the holders of the 470 Park Avenue South Units
(or the direct or indirect partners or members thereof) who elect
to join in such guarantee in a form and on terms consistent with
any guarantees by the holders of the 470 Park Avenue South Units
(or the direct or indirect partners or members thereof) that may
be in effect immediately prior to such refinancing, provided that
the opportunity to provide such guarantee may be obtained on
commercially reasonable terms. Finally, during such twelve-year
period, the General Partner shall not, without the consent of
Partners holding seventy-five percent (75%) of the 470 Park
Avenue South Units, incur indebtedness secured by the 470 Park
Avenue South Property if, at the time such indebtedness is
incurred, the aggregate amount of the indebtedness secured by the
470 Park Avenue South Property would exceed the greater of (i)
seventy-five percent (75%) of the fair market value of the 470
Park Avenue South Property (or the interest therein) securing
such indebtedness or (ii) the then outstanding indebtedness being
refinanced plus all costs (including prepayment fees, "breakage"
payments and similar costs) incurred in connection with such
refinancing.
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(3) Subparagraphs (1) and (2) shall not apply to any transaction that
involves the 673 First Avenue Property or the 470 Park Avenue
South Property, as the case may be (which Property is referred to
as the "Exchanged Property"), if such transaction qualifies as a
like-kind exchange under Section 1031 of the Code in which no
gain is recognized by the Partnership as long as the following
conditions are satisfied: (x) such exchange is not with a
"related party" within the meaning of Section 1031(f)(3) of the
Code; (y) the property received in exchange for the Exchanged
Property (referred to as the "Replacement Property") is secured
by nonrecourse indebtedness in an amount not less than the
outstanding principal amount of the nonrecourse indebtedness
secured by the Exchanged Property at the time of the exchange,
nor greater than the amount that would be permitted under
Sections 7.11.C(1) or (2), as the case may be, with a maturity
not earlier than, and a principal amortization rate not more
rapid than, the maturity and principal amortization rate of such
indebtedness secured by the Exchanged Property, which
indebtedness permits (but does not require) a guarantee of such
indebtedness by the holders of the 673 First Avenue Units or the
470 Park Avenue South Units (or the direct or indirect partners
or members thereof), as the case may be, who elect to join in
such guarantee in a form on terms consistent with any guarantees
by the holders of the 673 First Avenue Units or the 470 Park
Avenue South Units (or the direct or indirect partners or members
thereof), as the case may be, that may be in effect immediately
prior to the time of the exchange, and (z) the Replacement
Property is thereafter treated for all purposes of the
restrictions in this Section 7.11.C as the Exchanged Property and
the indebtedness secured by such Replacement Property is subject
to the same restrictions and agreements as apply with respect to
the indebtedness secured by the Exchanged Property.
(4) Subparagraphs (1) and (2) shall not apply to any transaction that
involves the 673 First Avenue Property or the 470 Park Avenue
South Property, as the case may be (which Property is referred to
as the "Transferred Property"), if (x) such transaction does not
result in, and is not otherwise in connection with, a dissolution
of the Partnership, (y) such transaction qualifies as a
contribution to a partnership under Section 721 of the Code in
which no gain is recognized with respect to the 673 First Avenue
Property or the 470 Park Avenue South Property by the Partnership
or the holders of the 673 First Avenue Units or the 470 Park
Avenue South Units, as the case may be (other than gain, if any,
resulting solely because the share, if any, of indebtedness
allocable to the holder of a Partnership Unit under Regulations
Section 1.752-3(a)(3) (or any successor thereto) is reduced or
eliminated), and (z) the entity to which such Transferred
Property is transferred agrees, for the benefit of the holders of
the 470
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Park Avenue South Units or the 673 First Avenue Units, as the
case may be, that all of the restrictions of this Section 7.11.C
shall apply to the Transferred Property and the indebtedness
outstanding with respect thereto in the same manner and to the
extent set forth in this Section 7.11.C and such agreement is
reflected in the partnership agreement (or other comparable
governing instrument) of the entity to which the Transferred
Property is transferred.
(5) Subparagraphs (1) and (2) shall not apply to any transaction that
involves either a merger or consolidation of the Partnership with
or into another entity that qualifies as a "partnership" for
federal income tax purposes (the "Successor Partnership") or a
transfer of all or substantially all of the assets of the
Partnership to a Successor Partnership and dissolution of the
Partnership in connection therewith (in either case, a
"Consolidation Transaction") so long as (y) no gain is recognized
with respect to the 673 First Avenue Property or the 470 Park
Avenue South Property by the Partnership or the holders of the
673 First Avenue Units or the 470 Park Avenue South Units, as the
case may be, in connection with such Consolidation Transaction
(other than gain, if any, resulting solely because the share, if
any, of indebtedness allocable to the holder of a Partnership
Unit under Regulations Section 1.752-3(a)(3) (or any successor
thereto) is reduced or eliminated) and (y) the Successor
Partnership agrees in writing, for the benefit of the holders of
the 673 First Avenue Units or the 470 Park Avenue South Units, as
the case may be, that all of the restrictions of this Section
7.11.C shall apply to the 673 First Avenue Property and the 470
Park Avenue South Property and the indebtedness outstanding with
respect thereto in the same manner and to the extent set forth in
this Section 7.11.C.
(6) Subparagraphs (1) and (2) shall not apply to any sale or other
disposition transaction not otherwise described in Subparagraph
(3), (4) or (5) (including a merger or consolidation) involving
the 673 First Avenue Property and/or the 470 Park Avenue South
Property that is undertaken in connection with and as an integral
part of a sale or other disposition of all or substantially all
of the assets of the Partnership (referred to as a "Liquidating
Transaction") so long as the Liquidating Transaction is
undertaken with the Consent of Certain Limited Partners.
(ii) Nothing herein shall be deemed to require that the Partnership or
the General Partner take any action to avoid or prevent an involuntary
disposition of any property, whether pursuant to foreclosure of a mortgage
secured by such property or otherwise, including pursuant to a deed in lieu of
foreclosure where the maturity of the related indebtedness has been accelerated
or a proceeding in connection with a bankruptcy.
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(iii) Nothing herein shall prevent the sale, exchange, transfer or
other disposition of any property pursuant to the dissolution and liquidation of
the Partnership in accordance with Article XIII hereof (other than Section
13.1(v), which shall be subject to this Section 7.11.C).
D. MERGER OR CONSOLIDATION IN WHICH THE PARTNERSHIP IS NOT THE
SURVIVING ENTITY. In the event that the Partnership is to merge or consolidate
with or into any other entity in a transaction in which holders of Partnership
Units will receive consideration other than cash or equity securities that are
Publicly Traded (an "Equity Merger") and such Equity Merger would be prohibited
by Section 7.11.C but for the application of Section 7.11.C(5), then (in
addition to any Consent requirements under Section 7.11.B and Section 7.11.C)
the Equity Merger shall require the Consent of Certain Limited Partners unless:
(i) the partnership agreement, limited liability agreement or
other operative governing documents (the "Charter Documents") of the
entity that is the surviving entity in such Equity Merger contain
provisions that are comparable in all material respects to, or the
entity that is the surviving entity in such Equity Merger otherwise
agrees in writing, for the benefit of the holders of the 673 First
Avenue Units and the 470 Park Avenue South Units, to restrictions that
are comparable in all material respects to the provisions of Section
4.2.A, Article V and Article VI (except for differences that would be
permitted pursuant to Sections 4.2, 5.1.E, 5.4, 6.2 and 14.1.B(3) if
such changes were to be made to this Agreement), Section 7.1.A (second
sentence only), Section 7.6.A, Section 7.11.A, Section 7.11.B, this
Section 7.11.D, Section 8.6 (and all defined terms set forth in
Article I that relate to the Redemption Right), Section 11.2, Section
13.1, Section 13.2.A(3) (except as permitted pursuant to Sections 4.2,
5.4, 6.2 and 14.1 B(3)), Section 14.1.C, Section 14.1.D, and Section
14.2, all as in effect immediately prior to the Equity Merger; and
(ii) the Equity Merger would not either cause a holder of a
Partnership Unit to be a general partner or to have liability
equivalent to that of a general partner in a partnership or otherwise
modify the limited liability of a Limited Partner under this
Agreement.
SECTION 7.12 LOANS BY THIRD PARTIES
The Partnership may incur Debt, or enter into similar credit,
guarantee, financing or refinancing arrangements for any purpose (including,
without limitation, in connection with any acquisition of property) with any
Person that is not the General Partner upon such terms as the General Partner
determines appropriate; PROVIDED THAT, the Partnership shall not incur any Debt
that is recourse to the General Partner, except to the extent otherwise agreed
to by the General Partner in its sole discretion.
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ARTICLE VIII
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
SECTION 8.1 LIMITATION OF LIABILITY
The Limited Partners shall have no liability under this Agreement
except as expressly provided in this Agreement, including Section 10.5 hereof,
or under the Act.
SECTION 8.2 MANAGEMENT OF BUSINESS
No Limited Partner or Assignee (other than the General Partner, any of
its Affiliates or any officer, director, employee, partner, agent or trustee of
the General Partner, the Partnership or any of their Affiliates, in their
capacity as such) shall take part in the operation, management or control
(within the meaning of the Act) of the Partnership's business, transact any
business in the Partnership's name or have the power to sign documents for or
otherwise bind the Partnership. The transaction of any such business by the
General Partner, any of its Affiliates or any officer, director, employee,
partner, agent or trustee of the General Partner, the Partnership or any of
their Affiliates, in their capacity as such, shall not affect, impair or
eliminate the limitations on the liability of the Limited Partners or Assignees
under this Agreement.
SECTION 8.3 OUTSIDE ACTIVITIES OF LIMITED PARTNERS
Subject to Section 7.5 hereof, and subject to any agreements entered
into pursuant to Section 7.6.C hereof and to any other agreements entered into
by a Limited Partner or its Affiliates with the Partnership or a Subsidiary, any
Limited Partner (other than the General Partner) and any officer, director,
employee, agent, trustee, Affiliate or shareholder of any Limited Partner shall
be entitled to and may have business interests and engage in business activities
in addition to those relating to the Partnership, including business interests
and activities in direct or indirect competition with the Partnership. Neither
the Partnership nor any Partners shall have any rights by virtue of this
Agreement in any business ventures of any Limited Partner or Assignee. None of
the Limited Partners (other than the General Partner) nor any other Person shall
have any rights by virtue of this Agreement or the partnership relationship
established hereby in any business ventures of any other Person (other than the
General Partner to the extent expressly provided herein), and such Person shall
have no obligation pursuant to this Agreement to offer any interest in any such
business ventures to the Partnership, any Limited Partner or any such other
Person, even if such opportunity is of a character which, if presented to the
Partnership, any Limited Partner or such other Person, could be taken by such
Person.
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SECTION 8.4 RETURN OF CAPITAL
Except pursuant to the right of redemption set forth in Section 8.6
below, no Limited Partner shall be entitled to the withdrawal or return of its
Capital Contribution, except to the extent of distributions made pursuant to
this Agreement or upon termination of the Partnership as provided herein. No
Limited Partner or Assignee shall have priority over any other Limited Partner
or Assignee either as to the return of Capital Contributions (except as
permitted by Section 4.2.A hereof) or, except to the extent provided by EXHIBIT
C hereto or as permitted by Sections 4.2.A, 5.1.B(i), 6.1.A(ii) and 6.1.B(i)
hereof or otherwise expressly provided in this Agreement, as to profits, losses,
distributions or credits.
SECTION 8.5 RIGHTS OF LIMITED PARTNERS RELATING TO THE PARTNERSHIP
A. GENERAL. In addition to other rights provided by this Agreement or
by the Act, and except as limited by Section 8.5.D below, each Limited Partner
shall have the right, for a purpose reasonably related to such Limited Partner's
interest as a limited partner in the Partnership, upon written demand with a
statement of the purpose of such demand and at such Limited Partner's own
expense:
(1) to obtain a copy of the most recent annual and quarterly reports
filed with the Securities and Exchange Commission by the General
Partner Entity pursuant to the Exchange Act;
(2) to obtain a copy of the Partnership's federal, state and local
income tax returns for each Partnership Year;
(3) to obtain a current list of the name and last known business,
residence or mailing address of each Partner;
(4) to obtain a copy of this Agreement and the Certificate and all
amendments thereto, together with executed copies of all powers
of attorney pursuant to which this Agreement, the Certificate and
all amendments thereto have been executed; and
(5) to obtain true and full information regarding the amount of cash
and a description and statement of any other property or services
contributed by each Partner and which each Partner has agreed to
contribute in the future, and the date on which each became a
Partner.
B. NOTICE OF CONVERSION FACTOR. The Partnership shall notify each
Limited Partner upon request of the then current Conversion Factor and any
changes that have been made thereto.
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C. NOTICE OF EXTRAORDINARY TRANSACTION OF THE GENERAL PARTNER
ENTITY. The General Partner Entity shall not make any extraordinary
distributions of cash or property to its shareholders or effect a merger
(including without limitation, a triangular merger), a sale of all or
substantially all of its assets or any other similar extraordinary transaction
without notifying the Limited Partners of its intention to make such
distribution or effect such merger, sale or other extraordinary transaction at
least twenty (20) Business Days prior to the record date to determine
shareholders eligible to receive such distribution or to vote upon the approval
of such merger, sale or other extraordinary transaction (or, if no such record
date is applicable, at least twenty (20) Business Days before consummation of
such merger, sale or other extraordinary transaction). This provision for such
notice shall not be deemed (i) to permit any transaction that otherwise is
prohibited by this Agreement or requires a Consent of the Partners or (ii) to
require a Consent of the Limited Partners to a transaction that does not
otherwise require Consent under this Agreement. Each Limited Partner agrees, as
a condition to the receipt of the notice pursuant hereto, to keep confidential
the information set forth therein until such time as the General Partner Entity
has made public disclosure thereof and to use such information during such
period of confidentiality solely for purposes of determining whether or not to
exercise the Redemption Right; PROVIDED, HOWEVER, that a Limited Partner may
disclose such information to its attorney, accountant and/or financial advisor
for purposes of obtaining advice with respect to such exercise so long as such
attorney, accountant and/or financial advisor agrees to receive and hold such
information subject to this confidentiality requirement.
D. CONFIDENTIALITY. Notwithstanding any other provision of this
Section 8.5, the General Partner may keep confidential from the Limited
Partners, for such period of time as the General Partner determines in its sole
and absolute discretion to be reasonable, any information that (i) the General
Partner reasonably believes to be in the nature of trade secrets or other
information the disclosure of which the General Partner in good faith believes
is not in the best interests of the Partnership or could damage the Partnership
or its business or (ii) the Partnership is required by law or by agreements with
unaffiliated third parties to keep confidential.
SECTION 8.6 REDEMPTION RIGHT
A. GENERAL. (i) Subject to Section 8.6.C below, on or after the date
[two (2) years] after the issuance of a Partnership Unit to a Limited Partner
pursuant to Article IV hereof (which [two-year] period shall commence upon the
issuance of such Partnership Unit regardless of whether such Partnership Unit is
designated upon issuance as a Class A Unit, a Class B Unit or otherwise and
shall include the period of time from the date such Partnership Unit is issued
to such Limited Partner as other than a Class A Unit until the date such
Partnership Unit is converted automatically to a Class A Unit pursuant to
Section 4.2.C hereof), or on or after such date prior to the expiration of such
[two-year] period as the General Partner, in its sole and absolute discretion,
designates with respect to any or all Class A Units then outstanding, the holder
of a Partnership Unit (if other than the General Partner or the General Partner
Entity) shall have the right (the "Redemption Right") to require the Partnership
to redeem such Partnership Unit on a Specified Redemption Date and at a
redemption price equal to and in the
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form of the Cash Amount to be paid by the Partnership. Any such Redemption
Right shall be exercised pursuant to a Notice of Redemption delivered to the
Partnership (with a copy to the General Partner) by the Limited Partner who is
exercising the Redemption Right (the "Redeeming Partner"). A Limited Partner
may not exercise the Redemption Right for less than one thousand (1,000)
Partnership Units or, if such Redeeming Partner holds less than one thousand
(1,000) Partnership Units, for less than all of the Partnership Units held by
such Redeeming Partner.
(ii) The Redeeming Partner shall have no right with respect to
any Partnership Units so redeemed to receive any distributions paid after the
Specified Redemption Date.
(iii) The Assignee of any Limited Partner may exercise the
rights of such Limited Partner pursuant to this Section 8.6 and such Limited
Partner shall be deemed to have assigned such rights to such Assignee and shall
be bound by the exercise of such rights by such Limited Partner's Assignee. In
connection with any exercise of the such rights by such Assignee on behalf of
such Limited Partner, the Cash Amount shall be paid by the Partnership directly
to such Assignee and not to such Limited Partner.
(iv) In the event that the General Partner provides notice to
the Limited Partners pursuant to Section 8.5.C hereof, the Redemption Right
shall be exercisable, without regard to whether the Partnership Units have been
outstanding for any specified period, during the period commencing on the date
on which the General Partner provides such notice and ending on the record date
to determine shareholders eligible to receive such distribution or to vote upon
the approval of such merger, sale or other extraordinary transaction (or, if no
record date is applicable, at least twenty (20) business days before the
consummation of such merger, sale or other extraordinary transaction). In the
event that this subparagraph (iv) applies, the Specified Redemption Date is the
date on which the Partnership and the General Partner receive notice of exercise
of the Redemption Right, rather than ten (10) Business Days after receipt of the
notice of redemption.
B. GENERAL PARTNER ASSUMPTION OF RIGHT. (i) If a Limited Partner has
delivered a Notice of Redemption, the General Partner may, in its sole and
absolute discretion (subject to any limitations on ownership and transfer of
Shares set forth in the Articles of Incorporation), elect to assume directly and
satisfy a Redemption Right by paying to the Redeeming Partner either the Cash
Amount or the Shares Amount, as the General Partner determines in its sole and
absolute discretion (provided that payment of the Redemption Amount in the form
of Shares shall be in Shares registered under Section 12 of the Exchange Act and
listed for trading on the exchange or national market on which the Shares are
Publicly Traded, and PROVIDED, FURTHER that, in the event that the Shares are
not Publicly Traded at the time a Redeeming Partner exercises its Redemption
Right, the Redemption Amount shall be paid only in the form of the Cash Amount
unless the Redeeming Partner, in its sole and absolute discretion, consents to
payment of the Redemption Amount in the form of the Shares Amount), on the
Specified Redemption Date, whereupon the General Partner shall acquire the
Partnership Units offered for
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redemption by the Redeeming Partner and shall be treated for all purposes of
this Agreement as the owner of such Partnership Units. Unless the General
Partner, in its sole and absolute discretion, shall exercise its right to assume
directly and satisfy the Redemption Right, the General Partner shall not have
any obligation to the Redeeming Partner or to the Partnership with respect to
the Redeeming Partner's exercise of the Redemption Right. In the event the
General Partner shall exercise its right to satisfy the Redemption Right in the
manner described in the first sentence of this Section 8.6.B and shall fully
perform its obligations in connection therewith, the Partnership shall have no
right or obligation to pay any amount to the Redeeming Partner with respect to
such Redeeming Partner's exercise of the Redemption Right, and each of the
Redeeming Partner, the Partnership and the General Partner shall, for federal
income tax purposes, treat the transaction between the General Partner and the
Redeeming Partner as a sale of the Redeeming Partner's Partnership Units to the
General Partner. Nothing contained in this Section 8.6.B shall imply any right
of the General Partner to require any Limited Partner to exercise the Redemption
Right afforded to such Limited Partner pursuant to Section 8.6.A above.
(ii) In the event that the General Partner determines to pay
the Redeeming Partner the Redemption Amount in the form of Shares, the total
number of Shares to be paid to the Redeeming Partner in exchange for the
Redeeming Partner's Partnership Units shall be the applicable Shares Amount .
In the event this amount is not a whole number of Shares, the Redeeming Partner
shall be paid (i) that number of Shares which equals the nearest whole number
less than such amount plus (ii) an amount of cash which the General Partner
determines, in its reasonable discretion, to represent the fair value of the
remaining fractional Share which would otherwise be payable to the Redeeming
Partner.
(iii) Each Redeeming Partner agrees to execute such documents as
the General Partner may reasonably require in connection with the issuance of
Shares upon exercise of the Redemption Right.
C. EXCEPTIONS TO EXERCISE OF REDEMPTION RIGHT. Notwithstanding the
provisions of Sections 8.6.A and 8.6.B above, a Partner shall not be entitled to
exercise the Redemption Right pursuant to Section 8.6.A above if (but only as
long as) the delivery of Shares to such Partner on the Specified Redemption Date
(i) would be prohibited under the Articles of Incorporation or (ii) as long as
the Shares are Publicly Traded, would be prohibited under applicable federal or
state securities laws or regulations (in each case regardless of whether the
General Partner would in fact assume and satisfy the Redemption Right).
D. NO LIENS ON PARTNERSHIP UNITS DELIVERED FOR REDEMPTION. Each
Limited Partner covenants and agrees with the General Partner that all
Partnership Units delivered for redemption shall be delivered to the Partnership
or the General Partner, as the case may be, free and clear of all liens, and,
notwithstanding anything contained herein to the contrary, neither the General
Partner nor the Partnership shall be under any obligation to acquire Partnership
Units which are or may be subject to any liens. Each Limited Partner further
agrees that, in the event any state or local property transfer tax is payable as
a result of the transfer of its Partnership
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Units to the Partnership or the General Partner, such Limited Partner shall
assume and pay such transfer tax.
E. ADDITIONAL PARTNERSHIP INTERESTS. In the event that the
Partnership issues Partnership Interests to any Additional Limited Partner
pursuant to Article IV hereof, the General Partner shall make such amendments to
this Section 8.6 as it determines are necessary to reflect the issuance of such
Partnership Interests (including setting forth any restrictions on the exercise
of the Redemption Right with respect to such Partnership Interests).
ARTICLE IX
BOOKS, RECORDS, ACCOUNTING AND REPORTS
SECTION 9.1 RECORDS AND ACCOUNTING
The General Partner shall keep or cause to be kept at the principal
office of the Partnership appropriate books and records with respect to the
Partnership's business, including, without limitation, all books and records
necessary to provide to the Limited Partners any information, lists and copies
of documents required to be provided pursuant to Section 9.3 below. Any records
maintained by or on behalf of the Partnership in the regular course of its
business may be kept on, or be in the form of, punch cards, magnetic tape,
photographs, micrographics or any other information storage device, provided
that the records so maintained are convertible into clearly legible written form
within a reasonable period of time. The books of the Partnership shall be
maintained, for financial and tax reporting purposes, on an accrual basis in
accordance with generally accepted accounting principles.
SECTION 9.2 FISCAL YEAR
The fiscal year of the Partnership shall be the calendar year.
SECTION 9.3 REPORTS
A. ANNUAL REPORTS. As soon as practicable, but in no event later than
the date on which the General Partner Entity mails its annual report to its
stockholders, the General Partner shall cause to be mailed to each Limited
Partner an annual report, as of the close of the most recently ended Partnership
Year, containing financial statements of the Partnership, or of the General
Partner Entity if such statements are prepared solely on a consolidated basis
with the Partnership, for such Partnership Year, presented in accordance with
generally accepted accounting principles, such statements to be audited by a
nationally recognized firm of independent public accountants selected by the
General Partner Entity.
B. QUARTERLY REPORTS. If and to the extent that the General Partner
Entity mails quarterly reports to its stockholders, as soon as practicable, but
in no event later than the date on which such reports are mailed, the General
Partner shall cause to be mailed to each Limited
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Partner a report containing unaudited financial statements, as of the last day
of such calendar quarter, of the Partnership, or of the General Partner Entity
if such statements are prepared solely on a consolidated basis with the
Partnership, and such other information as may be required by applicable law or
regulation, or as the General Partner determines to be appropriate.
ARTICLE X
TAX MATTERS
SECTION 10.1 PREPARATION OF TAX RETURNS
The General Partner shall arrange for the preparation and timely
filing of all returns of Partnership income, gains, deductions, losses and other
items required of the Partnership for federal and state income tax purposes and
shall use all reasonable efforts to furnish, within ninety (90) days of the
close of each taxable year, the tax information reasonably required by Limited
Partners for federal and state income tax reporting purposes.
SECTION 10.2 TAX ELECTIONS
Except as otherwise provided herein, the General Partner shall, in its
sole and absolute discretion, determine whether to make any available election
pursuant to the Code; PROVIDED, HOWEVER, that the General Partner shall make the
election under Section 754 of the Code in accordance with applicable regulations
thereunder. The General Partner shall have the right to seek to revoke any such
election (including, without limitation, the election under Section 754 of the
Code) upon the General Partner's determination in its sole and absolute
discretion that such revocation is in the best interests of the Partners.
SECTION 10.3 TAX MATTERS PARTNER
A. GENERAL. The General Partner shall be the "tax matters partner" of
the Partnership for federal income tax purposes. Pursuant to Section 6223(c)(3)
of the Code, upon receipt of notice from the IRS of the beginning of an
administrative proceeding with respect to the Partnership, the tax matters
partner shall furnish the IRS with the name, address, taxpayer identification
number and profit interest of each of the Limited Partners and any Assignees;
PROVIDED, HOWEVER, that such information is provided to the Partnership by the
Limited Partners.
B. POWERS. The tax matters partner is authorized, but not required:
(1) to enter into any settlement with the IRS with respect to
any administrative or judicial proceedings for the
adjustment of Partnership items required to be taken into
account by a Partner for income tax purposes (such
administrative proceedings being referred to as a "tax
audit" and such judicial proceedings being referred to as
"judicial review"), and in the settlement agreement
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the tax matters partner may expressly state that such
agreement shall bind all Partners, except that such
settlement agreement shall not bind any Partner (i) who
(within the time prescribed pursuant to the Code and
Regulations) files a statement with the IRS providing that
the tax matters partner shall not have the authority to
enter into a settlement agreement on behalf of such
Partner or (ii) who is a "notice partner" (as defined in
Section 6231(a)(8) of the Code) or a member of a "notice
group" (as defined in Section 6223(b)(2) of the Code);
(2) in the event that a notice of a final administrative
adjustment at the Partnership level of any item required
to be taken into account by a Partner for tax purposes (a
"final adjustment") is mailed to the tax matters partner,
to seek judicial review of such final adjustment,
including the filing of a petition for readjustment with
the Tax Court or the filing of a complaint for refund with
the United States Claims Court or the District Court of
the United States for the district in which the
Partnership's principal place of business is located;
(3) to intervene in any action brought by any other Partner
for judicial review of a final adjustment;
(4) to file a request for an administrative adjustment with
the IRS at any time and, if any part of such request is
not allowed by the IRS, to file an appropriate pleading
(petition or complaint) for judicial review with respect
to such request;
(5) to enter into an agreement with the IRS to extend the
period for assessing any tax which is attributable to any
item required to be taken into account by a Partner for
tax purposes, or an item affected by such item; and
(6) to take any other action on behalf of the Partners of the
Partnership in connection with any tax audit or judicial
review proceeding to the extent permitted by applicable
law or regulations.
The taking of any action and the incurring of any expense by the tax
matters partner in connection with any such proceeding, except to the extent
required by law, is a matter in the sole and absolute discretion of the tax
matters partner and the provisions relating to indemnification of the General
Partner set forth in Section 7.7 hereof shall be fully applicable to the tax
matters partner in its capacity as such.
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C. REIMBURSEMENT. The tax matters partner shall receive no
compensation for its services. All third party costs and expenses incurred by
the tax matters partner in performing its duties as such (including legal and
accounting fees and expenses) shall be borne by the Partnership. Nothing herein
shall be construed to restrict the Partnership from engaging an accounting firm
or a law firm to assist the tax matters partner in discharging its duties
hereunder, as long as the compensation paid by the Partnership for such services
is reasonable.
SECTION 10.4 ORGANIZATIONAL EXPENSES
The Partnership shall elect to deduct expenses, if any, incurred by it
in organizing the Partnership ratably over a sixty (60) month period as provided
in Section 709 of the Code.
SECTION 10.5 WITHHOLDING
Each Limited Partner hereby authorizes the Partnership to withhold
from or pay on behalf of or with respect to such Limited Partner any amount of
federal, state, local, or foreign taxes that the General Partner determines that
the Partnership is required to withhold or pay with respect to any amount
distributable or allocable to such Limited Partner pursuant to this Agreement,
including, without limitation, any taxes required to be withheld or paid by the
Partnership pursuant to Section 1441, 1442, 1445, or 1446 of the Code. Any
amount paid on behalf of or with respect to a Limited Partner shall constitute a
recourse loan by the Partnership to such Limited Partner, which loan shall be
repaid by such Limited Partner within fifteen (15) days after notice from the
General Partner that such payment must be made unless (i) the Partnership
withholds such payment from a distribution which would otherwise be made to the
Limited Partner or (ii) the General Partner determines, in its sole and absolute
discretion, that such payment may be satisfied out of the available funds of the
Partnership which would, but for such payment, be distributed to the Limited
Partner. Any amounts withheld pursuant to the foregoing clauses (i) or (ii)
shall be treated as having been distributed to such Limited Partner. Each
Limited Partner hereby unconditionally and irrevocably grants to the Partnership
a security interest in such Limited Partner's Partnership Interest to secure
such Limited Partner's obligation to pay to the Partnership any amounts required
to be paid pursuant to this Section 10.5. In the event that a Limited Partner
fails to pay any amounts owed to the Partnership pursuant to this Section 10.5
when due, the General Partner may, in its sole and absolute discretion, elect to
make the payment to the Partnership on behalf of such defaulting Limited
Partner, and in such event shall be deemed to have loaned such amount to such
defaulting Limited Partner and shall succeed to all rights and remedies of the
Partnership as against such defaulting Limited Partner (including, without
limitation, the right to receive distributions). Any amounts payable by a
Limited Partner hereunder shall bear interest at the base rate on corporate
loans at large United States money center commercial banks, as published from
time to time in the WALL STREET JOURNAL, plus four (4) percentage points (but
not higher than the maximum lawful rate) from the date such amount is due (i.e.,
fifteen (15) days after demand) until such amount is paid in full. Each Limited
Partner shall take such actions as the Partnership or the General Partner shall
request in order to perfect or enforce the security interest created hereunder.
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ARTICLE XI
TRANSFERS AND WITHDRAWALS
SECTION 11.1 TRANSFER
A. DEFINITION. The term "transfer," when used in this Article XI
with respect to a Partnership Interest or a Partnership Unit, shall be deemed to
refer to a transaction by which the General Partner purports to assign all or
any part of its General Partnership Interest to another Person or by which a
Limited Partner purports to assign all or any part of its Limited Partnership
Interest to another Person, and includes a sale, assignment, gift, pledge,
encumbrance, hypothecation, mortgage, exchange or any other disposition by law
or otherwise. The term "transfer" when used in this Article XI does not include
any redemption or repurchase of Partnership Units by the Partnership from a
Partner (including the General Partner) or acquisition of Partnership Units from
a Limited Partner by the General Partner pursuant to Section 8.6 hereof or
otherwise. No part of the interest of a Limited Partner shall be subject to the
claims of any creditor, any spouse for alimony or support, or to legal process,
and may not be voluntarily or involuntarily alienated or encumbered except as
may be specifically provided for in this Agreement.
B. GENERAL. No Partnership Interest shall be transferred, in whole
or in part, except in accordance with the terms and conditions set forth in this
Article XI. Any transfer or purported transfer of a Partnership Interest not
made in accordance with this Article XI shall be null and void.
SECTION 11.2 TRANSFERS OF PARTNERSHIP INTERESTS OF GENERAL PARTNER
A. Except for transfers of Partnership Units to the Partnership as
provided in Section 7.5 or Section 8.6 hereof, the General Partner may not
transfer any of its Partnership Interest (including both its General Partnership
Interest and its Limited Partnership Interest) except in connection with a
transaction described in Section 11.2.B below or as otherwise expressly
permitted under this Agreement), nor shall the General Partner withdraw as
General Partner except in connection with a transaction described in Section
11.2.B below.
B. The General Partner shall not engage in any merger (including a
triangular merger), consolidation or other combination with or into another
person, sale of all or substantially all of its assets or any reclassification,
recapitalization or change of outstanding Shares (other than a change in par
value, or from par value to no par value, or as a result of a subdivision or
combination as described in the definition of "Conversion Factor") ("Termination
Transaction"), unless the Termination Transaction has been approved by the
Consent of the Partners holding a majority or more of the then outstanding
Percentage Interests (including the effect of any Partnership Units held by the
General Partner) and in connection with which all Limited Partners either will
receive, or will have the right to elect to receive, for each Partnership Unit
an amount of cash, securities, or other property equal to the product of the
Conversion Factor and the greatest amount of cash, securities or other property
paid to a holder
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of Shares, if any, corresponding to such Partnership Unit that was issued
pursuant to Section 4.2.A hereof in consideration of one such Share at any time
during the period from and after the date on which the Termination Transaction
is consummated; PROVIDED THAT, if, in connection with the Termination
Transaction, a purchase, tender or exchange offer shall have been made to and
accepted by the holders of more than fifty percent (50%) of the outstanding
Shares, each holder of Partnership Units shall receive, or shall have the right
to elect to receive, the greatest amount of cash, securities, or other property
which such holder would have received had it exercised the Redemption Right and
received Shares in exchange for its Partnership Units immediately prior to the
expiration of such purchase, tender or exchange offer and had thereupon accepted
such purchase, tender or exchange offer.
SECTION 11.3 LIMITED PARTNERS' RIGHTS TO TRANSFER
A. GENERAL. Subject to the provisions of Sections 11.3.C, 11.3.D,
11.3.E, 11.4 and 11.6 below, prior to the second anniversary of the Effective
Date, a Limited Partner may not transfer any of such Limited Partner's rights as
a Limited Partner without the consent of the General Partner, which consent the
General Partner may withhold in its sole discretion if it determines that such a
transfer would cause any or all of the Limited Partners other than the Limited
Partner seeking to transfer its rights as a Limited Partner to be subject to tax
liability as a result of such transfer. Any purported transfer attempted in
violation of the foregoing sentence shall be deemed void AB INITIO and shall
have no force or effect. Subject to the provisions of Sections 11.3.C, 11.3.D,
11.3.E, 11.4 and 11.6 below, on or after the second anniversary of the Effective
Date, a Limited Partner (other than the General Partner) may transfer, with or
without the consent of the General Partner, all or any portion of its
Partnership Interest, or any of such Limited Partner's rights as a Limited
Partner, provided that prior written notice of such proposed transfer is
delivered to the General Partner.
B. INCAPACITATED LIMITED PARTNERS. If a Limited Partner is subject
to Incapacity, the executor, administrator, trustee, committee, guardian,
conservator or receiver of such Limited Partner's estate shall have all the
rights of a Limited Partner, but not more rights than those enjoyed by other
Limited Partners for the purpose of settling or managing the estate and such
power as the Incapacitated Limited Partner possessed to transfer all or any part
of its interest in the Partnership. The Incapacity of a Limited Partner, in and
of itself, shall not dissolve or terminate the Partnership.
C. NO TRANSFERS VIOLATING SECURITIES LAWS. The General Partner may
prohibit any transfer of Partnership Units by a Limited Partner if, in the
opinion of legal counsel to the Partnership, such transfer would require filing
of a registration statement under the Securities Act or would otherwise violate
any federal, or state securities laws or regulations applicable to the
Partnership or the Partnership Unit.
D. NO TRANSFERS AFFECTING TAX STATUS OF PARTNERSHIP. No transfer of
Partnership Units by a Limited Partner (including a redemption or exchange
pursuant to Section 8.6 hereof) may be made to any Person if (i) in the opinion
of legal counsel for the Partnership,
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it would result in the Partnership being treated as an association taxable as a
corporation for federal income tax purposes or would result in a termination of
the Partnership for federal income tax purposes (except as a result of the
redemption or exchange for Shares of all Partnership Units held by all Limited
Partners other than the General Partner or the General Partner Entity or any
Subsidiary of either the General Partner or the General Partner Entity or
pursuant to a transaction expressly permitted under Section 7 11.B or Section
11.2 hereof), (ii) in the opinion of legal counsel for the Partnership, it would
adversely affect the ability of the General Partner Entity to continue to
qualify as a REIT or would subject the General Partner Entity to any additional
taxes under Section 857 or Section 4981 of the Code or (iii) such transfer is
effectuated through an "established securities market" or a "secondary market
(or the substantial equivalent thereof)" within the meaning of Section 7704 of
the Code.
E. NO TRANSFERS TO HOLDERS OF NONRECOURSE LIABILITIES. No pledge or
transfer of any Partnership Units may be made to a lender to the Partnership, or
to any Person who is related (within the meaning of Section 1.752-4(b) of the
Regulations) to any lender to the Partnership, whose loan constitutes a
Nonrecourse Liability without the consent of the General Partner, in its sole
and absolute discretion; provided that, as a condition to such consent the
lender will be required to enter into an arrangement with the Partnership and
the General Partner to exchange or redeem for the Redemption Amount any
Partnership Units transferred or in which a security interest is held
simultaneously with the time at which such lender would be deemed to be a
partner in the Partnership for purposes of allocating liabilities to such lender
under Section 752 of the Code.
SECTION 11.4 SUBSTITUTED LIMITED PARTNERS
A. CONSENT OF GENERAL PARTNER. No Limited Partner shall have the
right to substitute a transferee as a Limited Partner in its place without the
consent of the General Partner to the admission of a transferee of the interest
of a Limited Partner pursuant to this Section 11.4 as a Substituted Limited
Partner, which consent may be given or withheld by the General Partner in its
sole and absolute discretion. The General Partner's failure or refusal to
permit a transferee of any such interests to become a Substituted Limited
Partner shall not give rise to any cause of action against the Partnership or
any Partner
B. RIGHTS OF SUBSTITUTED LIMITED PARTNER. A transferee who has been
admitted as a Substituted Limited Partner in accordance with this Article XI
shall have all the rights and powers and be subject to all the restrictions and
liabilities of a Limited Partner under this Agreement. The admission of any
transferee as a Substituted Limited Partner shall be conditioned upon the
transferee executing and delivering to the Partnership an acceptance of all the
terms and conditions of this Agreement (including, without limitation, the
provisions of Section 15.11 hereof and such other documents or instruments as
may be required to effect the admission).
C. AMENDMENT AND RESTATEMENT OF EXHIBIT A. Upon the admission of a
Substituted Limited Partner, the General Partner shall amend and restate Exhibit
A hereto to
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reflect the name, address, Capital Account, number of Partnership Units, and
Percentage Interest of such Substituted Limited Partner and to eliminate or
adjust, if necessary, the name, address, Capital Account and Percentage Interest
of the predecessor of such Substituted Limited Partner.
SECTION 11.5 ASSIGNEES
If the General Partner, in its sole and absolute discretion, does not
consent to the admission of any permitted transferee under Section 11.3 above as
a Substituted Limited Partner, as described in Section 11.4 above, such
transferee shall be considered an Assignee for purposes of this Agreement. An
Assignee shall be entitled to all the rights of an assignee of a limited
partnership interest under the Act, including the right to receive distributions
from the Partnership and the share of Net Income, Net Losses, gain, loss and
Recapture Income attributable to the Partnership Units assigned to such
transferee, and shall have the rights granted to the Limited Partners under
Section 8.6 hereof but shall not be deemed to be a holder of Partnership Units
for any other purpose under this Agreement, and shall not be entitled to vote
such Partnership Units in any matter presented to the Limited Partners for a
vote (such Partnership Units being deemed to have been voted on such matter in
the same proportion as all other Partnership Units held by Limited Partners are
voted). In the event any such transferee desires to make a further assignment
of any such Partnership Units, such transferee shall be subject to all the
provisions of this Article XI to the same extent and in the same manner as any
Limited Partner desiring to make an assignment of Partnership Units.
SECTION 11.6 GENERAL PROVISIONS
A. WITHDRAWAL OF LIMITED PARTNER. No Limited Partner may withdraw
from the Partnership other than as a result of a permitted transfer of all of
such Limited Partner's Partnership Units in accordance with this Article XI or
pursuant to redemption of all of its Partnership Units under Section 8.6 hereof.
B. TERMINATION OF STATUS AS LIMITED PARTNER. Any Limited Partner
who shall transfer all of its Partnership Units in a transfer permitted pursuant
to this Article XI or pursuant to redemption of all of its Partnership Units
under Section 8.6 hereof shall cease to be a Limited Partner.
C. TIMING OF TRANSFERS. Transfers pursuant to this Article XI may
only be made on the first day of a fiscal quarter of the Partnership, unless the
General Partner otherwise agrees.
D. ALLOCATIONS. If any Partnership Interest is transferred during
any quarterly segment of the Partnership's fiscal year in compliance with the
provisions of this Article XI or redeemed or transferred pursuant to Section 8.6
hereof, Net Income, Net Losses, each item thereof and all other items
attributable to such interest for such fiscal year shall be divided and
allocated between the transferor Partner and the transferee Partner by taking
into account their varying interests during the fiscal year in accordance with
Section 706(d) of the Code, using the
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interim closing of the books method (unless the General Partner, in its sole and
absolute discretion, elects to adopt a daily, weekly, or a monthly proration
period, in which event Net Income, Net Losses, each item thereof and all other
items attributable to such interest for such fiscal year shall be prorated based
upon the applicable method selected by the General Partner). Solely for
purposes of making such allocations, each of such items for the calendar month
in which the transfer or redemption occurs shall be allocated to the Person who
is a Partner as of midnight on the last day of said month. All distributions of
Available Cash attributable to any Partnership Unit with respect to which the
Partnership Record Date is before the date of such transfer, assignment or
redemption shall be made to the transferor Partner or the Redeeming Partner, as
the case may be, and, in the case of a transfer or assignment other than a
redemption, all distributions of Available Cash thereafter attributable to such
Partnership Unit shall be made to the transferee Partner.
E. ADDITIONAL RESTRICTIONS. In addition to any other restrictions
on transfer herein contained, including without limitation the provisions of
this Article XI, in no event may any transfer or assignment of a Partnership
Interest by any Partner (including pursuant to Section 8.6 hereof) be made
without the express consent of the General Partner, in its sole and absolute
discretion, (i) to any person or entity who lacks the legal right, power or
capacity to own a Partnership Interest; (ii) in violation of applicable law;
(iii) of any component portion of a Partnership Interest, such as the Capital
Account, or rights to distributions, separate and apart from all other
components of a Partnership Interest; (iv) if in the opinion of legal counsel to
the Partnership such transfer would cause a termination of the Partnership for
federal or state income tax purposes (except as a result of the redemption or
exchange for Shares of all Partnership Units held by all Limited Partners or
pursuant to a transaction expressly permitted under Section 7.11.B or Section
11.2 hereof); (v) if in the opinion of counsel to the Partnership, such transfer
would cause the Partnership to cease to be classified as a partnership for
federal income tax purposes (except as a result of the redemption or exchange
for Shares of all Partnership Units held by all Limited Partners or pursuant to
a transaction expressly permitted under Section 7.11.B or Section 11.2 hereof);
(vi) if such transfer would cause the Partnership to become, with respect to any
employee benefit plan subject to Title I of ERISA, a "party-in-interest" (as
defined in Section 3(14) of ERISA) or a "disqualified person" (as defined in
Section 4975(c) of the Code); (vii) if such transfer would, in the opinion of
counsel to the Partnership, cause any portion of the assets of the Partnership
to constitute assets of any employee benefit plan pursuant to Department of
Labor Regulations Section 2510.1101; (viii) if such transfer requires the
registration of such Partnership Interest pursuant to any applicable federal or
state securities laws; (ix) if such transfer is effectuated through an
"established securities market" or a "secondary market" (or the substantial
equivalent thereof) within the meaning of Section 7704 of the Code or such
transfer causes the Partnership to become a "publicly traded partnership," as
such term is defined in Section 469(k)(2) or Section 7704(b) of the Code; (x) if
such transfer subjects the Partnership to regulation under the Investment
Company Act of 1940, the Investment Advisors Act of 1940 or the Employee
Retirement Income Security Act of 1974, each as amended; (xi) if the transferee
or assignee of such Partnership Interest is unable to make the representations
set forth in Section 15.15 hereof or such transfer could otherwise adversely
affect the ability of the General Partner Entity to remain qualified as
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a REIT; or (xii) if in the opinion of legal counsel for the Partnership, such
transfer would adversely affect the ability of the General Partner Entity to
continue to qualify as a REIT or subject the General Partner Entity to any
additional taxes under Section 857 or Section 4981 of the Code.
F. AVOIDANCE OF "PUBLICLY TRADED PARTNERSHIP" STATUS. The General
Partner shall monitor the transfers of interests in the Partnership to determine
(i) if such interests are being traded on an "established securities market" or
a "secondary market (or the substantial equivalent thereof)" within the meaning
of Section 7704 of the Code and (ii) whether additional transfers of interests
would result in the Partnership being unable to qualify for at least one of the
"safe harbors" set forth in Regulations Section 1.7704-1 (or such other guidance
subsequently published by the IRS setting forth safe harbors under which
interests will not be treated as "readily tradable on a secondary market (or the
substantial equivalent thereof") within the meaning of Section 7704 of the Code
(the "Safe Harbors"). The General Partner shall take all steps reasonably
necessary or appropriate to prevent any trading of interests or any recognition
by the Partnership of transfers made on such markets and, except as otherwise
provided herein, to insure that at least one of the Safe Harbors is met.
ARTICLE XII
ADMISSION OF PARTNERS
SECTION 12.1 ADMISSION OF SUCCESSOR GENERAL PARTNER
A successor to all of the General Partner's General Partnership
Interest pursuant to Section 11.2 hereof who is proposed to be admitted as a
successor General Partner shall be admitted to the Partnership as the General
Partner, effective upon such transfer. Any such transferee shall carry on the
business of the Partnership without dissolution. In each case, the admission
shall be subject to the successor General Partner's executing and delivering to
the Partnership an acceptance of all of the terms and conditions of this
Agreement and such other documents or instruments as may be required to effect
the admission.
SECTION 12.2 ADMISSION OF ADDITIONAL LIMITED PARTNERS
A. GENERAL. No Person shall be admitted as an Additional Limited
Partner without the consent of the General Partner, which consent shall be given
or withheld in the General Partner's sole and absolute discretion. A Person who
makes a Capital Contribution to the Partnership in accordance with this
Agreement, including, without limitation, pursuant to Section 4.1.C hereof, or
who exercises an option to receive Partnership Units shall be admitted to the
Partnership as an Additional Limited Partner only with the consent of the
General Partner and only upon furnishing to the General Partner (i) evidence of
acceptance in form satisfactory to the General Partner of all of the terms and
conditions of this Agreement, including, without limitation, the power of
attorney granted in Section 15.11 hereof and (ii) such other documents or
instruments as may be required in the discretion of the General Partner in order
to effect such
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Person's admission as an Additional Limited Partner. The admission of any
Person as an Additional Limited Partner shall become effective on the date upon
which the name of such Person is recorded on the books and records of the
Partnership, following the consent of the General Partner to such admission.
B. ALLOCATIONS TO ADDITIONAL LIMITED PARTNERS. If any Additional
Limited Partner is admitted to the Partnership on any day other than the first
day of a Partnership Year, then Net Income, Net Losses, each item thereof and
all other items allocable among Partners and Assignees for such Partnership Year
shall be allocated among such Additional Limited Partner and all other Partners
and Assignees by taking into account their varying interests during the
Partnership Year in accordance with Section 706(d) of the Code, using the
interim closing of the books method (unless the General Partner, in its sole and
absolute discretion, elects to adopt a daily, weekly or monthly proration
method, in which event Net Income, Net Losses, and each item thereof would be
prorated based upon the applicable period selected by the General Partner).
Solely for purposes of making such allocations, each of such items for the
calendar month in which an admission of any Additional Limited Partner occurs
shall be allocated among all the Partners and Assignees including such
Additional Limited Partner. All distributions of Available Cash with respect to
which the Partnership Record Date is before the date of such admission shall be
made solely to Partners and Assignees other than the Additional Limited Partner,
and all distributions of Available Cash thereafter shall be made to all the
Partners and Assignees including such Additional Limited Partner.
SECTION 12.3 AMENDMENT OF AGREEMENT AND CERTIFICATE OF LIMITED PARTNERSHIP
For the admission to the Partnership of any Partner, the General
Partner shall take all steps necessary and appropriate under the Act to amend
the records of the Partnership (including an amendment and restatement of
EXHIBIT A hereto) and, if necessary, to prepare as soon as practical an
amendment of this Agreement and, if required by law, shall prepare and file an
amendment to the Certificate and may for this purpose exercise the power of
attorney granted pursuant to Section 15.11 hereof.
ARTICLE XIII
DISSOLUTION AND LIQUIDATION
SECTION 13.1 DISSOLUTION
The Partnership shall not be dissolved by the admission of Substituted
Limited Partners or Additional Limited Partners or by the admission of a
successor General Partner in accordance with the terms of this Agreement. Upon
the withdrawal of the General Partner, any successor General Partner shall
continue the business of the Partnership. The Partnership shall dissolve, and
its affairs shall be wound up, upon the first to occur of any of the following
("Liquidating Events"):
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(i) the expiration of its term as provided in Section 2.4
hereof;
(ii) an event of withdrawal of the General Partner, as
defined in the Act (other than an event of bankruptcy), unless, within
ninety (90) days after the withdrawal a "majority in interest" (as
defined below) of the remaining Partners Consent in writing to
continue the business of the Partnership and to the appointment,
effective as of the date of withdrawal, of a substitute General
Partner;
(iii) an election to dissolve the Partnership made by the
General Partner, in its sole and absolute discretion, after December
31, [204__];
(iv) entry of a decree of judicial dissolution of the
Partnership pursuant to the provisions of the Act;
(v) the sale of all or substantially all of the assets and
properties of the Partnership for cash or for marketable securities
(subject to Section 7.11.C); or
(vi) a final and nonappealable judgment is entered by a
court of competent jurisdiction ruling that the General Partner is
bankrupt or insolvent, or a final and nonappealable order for relief
is entered by a court with appropriate jurisdiction against the
General Partner, in each case under any federal or state bankruptcy or
insolvency laws as now or hereafter in effect, unless prior to or
within ninety days after of the entry of such order or judgment a
"majority in interest" (as defined below) of the remaining Partners
Consent in writing to continue the business of the Partnership and to
the appointment, effective as of a date prior to the date of such
order or judgment, of a substitute General Partner.
As used herein, a "majority in interest" shall refer to Partners
(excluding the General Partner) who hold more than fifty percent (50%) of the
outstanding Percentage Interests not held by the General Partner.
SECTION 13.2 WINDING UP
A. GENERAL. Upon the occurrence of a Liquidating Event, the
Partnership shall continue solely for the purposes of winding up its affairs in
an orderly manner, liquidating its assets, and satisfying the claims of its
creditors and Partners. No Partner shall take any action that is inconsistent
with, or not necessary to or appropriate for, the winding up of the
Partnership's business and affairs. The General Partner (or, in the event there
is no remaining General Partner, any Person elected by a majority in interest of
the Limited Partners (the "Liquidator")) shall be responsible for overseeing the
winding up and dissolution of the Partnership and shall take full account of the
Partnership's liabilities and property and the
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Partnership property shall be liquidated as promptly as is consistent with
obtaining the fair value thereof, and the proceeds therefrom (which may, to the
extent determined by the General Partner, include equity or other securities of
the General Partner or any other entity) shall be applied and distributed in the
following order:
(1) First, to the payment and discharge of all of the Partnership's
debts and liabilities to creditors other than the Partners;
(2) Second, to the payment and discharge of all of the Partnership's
debts and liabilities to the Partners; and
(3) The balance, if any, to the Partners in accordance with their
Capital Accounts, after giving effect to all contributions,
distributions, and allocations for all periods.
The General Partner shall not receive any additional compensation for any
services performed pursuant to this Article XIII.
B. DEFERRED LIQUIDATION. Notwithstanding the provisions of Section
13.2.A above which require liquidation of the assets of the Partnership, but
subject to the order of priorities set forth therein, if prior to or upon
dissolution of the Partnership the Liquidator determines that an immediate sale
of part or all of the Partnership's assets would be impractical or would cause
undue loss to the Partners, the Liquidator may, in its sole and absolute
discretion, defer for a reasonable time the liquidation of any assets except
those necessary to satisfy liabilities of the Partnership (including to those
Partners as creditors) or distribute to the Partners, in lieu of cash, as
tenants in common and in accordance with the provisions of Section 13.2.A above,
undivided interests in such Partnership assets as the Liquidator deems not
suitable for liquidation. Any such distributions in kind shall be made only if,
in the good faith judgment of the Liquidator, such distributions in kind are in
the best interest of the Partners, and shall be subject to such conditions
relating to the disposition and management of such properties as the Liquidator
deems reasonable and equitable and to any agreements governing the operation of
such properties at such time. The Liquidator shall determine the fair market
value of any property distributed in kind using such reasonable method of
valuation as it may adopt.
SECTION 13.3 COMPLIANCE WITH TIMING REQUIREMENTS OF REGULATIONS
Subject to Section 13.4 below, in the event the Partnership is
"liquidated" within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g),
distributions shall be made pursuant to this Article XIII to the General Partner
and Limited Partners who have positive Capital Accounts in compliance with
Regulations Section 1.704-1(b)(2)(ii)(b)(2). If any Partner has a deficit
balance in its Capital Account (after giving effect to all contributions,
distributions and allocations for all taxable years, including the year during
which such liquidation occurs), such Partner shall have no obligation to make
any contribution to the capital of the Partnership with respect to such deficit,
and such deficit shall not be considered a debt owed to the Partnership
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or to any other Person for any purpose whatsoever. In the discretion of the
General Partner, a pro rata portion of the distributions that would otherwise be
made to the General Partner and Limited Partners pursuant to this Article XIII
may be: (A) distributed to a trust established for the benefit of the General
Partner and Limited Partners for the purposes of liquidating Partnership assets,
collecting amounts owed to the Partnership and paying any contingent or
unforeseen liabilities or obligations of the Partnership or of the General
Partner arising out of or in connection with the Partnership (in which case the
assets of any such trust shall be distributed to the General Partner and Limited
Partners from time to time, in the reasonable discretion of the General Partner,
in the same proportions as the amount distributed to such trust by the
Partnership would otherwise have been distributed to the General Partner and
Limited Partners pursuant to this Agreement); or (B) withheld to provide a
reasonable reserve for Partnership liabilities (contingent or otherwise) and to
reflect the unrealized portion of any installment obligations owed to the
Partnership, provided that such withheld amounts shall be distributed to the
General Partner and Limited Partners as soon as practicable.
SECTION 13.4 DEEMED DISTRIBUTION AND RECONTRIBUTION
Notwithstanding any other provision of this Article XIII, in the event
the Partnership is deemed liquidated within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g) but no Liquidating Event has occurred, the Partnership's
property shall not be liquidated, the Partnership's liabilities shall not be
paid or discharged and the Partnership's affairs shall not be wound up.
Instead, for federal income tax purposes and for purposes of maintaining Capital
Accounts pursuant to EXHIBIT B hereto, the Partnership shall be deemed to have
distributed its assets in kind to the General Partner and Limited Partners, who
shall be deemed to have assumed and taken such assets subject to all Partnership
liabilities, all in accordance with their respective Capital Accounts.
Immediately thereafter, the General Partner and Limited Partners shall be deemed
to have recontributed the Partnership assets in kind to the Partnership, which
shall be deemed to have assumed and taken such assets subject to all such
liabilities.
SECTION 13.5 RIGHTS OF LIMITED PARTNERS
Except as otherwise provided in this Agreement, each Limited Partner
shall look solely to the assets of the Partnership for the return of its Capital
Contributions and shall have no right or power to demand or receive property
other than cash from the Partnership. Except as otherwise expressly provided in
this Agreement, no Limited Partner shall have priority over any other Limited
Partner as to the return of its Capital Contributions, distributions, or
allocations.
SECTION 13.6 NOTICE OF DISSOLUTION
In the event a Liquidating Event occurs or an event occurs that would,
but for provisions of an election or objection by one or more Partners pursuant
to Section 13.1 above, result in a dissolution of the Partnership, the General
Partner shall, within thirty (30) days thereafter, provide written notice
thereof to each of the Partners and to all other parties with
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whom the Partnership regularly conducts business (as determined in the
discretion of the General Partner) and shall publish notice thereof in a
newspaper of general circulation in each place in which the Partnership
regularly conducts business (as determined in the discretion of the General
Partner).
SECTION 13.7 CANCELLATION OF CERTIFICATE OF LIMITED PARTNERSHIP
Upon the completion of the liquidation of the Partnership cash and
property as provided in Section 13.2 above, the Partnership shall be terminated
and the Certificate and all qualifications of the Partnership as a foreign
limited partnership in jurisdictions other than the State of Delaware shall be
canceled and such other actions as may be necessary to terminate the Partnership
shall be taken.
SECTION 13.8 REASONABLE TIME FOR WINDING UP
A reasonable time shall be allowed for the orderly winding up of the
business and affairs of the Partnership and the liquidation of its assets
pursuant to Section 13.2 above, in order to minimize any losses otherwise
attendant upon such winding-up, and the provisions of this Agreement shall
remain in effect among the Partners during the period of liquidation.
SECTION 13.9 WAIVER OF PARTITION
Each Partner hereby waives any right to partition of the Partnership
property.
SECTION 13.10 LIABILITY OF LIQUIDATOR
The Liquidator shall be indemnified and held harmless by the
Partnership in the same manner and to the same degree as an Indemnitee may be
indemnified pursuant to Section 7.11 hereof.
ARTICLE XIV
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS
SECTION 14.1 AMENDMENTS.
A. GENERAL. Amendments to this Agreement may be proposed by the
General Partner or by any Limited Partners holding twenty-five percent (25%) or
more of the Partnership Interests. Following such proposal (except an amendment
pursuant to Section 14.1.B below), the General Partner shall submit any proposed
amendment to the Limited Partners. The General Partner shall seek the written
vote of the Partners on the proposed amendment or shall call a meeting to vote
thereon and to transact any other business that it may deem appropriate. For
purposes of obtaining a written vote, the General Partner may require a response
within a reasonable specified time, but not less than fifteen (15) days, and
failure to respond in such time
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period shall constitute a vote which is consistent with the General Partner's
recommendation with respect to the proposal. Except as provided in Section
14.1.B, 14.1.C or 14.1.D below, a proposed amendment shall be adopted and be
effective as an amendment hereto if it is approved by the General Partner and it
receives the Consent of Partners holding a majority of the Percentage Interests
of the Limited Partners (including Limited Partnership Interests held by the
General Partner).
B. AMENDMENTS NOT REQUIRING LIMITED PARTNER APPROVAL.
Notwithstanding Section 14.1.A or Section 14.1.C hereof, the General Partner
shall have the power, without the Consent of the Limited Partners, to amend this
Agreement as may be required to facilitate or implement any of the following
purposes:
(1) to add to the obligations of the General Partner or surrender any
right or power granted to the General Partner or any Affiliate of
the General Partner for the benefit of the Limited Partners;
(2) to reflect the admission, substitution, termination or withdrawal
of any Partner in accordance with this Agreement;
(3) to set forth the designations, rights, powers, duties, and
preferences of the holders of any additional Partnership
Interests issued pursuant to Article IV hereof;
(4) to reflect a change that does not adversely affect any of the
Limited Partners in any material respect, or to cure any
ambiguity, correct or supplement any provision in this Agreement
not inconsistent with law or with other provisions, or make other
changes with respect to matters arising under this Agreement that
will not be inconsistent with law or with the provisions of this
Agreement or as may be expressly provided by any other provisions
of this Agreement; and
(5) to satisfy any requirements, conditions, or guidelines contained
in any order, directive, opinion, ruling or regulation of a
federal, state or local agency or contained in federal, state or
local law.
The General Partner shall notify the Limited Partners when any action under this
Section 14.1.B is taken in the next regular communication to the Limited
Partners.
C. AMENDMENTS REQUIRING LIMITED PARTNER APPROVAL (EXCLUDING GENERAL
PARTNER). Notwithstanding Section 14 1.A above, without the Consent of the
Outside Limited Partners, the General Partner shall not amend Section 4.2.A,
Section 5.1.E, Section 7.1.A (second sentence only), Section 7.5, Section 7.6,
Section 7.8, Section 7.11.B, Section 11.2, Section 13.1, this Section 14.1.C or
Section 14.2.
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D. OTHER AMENDMENTS REQUIRING CERTAIN LIMITED PARTNER APPROVAL.
Notwithstanding anything in this Section 14.1 to the contrary, this Agreement
shall not be amended with respect to any Partner adversely affected without the
Consent of such Partner adversely affected if such amendment would (i) convert a
Limited Partner's interest in the Partnership into a general partner's interest,
(ii) modify the limited liability of a Limited Partner, (iii) amend Section
7.11.A, (iv) amend Article V, Article VI, or Section 13.2.A(3) (except as
permitted pursuant to Sections 4.2, 5.1.E, 5.4, 6.2 and 14.1(B)(3)), (v) amend
Section 8.6 or any defined terms set forth in Article I that relate to the
Redemption Right (except as permitted in Section 8.6.E), or (vi) amend this
Section 14.1.D. In addition, any amendment to Section 7.11.C of this Agreement
shall require the following consent:
(i) In the event that the amendment to Section 7.11.C affects
the 673 First Avenue Property or the rights of holders of 673 First
Avenue Units, such amendment shall require the Consent of Partners
(other than the General Partner or the General Partner Entity or any
Subsidiary of either the General Partner or the General Partner
Entity) who hold seventy-five percent (75%) of the 673 First Avenue
Units;
(ii) In the event that the amendment to Section 7.11.C affects
the 470 Park Avenue South Property or the rights of holders of 470
Park Avenue South Units, such amendment shall require the Consent of
Partners (other than the General Partner or the General Partner Entity
or any Subsidiary of either the General Partner or the General Partner
Entity) who hold seventy-five percent (75%) of the 470 Park Avenue
South Units.
E. AMENDMENT AND RESTATEMENT OF EXHIBIT A NOT AN AMENDMENT.
Notwithstanding anything in this Article XIV or elsewhere in this Agreement to
the contrary, any amendment and restatement of EXHIBIT A hereto by the General
Partner to reflect events or changes otherwise authorized or permitted by this
Agreement, whether pursuant to Section 7.1.A(20) hereof or otherwise, shall not
be deemed an amendment of this Agreement and may be done at any time and from
time to time, as necessary by the General Partner without the Consent of the
Limited Partners.
SECTION 14.2 MEETINGS OF THE PARTNERS
A. GENERAL. Meetings of the Partners may be called by the General
Partner and shall be called upon the receipt by the General Partner of a written
request by Limited Partners holding twenty-five percent (25%) or more of the
Partnership Interests. The call shall state the nature of the business to be
transacted. Notice of any such meeting shall be given to all Partners not less
than seven (7) days nor more than thirty (30) days prior to the date of such
meeting. Partners may vote in person or by proxy at such meeting. Whenever the
vote or Consent of Partners is permitted or required under this Agreement, such
vote or Consent may be given at a meeting of Partners or may be given in
accordance with the procedure prescribed in Section 14.1.A above. Except as
otherwise expressly provided in this Agreement, the
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Consent of holders of a majority of the Percentage Interests held by Limited
Partners (including Limited Partnership Interests held by the General Partner)
shall control.
B. ACTIONS WITHOUT A MEETING. Any action required or permitted to
be taken at a meeting of the Partners may be taken without a meeting if a
written consent setting forth the action so taken is signed by a majority of the
Percentage Interests of the Partners (or such other percentage as is expressly
required by this Agreement). Such consent may be in one instrument or in
several instruments, and shall have the same force and effect as a vote of a
majority of the Percentage Interests of the Partners (or such other percentage
as is expressly required by this Agreement). Such consent shall be filed with
the General Partner. An action so taken shall be deemed to have been taken at a
meeting held on the effective date so certified.
C. PROXY. Each Limited Partner may authorize any Person or Persons
to act for him by proxy on all matters in which a Limited Partner is entitled to
participate, including waiving notice of any meeting, or voting or participating
at a meeting. Every proxy must be signed by the Limited Partner or its
attorney-in-fact. No proxy shall be valid after the expiration of eleven (11)
months from the date thereof unless otherwise provided in the proxy. Every
proxy shall be revocable at the pleasure of the Limited Partner executing it.
Such revocation to be effective upon the Partnership's receipt of notice thereof
in writing.
D. CONDUCT OF MEETING. Each meeting of Partners shall be conducted
by the General Partner or such other Person as the General Partner may appoint
pursuant to such rules for the conduct of the meeting as the General Partner or
such other Person deems appropriate.
ARTICLE XV
GENERAL PROVISIONS
SECTION 15.1 ADDRESSES AND NOTICE
Any notice, demand, request or report required or permitted to be
given or made to a Partner or Assignee under this Agreement shall be in writing
and shall be deemed given or made when delivered in person or when sent by first
class United States mail or by other means of written communication to the
Partner or Assignee at the address set forth in Exhibit A hereto or such other
address as the Partners shall notify the General Partner in writing.
SECTION 15.2 TITLES AND CAPTIONS
All article or section titles or captions in this Agreement are for
convenience only. They shall not be deemed part of this Agreement and in no way
define, limit, extend or describe the scope or intent of any provisions hereof.
Except as specifically provided otherwise, references to "Articles" and
"Sections" are to Articles and Sections of this Agreement.
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SECTION 15.3 PRONOUNS AND PLURALS
Whenever the context may require, any pronoun used in this Agreement
shall include the corresponding masculine, feminine or neuter forms, and the
singular form of nouns, pronouns and verbs shall include the plural and vice
versa.
SECTION 15.4 FURTHER ACTION
The parties shall execute and deliver all documents, provide all
information and take or refrain from taking action as may be necessary or
appropriate to achieve the purposes of this Agreement.
SECTION 15.5 BINDING EFFECT
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their heirs, executors, administrators, successors, legal
representatives and permitted assigns.
SECTION 15.6 CREDITORS
Other than as expressly set forth herein with regard to any
Indemnitee, none of the provisions of this Agreement shall be for the benefit
of, or shall be enforceable by, any creditor of the Partnership.
SECTION 15.7 WAIVER
No failure by any party to insist upon the strict performance of any
covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon a breach thereof shall constitute waiver of any
such breach or any other covenant, duty, agreement or condition.
SECTION 15.8 COUNTERPARTS
This Agreement may be executed in counterparts, all of which together
shall constitute one agreement binding on all the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart. Each party shall become bound by this Agreement immediately
upon affixing its signature hereto.
SECTION 15.9 APPLICABLE LAW
This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Delaware, without regard to the principles
of conflicts of law.
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SECTION 15.10 INVALIDITY OF PROVISIONS
If any provision of this Agreement is or becomes invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not be affected thereby.
SECTION 15.11 POWER OF ATTORNEY
A. GENERAL. Each Limited Partner and each Assignee who accepts
Partnership Units (or any rights, benefits or privileges associated therewith)
is deemed to irrevocably constitute and appoint the General Partner, any
Liquidator and authorized officers and attorneys-in-fact of each, and each of
those acting singly, in each case with full power of substitution, as its true
and lawful agent and attorney-in-fact, with full power and authority in its
name, place and stead to:
(1) execute, swear to, acknowledge, deliver, file and record in the
appropriate public offices (a) all certificates, documents and
other instruments (including, without limitation, this Agreement
and the Certificate and all amendments or restatements thereof)
that the General Partner or any Liquidator deems appropriate or
necessary to form, qualify or continue the existence or
qualification of the Partnership as a limited partnership (or a
partnership in which the limited partners have limited liability)
in the State of Delaware and in all other jurisdictions in which
the Partnership may conduct business or own property, (b) all
instruments that the General Partner or any Liquidator deems
appropriate or necessary to reflect any amendment, change,
modification or restatement of this Agreement in accordance with
its terms, (c) all conveyances and other instruments or documents
that the General Partner or any Liquidator deems appropriate or
necessary to reflect the dissolution and liquidation of the
Partnership pursuant to the terms of this Agreement, including,
without limitation, a certificate of cancellation, (d) all
instruments relating to the admission, withdrawal, removal or
substitution of any Partner pursuant to, or other events
described in, Article XI, XII or XIII hereof or the Capital
Contribution of any Partner and (e) all certificates, documents
and other instruments relating to the determination of the
rights, preferences and privileges of Partnership Interests; and
(2) execute, swear to, acknowledge and file all ballots, consents,
approvals, waivers, certificates and other instruments
appropriate or necessary, in the sole and absolute discretion of
the General Partner or any Liquidator, to make, evidence, give,
confirm or ratify any vote, consent, approval, agreement or other
action which is made or given by the Partners hereunder or is
consistent with the terms of this Agreement or appropriate
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or necessary, in the sole discretion of the General Partner or
any Liquidator, to effectuate the terms or intent of this
Agreement.
Nothing contained in this Section 15.11 shall be construed as
authorizing the General Partner or any Liquidator to amend this Agreement except
in accordance with Article XIV hereof or as may be otherwise expressly provided
for in this Agreement.
B. IRREVOCABLE NATURE. The foregoing power of attorney is hereby
declared to be irrevocable and a power coupled with an interest, in recognition
of the fact that each of the Partners will be relying upon the power of the
General Partner or any Liquidator to act as contemplated by this Agreement in
any filing or other action by it on behalf of the Partnership, and it shall
survive and not be affected by the subsequent Incapacity of any Limited Partner
or Assignee and the transfer of all or any portion of such Limited Partner's or
Assignee's Partnership Units and shall extend to such Limited Partner's or
Assignee's heirs, successors, assigns and personal representatives. Each such
Limited Partner or Assignee hereby agrees to be bound by any representation made
by the General Partner or any Liquidator, acting in good faith pursuant to such
power of attorney; and each such Limited Partner or Assignee hereby waives any
and all defenses which may be available to contest, negate or disaffirm the
action of the General Partner or any Liquidator, taken in good faith under such
power of attorney. Each Limited Partner or Assignee shall execute and deliver
to the General Partner or the Liquidator, within fifteen (15) days after receipt
of the General Partner's or Liquidator's request therefor, such further
designation, powers of attorney and other instruments as the General Partner or
the Liquidator, as the case may be, deems necessary to effectuate this Agreement
and the purposes of the Partnership.
SECTION 15.12 ENTIRE AGREEMENT
This Agreement contains the entire understanding and agreement among
the Partners with respect to the subject matter hereof and supersedes any prior
written oral understandings or agreements among them with respect thereto.
SECTION 15.13 NO RIGHTS AS SHAREHOLDERS
Nothing contained in this Agreement shall be construed as conferring
upon the holders of the Partnership Units any rights whatsoever as shareholders
of the General Partner Entity, including, without limitation, any right to
receive dividends or other distributions made to shareholders of the General
Partner Entity or to vote or to consent or receive notice as shareholders in
respect to any meeting of shareholders for the election of directors of the
General Partner Entity or any other matter.
SECTION 15.14 LIMITATION TO PRESERVE REIT STATUS
To the extent that any amount paid or credited to the General Partner
or its officers, directors, employees or agents pursuant to Section 7.4 or
Section 7.7 hereof would
71
<PAGE>
constitute gross income to the General Partner Entity for purposes of Section
856(c)(2) or 856(c)(3) of the Code (a "General Partner Payment") then,
notwithstanding any other provision of this Agreement, the amount of such
General Partner Payments for any fiscal year shall not exceed the lesser of:
(i) an amount equal to the excess, if any, of (a) 4.20% of the
General Partner Entity's total gross income (but not including the amount of any
General Partner Payments) for the fiscal year which is described in subsections
(A) though (H) of Section 856(c)(2) of the Code over (b) the amount of gross
income (within the meaning of Section 856(c)(2) of the Code) derived by the
General Partner Entity from sources other than those described in subsections
(A) through (H) of Section 856(c)(2) of the Code (but not including the amount
of any General Partner Payments); or
(ii) an amount equal to the excess, if any of (a) 25% of the
General Partner Entity's total gross income (but not including the amount of any
General Partner Payments) for the fiscal year which is described in subsections
(A) through (I) of Section 856(c)(3) of the Code over (b) the amount of gross
income (within the meaning of Section 856(c)(3) of the Code) derived by the
General Partner Entity from sources other than those described in subsections
(A) through (I) of Section 856(c)(3) of the Code (but not including the amount
of any General Partner Payments);
PROVIDED, HOWEVER, that General Partner Payments in excess of the amounts set
forth in subparagraphs (i) and (ii) above may be made if the General Partner
Entity, as a condition precedent, obtains an opinion of tax counsel that the
receipt of such excess amounts would not adversely affect the General Partner
Entity's ability to qualify as a REIT. To the extent General Partner Payments
may not be made in a year due to the foregoing limitations, such General Partner
Payments shall carry over and be treated as arising in the following year,
PROVIDED, HOWEVER, that such amounts shall not carry over for more than five
years, and if not paid within such five year period, shall expire; PROVIDED,
FURTHER, that (i) as General Partner Payments are made, such payments shall be
applied first to carryover amounts outstanding, if any, and (ii) with respect to
carryover amounts for more than one Partnership Year, such payments shall be
applied to the earliest Partnership Year first.
72
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
GENERAL PARTNER:
SL GREEN REALTY CORP.
By:
-----------------------------------------------
Name:
---------------------------------------------
Title:
--------------------------------------------
LIMITED PARTNERS:
SL GREEN REALTY CORP.
By:
-----------------------------------------------
Name:
---------------------------------------------
Title:
--------------------------------------------
[ADD OTHER LIMITED PARTNERS]
73
<PAGE>
EXHIBIT A
PARTNERS AND PARTNERSHIP INTERESTS
<TABLE>
<CAPTION>
Class A Class B Agreed Initial
Partnership Partnership Capital Percentage
Name and Address of Partner Units Units Account Interest
- --------------------------- ----------- ----------- -------------- ----------
<S> <C> <C> <C> <C>
GENERAL PARTNER:
SL Green Realty Corp.
70 West 36th Street
New York, New York 10018
LIMITED PARTNERS:
SL Green Realty Corp.
70 West 36th Street
New York, New York 10018
[List other Partners]
TOTAL 100.00%
----------- ----------- -------------- ----------
</TABLE>
A-1
<PAGE>
EXHIBIT B
CAPITAL ACCOUNT MAINTENANCE
1. CAPITAL ACCOUNTS OF THE PARTNERS
A. The Partnership shall maintain for each Partner a separate Capital
Account in accordance with the rules of Regulations Section 1.704-l(b)(2)(iv).
Such Capital Account shall be increased by (i) the amount of all Capital
Contributions and any other deemed contributions made by such Partner to the
Partnership pursuant to this Agreement and (ii) all items of Partnership income
and gain (including income and gain exempt from tax) computed in accordance with
Section 1.B hereof and allocated to such Partner pursuant to Section 6.1 of the
Agreement and EXHIBIT C hereof, and decreased by (x) the amount of cash or
Agreed Value of all actual and deemed distributions of cash or property made to
such Partner pursuant to this Agreement and (y) all items of Partnership
deduction and loss computed in accordance with Section 1.B hereof and allocated
to such Partner pursuant to Section 6.1 of the Agreement and EXHIBIT C hereof.
B. For purposes of computing the amount of any item of income, gain,
deduction or loss to be reflected in the Partners' Capital Accounts, unless
otherwise specified in this Agreement, the determination, recognition and
classification of any such item shall be the same as its determination,
recognition and classification for federal income tax purposes determined in
accordance with Section 703(a) of the Code (for this purpose all items of
income, gain, loss or deduction required to be stated separately pursuant to
Section 703(a)(1) of the Code shall be included in taxable income or loss), with
the following adjustments:
(1) Except as otherwise provided in Regulations Section
1.704-l(b)(2)(iv)(m), the computation of all items of income,
gain, loss and deduction shall be made without regard to any
election under Section 754 of the Code which may be made by the
Partnership, provided that the amounts of any adjustments to the
adjusted bases of the assets of the Partnership made pursuant to
Section 734 of the Code as a result of the distribution of
property by the Partnership to a Partner (to the extent that such
adjustments have not previously been reflected in the Partners'
Capital Accounts) shall be reflected in the Capital Accounts of
the Partners in the manner and subject to the limitations
prescribed in Regulations Section 1.704-l(b)(2)(iv) (m)(4).
(2) The computation of all items of income, gain, and deduction shall
be made without regard to the fact that items described in
Sections 705(a)(1)(B) or 705(a)(2)(B) of the Code are not
includable in gross income or are neither currently deductible
nor capitalized for federal income tax purposes.
B-1
<PAGE>
(3) Any income, gain or loss attributable to the taxable disposition
of any Partnership property shall be determined as if the
adjusted basis of such property as of such date of disposition
were equal in amount to the Partnership's Carrying Value with
respect to such property as of such date.
(4) In lieu of the depreciation, amortization, and other cost
recovery deductions taken into account in computing such taxable
income or loss, there shall be taken into account Depreciation
for such fiscal year.
(5) In the event the Carrying Value of any Partnership Asset is
adjusted pursuant to Section 1.D hereof, the amount of any such
adjustment shall be taken into account as gain or loss from the
disposition of such asset.
(6) Any items specially allocated under Section 2 of EXHIBIT C hereof
shall not be taken into account.
C. Generally, a transferee (including any Assignee) of a Partnership
Unit shall succeed to a pro rata portion of the Capital Account of the
transferor; provided, however, that, if the transfer causes a termination of the
Partnership under Section 708(b)(1)(B) of the Code, the Partnership's properties
shall be deemed, solely for federal income tax purposes, to have been
distributed in liquidation of the Partnership to the holders of Partnership
Units (including such transferee) and recontributed by such holders in
reconstitution of the Partnership. In such event, the Carrying Values of the
Partnership properties shall be adjusted immediately prior to such deemed
distribution pursuant to Section 1.D.(2) hereof. The Capital Accounts of such
reconstituted Partnership shall be maintained in accordance with the principles
of this EXHIBIT B.
D. (1) Consistent with the provisions of Regulations Section
1.704-1(b)(2)(iv)(f), and as provided in Section 1.D(2), the
Carrying Values of all Partnership assets shall be adjusted
upward or downward to reflect any Unrealized Gain or Unrealized
Loss attributable to such Partnership property, as of the times
of the adjustments provided in Section 1.D(2) hereof, as if such
Unrealized Gain or Unrealized Loss had been recognized on an
actual sale of each such property and allocated pursuant to
Section 6.1 of the Agreement.
(2) Such adjustments shall be made as of the following times: (a)
immediately prior to the acquisition of an additional interest in
the Partnership by any new or existing Partner in exchange for
more than a de minimis Capital Contribution; (b) immediately
prior to the distribution by the Partnership to a Partner of more
than a de minimis amount of property as consideration for an
interest in the Partnership; and (c) immediately prior to the
liquidation of the Partnership within the meaning of Regulations
Section 1.704-l(b)(2)(ii)(g), provided however that adjustments
pursuant
B-2
<PAGE>
to clauses (a) and (b) above shall be made only if the General
Partner determines that such adjustments are necessary or
appropriate to reflect the relative economic interests of the
Partners in the Partnership.
(3) In accordance with Regulations Section 1.704- l(b)(2)(iv)(e), the
Carrying Value of Partnership assets distributed in kind shall be
adjusted upward or downward to reflect any Unrealized Gain or
Unrealized Loss attributable to such Partnership property, as of
the time any such asset is distributed.
(4) In determining Unrealized Gain or Unrealized Loss for purposes of
this EXHIBIT B, the aggregate cash amount and fair market value
of all Partnership assets (including cash or cash equivalents)
shall be determined by the General Partner using such reasonable
method of valuation as it may adopt, or in the case of a
liquidating distribution pursuant to Article XIII of the
Agreement, shall be determined and allocated by the Liquidator
using such reasonable methods of valuation as it may adopt. The
General Partner, or the Liquidator, as the case may be, shall
allocate such aggregate fair market value among the assets of the
Partnership in such manner as it determines in its sole and
absolute discretion to arrive at a fair market value for
individual properties.
E. The provisions of the Agreement (including this EXHIBIT B and the
other Exhibits to the Agreement) relating to the maintenance of Capital Accounts
are intended to comply with Regulations Section 1.704-l(b), and shall be
interpreted and applied in a manner consistent with such Regulations. In the
event the General Partner shall determine that it is prudent to modify the
manner in which the Capital Accounts, or any debits or credits thereto
(including, without limitation, debits or credits relating to liabilities which
are secured by contributed or distributed property or which are assumed by the
Partnership, the General Partner, or the Limited Partners) are computed in order
to comply with such Regulations, the General Partner may make such modification
without regard to Article XIV of the Agreement, provided that it is not likely
to have a material effect on the amounts distributable to any Person pursuant to
Article XIII of the Agreement upon the dissolution of the Partnership. The
General Partner also shall (i) make any adjustments that are necessary or
appropriate to maintain equality between the Capital Accounts of the Partners
and the amount of Partnership capital reflected on the Partnership's balance
sheet, as computed for book purposes, in accordance with Regulations Section
1.704-1(b)(2)(iv)(q), and (ii) make any appropriate modifications in the event
unanticipated events might otherwise cause this Agreement not to comply with
Regulations Section 1.704-1(b).
2. NO INTEREST
No interest shall be paid by the Partnership on Capital Contributions or on
balances in Partners' Capital Accounts.
B-3
<PAGE>
3. NO WITHDRAWAL
No Partner shall be entitled to withdraw any part of its Capital
Contribution or Capital Account or to receive any distribution from the
Partnership, except as provided in Articles IV, V, VII and XIII of the
Agreement.
B-4
<PAGE>
EXHIBIT C
SPECIAL ALLOCATION RULES
1. SPECIAL ALLOCATION RULES.
Notwithstanding any other provision of the Agreement or this EXHIBIT C, the
following special allocations shall be made in the following order:
A. MINIMUM GAIN CHARGEBACK. Notwithstanding the provisions of Section 6.1
of the Agreement or any other provisions of this EXHIBIT C, if there is a net
decrease in Partnership Minimum Gain during any Partnership Year, each Partner
shall be specially allocated items of Partnership income and gain for such year
(and, if necessary, subsequent years) in an amount equal to such Partner's share
of the net decrease in Partnership Minimum Gain, as determined under Regulations
Section 1.704-2(g). Allocations pursuant to the previous sentence shall be made
in proportion to the respective amounts required to be allocated to each Partner
pursuant thereto. The items to be so allocated shall be determined in
accordance with Regulations Section 1.704-2(f)(6). This Section 1.A is intended
to comply with the minimum gain chargeback requirements in Regulations Section
1.704-2(f) and, for purposes of this Section 1.A only, each Partner's Adjusted
Capital Account Deficit shall be determined prior to any other allocations
pursuant to Section 6.1 of this Agreement with respect to such Partnership Year
and without regard to any decrease in Partner Minimum Gain during such
Partnership Year.
B. PARTNER MINIMUM GAIN CHARGEBACK. Notwithstanding any other provision
of Section 6.1 of this Agreement or any other provisions of this EXHIBIT C
(except Section 1.A hereof), if there is a net decrease in Partner Minimum Gain
attributable to a Partner Nonrecourse Debt during any Partnership Year, each
Partner who has a share of the Partner Minimum Gain attributable to such Partner
Nonrecourse Debt, determined in accordance with Regulations Section 1.704-2(i)
(5), shall be specially allocated items of Partnership income and gain for such
year (and, if necessary, subsequent years) in an amount equal to such Partner's
share of the net decrease in Partner Minimum Gain attributable to such Partner
Nonrecourse Debt, determined in accordance with Regulations Section 1.704-2(i)
(5). Allocations pursuant to the previous sentence shall be made in proportion
to the respective amounts required to be allocated to each Partner pursuant
thereto. The items to be so allocated shall be determined in accordance with
Regulations Section 1.704-2(i) (4). This Section 1.B is intended to comply with
the minimum gain chargeback requirement in such Section of the Regulations and
shall be interpreted consistently therewith. Solely for purposes of this
Section 1.B, each Partner's Adjusted Capital Account Deficit shall be determined
prior to any other allocations pursuant to Section 6.1 of the Agreement or this
Exhibit with respect to such Partnership Year, other than allocations pursuant
to Section 1.A hereof.
C. QUALIFIED INCOME OFFSET. In the event any Partner unexpectedly
receives any adjustments, allocations or distributions described in Regulations
Sections 1.704-l(b)(2)(ii)(d)(4), 1.704-l(b)(2)(ii)(d)(5), or
1.704-l(b)(2)(ii)(d)(6), and after giving effect to the allocations required
under Sections 1.A and 1.B hereof with respect to such Partnership Year, such
Partner
C-1
<PAGE>
has an Adjusted Capital Account Deficit, items of Partnership income and gain
(consisting of a pro rata portion of each item of Partnership income, including
gross income and gain for the Partnership Year) shall be specially allocated to
such Partner in an amount and manner sufficient to eliminate, to the extent
required by the Regulations, its Adjusted Capital Account Deficit created by
such adjustments, allocations or distributions as quickly as possible. This
Section 1.C is intended to constitute a "qualified income offset" under
Regulations Section 1.704-l(b)(2)(ii)(d) and shall be interpreted consistently
therewith.
D. GROSS INCOME ALLOCATION. In the event that any Partner has an Adjusted
Capital Account Deficit at the end of any Partnership Year (after taking into
account allocations to be made under the preceding paragraphs hereof with
respect to such Partnership Year), each such Partner shall be specially
allocated items of Partnership income and gain (consisting of a pro rata portion
of each item of Partnership income, including gross income and gain for the
Partnership Year) in an amount and manner sufficient to eliminate, to the extent
required by the Regulations, its Adjusted Capital Account Deficit.
E. NONRECOURSE DEDUCTIONS. Nonrecourse Deductions for any Partnership
Year shall be allocated to the Partners in accordance with their respective
Percentage Interests. If the General Partner determines in its good faith
discretion that the Partnership's Nonrecourse Deductions must be allocated in a
different ratio to satisfy the safe harbor requirements of the Regulations
promulgated under Section 704(b) of the Code, the General Partner is authorized,
upon notice to the Limited Partners, to revise the prescribed ratio for such
Partnership Year to the numerically closest ratio which would satisfy such
requirements.
F. PARTNER NONRECOURSE DEDUCTIONS. Any Partner Nonrecourse Deductions for
any Partnership Year shall be specially allocated to the Partner who bears the
economic risk of loss with respect to the Partner Nonrecourse Debt to which such
Partner Nonrecourse Deductions are attributable in accordance with Regulations
Sections 1.704-2(b)(4) and 1.704-2(i).
G. CODE SECTION 754 ADJUSTMENTS. To the extent an adjustment to the
adjusted tax basis of any Partnership asset pursuant to Section 734(b) or 743(b)
of the Code is required, pursuant to Regulations Section 1.704-l(b)(2)(iv)(m),
to be taken into account in determining Capital Accounts, the amount of such
adjustment to the Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis), and such item of gain or loss shall be specially
allocated to the Partners in a manner consistent with the manner in which their
Capital Accounts are required to be adjusted pursuant to such Section of the
Regulations.
2. ALLOCATIONS FOR TAX PURPOSES
A. Except as otherwise provided in this Section 2, for federal income tax
purposes, each item of income, gain, loss and deduction shall be allocated among
the Partners in the same manner as its correlative item of "book" income, gain,
loss or deduction is allocated pursuant to Section 6.1 of the Agreement and
Section 1 of this EXHIBIT C.
C-2
<PAGE>
B. In an attempt to eliminate Book-Tax Disparities attributable to a
Contributed Property or Adjusted Property, items of income, gain, loss, and
deduction shall be allocated for federal income tax purposes among the Partners
as follows:
(1) (a) In the case of a Contributed Property, such items attributable
thereto shall be allocated among the Partners consistent with the
principles of Section 704(c) of the Code to take into account the
variation between the 704(c) Value of such property and its
adjusted basis at the time of contribution (taking into account
Section 2.C of this EXHIBIT C); and
(b) any item of Residual Gain or Residual Loss attributable to a
Contributed Property shall be allocated among the Partners in the
same manner as its correlative item of "book" gain or loss is
allocated pursuant to Section 6.1 of the Agreement and Section 1
of this EXHIBIT C.
(2) (a) In the case of an Adjusted Property, such items shall
(i) first, be allocated among the Partners in a manner
consistent with the principles of Section 704(c) of the Code to
take into account the Unrealized Gain or Unrealized Loss
attributable to such property and the allocations thereof
pursuant to EXHIBIT B;
(ii) second, in the event such property was originally a
Contributed Property, be allocated among the Partners in a manner
consistent with Section 2.B(1) of this EXHIBIT C; and
(b) any item of Residual Gain or Residual Loss attributable to an
Adjusted Property shall be allocated among the Partners in the
same manner its correlative item of "book" gain or loss is
allocated pursuant to Section 6.1 of the Agreement and Section 1
of this EXHIBIT C.
C. To the extent Regulations promulgated pursuant to Section 704(c) of
the Code permit a Partnership to utilize alternative methods to eliminate the
disparities between the Carrying Value of property and its adjusted basis, the
General Partner shall, subject to the following, have the authority to elect the
method to be used by the Partnership and such election shall be binding on all
Partners. With respect to the Contributed Properties transferred to the
Partnership in connection with the Consolidation, the Partnership shall elect to
use the "traditional method" set forth in Regulations Section 1.704-3(b).
C-3
<PAGE>
EXHIBIT D
NOTICE OF REDEMPTION
The undersigned hereby irrevocably (i) tenders for redemption ________
Partnership Units in SL Green Operating Partnership, L.P. in accordance with the
terms of the First Amended and Restated Agreement of Limited Partnership of SL
Green Operating Partnership, L.P., as amended, and the Redemption Right referred
to therein, (ii) surrenders such Partnership Units and all right, title and
interest therein and (iii) directs that the Cash Amount or Shares Amount (as
determined by the General Partner) deliverable upon exercise of the Redemption
Right be delivered to the address specified below, and if Shares are to be
delivered, such Shares be registered or placed in the name(s) and at the
address(es) specified below. The undersigned hereby represents, warrants, and
certifies that the undersigned (a) has marketable and unencumbered title to such
Partnership Units, free and clear of the rights of or interests of any other
person or entity, (b) has the full right, power and authority to redeem and
surrender such Partnership Units as provided herein and (c) has obtained the
consent or approval of all persons or entities, if any, having the right to
consult or approve such redemption and surrender.
Dated:__________ Name of Limited Partner:__________________________
_____________________________________________
(Signature of Limited Partner)
_____________________________________________
(Street Address)
_____________________________________________
(City) (State) (Zip Code)
Signature Guaranteed by:_______________________________
IF SHARES ARE TO BE ISSUED, ISSUE TO:
Name:
Please insert social security or identifying number:
D-1
<PAGE>
EXHIBIT E
VALUE OF CONTRIBUTED PROPERTY
Underlying Property 704(c) Value Agreed Value
- ------------------- ------------ ------------
E-1
<PAGE>
EXHIBIT 10.6
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
entered into as of _____________________, 1997 by and between SL GREEN REALTY
CORP., a Maryland corporation (the "Company"), and the holders of Units listed
on SCHEDULE A hereto (individually, a "Holder"), attached hereto.
WHEREAS, on the date hereof, the Holders are receiving units of
limited partnership interest ("Units") in SL Green Operating Partnership, L.P.
(the "Partnership");
WHEREAS, in connection therewith, the Company has agreed to grant to
Holders the Registration Rights (as defined in Section 1 hereof);
NOW, THEREFORE, the parties hereto, in consideration of the foregoing,
the mutual covenants and agreements hereinafter set forth, and other good and
valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, hereby agree as follows:
SECTION 1. REGISTRATION RIGHTS
If Holder receives shares of common stock ("Common Stock") of the
Company upon redemption of Units (the "Redemption Shares") pursuant to the
terms of the agreement of limited partnership of the Partnership, as amended
(the "Partnership Agreement"), Holder shall be entitled to offer for sale
pursuant to a shelf registration statement the Redemption Shares, subject to
the terms and conditions set forth herein (the "Registration Rights").
1.1 DEMAND REGISTRATION RIGHTS.
1.1(a)REGISTRATION PROCEDURE. Subject to Sections 1.1(c) and
1.2 hereof, if Holder desires to exercise its Registration Rights with
respect to the Redemption Shares, Holder shall deliver to the Company a
written notice (a "Registration Notice") informing the Company of such
exercise and specifying the number of shares to be offered by Holder (such
shares to be offered being referred to herein as the "Registrable
Securities"). Such notice may be given at any time on or after the date a
notice of redemption is delivered by Holder to the Partnership pursuant to
the Partnership Agreement, but must be given at least ten (10) business days
prior to the consummation of the sale of Registrable Securities. Upon
receipt of the Registration Notice, the Company, if it has not already caused
the Registrable Securities to be included as part of an existing
1
<PAGE>
shelf registration statement and related prospectus (the "Shelf Registration
Statement") that the Company then has on file with the Securities and
Exchange Commission (in which event the Company shall be deemed to have
satisfied its registration obligation under this Section 1.1), will cause to
be filed with the Securities and Exchange Commission (the "SEC") as soon as
reasonably practicable after receiving the Registration Notice a new
registration statement and related prospectus (a "New Registration
Statement") that complies as to form in all material respects with applicable
SEC rules providing for the sale by Holder of the Registrable Securities, and
agrees (subject to Section 1.2 hereof) to use its best efforts to cause such
New Registration Statement to be declared effective by the SEC as soon as
practicable. (As used herein, "Registration Statement" and "Prospectus"
refer to the Shelf Registration Statement and related prospectus (including
any preliminary prospectus) or the New Registration Statement and related
prospectus (including any preliminary prospectus), whichever is utilized by
the Company to satisfy Holder's Registration Rights pursuant to this Section
1, including in each case any documents incorporated therein by reference).
Holder agrees to provide in a timely manner information regarding the
proposed distribution by Holder of the Registrable Securities and such other
information reasonably requested by the Company in connection with the
preparation of and for inclusion in the Registration Statement. The Company
agrees (subject to Section 1.2 hereof) to use its best efforts to keep the
Registration Statement effective (including the preparation and filing of any
amendments and supplements necessary for that purpose) until the earlier of
(i) the date on which Holder consummates the sale of all of the Registrable
Securities registered under the Registration Statement, or (ii) the date on
which all of the Registrable Securities are eligible for sale pursuant to
Rule 144(k) (or any successor provision) or in a single transaction pursuant
to Rule 144(e) (or any successor provision) under the Securities Act of 1933,
as amended (the "Act"). The Company agrees to provide to Holder a reasonable
number of copies of the final Prospectus and any amendments or supplements
thereto.
1.1(b) OFFERS AND SALES. All offers and sales by Holder under
the Registration Statement referred to in this Section 1.1 shall be completed
within the period during which the Registration Statement is required to
remain effective pursuant to Section 1.1(a), and upon expiration of period
Holder will not offer or sell any Registrable Securities under the
Registration Statement. If directed by the Company, Holder will return all
undistributed copies of the Prospectus in its possession upon the expiration
of such period.
1.1(c) LIMITATIONS ON REGISTRATION RIGHTS. Each exercise of a
Registration Right shall be with respect to a minimum of the lesser of (i) Fifty
Thousand (50,000) shares of
2
<PAGE>
Common Stock or (ii) the total number of Redemption Shares held by Holder at
such time plus the number of Redemption Shares that may be issued upon
redemption of Units by Holder. The right of Holder to deliver a Registration
Notice commences upon the date a Holder is permitted to redeem Units pursuant
to the Partnership Agreement. The right of Holder to deliver a Registration
Notice shall expire on the date on which all of the Redemption Shares held by
Holder or issuable upon redemption of Units held by Holder are eligible for
sale pursuant to Rule 144(k) (or any successor provision) or in a single
transaction pursuant to Rule 144(e) (or any successor provision) under the
Securities Act of 1933, as amended (the "Securities Act"). The Registration
Rights granted pursuant to this Section 1.1 may not be exercised in
connection with any underwritten public offering by the Company or by Holder
without the prior written consent of the Company.
1.2 SUSPENSION OF OFFERING. Upon any notice by the Company, either
before or after a Holder has delivered a Registration Notice, that a negotiation
or consummation of a transaction by the Company or its subsidiaries is pending
or an event has occurred, which negotiation, consummation or event would require
additional disclosure by the Company in the Registration Statement of material
information which the Company has a BONA FIDE business purpose for keeping
confidential and the nondisclosure of which in the Registration Statement might
cause the Registration Statement to fail to comply with applicable disclosure
requirements (a "Materiality Notice"), Holder agrees that it will immediately
discontinue offers and sales of the Registrable Securities under the
Registration Statement until Holder receives copies of a supplemented or amended
Prospectus that corrects the misstatement(s) or omission(s) referred to above
and receives notice that any post-effective amendment has become effective;
PROVIDED, that the Company may delay, suspend or withdraw the Registration
Statement for such reason for no more than sixty (60) days after delivery of the
Materiality Notice at any one time. If so directed by the Company, Holder will
deliver to the Company all copies of the Prospectus covering the Registrable
Securities current at the time of receipt of such notice.
1.3 EXPENSES. The Company shall pay all expenses incident to the
performance by it of its registration obligations under this Section 1,
including (i) all stock exchange, SEC and state securities registration,
listing and filing fees, (ii) all expenses incurred in connection with the
preparation, printing and distributing of the Registration Statement and
Prospectus, and (iii) fees and disbursements of counsel for the Company and
of the independent public accountants of the Company. Holder shall be
responsible for the payment of any brokerage and sales commissions, fees and
disbursements of Holder's counsel, and any transfer taxes relating to the
sale or disposition of the Registrable Securities by Holder.
3
<PAGE>
1.4 QUALIFICATION. The Company agrees to use its best efforts to
register or qualify the Registrable Securities by the time the applicable
Registration Statement is declared effective by the SEC under all applicable
state securities or "blue sky" laws of such jurisdictions as Holder shall
reasonably request in writing, to keep each such registration or qualification
effective during the period such Registration Statement is required to be kept
effective or during the period offers or sales are being made by Holder after
delivery of a Registration Notice to the Company, whichever is shorter, and to
do any and all other acts and things which may be reasonably necessary or
advisable to enable Holder to consummate the disposition in each such
jurisdiction of the Registrable Securities owned by Holder; PROVIDED, HOWEVER,
that the Company shall not be required to (x) qualify generally to do business
in any jurisdiction or to register as a broker or dealer in such jurisdiction
where it would not otherwise be required to qualify but for this Section 1.1,
(y) subject itself to taxation in any such jurisdiction, or (z) submit to the
general service of process in any such jurisdiction.
2. INDEMNIFICATION; PARTNERSHIP
2.1 INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify
and hold harmless each Holder and each person, if any, who controls any Holder
within the meaning of Section 15 of the Securities Act or Section 20 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as follows:
(a) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of or based upon any
untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement (or any amendment thereto)
pursuant to which the Registrable Securities were registered under the
Securities Act, including all documents incorporated therein by
reference, or the omission or alleged omission therefrom of a material
fact required to be stated therein or necessary to make the statements
therein not misleading or arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in
any Prospectus (or any amendment or supplement thereto), including all
documents incorporated therein by reference, or the omission or
alleged omission therefrom of a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading;
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(b) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or investigation or proceeding
by any governmental agency or body, commenced or threatened, or of any
claim whatsoever based upon any such untrue statement or omission, or
any such alleged untrue statement or omission, if such settlement is
effected with the written consent of the Company; and
(c) against any and all expense whatsoever, as incurred
(including reasonable fees and disbursements of counsel), reasonably
incurred in investigating, preparing or defending against any
litigation, or investigation or proceeding by any governmental agency
or body, commenced or threatened, in each case whether or not a party,
or any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission, to the
extent that any such expense is not paid under subparagraph (a) or (b)
above;
PROVIDED, HOWEVER, that the indemnity provided pursuant to this Section 2.1
does not apply to any Holder with respect to any loss, liability, claim,
damage or expense to the extent arising out of (i) any untrue statement or
omission or alleged untrue statement or omission made in reliance upon and in
conformity with written information furnished to the Company by such Holder
expressly for use in the Registration Statement (or any amendment thereto) or
the Prospectus (or any amendment or supplement thereto), or (ii) such
Holder's failure to deliver an amended or supplemental Prospectus if such
loss, liability, claim, damage or expense would not have arisen had such
delivery occurred.
2.2 INDEMNIFICATION BY HOLDER. Holder (and each permitted assignee
of Holder, on a several basis) agrees to indemnify and hold harmless the
Company, and each of its directors and officers (including each director and
officer of the Company who signed a Registration Statement), and each person,
if any, who controls the Company within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, as follows:
(a) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of or based upon any
untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement (or any amendment thereto)
pursuant to which the Registrable Securities were registered under the
Securities Act, including all documents incorporated therein by
reference, or the omission or alleged omission therefrom of a material
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fact required to be stated therein or necessary to make the statements
therein not misleading or arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in
any Prospectus (or any amendment or supplement thereto, including all
documents incorporated therein by reference, or the omission or
alleged omission therefrom of a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading;
(b) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or investigation or proceeding
by any governmental agency or body, commenced or threatened, or of any
claim whatsoever based upon any such untrue statement or omission, or
any such alleged untrue statement or omission, if such settlement is
effected with the written consent of Holder; and
(c) against any and all expense whatsoever, as incurred
(including reasonable fees and disbursements of counsel), reasonably
incurred in investigating, preparing or defending against any
litigation, or investigation or proceeding by any governmental agency
or body, commenced or threatened, in each case whether or not a party,
or any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission, to the
extent that any such expense is not paid under subparagraph (a) or (b)
above;
PROVIDED, HOWEVER, that the indemnity provided pursuant to this Section 2.1
shall only apply with respect to any loss, liability, claim, damage or expense
to the extent arising out of (i) any untrue statement or omission or alleged
untrue statement or omission made in reliance upon and in conformity with
written information furnished to the Company by Holder expressly for use in the
Registration Statement (or any amendment thereto) or the Prospectus (or any
amendment or supplement thereto), or (ii) Holder's failure to deliver an amended
or supplemental Prospectus if such loss, liability, claim, damage or expense
would not have arisen had such delivery occurred. Notwithstanding the
provisions of this Section 2.2, Holder and any permitted assignee shall not be
required to indemnify the Company, its officers, directors or control persons
with respect to any amount in excess of the amount of the total proceeds to
Holder or such permitted assignee, as the case may be, from sales of the
Registrable Securities of Holder under the Registration Statement, and no
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Holder shall be liable under this Section 2.2 for any statements or omissions
of any other Holder.
2.3 CONDUCT OF INDEMNIFICATION PROCEEDINGS. The indemnified party
shall give reasonably prompt notice to the indemnifying party of any action
or proceeding commenced against it in respect of which indemnity may be
sought hereunder, but failure to so notify the indemnifying party (i) shall
not relieve it from any liability which it may have under the indemnity
agreement provided in Section 2.1 or 2.2 above, unless and to the extent it
did not otherwise learn of such action and the lack of notice by the
indemnified party results in the forfeiture by the indemnifying party of
substantial rights and defenses, and (ii) shall not, in any event, relieve
the indemnifying party from any obligations to the indemnified party other
than the indemnification obligation provided under Section 2.1 or 2.2 above.
If the indemnifying party so elects within a reasonable time after receipt of
such notice, the indemnifying party may assume the defense of such action or
proceeding at such indemnifying party's own expense with counsel chosen by
the indemnifying party and approved by the indemnified party, which approval
shall not be unreasonably withheld; PROVIDED, HOWEVER, that the indemnifying
party will not settle any such action or proceeding without the written
consent of the indemnified party unless, as a condition to such settlement,
the indemnifying party secures the unconditional release of the indemnified
party; and PROVIDED FURTHER, that if the indemnified party reasonably
determines that a conflict of interest exists where it is advisable for the
indemnified party to be represented by separate counsel or that, upon advice
of counsel, there may be legal defenses available to it which are different
from or in addition to those available to the indemnifying party, then the
indemnifying party shall not be entitled to assume such defense and the
indemnified party shall be entitled to separate counsel at the indemnifying
party's expense. If the indemnifying party is not entitled to assume the
defense of such action or proceeding as a result of the proviso to the
preceding sentence, the indemnifying party's counsel shall be entitled to
conduct the indemnifying party's defense and counsel for the indemnified
party shall be entitled to conduct the defense of the indemnified party, it
being understood that both such counsel will cooperate with each other to
conduct the defense of such action or proceeding as efficiently as possible.
If the indemnifying party is not so entitled to assume the defense of such
action or does not assume such defense, after having received the notice
referred to in the first sentence of this paragraph, the indemnifying party
will pay the reasonable fees and expenses of counsel for the indemnified
party. In such event, however, the indemnifying party will not be liable for
any settlement effected without the written consent of the indemnifying
party. If an indemnifying party is entitled to assume, and assumes, the
defense of such action or proceeding in accordance with this
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paragraph, the indemnifying party shall not be liable for any fees and
expenses of counsel for the indemnified party incurred thereafter in
connection with such action or proceeding.
2.4 CONTRIBUTION. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for
in this Section 2 is for any reason held to be unenforceable by the
indemnified party although applicable in accordance with its terms, the
Company and Holder shall contribute to the aggregate losses, liabilities,
claims, damages and expenses of the nature contemplated by such indemnity
agreement incurred by the Company and Holder, (i) in such proportion as is
appropriate to reflect the relative fault of the Company on the one hand and
Holder on the other, in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities or expenses, or (ii) if
the allocation provided by clause (i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
fault of but also the relative benefits to the Company on the one hand and
Holder on the other, in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities or expenses, as well as
any other relevant equitable considerations. The relative benefits to the
indemnifying party and indemnified party shall be determined by reference to,
among other things, the total proceeds received by the indemnifying party and
indemnified party in connection with the offering to which such losses,
claims, damages, liabilities or expenses relate. The relative fault of the
indemnifying party and indemnified party shall be determined by reference to,
among other things, whether the action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission
to state a material fact, has been made by, or relates to information
supplied by, the indemnifying party or the indemnified party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action.
The parties hereto agree that it would not be just or equitable if
contribution pursuant to this Section 2.4 were determined by pro rata
allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 2.4, Holder shall
not be required to contribute any amount in excess of the amount of the total
proceeds to Holder from sales of the Registrable Securities of Holder under
the Registration Statement.
Notwithstanding the foregoing, no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
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For purposes of this Section 2.4, each person, ifany, who controls
Holder within the meaning of Section 15 of the Securities Act shall have the
same rights to contribution as Holder, and each director of the Company, each
officer of the Company who signed a Registration Statement and each person,
if any, who controls the Company within the meaning of Section 15 of the
Securities Act shall have the same rights to contribution as the Company.
SECTION 3. RULE 144 COMPLIANCE
The Company covenants that it will use its best efforts to timely
file the reports required to be filed by the Company under the Securities Act
and the Securities Exchange Act of 1934, as amended, so as to enable each
Holder to sell Registrable Securities pursuant to Rule 144 under the
Securities Act. In connection with any sale, transfer or other disposition
by Holder of any Registrable Securities pursuant to Rule 144 under the
Securities Act, the Company shall cooperate with Holder to facilitate the
timely preparation and delivery of certificates representing Registrable
Securities to be sold and not bearing any Securities Act legend, and enable
certificates for such Registrable Securities to be for such number of shares
and registered in such names as Holder may reasonably request at least ten
(10) business days prior to any sale of Registrable Securities hereunder.
SECTION 4. MISCELLANEOUS
4.1 INTEGRATION; AMENDMENT. This Agreement constitutes the entire
agreement among the parties hereto with respect to the matters set forth
herein and supersedes and renders of no force and effect all prior oral or
written agreements, commitments and understandings among the parties with
respect to the matters set forth herein. Except as otherwise expressly
provided in this Agreement, no amendment, modification or discharge of this
Agreement shall be valid or binding unless set forth in writing and duly
executed by the Company and Holder.
4.2 WAIVERS. No waiver by a party hereto shall be effective unless
made in a written instrument duly executed by the party against whom such
waiver is sought to be enforced, and only to the extent set forth in such
instrument. Neither the waiver by any of the parties hereto of a breach or a
default under any of the provisions of this Agreement, nor the failure of any
of the parties, on one or more occasions, to enforce any of the provisions of
this Agreement or to exercise any right or privilege hereunder shall
thereafter be construed as a waiver of any subsequent breach or default of a
similar nature, or as a waiver of any such provisions, rights or privileges
hereunder.
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4.3 ASSIGNMENT; SUCCESSORS AND ASSIGNS. This Agreement and the
rights granted hereunder may not be assigned by Holder without the written
consent of the Company; PROVIDED, HOWEVER, that Holder may assign its rights
and obligations hereunder, following at least ten (10) days prior written
notice to the Company, (i) to Holder's partners or beneficiaries in
connection a distribution of the Units to its partners or beneficiaries, (ii)
to a permitted transferee in connection with a transfer of the Units in
accordance with the terms of the Partnership Agreement, and (iii) to a third
party in connection with a transfer of Units as security for or in
satisfaction of obligations of any partner of Holder, if in the case of (i),
(ii) and (iii) above, such persons or such third party agree in writing to be
bound by all of the provisions hereof. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of all of
the parties hereto.
4.4 BURDEN AND BENEFIT. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs,
executors, personal and legal representatives, successors and, subject to
Section 4.3 above, assigns.
4.5 NOTICES. All notices called for under this Agreement shall be
in writing and shall be deemed given upon receipt if delivered personally or
by facsimile transmission and followed promptly by mail, or mailed by
registered or certified mail (return receipt requested), postage prepaid, to
the parties at the addresses set forth opposite their names in SCHEDULE A
hereto, or to any other address or addressee as any party entitled to receive
notice under this Agreement shall designate, from time to time, to others in
the manner provided in this Section 4.5 for the service of notices; PROVIDED,
HOWEVER, that notices of a change of address shall be effective only upon
receipt thereof. Any notice delivered to the party hereto to whom it is
addressed shall be deemed to have been given and received on the day it was
received; PROVIDED, HOWEVER, that if such day is not a business day then the
notice shall be deemed to have been given and received on the business day
next following such day. Any notice sent by facsimile transmission shall be
deemed to have been given and received on the business day next following the
transmission
4.6 SPECIFIC PERFORMANCE. The parties hereto acknowledge that the
obligations undertaken by them hereunder are unique and that there would be
no adequate remedy at law if any party fails to perform any of its
obligations hereunder, and accordingly agree that each party, in addition to
any other remedy to which it may be entitled at law or in equity, shall be
entitled to (i) compel specific performance of the obligations, covenants and
agreements of any other party under this Agreement in accordance with the
terms and conditions of this Agreement and
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(ii) obtain preliminary injunctive relief to secure specific performance and
to prevent a breach or contemplated breach of this Agreement in any court of
the United States or any State thereof having jurisdiction.
4.7 GOVERNING LAW. This Agreement, the rights and obligations of
the parties hereto, and any claims or disputes relating thereto, shall be
governed by and construed in accordance with the laws of the State of
Maryland, but not including the choice of law rules thereof.
4.8 HEADINGS. Section and subsection headings contained in this
Agreement are inserted for convenience of reference only, shall not be deemed
to be a part of this Agreement for any purpose, and shall not in any way
define or affect the meaning, construction or scope of any of the provisions
hereof
4.9 PRONOUNS. All pronouns and any variations thereof shall be
deemed to refer to the masculine, feminine, neuter, singular or plural, as
the identity of the person or entity may require.
4.10 EXECUTION IN COUNTERPARTS. To facilitate execution, this
Agreement may be executed in as many counterparts as may be required. It
shall not be necessary that the signature of or on behalf of each party
appears on each counterpart, but it shall be sufficient that the signature of
or on behalf of each party appears on one or more of the counterparts. All
counterparts shall collectively constitute a single agreement. It shall not
be necessary in any proof of this Agreement to produce or account for more
than a number of counterparts containing the respective signatures of or on
behalf of all of the Parties.
4.11 SEVERABILITY. If fulfillment of any provision of this
Agreement, at the time such fulfillment shall be due, shall transcend the
limit of validity prescribed by law, then the obligation to be fulfilled
shall be reduced to the limit of such validity; and if any clause or
provision contained in this Agreement operates or would operate to invalidate
this Agreement, in whole or in part, then such clause or provision only shall
be held ineffective, as though not herein contained, and the remainder of
this Agreement shall remain operative and in full force and effect.
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed on its behalf as of the date first hereinabove
set forth.
COMPANY:
Address: SL Green Realty Corp.
70 West 36th Street
New York, New York 10018
By: _____________________________
Name: _____________________________
Title: _____________________________
HOLDERS:
By: _____________________________
Name: _____________________________
Title: Attorney-in-Fact
<PAGE>
Exhibit 10.9
OMNIBUS CONTRIBUTION AGREEMENT
BY AND AMONG
S.L. GREEN OPERATING PARTNERSHIP, L.P.
AND THE
CONTRIBUTORS NAMED HEREIN
Dated as of June 13, 1997
<PAGE>
TABLE OF CONTENTS
ARTICLE I. CONTRIBUTION TERMS AND CLOSING PROCEDURES....................... 2
1.1 Acquisition of Interests...................................... 2
1.2 Term of Agreement............................................. 2
1.3 Consideration................................................. 2
1.4 Closing; Condition to Obligations............................. 2
1.5 Documents to be Delivered at Closing.......................... 5
1.6 Cessation of IPO.............................................. 5
1.7 Closing Costs................................................. 6
1.8 Default....................................................... 6
1.9 Further Assurances............................................ 6
ARTICLE II. REPRESENTATIONS, WARRANTIES
AND COVENANTS OF CONTRIBUTORS...................................... 7
2.1 Title to Interests............................................ 7
2.2 Authority..................................................... 8
2.3 Litigation.................................................... 9
2.4 No Other Agreements to Sell................................... 9
2.5 No Brokers.................................................... 10
2.6 Investment Representations and Warranties..................... 10
2.7 FIRPTA Representation......................................... 12
2.8 Additional Representations of Certain
Contributors.................................................. 12
2.9 Covenant to Remedy Breaches................................... 13
ARTICLE III. REPRESENTATIONS, WARRANTIES AND COVENANTS
OF OPERATING PARTNERSHIP........................................... 13
3.1 Authority..................................................... 13
3.2 No Brokers.................................................... 14
ARTICLE IV. CLOSING ADJUSTMENTS............................................ 14
4.1 Prorations.................................................... 14
4.2 Asset Entity's Retained Items................................. 16
4.3 Accounts Receivable........................................... 16
4.4 Security Deposits............................................. 16
4.5 Timing of Calculations; Cooperation........................... 16
4.6 Allocation of Adjustments..................................... 16
ARTICLE V. POWER OF ATTORNEY............................................... 17
5.1 Grant of Power of Attorney.................................... 17
5.2 Limitation on Liability....................................... 19
5.3 Ratification; Third Party Reliance............................ 19
ARTICLE VI. CONTRIBUTORS................................................... 19
6.1 Amendment..................................................... 19
6.2 Entire Agreement; Counterparts; Applicable
Law........................................................... 20
6.3 Assignability................................................. 20
6.4 Titles........................................................ 20
6.5 Third Party Beneficiary....................................... 20
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6.6 Severability.................................................. 20
6.7 Equitable Remedies............................................ 21
6.8 Attorneys' Fees............................................... 21
6.9 Notices....................................................... 21
6.10 Waiver of Rights; Consents with Respect to
Partnership Interests......................................... 22
6.11 Confidentiality............................................... 25
6.12 Computation of Time........................................... 25
6.13 Survival...................................................... 25
6.14 Time of the Essence........................................... 25
EXHIBIT A: Contributors
EXHIBIT B: Asset Entities
EXHIBIT C: Excluded Interests
EXHIBIT D: Permitted Encumbrances
EXHIBIT E: Operating Partnership Agreement
EXHIBIT F: Investor Questionnaire
EXHIBIT G: Registration Rights Agreement
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OMNIBUS CONTRIBUTION AGREEMENT
This Omnibus Contribution Agreement (the "CONTRIBUTION AGREEMENT") is
executed as of the 13th day of June, 1997 by SL Green Operating Partnership,
L.P. (the "Operating Partnership"), a Delaware limited partnership in formation,
and the Contributors whose names are set forth in EXHIBIT A hereto (each, a
"CONTRIBUTOR" and, collectively, the "CONTRIBUTORS").
WHEREAS, in connection with the consolidation of its commercial real estate
business, SL Green Real Estate has formed a Maryland corporation (the "REIT")
that will be the sole general partner and a limited partner of the Operating
Partnership and to effect an initial public offering (the "IPO") of the REIT's
shares of common stock ("Common Stock");
WHEREAS, it is intended that, upon consummation of the IPO, the Operating
Partnership will acquire interests in six office properties located at 673 First
Avenue, New York, New York, 470 Park Avenue South, New York, New York, 70 West
36th Street, New York, New York, 29 West 35th Street, New York, New York, 1414
Avenue of the Americas, New York, New York and 35 West 43rd Street, New York,
New York, as well as interests in the construction, property management and
leasing and businesses currently conducted by Emerald City Construction Corp., a
New York corporation, SL Green Management Corp., a New York corporation and SL
Green Realty, Inc., a New York corporation;
WHEREAS, it is further understood that the Operating Partnership may
acquire interests in additional office properties located in New York, New York;
WHEREAS, each Contributor owns interests in the partnerships, other
entities or properties described in the supplemental exhibit dated the date
hereof and delivered by or on behalf of such contributor to the Operating
Partnership (such exhibit being hereinafter referred to as such Contributor's
SUPPLEMENTAL ACQUISITION EXHIBIT);
WHEREAS, the Operating Partnership desires to acquire from each
Contributor, and each Contributor desires to convey to the Operating Partnership
under the terms and conditions set forth herein, the interests owned by such
Contributor described in its Supplemental Acquisition Exhibit and (except for
the Excluded Interests set forth in EXHIBIT C) any other direct or indirect
interests such Contributor may have, whether now owned or hereinafter acquired,
in the partnerships or other entities (the "ASSET ENTITIES") listed on EXHIBIT B
(each such asset or property and all personal property related thereto or to the
operation thereof is hereinafter referred to as an "ASSET" and (except for the
Excluded Interests) each such direct or indirect
<PAGE>
interest of a Contributor in such Asset Entity or (in the case of Contributors
which are themselves Asset Entities) in such Asset, including without
limitation, such Contributor's interests set forth in its Supplemental
Acquisition Exhibit, is referred to individually as an "INTEREST" and
collectively, as such Contributor's "INTERESTS");
NOW, THEREFORE, in consideration of the mutual covenants and conditions set
forth herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Operating Partnership and the
Contributors agree as follows:
ARTICLE I. CONTRIBUTION TERMS AND CLOSING PROCEDURES
1.1 ACQUISITION OF INTERESTS. At the Final Closing (defined below),
each Contributor shall, subject to Section 1.4 hereof, contribute, transfer,
assign, and convey to the Operating Partnership and the Operating Partnership
shall (i) acquire and accept from such Contributor, all right, title and
interest of such Contributor in such Contributor's Interests, free and clear of
all Encumbrances (as defined in Section 2.1 hereof) except Permitted
Encumbrances (as defined in Section 2.1 hereof), and (ii) deliver to such
Contributor such Contributor's Consideration (defined below), both in accordance
with this Contribution Agreement.
1.2 TERM OF AGREEMENT. If the IPO Closing (defined below) does not
occur by March 31, 1998 (the "Termination Date"), this Contribution Agreement
shall be deemed terminated and shall be of no further force and effect and
neither the Operating Partnership nor the Contributors shall have any further
obligations hereunder except as specifically set forth herein.
1.3 CONSIDERATION. The full consideration for each Contributor's
Interests (such consideration with respect to such Contributor is hereinafter
referred to as such Contributor's "CONSIDERATION") shall be an amount in cash
and/or a number of Units (as hereinafter defined) set forth in the Contributor's
Supplemental Acquisition Exhibit, subject to the terms and provisions of Article
IV hereof providing for adjustments to each Contributor's Consideration based on
closing adjustments. As used herein, the term "UNITS" means units of limited
partnership interest in the Operating Partnership.
1.4 CLOSING; CONDITION TO OBLIGATIONS. In connection with the
acquisition of the Contributors' Interests, the Operating Partnership will
notify the Contributors of a closing date, which date will be no earlier than
five (5) business days after such notification and no later than March 10, 1998
(fifteen (15) business days prior to the Termination Date), for the initial
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closing (the "INITIAL CLOSING") of the acquisition contemplated by Contribution
Agreement. At or before such Initial Closing, which shall be held at the
offices of Brown & Wood LLP, One World Trade Center, New York, New York 10048 or
such other place as is determined by the Operating Partnership in its sole
discretion at a time specified by the Operating Partnership in its sole
discretion, the Operating Partnership and the Contributors will execute all
closing documents (the "CLOSING DOCUMENTS") required by the Operating
Partnership in accordance with Section 1.5 hereof and deposit the same in escrow
with Brown & Wood LLP, New York, New York, as escrow agent of the Operating
Partnership (the "CLOSING AGENT").
The transactions contemplated by this Contribution Agreement and by the
Closing Documents executed and deposited in connection with such exercise will
be consummated at the Final Closing (as defined below) only if the closing of
the IPO (the "IPO CLOSING") is consummated by the earlier of (a) fifteen (15)
business days after the date of the Initial Closing and (b) the Termination
Date. If the IPO Closing occurs by such date:
(a) The Operating Partnership shall, contemporaneously with
the IPO Closing, cause to be delivered to the Closing
Agent with respect to each Contributor (i) the cash
portion of such Contributor's Consideration, if any
(such cash portion, the "CASH PORTION"), and (ii) if
applicable, a certificate of the General Partner of the
Operating Partnership certifying that such Contributor
has been or will be, effective upon the Final Closing
(as hereinafter defined), admitted as a limited partner
of the Operating Partnership and that the Operating
Partnership's books and records indicate or will
indicate that such Contributor is the holder of the
number of Units which are called for pursuant to the
Consideration as adjusted pursuant to Article V hereof;
(b) upon receipt of the Consideration set forth in clause
(a) above, the Closing Agent will release the Closing
Documents to the Operating Partnership and deliver to
the Contributor the Cash Portion, if any, and, if
requested by the Contributor, a copy of such General
Partner's certificate; and
(c) the transactions described or otherwise contemplated
herein or in the Closing Documents will thereupon be
deemed to have
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been consummated simultaneously with the IPO Closing (such
consummation, the "FINAL CLOSING").
Notwithstanding the above, the Operating Partnership may, in its sole
discretion, elect not to complete the acquisition of all or any portion of the
Interests of any Contributor only in the event that such Contributor specifies,
in its Assignment delivered pursuant to Section 1.5, a breach of or other
exception with respect to Article 2 hereof or has otherwise materially breached
this Contribution Agreement (any such Contributor, a "NON-COMPLYING
CONTRIBUTOR"), in which case the Operating Partnership shall, in lieu of the
delivery with respect to such Contributor pursuant to clause (a) above, notify
the Closing Agent of such election and direct the Closing Agent to return such
Contributor's Closing Documents and Ancillary Agreements (as defined below) to
such Contributor. The election of the Operating Partnership to not acquire all
or any portion of the Interests of a particular Non-Complying Contributor shall
not affect the obligations of any other Contributor hereunder, including any
other Non-Complying Contributor.
The risk of loss to an Asset Entity's Assets prior to Closing shall be
borne by such Asset Entity. If, prior to the Final Closing, any of an Asset
Entity's Assets shall be destroyed or damaged by fire or other casualty, then
this Agreement may, at the option of the Operating Partnership, be terminated
with respect to the Asset Entity, the Assets of which have been destroyed or
damaged. If, after the occurrence of any such casualty affecting an Asset
Entity's Assets, this Agreement is not so terminated relative to such Asset
Entity, the Operating Partnership may elect to (a) purchase the given
Contributors' Interests in such Asset Entity or Assets, as the case may be, and
(b) direct such Contributors to pay or cause to be paid to the Operating
Partnership any sums collected under any policies of insurance because of damage
due to such casualty and otherwise assign to the Operating Partnership all
rights to collect such sums as may then be uncollected; provided, however, that
the Contributor shall not adjust or settle any insurance claim without the
Operating Partnership's prior written consent, not to be unreasonably withheld
or delayed. Under such circumstances, the Consideration payable upon such
purchase shall be reduced by the amount of any deductibles under the applicable
insurance policies.
If the IPO Closing does not occur by the earlier of (a) fifteen (15)
business days after the date of the Initial Closing and (b) the Termination
Date, then, except as set forth in Section 1.8 hereof, neither party shall have
any obligations under the Closing Documents or under any agreements or
instruments executed in connection with the transactions contemplated hereunder
or thereunder (such other agreements or
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instruments, collectively, "ANCILLARY AGREEMENTS"), this Contribution Agreement,
the Closing Documents and the Ancillary Agreements shall be deemed null and void
AB INITIO and the Closing Agent will be, and is hereby, directed to destroy the
Closing Documents and any Ancillary Agreement it holds and return to the
Operating Partnership the Consideration, if any, delivered by the Operating
Partnership to the Closing Agent.
1.5 DOCUMENTS TO BE DELIVERED AT CLOSING. At the Initial Closing, each
Contributor shall, directly or through the attorney-in-fact appointed pursuant
to Article V hereof, execute, acknowledge where deemed desirable or necessary by
the Operating Partnership, and deliver to the Closing Agent, in addition to any
other documents mentioned elsewhere herein, the following:
(a) An Assignment of Interests (the "ASSIGNMENT"), which
assignment shall be in a form satisfactory to the Operating Partnership, shall
contain a warranty of title that such Contributor owns such Contributor's
Interests free and clear of all Encumbrances (as defined in Section 2.1 hereof),
except, where applicable, for the Permitted Encumbrances (as defined in Section
2.1 hereof) and shall either (i) reaffirm the accuracy of all representations
and warranties and the satisfaction of all covenants made by such Contributor in
Article II hereof or (ii) if such reaffirmation cannot be made, identify those
representations, warranties and covenants of Article II hereof (other than
Section 2.5 hereof) with respect to which circumstances have changed, represent
that such Contributor has used all reasonable efforts within its control to
prevent and remedy such breach, and reaffirm the accuracy of all other
representations and warranties and the satisfaction of all other covenants made
by such Contributor in Article II hereof.
(b) Any other documents reasonably requested by the Operating
Partnership or reasonably necessary or desirable to assign, transfer and convey
such Contributor's Interests and effectuate the transactions contemplated
hereby, including, without limitations, deeds, assignments of ground leases and
space leases (as applicable), New York City and New York State transfer tax and
gains tax returns and any other filings with any applicable governmental
jurisdiction in which the Operating Partnership is required to file its
partnership documentation or the recording of the Assignment is required.
1.6 CESSATION OF IPO. If at any time the Operating Partnership or the
underwriter or underwriters determine in good faith to abandon the formation of
the REIT or the IPO (the date of such determination being referred to as the
"CESSATION DATE"), the Operating Partnership will so advise each Contributor in
writing and thereupon all parties hereto will be relieved of all obligations
under this Contribution Agreement, all Ancillary
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Agreements, and all Closing Documents (except for obligations arising under
Sections 1.7, 2.5 and 3.2 hereof).
1.7 CLOSING COSTS. The Operating Partnership agrees to pay all of the
closing costs, other than Contributor's legal fees, arising from the transfer of
the Interests of each Contributor pursuant to the exercise by the Operating
Partnership of its Contribution Right, including, without limitation, any
applicable transfer, gains and sales taxes and any transfer fee due in
connection with the assumption of existing mortgage debt by the Operating
Partnership.
1.8 DEFAULT. (a) If, after notifying the Contributors of a date for the
Initial Closing, the Operating Partnership fails to close (including a failure
due to the IPO Closing not occurring), then the Operating Partnership will pay
to each Contributor the sum of $100.00 as liquidated and agreed-upon damages.
It would be difficult, if not impossible, to ascertain the actual measure of
each Contributor's damages in the event of the Operating Partnership's default
and the parties agree that $100.00 is a fair reflection of each Contributor's
damages in the event of the Operating Partnership's default.
(b) If any Contributor defaults with respect to its
obligations under this Agreement, the Operating Partnership shall be entitled to
exercise against each such Contributor any and all remedies provided at law or
in equity, including but not limited to, the right to specific performance. No
default by any Contributor hereunder shall in any way limit or affect the
obligations of any other Contributor hereunder.
1.9 FURTHER ASSURANCES. Each Contributor will, from time to time,
execute and deliver to the Operating Partnership all such other and further
instruments and documents and take or cause to be taken all such other and
further action as the Operating Partnership may reasonably request in order to
effect the transactions contemplated by this Agreement, including instruments or
documents deemed necessary or desirable by the Operating Partnership to effect
and evidence the conveyance of such Contributor's Interests in accordance with
the terms of this Contribution Agreement. The provisions of this Section 1.9
shall survive the Final Closing.
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ARTICLE II. REPRESENTATIONS, WARRANTIES
AND COVENANTS OF CONTRIBUTORS
As a material inducement to the Operating Partnership to enter into this
Contribution Agreement and to consummate the transactions contemplated hereby,
each Contributor hereby severally makes to the Operating Partnership each of the
representations and warranties set forth in this Article III, which
representations and warranties (unless otherwise noted) are true as of the date
hereof. As a condition to the Operating Partnership's obligation to complete
the acquisition of any Contributor's Interests after the exercise of the
Contribution Right, such representations and warranties must continue to be true
as of the date of the Initial Closing and as of the date of the Final Closing.
2.1 TITLE TO INTERESTS. Each Contributor owns its Interests
beneficially and of record, free and clear of any claim, lien, pledge, voting
agreement, option, charge, security interest, mortgage, deed of trust,
encumbrance, rights of assignment, purchase rights or other rights of any nature
whatsoever (collectively, "Encumbrances"), except as disclosed as exceptions in
a title report for real property owned by an Asset Entity, dated on or after
April 15, 1997, provided such title exceptions are satisfactory to the Operating
Partnership in its sole discretion, and as set forth on EXHIBIT D attached
hereto (any such encumbrance, a "Permitted Encumbrance"), and has full power and
authority to convey free and clear of any Encumbrances (except, where
applicable, the Permitted Encumbrances), its Interests and, upon delivery of any
Assignment by such Contributor conveying its Interests and delivery of
Consideration for such Interests as herein provided, the Operating Partnership
will acquire good and valid title thereto, free and clear of any Encumbrance
except Encumbrances created in favor of the Operating Partnership by the
transactions contemplated hereby and, where applicable, the Permitted
Encumbrances. No Contributor will consent to join in or in any way effect the
transfer of any Asset prior to the Final Closing. At the Final Closing, if so
requested, Contributors will execute all documents necessary to enable a title
insurance company (acceptable to the Operating Partnership, in its sole
discretion) to issue to the Operating Partnership an ALTA Form B (1987 or later)
Owner's Policy and such endorsements as the Operating Partnership may reasonably
request, insuring fee simple and/or leasehold title to all real property and
improvements comprising all or any part of the Assets to the Operating
Partnership; provided that each Contributor's cost of complying with this
requirement shall be limited to ten percent of the Consideration to be received
by such Contributor, which amount shall be deducted from such Consideration at
the Final Closing. Each of such Contributor's Interests have been validly
issued and Contributor has funded (or will fund before the same is past due) all
capital contributions
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and advances to the partnership or other entity in which such Interest
represents an interest that are required to be funded or advanced prior to the
date hereof and the date of the Initial Closing and the Final Closing. There
are no agreements, instruments or understandings with respect to any of such
Contributor's Interests except as set forth in the partnership agreement of the
partnership in which an Interest represents a limited partner or general partner
interest or as disclosed in writing to the Operating Partnership. Such
Contributor has no interest, either direct or indirect, in any of the Assets
except for (a) the Interests owned by it which are the subject of this
Contribution Agreement, (b) the Excluded Interests, where applicable, and (c)
direct or indirect interests in partnerships or other entities which are
themselves Contributors hereunder. Such Contributor covenants that no
Encumbrance on his Interests (except, where applicable, the Permitted
Encumbrances) will be in existence as of the date of the Final Closing. In
making the representations in this Section 2.1 regarding the absence of
Encumbrances, each Contributor may assume that the consents and waivers of
rights set forth in Section 5.10 hereof have been given by all partners of
partnerships in which such Contributor's Interest represent direct or indirect
interests. Notwithstanding anything to the contrary contained herein, to the
extent that the Contributor's Interests transferred hereunder constitute
interests in partnerships or other entities ("Continuing Partnerships") which
will continue in existence after the consummation of the transactions
contemplated hereby, such Interests are and will remain subject to the terms and
provisions of the partnership or other organizational agreements (as amended) of
the Continuing Partnerships, including without limitation, restrictions,
options, priorities and partnership loans provided for therein.
2.2 AUTHORITY. Such Contributor has full right, authority, power and
capacity: (a) to enter into this Contribution Agreement and each agreement,
document and instrument to be executed and delivered by or on behalf of such
Contributor pursuant to this Contribution Agreement; (b) to carry out the
transactions contemplated hereby and thereby; and (c) to transfer, convey,
assign and deliver all of such Contributor's Interests to the Operating
Partnership upon delivery to such Contributor of the Consideration therefor in
accordance with this Contribution Agreement. This Contribution Agreement and
each agreement, document and instrument executed and delivered by or on behalf
of such Contributor pursuant to this Contribution Agreement constitutes, or when
executed and delivered will constitute, the legal, valid and binding obligation
of such Contributor, each enforceable in accordance with their respective terms.
Except for any breaches, violations or defaults which will be waived or cured
prior to the Initial Closing and all loans, indentures, creditor agreements or
other agreements which will be discharged or repaid prior to or
contemporaneously with the IPO Closing, the
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execution, delivery and performance of this Contribution Agreement and each such
agreement, document and instrument by or on behalf of such Contributor: (a) does
not and will not violate such Contributor's partnership agreement, operating
agreement, declaration of trust, charter or bylaws, if applicable, or other
organizational documentation; (b) does not and will not violate any foreign,
federal, state, local or other laws applicable to or binding on such Contributor
or require such Contributor to obtain any approval, consent or waiver of, or
make any filing with, any person or authority (governmental or otherwise) that
has not been obtained or made or which does not remain in effect; and (c) does
not and will not result in a breach of, constitute a default under, accelerate
any obligation under or give rise to a right of termination of, any indenture or
loan or credit agreement or any other agreement, contract, instrument, mortgage,
lien, lease, permit, authorization, order, writ, judgment, injunction, decree,
determination or arbitration award to which such Contributor is a party or by
which the property of such Contributor is bound or affected, or result in the
creation of any Encumbrance on any of the property or assets of any partnership
in which an Interest of such Contributor represents an interest. In making the
representations set forth in this Section 2.2, each Contributor may assume that
the consents and waivers of rights set forth in Section 6.10 hereof have been
given by all partners of partnerships or owners of voting interests in entities
in which such Contributor's Interests represent direct or indirect interests.
2.3 LITIGATION. There is no litigation or proceeding, either judicial
or administrative, pending or overtly threatened, affecting all or any portion
of such Contributor's Interests or such Contributor's ability to consummate the
transactions contemplated hereby. Such Contributor knows of no outstanding
order, writ, injunction or decree of any court, government, governmental entity
or authority or arbitration against or affecting all or any portion of its
Interests, which in any such case would impair such Contributor's ability to
enter into and perform all of its obligations under this Contribution Agreement.
2.4 NO OTHER AGREEMENTS TO SELL. Such Contributor has not made any
agreement with, and will not enter into any agreement with, and has no
obligation (absolute or contingent) to, any person or firm other than the
Operating Partnership (a) to sell, transfer or in any way encumber (except for
Permitted Encumbrances) any of such Contributor's Interests or to not sell such
Contributor's Interests, or (b) to enter into any agreement with respect to a
sale, transfer or encumbrance or put or call right with respect to such
Contributor's Interests. In making the representations set forth in this
Section 2.4, the Contributor may assume that the consents and waivers of rights
set forth in Section 6.10 hereof have been given by all partners of the Asset
Entities.
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2.5 NO BROKERS. Such Contributor has not entered into, and covenants
that it will not enter into, any agreement, arrangement or understanding with
any person or firm which will result in the obligation of the Operating
Partnership to pay any finder's fee, brokerage commission or similar payment in
connection with the transactions contemplated hereby and such Contributor shall
indemnify and hold harmless the Operating Partnership for all costs and expenses
incurred by the Operating Partnership as a result of a breach of this
representation. The provisions of this Section 2.5 shall survive termination of
this Contribution Agreement.
2.6 INVESTMENT REPRESENTATIONS AND WARRANTIES. Each Contributor who is
receiving Units represents and warrants as follows:
(a) Upon the issuance of Units to such Contributor, such
Contributor shall become subject to, and shall be bound by, the terms and
provisions of the agreement of limited partnership of the Operating Partnership
(in substantially the form attached hereto as Exhibit E) (the "Partnership
Agreement"), including the terms of the power of attorney contained in Section
15.11 thereof, as the Partnership Agreement may be amended from time in
accordance with its terms.
(b) Such Contributor understands the risks of, and other
considerations relating to, the purchase of the Units. Such Contributor, by
reason of its business and financial experience, together with the business and
financial experience of those persons, if any, retained by it to represent or
advise it with respect to its investment in the Units, has such knowledge,
sophistication and experience in financial and business matters and in making
investment decisions of this type that it is capable of evaluating the merits
and risks of an investment in the Operating Partnership and of making an
informed investment decision, (ii) is capable of protecting its own interest or
has engaged representatives or advisors to assist it in protecting its interests
and (iii) is capable of bearing the economic risk of such investment. If such
Contributor retained a person to represent or advise it with respect to the
investment in Units that may be made hereby then, at Contributor's request, such
Contributor shall, prior to or at the Initial Closing, (i) acknowledge in
writing such representation and (ii) cause such representative or advisor to
deliver a certificate to the Operating Partnership containing such
representations as are reasonably requested by the Operating Partnership.
(c) Such Contributor understands that an investment in the
Operating Partnership involves substantial risks. Such Contributor has been
given the opportunity to make a thorough investigation of the proposed
activities of the Operating Partnership and has been furnished with materials
relating to the
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Operating Partnership and its proposed activities. Such Contributor has been
afforded the opportunity to obtain any additional information deemed necessary
by such Contributor to verify the accuracy of any representations made or
information conveyed to such Contributor. Such Contributor confirms that all
documents, records, and books pertaining to its investment in the Operating
Partnership and requested by such Contributor have been made available or
delivered to such Contributor. Such Contributor has had an opportunity to ask
questions of and receive answers from the Operating Partnership, or from a
person or persons acting on the Operating Partnership's behalf, concerning the
terms and conditions of this investment. Such Contributor has relied and is
making its investment decision upon written information provided to the
Contributor by or on behalf of the Operating Partnership and/or Contributor's
position (in the case of certain individual Contributors) as a director or
executive officer of the REIT.
(d) The Units to be issued to such Contributor will be acquired
by such Contributor for its own account (or if such Contributor is a trustee,
for a trust account) for investment only and not with a view to, or with any
intention of, a distribution or resale thereof, in whole or in part, or the
grant of any participation therein, without prejudice, however, to such
Contributor's right (subject to the terms of the Units) at all times to sell or
otherwise dispose of all or any part of its Units under an exemption from such
registration available under the Securities Act of 1933, as amended (the
"SECURITIES ACT"), and applicable state securities laws, and subject,
nevertheless, to the disposition of its assets being at all times within its
control. Such Contributor was not formed for the specific purpose of acquiring
an interest in the Operating Partnership.
(e) Such Contributor acknowledges that (i) the Units to be
issued to such Contributor have not been registered under the Securities Act or
state securities laws by reason of a specific exemption or exemptions from
registration under the Securities Act and applicable state securities laws and,
if such Units are represented by certificates, such certificates will bear a
legend to such effect, (ii) the REIT's and the Operating Partnership's reliance
on such exemptions is predicated in part on the accuracy and completeness of the
representations and warranties of such Contributor contained herein, (iii) such
Units, therefore, cannot be resold unless registered under the Securities Act
and applicable state securities laws, or unless an exemption from registration
is available, (iv) there is no public market for such Units, and (v) the
Operating Partnership has no obligation or intention to register such Units for
resale under the Securities Act or any state securities laws or to take any
action that would make available any exemption from the registration
requirements of such laws. Such Contributor hereby acknowledges that because of
the restrictions on transfer or
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assignment of such Units to be issued hereunder which will be set forth in the
Partnership Agreement and/or in a Registration Rights Agreement (as defined in
Section 5.1 hereof), such Contributor may have to bear the economic risk of the
investment commitment evidenced by this Contribution Agreement and any Units
acquired hereby for an indefinite period of time, although (i) under the terms
of the Partnership Agreement, as it will be in effect at the time of the IPO,
Units will be redeemable at the request of the holder thereof at any time after
the second anniversary of their issuance for cash or (at the option of the REIT)
for Common Stock of the REIT and (ii) the holder of any such Common Stock issued
upon a presentation of Units for redemption will be afforded certain rights to
have such Common Stock registered for resale under the Securities Act or
applicable state securities laws under the Registration Rights Agreement as
described more fully below.
(f) The information set forth in the investor questionnaire (a
form of which is attached hereto as Exhibit F) (the "Investor Questionnaire")
which has been completed and executed by such Contributor and delivered to the
Operating Partnership on the date hereof is true, correct and complete.
2.7 FIRPTA REPRESENTATION. Contributor is not a "foreign person" within
the meaning of Section 1445 of the Internal Revenue Code of 1986, as amended.
2.8 ADDITIONAL REPRESENTATIONS OF CERTAIN CONTRIBUTORS. Certain
Contributors or affiliates thereof (collectively, the "INDEMNITORS") shall enter
into a supplemental agreement (the "SUPPLEMENTAL AGREEMENT") on terms mutually
acceptable to the Indemnitors and the Operating Partnership whereby the
Indemnitors make additional representations, warranties and covenants with
respect to matters relating to this Contribution Agreement which shall survive
the consummation of the transactions contemplated by this Contribution Agreement
for a period equal to one (1) year from the date of the Final Closing and shall
expire with, and be terminated and extinguished forever, at such time except
with respect to claims asserted by written notice of or on behalf of the
Operating Partnership at any time during such period against any Indemnitor
making such representations, warranties or covenants. The Supplemental
Agreement shall provide that (a) the maximum aggregate liability of all
Indemnitors for any misrepresentation or misrepresentations or any breach or
breaches of any one or more of the representations, warranties or covenants set
forth therein shall total equal the value of the Units received by such
Indemnitors on the closing of the IPO, (b) any such liability shall be joint
and several to each of the Indemnitors, (c) the Operating Partnership shall make
no claim thereunder against any Indemnitor and no such Indemnitor shall have
liability resulting from claims or other assertions of liability arising from
the Supplemental Agreement unless and until such claim or claims exceed $250,000
in the aggregate, and
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(d) recourse thereunder shall be limited to the Indemnitors' Units.
2.9 COVENANT TO REMEDY BREACHES. Each Contributor covenants to use all
reasonable efforts within its control (a) to prevent the breach of any
representation or warranty of such Contributor hereunder, (b) to satisfy all
covenants of such Contributor hereunder and (c) to promptly cure any breach of a
representation, warranty or covenant of such Contributor hereunder upon its
learning of same.
ARTICLE III. REPRESENTATIONS, WARRANTIES AND COVENANTS
OF OPERATING PARTNERSHIP
As a material inducement to each Contributor to enter into this
Contribution Agreement and to consummate the transactions contemplated hereby,
the Operating Partnership hereby makes to each Contributor each of the
representations and warranties set forth in this Article III, which
representations and warranties shall be true as of the date hereof, as of the
date of the Initial Closing and as of the date of consummation of the Final
Closing.
3.1 AUTHORITY. The Operating Partnership has full right, authority,
power and capacity: (a) to enter into this Contribution Agreement and each
agreement, document and instrument to be executed and delivered by or on behalf
of it pursuant to this Contribution Agreement; (b) to carry out the transactions
contemplated hereby and thereby; and (c) to issue Units to each Contributor to
the extent called for in accordance with the terms of this Contribution
Agreement. This Contribution Agreement and each agreement, document and
instrument executed and delivered by the Operating Partnership pursuant to this
Contribution Agreement constitutes, or when executed and delivered will
constitute, the legal, valid and binding obligation of the Operating
Partnership, each enforceable in accordance with their respective terms. The
execution, delivery and performance of this Contribution Agreement and each such
agreement, document and instrument by the Operating Partnership: (a) does not
and will not violate the Partnership Agreement; (b) does not and will not
violate any foreign, federal, state and local or other laws applicable to
Operating Partnership or require the Operating Partnership to obtain any
approval, consent or waiver of, or make any filing with, any person or authority
(governmental or otherwise) that has not been obtained or made; and (c) does not
and will not result in a breach of, constitute a default under, accelerate any
obligation under or give rise to a right of termination of, any indenture or
loan or credit agreement or any other agreement, contract, instrument, mortgage,
lien, lease, permit, authorization, order, writ, judgment, injunction, decree,
determination or arbitration award to which
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the Operating Partnership is a party or by which the property of the Operating
Partnership is bound or affected.
3.2 NO BROKERS. The Operating Partnership represents that it has not
entered into, and covenants that will not enter into, any agreement, arrangement
or understanding with any person or firm which will result in the obligation of
any Contributor to pay any finder's fee, brokerage commission or similar payment
in connection with the transactions contemplated hereby.
ARTICLE IV. CLOSING ADJUSTMENTS
4.1 PRORATIONS. In the case of (i) each Asset Entity which is itself a
Contributor and (ii) each Asset Entity in which the Operating Partnership
acquires an interest pursuant to this Contribution Agreement, the Operating
Partnership and such Asset Entity shall make the prorations set forth below, and
make payment with respect to such prorations as appropriate. To the extent an
Asset Entity ceases to have a separate legal existence as a result of the
transactions contemplated hereunder, those Contributors who held interests in
such Asset Entity shall collectively exercise the rights of such Asset Entity,
and succeed to the obligations of such Asset Entity, under this Contribution
Agreement from and after the Final Closing.
(a) TAXES. Real property taxes and general and special
assessments, water and sewer rents, tap charges, and business improvements
district charges upon the Asset shall be adjusted and prorated as of the date of
the Final Closing on the basis of the fiscal year for such taxes and assessments
(the "TAX YEAR"). If the Final Closing shall occur before the real property tax
rate for the Tax Year is fixed, the apportionment of taxes shall be made on the
basis of the taxes assessed for the preceding Tax Year. After the real property
taxes are finally fixed for the Tax Year in which the Final Closing occurs, the
Operating Partnership and such Asset Entity shall make a recalculation of the
apportionment of such taxes, and the Operating Partnership or the Asset Entity,
as the case may be, shall make an appropriate payment to the other based on such
recalculation. To the extent that either the Asset Entity or the Operating
Partnership shall obtain any real estate tax abatement, reduction, refund or
incentive with respect to the Asset, the amount of the net proceeds of such tax
abatement, reduction, refund or incentive shall be prorated through the date of
the Final Closing if, as, and when such proceeds are paid by the applicable
governmental taxing authority (it being understood that to the extent any tenant
demising space in the Asset owned by such Asset Entity shall be entitled to any
portion of such tax abatement, that such portion shall be turned over to the
Operating Partnership to remit to such tenant and shall be deducted from any tax
abatement, reduction, refund or incentive
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proceeds in connection with calculating the net proceeds thereof).
(b) RENTS. Rents, additional rents, including electricity
charges, operating expense recoveries, and tax reimbursements under the leases
affecting the Asset (collectively, "RENTS") shall be adjusted and prorated as of
the date of the Final Closing. Rents collected after the date of the Final
Closing from tenants whose rental was delinquent on the date of the Final
Closing shall be deemed to apply first to current rents due at the time of
payment and second to past due rents accruing after the Final Closing and last
to the rents which were past due on the date of the Final Closing. Unpaid and
past due rents to which the Asset Entity is entitled shall be promptly paid over
to the Asset Entity if collected by the Operating Partnership after the date of
the Final Closing, less any reasonable collection costs actually incurred by the
Operating Partnership.
(c) PREPAYMENTS. Any prepayment made by or on behalf of the
Asset Entity under any service, maintenance, management, consulting, or similar
contracts shall be adjusted and prorated as of the date of the Final Closing.
(d) EXPENSES. Charges and assessments for sewer and water and
other utilities, including charges for consumption of electricity, steam and gas
(Unless the Operating Partnership elects to have final meter readings made as of
the Final Closing in which event the adjustment shall be made based on such
meter readings); current operating expenses, including, without limitation,
obligations under any service, maintenance, management, consulting, or similar
contracts; payroll and related expenses (including all benefits and vacation and
sick days); license and permit fees relating to the operation of the Asset;
insurance and bond premiums; and any other charges incident to the ownership,
use and/or occupancy of the Assets shall be adjusted and prorated as of the date
of the Final Closing.
(e) INTEREST ON EXISTING MORTGAGES. Interest on existing
mortgages encumbering any Assets shall be adjusted and prorated as of the date
of the Final Closing.
(f) FUEL AND MAINTENANCE SUPPLIES STORED ON SITE. The costs of
purchasing fuel and maintenance supplies stored on site shall be adjusted and
prorated as of the date of the Final Closing.
(g) RELETTING EXPENSES FOR NEW LEASES. Customary reletting
expenses (including without limitation, brokerage commissions, tenant
improvements and moving expenses paid to the Asset Entity) for leases entered
into after the date hereof and prior to the Final Closing shall be adjusted and
prorated over
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the base term of the applicable lease and based upon prices in effect on or
immediately prior to the date of the Final Closing.
4.2 ASSET ENTITY'S RETAINED ITEMS. All cash on hand, working capital,
escrow and reserve accounts other than tenant security deposits, and utility or
other deposits shall be distributed by the Asset Entity to its current
shareholders, partners or members, as applicable, prior to the Final Closing.
4.3 ACCOUNTS RECEIVABLE. The Asset Entity shall retain all accounts
receivable and other income items other than Rents which are attributable to
periods prior to the date of the Final Closing. The Asset Entity shall deliver
to the Operating Partnership at the Final Closing a schedule of all such unpaid
accounts receivable and other income items as of the date of the Final Closing.
All such accounts receivable and other income items collected by or for the
Operating Partnership after the date of the Final Closing which are attributable
to periods prior to the date of the Final Closing shall be promptly remitted to
the order of the Asset Entity. Except for sums actually received by the
Operating Partnership pursuant to the immediately preceding sentence, the
Operating Partnership shall assume no obligation to collect or enforce the
payment of any amounts that may be due to the Asset Entity, except that the
Operating Partnership shall render reasonable assistance, at no expense to the
Operating Partnership, to the Asset Entity after the Final Closing in the event
the Asset Entity proceeds against any third-party to collect any accounts
receivable or other income items due the Asset Entity.
4.4 SECURITY DEPOSITS. An amount equal to all tenant security deposits
and interest thereon, if any, and any other amounts due tenants with respect to
such security deposits shall be paid over to the Operating Partnership at the
Final Closing.
4.5 TIMING OF CALCULATIONS; COOPERATION. Each Asset Entity and/or
Transferor Entity and the Operating Partnership agree to use reasonable efforts
to reconcile, prorate, and adjust all of the foregoing items upon the Final
Closing and, in all events within ninety (90) days after the date of the Final
Closing, to adjust and prorate such prorations and adjustments . In the event
any adjustments or prorations made pursuant to this Contribution Agreement are,
subsequent to Final Closing, found to be erroneous, then either party hereto who
is entitled to additional amounts shall invoice the other party for such
additional amounts as may be owing, and such amounts shall be paid promptly by
the other party upon receipt of invoice. Such invoice shall be accompanied by
reasonable substantiating evidence.
4.6 ALLOCATION OF ADJUSTMENTS. All adjustments contemplated by this
Article IV shall, to the extent practicable,
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be made by adjusting (either up or down) the cash portion amount of the
Consideration and/or the number of Units issued to each Contributor by debiting
or crediting (as the case may be) such Contributor's Consideration with a
portion of the prorated items allocated to the Asset Entity in which the
Contributor owns an interest. The amount of an Asset Entity's adjustments
calculated pursuant to this Article V allocated to each Contributor shall be
that portion equal to that Contributor's pro rata equity interest in each Asset
Entity.
ARTICLE V. POWER OF ATTORNEY
5.1 GRANT OF POWER OF ATTORNEY. Each Contributor does hereby
irrevocably appoint Stephen L. Green, Benjamin P. Feldman, and the Operating
Partnership, and each of them individually and any successor thereof from time
to time (such persons or the Operating Partnership or any such successor of any
of them acting in his, her or its capacity as attorney-in-fact pursuant hereto,
the "ATTORNEY-IN-FACT") as the true and lawful attorney-in-fact and agent of
such Contributor, to act in the name, place and stead of such Contributor:
(a) To enter into a registration rights agreement a form of
which is attached hereto as EXHIBIT G (the "REGISTRATION RIGHTS
AGREEMENT").
(b) To enter into a lock-up agreement (the "LOCK-UP AGREEMENT")
which provides that the Contributors will not, directly or indirectly,
offer, sell, offer to sell, contract to sell, grant any option to purchase
or otherwise dispose of (or announce any offer, sale, offer of sale,
contract of sale, grant of any option to purchase or other sale or
disposition of) any share of REIT Common Stock or any securities
convertible into or exchangeable for or substantially similar to REIT
Common Stock, for a period of one year from the IPO Closing without the
prior written consent of the managing underwriter named in the Lock-up
Agreement.
(c) To take for such Contributor all steps deemed necessary or
advisable by the Operating Partnership in connection with the registration
of the REIT's Common Stock under the Securities Act, including without
limitation (i) filing the Registration Statement and amendments thereto
under the Securities Act which shall describe the benefits to be received
by such Contributor in connection with the formation of the REIT and the
IPO, (ii) distributing a preliminary prospectus and prospectus regarding
the IPO (the "PRELIMINARY PROSPECTUS" and "PROSPECTUS") which contain such
information as is deemed necessary or desirable to lawfully effect the
initial public offering of such shares,
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and (iii) to take such other steps as the Attorney-in-Fact may deem
necessary or advisable.
(d) To make, execute, acknowledge and deliver all such other
contracts, orders, receipts, notices, requests, instructions, certificates,
consents, letters and other writings (including without limitation the
execution of Closing Documents, Ancillary Agreements, the Partnership
Agreement, any other documents relating to the acquisition by the Operating
Partnership of such Contributor's Interests, and any consents contemplated
by Section 6.10 hereof) and, in general, to do all things and to take all
action which the Attorney-in-Fact in its sole discretion may consider
necessary or proper in connection with or to carry out the transaction
contemplated by this Contribution Agreement, the Ancillary Agreements, if
any, and the Closing Documents as fully as could such Contributor if
personally present and acting.
(e) To make, acknowledge, verify and file on behalf of such
Contributor applications, consents to service of process and such other
undertakings or reports as may be required by law with state commissioners
or officers administering state securities or Blue Sky laws and to take any
other action required to facilitate the exemption for registration of the
Units and the qualification of the REIT's Common Stock under the securities
or Blue Sky laws of the jurisdictions in which the Units and the REIT's
Common Stock are to be offered.
The Power of Attorney granted by each Contributor pursuant to this Article
V and all authority conferred hereby is granted and conferred subject to and in
consideration of the interests of the Operating Partnership, the REIT and the
other Contributors and is for the purpose of completing the transactions
contemplated by this Contribution Agreement. The Power of Attorney shall
terminate upon termination of this Contribution Agreement. The Power of
Attorney of each Contributor granted hereby and all authority conferred hereby
is coupled with an interest and therefore shall be irrevocable and shall not be
terminated by any act of such Contributor or by operation of law, whether by the
death, disability, incapacity or liquidation of such Contributor or by the
occurrence of any other event or events (including without limitation the
termination of any trust or estate for which such Contributor is acting as a
fiduciary or fiduciaries), and if, after the execution hereof, such Contributor
shall die or become disabled or incapacitated or is liquidated, or if any other
such event or events shall occur before the completion of the transactions
contemplated by this Contribution Agreement, the Attorney-in-Fact shall
nevertheless be authorized and directed to complete all such transactions as if
such death, disability, incapacity, liquidation or other event
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<PAGE>
or events had not occurred and regardless of notice thereof. Each Contributor
acknowledges that Stephen L. Green, Benjamin P. Feldman and the Operating
Partnership have, and any successor thereof acting as Attorney-in-Fact may have
an economic interest in the transactions contemplated by this Contribution
Agreement. Each Contributor agrees that, at the request of the Operating
Partnership, it will promptly execute a separate power of attorney on the same
terms set forth in this Article VI, such execution to be witnessed and
notarized.
5.2 LIMITATION ON LIABILITY. It is understood that the Attorney-in-Fact
assumes no responsibility or liability to any person by virtue of the Power of
Attorney granted by each Contributor hereby. The Attorney-in-Fact makes no
representations with respect to and shall have no responsibility for the
formation of the REIT, the acquisitions of the Interests by the Operating
Partnership, the Registration Statement, the Prospectus or any Preliminary
Prospectus, nor for any aspect of the offering of the REIT's Common Stock, and
it shall not be liable for any error of judgment or for any act done or omitted
or for any mistake of fact or law except for its own gross negligence or bad
faith. Each Contributor agrees that the Attorney-in-Fact may consult with
counsel of its own choice (who may be counsel for the Operating Partnership or
the REIT) and it shall have full and complete authorization and protection for
any action taken or suffered by it hereunder in good faith and in accordance
with the opinion of such counsel. It is understood that the Attorney-in-Fact
may, without breaching any express or implied obligation to the Contributor
hereunder, release, amend or modify any other Power of Attorney granted by any
other Contributor hereunder or by any other person under any related agreement.
The provisions of this Section 5.2 shall not limit or otherwise affect the
obligations of the Operating Partnership (acting for itself and not as
Attorney-in-Fact) under the other Articles of this Contribution Agreement.
5.3 RATIFICATION; THIRD PARTY RELIANCE. Each Contributor does hereby
ratify and confirm all that the Attorney-in-Fact shall lawfully do or cause to
be done by virtue of the exercise of the powers granted unto it by such
Contributor hereunder, and such Contributor authorizes the reliance of third
parties on this Power of Attorney and waives its rights, if any, as against any
such third party for its reliance hereon.
ARTICLE VI. CONTRIBUTORS
6.1 AMENDMENT. Any amendment hereto shall be effective only against
those parties hereto who have acknowledged in writing their consent to such
amendment, provided that the Operating Partnership may amend this Contribution
Agreement without notice to or the consent of any Contributor (a) for the
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purpose of adding additional Contributors as parties hereto or deleting
Contributors as parties hereto and conforming Exhibit A in connection with such
additions or deletions and (b) to conform any Contributor's Supplemental
Acquisition Exhibit to the extent the interests set forth therein do not
accurately or completely reflect the Interest of such Contributor in the Asset
Entities or (in the case of Contributors which are themselves Asset Entities)
their Properties. No waiver of any provisions of this Contribution Agreement
shall be valid unless in writing and signed by the party against whom
enforcement is sought.
6.2 ENTIRE AGREEMENT; COUNTERPARTS; APPLICABLE LAW. This Contribution
Agreement and all Ancillary Agreements (a) constitute the entire agreement and
supersede conflicting provisions set forth in all other prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, (b) may be executed in several counterparts, each of
which will be deemed an original and all of which shall constitute one and the
same instrument and (c) shall be governed in all respects, including validity,
interpretation and effect, by the laws of the State of New York without giving
effect to the conflict of law provisions thereof.
6.3 ASSIGNABILITY. This Contribution Agreement shall be binding upon,
and shall be enforceable by and inure to the benefit of, the parties hereto and
their respective heirs, legal representatives, successors and assigns; provided,
however, that this Contribution Agreement may not be assigned (except by
operation of law) by any party without the prior written consent of the other
parties, and any attempted assignment without such consent shall be void and of
no effect.
6.4 TITLES. The titles and captions of the Articles, Sections and
paragraphs of this Contribution Agreement are included for convenience of
reference only and shall have no effect on the construction or meaning of this
Contribution Agreement.
6.5 THIRD PARTY BENEFICIARY. No provision of this Contribution
Agreement is intended, nor shall it be interpreted, to provide or create any
third party beneficiary rights or any other rights of any kind in any customer,
affiliate, stockholder, partner, member, director, officer or employee of any
party hereto or any other person or entity, provided, however, that Sections
5.3, 6.3 and 6.10 of this Contribution Agreement shall be enforceable by and
shall inure to the benefit of the persons described therein.
6.6 SEVERABILITY. If any provision of this Contribution Agreement, or
the application thereof, is for any reason held to any extent to be invalid or
unenforceable, the remainder of this Contribution Agreement and application of
such provision to other
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persons or circumstances will be interpreted so as reasonably to effect the
intent of the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Contribution Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of the void or unenforceable provision and to
execute any amendment, consent or agreement deemed necessary or desirable by the
Operating Partnership to effect such replacement.
6.7 EQUITABLE REMEDIES. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Contribution
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Contribution
Agreement and to enforce specifically the terms and provisions hereof in any
federal or state court located in New York (as to which the parties agree to
submit to jurisdiction for the purposes of such action), this being in addition
to any other remedy to which they are entitled under this Contribution Agreement
or otherwise at law or in equity.
6.8 ATTORNEYS' FEES. In connection with any litigation or a court
proceeding arising out of this Contribution Agreement, the prevailing party
shall be entitled to recover all costs incurred, including reasonable attorneys'
fees and legal assistants' fees and costs whether incurred prior to trial, at
trial, or on appeal.
6.9 NOTICES. Any notice or demand which must or may be given under this
Contribution Agreement or by law shall, except as otherwise provided, be in
writing and shall be deemed to have been given (a) when physically received by
personal delivery (which shall include the confirmed receipt of a telecopied
facsimile transmission), or (b) three (3) business days after being deposited in
the United States certified or registered mail, return receipt requested,
postage prepaid, or (c) one (1) business day after being deposited with a
nationally known commercial courier service providing next day delivery service
(such as Federal Express); addressed and delivered or telecopied in the case of
a notice to the Operating Partnership at the following address and telecopy
number:
SL Green Operating Partnership, L.P.
70 West 36th Street
New York, New York 10018
Attention: Stephen L. Green
Phone: 212-594-2700
Telecopy: 212-594-2262
with copies to:
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Brown & Wood LLP
One World Trade Center
New York, New York 10048
Attention: Douglas A. Sgarro
Phone: 212-839-5300
Telecopy: 212-839-5599
Greenberg, Traurig, Hoffman,
Lipoff, Rosen & Quental
153 East 53rd Street
35th Floor
New York, New York 10022
Attention: Robert R. Ivanhoe
Phone: 212-801-9200
Telecopy: 212-223-7161
and addressed and delivered or telecopied, in the case of a notice to a
Contributor, at the address and telecopy number set forth under such
Contributor's name in the Contributor's Signature Page hereto.
6.10 WAIVER OF RIGHTS; CONSENTS WITH RESPECT TO PARTNERSHIP INTERESTS.
(a) Each Contributor acknowledges that the agreements contained
herein and the transactions contemplated hereby and any actions taken in
contemplation of the transactions contemplated hereby may conflict with, and may
not have been contemplated by, the partnership agreement of one or more
partnerships in which one or more of such Contributor's Interests represents a
direct or indirect interest or another agreement among one or more holders of
such Interests or one or more of the partners of any such partnership. With
respect to each partnership in which an Interest of a Contributor represents a
direct or indirect interest, each Contributor expressly gives all Consents (and
any consents necessary to authorize the proper parties in interest to give all
Consents) and Waivers necessary or desirable to facilitate any Conveyance Action
relating to such partnership (as such terms are hereinafter defined).
As used herein, the term "CONVEYANCE ACTION" means, with respect to any
partnership having a direct or indirect ownership interest in any Asset, (i) the
conveyance or agreement to convey by a partner thereof or by any holder of an
indirect interest therein (whether or not such partner or holder is a
Contributor hereunder) of its direct or indirect interest in such partnership to
the Operating Partnership or (ii) the entering into by any such partner or
holder of any agreement relating to (x) the formation of the Operating
Partnership or the REIT, or (y) the direct or indirect acquisition by the
Operating Partnership of any such direct or indirect interest or (iii) the
taking by any
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such partner or holder of any action necessary or desirable to facilitate any of
the foregoing, including, without limitation, the following (provided that the
same are taken in furtherance of the foregoing): any sale or distribution to any
person of a direct or indirect interest in such partnership, the entering into
any agreement with any person that grants to such person the right to purchase a
direct or indirect interest in such partnership, and the giving of the Consents
and Waivers contained in this Section 6.10 or consents or waivers similar
thereto in form or purpose. As used herein, the term "CONSENTS" means, with
respect to any such partnership, any consent necessary or desirable under the
partnership agreement of such partnership or any other agreement among all or
any of the holders of interests therein or any other agreement relating thereto
or referred to therein (i) to permit any and all Conveyance Actions relating to
such partnership or to amend such partnership agreement and/or other agreements
so that no provision thereof prohibits, restricts, impairs or interferes with
any Conveyance Action (such amendments to include, without limitation, the
deletion of provisions which cause a default under such agreement if interests
therein are transferred for cash), (ii) to admit the Operating Partnership as a
substitute limited partner or general partner of such partnership upon the
Operating Partnership's acquisition of a limited or general partnership interest
therein, respectively, and to adopt such amendment as is necessary or desirable
to effect such admission, (iii) to adopt any amendment as may be deemed
desirable by the Operating Partnership, either simultaneously with or
immediately prior to the acquisition of any interest therein, and (iv) to
continue such partnership following the transfer of interest therein to the
Operating Partnership. As used herein, the term "WAIVERS" means, with respect
to a partnership of which an Interest of a Contributor represents a direct or
indirect interest, the waiving of any and all rights that such Contributor may
have with respect to, and (to the extent possible) that any other person may
have with respect to, or that may accrue to such Contributor or other person
upon the occurrence of, a Conveyance Action relating to such partnership,
including, but not limited to, the following rights: rights of notice, rights to
response periods, rights to purchase the direct or indirect interests of another
partner in such partnership or to sell such Contributor's or other person's
direct or indirect interest therein to another partner, rights to sell such
Contributor's or other person's direct or indirect interest therein at a price
other than as provided herein, or rights to prohibit, limit, invalidate,
otherwise restrict or impair any such Conveyance Action or to cause a
termination or dissolution of such partnership because of such Conveyance
Action. Each Contributor further covenants that such Contributor will take no
action to enjoin, or seek damages resulting from, any Conveyance Action by any
holder of a direct or indirect interest in a partnership in which an Interest of
such Contributor represents a direct or indirect interest. The
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Waivers and Consents contained in this Section 6.10 shall terminate upon the
termination of this Contribution Agreement, except as to transactions completed
hereunder prior to termination.
(b) Each Contributor by its execution hereof (i) with respect to
each Asset Entity in which an Interest owned by Contributor represents a direct
or indirect interest therein and with respect to which the Operating Partnership
acquires all of the ownership interests therein gives such consent as is
necessary to cause each such Asset Entity, as applicable, to have authority to
transfer the Assets of such Asset Entity to the Operating Partnership on such
terms and conditions as such Asset Entity and the Operating Partnership may
agree; and (ii) agrees that such Contributor's Consideration may be reduced to
reflect such direct transfer of assets and the consequent receipt of Units
directly by such Asset Entity, provided that the total consideration to be
received by such Contributor either directly hereunder or indirectly through the
receipt of Units by an Asset Entity shall not be less than Contributor's
Consideration.
(c) Each Contributor by its execution hereof gives such consent
as is necessary to cause, with respect to the partnership agreement of each
partnership in which an Interest of such Contributor represents, directly or
indirectly, a limited partner or general partner interest, an amendment thereto
to enable such partnership, to the extent permissible under applicable law, (i)
to admit the Operating Partnership as a substitute limited partner therein
and/or a substitute general partner therein if the Operating Partnership by the
exercise of its Contribution Right acquires a limited partnership interest or a
general partnership interest in such partnership, respectively, (ii) to redeem
the interest of any other partner therein who has not agreed to become a party
to this Contribution Agreement or a similar contribution agreement with the
Operating Partnership, (iii) to transfer to all partners thereof, including any
partner who has not agreed to become a party to this Contribution Agreement,
Units and/or cash (provided that such Contributor receives as a result of all
such distributions and the direct payment of consideration hereunder, an amount
of cash and/or Units that is in conformity with the Consideration of such
Contributor provided for herein), and thereafter, at the Operating Partnership's
option, to dissolve, and (iv) any such other amendment as the Operating
Partnership may deem desirable, provided that such amendment occurs
simultaneously with or immediately prior to the acquisition of the applicable
partnership interest and, provided further, that such amendment will not result
in any increased liability on the part of any Contributor hereunder or under the
applicable partnership agreement. The Attorney-in-Fact may on behalf of each
Contributor execute such consents, amendments or other
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instruments as it deems necessary or desirable in connection with the foregoing.
6.11 CONFIDENTIALITY. All press releases or other public communications
of any kind relating to the IPO or the transactions contemplated herein, and the
method and timing of release for publication thereof, will be subject to the
prior written approval of the Operating Partnership.
6.12 COMPUTATION OF TIME. Any time period provided for herein which
shall end on a Saturday, Sunday or legal holiday shall extend to 5:00 p.m. of
the next full business day. All times are Eastern Time.
6.13 SURVIVAL. It is the express intention and agreement of the parties
hereto that the representations, warranties and covenants of each Contributor
set forth in this Contribution Agreement shall survive the consummation of the
transactions contemplated hereby.
6.14 TIME OF THE ESSENCE. Time is of the essence with respect to all
obligations of Contributor under this Contribution Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, each of the parties hereto has executed this
Contribution Agreement, or caused the Contribution Agreement to be duly executed
on its behalf, as of the date first written above.
SL GREEN OPERATING PARTNERSHIP, L.P.
By: SL GREEN REALTY CORP.
Its General Partner
By: /s/Stephen L. Green
----------------------------------
Name: Stephen L. Green
Title: Chairman of the Board
and Chief Executive Officer
26
<PAGE>
CONTRIBUTOR SIGNATURE PAGE
The undersigned, desiring to become one of the within named
Contributors to that certain Contribution Agreement by and among S.L. Green
Operating Partnership, L.P. and such Contributors, dated as of June 13, 1997,
hereby becomes a party to such Contribution Agreement. The undersigned agrees
that this signature page may be attached to any counterpart of said Contribution
Agreement.
HIPPOMENES ASSOCIATES LLC
By: /s/Stephen L. Green
----------------------------------
Name: Stephen L. Green
Title: Member
Address of Contributor:
70 West 36th Street
New York, New York 10018
Telephone/Facsimile Numbers:
(212) 594-2700/594-2262
By the Contributor's execution of this Contribution Agreement, the
Contributor grants a Power of Attorney to certain individuals and to the
Operating Partnership hereunder pursuant to Article V.
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<PAGE>
CONTRIBUTOR SIGNATURE PAGE
The undersigned, desiring to become one of the within named
Contributors to that certain Contribution Agreement by and among S.L. Green
Operating Partnership, L.P. and such Contributors, dated as of June 13, 1997,
hereby becomes a party to such Contribution Agreement. The undersigned agrees
that this signature page may be attached to any counterpart of said Contribution
Agreement.
64-36 REALTY ASSOCIATES
By: S.L. Green Properties, Inc.,
General Partner
By: /s/Stephen L. Green
----------------------------------
Name: Stephen L. Green
Title: President
Address of Contributor:
70 West 36th Street
New York, New York 10018
Telephone/Facsimile Numbers:
(212) 594-2700/594-2262
By the Contributor's execution of this Contribution Agreement, the
Contributor grants a Power of Attorney to certain individuals and to the
Operating Partnership hereunder pursuant to Article V.
28
<PAGE>
CONTRIBUTOR SIGNATURE PAGE
The undersigned, desiring to become one of the within named
Contributors to that certain Contribution Agreement by and among S.L. Green
Operating Partnership, L.P. and such Contributors, dated as of June 13, 1997,
hereby becomes a party to such Contribution Agreement. The undersigned agrees
that this signature page may be attached to any counterpart of said Contribution
Agreement.
673 FIRST ASSOCIATES, L.P.
By: 673 First Realty Corp.,
General Partner
By: /s/Stephen L. Green
----------------------------------
Name: Stephen L. Green
Title: President
Address of Contributor:
70 West 36th Street
New York, New York 10018
Telephone/Facsimile Numbers:
(212) 594-2700/594-2262
By the Contributor's execution of this Contribution Agreement, the
Contributor grants a Power of Attorney to certain individuals and to the
Operating Partnership hereunder pursuant to Article V.
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<PAGE>
CONTRIBUTOR SIGNATURE PAGE
The undersigned, desiring to become one of the within named
Contributors to that certain Contribution Agreement by and among S.L. Green
Operating Partnership, L.P. and such Contributors, dated as of June 13, 1997,
hereby becomes a party to such Contribution Agreement. The undersigned agrees
that this signature page may be attached to any counterpart of said Contribution
Agreement.
GREEN 6TH AVENUE ASSOCIATES, L.P.
By: S.L. Green Realty, Inc.
General Partner
By: /s/Stephen L. Green
----------------------------------
Name: Stephen L. Green
Title: President
Address of Contributor:
70 West 36th Street
New York, New York 10018
Telephone/Facsimile Numbers:
(212) 594-2700/594-2262
By the Contributor's execution of this Contribution Agreement, the
Contributor grants a Power of Attorney to certain individuals and to the
Operating Partnership hereunder pursuant to Article V.
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CONTRIBUTOR SIGNATURE PAGE
The undersigned, desiring to become one of the within named
Contributors to that certain Contribution Agreement by and among S.L. Green
Operating Partnership, L.P. and such Contributors, dated as of June 13, 1997,
hereby becomes a party to such Contribution Agreement. The undersigned agrees
that this signature page may be attached to any counterpart of said Contribution
Agreement.
S.L. GREEN REALTY, INC.
By: /s/Stephen L. Green
----------------------------------
Name: Stephen L. Green
Title: President
Address of Contributor:
70 West 36th Street
New York, New York 10018
Telephone/Facsimile Numbers:
(212) 594-2700/594-2262
By the Contributor's execution of this Contribution Agreement, the
Contributor grants a Power of Attorney to certain individuals and to the
Operating Partnership hereunder pursuant to Article V.
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<PAGE>
CONTRIBUTOR SIGNATURE PAGE
The undersigned, desiring to become one of the within named
Contributors to that certain Contribution Agreement by and among S.L. Green
Operating Partnership, L.P. and such Contributors, dated as of June 13, 1997,
hereby becomes a party to such Contribution Agreement. The undersigned agrees
that this signature page may be attached to any counterpart of said Contribution
Agreement.
By: /s/Stephen L. Green
----------------------------------
Name: Stephen L. Green
Address of Contributor:
70 West 36th Street
New York, New York 10018
Telephone/Facsimile Numbers:
(212) 594-2700/594-2262
By the Contributor's execution of this Contribution Agreement, the
Contributor grants a Power of Attorney to certain individuals and to the
Operating Partnership hereunder pursuant to Article V.
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EXHIBIT A
CONTRIBUTORS
1. Hippomenes Associates, LLC
2. 64-36 Realty Associates
3. 673 First Associates, L.P.
4. Green 6th Avenue Associates, L.P.
5. SL Green Realty, Inc.
6. Stephen L. Green
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EXHIBIT B
ASSET ENTITIES ASSET
-------------- -----
1.Praedium Bar LLC Mortgage interest in Bar Building
2.470 Park Avenue South Associates, L.A. Fee interest in 470 Park Avenue
South
3.64-36 Realty Associates Fee interest in 70 W. 36th Street
4.673 First Associates, L.P. Net leasehold interest in 673 First
Avenue
5.1414 Management Associates, L.P. Fee interest in 1414 Avenue of
Americas
6.Emerald City Construction Corp. Construction business assets
7.SL Green Management Corp. Management business assets
8.SL Green Realty Inc. Leasing and tenant representation
business assets
34
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EXHIBIT C
EXCLUDED INTERESTS
35
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EXHIBIT D
PERMITTED ENCUMBRANCES
1. All borrowings assigned to a Contributor under the Credit Agreement,
dated as of March 27, 1997, between Green Realty LLC and Lehman
Brothers Holdings Inc.
36
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EXHIBIT E
Operating Partnership Agreement
37
<PAGE>
EXHIBIT F
Investor Questionnaire
38
<PAGE>
EXHIBIT G
Registration Rights Agreement
39
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SUPPLEMENTAL ACQUISITION EXHIBIT
Hippomenes Associates LLC
ASSETS TO BE TRANSFERRED
100% member interest in Praedium Bar LLC
MINIMUM CONSIDERATION TO BE RECEIVED
The minimum consideration shall be a number of Units having a value, when
added to the sum of (i) the aggregate value of all other Units issued to
Contributors under the Contribution Agreement, (ii) the aggregate value of all
Units issued to 29/35 Realty Associates ("Realty Associates") under the Contract
of Sale, dated as of June 5, 1997, between the Operating Partnership and Realty
Associates and (iii) the product of (A) .65 times (B) the aggregate value of all
Units issued to 470 Park South Associates, L.P. ("Park South") under the
Contract of Sale, dated as of May 20, 1997, between the Operating Partnership
and Park South, equal to not less than $15 million. For purposes of the
foregoing, each Unit shall be deemed to have a value equal to the IPO price of a
share of Common Stock.
40
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SUPPLEMENTAL ACQUISITION EXHIBIT
64-36 Realty Associates
ASSETS TO BE TRANSFERRED
100% fee interest in 70 West 36th Street
CONSIDERATION TO BE RECEIVED
The minimum consideration shall be a number of Units having a value, when
added to the sum of (i) the aggregate value of all other Units issued to
Contributors under the Contribution Agreement, (ii) the aggregate value of all
Units issued to 29/35 Realty Associates ("Realty Associates") under the Contract
of Sale, dated as of June 5, 1997, between the Operating Partnership and Realty
Associates and (iii) the product of (A) .65 times (B) the aggregate value of all
Units issued to 470 Park South Associates, L.P. ("Park South") under the
Contract of Sale, dated as of May 20, 1997, between the Operating Partnership
and Park South, equal to not less than $15 million. For purposes of the
foregoing, each Unit shall be deemed to have a value equal to the IPO price of a
share of Common Stock.
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SUPPLEMENTAL ACQUISITION EXHIBIT
673 First Associates, L.P.
ASSETS TO BE TRANSFERRED
Net leasehold interest in 673 First Avenue, New York, New York
CONSIDERATION TO BE RECEIVED
The minimum consideration shall be a number of Units having a value, when
added to the sum of (i) the aggregate value of all other Units issued to
Contributors under the Contribution Agreement, (ii) the aggregate value of all
Units issued to 29/35 Realty Associates ("Realty Associates") under the Contract
of Sale, dated as of June 5, 1997, between the Operating Partnership and Realty
Associates and (iii) the product of (A) .65 times (B) the aggregate value of all
Units issued to 470 Park South Associates, L.P. ("Park South") under the
Contract of Sale, dated as of May 20, 1997, between the Operating Partnership
and Park South, equal to not less than $15 million. For purposes of the
foregoing, each Unit shall be deemed to have a value equal to the IPO price of a
share of Common Stock.
42
<PAGE>
SUPPLEMENTAL ACQUISITION EXHIBIT
Green 6th Avenue Associates, L.P.
ASSETS TO BE TRANSFERRED
99% limited partner interest in 1414 Management Associates, L.P.
CONSIDERATION TO BE RECEIVED
The minimum consideration shall be a number of Units having a value, when
added to the sum of (i) the aggregate value of all other Units issued to
Contributors under the Contribution Agreement, (ii) the aggregate value of all
Units issued to 29/35 Realty Associates ("Realty Associates") under the Contract
of Sale, dated as of June 5, 1997, between the Operating Partnership and Realty
Associates and (iii) the product of (A) .65 times (B) the aggregate value of all
Units issued to 470 Park South Associates, L.P. ("Park South") under the
Contract of Sale, dated as of May 20, 1997, between the Operating Partnership
and Park South, equal to not less than $15 million. For purposes of the
foregoing, each Unit shall be deemed to have a value equal to the IPO price of a
share of Common Stock.
43
<PAGE>
SUPPLEMENTAL ACQUISITION EXHIBIT
S.L. Green Realty, Inc.
ASSETS TO BE TRANSFERRED
1% general partner interest in 1414 Management Associates, L.P.
CONSIDERATION TO BE RECEIVED
The minimum consideration shall be a number of Units having a value, when
added to the sum of (i) the aggregate value of all other Units issued to
Contributors under the Contribution Agreement, (ii) the aggregate value of all
Units issued to 29/35 Realty Associates ("Realty Associates") under the Contract
of Sale, dated as of June 5, 1997, between the Operating Partnership and Realty
Associates and (iii) the product of (A) .65 times (B) the aggregate value of all
Units issued to 470 Park South Associates, L.P. ("Park South") under the
Contract of Sale, dated as of May 20, 1997, between the Operating Partnership
and Park South, equal to not less than $15 million. For purposes of the
foregoing, each Unit shall be deemed to have a value equal to the IPO price of a
share of Common Stock.
44
<PAGE>
SUPPLEMENTAL ACQUISITION EXHIBIT
Stephen L. Green
ASSETS TO BE TRANSFERRED
All outstanding non-voting common stock of Emerald City Construction Corp.,
S.L. Green Management Corp. and S.L. Green Realty Inc.
CONSIDERATION TO BE RECEIVED
The minimum consideration shall be a number of Units having a value, when
added to the sum of (i) the aggregate value of all other Units issued to
Contributors under the Contribution Agreement, (ii) the aggregate value of all
Units issued to 29/35 Realty Associates ("Realty Associates") under the Contract
of Sale, dated as of June 5, 1997, between the Operating Partnership and Realty
Associates and (iii) the product of (A) .65 times (B) the aggregate value of all
Units issued to 470 Park South Associates, L.P. ("Park South") under the
Contract of Sale, dated as of May 20, 1997, between the Operating Partnership
and Park South, equal to not less than $15 million. For purposes of the
foregoing, each Unit shall be deemed to have a value equal to the IPO price of a
share of Common Stock.
45
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF SL GREEN REALTY CORP.
SL Green Operating Partnership, L.P. (a Delaware limited partnership)
S.L. Green Management Corp. (a New York corporation)
S.L. Green Realty, Inc. (a New York corporation)
Emerald City Construction Corp. (a New York corporation)
S.L. Green Management LLC (a Delaware limited liability company)
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-11) and related Prospectus of SL Green Realty
Corp. (the "Company") for the registration of 9,315,000 shares and to the use of
our reports dated (i) June 12, 1997 with respect to the balance sheet of the
Company as of June 12, 1997; (ii) April 16, 1997, except for note 9, as to which
the date is May 27, 1997 with respect to the combined financial statements of SL
Green Predecessor for each of the three years in the period ended December 31,
1996; and (iii) April 16, 1997 with respect to the combined financial statements
of the uncombined joint ventures of SL Green Predecessor for each of the three
years in the period ended December 31, 1996. We also consent to the use of our
reports dated (i) May 2, 1997 with respect to the Statement of Revenues and
Certain Expenses of 1414 Avenue of the Americas for the year ended December 31,
1995, (ii) May 7, 1997 with respect to the Statement of Revenues and Certain
Expenses of 36 West 44th Street for the year ended December 31, 1996, (iii) May
2, 1997 with respect to the Statement of Revenues and Certain Expenses of 1372
Broadway for the year ended December 31, 1996 and (iv) May 23, 1997 with respect
to the Statement of Revenues and Certain Expenses of 1140 Avenue of the Americas
for the year ended December 31, 1996.
/S/ Ernst & Young LLP
New York, New York
June 12, 1997
<PAGE>
EXHIBIT 23.3
CONSENT
Rosen Consulting Group hereby consents to the use of its report regarding
the New York metropolitan economy and Manhattan office market and the references
to the firm and such report under the caption "Market Overview" in the
Registration Statement on Form S-11 of SL Green Realty Corp.
Rosen Consulting Group
By: /s/ Kenneth T. Rosen
------------------------------------------------------------------------------
Name: Kenneth T. Rosen
Title: President
Date: June 9, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S BALANCE SHEET AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUN-12-1997
<PERIOD-END> JUN-12-1997
<CASH> 1,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,000
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 10
<OTHER-SE> 990
<TOTAL-LIABILITY-AND-EQUITY> 1,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE>
EXHIBIT 99.1
CONSENT OF DIRECTOR NOMINEE
To SL Green Realty Corp.:
Pursuant to Rule 438 promulgated under the Securities Act of 1933, as
amended, I hereby consent to the references in the Registration Statement of SL
Green Realty Corp. (the "Company") on Form S-11, and amendments thereto, which
indicate that I have accepted a nomination to become a director of the Company
subsequent to the closing of the Company's initial public offering.
/s/ Edwin T. Burton, III
Dated: June 10, 1997
<PAGE>
EXHIBIT 99.2
CONSENT OF DIRECTOR NOMINEE
To SL Green Realty Corp.:
Pursuant to Rule 438 promulgated under the Securities Act of 1933, as
amended, I hereby consent to the references in the Registration Statement of SL
Green Realty Corp. (the "Company") on Form S-11, and amendments thereto, which
indicate that I have accepted a nomination to become a director of the Company
subsequent to the closing of the Company's initial public offering.
/s/ John S. Levy
Dated: June 5, 1997
<PAGE>
EXHIBIT 99.3
CONSENT OF DIRECTOR NOMINEE
To SL Green Realty Corp.:
Pursuant to Rule 438 promulgated under the Securities Act of 1933, as
amended, I hereby consent to the references in the Registration Statement of SL
Green Realty Corp. (the "Company") on Form S-11, and amendments thereto, which
indicate that I have accepted a nomination to become a director of the Company
subsequent to the closing of the Company's initial public offering.
/s/ John J. Robbins
Dated: June 7, 1997
<PAGE>
EX-99.4
The New York Metropolitan Economy
Summary
Strong growth of the national economy has benefited New York City, causing the
New York metropolitan economy to improve significantly in recent years.* In
fact, in July of 1996, Inc. Magazine named New York City as the Best Place to Do
Business, stating that urban, compact areas promote interaction among companies,
suppliers and customers. Manhattan is one of the worlds most important business
centers. As the headquarters of 47 Fortune 500 companies, Manhattan is home to
more Fortune 500 companies than any other city in the country. In addition to
its diverse base of large businesses, Manhattan also has a large base of small
companies. The New York City Office of the Comptroller reports that 99.7% of all
private sector businesses in New York City had fewer than 500 employees and that
these small businesses, representing 70.7% of the private sector work force,
added a net total of 68,821 jobs during 1994 and 1995; between the third
quarters of 1995 and 1996, almost 22,000 jobs were added at small businesses.
Sixty-four of the 100 largest law firms in the country have a presence in
Manhattan, and 27 of those are based there. Four of the Big Six accounting firms
are headquartered in Manhattan, and three of the four largest U.S. commercial
banks are based in Manhattan. In addition, four of the nations ten largest money
managers and 23 of the 25 largest securities firms are based in Manhattan. New
York City is one of the world's leading cultural centers. It is a world leader
in the advertising industry, and it has a large base of nonprofit organizations.
It also has the largest consulate community in the world, contributing to its
position as an international center of business an politics.
The outlook in the New York metropolitan area is for healthy private sector
employment growth through 2001, which should generate significant demand for
office space. Within Manhattan, Mayor Giulianis efforts to improve services,
reduce taxes and crime, and streamline local government have made this vibrant
24-hour city more attractive to businesses. In addition, office rents in
Manhattan are relatively inexpensive when compared internationally with other
major cities. In January of 1997, Richard Ellis Company ranked Midtown Manhattan
13th among major business centers around the world in terms of office rents,
while downtown Manhattan ranked 37th. Many businesses are expanding within
Manhattan or opening local offices, and a number of companies have made long
term commitments to Manhattan by purchasing buildings or signing long term
leases. The emergence of the new media industry is another major boon for
Manhattan because these jobs have a high multiplier effect, generating jobs in
related industries, particularly in the services sector.
Economic Overview
Economic growth in the New York metropolitan statistical area (MSA) has
strengthened during the past several years. Private sector employment gained an
average of almost 44,000 jobs per year during the three years between 1994 and
1996 for an average annual growth rate of 1.4%. Between March of 1996 and 1997,
private sector employment growth was 1.9%, which is the strongest growth rate in
more than ten years. This 1.9% private sector growth rate represents the
addition of more than 61,000 jobs (see Figure 1 and Tables 1 and 2). The New
York MSA led the Northeast and ranked eighth in the nation in terms of the
number of jobs created in metropolitan statistical areas with more than 250,000
jobs during the twelve months ended in March of 1997. The metropolitan area
offers several key competitive advantages, including access to a skilled work
force, customers, partners and investors, that make it a strategically
advantageous place to do business and which drive private sector employment
growth. Similar to each of the prior economic cycles, the New York metropolitan
areas economy is going through a reengineering process, characterized by the
emergence of several dynamic new industries and the streamlining of older
industries, including the public sector. It is primarily knowledge-based
industries, such as the securities industry, the new media industry and overall
business services, that are benefiting from the areas key
- ----------
* The New York metropolitan area includes the following counties: Bronx, Kings,
New York, Putnam, Queens, Richmond, Rockland and Westchester.
Rosen Consulting Group 1
<PAGE>
strengths. Growth in these industries, in turn, is fueling expansion in other
sectors of the economy.
The vibrancy of New York City is a function of more than job growth. With about
8.6 million people in 1995 (including 7.4 million in New York City), the
metropolitan area ranks second only to Los Angeles in terms of population. Many
New Yorkers are highly educated. According to the 1990 Census, about 42% of the
population over the age of 25 in New York County had a bachelors degree and
almost half of those had a graduate or professional degree, rates that are well
above the national average. Manhattan is also a cultural hotspot, with many of
the nations and worlds leading restaurants, museums, and a rich concentration of
theater and performing arts. Because of the large number of people living and
working in such a small area, activity occurs around the clock, making New York
a 24-hour city.
CHART 1 [BAR CHART REGARDING PRIVATE EMPLOYMENT IN THE NEW YORK METROPOLITAN
STATISTICAL AREA ("MSA") FROM 1971 THROUGH THE FORECAST FOR 1997]
Rosen Consulting Group 2
<PAGE>
TABLE 1 [TABLE REGARDING NEW YORK MSA BY SECTOR FROM 1988 THROUGH MARCH 1997]
Table 1
New York MSA Employment by Sector (000)
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994 1995 1996 Mar 97
---- ---- ---- ---- ---- ---- ---- ---- ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Nonagricultural 4134.8 4138.0 4093.8 3878.8 3772.5 3772.6 3803.2 3820.3 3857.7 3880.0
% Change 0.5% 0.1% -1.1% -5.3% -2.7% 0.0% 0.8% 0.4% 1.0% 1.3%
Construction & Mining 153.5 152.4 144.3 123.8 107.8 106.4 110.6 112.1 114.2 109.9
% Change -0.7% -5.3% -14.2% -12.9% -1.3% 3.9% 1.4% 1.9% 4.2%
Manufacturing 450.3 435.6 410.6 377.1 358.1 348.8 337.6 328.9 318.5 313.4
% Change -2.4% -3.3% -5.7% -8.2% -5.0% -2.6% -3.2% -2.6% -3.2% -2.1%
Apparel & Textiles 103.4 102.3 96.4 89.7 86.5 83.9 79.3 76.1 73.3 72.1
% Change -2.6% -1.1% -5.8% -7.0% -3.6% -3.0% -5.5% -4.0% -3.7% -1.9%
Printing & Publishing 100.5 98.0 94.5 86.9 82.0 81.9 82.2 82.2 81.3 81.5
% Change -3.2% -2.5% -3.6% -8.0% -5.6% -0.1% 0.4% 0.0% -1.1% -0.1%
T.C.P.U 245.2 242.9 255.9 245.1 230.8 230.0 228.2 228.9 230.5 232.3
% Change 2.0% -0.9% 5.4% -4.2% -5.8% -0.3% -0.8% 0.3% 0.7% 1.5%
Communications* 77.7 23.7 75.8 74.8 70.7 69.6 68.6 68.7 69.4 72.0
% Change 1.8% -69.5% 219.8% -1.3% -5.5% -1.6% -1.4% 0.1% 1.0% 5.0%
Trade 758.1 751.7 726.3 676.2 652.9 645.4 653.6 667.6 673.7 670.0
% Change -0.0% -0.8% -3.4% -6.9% -3.4% -1.1% 1.3% 2.1% 0.9% 1.3%
Wholesale Trade 267.1 262.2 253.0 234.9 225.7 219.2 218.9 220.8 217.0 215.9
% Change -0.8% -1.8% -3.5% -7.2% -3.9% -2.9% -0.1% 0.9% -1.7% -0.5%
Retail Trade 491.0 489.5 473.3 441.3 427.2 426.3 434.7 446.9 456.7 454.1
% Change 0.4% -0.3% -3.3% -6.8% -3.2% -0.2% 2.0% 2.8% 2.2% 2.2%
General Merchandise 67.9 64.0 58.7 53.8 49.2 46.0 43.5 44.2 46.0 44.4
% Change -2.0% -5.7% -8.3% -8.3% -8.6% -6.5% -5.4% 1.6% 4.1% -0.9%
Apparel & Accessories 52.5 54.1 53.9 50.0 48.9 50.1 51.0 52.8 52.0 50.2
% Change 0.6% 3.0% -0.4% -7.2% -2.2% 2.5% 1.8% 3.5% -1.5% 2.2%
Eating & Drink Places 155.3 155.5 152.2 140.5 138.1 139.7 145.0 150.0 155.5 155.5
% Change 1.3% 0.1% -2.1% -7.7% -1.7% 1.2% 3.8% 3.4% 3.7% 3.7%
F.I.R.E. 577.4 566.4 555.6 528.1 508.0 505.0 513.3 505.5 504.1 505.6
% Change -1.0% -1.9% -1.9% -4.9% -3.8% -0.6% 1.6% -1.5% -0.3% 0.9%
Depository Institutions 185.1 179.7 175.8 163.9 148.3 142.3 139.2 134.0 130.2 127.7
% Change 2.8% -2.9% -2.2% -6.8% -9.5% -4.0% -2.2% -3.7% -2.8% -2.7%
Security Brokers 155.1 147.7 139.5 131.5 133.2 137.8 148.6 147.5 150.0 152.8
% Change -3.0% -4.8% -5.6% -5.7% 1.3% 3.5% 7.8% -0.7% 1.7% 4.0%
Services 1272.7 1304.8 1309.6 1252.9 1249.0 1275.1 1310.5 1350.6 1401.1 1435.9
% Change 1.3% 2.5% 0.4% -4.3% -0.3% 2.1% 2.8% 3.1% 3.7% 3.4%
Total Private 3457.1 3453.9 3402.3 3203.2 3106.6 3110.7 3154 3193.8 3242.2 3267.1
% Change 0.1% -0.1% -1.5% -5.9% -3.0% 0.1% 1.4% 1.3% 1.5% 1.9%
Government 677.7 684.1 691.5 675.6 665.9 661.9 649.2 626.5 615.5 612.9
% Change 2.4% 0.9% 1.1% -2.3% -1.4% -0.6% -1.9% -3.5% -1.8% -1.7%
Local Government 519.7 528.2 532.5 524.5 516.9 515.9 503.4 483.4 478.4 479.2
% Change 3.1% 1.6% 0.8% -1.5% -1.4% -0.2% -2.4% -4.0% -1.0% -1.3%
</TABLE>
*According to the bureau of Labor Statistics, employment in this sector was
affected by a strike in 1989.
Sources: Bureau of Labor Statistics, Rosen Consulting Group (RCG)
Rosen Consulting Group 3
<PAGE>
TABLE 2 [TABLE REGARDING NEW YORK MSA EMPLOYMENT BY SECTOR - ABSOLUTE CHANGE FOR
1988 THROUGH MARCH 1997]
Table 2
New York MSA Employment by Sector-Absolute Change (000)
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994 1995 1996 Mar 97
---- ---- ---- ---- ---- ---- ---- ---- ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Nonagricultural 4134.8 4138.0 4093.8 3878.8 3772.5 3772.6 3803.2 3820.3 3857.7 3880.0
Absolute Change 21.2 3.2 (44.2) (215.0) (106.3) 0.1 30.6 17.1 37.4 50.7
Construction & Mining 153.5 152.4 144.3 123.8 107.8 106.4 110.6 112.1 114.2 109.9
Absolute Change (1.1) (8.1) (20.5) (16.0) (1.4) 4.2 1.5 2.1 4.4
Manufacturing 450.3 435.6 410.6 377.1 358.1 348.8 337.6 328.9 318.5 313.4
Absolute Change (11.0) (14.7) (25.0) (33.5) (19.0) (9.3) (11.2) (8.7) (10.4) (6.6)
Apparel & Textiles 103.4 102.3 96.4 89.7 86.5 83.9 79.3 76.1 73.3 72.1
Absolute Change (2.8) (1.1) (5.9) (6.7) (3.2) (2.6) (4.6) (3.2) (2.8) (1.4)
Printing & Publishing 100.5 98.0 94.5 86.9 82.0 81.9 82.2 82.2 81.3 81.5
Absolute Change (3.3) (2.5) (3.5) (7.6) (4.9) (0.1) 0.3 0.0 (0.9) (0.1)
T.C.P.U 245.2 242.9 255.9 245.1 230.8 230.0 228.2 228.9 230.5 232.3
Absolute Change 4.7 (2.3) 13.0 (10.8) (14.3) (0.8) (1.8) 0.7 1.6 3.5
Communications 77.7 23.7 75.8 74.8 70.7 69.6 68.6 68.7 69.4 72.0
Absolute Change 1.4 (54.0) 52.1 (1.0) (4.1) (1.1) (1.0) 0.1 0.7 3.4
Trade 758.1 751.7 726.3 676.2 652.9 645.4 653.6 667.6 673.7 670.0
Absolute Change (0.2) (6.4) (25.4) (50.1) (23.3) (7.5) 8.2 14.0 6.1 8.8
Wholesale Trade 267.1 262.2 253.0 234.9 225.7 219.2 218.9 220.8 217.0 215.9
Absolute Change (2.2) (4.9) (9.2) (18.1) (9.2) (6.5) (0.3) 1.9 (3.8) (1.1)
Retail Trade 491.0 489.5 473.3 441.3 427.2 426.3 434.7 446.9 456.7 454.1
Absolute Change 2.0 (1.5) (16.2) (32.0) (14.1) (0.9) 8.4 12.2 9.8 9.9
General Merchandise 67.9 64.0 58.7 53.8 49.2 46.0 43.5 44.2 46.0 44.4
Absolute Change (1.4) (3.9) (5.3) (4.9) (4.6) (3.2) (2.5) 0.7 1.8 (0.4)
Apparel & Accessories 52.5 54.1 53.9 50.0 48.9 50.1 51.0 52.8 52.0 50.2
Absolute Change 0.3 1.6 (0.2) (3.9) (1.1) 1.2 0.9 1.8 (0.8) 1.1
Eating & Drink Places 155.3 155.5 152.2 140.5 138.1 139.7 145.0 150.0 155.5 155.5
Absolute Change 2.0 0.2 (3.3) (11.7) (2.4) 1.6 5.3 5.0 5.5 5.5
F.I.R.E. 577.4 566.4 555.6 528.1 508.0 505.0 513.3 505.5 504.1 505.6
Absolute Change (5.6) (11.0) (10.8) (27.5) (20.1) (3.0) 8.3 (7.8) (1.4) 4.7
Depository Institutions 185.1 179.7 175.8 163.9 148.3 142.3 139.2 134.0 130.2 127.7
Absolute Change 5.1 (5.4) (3.9) (11.9) (15.6) (6.0) (3.1) (5.2) (3.8) (3.6)
Security Brokers 155.1 147.7 139.5 131.5 133.2 137.8 148.6 147.5 150.0 152.8
Absolute Change (4.8) (7.4) (8.2) (8.0) 1.7 4.6 10.8 (1.1) 2.5 5.9
Services 1272.7 1304.8 1309.6 1252.9 1249.0 1275.1 1310.5 1350.6 1401.1 1435.9
Absolute Change 16.9 32.1 4.8 (56.7) (3.9) 26.1 35.4 40.1 50.5 46.6
Total Private 3457.1 3453.9 3402.3 3203.2 3106.6 3110.7 3154 3193.8 3242.2 3267.1
Absolute Change 5.0 (3.2) (51.6) (199.1) (96.6) 4.1 43.3 39.8 48.4 61.4
Government 677.7 684.1 691.5 675.6 665.9 661.9 649.2 626.5 615.5 612.9
Absolute Change 16.2 6.4 7.4 (15.9) (9.7) (4.0) (12.7) (22.7) (11.0) (10.7)
519.7 528.2 532.5 524.5 516.9 515.9 503.4 483.4 478.4 479.2
15.6 8.5 4.3 (8.0) (7.6) (1.0) (12.5) (20.0) (5.0) (6.5)
</TABLE>
*According to the Bureau of Labor Statistics, employment in the sector was
affected by a stike in 1989. Sources: Bureau of Labor Statistics, Rosen
Consulting Group (RCG)
Rosen Consulting Group 4
<PAGE>
From a quality of life perspective, Mayor Giulianis efforts to improve city
services, reduce taxes and crime, and streamline city government are paying off.
Crime is down dramatically in New York City, particularly compared to national
crime trends (see Figure 2). Preliminary estimates for 1996 show that New York
City ranked 159th for total crime among the 198 largest U.S. cities. New York
City ranked lower than Atlanta (1), Miami (8), Phoenix (42), Milwaukee (83) and
Philadelphia (114). According to the New York City Police Department, New York
Citys crime rate decreased 16% during 1996, and the seven felony categories have
declined a cumulative 39% since 1993. This decrease is greater than any other
large U.S. city during the last three years. Several factors arecontributing to
this decline including increased drug enforcement efforts and police
redeployment to problem areas. The drastic reduction in crime has been a boon to
the tourism industry, which has experienced strong gains in visitor volume,
spending and hotel occupancy. In turn, reduced crime and more tourism activity
has stimulated after-business-hours activities such as theater, dining and
clubs, reinforcing New Yorks reputation as a 24-hour city.
CHART 2 [CHART REGARDING NEW YORK CITY CRIMES REPORTED (per thousand inhabitants
for 1950 THROUGH 1995]
Much of the recent job growth has occurred at small companies, defined as
businesses with fewer than 500 employees. Following the recession of the early
1990s, job growth at small firms recovered quickly, while large companies
languished. According to the New York City Office of the Comptroller, between
1984 and 1995, small businesses added 43,034 jobs, while large businesses lost
103,112 jobs. Growth in recent years has been the strongest. During 1994 and
1995, small businesses added 68,821 jobs, while large companies lost a small
number of jobs during this period, and between the third quarters of 1995 and
1996 (the most recent period for which data is available), small businesses
gained almost 22,000 jobs. About 99.7% of the businesses in New York City are
small businesses. About 90% of these small businesses employ fewer than 20
people, about 6.3% employ 20 to 50 people, 2.1% employ 50 to 100 people, and
only 1.6% employ 100 to 500 people. Many of these small businesses occupy Class
B office space. During 1996, 47% of the Class B leasing activity in Manhattan
was for blocks of space of less than 20,000 square feet, illustrating the strong
demand for Class B space by smaller tenants.
Rosen Consulting Group 5
<PAGE>
The Services Sector
The single fastest-growing employment sector in the New York metropolitan
economy is the services sector, which grew at a strong rate of 3.4% during the
year ended in March of 1997. With more than 1.4 million jobs, the services
sector currently represents 37% of the New York metropolitan areas total
employment base and 44% of its private sector employment base. Between 1992 and
1996, about 152,000 new jobs were created in the services sector (see Figure 3).
One of the largest components of the services industry is business services,
with about 285,000 jobs as of March 1997, representing 19.9% of total services
employment. Fueling growth in the business services sector are the advertising
industry, the increased demand for computer programmers as well as the trend
towards hiring temporary workers as a way to maintain corporate flexibility and,
thus, to lower payroll costs. New York Citys Madison Avenue dominates the worlds
advertising industry. Agencies in New York account for about half of all
advertising billings worldwide, and about one of every three advertising
professionals in America works in New York City. Other components of the
business services sector are the audio recording and the software industries.
Accordingly, the entertainment and information technology industries contribute
to the rapid growth within business services. Between 1992 and 1996, growth in
business services, fueled by the overall health of the local economy, averaged a
robust 4% per year, and between March of 1996 and 1997, business services grew
6.1% (see Table 3).
CHART 3 [Bar chart regarding Absolute change in Services Employment for the New
York MSA for 1971 through the forecast for 1997]
Rosen Consulting Group 6
<PAGE>
TABLE 3 [Table regarding New York MSA Services Sector Employment from 1988
through March 1997]
Table 3
New York MSA Services Sector Employment (000)
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994 1995 1996 Mar 97
---- ---- ---- ---- ---- ---- ---- ---- ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Services 1272.7 1304.8 1309.6 1252.9 1249.0 1275.1 1310.5 1350.6 1401.1 1435.9
% Change 1.3% 2.5% 0.4% -4.3% -0.3% 2.1% 2.8% 3.1% 3.7% 3.4%
Business Services 289.1 292.6 278.6 243.0 233.9 240.2 248.4 254.7 273.7 285.2
% Change -11.1% 1.2% -4.8% -12.8% -3.7% 2.7% 3.4% 2.5% 7.5% 6.1%
Health Services 286.3 295.0 305.2 318.6 328.7 338.9 346.3 356.6 362.5 365.8
% Change 3.3% 3.0% 3.5% 4.4% 3.2% 3.1% 2.2% 3.0% 1.7% 1.7%
Socal Services 130.9 135.7 142.3 146.0 153.3 159.6 166.0 169.4 171.7 173.7
% Change 2.1% 3.7% 4.9% 2.6% 5.0% 4.1% 4.0% 2.0% 1.4% 1.4%
Engin. & Mgmt. Svcs. 109.6 114.0 113.7 100.9 98.4 100.3 102.9 106.0 111.1 114.4
% Change 4.0% -0.3% -11.3% -2.5% 1.9% 2.6% 3.0% 4.8% 5.8%
Educational Services 112.7 114.3 115.0 111.3 109.7 110.6 114.2 121.5 130.2 140.9
% Change 4.3% 1.4% 0.6% -3.2% -1.4% 0.8% 3.3% 6.4% 7.2% 3.1%
Legal Services 74.9 79.8 80.9 76.5 74.6 74.4 73.8 72.7 73.1 73.1
% Change 4.2% 6.5% 1.4% -5.4% -2.5% -0.3% -0.8% -1.5% 0.6% 1.4%
Membership Orgs. 62.4 63.1 63.5 61.6 61.1 61.7 62.1 63.0 64.4 65.7
% Change 2.1% 1.1% 0.6% -3.0% -0.8% 1.0% 0.6% 1.4% 2.2% 1.4%
Hotels & Lodging 38.2 39.3 38.8 35.7 35.7 35.1 35.7 36.7 37.1 36.9
% Change 4.1% 2.9% -1.3% -8.0% 0.0% -1.7% 1.7% 2.8% 1.1% 1.9%
Amusement & Recr. 51.6 54.1 55.4 51.1 51.3 47.7 45.5 47.9 49.5 49.6
% Change 13.4% 4.8% 2.4% -7.8% 0.4% -7.0% -4.6% 5.3% 3.3% 6.9%
Motion Pictures 23.7 24.6 25.9 25.2 21.9 25.9 34.2 38.2 41.2 43.7
% Change 3.8% 5.3% -2.7% -13.1% 18.3% 32.0% 11.7% 7.9% 8.2%
</TABLE>
Sources: Bureau of Labor Statistics, Rosen Consulting Group (RCG)
One very active area of small business creation is a new industry called new
media that is centered south of 41st Street in Midtown Souths Silicon Alley. The
new media industry is a cross-disciplinary industry combining elements of
computing technology, telecommunications and media content (information,
entertainment, personal/group communications and transactions) to create
products and services which can be used interactively by consumers and business
users. The compnies which work in this industry include entertainment software,
online/Internet services, CD-ROM title developers, and web site designers. In
addition, advertising and publishing companies participate in the industry,
although their core businesses remain outside new media in traditional business
lines. Roughly 1,250 firms in Manhattan belong to the new media industry, and
employment growth is expected to be a dramatic 30% per year through 1998. This
industry is expected to become a major growth sector in the Manhattan economy
for several reasons: (i) the focus of interactive media development is shifting
from CD-ROM to the World Wide Web, the authoring technology of which has been
more available to content creators; (ii) Manhattan is the home for many major
media companies (broadcast, cable TV networks, magazine and book publishing) and
these companies are moving the new media industry from experimentation to a more
mainstream role in multiple-media strategies; and (iii) Manhattan is the center
of the advertising industry, and advertising revenue is increasingly one of the
key drivers of the new media industry. Strong growth in the new media industry
will have major multiplier effects for the overall Manhattan economy. The direct
benefits of growth in this industry will flow to business services and to the
broadcast, publishing and advertising industries, all of which are concentrated
in Manhattan.
Rosen Consulting Group 7
<PAGE>
Other important components of the service sectors are legal services,
engineering and management services and membership organizations. Together,
these three subsectors added about 8,200 jobs between March of 1996 and 1997,
many of which occupy office space (see Table 4). Legal services is the third
most highly concentrated industry in the New York metropolitan area (see Table
5). According to the National Law Journal, 64 of the 100 largest law firms have
a presence in Manhattan, and 27 of those firms are based in Manhattan. In
addition, hundreds of other domestic and international law firms are located in
Manhattan. In the engineering and management services sector, four of the Big
Six accounting firms have their national headquarters in Manhattan, and many of
the worlds foremost management consulting firms are located in Manhattan. In
addition, about 20,000 nonprofit organizations are based in New York City,
ranging from cultural groups and trade associations to research facilities.
TABLE 4 [TABLE Regarding New York MSA Services Sector Employment - Absolute
Growth from 1988 through March 1997]
Table 4
New York MSA Services Sector Employment-Absolute Growth (000)
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994 1995 1996 Mar 97
---- ---- ---- ---- ---- ---- ---- ---- ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Services 1272.7 1304.8 1309.6 1252.9 1249.0 1275.1 1310.5 1350.6 1401.1 1435.9
% Change 16.9 32.1 4.8 (56.7) (3.9) 26.1 35.4 40.1 50.5 46.6
Business Services 289.1 292.6 278.6 243.0 233.9 240.2 248.4 254.7 273.7 285.2
% Change (36.1) 3.5 (14.0) (35.6) (9.1) 6.3 8.2 6.3 19.0 16.5
Health Services 286.3 295.0 305.2 318.6 328.7 338.9 346.3 356.6 362.5 385.8
% Change 9.2 8.7 10.2 13.4 10.1 10.2 7.4 10.3 5.9 6.0
Social Services 130.9 135.7 142.3 146.0 153.3 159.6 166.0 169.4 171.7 173.7
% Change 2.7 4.8 6.6 3.7 7.3 6.3 6.4 3.4 2.3 2.4
Engin. & Mgmt. Svcs. 109.6 114.0 113.7 100.9 98.4 100.3 102.9 106.0 111.1 114.4
% Change 4.4 (0.3) (12.8) (2.5) 1.9 2.6 3.1 5.1 6.3
Educational Services 112.7 114.3 115.0 111.3 109.7 110.6 114.2 121.5 130.2 140.9
% Change 4.6 1.6 0.7 (3.7) (1.6) 0.9 3.6 7.3 8.7 4.3
Legal Services 74.9 79.8 80.9 76.5 74.6 74.4 73.8 72.7 73.1 73.1
% Change 3.0 4.9 1.1 (4.4) (1.9) (0.2) (0.6) (1.1) 0.4 1.0
Membership Orgs. 62.4 63.1 63.5 61.6 61.1 61.7 62.1 63.0 64.4 65.7
% Change 1.3 0.7 0.4 (1.9) (0.5) 0.6 0.4 0.9 1.4 0.9
Hotels & Lodging 38.2 39.3 38.8 35.7 35.7 35.1 35.7 36.7 37.1 36.9
% Change 1.5 1.1 (0.5) (3.1) 0.0 (0.6) 0.6 1.0 0.4 0.7
Amusement & Recr. 51.6 54.1 55.4 51.1 51.3 47.7 45.5 47.9 49.5 49.6
% Change 6.1 2.5 1.3 (4.3) 0.2 (3.6) (2.2) 2.4 1.6 3.2
Motion Pictures 23.7 24.6 25.9 25.2 21.9 25.9 34.2 38.2 41.2 43.7
% Change 0.9 1.3 (0.7) (3.3) 4.0 8.3 4.0 3.0 3.3
</TABLE>
Sources: Bureau of Labor Statistics, Rosen Consulting Group (RCG)
Rosen Consulting Group 8
<PAGE>
TABLE 5 [TABLE Regarding New York MSA Location Quotients (which measures the
regional concentration of employment in a particular industry)]
Table 5
New York MSA Location Quotients
Sector Location Quotient*
- ------ ------------------
Security and Commodity Brokers 8.59
Apparel and Other Textile Products 2.68
Legal Services 2.43
Motion Pictures 2.43
Social Services 2.22
Educational Services 2.02
Depository Institutions 1.99
Local and Interurban Passenger Transit 1.93
Miscellaneous Manufacturing Industries 1.91
Printing and Publishing 1.65
Communications 1.55
Apparel and Accessory Stores 1.46
Total Local Government 1.23
Engineering & Management Services 1.19
Business Services (Incl. advertising, software & temp. workers) 1.18
Health Services 1.17
Insurance Carriers 1.16
Wholesale Trade 1.02
Amusement & Recreation Services 1.01
* A location quotient measures the regional concentration of employment in a
particular industry. If employment in an industry were evenly distributed
throughout the U.S., a region's location quotient would be 1.0. Mathematically,
it is defined as the ratio of the percentage of total employment in industry X
in a given region divided by the percentage of total employment in industry x
nationally.
Sources: U.S. Bureau of Labor Statistics, Rosen Consulting Group (RCG)
Motion pictures is another highly concentrated industry in the New York
metropolitan area. This is an export-oriented industry that has a large
multiplier affect on the local economy. Among the largest employers in New York
City are several major media and broadcasting companies, including Time Warner,
Westinghouse Electric, which owns CBS, and Walt Disney Company, which owns
Capital Cities/ABC (see Table 6). The motion picture industry alone added 19,300
new jobs between 1992 and 1996 in the New York MSA, representing stunning growth
averaging 17.1% per year.
The amusement and recreation services sector and hotel and lodging industry both
benefit from tourism and visitor spending. New York has a plethora of theater
and performing arts, which fuels growth in amusement and recreation. It is home
to some of the world's most famous museums, including the Metropolitan Museum of
Art, the Museum of Modern Art, the Guggenheim Museum, the Whitney Museum and the
Museum of Natural History. In the tourism industry, during 1996, total visitor
volume increased 1.8% to 30.3 million people, following growth of 3.0% during
1995. Visitor spending rose 5.4% to about $13 billion in 1996. This represents
roughly 3.8% of the gross city product of $343.1 billion. Visitor volume and
spending has benefited substantially from the dramatic decline in crime in
Rosen Consulting Group 9
<PAGE>
Table 6 [Table listing New York City's Top Employers by Employees]
Table 6
New York City Top Employers
Rank Firm Employees Sector
- ---- ---- --------- ------
1 Chase Manhattan Corp. 31,000 Banking
2 NYNEX Corp. 25,000 Telecommunications
3 Citicorp 19,000 Banking
4 Columbia University 14,800 Education
5 Consolidated Edison of NY 14,700 Utility
6 New York University 14,000 Education
7 Travelers Group 12,000 Insurance/Financial
8 Time Warner, Inc. 10,400 Media
9 Merrill Lynch & Company 8,900 Financial Services
10 Bank of New York 8,600 Banking
11 New York Times 8,200 Publisher
12 American Airlines 7,900 Airline
13 J.P. Morgan & Company 7,200 Financial Services
14 Bankers Trust New York 7,150 Banking
15 Morgan Stanley 5,800 Financial Services
15 Bear Stearns 5,800 Financial Services
16 Lefrak Organization 5,700 Real Estate Developer
17 Walt Disney Company 5,500 Entertainment
18 Metropolitan Life Insurance Co. 5,150 Insurance
19 American International Group 4,950 Insurance
20 Federated Department Stores 4,900 Retail
20 Equitable Companies 4,900 Insurance/Financial
21 Westinghouse Electric Corp. 4,800 Broadcasting
Source: ND International Trade
New York City over the past three years. Reflecting the strength of visitor
spending, the hotel and lodging industry is enjoying strong revenue growth.
Hotel occupancy was up to 81.5% in 1996 from 79.5% in 1995 and the average daily
room rate rose 10% to $170.50 during 1996 (see Figures 4 and 5). The number of
hotel room nights filled grew from 14.8 million in 1993 to 17.6 million in 1996,
representing a gain of 6% per year (see Figure 6).
While health, social and educational services re mainly population-serving and
thus do not create many office-occupying jobs, they contribute to growth in New
Yorks economy. Health services added about 6,000 jobs between March of 1996 and
1997, even though growth in this sector has been tempered in recent years by
restructuring in the Citys public and private health industry. Among the leading
medical facilities in Manhattan area Columbia-Presbyterian and Cornell Medical
Centers and Memorial Sloan-Kettering Cancer Center. Manhattan is also home to
several internationally recognized universities, including Columbia University,
New York University, Rockefeller University and Fordham University. These and
other local institutes graduate thousands of students each year, creating a
large, high-level professional talent pool for New York employers.
Rosen Consulting Group 10
<PAGE>
CHART 4 [Bar chart regarding New York City Hotel Occupancy Rates from 1990
through 1996]
Chart 5 [Bar chart regarding New York City Average Daily Hotel Rate for 1990
through 1996]
Chart 6 [Bar chart regarding New York City Hotel Room Nights Filled from 1991
through the forecast for 1997]
Rosen Consulting Group 11
<PAGE>
The Trade Sector
In absolute numbers, the trade sector is the second largest and fastest growing
part of the metropolitan economy, with a gain of 8,800 jobs during the year
ended in March 1997 for a 1.3% growth rate. About 68% of the metropolitan areas
trade jobs are in the retail sector, where growth was an even stronger 2.2%
during the 12 months ended in March of 1997. The retail industry has benefited
from improved city services, reduced crime and an increase in the number of
visitors and their spending volume. The improved health of the New York economy
has stimulated spending by locals, and with about 169,000 households with income
exceeding $150,000 per year, many New York City residents have significant
disposable income with which to purchase goods and services. Increased spending
by locals combined with a higher level of visitor spending caused retail sales
growth in New York City to average 3.2% between 1994 and 1996, following four
years of declining retail sales (see Figure 7).
Chart 7 [Chart regarding New York City's Annual Percent Change in Retail Sales
from 1967 through 1996]
Attesting to the strength of the retail trade sector, a number of retailers are
expanding in New York City and are adding new employees. Not only are big box
discount retailers establishing a niche, but upscale designers are opening
outlets. Kmart has opened stores on 34th Street west of 7th Avenue and at Astor
Place in the North of Houston Street (NoHo) area. Upscale designers and
manufacturers, such as Calvin Klein, Armani and Valentino, are also opening
retail stores. Demand from designers has reportedly caused rents on Madison
Avenue to rise 15% during each of the past three years to more than $300 per
square foot per year. In some cases, rents are $400 per square foot per year on
upper Madison Avenue and $500 per square foot on Fifth Avenue. Retail
development is also moving into the downtown and Times Square areas. In
downtown, Borders Books and Music has a new store in the World Trade Center, and
in the Times Square area, Forest City/Ratner is building a 25-screen AMC
multiplex with a Madame Tussauds Wax museum that will contain 325,000 square
feet of retail space. Next to this project, Disney has redeveloped the New
Amsterdam Theatre. Also in the Times Square area, the Ford Motor Company will
open a new 1,839-seat theater called the Ford Center for Performance Arts in the
first quarter of 1998.
Rosen Consulting Group 12
<PAGE>
In addition, Tishman Urban Development is building the 193,000 square-foot
E-Walk retail complex in Times Square, and as part of the E-Walk project, Disney
plans to build a 45-tory hotel. The redevelopment of Times Square is expected to
eventually create 20,000 jobs and to generate significant new taxes.
Finance, Insurance and Real Estate Employment
Following several years of acquisitions and mergers in the commercial banking
industry, employment in the metropolitan areas overall finance, insurance and
real estate (FIRE) sector has turned the corner, with a 0.9% gain between March
of 1996 and 1997. Half of New York Citys top 23 employers are financial
institutions (see Table 6). According to Pensions and Investments magazine, four
of the ten largest money managers in the United States, ranked by total assets,
are based in Manhattan, and the Securities Industry Association reports that 23
of the 25 largest U.S. securities firms are based in Manhattan. In addition,
according to The American Banker, three of the nations top four commercial banks
are based in Manhattan.
Consolidation has occurred among some FIRE sector industries, including
commercial banks and insurance companies. Commercial banks have consolidated to
be competitive with non-bank institutions that now offer bank-like depository
and lending services. For example, the merger of Chase Manhattan Bank and
Chemical Banking Corporation is causing the loss of 4,000 jobs in the greater
New York area. Because many of these jobs are retail banking jobs, such as
tellers, the effect on the office market has been minimized. On a positive note
for the FIRE sector, the consolidation of commercial banks has created a much
more competitive set of players in New York City, and in some cases,
consolidation of FIRE sector employers has translated to new jobs for New York
City. The consolidation of Mutual of New Yorks operations has resulted in the
relocation of 350 jobs to New York City. Other companies in the FIRE sector,
specifically international banks, are increasing their presence in Manhattan.
Foreign financial institutions, such as Deutsche Bank and UBS Securities, have
been hiring aggressively in Manhattan.
The securities industry represents 4% of the overall employment base in the
metropolitan area. Although it represents only a small part of the economy, this
industry is highly concentrated in the New York metropolitan area, and many of
the worlds most active underwriters are based in Manhattan or have a strong
presence there. Others, such as San Francisco-based Montgomery Securities, have
fairly recently established a presence in Manhattan. Wall Street accounts for
almost 14% of the citys total wages. Because per person wages on Wall Street
average $150,000, the multiplier effect of these jobs on other employment
sectors is large. The number of jobs in the securities and commodities brokers
employment sector in the New York metropolitan area increased an average of 2.7%
per year between 1991 and 1996, rising from a recession trough of 131,500 in
1991 to 152,800 jobs in March of 1997. Growth in this industry was instrumental
in turning the New York metropolitan economy around following the recession in
the early 1990s.
The securities industry has been very strong, and the recent acceleration of
initial public offerings and other investment banking activities should lead to
additional growth in this industry. In the long term, both the finance and
secuities industries will contribute to local economic growth because of New
Yorks position as an international center of finance and securities innovation.
The Transportation, Communications, Public Utilities and Manufacturing Sectors
Employment in the New York metropolitan areas transportation, communications and
public utilities (TCPU) sector increased 1.5% between March of 1996 and 1997.
The communications part of this sector has been affected by the merger of
several Bell operating companies across the nation, the merger of cable and
entertainment firms, of publishers and broadcasters and of broadcasters and
entertainment firms. Some of the mergers have resulted in new jobs for the New
York metropolitan area as companies consolidate operations from other cities.
For example, the combined Bell Atlantic and Nynex will be headquartered in New
York City.
The New York metropolitan area has gradually shed manufacturing jobs. Because
New York is an
Rosen Consulting Group 13
<PAGE>
urban center with high operating costs and difficult transportation access, it
is an unfavorable site for manufacturing, and many traditional manufacturers
have relocated. Both textiles and publishing have moved out of the city. Many
manufacturing firms have returned a large volume of industrial space to the
market, with such space gradually being converted to office or residential uses.
An increasing proportion of the manufacturing jobs in New York are actually
white-collar management or staff positions.
The Public Sector
New York Citys government is reinventing itself. About 78% of the metropolitan
areas total government employment is in local government, and the remaining 22%
is state and federal government employment. Intense efforts to streamline the
government and to provide services more efficiently have caused local government
employment to decline by about 53,300 jobs, or 10.0%, between 1990 and March of
1997.
The strong growth in private sector employment, coupled with a much more
disciplined approach to city services and expenditures, have resulted in both a
greatly improved outlook for New York Citys budget and higher quality of city
services. In May, Mayor Giuliani announced a New York City budget surplus of
$856 million for the fiscal year ending June 30, 1997. This increase in revenues
comes in spite of reduced taxes. Among the taxes that have been reduced or
eliminated are the commercial occupancy tax (on tenants), taxes on
proprietorships and partnerships, hotel occupancy taxes, transfer taxes and
gains taxes.
The overall business climate in New York has improved significantly as a result
of both private sector initiatives and public sector programs. The most visible
private sector initiatives have been the Business Improvement Districts (BIDs).
A BID is formed by a group of employers in a geographic area with the express
purpose of improving the business environment in the area through heightened
security, improved street cleaning and lighting and other business-enhancing
services. Following on the success of three large BIDs in the Grand Central
Terminal, Penn Station and Times Square areas, approximately 33 additional BIDs
in New York City have been created.
In addition, a number of public sector efforts have been launched to improve New
York Citys business environment, specifically to retain the existing base of
employers and attract additional employers. For example, the New York Economic
Development Department has been involved with 23 transactions since mid-1994,
amounting to the retention of 55,482 jobs as of November of 1996. Most recently,
in April of 1997, Standard & Poor's Corporation agreed to keep its 2,057
employees in Manhattan through the year 2019 in exchange for a package of tax
incentives and energy discounts.
Rosen Consulting Group 14
<PAGE>
New York also has a large diplomatic community, affiliated with the United
Nations and local consulates. A report published by the New York City Commission
for the United Nations and Consular Corps reported that the United Nations
Headquarters, Agencies, Missions and Consulates spent about $1.5 billion in the
New York metropolitan area during 1994 with an indirect impact of $3 billion.
New York City also hosts the largest Consulate community in the world, which
attracts private sector foreign businesses. The large diplomatic community
contributes to New York's position as an important international center of
business and politics.
Employment Outlook
The outlook for the New York metropolitan economy is strong. Private sector
employment in the metropolitan area will grow at a 1.3% rate in 1997 and 1998
and will continue to increase at about 1.0% annually through 2001 (see Table 7).
The strong growth of the national economy will fuel activity in the finance
sector, which includes the securities industry. However, much of the growth will
continue to occur in the services sector, especially in industries such as
advertising, law, software, motion pictures, hotels and tourism. Specifically,
because of the large number of corporate headquarters in New York and the citys
position as the center for much of the intellectual and creative aspects of
business, local business services such as advertising will benefit
disproportionately from continued strong growth in the national economy. Strong
growth in small businesses, such as those in the new media industry, will
further enhance the growth prospects for business services and, generally, other
industries which provide services to businesses.
Table 7 [Table regarding New York MSA Employment Forecast from 1995 through the
forecast for 2001]
Table 7
New York MSA Employment Forecast (000)
<TABLE>
<CAPTION>
1995 1996 1997f 1998f 1999f 2000f 2001f
---- ---- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Total Nonagricultural 3820.3 3857.7 3898.6 3942.6 3982.7 4012.5 4047.0
% Change 1.0% 1.1% 1.1% 1.0% 0.7% 0.9%
Construction & Mining 112.1 114.2 114.2 112.9 112.3 112.6 113.3
% Change 1.9% 0.0% -1.1% -0.6% 0.3% 0.6%
Manufacturing 328.9 318.5 309.6 302.8 296.7 292.0 286.7
% Change -3.2% -2.8% -2.2% -2.0% -1.6% -1.8%
T.C.P.U 228.9 230.5 230.7 230.7 231.4 231.9 231.7
% Change 0.7% 0.1% 0.0% 0.3% 0.2% -0.1%
Trade 667.6 673.7 675.0 679.1 683.9 685.9 688.6
% Change 0.9% 0.2% 0.6% 0.7% 0.3% 0.4%
F.I.R.E. 505.5 504.1 506.6 509.2 511.7 512.7 514.3
% Change -0.3% 0.5% 0.5% 0.5% 0.2% 0.3%
Services 1350.6 1401.1 1448.7 1493.6 1532.5 1563.1 1597.5
% Change 3.7% 3.4% 3.1% 2.6% 2.0% 2.2%
Total Private 3193.8 3242.2 3284.9 3328.3 3368.4 3398.2 3432.1
% Change 1.5% 1.3% 1.3% 1.2% 0.9% 1.0%
Government 626.5 615.5 613.7 614.3 614.3 614.3 614.9
% Change -1.8% -0.3% 0.1% 0.0% 0.0% 0.1%
</TABLE>
Sources: Bureau of Labor Statistics, Rosen Consulting Group (RCG)
Rosen Consulting Group 15
<PAGE>
The Office Market
Summary
Manhattan is the largest office market in the country, with an overall stock of
more than 375 million square feet in the Midtown, Midtown South and Downtown
submarkets. The amount of space in Manhattan exceeds the combination of the next
six largest central business districts in the nation, those of Chicago, the
District of Columbia, Boston, San Francisco, Philadelphia and Los Angeles.
Within Manhattan, 45.7% of the space is classified as Class B space (see Table
8)*. Almost 74% of the Class B space is located in the Midtown and Midtown South
submarkets combined, and about one fourth of the Class B space located in
Downtown**.
TABLE 8 [Table regarding Mahattan Office Market Overview Showing Class A and B
stock, Class A and B 1st Quarter Vacancy Rates and 1st Quarter Rents per square
foot, for different areas of Mahattan]
- --------------------------------------------------------------------------------
Table 8
Manhattan Office Market Overview
% of Stock 1Q97 Vacancy Rate 1Q97 Rent/SF
----------------- ----------------- -----------------
Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- -------
MT + MTS 70.2% 73.9% 10.6% 11.7% $35.49 $23.88
Midtown (MT) 67.9% 48.3% 10.4% 11.6% $35.93 $25.87
Midtown South (MTS) 2.4% 25.7% 17.2% 11.9% $27.84 $20.21
Downtown 29.8% 26.1% 15.2% 18.0% $28.54 $21.94
Total 54.3%* 45.7%* 12.0% 13.3% $32.87 $23.20
* Represents proportion of total Class A + Class B Stock
Sources: RELocate, Rosen Consulting Group (RCG)
- --------------------------------------------------------------------------------
Improved job growth in recent years, resulting from the recovery of the national
and New York metropolitan economies, has caused office market conditions in
Manhattan to strengthen. The overall Class B vacancy rate fell from 17.8% in
1992 to 13.3% in the first quarter of 1997, a rate that is only modestly higher
than the Class A vacancy rate of 12.0% (see Table 9). At 11.6%, Midtown has the
lowest Class B vacancy rate, followed by Midtown South, with an 11.9% Class B
vacancy rate. When combined, the first quarter 1997 Class B vacancy rate for
Midtown and Midtown South is 11.7%. Contributing to demand in the Midtown area
are existing Midtown Manhattan businesses that are expanding, as well as some
traditional Downtown tenants, such as banks and securities firms, which have
moved to Midtown in search of greater amentiies and improved access to
transportation.
Rosen Consulting Group 16
<PAGE>
Table 9 [Table regarding Summary of Manhattan Office Market Vacancy Rates for
1991 through the forecast for 2001]
Table 9
<TABLE>
<CAPTION>
Summary of Manhattan Office Market Vacancy Rates
1991 1992 1993 1994 1995 1996 1Q97 1997f 1998f 1999f 2000f 2001f
---- ---- ---- ---- ---- ---- ---- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class B
Total 17.0% 17.8% 17.4% 15.6% 15.1% 13.1% 13.3% 11.6% 10.4% 9.4% 8.6% 7.7%
MT + MTS 15.7% 17.3% 16.4% 14.0% 12.8% 11.5% 11.7% 9.9% 8.8% 7.7% 6.9% 6.0%
Midtown (MT) 15.0% 16.8% 15.9% 14.2% 12.9% 11.3% 11.6% 9.8% 8.6% 7.5% 6.7% 5.8%
Midtown South (MTS) 17.1% 18.1% 17.4% 13.7% 12.8% 11.9% 11.9% 10.3% 9.1% 8.1% 7.3% 6.4%
Downtown 20.7% 19.3% 20.3% 20.2% 21.3% 17.8% 18.0% 16.2% 15.0% 14.0% 13.2% 12.3%
Class A
Total 18.1% 15.7% 14.8% 14.8% 15.2% 13.3% 12.0% 11.0% 9.3% 8.4% 7.7% 6.8%
MT + MTS 17.8% 14.4% 13.2% 13.6% 14.6% 12.2% 10.6% 9.9% 8.2% 7.6% 7.1% 6.4%
Midtown (MT) 18.3% 14.8% 13.6% 12.1% 14.3% 12.0% 10.4% 9.7% 7.9% 7.4% 6.9% 6.3%
Midtown South (MTS) 3.4% 2.6% 2.7% 55.9% 23.1% 18.6% 17.2% 16.2% 14.5% 13.0% 11.8% 10.5%
Downtown 18.8% 18.9% 18.5% 17.5% 16.8% 15.9% 15.2% 13.6% 11.9% 10.3% 9.2% 7.9%
</TABLE>
Sources: RELocate, Rosen Consulting Group (RCG)
During the next several years, overall market conditions will tighten further,
Class A rents will rise, and tenants will have fewer options for available Class
A space. As a result, we anticipate that demand for Class B space will increase,
especially in buildings with modern infrastructure and good locations, but which
offer rents that are less expensive than those in the Class A market. Additional
demand, combined with a lack of new construction for the near term, leads us to
believe that the overall Manhattan Class B vacancy rate will fall to 7.7% by
2001 and that the Class B vacancy rate in the combined area of Midtown and
Midtown South will fall to 6.0% by 2001 (see Table 10).
Rosen Consulting Group 17
<PAGE>
Table 10 [Table regarding Manhattan Class B Office Market Trends from 1991
through the forecast for 2001]
Table 10
<TABLE>
<CAPTION>
Manhattan Class B Office Market Trends (000)
1991 1992 1993 1994 1995 1996 1Q97 1997f 1998f 1999f
---- ---- ---- ---- ---- ---- ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Manhattan
Total Stock 172,940 172,940 173,028 173,028 173,028 173,028 173,028 173,028 173,028 173,028
New Construction 185 0 88 0 0 0 0 0 0 0
Net Absorption (1,342) 666 3,105 1,008 3,304 (341) 2,708 2,050 1,800
Occupied Stock 143,542 142,200 142,866 145,971 146,979 150,283 149,942 152,991 155,041 156,841
Vacancy Rate 17.0% 17.8% 17.4% 15.6% 15.1% 13.1% 13.3% 11.6% 10.4% 9.4%
Avg. Asking Rent $ 23.21 $ 22.23 $ 22.15 $ 22.02 $ 22.32 $ 22.54 $ 23.20 $ 23.44 $ 24.31 $ 25.47
% Charge -4.2% -0.4% -0.6% 1.4% 1.0% 4.0% 3.7% 4.8%
Midtown + Midtown South
Total Stock 127,829 127,829 127,917 127,917 127,917 127,917 127,917 127,917 127,917 127,917
New Construction 185 0 88 0 0 0 0 0 0 0
Net Absorption (1,978) 1,144 3,032 1,532 1,711 (246) 2,002 1,515 1,331
Occupied Stock 107,755 105,777 106,921 109,954 111,485 113,197 112,951 115,199 116,714 118,045
Vacancy Rate 15.7% 17.3% 16.4% 14.0% 12.8% 11.5% 11.7% 9.9% 8.8% 7.7%
Avg. Asking Rent $ 23.17 $ 22.24 $ 21.89 $ 22.15 $ 22.78 $ 23.00 $ 23.88 $ 24.11 $ 25.22 $ 26.68
% Charge -4.0% -1.6% 1.2% 2.8% 1.0% 4.8% 4.6% 5.8%
Midtown
Total Stock 83,436 83,436 83,524 83,524 83,524 83,524 83,524 83,524 83,524 83,524
New Construction 185 0 88 0 0 0 0 0 0 0
Net Absorption (1,552) 833 1,403 1,128 1,303 (251) 1,307 990 869
Occupied Stock 70,954 69,402 70,235 71,638 72,766 74,069 73,818 75,376 76,366 77,234
Vacancy Rate 15.0% 16.8% 15.9% 14.2% 12.9% 11.3% 11.6% 9.8% 8.6% 7.5%
Avg. Asking Rent $ 26.29 $ 25.25 $ 24.86 $ 24.78 $ 25.42 $ 25.05 $ 25.87 $ 26.31 $ 27.58 $ 29.23
% Charge -4.0% -1.5% -0.3% 2.6% -1.5% 5.0% 4.8% 6.0%
Midtown South
Total Stock 44,393 44,393 44,393 44,393 44,393 44,393 44,393 44,393 44,393 44,393
New Construction 0 0 0 0 0 0 0 0 0 0
Net Absorption (426) 311 1,629 404 408 4 695 526 462
Occupied Stock 36,802 36,376 36,686 38,316 38,720 39,128 39,132 39,823 40,349 40,811
Vacancy Rate 17.1% 18.1% 17.4% 13.7% 12.8% 11.9% 11.9% 10.3% 9.1% 8.1%
Avg. Asking Rent $ 18.05 $ 16.97 $ 16.77 $ 17.01 $ 17.77 $ 19.31 $ 20.21 $ 20.18 $ 21.05 $ 22.19
% Charge -6.0% -1.2% 1.4% 4.5% 8.7% 4.5% 4.3% 5.4%
</TABLE>
2000f 2001f
----- -----
Total Manhattan
Total Stock 173,028 173,028
New Construction 0 0
Net Absorption 1,358 1,554
Occupied Stock 158,199 159,753
Vacancy Rate 8.6% 7.7%
Avg. Asking Rent $ 26.89 $ 28.58
% Charge 5.5% 6.3%
Midtown + Midtown South
Total Stock 127,917 127,917
New Construction 0 0
Net Absorption 1,004 1,149
Occupied Stock 119,049 120,198
Vacancy Rate 6.9% 6.0%
Avg. Asking Rent $ 28.42 $ 30.53
% Charge 6.5% 7.4%
Midtown
Total Stock 83,524 83,524
New Construction 0 0
Net Absorption 656 750
Occupied Stock 77,890 78,640
Vacancy Rate 6.7% 5.8%
Avg. Asking Rent $ 31.21 $ 33.59
% Charge 6.8% 7.7%
Midtown South
Total Stock 44,393 44,393
New Construction 0 0
Net Absorption 348 399
Occupied Stock 41,159 41,558
Vacancy Rate 7.3% 6.4%
Avg. Asking Rent $ 23.57 $ 25.24
% Charge 6.2% 7.1%
Sources: Historical data on construction, vacancy & rents- RELocate;
Calculations and forecasts- RCG.
Demand Analysis
In order to capture the actual demand in the Manhattan Class B office market, we
have utilized three measures (see Table 11). The first is gross leasing
activity, which involves summing up all the leases signed in the market. This
measures all leases, including renewals of existing leases and relocations
within the market and, as a result, may lead to some double counting of space.
It also includes pre-leasing of space in new buildings. However, it is a good
measure of the overall health of the office marketplace. A second measure,
derived from the vacancy rate, is calculated net absorption. Calculated net
Rosen Consulting Group 18
<PAGE>
absorption is a constructed data series created by examining the change in
occupied stock. The change in occupied stock is, in turn, created by multiplying
the occupancy rate (1- vacancy rate) by the total stock of space. It must be
emphasized that this is a constructed data series to approximate historical net
absorption. It is the best measure of net demand for office space. The third
measure of office space demand is constructed from employment growth and is used
to forecast office space demand. Specifically, job growth by office-using
sectors is multiplied by an office space utilization factor, in this case 200
square feet per person for Class B space and 175 square feet per person for
Class A space, to produce a forecasted net absorption of office space. All three
measures of demand, gross leasing activity, calculated net absorption, and
forecasted net absorption, must be viewed as proxies for demand because there
are no official numbers to measure demand.
Table 11 [Table regarding Calculated/Forecasted Net absorption and Gross Leasing
Activity Summary from 1992 through the forecast for 2001]
Table 11
Calculated/Forecasted Net Absorption and Gross Leasing Activity Summary
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997f 1998f 1999f 2000f 2001f
---- ---- ---- ---- ---- ----- ----- ----- ----- -----
Calculated/Forcasted Net Absorption
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class B
Total (1,342) 666 3,105 1,008 3,304 2,708 2,050 1,800 1,358 1,554
MT + MTS (1,978) 1,144 3,032 1,532 1,711 2,002 1,515 1,331 1,004 1,149
Midtown (1,552) 833 1,403 1,128 1,303 1,307 990 869 656 750
Midtown South (426) 311 1,629 404 408 695 526 462 348 399
Downtown 636 (478) 72 (523) 1,592 706 534 469 354 405
Class A
Total 4,828 2,343 14 (944) 3,890 4,740 3,588 3,150 2,377 2,720
MT + MTS 4,883 2,105 (572) (1,408) 3,370 3,329 2,520 2,212 1,669 1,910
Midtown 4,848 2,107 2,006 (2,995) 3,149 3,217 2,435 2,138 1,613 1,846
Midtown South 35 (2) (2,578) 1,587 222 112 85 74 56 64
Downtown (55) 238 587 465 520 1,411 1,068 938 708 810
Gross Leasing Activity
Total 22,077 26,788 22,680 28,524
Class B 10,722 12,516 10,654 12,876
MT + MTS 8,651 10,439 9,016 10,349
Midtown 5,749 6,850 6,139 6,997
Midtown South 2,902 3,589 2,878 3,352
Downtown 2,071 2,077 1,637 2,527
Class A 11,354 14,271 12,026 15,647
MT + MTS 8,618 11,127 9,322 12,227
Midtown 8,562 11,067 8,175 11,560
Midtown South 57 60 1,146 667
Downtown 2,736 3,145 2,705 3,420
</TABLE>
Sources: RELocate, Rosen Consulting Group (RCG)
- ----------
* Class B space generally meets 3-4 of the following criteria, while Class A
space meets at least 5: geographic location-prominence of area: age of
building-those built after 1975; tenant roster-industry leaders occupy a
significant amount of space; building size-in excess of 250,000 square feet;
average asking rent-consistently above the area's average; amenities-including
concierge and security. Examples of Class B buildings include the Graybar
Building, the Kent Building, the Lincoln Building, the Fred French Building,
Five and Seven Penn Plaza and 14 Wall Street.
** Midtown is defined as the north side of 32nd Street to 62nd Street, East
River to the Hudson River. Midtown South is defined as Canal Street to the South
Side of 32nd Street, East River to the Hudson River. Downtown is defined as
Battery to Canal Street, East River to the Hudson River.
Rosen Consulting Group 19
<PAGE>
As Figures 8 and 9 show, gross leasing activity in Manhattan has been strong
during the past several years. Between 1993 and 1996, gross leasing activity for
the overall office market averaged 25 million square feet per year, and first
quarter 1997 activity indicates that 1997 will be another strong year for
leasing activity. This leasing activity signifies that the Manhattan office
market is healthy.
Chart 8 [Bar chart regarding Gross Leasing Activity for Manhattan Class A Office
from 1993 through the 1st quarter of 1997]
Chart 9 [Bar chart regarding Gross Leasing Activity for Manhattan Class B Office
from 1993 through the 1st quarter of 1997]
Leasing activity for both Class A and B space is strongest in Midtown (see
Figures 10 to 15). Traditional downtown tenants, such as banks and securities
firms, have moved and are continuing to move to Midtown locations because they
believe that Midtown amenities, such as a location that is more easily
accessible to many employees, outweigh the cost savings of Downtown locations.
Other tenants generating strong demand for Midtown office space include those in
the advertising, printing and publishing, legal services, and communications
industries. Among the largest Midtown leases during 1996 were pre-leases by
publisher Conde Nast and the law firm of Skadden, Arps, Slate Meagher & Flom at
the new Four Times Square building. The lease rates on these transactions were
not high enough to justify the construction. Rather, they reflect the financial
incentives that the developer, the Durst Organization, received.
In Midtown South, gross leasing activity increased during 1996 and is likely to
strengthen further during 1997. Midtown South is largely a market of Class B
space. It is becoming more desirable because it offers less expensive office
space than Midtown and an improving quality of life as older buildings are
renovated and neighborhoods improve. In fact, Class B space in the Midtown South
area with good infrastructure is performing better than the overall Class B
market. In addition to its traditional base of small companies, Midtown South is
increasingly attracting back office operations and even primary office
operations of companies that are finding it difficult to locate large blocks of
contiguous space in Midtown. The most significant Midtown South transaction to
occur in recent years has been the move of Credit Suisse First Boston to 11
Madison Avenue. Credit Suisse First Boston has consolidated several Manhattan
offices into more than 1.6 million square feet in the building, which had been
vacated by Metropolitan Life Insurance during 1994. Other tenants signing large
leases at 11 Madison Avenue are Alexander & Alexander Services, Wells, Rich and
Green, and Emanuel/Emanuel Ungaro. As buildings such as 11 Madison Avenu are
renovated to accommodate these "name" tenants, they have been reclassified as
Class A space. In addition, moves by these "name" tenants are spurring other
tenants to consider Midtown South locations.
Rosen Consulting Group 20
<PAGE>
Chart 10 [Bar Chart regarding Class A Net Absorption for Midtown & Midtown South
from 1992 through the forecast for 2001]
Chart 11 [Bar Chart regarding Class B Net Absorption for Midtown & Midtown South
from 1992 through the forecast for 2001]
Chart 12 [Bar Chart regarding Class A Net Absorption for Midtown Manhattan from
1992 through the forecast for 2001]
Chart 13 [Bar Chart regarding Class B Net Absorption for Midtown Manhattan from
1992 through the forecast for 2001]
Chart 14 [Bar Chart regarding Class A Net Absorption for Midtown South from 1992
through the forecast for 2001]
Chart 15 [Bar Chart regarding Class B Net Absorption for Midtown South from 1992
through the forecast for 2001]
Chart 16 [Bar Chart regarding Class A Net Absorption for Downtown Manhattan from
1992 through the forecast for 2001]
Chart 17 [Bar Chart regarding Class B Net Absorption for Downtown Manhattan from
1992 through the forecast for 2001]
Rosen Consulting Group 21
<PAGE>
Efforts to revitalize Downtown New York are beginning to pay off. The Downtown
Commercial Revitalization Program offers a mix of commercial rent tax, real
estate tax, and energy expense relief to tenants who sign new or renew leases in
buildings constructed before 1975. Another part of the program generating
significant activity is the incentive to encourage the conversion of older,
obsolete buildings to residential use. Most tenants considering Downtown are
financial services companies, high tech start-up companies, and large tenants
that have been forced out of Midtown by lack of available space. For example,
numerous new media and high tech companies have leased space at 55 Broad Street,
which has been transformed into the New York Information Technology Center.
Going forward, Downtown office market conditions will strengthen as obsolete
space is renovated and converted to other uses. In addition, as old office space
is converted to residential uses, Downtown will become more of a 24-hour city,
which will make it more attractive to office users and will also contribute
further to the areas revitalization.
In recent years, strong growth in business services and the stabilization of the
commercial banking industry have fueled net absorption throughout the office
market. Office demand growth surged in 1996, causing calculated net absorption
in Manhattan for the overall market to surpass 7.1 million square feet. About
3.3 million square feet, or about 46%, of this absorption occurred in Class B
buildings (see Table 11 on page 19). Class B overall net absorption was negative
during the first quarter of 1997, but we do not believe that this creates cause
for concern.
Rosen Consulting Group 22
<PAGE>
Forecasted Demand Analysis
Forecasted net absorption is based on the number of office occupying jobs
created. As Table 12 shows, FIRE sector employment growth was slightly weak
through 1996, although it has picked up in recent months. Mergers continue in
the banking industry, but many of the jobs lost are in the retail banking sector
and involve employees working at retail branches, rather than in offices. In
addition, other employment sectors, whose employees typically do not occupy
office space, are more likely to occupy office space in New York. For example,
manufacturing, textile and communications companies in New York frequently have
a management presence in the city as opposed to physical operations. As a
result, RCG conservatively estimates that 10% of private sector jobs, excluding
FIRE and services, will occupy office space. Assuming each new employee occupies
about 175 to 200 square feet, an average of 5.2 million square feet on net will
be absorbed annually between 1997 and 2001. From 1991 through the first quarter
of 1997, about one-third of the calculated net absorption in Manhattan has
occurred in Class B space. Assuming that this trend will continue through 2001,
net absorption will be sufficient to cause the overall Class B vacancy rate to
fall to 7.7% in 2001 and rent growth to accelerate to about 6.3% per year.
Table 12 [Table re: New York MSA Office Employment Growth from 1991 through the
forecast for 2001]
Table 12
New York MSA Office Employment Growth (000)
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996 1997f 1998f 1999f 2000f 2001f
---- ---- ---- ---- ---- ---- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Office Occupy. FIRE Jobs 528.1 508.0 505.0 513.3 505.5 504.1 506.6 509.2 511.7 512.7 514.3
Security & Commod. Brok. 131.5 133.2 137.8 148.6 147.5 150.0
Depository Institutions 163.9 148.3 142.3 139.2 134.0 130.2
Nondepository Institutions 9.7 9.1 9.3 9.5 9.5 9.5
Office Occupy. Svcs. Jobs 674.7 663.3 676.2 693.0 710.0 742.0 777.8 801.9 822.7 839.2 857.6
Business Services 243.0 233.9 240.2 248.4 254.7 273.7
Legal Services 76.5 74.6 74.4 73.8 72.7 73.1
Membership Orgs 61.6 61.1 61.7 62.1 63.0 64.4
Engin. & Mgmt Svcs 100.9 98.4 100.3 102.9 106.0 111.1
Other 192.7 195.3 199.6 205.8 213.6 219.7
Other Private Sector Ofc 527.9 517.9 520.5 525.0 529.2 537.0 545.4 554.1 561.8 567.7 574.5
Total Office Jobs in MSA 1,730.7 1,689.2 1,701.7 1,731.3 1,744.6 1,783.1 1,829.8 1,865.2 1,896.2 1,919.6 1,946.4
New Ofc. Jobs Created in MSA (108.7) (41.6) 12.5 29.6 13.4 38.5 46.7 35.3 31.0 23.4 26.8
New Ofc. Jobs Created in NYC (94.6) (36.2) 10.9 25.8 11.6 33.5 40.6 30.8 27.0 20.4 23.3
</TABLE>
Sources: Bureau of Labor Statistics, Forecast-Rosen Consulting Group (RCG).
Rosen Consulting Group 23
<PAGE>
Supply Analysis
Improvement in the Manhattan office market is a function of both forecasted
construction and demand growth. Currently, little construction is underway,
planned or proposed, and all of the activity is occurring in Midtown. The only
major project underway is the Durst Organizations 1.5 million square-foot Four
Times Square office project thatis scheduled for completion in 1999. The
developer received tax incentives to make this project economically feasible.
Limited build-to-suit construction is also occurring for tenants with specific
needs. For example, LVMH, the parent of Louis Vuitton, is building a 23-story,
103,000 square-foot office building at 17 to 21 East 57th Street between Fifth
and Madison Avenues. The building, scheduled for completion in the fourth
quarter of 1997, will contain Louis Vuittons flagship store on its ground floor.
In addition, the German Mission to the United Nations is building a 23-story,
112,000 square-foot headquarters at 871 United Nations Plaza that will be
completed in mid 1998.
Forecasted Supply Analysis
Several factors are limiting new construction, including the lack of available
sites, the long lead time for new development, and current market rents that are
well below those needed to justify new construction. Assuming development costs
of approximately $358 per square foot, an expected return of 10%, and no tax
incentives for development, an effective rent of approximately $55 is needed to
make construction economically viable (see Table 13).
As leasing options diminish and the market anticipates strong increases in
rents, construction activity will return to the market. Already, several office
buildings have been proposed. As part of the Times Square Redevelopment Plan,
office buildings could be constructed on the southwest and northwest corners of
Seventh Avenue and 42nd Street. Another potential development site is on 42nd
Street above the 42nd Street subway station between Seventh Avenue and Broadway.
Given the success of its Four Times Square project, the Durst Organization may
team up with developer George Klein to build on one of these sites. Another
prime developable site is 383 Madison Avenue, where Chase Manhattan Bank is
reportedly considering a build-to-suit. The site could hold a building of up to
800,000 square feet. In addition, the New York Metropolitan Transportation
Authority is considering nine mixed-use proposals for the New York Coliseum
Site, four of which include office components ranging from 1.2 million square
feet to 700,000 square feet. However, given the long lead time for new
construction, even if announced during 1997, none of these projects would be
completed until at least 2000, at which time forecasted market rents could
better justify new construction. Even if several of these buildings are
constructed, because of the size of the market, the new supply will have little
overall impact on the market.
Table 13 [Table re: Midtown Manhattan Class A Office Market Economic Rents in
1996]
Table 13
Midtown Manhattan Class A Office Market
Economic Rents in 1996 ($/SF)
Land $ 85.00
Hard Costs (Core & Shell) 150.00
Soft Costs 46.25
Tenant Improvements 50.00
Leasing Commissions 26.41
Total Development Costs $357.66
NOI Necessary to Achieve 10% Return 35.77
Plus: Stabilized Vacancy (5%) 2.75
Plus: Expenses 16.50
Effective Rent Necessary to Achieve 10% Return $ 55.02
1996 Midtown Class A Asking Office Rent $ 38.76
Sources: RELocate, Cushman & Wakefield, Rosen Consulting Group Estimates
Rosen Consulting Group 24
<PAGE>
Rent Analysis
Compared to other major world business centers, office rents in Manhattan are
relatively inexpensive, making the area attractive to foreign companies. A
January 1997 world survey of office rents by Richard Ellis Company ranked
Midtown Manhattan 13th and Downtown Manhattan 37th among major business centers
around the world. Midtown Manhattan was less expensive than Bombay, Hong Kong,
Tokyo, London, Moscow, New Delhi, Singapore, Beijing, Shanghai and Paris.
Rent growth is inversely related to the vacancy rate. When market conditions
tighten and the market vacancy rate falls below the optimal vacancy rate, rent
growth accelerates. The optimal vacancy rate is the vacancy rate at which
neither excess supply or demand exists, and it is determined by examining the
historical relationship between vacancy rates and rent growth. The combined
Midtown and Midtown South Manhattan Class B office vacancy rate was at its
highest in 1992, during which time average asking rents fell the most (see
Figure 16). Since 1992, the Class B office vacancy rate has decreased, and as
the actual vacancy rate has approached the optimal vacancy rate, average asking
rents stabilized and began to rise again in 1995.
Chart 16 [Bar Chart re: Office Vacancy Rates and Asking Rents for Midtown &
Midtown South for Class B for 1991 through the forecast for 2001]
Rosen Consulting Group 25
<PAGE>
To forecast rent growth, we use a stock-adjustment disequilibrium model in which
we assume that future rent growth will be a function of inflation plus a
coefficient times the difference between the optimal vacancy rate and the market
vacancy rate. Based on our forecasted vacancy rates, we believe that, by 2001,
the overall Class B vacancy rate will fall to 7.7% which will cause average
asking rents to increase 6.3% during that year (see Table 14). Class B average
asking rent growth in the combined Midtown and Midtown South areas will be 7.4%
in 2001, while Downtown rent growth is forecasted to be 5.2% in 2001.
Table 14 [Table re: Summary of Manhattan Office Market Rent Growth from 1992
through the forecast for 2001]
Table 14
Summary of Manhattan Office Market Rent Growth
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997f 1998f 1999f 2000f 2001f
---- ---- ---- ---- ---- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class B
Total -4.2% -0.4% -0.6% 1.4% 1.0% 4.0% 3.7% 4.8% 5.5% 6.3%
MT + MTS -4.0% -1.6% 1.2% 2.8% 1.0% 4.8% 4.6% 5.8% 6.5% 7.4%
Midtown -4.0% -1.5% -0.3% 2.6% -1.5% 5.0% 4.8% 6.0% 6.8% 7.7%
Midtown South -6.0% -1.2% 1.4% 4.5% 8.7% 4.5% 4.3% 5.4% 6.2% 7.1%
Downtown -4.6% 2.3% -4.4% -1.0% 0.8% 2.6% 2.4% 3.5% 4.3% 5.2%
Class A
Total -8.1% -2.4% 0.1% 3.2% -1.0% 1.8% 3.5% 5.8% 6.4% 7.4%
MT + MTS -9.9% -3.5% 2.4% 7.2% 1.1% 3.2% 5.0% 6.0% 6.5% 7.2%
Midtown -9.9% -3.5% 5.9% 5.0% 1.1% 3.6% 5.5% 6.1% 6.6% 7.2%
Midtown South -5.1% 2.1% 23.9% 0.4% -0.5% -2.9% -1.1% 0.5% 1.7% 3.0%
Downtown -2.7% -0.1% -4.4% -6.6% -3.9% -0.3% 1.5% 3.2% 4.3% 5.6%
</TABLE>
Sources: RELocate, Rosen Consulting Group (RCG)
Forecasted Office Market Trends
The growth in demand for office space in Midtown Manhattan will be moderately
strong over the next five years. Employment growth in the key office-consuming
sectors such as finance, securities, legal services, and accounting will
accelerate through 1997, before slowing through 1999 and increasing again
through 2001. When combined with growth in other office occupying sectors, an
average of 28,400 office space-consuming jobs will be created annually in New
York City between 1997 and 2001. Assuming a coefficient of space used per office
employee of 175 to 200 square feet, that one-third of the space absorbed is
Class B space, and that about half of the Class B space is in Midtown with
another fourth in each Midtown South and Downtown, the forecasted net absorption
for Class B space would be almost 1.9 million square feet per year.
While demand for office space in Midtown will be strong, no significant new
construction is expected until the Durst project is completed in 1999. As a
result, we expect the Class B vacancy rate to fall to 6.0% in the combined
Midtown and Midtown South areas, and 12.3% in Downtown by 2001 (see Appendix
Table A.1 for Downtown Class Bforecast). Even with a small amount of new
construction between 1999 and 2001, the Class A vacancy rate is expected to fall
to 6.4% in the combined Midtown and Midtown South areas, and 7.9% in Downtown by
2001 (see Appendix Tables A.3 to A.6). As the vacancy rates fall, growth in
Class B average asking rents will accelerate to 7.4% in the combined Midtown and
Midtown South areas and 7.1% in Downtown.
Rosen Consulting Group 26
<PAGE>
Based on the economic rents needed to justify new construction calculated in
Table 13, we believe that the potential exists for significant revenue growth in
the Manhattan marketplace as rental and occupancy rates for office properties
recover to levels that would provide a reasonable return on investment to a
developer of a new Class A multi-tenant office building (see Table 15).
Table 15 [Table re: Estimated Economic Rent Analysis for Multi-tenant Office
Buildings (Per Net Rentable Square Foot)]
Table 15
Estimated Economic Rent Analysis
Multi-tenant Office Buildings
(Per Net Rentable Square Foot)
Development Costs $ 357.66
Estimated Economic Rents $ 55.02
1996 Midtown Class A Asking Rental Rates $ 38.76
Increase in Class A Rental Rates Necessary $ 16.26
to Reach Economic Rent
Percentage Increase in Class A Rental Rates Necessary 42.0%
to Reach Economic Rents
Source: Rosen Consulting Group Estimates
Appendix
- --------
Table A.1 [Table re: Downtown Manhattan Class B Office Market Trends from 1991
through the forecast for 2001]
Table A.1
Downtown Manhattan Class B Office Market Trends (000)
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996 1Q97 1997+ 1998+ 1999+ 2000+ 2001+
---- ---- ---- ---- ---- ---- ---- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Stock 45,112 45,112 45,112 45,112 45,112 45,112 45,112 45,112 45,112 45,112 45,112 45,112
New Construction 0 0 0 0 0 0 0 0 0 0 0 0
Net Absorption 636 (478) 72 (529) 1,592 (95) 706 834 469 354 405
Occupied Stock 35,787 36,423 35,845 36,017 36,494 37,086 36,891 37,792 39,327 38,795 39,150 39,555
Vacancy Rate 20.7% 19.3% 20.3% 20.2% 21.3% 17.6% 18% 18.2% 15% 14% 13.2% 12.3%
Avg. Asking Rent $22.90 $22.22 $ 22.74 $21.75 $ 21.53 $21.71 $ 21.94 $22.27 $22.79 $23.59 $24.60 $25.88
% Change -4.6% 2.3% -4.4% -1.0% 0.5% 2.8% 2.4% 3.5% 4.3% 5.2%
</TABLE>
Sources: Historical data on construction, vacancy & rents-RELocate;
Calculations and forecasts-ROG.
Table A.2 [Table re: Overall Manhattan Class A Office Market Trends from 1991
through the forecast for 2001]
Table A.2
Overall Manhattan Class A Office Market Trends (000)
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996 1Q97 1997+ 1998+ 1999+ 2000+ 2001+
---- ---- ---- ---- ---- ---- ---- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Stock 204,871 204,871 206,284 206,284 206,284 206,284 206,284 206,284 206,284 206,284 206,284 206,284
New Construction 2577 0 413 0 0 0 0 0 0 1,500 1,000 1,000
Net Absorption 4,828 2,343 14 (944) 3,890 2,745 4,740 3,588 3,150 2,377 2,720
Occupied Stock 157,799 172,627 174,970 174,935 174,041 177,831 150,876 182,571 186,269 189,409 191,786 194,506
Vacancy Rate 18.1% 15.7% 14.8% 14.8% 15.2% 13.3% 12% 11% 9.3% 8.4% 7.7% 6.8%
Avg. Asking Rent $38.01 $34.92 $34.09 $34.12 $35.20 $34.83 $32.87 $35.46 $36.71 $35.85 $41.39 $44.37
% Change -9.1% -2.4% 0.1% 9.2% -1.0% 1.8% 3.5% 5.8% 6.4% 7.4%
</TABLE>
Sources: Historical data on construction, vacancy & rents-RELocate;
Calculations and forecasts-ROG.
Table A.3 [Table re: Midtown & Midtown South Class A Office Markets Trends from
1991 through the forecast for 2001]
Table A.3
Midtown and Midtown South Class A Office Market Trends (000)
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996 1Q97 1997+ 1998+ 1999+ 2000+ 2001+
---- ---- ---- ---- ---- ---- ---- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Stock 143,752 143,752 143,752 143,752 143,752 143,752 144,165 144,165 144,165 145,665 146,665 147,665
New Construction 2577 0 413 0 0 0 0 0 0 1,600 1,000 1000
Net Absorption 4,883 2,105 (572) (1,408) 3,370 2,293 3,329 2,620 2,212 1,669 1,910
Occupied Stock 118,170 123,053 125,158 124,585 139,177 126,647 126,640 129,676 132,396 134,608 138,277 138,187
Vacancy Rate 17.8% 14.4% 19.2% 13.6% 14.6% 12.2% 10.8% 9.9% 9.2% 7.6% 7.1% 6.4%
Avg. Asking Rent $39.58 $35.66 $34.40 $35.23 $37.78 $38.17 $35.49 $39.40 $41.38 $43.87 $46.72 $50.07
% Change -9.9% -3.5% 2.4% 7.2% 1.1% 9.2% 5.0% 6.0% 6.5% 7.2%
</TABLE>
Sources: Historical data on construction, vacancy & rents-RELocate;
Calculations and forecasts-ROG.
Table A.4 [Table re: Manhattan Class A Office Market Trends from 1991 through
the forecast for 2001]
Table A.4
Midtown Manhattan Class A Office Market Trends (000)
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996 1Q97 1997+ 1998+ 1999+ 2000+ 2001+
---- ---- ---- ---- ---- ---- ---- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Stock 138,902 138,902 139,315 139,315 139,315 139,315 139,315 139,315 139,315 140,815 141,815 142,815
New Construction 2377 0 418 0 0 0 0 0 0 1,500 1,000 1,000
Net Absorption 4,848 2,107 2,006 (2,995) 3,149 2,229 3,217 2,435 2,138 1,613 1,846
Occupied Stock 113,489 118,331 120,498 122,444 119,449 122,585 124,827 125,814 128,249 130,387 132,000 133,846
Vacancy Rate 16.3% 14.8% 13.8% 12.1% 14.3% 12.0% 10.4% 9.7% 7.9% 7.4% 6.9% 6.3%
Avg. Asking Rent $39.69 $35.75 $34.49 $36.51 $38.34 $36.76 $35.93 $40.16 $42.35 $44.93 $47.89 $51.34
% Change -9.9% -3.6% 6.9% 5.0% 1.1% 3.5% 5.5% 6.1% 6.6% 7.8%
</TABLE>
Sources: Historical data on construction, vacancy & rents-RELocate;
Calculations and forecasts-ROG.
Table A.5 [Table re: Midtown South Manhattan Class A Office Market Trends from
1991 through the forecast for 2001]
Table A.5
Midtown South Manhattan Class A Office Market Trends (000)
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996 1Q97 1997+ 1998+ 1999+ 2000+ 2001+
---- ---- ---- ---- ---- ---- ---- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Stock 4,849 4,849 4,849 4,849 4,849 4,849 4,849 4,849 4,849 4,849 4,849 4,849
New Construction 0 0 0 0 0 0 0 0 0 0 0 0
Net Absorption 35 (2) (2,578) 1,587 222 64 112 85 74 56 64
Occupied Stock 4,686 4,722 4,719 2,141 3,728 3,950 4,013 4,062 4,147 4,221 4,277 4,341
Vacancy Rate 3.4% 2.6% 2.7% 55.9% 23.1% 18.5% 17.2% 16.2% 14.5% 13.0% 11.8% 10.5%
Avg. Asking Rent $22.71 $21.55 $22.01 $27.26 $27.38 $27.23 $27.84 $26.43 $26.14 $26.26 $28.73 $27.54
% Change -6.1% 2.1% 23.9% 0.4% -0.6% -2.9% -1.1% 0.5% 1.7% 3.0%
</TABLE>
Sources: Historical data on construction, vacancy & rents-RELocate;
Calculations and forecasts-ROG.
Table A.6 [Table re: Downtown Manhattan Class A Office Market Trends from 1991
through the forecast for 2001]
Table A.6
Downtown Manhattan Class A Office Market Trends (000)
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996 1Q97 1997+ 1998+ 1999+ 2000+ 2001+
---- ---- ---- ---- ---- ---- ---- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Stock 61,120 61,120 61,120 61,120 61,120 61,120 61,120 61,120 61,120 61,120 61,120 61,120
New Construction 0 0 0 0 0 0 0 0 0 0 0 0
Net Absorption (55) 238 587 485 520 452 1,411 1,068 938 708 610
Occupied Stock 49,629 49,574 49,913 50,399 50,864 51,363 51,636 52,795 53,683 54,801 55,508 56,316
Vacancy Rate 18.8% 18.9% 18.5% 17.5% 16.8% 15.9% 15.2% 13.5% 11.9% 10.3% 9.2% 7.9%
Avg. Asking Rent $34.52 $33.60 $33.55 $32.06 $29.96 $38.79 $28.64 $26.70 $29.14 $30.05 $31.36 $33.12
% Change -2.7% -0.1% -4.4% -5.5% -3.9% -0.3% 1.6% 3.2% 4.3% 5.6%
</TABLE>
Sources: Historical data on construction, vacancy & rents-RELocate;
Calculations and forecasts-ROG.
Rosen Consulting Group 27
