SCHEDULE 14A INFORMATION
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of 1934 (Amendment No. )
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..............................................................................
(Name of Registrant as Specified In Its Charter)
Garment Capitol Associates
..............................................................................
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other than the Registrant)
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1) Title of each class of securities to which transaction applies:
Participations
2) Aggregate number of securities to which transaction applies: [____]
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pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
The fee is equal to 1/50th of 1% of the assumed fair market value
of the Property, which is presumed to be the aggregate of the cash
to be received by the Registrant.
4) Proposed maximum aggregate value of transaction: [$_____]
5) Total fee paid: $4,000<PAGE>
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<PAGE>
PRELIMINARY COPY
GARMENT CAPITOL ASSOCIATES
STATEMENT ISSUED BY THE AGENTS IN CONNECTION WITH THE
SOLICITATION OF CONSENTS OF THE
PARTICIPANTS
Dated April , 1996
This Statement is issued in connection with the
solicitation of Consents of the Participants in Garment Capitol
Associates ("Associates") by Peter L. Malkin, Stanley Katzman and
John L. Loehr, as Agents ("Agents") for the Participants in
connection with the "Sale Program" described below.
It is anticipated that this Statement and the accompanying
form of Consent will be mailed to the Participants on April __, 1996.
The solicitation of Consents will terminate on May 31, 1996 unless
subsequently extended, but in no event later than August 30, 1996.
The Agents will advise all the Participants of the results of the
solicitation as soon as may be practicable, but in no event later
than 90 days after the termination date noted above or any extension
thereof.
Sale of 498 Seventh Avenue
Associates was formed to acquire and own The Garment
Capitol Building and the underlying land (collectively, the
"Property") located at 498 Seventh Avenue, New York, New York. From
the time Associates acquired the Property through December 29, 1995,
Associates leased the Property to 498 Seventh Avenue Associates (the
"Original Lessee") pursuant to a long-term operating lease (the
"Operating Lease").
The Original Lessee operated the Property at a substantial
cash loss during 1994 and 1995. During this period, capital calls
were made upon the then partners in the Original Lessee. Because
several of the partners were unable or unwilling to meet the capital
calls, Peter L. Malkin personally assumed their interests, totalling
40% of the Original Lessee, and advanced the capital calls for those
acquired interests as well as for his own original 5% share, so as to
preserve the leasehold and to permit the Original Lessee to continue
to insulate Associates from liability relating to operation of the
Property. At the end of 1995, Peter L. Malkin again assumed
partnership interests equal to an additional 6.25%.
Despite these new capital infusions, however, the Original
Lessee concluded that to return the Property to profitability would
require a very large additional capital investment, estimated by the
Original Lessee to be as high as $16,000,000. Therefore, on<PAGE>
December 29, 1995, in accordance with the terms of the Operating
Lease, the Original Lessee assigned the Operating Lease to 4987
Corporation (the "New Lessee"), thereby effectively terminating the
liability of the Original Lessee and its remaining partners under the
Operating Lease. The shares in the New Lessee are owned by the
partners in the Original Lessee.
The New Lessee has paid basic rent under the Operating
Lease due January 1, 1996, February 1, 1996, March 1, 1996 and
April 1, 1996. Associates applied or reserved these rents to cover
(1) its monthly mortgage payments to the Apple Bank for Savings (the
"Fee Mortgagee") on Associates' fee mortgage on the Property (the
"Fee Mortgage"), (2) its monthly fee for supervisory services and (3)
its distributions to the Participants in Associates. The New Lessee
did not pay the New York City real estate taxes and Business
Improvement District ("BID") assessments in the amounts of
$936,180.00 and $29,695.14, respectively, and certain other minor
assessments and charges aggregating less than $1,500, all of which
were due on January 1, 1996 or shortly thereafter (collectively, the
"1/1/96 Real Estate Taxes"). As a result, although payment of the
1/1/96 Real Estate Taxes has been made as described below, the New
Lessee is in default of the Operating Lease as of that date.
The New Lessee has requested that Associates forbear from
exercising its rights and remedies under the Operating Lease,
including termination of the Operating Lease, by reason of the
failure to pay the 1/1/96 Real Estate Taxes, while Associates
solicits the consent of the Participants to a sale of the Property on
the terms described in this Statement. If Associates does forbear,
the New Lessee has agreed to cooperate fully with Associates in
connection with the sale of the Property and to continue to perform
its other obligations under the Operating Lease, including payment of
basic rent, to enable Associates to continue its monthly
distributions to the Participants, pay its supervisory fee and pay
its monthly mortgage obligation. The continuation of the Operating
Lease will also serve to insulate Associates from third party
liabilities attendant on property operations. Because the program
for Associates outlined in this Statement includes the continuation
of the Operating Lease with the New Lessee, Associates has not yet
sent a notice of default under the Operating Lease based on the
failure of the New Lessee to pay the 1/1/96 Real Estate Taxes but the
Agents have been advised that Associates' right to send such a notice
has not been affected by this delay or by the acceptance of rent
since the default.
Although the failure to pay the 1/1/96 Real Estate Taxes
also constitutes a breach of Associates' obligations under the Fee
Mortgage, the Fee Mortgagee has agreed to forbear from exercising its
rights and remedies during the pendency of this solicitation through
a sale of the Property based on arrangements made between the
shareholders of the New Lessee (or designees on their behalf) and the
Fee Mortgagee to fund the 1/1/96 Real Estate Taxes and certain future
real estate taxes and BID assessments on the Property (together with
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<PAGE>
the 1/1/96 Real Estate Taxes, the "Real Estate Taxes") through
protective advances under the Fee Mortgage. The shareholders of the
New Lessee (or designees on their behalf) have borrowed from the Fee
Mortgagee the sum of $1,012,545.49, equal to the 1/1/96 Real Estate
Taxes and interest thereon to the date of the borrowing. This sum
was used to fund a protective advance by the Fee Mortgagee to pay the
1/1/96 Real Estate Taxes and interest thereon through the purchase of
a subordinate participating interest in the Fee Mortgage in such
amount. Interest on the protective advance will be paid by the New
Lessee so long as the Operating Lease continues in effect.
As to future Real Estate Taxes, the Fee Mortgagee has
agreed to make additional loans to such individual shareholders (or
their designees) to fund further protective advances to cover the
Real Estate Taxes due July 1, 1996 (covering the period to
December 31, 1996) and January 1, 1997 (covering the period to
June 30, 1997). Those individual borrowers intend to borrow the
funds from the Fee Mortgagee and fund the protective advances as
required to pay the July 1, 1996 and January 1, 1997 Real Estate
Taxes if the Sale Program described below is approved by the
Participants and so long as the Operating Lease continues in effect.
Once the Property is sold, no additional Real Estate Taxes will need
to be paid.
For the reasons described in this Statement, the Agents
believe that it is in the best interests of the Participants to
approve a sale of the Property and, pending a sale of the Property,
to forbear from exercising rights and remedies under the Operating
Lease so long as the Fee Mortgagee advances the Real Estate Taxes and
forbears. Finally, described below is a recommended allocation of
sales proceeds between the New Lessee and Associates which is based
on the opinions of independent experts. The Agents seek the consent
of the Participants to proceed with this program.
THE AGENTS RECOMMEND THAT THE PARTICIPANTS CONSENT
TO THE SALE PROGRAM (as herein defined)
The Agents recommend that the Participants consent to the
following (collectively herein referred to as the "Sale Program"):
(a) Authorizing the Agents to sell the Property to a third
party at a price, and on such other terms and conditions, as
determined by the Agents, to allocate the sale proceeds pursuant to
the distribution formula proposed herein by the Agents and to
liquidate Associates following the sale and distribution of proceeds;
and
(b) Permitting the New Lessee to continue to operate the
Property in accordance with the terms of the Operating Lease,
described below, while the sale is pursued, subject to (i) continued
compliance by the New Lessee with the terms of the Operating Lease
other than requirement to pay the Real Estate Taxes and (ii) the
continuation of forbearance by the Fee Mortgagee based on the funding
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of Real Estate Taxes through protective advances under the Fee
Mortgage through borrowings by individual shareholders of the New
Lessee (or designees on their behalf).
The Agents believe that the Property requires significant
capital improvements to be competitive. The Sale Program will permit
Associates to liquidate its investment in an orderly fashion, give
priority to Associates in the allocation of net sale proceeds, and
avoid the necessity of raising additional capital from the
Participants and others to support and renovate the Property, while
avoiding litigation costs and the risk of loss of the Property
through a Fee Mortgage foreclosure.
I. Background
A. Organization of Associates
Associates, a New York partnership, was organized on
January 10, 1957 for the purpose of acquiring the Property subject to
the Operating Lease. The late Mr. Lawrence A. Wien and two of his
then law partners (one of whom is now deceased) were the original
partners in Associates and joined in a public offering to the
Participants of the economic interests in Associates. Peter L.
Malkin, Stanley Katzman and John L. Loehr are the current partners in
Associates and serve as Agents on behalf of the Participants. Under
the Participating Agreements of the original offering, the Partici-
pants have the right to approve or disapprove certain decisions,
including sale of the Property or modification of the Operating
Lease.
B. Provisions of the Operating Lease
The Operating Lease provides that the lessee will pay all
operating and maintenance expenses and all real estate taxes, will
make necessary repairs and replacements and will keep the Property
adequately insured against fire and accident. The Operating Lease
does not require the lessee to make new capital improvements to the
Property.
Under the Operating Lease, the lessee must pay to
Associates (i) annual basic rent of $1,090,000 (the "Basic Rent") in
monthly installments of $90,833.33 and (ii) annually for each lease
year ending April 30, additional rent equal to 50% of the lessee's
net income in excess of $200,000 for such lease year (the "Additional
Rent"). No Additional Rent was payable for the lease years ended
April 30, 1995 and April 30, 1994. Additional rent of $1,010,196 was
paid for the lease year ended April 30, 1993. Additional Rent will
not be paid for the lease year ending April 30, 1996. See Section
I.E. - Financial Information.
The current term of the Operating Lease expires on
April 30, 2007. The Operating Lease includes a renewal option to
extend the term through April 30, 2032. Pursuant to the Operating
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Lease, the lessee has the right to assign the Operating Lease,
without Associates' consent, so long as the assignee assumes, in
writing, all of the obligations of the Operating Lease. The Original
Lessee exercised such assignment right on December 29, 1995, and the
New Lessee assumed all lessee obligations under the Operating Lease
as of that date.
C. The Property
498 Seventh Avenue is located in the heart of New York
City's "Garment District", occupying a plot of approximately 39,000
square feet. Located on the southwest corner of Seventh Avenue and
37th Street, the building has frontages of 98'9" and 225' on these
two streets, respectively. There is additional frontage of 170'8" on
36th Street. The building is readily accessible to all New York City
subways and is a few blocks from Penn Station and The Port Authority
Bus Terminal on 40th-42nd Streets. Erected in 1921, the building is
of fireproof construction and contains 24 floors, a penthouse and
basement. It has a rentable floor area of approximately 800,000
square feet.
The building contains office, showroom and loft space,
which historically was used by manufacturers of ladies apparel.
D. Competition
Currently, tenant space leases at the Property are offered
at an average annual base rental of approximately $18.00 per square
foot (exclusive of electricity charges and escalation). Space
tenants provide their own cleaning. The average asking rental rate
and other financial terms for space leases at the Property appear to
be competitive with the average rental rates charged by similar
buildings currently offering comparable space in the immediate
vicinity.
Based on market information believed to be accurate, the
Agents offer the following information regarding near-by properties:
* A neighboring office building located at 485 Seventh
Avenue (at 36th Street), which offers small showrooms
and has upgraded interior features, is offering tenant
space at rental rates between $18.00 and $25.00 per
square foot.
* Two similar buildings approximately the same age as the
Property, which are located across 39th Street from each
other at 530 Seventh Avenue and 550 Seventh Avenue and
have traditionally been the headquarters for
manufacturers of higher price women's apparel, currently
offer tenant space at rental rates between the mid $20's
to high $30's per square foot.
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* At 1407 Broadway and 1411 Broadway, buildings which
offer more modern, upgraded amenities than the Property,
current rental rates are in the high $30's per square
foot.
The Agents are not aware of any recent sales of buildings in similar
condition in the area of the Property which would provide useful
guidance on an appropriate sale price. The Agents will seek what
they perceive to be the best possible sale price on the best possible
terms if the Participants approve the Sale Program.
E. Financial Information
Associates acquired fee title to the Property on May 1,
1957 for $10,500,000, all cash. On November 1, 1957, Associates
closed a $5,250,000 first mortgage loan on the Property and
distributed the proceeds to the Participants, reducing their cash
investment to $5,250,000. The principal balance of that mortgage
(the Fee Mortgage), after the March 1, 1996 payment, has been reduced
to $3,014,030. The Fee Mortgage is currently held by Apple Bank for
Savings and matures on December 1, 1997. Payments are current on the
Fee Mortgage through March 31, 1996.
Each monthly installment of Basic Rent received by
Associates is applied to pay monthly debt service on the Mortgage,
supervisory fees to Wien, Malkin & Bettex ("WM&B") and distributions
to the Participants. Additional rent is used by Associates to pay
Additional Supervisory Charges to WM&B (See Section IV.A. below) and
make additional distributions to the Participants.
For the years 1995, 1994 and 1993, the Participants
received total distributions representing an annual return on their
remaining original cash investment at the rates of approximately
11.7%, 11.7% and 26.8%, respectively. Certain current Participants
may have purchased their interests for amounts in excess of the
original investment amount and their rates of return on investment
will thus be lower.
During 1994 and 1995, the Property operated at a
substantial loss. During that period, Peter L. Malkin individually,
as a partner in the Original Lessee, assumed the interests of various
partners who could not or would not make the required capital
investment in the Original Lessee to preserve the leasehold so as to
insulate Associates against third party liabilities that might result
if it operated the Property directly and to assure Associates'
continued ability to meet its monthly obligations and make its
monthly distributions to the Participants. Of the total recent
investment in the Original Lessee by its partners of $1,300,000
during this period, Mr. Malkin would have been obliged to invest 5%
and his wife 2 %, or an aggregate of $97,500, had he not assumed the
additional partnership interests. Instead, by acquiring an
additional 40% of the partnership interests in the Original Lessee,
Mr. Malkin was obliged to invest an additional $520,000. At the end
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of 1995, Mr. Malkin assumed interests aggregating an additional 6.25%
and now owns 51.25 % individually, in addition to the 2.5% owned by
his wife.
The Agents have been advised that, if the Sale Program is
approved by the Participants, the New Lessee intends to pay Basic
Rent until the sale is consummated. There is no expectation that
there will be Additional Rent payable in the near future.
Attached are audited balance sheets of Associates as of
December 31, 1995 and December 31, 1994, and the related statements
of income, partners' capital deficit and cash flows for each of the
three years in the period ended December 31, 1995, and a Schedule of
Real Estate and Accumulated Depreciation as of December 31, 1995.
See Section VI. - Management's Discussion and Analysis of Financial
Condition and Results of Operations. All of the attached financial
statements and Management's Discussion and Analysis of Financial
Condition and Results of Operations are incorporated herein by
reference.
Jacobs Evall & Blumenfeld LLP ("JEB") has for more than ten
years served as Associates' independent certified public accountants
in connection with Securities and Exchange Commission ("SEC") filings
only. JEB provides no services to Associates other than such
services in connection with SEC filings, which include the
examination of financial statements and consultations relating to
professional and regulatory accounting matters.
II. Sale Program
A. Grant of Discretionary Authorization
to Sell the Property
The Agents seek discretionary authority from the
Participants to sell the Property. There is no minimum sales price
and the Property will be sold for an amount, and on other terms, as
the Agents may determine. The approval of the New Lessee to the
terms of sale, including the price, has been obtained and is
conditioned only upon the approval of the Participants to the Sale
Program outlined in this Statement. The Agents will act by unanimous
agreement among themselves in determining the price and other terms
of sale.
Over the last two years, the remaining partners in the
Original Lessee contributed substantial capital in an attempt to
reverse the Property's lack of profitability and to preserve the
leasehold so as to insulate Associates from third party liability
that might result if Associates operated the Property. Other
partners in the Original Lessee who were unable or unwilling to
provide their shares of the additional investment transferred their
interests in the Original Lessee to Peter L. Malkin, who invested all
the funds representing his original interest in the Original Lease
and the interests more recently acquired. Despite the costly effort
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by the Original Lessee to turn the Property around, the garment
industry in New York City continued to decline, and for the building
to be competitive in the industry today or for other uses, additional
significant capital infusions will be required.
The space needs of the garment industry in Manhattan have
changed dramatically since Associates acquired the Property in 1957.
The building design features very large, deep floors. Large
showrooms and manufacturing space, once the hallmark of garment firms
operating in New York City and for which the building is well-suited,
generally are no longer required. Without reconfiguring the internal
space in the building to reflect these changes in the garment
industry or for an alternative use, the Agents believe it is likely
that the Property will operate at increasing deficits. The risks of
investing substantial new capital and of determining which use would
be profitable are not alternatives that the Agents recommend to the
Participants.
Accordingly, the Agents recommend that the Property be sold
and request authority to do so on the terms described below.
B. Recommendations
1. Sale
An original Participant who initially invested $10,000 in
1957 received aggregate cash distributions of $59,443 through
December 31, 1995 (including $5,000 of mortgage proceeds returned in
the first year of the investment). The Participants in Associates
have enjoyed a very successful venture for the last 39 years. The
Agents now recommend that it be concluded for the reasons outlined in
this Statement and that a sale of the Property on the terms of this
Statement be authorized.
2. Forbearance to the New Lessee
While the Property is being marketed for sale, the Agents
recommend that the New Lessee be permitted to continue operating the
Property. To induce Associates to forbear from exercising its right
to terminate the Operating Lease based on the failure by the New
Lessee to pay the 1/1/96 Real Estate Taxes timely, the New Lessee
will continue to perform all of its obligations under the Operating
Lease other than paying Real Estate Taxes and, as described below,
have arranged for payment of the 1/1/96 and certain future Real
Estate Taxes. Monthly payments of Basic Rent will continue, enabling
Associates to make required mortgage payments to the Fee Mortgagee,
pay supervisory costs and make monthly distributions to the
Participants.
The shareholders of the New Lessee (or their designees)
have borrowed from the Fee Mortgagee an amount equal to the 1/1/96
Real Estate Taxes and interest thereon. This borrowing was used to
fund a protective advance under the Fee Mortgage to pay the 1/1/96
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Real Estate Taxes and interest thereon to the date of payment. As a
result, the borrowers acquired a subordinate participating interest
in the Fee Mortgage in the amount of the loan used to fund the
protective advance. A similar arrangement will be used to fund the
Real Estate Taxes due July 1, 1996 and, if the Property has not been
sold by that date, the Real Estate Taxes due January 1, 1997, so long
as the Operating Lease has not been terminated. The New Lessee will
pay the interest which accrues under the Fee Mortgage on each
protective advance.
As a result of these arrangements regarding the 1/1/96 Real
Estate Taxes and so long as future protective advances are similarly
funded to pay Real Estate Taxes, the Fee Mortgagee will forbear from
exercising rights and remedies under the Fee Mortgage based on the
failure to pay Real Estate Taxes. If the Participants reject the
Sale Program (which includes forbearance by Associates under the
Operating Lease in favor of the New Lessee), the shareholders of the
New Lessee (or their designees) will not continue the arrangement
with the Fee Mortgagee for the payment of future Real Estate Taxes,
and the Agents may not be able to arrange for an alternative method
for funding future Real Estate Taxes. If future Real Estate Taxes
are unpaid, the Fee Mortgagee will then likely elect to commence a
foreclosure proceeding against the Property. In that event, the
Agents believe that the Property would be viewed by potential buyers
as a distressed situation, which could significantly lower the
potential sale price. If Real Estate Taxes are unpaid, the City of
New York could ultimately acquire title to the Property, but the
process is slow and can take years to complete. There is also a
redemption period after title is acquired by the City.
The Agents considered the possibility of terminating the
Operating Lease, creating an affiliated entity to take over the net
lease position and using that entity to operate the Property. The
Agents rejected this approach. The Agents were concerned that the
Participants retain insulation from operating liability to the
maximum extent feasible and the use of an entity affiliated with
Associates may be subject to question in this regard. As well, the
Agents would have been compelled to suspend monthly distributions to
Participants to provide an operating reserve, a step not required so
long as the Operating Lease continues in effect.
3. Distribution of Sales Proceeds
The determination of the proper allocation of net sales
proceeds between Associates, as fee owner, and the lessee of the
Property depends upon the respective values of their interests in the
Property. To assure an appropriate allocation, fairness opinions
were sought from two prominent, independent real estate appraisal
concerns, Brown Harris Stevens Appraisal and Consulting, LLC ("Brown
Harris") and Edward S. Gordon, Inc. ("ESG"). The two firms then
consulted and reached a consensus which is embodied in a report (the
"Consensus Report") addressed to Associates, the New Lessee and WM&B.
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The proposed allocation of sales proceeds between the fee
and leasehold interests was based primarily upon (a) assumptions of
potential sales prices, (b) the determination of the projected net
income required to justify the assumed sales prices, reflecting as
well appropriate capitalization rates and capital costs, and (c) the
apportioning of the Property's total estimated income between the fee
interest and the leasehold in accordance with the Operating Lease.
The only special instruction provided to the two consulting firms in
seeking their consensus was that they assume that the Property would
be sold as a unified whole rather than as separate interests. Their
methodology required that they assume a minimum sales price of
$20,000,000 for the Property. The Consensus Report is available for
inspection and copying at the offices of WM&B (on behalf of
Associates), 60 East 42nd Street, New York, New York, during regular
business hours by any Participant or his representative who has been
so designated in writing. Appointments to inspect and copy the
Consensus Report may be made by contacting Stanley Katzman, Esq., at
(212) 687-8700.
The formula in the Consensus Report allocates sales
proceeds, after closing expenses, between Associates and the lessee
as follows:
Amount of Sales Proceeds Percentage Percentage
after Expenses of Sale to Lessee to Associates
Up to first $25,000,000
of sales proceeds 20% 80%
Next $5,000,000 of sales 25% 75%
proceeds ($25,000,001
to $30,000,000)
Next $10,000,000 of sales 30% 70%
proceeds ($30,000,001
to $40,000,000)
Next $10,000,000 of sales 35% 65%
proceeds ($40,000,001
to $50,000,000)
Sales Proceeds in 40% 60%
Excess of $50,000,000
The Agents propose a slightly different allocation formula
than set forth in the Consensus Report, which the Agents believe
benefits Associates. The Agents accord priorities to certain items
and then follow the Consensus Report formula as to the balance of
sales proceeds. The New Lessee has agreed to this application of
sales proceeds.
The Agents propose the allocation of net sales proceeds
(after expenses) as follows:
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First Priority: To pay the principal balance of the Fee
Mortgage, interest thereon for the month in which the
closing occurs and the principal amount of the protective
advance(s) for Real Estate Taxes made under the Fee
Mortgage.
Second Priority: To return to the Participants the sum of
$5,250,000, representing the remaining balance of the
original cash investment in Associates.
Third Priority: To distribute 80% to Associates and 20% to
the New Lessee an amount of sales proceeds equal to the
lesser of (a) the remaining unapplied balance of sales
proceeds and (b) the remainder of the first $25,000,000 of
sales proceeds after deducting the amounts of sales
proceeds applied as First Priority and Second Priority
above.
Fourth Priority: To distribute the balance of the sales
proceeds in excess of $25,000,000 (if any) in accordance
with the Consensus Report, as follows:
Percentage Percentage
Amount of Sales Proceeds to New Lessee to Associates
The first $5,000,000 of net 25% 75%
sales proceeds above $25,000,000
(i.e., sales proceeds in excess
of $25,000,000 and up to
$30,000,000)
Next $10,000,000 of net sales 30% 70%
proceeds (i.e., sales proceeds
in excess of $30,000,000 and
up to $40,000,000)
Next $10,000,000 of net sales 35% 65%
proceeds (i.e., sales proceeds
in excess of $40,000,000 and
up to $50,000,000)
Sales Proceeds in excess 40% 60%
of $50,000,000
The allocations within the Fourth Priority are referred to as the
"Fourth Priority Allocations."
The following chart shows four examples of the distribution
of sales proceeds between Associates and the New Lessee using the
Agents' proposed allocation formula. The assumed net sales proceeds,
after expenses, are shown at the top of each column. These examples
also assume that (i) the fee mortgage balance, together with accrued
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interest from the beginning of the month in which the closing occurs
until the date of closing, is $3,025,000 (ii) the amount of the
initial protective advance was $1,000,000 and (iii) no additional
protective advance was made. The actual amounts of these various
items will depend on the actual date of sale and whether additional
protective advances will be made.
Net sales proceeds $20,000,000 $30,000,000 $40,000,000 $50,000,000
----------- ----------- ----------- -----------
Allocation:
First Priority:
Mortgage, protective
advances $ 4,025,000 $ 4,025,000 $ 4,025,000 $ 4,025,000
----------- ----------- ----------- -----------
Associates:
Second Priority $ 5,250,000 $ 5,250,000 $ 5,250,000 $ 5,250,000
Third Priority 8,580,000 12,580,000 12,580,000 12,580,000
Fourth Priority -0- 3,750,000 10,750,000 17,250,000
----------- ----------- ----------- -----------
$13,830,000 $21,580,000 $28,580,000 $35,080,000
----------- ----------- ----------- -----------
New Lessee:
Second Priority $ -0- $ -0- $ -0- $ -0-
Third Priority 2,145,000 3,145,000 3,145,000 3,145,000
Fourth Priority -0- 1,250,000 4,250,000 7,750,000
----------- ----------- ----------- -----------
$ 2,145,000 $ 4,395,000 $ 7,395,000 $10,895,000
----------- ----------- ----------- -----------
Distribution to each
participant in
Associates holding an
original $10,000 unit
(as reduced to
$5,000): $13,171.43 $20,552.38 $27,219.05 $33,409.52
There can be no assurance that the sale results described in these
examples will be achieved.
III. Certain Tax Consequences of the Sale Program
When the Property is sold, an original Participant will
report long-term capital gain in an amount equal to the sum of (a)
the sales proceeds received by such Participant and (b) the negative
book value of such Participant's participation as of the date of
sale. As of December 31, 1995, the book value of each original
$10,000 participation (subsequently reduced by the distribution of
mortgage financing proceeds to $5,000) was a negative $410. For a
Participant who acquired a participation after the inception of the
investment, the capital gain or loss as a result of the sale of the
-12-<PAGE>
Property will depend upon the cost or other tax basis for the
participation at such later acquisition date. The maximum federal
income tax rate on long-term capital gains for individual investors
is currently 28%.
Whether or not a Participant is a New York State resident,
any gain resulting from sale of the Property will be subject to New
York State income taxes. The gain also may be subject to taxation by
the state in which a Participant resides. Most states will allow a
credit for all or a portion of the tax paid to New York State. If
the Participant is a New York City resident, the gain also will be
subject to the New York City income tax.
IV. Supervisory Services; Potential Conflicts of Interest
A. Supervisory Services
No remuneration is paid by Associates to any of the Agents
as such. Associates pays supervisory fees to WM&B for legal,
administrative and financial services. The legal and administrative
services include acting as general counsel to Associates, maintaining
its partnership records, performing physical inspections of the
Property, reviewing insurance coverage and conducting annual
partnership meetings. Financial services include monthly receipt of
rent from the lessee, payment of monthly mortgage obligations,
payment of monthly and additional distributions to the Participants,
payment of all other disbursements, confirmation of the payment of
real estate taxes, review of financial statements submitted to
Associates by the lessee and financial statements audited by and tax
information prepared by Associates' independent certified public
accountants, and distribution of such materials to the Participants.
WM&B also prepares quarterly, annual and other periodic filings with
the Securities and Exchange Commission and applicable state
authorities. The Agents are also members of WM&B.
The supervisory fee to WM&B is $42,500 per annum plus
Additional Supervisory Charges equal to the sum of (i) the first
$37,500 of Additional Rent received by Associates in any lease year
and (ii) 10% of all amounts available for distribution to the
Participants in any year in excess of the amount representing an
aggregate return at the rate of 18% per annum (including monthly
distributions from Basic Rent) on the remaining original cash
investment. Associates paid WM&B $42,500 during the fiscal year
ended December 31, 1995.
WM&B represents Associates and formerly represented the
Original Lessee. WM&B does not represent the New Lessee generally
but will represent the New Lessee in connection with a sale.
-13-<PAGE>
B. Certain Ownership of Participants
As of January 2, 1996, the Agents beneficially owned,
directly or indirectly, the following Participations (expressed as
remaining cash investment):
Name & Address Amount of
of Beneficial Beneficial Percent
Title of Class Owners Ownership of Class
Participations Peter L. Malkin $ 47,500 .9048%
in Partnership 21 Bobolink Lane
Interests Greenwich, CT 06830
Stanley Katzman $ 2,500 .0476%
75-18 193rd Street
Flushing, NY 11366
John L. Loehr $ 5,000 .0952%
286 Alpine Circle
River Vale, NJ 07675
At such date, Peter L. Malkin owned of record as trustee,
but not beneficially, a $5,000 Participation and his wife owned
$16,250 of Participations. Mr. Malkin disclaims any beneficial
ownership of such Participations.
Other members of WM&B, their wives and minor children, or
trusts and estates in which they have beneficial interests, own an
aggregate of $15,625 of participations, or approximately .2976% of
the outstanding participations. An affiliate of WM&B, Agency
Holdings Associates, owns an aggregate of $5,000 of participations,
or approximately .0952% of the outstanding participations.
C. Certain Ownership of Interests in the New Operating
Lessee
Peter L. Malkin and Isabel W. Malkin own, respectively,
51.25% and 2.5% of the issued and outstanding shares of the New
Lessee. Harry B. Helmsley owns 36.25% of the issued and outstanding
shares of New Lessee, and adult children of Helmsley Spear, Inc.
executives own 10% of the issued and outstanding shares of the New
Lessee.
D. Potential Conflicts of Interest
The Agents will only share in the proceeds of sale of the
Property received by Associates to the extent that they beneficially
hold participations in Associates. The Agents thus receive no extra
or special benefit for their service as such. Each Agent, as a member
-14-<PAGE>
in WM&B, will share in fees received by that firm for its service to
Associates as counsel in connection with the sale. Neither the
Agents, as such, nor WM&B will share in the proceeds of a sale.
The sale proceeds from the Property will be distributed as
described above, based principally upon the Consensus Formula reached
by Brown, Harris and ESG. If Associates terminated the Operating
Lease and operated the Property itself, it would not be obligated to
pay the New Lessee any portion of the sale proceeds. However, the
Agents believe it is in the interest of Associates that the New
Lessee continue to operate the Property under the Operating Lease.
Based on their ownership interest in New Lessee, Mr. Malkin and his
wife will receive 53.75% of any net sales proceeds received by the
New Lessee. Mr. Malkin will share some of those proceeds with some
of the partners in the Original Lessee from whom he assumed
interests. His arrangements with them allow him first to recoup any
additional investment he made since his assumption of their interests
and interest on such amounts. He then shares additional amounts, if
any, in varying percentages. It will not be clear until the sale is
concluded whether he will receive any amount or will share any
proceeds with any of them.
The Agents for the Participants, WM&B and Helmsley-Spear,
Inc., have received from the shareholders of the New Lessee (or their
designees) indemnities (in proportion to share ownership in the New
Lessee) to assure that, if the allocation of sales proceeds described
herein is challenged, the shareholders of the New Lessee (or their
designees) will bear the costs and result of that challenge. These
indemnities simply hold those parties harmless in connection with
this program.
Both Brown Harris and ESG are independent and not
affiliated with any party to the proposed Sale Program or this
investment. No other independent party has reviewed the transactions
described herein.
V. Fees and Expenses
All fees and expenses relating to the solicitation of
Consents hereunder and the fees of Brown Harris and ESG will be
treated as expenses of sale and paid from funds derived from the sale
of the Property or from rents paid to Associates if the consent
solicitation is not approved.
Pursuant to a Tunnel Agreement, dated May 1, 1957, between
the Property and the property across 37th Street known as 500 Seventh
Avenue, a tunnel for utilities was constructed under 37th Street.
The only service to the Property which is supplied through the tunnel
consists of the sprinkler pump for both the Property and 500 Seventh
Avenue which is located in 500 Seventh Avenue. A new owner of the
Property must be acceptable to the City of New York and must assume
the obligations under this agreement or the tunnel must be closed.
The costs of closing the tunnel, if required, would be an expense of
-15-<PAGE>
the sale but the amount thereof cannot now be estimated as the cost
will be based on the extent of the work required by the City at the
time. The Agents are advised by engineers for the managing agent for
the Property that the cost of providing a sprinkler pump for the
Property if the tunnel is closed would be approximately $100,000.
VI. Management's Discussion and Analysis of Financial Condition and
Results of Operation
Associates was organized solely for the purposes of
acquiring the Property subject to the Operating Lease. Associates is
required to pay from Basic Rent the Fee Mortgage charges and the
basic payment for supervisory services and disbursements, and dis-
tributes the balance to the Participants. Additional Rent, reduced
by Additional Supervisory Charges to WM&B, is distributed to the
Participants. Because pursuant to the Operating Lease the lessee
assumes sole responsibility for the condition, operation, repair,
maintenance and management of the Property, so long as the Lease
continues Associates does not, and need not, maintain reserves to
defray operating expenses of the Property or professional fees.
During the twelve months ended December 31, 1995,
Associates made regular monthly distributions of $48.58 for each
original $10,000, (as reduced to $5,000) participation (or $582.96
per annum for each remaining original $10,000 participation as
reduced). Because no Additional Rent was paid to Associates for the
lease year ended April 30, 1995, there was no additional distribution
in 1995.
Distributions by Associates depend solely on the payment by
the New Lessee of Basic Rent and Additional Rent in accordance with
the terms of the Operating Lease. Associates expects to make the
monthly distributions so long as it receives the payments of Basic
Rent provided for under the Operating Lease. Because no Additional
Rent will be paid for the lease year ending April 30, 1996,
Associates will not make any Additional Distribution in 1996. See
Notes 4, 7 and 8 to Financial Statements.
Associates' results of operations are affected primarily by
the amount of rent payable to it under the Operating Lease. The
following summarizes the material factors affecting Associates'
results of operations for the three preceding years:
(a) Total income decreased for the year ended December 31, 1995
as compared with the year ended December 31, 1994. Such
decrease is directly attributable to the reduction in
dividend income earned for the year 1995. Total income
decreased for the year ended December 31, 1994 as compared
with the year ended December 31, 1993. Such decrease is
mainly attributable to the fact that no Additional Rent was
received by Associates in 1994. See Note 4 to the
Financial Statements.
-16-<PAGE>
(b) Total expenses decreased for the year ended December 31,
1995 as compared with the year ended December 31, 1994.
Such decrease was the net result of (i) a decrease in
interest expense on the Fee Mortgage and (ii) an increase
in amortization of mortgage refinancing costs. See Notes
2(c) and 3 to the Financial Statements. Total expenses
decreased for the year ended December 31, 1994 as compared
with the year ended December 31, 1993. Such decrease was
the net result of (x) a decrease in the additional payment
for supervisory services payable in 1994, (y) an increase
in interest expense on the Fee Mortgage and (z) an increase
in the amortization of mortgage refinancing costs. See
Notes 2(c), 3, 4 and 5 to the Financial Statements.
The following events and considerations, of which
Associates is aware, have affected and will continue to affect
Associates' operations and financial condition:
* The Original Lessee operated the Property at a
substantial loss during the years ended December 31,
1995 and December 31, 1994. In 1994 and 1995, the
Original Lessee made capital calls on its partners in
the aggregate amount of $1,300,000 to defray certain
operating expenses and improvement costs at the
Property.
* The downturn and changes in methods of operations in the
garment industry have had and will continue to have a
major impact on the Property and its operations and
profitability. Associates has been advised that the
loss of tenants at the Property and the related
reduction in operating income (or increase in operating
losses) affecting the Property are primarily due to
insolvencies affecting tenants in the garment business
and reduced demand for space.
* The New Lessee has the right to abandon or assign its
interest in the Operating Lease. See Section I.B.
hereof. No assurance can be provided that the New
Lessee will not exercise its right to terminate the
Operating Lease in the future but, if the New Lessee
does so, it will lose its right to share in sales
proceeds. The Agents believe that, if the Operating
Lease is terminated for any reason, Associates will be
able to sell the Property for an amount in excess of the
Fee Mortgage, including any protective advances made
thereunder, and future Real Estate Taxes.
Liquidity and Capital Resources
There has been no significant change in Associates'
liquidity for the twelve-months period ended December 31, 1995, as
compared with the twelve-months period ended December 31, 1994.
-17-<PAGE>
Inflation
Inflationary trends in the economy should have no material
impact during the Sale Program.
VII. Terms of Solicitations of Consents
Each Agent acts as agent for a group of Participants owning
a one-third interest in Associates. Originally, each group of
Participants owned $3,500,000 in interests of the original
$10,500,000 investment in Associates. As a result of the $5,250,000
mortgage financing during the initial year of Associates' ownership
of the Property, each group owns $1,750,000 in interests of the
remaining $5,250,000 originally invested by the Participants. At
December 31, 1995, no person held participations aggregating more
than 5% of the total outstanding participations.
On December 31, 1995, there were 908 Participants holding
participations in the three groups. Each Participant's voting
percentage in his group is determined by a fraction, the numerator of
which is the face amount of the participation owned and the
denominator of which is the group's original $3,500,000 investment in
Associates. There is no record date establishing the identity of the
Participants entitled to vote for the Sale Program. Holders of
participations as of March 2, 1996 will be recognized as entitled to
vote. However, if any participation is transferred before the
consent with respect to that Participation is given, the transferee
will be entitled to vote. If consent to the Sale Program has been
given prior to the transfer of a Participation, however, the
transferee will be bound by the vote of the transferor. In addition,
the Agents and their designees will be entitled to vote the
participation of any non-consenting Participant whose interest is
purchased by them under the Participation Purchase Arrangement (as
defined in the following paragraph).
The consent of all Participants is required to authorize
the Sale Program. However, under the terms of the Participating
Agreement between each Agent and his Participants, if Participants
owning 90% of the outstanding participations in such Agent's group
consent to the Sale Program, the Agent for that group or his designee
has the right to purchase the interest of any Participant in that
group who failed to consent (or, if the Participant is not an
individual, has not furnished evidence of authority for giving such
consent) within 10 days after the mailing by the Agent of a written
request therefor, by certified or registered mail ("Participation
Purchase Arrangement"). The purchase price is the greater of (i) the
book value of such participation at the time of purchase, i.e., the
original capital contribution of such Participant or such
Participant's predecessor, less any repayment thereon to the date of
purchase and (ii) $100. As of December 31, 1995, the book value of
each original $10,000 participation (subsequently reduced by mortgage
proceeds to $5,000) was a negative $410. Accordingly, the purchase
price would be $100 for each original $10,000 Participation.
-18-<PAGE>
If 90% or more of the Participants in an Agent's group
consent to the Sale Program, each Agent presently intends to purchase
the interest of any non-consenting Participant for $100. Any
Participant whose participation is purchased by an Agent or his
designee will not receive any Additional Rent paid in respect of the
year of purchase. Due to the operating loss at the Property, there
is no reasonable expectation that there will be Additional Rent in
the near future.
Notwithstanding the provisions in Associates' Participating
Agreements relating to the Participation Purchase Arrangement, no
purchase of a participation will be effected without (i) prior
written notice to a non-consenting Participant that Participants
owning at least 90% of the outstanding participations in the relevant
group have consented to the Sale Program and (ii) affording such
non-consenting Participant an opportunity to consent to the Sale
Program.
Forms of Consent that are signed and returned without a
choice indicated will be deemed to constitute a consent to the Sale
Program and will be binding on each Participant as if such
Participant had actually indicated such choice on such form. If the
Consent is returned undated, it will be deemed dated as of the date
received by the Agents.
Participations are not traded on an established securities
market, nor are they readily tradeable on a secondary market or the
substantial equivalent thereof. Based on Associates' transfer
records, participations are sold by holders from time to time in
privately negotiated transactions, and, in many instances, Associates
is unaware of the prices at which such transactions occur (other than
certain intra-family transfers involving participations owned by
members of WM&B or their families). However, Associates has been
advised that the range of sales prices during the past two calendar
years for an original $10,000 participation as reduced to $5,000 was
$2,500 to $5,000.
Any document incorporated herein by reference shall be sent
by first-class mail, at no charge to the Participant, upon the
request of such person within one business day of receiving such
request. Any such request shall be made by writing to Stanley
Katzman, Esq., Wien, Malkin & Bettex, 60 East 42nd Street, New York,
NY 10165-0015 or by calling him at 212-687-8700. Items subject to
such request include information filed with the Securities and
Exchange Commission subsequent to the date on which this Statement
has been sent to Participants.
Any document subsequently filed by Associates with the
Securities and Exchange Commission pursuant to Section 13(a), 13(c),
14 or 15(d) of the Securities and Exchange Act of 1933, before the
date on which the consents are used to effect the proposed actions
shall be deemed to be incorporated by reference into this consent
solicitation.
-19-<PAGE>
If you have any question or desire any additional
information concerning the proposed Sale Program, please communicate
in writing with any partner in Wien, Malkin & Bettex, 60 East 42nd
Street, New York, NY 10165-0015 or by telephone at 212-687-8700.
PLEASE SIGN, DATE AND IMMEDIATELY RETURN THE COLORED COPY
OF THE CONSENT IN THE ENCLOSED ENVELOPE. ONCE GIVEN, THE CONSENT TO
THE SALE PROGRAM MAY NOT BE REVOKED.
-20
<PAGE>
April 15, 1996
Garment Capitol Associates
New York, N.Y.
We have issued our reports dated April 10, 1996 accompanying the
financial statements and schedule of Garment Capitol Associates
appearing in the Annual Report of the Company on Form 10-K to the
Securities and Exchange Commission for the year ended December
31, 1995. We consent to the use of the aforementioned reports in
the proxy statement of Garment Capitol Associates, which is being
filed pursuant to the rules under Regulation 14A of the
Securities Exchange Act of 1934 and included in Commission File
Number: 0-768. Our consent relates only to the financial
statements and financial statement schedule, and we do not opine
on the adequacy or completeness of the textual disclosures
contained in the proxy material.
Jacobs Evall & Blumenfeld LLP
Certified Public Accountants
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the participants in Garment Capitol Associates
(a Partnership)
New York, N. Y.
We have audited the accompanying balance sheets of Garment Capitol Associates
(the "Company") as of December 31, 1995 and 1994, and the related statements of
income, partners' capital deficit and cash flows for each of the three years in
the period ended December 31, 1995, and the supporting financial statement
schedule as contained in Item 14(a)(2) of this Form 10-K. These financial
statements and schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Garment Capitol Associates as
of December 31, 1995 and 1994, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1995 in
conformity with generally accepted accounting principles, and the related
financial statement schedule, when considered in relation to the basic
financial statements, presents fairly, in all material respects, the
information set forth therein.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company owns commercial property
situated in New York City. As discussed more fully in Note 11 to these
financial statements, the original lessee of this property had sustained
substantial operating losses during 1995 and 1994, and on December 29, 1995
assigned the operating lease to a new lessee, thereby effectively terminating
the liability under the operating lease of the original lessee and its
remaining partners. The new lessee has failed to pay the property's real
estate taxes that fell due on January 1, 1996, which constitutes a default of
<PAGE>
- 2 -
the operating lease as of that date, as well as a breach of the Company's
obligations under the fee mortgage. These events raise substantial doubt
about the Company's ability to continue as a going concern.
Management's actions subsequent to these events, and its plans in regard to
these matters, including the proposed solicitation of consents from the
participants in the Company to sell the property, are also described in Note
11. The financial statements do not include any adjustments that might result
from the outcome of these uncertainties.
Jacobs Evall & Blumenfeld LLP
Certified Public Accountants
New York, N. Y.
April 10, 1996
<PAGE>
EXHIBIT A
GARMENT CAPITOL ASSOCIATES
BALANCE SHEETS
A S S E T S
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents (Note 10):
Morgan Guaranty Trust Company of New York $ 37,547 $ 37,467
Distribution account held by
Wien, Malkin & Bettex................... 49,826 51,009
Fidelity U.S. Treasury Income
Portfolio............................... 826 232,847
TOTAL CURRENT ASSETS............... 88,199 321,323
Real Estate (Notes 2b, 3 and 11):
Land....................................... 2,500,000 2,500,000
Building................................... $8,000,000 $8,000,000
Less: Accumulated depreciation.......... 8,000,000 - 8,000,000 -
Other Assets:
Mortgage refinancing costs, less
accumulated amortization of $53,025
in 1995 and $24,838 in 1994 (Note 2c)..... 54,025 44,644
TOTAL ASSETS....................... $2,642,224 $2,865,967
</TABLE>
LIABILITIES AND PARTNERS' CAPITAL DEFICIT
<TABLE>
<S> <C> <C> <C> <C>
Current Liabilities:
Principal payments of first
mortgage payable within one
year (Notes 3 and 11)..................... $ 133,052 $3,312,692
Accrued interest payable................... 26,906 65,371
TOTAL CURRENT LIABILITIES.......... 159,958 3,378,063
Long-term Liabilities:
Bonds, mortgages and similar debt:
First mortgage payable (Notes 3 and 11).. $3,045,988 -
Less: Current installments shown above.. 133,052 2,912,936 - -
TOTAL LIABILITIES.................. 3,072,894 3,378,063
Partners' capital deficit (Exhibit C)........ (430,670)
(512,096)
TOTAL LIABILITIES AND PARTNERS'
CAPITAL DEFICIT................... $2,642,224 $2,865,967
</TABLE>
See accompanying notes to financial statements.
<PAGE>
EXHIBIT B
GARMENT CAPITOL ASSOCIATES
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Revenues:
Rent income, from a related
party (Notes 4 and 11)................... $1,090,000 $1,090,000 $2,100,196
Dividend income........................... 3,027 7,994 1,683
1,093,027 1,097,994 2,101,879
Expenses:
Interest on mortgage (Note 3)............. 328,802 348,479 324,445
Supervisory services, to a
related party (Note 5)................... 42,500 42,500 135,601
Amortization of mortgage
refinancing costs (Note 2c).............. 28,187 15,307 7,748
399,489 406,286 467,794
NET INCOME, CARRIED TO PARTNERS'
CAPITAL DEFICIT (NOTE 8)......... $ 693,538 $ 691,708 $1,634,085
Earnings per $5,000 participation
unit, based on 1,050 participation
units outstanding during each year......... $ 661 $ 659 $ 1,556
</TABLE>
See accompanying notes to financial statements.
<PAGE>
EXHIBIT C-1
GARMENT CAPITOL ASSOCIATES
STATEMENT OF PARTNERS' CAPITAL DEFICIT
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Partners' Partners'
capital deficit Share of capital deficit
January 1, 1995 net income Distributions December 31, 1995
<S> <C> <C> <C> <C>
Donald A. Bettex Group........ $(170,699) $231,179 $ 204,037 $(143,557)
Peter L. Malkin Group......... (170,699) 231,179 204,037 (143,557)
Martin D. Newman Group
(formerly Alvin
Silverman Group)............ (170,698) 231,180 204,038 (143,556)
$(512,096) $693,538 $ 612,112 $(430,670)
</TABLE>
See accompanying notes to financial statements.
<PAGE>
EXHIBIT C-2
GARMENT CAPITOL ASSOCIATES
STATEMENT OF PARTNERS' CAPITAL DEFICIT
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
Partners' Partners'
capital deficit Share of capital deficit
January 1, 1994 net income Distributions December 31, 1994
<S> <C> <C> <C> <C>
Donald A. Bettex Group...... $(197,231) $ 230,570 $ 204,038 $(170,699)
Peter L. Malkin Group....... (197,231) 230,569 204,037 (170,699)
Alvin Silverman Group....... (197,230) 230,569 204,037 (170,698)
$(591,692) $ 691,708 $ 612,112 $(512,096)
</TABLE>
See accompanying notes to financial statements.
<PAGE>
EXHIBIT C-3
GARMENT CAPITOL ASSOCIATES
STATEMENT OF PARTNERS' CAPITAL DEFICIT
YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
Partners' Partners'
capital deficit Share of capital deficit
January 1, 1993 net income Distributions December 31, 1993
<S> <C> <C> <C> <C>
Donald A. Bettex Group........ $(272,190) $ 544,695 $ 469,736 $(197,231)
Peter L. Malkin Group......... (272,190) 544,695 469,736 (197,231)
Alvin Silverman Group......... (272,190) 544,695 469,735 (197,230)
$(816,570) $1,634,085 $1,409,207 $(591,692)
</TABLE>
See accompanying notes to financial statements.
<PAGE>
EXHIBIT D
GARMENT CAPITOL ASSOCIATES
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Cash flows from operating activities:
Net income...................................... $ 693,538 $ 691,708 $1,634,085
Adjustments to reconcile net income to
cash provided by operating activities:
Amortization of mortgage refinancing
costs (Note 2c)............................. 28,187 15,307 7,748
Changes in operating liabilities:
Accrued interest payable................... (38,465) 32,091 5,163
Rent received in advance................... - - (33,763)
Mortgage refinancing costs paid............ (37,568) (25,493) (10,226)
Net cash provided by
operating activities................ 645,692 713,613 1,603,007
Cash flows from financing activities:
Cash distributions.............................. (612,112) (612,112) (1,409,207)
Principal payments on first mortgage payable.... (266,704) (32,118) (29,218)
Net cash used in financing
activities.......................... (878,816) (644,230) (1,438,425)
Net increase (decrease) in cash
and cash equivalents................ (233,124) 69,383 164,582
Cash and cash equivalents, beginning of year...... 321,323 251,940 87,358
CASH AND CASH EQUIVALENTS,
END OF YEAR......................... $ 88,199 $ 321,323 $ 251,940
Supplemental disclosures of cash flow information:
1995 1994 1993
Cash paid for:
Interest...................................... $ 367,267 $ 316,388 $ 319,282
</TABLE>
See accompanying notes to financial statements.
<PAGE>
GARMENT CAPITOL ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
1. Business Activity
Garment Capitol Associates ("Associates") is a general partnership which
owns commercial property situated at 498 Seventh Avenue, New York, New
York. Through December 28, 1995 the property was net leased to 498
Seventh Avenue Associates (the "Original Lessee"). Effective December 29,
1995 the operating lease was assigned to 4987 Corporation (the "New
Lessee"). See Notes 4 and 11.
2. Summary of Significant Accounting Policies
a. Cash and Cash Equivalents:
Cash and cash equivalents include investments in money market funds
and all highly liquid debt instruments purchased with a maturity of
three months or less.
b. Real Estate and Depreciation of Building:
Real estate, consisting of land and building (the "Property"), is
stated at cost. The building is fully depreciated. Depreciation of
the building had been provided on the straight-line method based on a
thirty-year life (3-1/3% per annum).
c. Mortgage Refinancing Costs and Amortization:
Mortgage refinancing costs totaling $107,050 have been incurred in
connection with the December 1, 1992 refinancing of the first
mortgage payable (see Note 3), and are being charged to income
ratably over the five year term of the first mortgage. Such costs
include payments of $49,564 to the firm of Wien, Malkin & Bettex, a
related party (see Note 5).
d. Use of Estimates:
In preparing financial statements in conformity with generally
accepted accounting principles, management often makes estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements, as well as the reported amounts
of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
3. First Mortgage Payable
On November 30, 1987, a first mortgage was placed on the Property with
Apple Bank for Savings in the amount of $3,485,000. Annual mortgage
charges were $348,500, payable in equal monthly installments, applied
first to interest at the rate of 9-1/2% per annum and the balance to
principal. The mortgage was scheduled to mature on December 1, 1992 with
a balance of $3,376,341 but was extended until June 16, 1993, when the
bank issued a commitment to extend and modify the mortgage for a five year
<PAGE>
GARMENT CAPITOL ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
(continued)
3. First Mortgage Payable (continued)
period from December 1, 1992 through December 1, 1997. The closing, which
had been delayed, occurred on March 23, 1995. The terms of the extended
mortgage provide for constant monthly payments totalling $435,388 per
annum, including interest at the rate of 10% per annum from December 1,
1992 through October 31, 1993; constant monthly payments totalling
$447,316 per annum, including interest at the rate of 10 1/2% per annum
from November 1, 1993 through November 30, 1994; and constant payments
totalling $449,586 per annum, including interest at the rate of 10.6% per
annum from December 1, 1994 through maturity. The constant payments are
based on a fifteen year amortization schedule. Payments of principal and
interest made subsequent to the original maturity date (December 1, 1992)
were reapplied according to these new repayment terms and, at the closing,
a retroactive payment of $218,081 was made to bring the payments current
with the new mortgage schedule. The balance of the mortgage at maturity
will be $2,778,001.
Principal payments required to be made on long-term debt are as follows:
Year ending December 31,
1996................................................ $ 133,052
Through December 1, 1997............................ 2,912,936
$3,045,988
The Property is pledged as collateral for the first mortgage. See Note
11.
4. Related Party Transactions - Rent Income
Rent income for the years ended December 31, 1995, 1994 and 1993
represents twelve equal monthly installments of an annual net rent of
$1,090,000 (the "Basic Rent") under a net operating lease dated May 1,
1957 (the "Operating Lease") with the Original Lessee, plus, where
applicable, payments of additional rent as provided under certain
conditions with respect to the lessee's defined net income from operations
for lease years ending April 30th.
For the years ended December 31, 1995 and 1994, no additional rent was
earned from the Original Lessee for its lease years ended April 30, 1995
and 1994. For the year ended December 31, 1993 additional rent of
$1,010,196 was earned from the Original Lessee for its lease year ended
April 30, 1993.
No additional rent is accrued by Associates for the period between the end
of the lessee's lease year and the end of Associates' fiscal year.
<PAGE>
GARMENT CAPITOL ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
(continued)
4. Related Party Transactions - Rent Income (continued)
The current term of the Operating Lease expires on April 30, 2007. The
Operating Lease includes a renewal option to extend the term to April 30,
2032. Pursuant to the Operating Lease, the lessee has the right to
surrender its leasehold interest at any time, upon 60 days' prior written
notice, without further liability after the date of surrender. The lessee
also has the right to assign the Operating Lease, without Associates'
consent, so long as the assignee assumes, in writing, all of the
obligations of the Operating Lease. The Original Lessee exercised such
assignment right on December 29, 1995, and the New Lessee assumed all
lessee obligations under the Operating Lease as of that date; such
assignment effectively terminated the liability of the Original Lessee and
its remaining partners under the Operating Lease. The shares in the New
Lessee are owned by the partners in the Original Lessee. See Note 11.
A partner in Associates is also a partner in the Original Lessee.
5. Related Party Transactions - Supervisory Services
Supervisory services (including disbursements and cost of regular
accounting services) for the years ended December 31, 1995, 1994 and 1993,
totaling $42,500, $42,500 and $135,601, respectively, were paid to the
firm of Wien, Malkin & Bettex. Some partners in that firm are also
partners in Associates. Fees for supervisory services are paid pursuant
to an agreement, which amount is based on a rate of return of investment
achieved by the participants in Associates each year.
6. Number of Participants
There were approximately 900 participants in the participating groups at
December 31, 1995, 1994 and 1993.
7. Determination of Distributions to Participants
Distributions to participants represent mainly the excess of rent income
received over the mortgage requirements, as anticipated, and expenses
paid.
8. Distributions and Amount of Income per $5,000 Participation Unit
Distributions per $5,000 participation unit during the years 1995, 1994
and 1993, based on 1,050 participation units outstanding during each year,
totaled $583, $583 and $1,342, respectively. All such distributions
consisted of income only.
<PAGE>
GARMENT CAPITOL ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
(continued)
8. Distributions and Amount of Income per $5,000 Participation Unit
(continued)
Net income is computed without regard to income tax expense since
Associates does not pay a tax on its income; instead, any such taxes are
paid by the participants in their individual capacities.
Generally, financial and income tax reporting have been the same.
However, for income tax purposes in 1992, the rent received in advance
from the lessee in 1992 in excess of the overage rent earned (Note 4),
amounting to $33,763, was treated as taxable income in 1992 and reduced
taxable income in 1993.
9. Economic Dependency on Operations of Building
Associates' building is located in the heart of New York City's "Garment
District", and its tenants are almost exclusively in the garment business.
The property, as well as other buildings in the district, has suffered
significant vacancies in recent years. As a result, the Original Lessee
has experienced continuous decreases in
its revenue stream, causing its net income from operations, as defined in
the Operating Lease, in 1994 and 1995 to fall below the amount necessary
to require payment of any additional rent for such years. For the lease
year ended April 30, 1995 the Original Lessee reported a net loss
(unaudited) of $2,222,031. See Note 11.
10. Concentration of Credit Risk
Associates maintains cash balances in a bank, money market fund (Fidelity
U.S. Treasury Income Portfolio), and a distribution account held by Wien,
Malkin & Bettex. The bank balance is insured by the Federal Deposit
Insurance Corporation up to $100,000, and at December 31, 1995 was
completely insured. The cash in the money market fund and the
distribution account held by Wien, Malkin & Bettex is not insured. The
funds held in the distribution account were paid to the participants on
January 1, 1996.
11. Subsequent Events Regarding Default by New Lessee of the Operating Lease,
Breach of Associates' Obligations Under the Fee Mortgage, and Proposed
Solicitation of Consents from the Participants to a Sale of the Property
The New Lessee has paid Basic Rent under the Operating Lease due January
1, 1996, February 1, 1996, March 1, 1996 and April 1, 1996. Associates in
turn has continued to pay (1) the monthly mortgage payments to the Apple
Bank for Savings (the "Fee Mortgagee") on Associates' fee mortgage on the
Property (the "Fee Mortgage") through April 1, 1996; (2) its monthly fee
for supervisory services through April, 1996; and (3) its monthly
distributions to the participants in Associates. Associates holds the
April 1, 1996 rent to cover the May 1996 mortgage payment and a May 1996
distribution to participants. The New Lessee failed to pay the New York
City real estate and Business Improvement District ("BID") assessments in
the amounts of $936,180 and $29,695, respectively, which were due on
<PAGE>
GARMENT CAPITOL ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
(continued)
11. Subsequent Events Regarding Default by New Lessee of the Operating Lease,
Breach of Associates' Obligations Under the Fee Mortgage, and Proposed
Solicitation of Consents from the Participants to a Sale of the Property
(continued)
January 1, 1996 (collectively, the "1/1/96 Real Estate Taxes"). As a
result, the New Lessee is in default of the Operating Lease as of that
date.
The New Lessee has requested that Associates forbear from exercising its
rights and remedies under the Operating Lease, including termination of
the Operating Lease, by reason of the failure to pay the 1/1/96 Real
Estate Taxes, while management of Associates solicits the consent of its
participants to a sale of the Property (the "Solicitation"). If
Associates does forbear, the New Lessee has agreed to cooperate fully with
Associates in connection with the sale of the Property and to continue to
perform its other obligations under the Operating Lease, including payment
of the Basic Rent, to enable Associates to continue its monthly
distributions to the participants, pay its supervisory fee and pay its
monthly mortgage obligation.
The failure to pay the 1/1/96 Real Estate Taxes also constituted a breach
of Associates obligations under the Fee Mortgage. The shareholders of the
New Lessee (or designees on their behalf) have borrowed from the Fee
Mortgagee a sum equal to the 1/1/96 Real Estate Taxes and interest thereon
to the date of the borrowing. This sum was used to fund a protective
advance by the Fee Mortgagee to pay the 1/1/96 Real Estate Taxes and
interest thereon through the purchase of a subordinate participating
interest in the Fee Mortgage in such amount. As a result, the Fee
Mortgagee has agreed to forbear from exercising rights and remedies under
the Fee Mortgage based on Associates' failure to pay (or cause to be paid
by the New Lessee) the 1/1/96 Real Estate Taxes. Interest on the
protective advance will be paid by the New Lessee so long as the Operating
Lease continues in effect.
As to future real estate taxes and BID assessments on the Property
(together with the 1/1/96 Real Estate Taxes, the "Real Estate Taxes"), the
Fee Mortgagee has agreed to make additional loans to such individual
shareholders (or their designees) to fund further protective advances to
cover the Real Estate Taxes due July 1, 1996 (covering the period to
December 31, 1996) and January 1, 1997 (covering the period to June 30,
1997). Those individual borrowers intend to borrow the funds from the Fee
Mortgagee and fund the protective advances as required to pay the July 1,
1996 and January 1, 1997 Real Estate Taxes if the participants in
Associates authorize a sale of the Property and so long as the Operating
Lease continues in effect.
Management advises that the Solicitation, which is scheduled to be
completed no later than August 30, 1996, will express its belief that the
Property cannot be operated on a profitable basis without significant
capital improvements; it will also opine that the program to sell the
Property will permit Associates to liquidate its investment in an orderly
fashion and avoid the necessity of raising additional capital from the
participants and others to support and renovate the Property while
avoiding litigation costs and the risk of loss of the Property through a
Fee Mortgage foreclosure.
<PAGE>
GARMENT CAPITOL ASSOCIATES
OMITTED SCHEDULES
The following schedules have been omitted as not applicable in the present
instance:
SCHEDULE I - Condensed financial information of registrant.
SCHEDULE II - Valuation and qualifying accounts.
SCHEDULE IV - Mortgage loans on real estate.
<PAGE>
SCHEDULE III
GARMENT CAPITOL ASSOCIATES
Real Estate and Accumulated Depreciation
December 31, 1995
<TABLE>
<S> <C> <C>
Column
A Description Office building and land located at
498 Seventh Avenue, New York, N. Y.
B Encumbrances - Apple Bank for Savings
Balance at December 31, 1995................................. $ 3,045,988
C Initial cost to company
Land......................................................... $ 2,500,000
Building..................................................... $ 8,000,000
D Cost capitalized subsequent to acquisition..................... None
E Gross amount at which carried at
close of period
Land........................................................ $ 2,500,000
Building.................................................... 8,000,000
Total....................................................... $10,500,000(a)
F Accumulated depreciation....................................... $ 8,000,000(b)
G Date of construction 1921
H Date acquired May 1, 1957
I Life on which depreciation in latest
income statements is computed Not applicable
</TABLE>
(a) There have been no changes in the carrying values of real estate for
the years ended December 31, 1995, December 31, 1994 and December 31,
1993. The costs for federal income tax purposes are the same as for
financial statement purposes.
(b) Accumulated depreciation
Balance at January 1, 1993 $8,000,000
Depreciation:
F/Y/E 12/31/93 None
12/31/94 None
12/31/95 None None
Balance at December 31, 1995 $8,000,000
<PAGE>
APPENDIX
PRELIMINARY COPY
CONSENT
[Solicited by Peter L. Malkin, John L. Loehr and Stanley Katzman, as
Agents ("Agents"), on behalf of Garment Capitol Associates]
CONSENT TO SALE PROGRAM
As a Participant in Garment Capitol Associates ("Associates"),
the undersigned hereby
CONSENTS TO
DISAPPROVES OF
ABSTAINS FROM
authorizing the Agents and their respective successors, on behalf of
Associates, as follows:
1. To sell the land and building located at 498 Seventh
Avenue, New York, New York (the "Property") to a third party at a
price, and on such terms and conditions, as determined by the Agents,
to distribute the sale proceeds in accordance with the distribution
schedule recommended by the Agents and described in the Statement
dated April ___, 1996 referred to below and, following such sale and
distribution, to liquidate Associates; and
2. To forbear from terminating the Operating Lease for the
Property with 4987 Corporation (the "New Lessee") subject to (i)
continued compliance by the New Lessee with the terms of the
Operating Lease other than the requirement to pay the Real Estate
Taxes and (ii) the continuation of forbearance by the Fee Mortgagee
based on the funding of Real Estate Taxes through protective advances
under the Fee Mortgage through borrowings by individual shareholders
of the New Lessee (or designees on their behalf) (all such
capitalized terms being defined in Statement (defined below)).
Each of the matters for which a consent or authorization is being
solicited is more fully described in the Statement Issued by the
Agents in Connection with the Solicitation of Consents of the
Participants in Garment Capitol Associates, dated April __, 1996 (the
"Statement"), receipt of which is hereby acknowledged and which is
incorporated herein by reference.
Once given, this Consent is irrevocable and may not be revoked.
Dated:_______________, 1996
_______________________________
(Signature)<PAGE>
INDEX TO EXHIBITS
DOCUMENT EXHIBIT NUMBER
Assignment of Leasehold from 498 Seventh Avenue
Associates to 4987 Corporation 1
Acceptance of Assignment and Assumption of
obligations by 4987 Corporation 2
Receipt of Assignment and Assumption by
Garment Capitol Associates 3
Note in th amount of $1,012,274.18 made by
shareholders of 4987 Corporation
(or designees on their behalf) in favor of
Apple Bank relating to tax advance 4
Participating Agreement between Apple Bank
and 498 Advance L.L.C., the recipient of the
proceeds of the loan to the shareholders of
4987 Corporation (or other designees) 5
Apple Bank Forbearance Letter to Garment
Capital Associates 6
Apple Bank Future Commitment Letter to Garment
Capitol Associates and 498 Advance, L.L.C. 7
Fee Owner Forbearance Letter from Garment Capitol
Associates in favor of 4987 Corporation 8
Summary letter from Brown Harris Stevens
Appraisal & Consulting Services L.L.C. and
Edward S. Gordon Co., Inc. summarizing results
of consensus report 9
Unanimous Written Consent of Stockholders of
4987 Corporation authorizing the corporation to
cooperate in connection with the sale 10
Consent of Directors of 4987 Corporation
authorizing the corporation to cooperate in
connection with the sale 11<PAGE>
EXHIBIT 1
ASSIGNMENT OF LEASEHOLD
The Undersigned Partnership, for good and valuable
consideration, receipt whereof is hereby acknowledged, hereby
assigns, conveys and transfers to 4987 Corporation, a New York
Corporation, all of its right, title and interest in and to a
certain Leasehold to the real property more fully described in the
description attached hereto which Leasehold has been created by a
certain INDENTURE OF LEASE dated May 1, 1957 between GARMENT
CAPITOL ASSOCIATES as Landlord and 498 SEVENTH AVENUE ASSOCIATES
as Tenant, a copy of which INDENTURE OF LEASE is attached hereto
as Exhibit A, which Leasehold was extended by notice dated
January 7, 1981 until April 30, 2007 attached hereto as Exhibit B.
This assignment is executed and delivered this 28th day
of December, 1995.
498 Seventh Avenue Associates
By: /s/ Peter L. Malkin
Partner
STATE OF FLORIDA )
): ss.
COUNTY OF LEE, CAPTIVA ISLAND )
On the 28th day of December, 1995, before me personally
came PETER L. MALKIN, to me known and known to be the individual
who executed the foregoing instrument, and who, being duly sworn
by me, did depose and say that he is a partner in the partnership
498 Seventh Avenue Associates and that he had authority to sign
the same, and acknowledged that he executed the same as the act
and deed of said partnership.
/s/ Juliana Da Costa,
Juliana Da Costa, Notary Public
State of Florida<PAGE>
ALL those certain plots, pieces or parcels of land,
situate, lying and being in the Borough of Manhattan, City, County
and State of New York, bounded and described as follows:
BEGINNING at the corner formed by the intersection of
the westerly side of Seventh Avenue with the southerly side of
37th Street; running thence WESTERLY along the said southerly side
of 37th Street, 225 feet; thence SOUTHERLY parallel with Seventh
Avenue and part of the distance through a party wall, 60 feet;
thence EASTERLY parallel with 36th Street, 6-1/2 inches to the
center of a party wall; thence SOUTHERLY parallel with Seventh
Avenue and through said party wall, 45 feet 10 inches; thence
EASTERLY parallel with 36th Street, 10 feet 6 inches; thence
SOUTHERLY parallel with Seventh Avenue, 3 feet 5 inches; thence
WESTERLY and nearly parallel with 36th Street, 18 feet 4-4/5
inches to a point distant 88 feet 1 inch northerly on a line
parallel with Seventh Avenue from the northerly side of 36th
Street; thence NORTHERLY and parallel with Seventh Avenue, 2-3/4
inches to a point distant 88 feet 3-3/4 inches northerly from the
northerly side of 36th Street; thence WESTERLY and nearly parallel
with 36th Street, 18 feet 4-4/5 inches to a point distant 87 feet
10 inches northerly on a line parallel with Seventh Avenue from
the northerly side of 36th Street; thence SOUTHERLY along said
line parallel with Seventh Avenue, and part of the distance
through a party wall, 87 feet 10 inches to the said northerly side
of 36th Street; thence EASTERLY along said northerly side of 36th
Street, 170 feet 9 inches to a point distant 80 feet westerly from
the northwesterly corner of Seventh Avenue and 36th Street; thence
NORTHERLY parallel with Seventh Avenue, 98 feet 9 inches; thence
EASTERLY parallel with 36th Street, 80 feet to the westerly side
of Seventh Avenue at a point distant 98 feet 9 inches southerly
from the southwesterly corner of Seventh Avenue and 37th Street,
and thence NORTHERLY along said westerly side of Seventh Avenue,
98 feet 9 inches to the point or place of beginning.
SAID premises being known as and by the street numbers
492-498 Seventh Avenue, 200-216 West 37th Street, and 205-221 West
36th Street, New York, New York.
TOGETHER with all right, title and interest of Landlord
in and to any tunnels, alleys, streets and roads in front of,
adjoining or connecting to said premises;
TOGETHER with all fixtures, chattels and articles of
personal property owned or leased by Landlord and now or hereafter
attached to or used in connection with said premises, and any and
all replacements thereof and additions thereto;
-2-<PAGE>
SUBJECT TO:
a. Existing leases and tenancies of space in the
demised premises and rights of occupants thereof;
b. Any state of facts an accurate survey may show;
c. All consents, covenants, restrictions, easements,
reservations, party wall agreements, and all mechanics liens
affecting the demised premises;
d. All past due and current taxes, water charges,
sewer rents, assessments and other public and governmental charges
of any nature whatsoever;
e. All ordinances and laws of any governmental
authority and existing violations thereof, if any;
f. A certain tunnel running beneath the surface of
West 37th Street between 498 Seventh Avenue and 500 Seventh Avenue
used under the provisions of a certain resolution of the Board of
Estimate of the City of New York adopted November 19, 1948, and
approved by the Mayor of the City of New York on December 28,
1948, and the provisions and conditions therein set forth.
-3-<PAGE>
EXHIBIT 2
ACCEPTANCE OF ASSIGNMENT AND ASSUMPTION OF OBLIGATIONS
The undersigned 4987 Corporation, as Assignee from 498
SEVENTH AVENUE ASSOCIATES, a New York General Partnership, of a
certain Leasehold dated May 1, 1957 and extended on January 7,
1981 to April 30, 2007, between Garment Capitol Associates,
Landlord, and 498 SEVENTH AVENUE ASSOCIATES, Tenant, which
Leasehold is evidenced by the INDENTURE OF LEASE attached hereto
as Exhibit A, hereby accepts such assignment of the Leasehold and
hereby assumes all of the obligations of 498 SEVENTH AVENUE
ASSOCIATES under said Leasehold and Indenture.
This Acceptance and Assumption is executed and delivered
this 29th day of December, 1995.
4987 Corporation
By: /s/Thomas N. Keltner
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this 29th day of December, 1995, before me came
Thomas N. Keltner, Jr., to me known, who being by me duly sworn,
did depose and say that he resides at 1111 Park Avenue, New York,
New York 10128; that he is President of 4987 Corporation, the
corporation described in and which executed to foregoing
instrument; and that he signed his name thereto by order of the
Board of Directors of said corporation.
/s/ Notary Public
Notary Public<PAGE>
EXHIBIT 3
R E C E I P T
The undersigned acknowledges receipt of an original of
the attached Assignment and assumption as of December 29, 1995.
GARMENT CAPITOL ASSOCIATES
By:/s/ Peter L. Malkin<PAGE>
EXHIBIT 4
NOTE
$1,012,274.18 New York, New York April 2, 1996
FOR VALUE RECEIVED, HARRY B. HELMSLEY, PETER L. MALKIN,
IRVING SCHNEIDER, and ALVIN SCHWARTZ, all individuals having an
address c/o Wien, Malkin & Bettex, 60 East 42nd Street, New York,
New York 10165, Attention: Peter L. Malkin (collectively, the
"Maker"), jointly and severally, promise to pay to the order of
APPLE BANK FOR SAVINGS, a New York stock-form savings bank (the
"Bank"), having an address at 277 Park Avenue, New York, New York
10172 office the sum of ONE MILLION TWELVE THOUSAND TWO HUNDRED
SEVENTY-FOUR and 18/100 ($1,012,274.18) DOLLARS, which, as now
exists or may hereafter be reduced, is referred to below as the
"Principal Sum" or the "Loan", in immediately available funds and
in lawful money of the United States of America, together with
interest, as hereinafter provided for, as follows:
I. interest, in arrears, commencing on [April] 1,
1996, and on the first day of each and every month thereafter, up
to and including the "Maturity Date", as defined below, computed
on the basis of a 360 day year for the actual number of days
elapsed in each monthly payment period at a per annum rate (the
"Interest Rate") equal to Ten and Six-Tenths percent (10.60%); and
II. the unpaid Principal Sum, together with all
accrued and unpaid interest thereon, shall be due and payable on
December 1, 1997, or on such earlier date, upon acceleration, in
the event of a default hereunder or otherwise (the "Maturity
Date").
Payments hereunder shall be made in legal tender of the
United States to the Bank's servicing agent named below or to such
other place as the holder hereof may from time to time designate
in writing:
Servicing Agent:
Apple Bank for Savings
P.O. Box 39
1075 Central Park Avenue
Scarsdale, New York 10583
The Maker, without penalty or premium, upon no less than ten
(10) days prior written notice to the Bank, which notice shall be
irrevocable, may prepay the Principal Sum in whole or in part (in
increments of $100,000), together with the accrued and unpaid
interest thereon.
-1-<PAGE>
If any payment of principal or interest becomes due on a day
on which banks in the City, County and State of New York are
required or permitted by law to remain closed, such payment shall
be made on the next succeeding Business Day. Any such extension
of time shall be included in computing interest in connection with
such payment.
AND IT IS EXPRESSLY AGREED AS FOLLOWS:
A. In the event that any payment shall become overdue for a
period of five (5) days, a late charge of four cents (4 ) for each
dollar ($1.00) so overdue shall be immediately due and payable for
the purpose of defraying the expense incident to handling such
delinquent payment.
B. The whole of the Principal Sum or any part thereof,
shall, forthwith or thereafter, at the option of the Bank, become
due and payable if default be made in any payment under this Note,
or upon the happening of any default by Garment Capitol Associates
under that certain Modification and Extension Agreement, dated as
of December 1, 1992, between Garment Capitol Associates and the
Bank in the principal amount of $3,376,340.61 and recorded in the
office of the New York City Register, New York County, on
March 27, 1995 in Reel 2194, Page 0910 (the "Mortgage") which
default shall entitle the Bank to declare the same, or any part
hereof, to be due and payable.
C. All notices, requests or other communications required
to be given pursuant to this Note shall be in writing and shall be
personally delivered, delivered by overnight courier, sent by
facsimile or mailed by registered or certified mail, postage
prepaid, with return receipt requested, addressed as follows:
If to the Maker:
c/o Wien, Malkin & Bettex
60 East 42nd Street
New York, New York 10165
Attn: Peter L. Malkin
With a copy to:
Wien, Malkin & Bettex
60 East 42nd Street
New York, New York 10165
Attn: Howard E. Peskoe, Esq.
-2-<PAGE>
If to the Bank:
Apple Bank for Savings
277 Park Avenue
New York, New York 10172
Attn: Ms. Robin Thompson
With a copy to:
Richards & O'Neil, LLP
885 Third Avenue
New York, New York 10022
Attn: Kenneth L. Sankin, Esq.
Any party may change the person or address to whom or which
notices are to be given hereunder, by notice duly given hereunder;
provided, however, that any such notice shall be deemed to have
been given hereunder only when actually received by the party to
which it is addressed. Any notice or other communication given
hereunder shall be deemed to have been given or delivered, if
personally delivered or if delivered by reputable overnight
courier, upon delivery, and if sent by certified mail, return
receipt requested, on the third (3rd) Business Day after mailing.
Each party shall be entitled to rely on all communications which
purport to be given on behalf of any other party hereto and
purport to be signed by an authorized signatory of such party or
the above indicated attorneys.
D. Presentment for payment, notice of dishonor, protest,
and notice of protest are hereby waived by the Maker and by each
endorser and guarantor of this Note.
E. Any check, draft, money order or other instrument given
in payment of all or any portion of this Note may be accepted by
the Bank and handled in collection in the customary manner, but
the same shall not constitute payment hereunder or diminish any
rights of the Bank, except to the extent actual cash proceeds of
such instruments are unconditionally received by the Bank and
applied to the indebtedness in the manner provided in this Note.
F. If more than one person joins the execution of this
Note, the obligation shall be joint and several, and the relative
words herein shall be read as if written in the plural or if any
be of the feminine sex, in the feminine gender, as the case may
be.
G. This Note may not be changed or modified orally, but
only by an instrument in writing signed by the party against whom
such change or modification is sought to be enforced.
H. If the Principal Sum of this Note is not paid when due
and payable, whether by maturity or acceleration, the outstanding
-3-<PAGE>
balance shall bear interest from the due date to the date of
payment in full at the rate of 16% per annum; provided, however,
that this Note is subject to the express condition that at no time
shall the Maker be obligated or required to pay interest on the
Principal Sum at a rate which could subject the holder of this
Note to either civil or criminal liability as a result of being in
excess of the maximum interest rate which the Maker is permitted
by law to contract or agree to pay. If by the terms of this Note,
the Maker is at any time required or obligated to pay interest on
the principal balance due under this Note at a rate in excess of
such maximum rate, the rate of interest under this Note shall be
deemed to be immediately reduced to such maximum rate and the
interest rate shall be computed at such maximum rate and all prior
interest payments in excess of such maximum rate shall be applied
and shall be deemed to have been payments in reduction of the
principal balance of this Note.
I. In the event that this Note is placed in the hands of an
attorney for collection by reason of any default hereunder, the
Maker agrees to pay the Bank's reasonable attorneys' fees and
expenses.
J. This Note is and shall be deemed to have been made and
delivered in the State of New York and in all respects shall be
governed and construed in accordance with the laws of that State.
K. The Maker hereby irrevocably and unconditionally:
1. consents to the jurisdiction of the courts of the
State of New York in any actions, suits, or proceedings arising
out of or in connection with this Note (although this covenant
shall not preclude an action on this Note by the Bank in any other
appropriate jurisdiction);
2. waives any objection which the Maker may now or
hereafter have to the laying of venue of any of the aforesaid
actions, suits, or proceedings arising out of or in connection
with this Note or the Loan Documents brought in any of the
aforesaid courts;
3. waives the right to plead or claim that any such
action, suit, or proceeding brought in any such court has been
brought in an inconvenient forum; and
4. waives the requirements of personal service in
connection with any actions, suits, or proceedings arising out of
or in connection with this Note or any of the Loan Documents, and
consents that all service of process may be made by certified
mail, return receipt requested, addressed to the Maker and its
attorney at the address of the Maker and its attorney set forth
above, or at such address, for the Maker and its attorney, as the
-4-<PAGE>
Maker shall give to the Bank by written notice sent by certified
mail, return receipt requested. Service so being deemed completed
two (2) days after the same has been posted as aforesaid; and
5. waives the right, in litigation in which it and the
Bank are adverse parties, to trial by jury and the right to assert
any set-off or counterclaim of any nature or description.
L. The word "Maker" shall include the Maker's
representatives, successors and assigns and the word "Bank" shall
include the Bank's representatives, successors and assigns.
M. The provisions of this Note are severable. If any clause
or provision shall be held invalid or unenforceable, in whole or
in part, then such invalidity or unenforceability shall affect
only such clause or provision, or part thereof, and shall not in
any manner affect any other clause or provision in this Note.
N. No modification or waiver of or with respect to any
provision of this Note, or consent by the Bank to any departure by
the Maker from any of the terms or conditions hereof, shall, in
any event, be effective unless it shall be in writing and executed
by the Bank. Such waiver or consent shall, in any event, be
effective only in the specific instance and for the purpose for
which it was given. No notice to or demand on the Maker in any
case shall, of itself, entitle the Maker to any other or further
notice or demand in similar or other circumstances.
O. No failure or delay by the Bank in exercising any right,
power or privilege under this Note shall operate as a waiver
thereof, nor shall any single or partial exercise thereof preclude
any other or further exercise of any such right, power or
privilege.
P. Each and every right granted to the Bank under this
Note, and under all other agreements, documents or instruments
executed by the Maker and delivered pursuant to or in connection
with this Note which evidence or secure the indebtedness described
herein or any other obligation of the Maker to the Bank arising as
set forth therein, shall be cumulative and may be exercised by the
Bank from time to time.
Q. This Note, and all other agreements, documents and
instruments executed by the Maker and delivered pursuant to or in
connection with this Note which evidence or secure the
indebtedness described herein or any other obligation of the Maker
to the Bank arising as set forth therein, contain the entire
agreement between the Maker and the Bank relating to the subject
matter hereof and thereof. The Maker expressly acknowledges that
the Bank has not made and the Maker is not relying on any oral
representations, agreements or commitments of the Bank or any
officer, employee, agent or representative thereof.
-5-<PAGE>
R. NO CLAIM MAY BE MADE BY THE MAKER, ANY GUARANTOR OF THE
LOAN, OR ANY OTHER PERSON AGAINST THE BANK OR THE AFFILIATES,
DIRECTORS, OFFICERS, EMPLOYEES, ATTORNEYS OR AGENTS OF THE BANK
FOR ANY SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES OR, TO THE
FULLEST EXTENT PERMITTED BY LAW, FOR ANY PUNITIVE DAMAGES IN
RESPECT OF ANY CLAIM OR CAUSE OF ACTION (WHETHER BASED ON
CONTRACT, TORT, STATUTORY LIABILITY, OR ANY OTHER GROUND) BASED
ON, ARISING OUT OF OR RELATED TO ANY LOAN DOCUMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR ANY ACT, OMISSION OR EVENT
OCCURRING IN CONNECTION THEREWITH, AND THE MAKER (FOR ITSELF AND
ON BEHALF OF EACH GUARANTOR OF THE LOAN) HEREBY WAIVES, RELEASES
AND AGREES NEVER TO SUE UPON ANY CLAIM FOR ANY SUCH DAMAGES,
WHETHER SUCH CLAIM NOW EXISTS OR HEREAFTER ARISES AND WHETHER OR
NOT IT IS NOW KNOWN OR SUSPECTED TO EXIST IN ITS FAVOR.
S. This Note shall be due and payable, and payment in full
shall be deemed accelerated, upon the acceleration by the Bank, or
the maturity, of the Indebtedness (as such term is defined in the
Mortgage) to the Bank of Garment Capitol Associates as evidenced
by the Mortgage.
/s/ Harry B. Helmsley, by Leona M.
Helmsley, as attorney-in-fact for
Harry B. Helmsley
/s/ Peter L. Malkin
Peter L. Malkin
/s/ Irving Schneider
Irving Schneider
/s/ Alvin Schwartz
Alvin Schwartz
-6-<PAGE>
STATE OF FLORIDA )
: ss.:
COUNTY OF SARASOTA)
On this 2th day of March, 1996, before me personally
came Leona M. Helmsley, to me personally known to be the person
described and appointed attorney in fact in and by a certain power
of attorney executed by Harry B. Helmsely, dated March 18, 1987,
and acknowledged to me that she had executed the foregoing
instrument as the act of the said Harry B. Helmsley.
/s/ Notary Public
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this 27th day of March, 1996, before me personally
came Peter L. Malkin, to me known and known to me to be the
individual described in and who executed the foregoing instrument
and he duly acknowledged to me that he executed the same.
/s/ Notary Public
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this 1st day of April, 1996, before me personally
came Irving Schneider, to me known and known to me to be the
individual described in and who executed the foregoing instrument
and he duly acknowledged to me that he executed the same.
/s/ Notary Public
Notary Public
-7-<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this lst day of April, 1996, before me personally
came Alvin Schwartz, to me known and known to me to be the
individual described in and who executed the foregoing instrument
and he duly acknowledged to me that he executed the same.
/s/ Notary Public
Notary Public
-8-<PAGE>
EXHIBIT 5
PARTICIPATION AGREEMENT
April 2, 1996
498 Advance, L.L.C.
c/o Wien, Malkin & Bettex
60 East 42nd Street
New York, New York 10165
Gentlemen:
The undersigned, Apple Bank for Savings ("Bank"), has
made a loan (the "Loan") in the original principal sum of
$3,376,340.61 to Garment Capitol Associates ("Borrower"), as
evidenced by that certain Modification and Extension Agreement,
dated as of December 1, 1992, between the Bank and the Borrower,
and recorded in the Office of the New York City Register, New York
County on March 27, 1995, in Reel 2194, Page 0910 (the "Mortgage")
(the Mortgage; together with the Note described therein and all
other documents and instruments executed or delivered by the
Borrower in connection therewith, collectively, the "Loan
Documents") covering land located in the City, County and State
(the "Premises"), more particularly known as 498 Seventh Avenue,
New York, New York.
Bank agrees that Bank shall sell to you ("Participant"),
and Participant agrees that Participant shall purchase from Bank,
simultaneously with the execution and delivery of this
Participation Agreement, an undivided, fully subordinated,
interest ("Participation Interest") in the Loan, in the amount of
$1,012,274.18.
The Participation Interest shall be evidenced by a
participation certificate (the "Participation Certificate") which
Bank has issued to Participant simultaneously with the purchase
thereof in the form annexed to this Participation Agreement as
Exhibit B.
The Participation Interest is sold to Participant for
Participant's own account and risk and without any recourse to
Bank, on the terms and conditions set forth herein. Participant
confirms and acknowledges that amount of the Participation
Interest reflects a protective advance in the amount of
$974,323.18 made under the Mortgage by the Bank as of the date
hereof to pay outstanding real estate taxes for the Premises which<PAGE>
were due and payable on January 1, 1996, and interest and
penalties thereon through the date of the Advance (the amount so
advanced, the "Advance").
The execution and delivery of this Participation
Agreement and the issuance and delivery to Participant as
aforesaid of the Participation Certificate shall, without further
action by Participant or Bank, constitute the sale and assignment
by Bank and the purchase by Participant of the Participation
Interest.
In any given month, Borrower is to pay to Bank (x) a
payment of principal and interest in such amount as set forth in
the Mortgage (the "P/I Payment"); (y) other amounts as they may
become due and payable in accordance with the Loan Documents
("Additional Amounts") and (z) a payment of interest accrued on
the Advance (the "Advance Interest Payment"; together with the P/I
Payment, collectively, the "Monthly Payment"). Bank shall,
promptly following receipt by Bank from or on behalf of Borrower
of the Monthly Payment, credit to Participant Participant's share
of interest included in the Monthly Payment, in the proportion
which the Participation Interest bears to the total unpaid
principal of the Loan (including the amount of the Advance), but
only if, when and to the extent received by Bank from Borrower in
respect of the Loan or any claim in respect thereof; provided,
however, that, (a) Participant shall only be entitled to receive
interest on its Participation Interest to the extent of monies
received by Bank in any month in excess of (i) the P/I Payment
(which Bank will apply pursuant to the Loan Documents first to
interest on the principal amount retained by Bank in the Loan and
then in reduction of the principal amount of the Loan retained by
the Bank; and (ii) any Additional Amounts then due and owing (such
principal amount and interest thereon, together with any such
Additional Amounts, collectively, the "Retained Obligations"), in
accordance with the Loan Documents), and (b) Bank has not
accelerated payment of the Loan by virtue of a default thereunder.
If in accordance with this paragraph Participant is not entitled
to receive its proportionate share of any Monthly Payment, Bank
may apply all of such Monthly Payment toward payment of the
Retained Obligations.
Bank shall, immediately upon receipt by Bank from
Borrower or otherwise of any payment of principal on account of
the Loan in addition to principal paid as part of any P/I Payment,
apply such payment in accordance with the Loan Documents to the
Retained Obligations and then, once the Retained Obligations are
paid in full, to the Advance.
Participant hereby irrevocably directs Bank to apply any
payments of interest and principal received by Bank from Borrower
to which Participant is entitled hereunder directly to payment of
principal and interest due and payable under that certain note
-2-<PAGE>
(the "Individual Note"), dated the date hereof, made by Harry B.
Helmsley, Peter L. Malkin, Irving Schneider, and Alvin Schwartz
and payable to Bank, in the principal sum of $974,323.18.
If Bank should for any reason make any payment to
Participant (or apply any such payment to the interest and
principal due under the Participant Note) in anticipation of the
receipt of funds in respect of the Loan and such funds are not
received by Bank as anticipated, then Participant shall, on demand
of Bank, forthwith return to Bank any such amounts transferred to
Participant by Bank in respect of the Participation Interest (or
the application of such funds to the Participant Note shall be
voided). If Bank is required at any time to return to Borrower,
any guarantor of the Loan (a "Guarantor"), any other party or a
trustee, receiver, liquidator, custodian or other similar official
any portion of any payments received by Bank (whether from
Borrower, any Guarantor or otherwise from any source), then
Participant shall, on demand of Bank, forthwith return to Bank any
such payments transferred to Participant in respect of the
Participation Interest, but without interest on such payments
(unless Bank is required to pay interest on such amounts to the
person recovering such payments); provided, however, that, if Bank
is obligated to return any monies received from Participant in
connection with the purchase of the Participation Interest, then
the Participation Interest shall automatically be reduced by said
amount of monies so returned.
Notwithstanding anything to the contrary contained
herein, the sole obligation of Bank shall be to distribute
promptly to Participant, as and when received by Bank, the amounts
credited to Participant and credited the payment of principal and
interest on the Individual Note, all as provided above. Except as
expressly provided herein, Bank does not assume any other duties
or responsibilities and Participant specifically acknowledges that
Bank is under no duty or obligation whatsoever to deliver to
Participant any information concerning the Loan. Borrower further
confirms and acknowledges that Participant shall have no right
whatsoever to participate in any decisions affecting or relating
to the Loan, including, without limitation, any such decisions to
be made and actions to be taken in connection with any bankruptcy
proceeding relating to the Borrower and/or the Premises nor shall
Bank in any way be obligated to enforce all or any of its rights
or claims against Borrower, any Guarantor or the collateral for
the Loan.
If Bank, in its sole discretion, and in such manner as
Bank, in its sole discretion, deems desirable or appropriate under
the circumstances, elects to enforce its rights and remedies under
the Loan Documents, all proceeds arising therefrom shall be
applied first, toward payment of the Retained Obligations, until
-3-<PAGE>
paid in full, and second, to the extent of any excess, toward
payment of the Participation Interest and accrued interest
thereon.
If Bank or its designee acquires title to the Premises,
either through foreclosure or acceptance of a deed in lieu of
foreclosure or otherwise, then the Premises shall be managed and
maintained by Bank, in such manner as Bank, in its sole
discretion, determines is desirable or appropriate under the
circumstances without any obligation to take any action unless
Bank so elects and without any liability to Participant for any
action or failure to act of Bank, except for gross negligence.
Bank is hereby authorized to expend any and all sums which it
deems desirable or appropriate to expend under the circumstances,
all of which expenses shall be deemed added to and comprise a
portion of the Retained Obligations. All income arising from the
Premises (including, but not limited to, any proceeds arising from
the sale, transfer or conveyance of the Premises to any third-
party if Bank, in its sole discretion, and without any obligation
to do so, elects to sell, transfer or convey the Premises), shall
be applied first, toward payment of the Retained Obligations until
paid in full, and second, to the extent of any excess, toward
payment of the Participation Interest and accrued interest
thereon. Any proceeds arising from any source in excess of the
Retained Obligations and the Participation Interest, and accrued
interest thereon shall be paid to Participant to reimburse
Participant for the actual out-of-pocket expenses incurred in
connection with the execution and delivery of this Agreement
("Participant's Expenses"), and the balance, if any, shall belong
solely to Bank.
Notwithstanding anything to the contrary contained
herein, Bank reserves the sole right and option to enforce the
obligations of Borrower under the Loan Documents, and may, in its
sole discretion, (a) agree to any modification of any of the terms
of the Loan or any other agreement or instrument evidencing,
securing or otherwise relating to the Loan, (b) waive any of such
terms or give or withhold consents or approvals to any action or
failure to act by Borrower or any Guarantor under any such other
agreement or instrument, (c) exercise or refrain from exercising,
or waive, any rights or powers Bank may have in respect thereof,
(d) release all or any portion of the collateral for the Loan, and
(e) release Borrower or any Guarantor from any of their respective
obligations under any such agreements or instruments. Bank shall
have no liability whatsoever (except any liability arising from
Bank's gross negligence) to Participant with respect to anything
which Bank may do or refrain from doing in respect of the Loan,
Borrower, any Guarantor or any collateral. Without in any way
limiting the foregoing, Bank may rely upon the advice of counsel
concerning legal matters and upon the written communication or
telephone conversation which it or they believe to be genuine and
correct or to have been signed, sent or made by the proper person
-4-<PAGE>
and shall not be required to make an inquiry concerning the
performance by Borrower of its obligations under the Loan
Documents or in respect of the Loan. Bank shall not have any
obligation to make any claim on, or assert any lien upon, or
assert any setoff against, any property held by it (whether of
Borrower or any Guarantor), and if it elects to do so, Bank may in
its discretion apply the same against indebtedness of Borrower or
Guarantor other than indebtedness in respect of the Loan. Bank
may accept deposits from, make loans or otherwise extend credit
to, and generally engage in any kind of banking or trust business
with Borrower and any Guarantor.
All costs and expenses of administering and collecting
the Loan, including any costs, expenses and counsel fees which
Bank may incur in enforcing, maintaining or preserving its rights
with respect to the Loan, or which may be incurred in enforcing,
protecting, or realizing on the collateral, if any, shall, to the
extent not reimbursed by Borrower, be deemed added to and comprise
a portion of the Retained Obligations.
Bank makes no representation or warranty in connection
with, and shall have no responsibility with respect to, the
solvency, financial condition, or statements of Borrower, or the
validity and enforceability of the obligations of Borrower in
respect of the Loan or any of the Loan Documents. Participant
acknowledges that it has, independently and without reliance on
Bank, and based on such documents and information as it has deemed
appropriate, made its own credit analysis and decision to purchase
the Participation Interest and will continue to be responsible for
making its own independent appraisal of the business, affairs and
financial condition of Borrower.
Participant acknowledges and agrees that, until the
payment in full of all of the Retained Obligations, it will not
assert or seek to exercise any legal rights or remedies with
respect to the Loan, including but not limited to, with respect to
any of the Loan Documents or with respect to any Guarantor
(whether any such claim may arise by virtue of Participant's
ownership of the Participation Interest or by virtue of any
related claim of subrogation or contribution or any other similar
related claim).
If, at any time prior to the payment in full of the
Retained Obligations, Participant obtains any payment or other
recovery (whether voluntary, involuntary, by application of setoff
or otherwise) on account of principal of or interest on any of the
Participation Interest or the Loan in excess of amounts otherwise
payable by Bank to Participant hereunder, Participant agrees to
pay immediately to Bank the amount of such payment or recovery
less Participant's share, if any, of any such payment or recovery.
-5-<PAGE>
This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective heirs,
successors, representatives and assigns. Notwithstanding the
foregoing, the Participation Interest may not be subdivided,
assigned or transferred by Participant to any person or party
without the prior written consent of Bank. Any expenses incurred
by Bank in connection with such transfer or assignment, including
reasonable legal fees and expenses, shall be paid by Participant.
Participant represents to Bank that the execution,
delivery and performance by Participant of this Agreement will not
conflict with, or result in any breach of any of the provisions
of, or constitute a default under, any agreement, instrument,
judgment, decree, order, statute, rule or regulation applicable to
it. No consent, approval or authorization of, or registration,
filing or declaration with, any governmental body is required for
the validity of the execution, and delivery or performance by
Participant of this Agreement.
All notices and other communications provided to any
party hereto under this Agreement shall be in writing and
delivered by hand or mailed by certified mail, postage prepaid,
and addressed as follows:
(a) if to Bank, to its address set forth below (or such
other address as may be designated by Bank in any
notice to Participant); and
(b) if to Participant, to its address set forth below
(or such other address as may be designated by
Participant in a notice to Bank).
This Agreement shall be governed by and construed in
accordance with the law of the State of New York. This Agreement
may be amended or modified only by written agreement of the
parties hereto. No waiver of any term or provision hereof shall
-6-<PAGE>
be effective unless it is in writing, signed by the party against
whom such waiver is sought to be enforced, and making specific
reference to this Agreement.
Very truly yours,
APPLE BANK FOR SAVINGS
By:/s/Ryan S. Ledwith
Name: Ryan S. Ledwith
Title: Vice President
Address:
277 Park Avenue
New York, New York 10172
Agreed to and Accepted
as of April 2, 1996
498 ADVANCE, L.L.C.
By: /s/ Peter L. Malkin
Peter L. Malkin, Managing Member
Address:
c/o Wien, Malkin & Bettex
60 East 42nd Street
New York, New York 10165
Attn: Peter L. Malkin
-7-<PAGE>
EXHIBIT B
PARTICIPATION CERTIFICATE
APPLE BANK FOR SAVINGS ("Bank") hereby certifies that
498 ADVANCE, L.L.C. ("Participant") has this day acquired and is
entitled to an undivided, subordinated, participating share equal
to $1,012,274.18, in a loan made by Bank to Garment Capitol
Associates, in the original principal amount of $3,376,340.61, as
increased to $4,350,663.79 due to a protective advance by the Bank
in the amount of $1,012,274.18 on April 2, 1996.
This Certificate is issued pursuant to and subject to
the terms, conditions and provisions of a certain Participation
Agreement between Bank and Participant dated April 2, 1996.
This Certificate is not an acknowledgment of
indebtedness.
Dated this 2nd day of April, 1996.
APPLE BANK FOR SAVINGS
By: /s/Ryan S. Ledith
Name:
Title:<PAGE>
EXHIBIT 6
APPLE BANK FOR SAVINGS
277 Park Avenue
New York, New York 10172
April 2, 1996
Garment Capitol Associates
c/o Wien, Malkin & Bettex
60 East 42nd Street
New York, New York 10165
Attention: Peter L. Malkin
Gentlemen:
Reference is hereby made to that certain loan (the
"Loan") made by Apple Bank for Savings (the "Bank") to Garment
Capitol Associates (the "Borrower"), in the original principal sum
of $3,376,340.61, as evidenced by that certain Modification and
Extension Agreement, dated as of December 1, 1992, between the
Bank and the Borrower, and recorded in the Office of the New York
City Register, New York County, on March 27, 1995, in Reel 2194,
Page 0910 (the "Mortgage"). The Bank hereby confirms and
acknowledges that:
(a) On the date hereof, the Bank has made a protective
advance under the Mortgage in the amount of
$1,012,274.18 (the "Advance"), to pay real estate
taxes due and payable on January 1, 1996 (the
"Taxes") and interest and penalties thereon to the
date of the Advance;
(b) Pursuant to the terms of the Mortgage, the Borrower
is obligated to pay interest on the Advance at the
per annum rate of 24%;
(c) The failure of the Borrower to pay the Taxes
constitutes a default (the "Default") under the
Mortgage, thereby entitling the Bank to exercise
all of its rights and remedies thereunder;<PAGE>
(d) Notwithstanding the existence of the Default, the
Bank shall forbear from exercising any of its
rights and remedies under the Loan Documents based
solely upon this Default so long as no other
default shall occur under the Mortgage (any such
other default, a "Further Default");
(e) Notwithstanding anything to the contrary contained
in the Mortgage or the existence of the Default,
until such time, if any, that there shall be a
Further Default: (i) interest on the outstanding
principal balance of the Loan shall continue to
accrue and be payable at the per annum rate of
10.60%; and (ii) interest on the Advance shall also
accrue and be payable monthly, on the first day of
each month, at the per annum rate of 10.60%
(calculated in the method set forth in the
Mortgage); and
(f) Repayment of the Advance by the Borrower to the
Bank shall be due on the date that the principal
balance of the Indebtedness (as defined in the
Mortgage) shall become due and payable under the
Mortgage, whether at maturity, by acceleration, or
otherwise.
APPLE BANK FOR SAVINGS
By: /s/Ryan S. Ledwith
Name: Ryan S. Ledwith
Title: Vice President
Confirmed and Agreed to this
2nd day of April, 1996
GARMENT CAPITOL ASSOCIATES
By: /s/ Peter L. Malkin
Peter L. Malkin, Agent
-2-<PAGE>
EXHIBIT 7
APPLE BANK FOR SAVINGS
277 Park Avenue
New York, New York 10172
April 2, 1996
Garment Capitol Associates
c/o Wien, Malkin & Bettex
60 East 42nd Street
New York, New York 10165
Attention: Peter L. Malkin
498 Advance, L.L.C.
c/o Wien, Malkin & Bettex
60 East 42nd Street
New York, New York 10165
Attention: Peter L. Malkin
To Whom It May Concern:
Reference is hereby made to (a) that certain note, dated
the date hereof, made by Peter L. Malkin, Harry B. Helmsley,
Irving Schneider and Alvin Schwartz (the "Individuals") payable to
the order of Apple Bank for Savings (the "Bank") in the principal
sum of $1,012,274.18 (the "Note"), (b) that certain participation
agreement dated the date hereof, between 498 Advance, L.L.C. (the
"Participant") and the Bank (the "Participation Agreement") and
(c) that certain letter agreement (the "Forbearance Letter";
together with the Participation Agreement and the other documents
and agreements executed and delivered with any thereof,
collectively the "Documents"), dated the date hereof, between the
Bank and Garment Capitol Associates (the "Borrower"; together with
the Participant, collectively, the "Entities").
Each of the Bank and by their agreement hereto the
Participant and the Borrower hereby confirms and agrees as
follows:
(a) On the date hereof, the Bank has made a protective
advance in the amount of $1,012,274.18 (the
"Advance") under the Mortgage (as defined in the
Forbearance Letter), to pay real estate taxes
(including any BID assessments) due and payable on
January 1, 1996 and interest and penalties thereon
to the date of the Advance;<PAGE>
(b) In conjunction with the Advance, the Individuals
have made and delivered the Note and the Entities
have executed and delivered the Documents, as
applicable, to reflect certain arrangements and
accommodations between such Entities and the Bank
relating to the Advance;
(c) The Bank agrees that it shall advance as a
protective advance under the Mortgage the
applicable amounts for payment of real estate taxes
(including any BID assessments and interest and
penalties thereon, if any) due on July 1, 1996 and
January 1, 1997, respectively, provided that, at
the time of each such advance, (w) no default shall
exist under (i) any of the Documents or the Note or
(ii) the Mortgage (excepting only the failure of
the Borrower to pay past and then due real estate
taxes), (x) the Entities shall have executed and
delivered a set of documents with respect to the
advance then to be made substantially similar to
the Documents, and otherwise in form and substance
reasonably satisfactory to the Bank, (y) the
Individuals shall have made and delivered to the
Bank a note in the principal amount of the advance
then to be made and otherwise substantially similar
to the Note and otherwise in form and substance
reasonably satisfactory to the Bank; and (z) the
Entities and Individuals shall have executed such
documents and instruments in connection therewith
as the Bank shall reasonably request.
APPLE BANK FOR SAVINGS
By: /s/Ryan S. Ledwith
Name: Ryan S. Ledwith
Title: Vice President
Confirmed and Agreed to this
2nd day of April, 1996
GARMENT CAPITOL ASSOCIATES
By: /s/ Peter L. Malkin
Peter L. Malkin, Agent
498 ADVANCE, L.L.C.
By: /s/Peter L. Malkin
Name:
Title:
-2-<PAGE>
EXHIBIT 8
GARMENT CAPITOL ASSOCIATES
c/o Wien, Malkin & Bettex
60 East 42nd Street
New York, New York 10165
April 2, 1996
4987 Corporation
c/o Wien, Malkin & Bettex
60 East 42nd Street
New York, New York 10165
Attention: Peter L. Malkin
Gentlemen:
The undersigned, as Landlord under a certain lease (as
same may have been modified or amended from time to time, the
"Lease"), dated May 1, 1951, with 4987 Corporation (as assignee of
Tenant's interest under the Lease), as Tenant, relating to the
premises known as 498 Seventh Avenue, New York, New York (the
"Premises"), hereby confirms and agrees as follows:
(a) Pursuant to the terms of the Lease, Tenant is
obligated to pay all real estate taxes and related
charges due and owing in connection with the
Premises;
(b) The Tenant failed to pay the real estate taxes and
related assessments in the amount of $936.180.00
due and payable on January 1, 1996 and,
accordingly, Tenant is in default of its
obligations under the Lease (the "Default");
(c) On the date hereof, Apple Bank for Savings (the
"Bank"), the fee mortgagee of the Premises, is
making a protective advance under its fee mortgage
in the amount of $1,012,274.18 (the "Advance") to
pay the aforementioned real estate taxes
(including, the payment of all interest and
penalties due in connection therewith through the
date of the Advance); and<PAGE>
(d) Notwithstanding anything to the contrary contained
in the Lease and pursuant to and in accordance with
a certain letter, dated the date hereof, between
the undersigned and Tenant, Tenant shall be
obligated to pay to the Bank and/or Landlord , as
applicable, all interest due and owing on the
Advance.
(e) Notwithstanding the existence of the Default, the
undersigned as Landlord under the Lease shall
forbear from exercising any of its rights and
remedies under the Lease otherwise available to the
undersigned as Landlord under the Lease by reason
of the Default, provided that no other default
shall exist under the Lease and all interest on the
Advance shall be paid by Tenant, as and when due.
GARMENT CAPITOL ASSOCIATES
By:/s/ Peter L. Malkin
Peter L. Malkin, Agent
Confirmed and Agreed to this
2nd day of April, 1996
4987 CORPORATION
By: /s/ Thomas N. Keltner
President
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EXHIBIT 9
Wien, Malkin & Bettex
60 East 42nd Street
New York, New York 10165-0015
April 3, 1996
Re: Garment Center Building
498 Seventh Avenue
New York, New York
Gentlemen:
As per your request, we have prepared independent analyses which
set forth our opinion of the appropriate percentage distribution
of sale proceeds between the leased fee and leasehold positions
assuming a sale of fee simple position of the above-captioned
property. In connection with preparing these analyses we
undertook the following:
* Property inspections;
* A review of the property's current rent roll as well as
its current historical financial statements;
* A review of the property's ground lease document, and;
* Held conversations with brokers and investors active
within this area, in order to ascertain current market
conditions within the relevant neighborhood.
The appropriate split between the leasehold and leased fee
positions, assuming a sale of the fee simple position, included,
in part, analyses of the property on both a fee simple estate and
separate leasehold and leased fee estate basis. It is our opinion
as well as the opinion of representatives of each estate, that the
property will most likely bring a higher purchase price if sold as
a fee simple estate as opposed to selling each individual estate
interest separately. Therefore, given that both estate's have
agreed to market and sell the property on a fee simple basis, our
split analyses were primarily based upon apportioning the
property's total fee simple estimated net operating income to each
respective estate. The affect of higher property values on the
appropriate distribution split between the leasehold and leased
fee positions, assuming a sale of the fee simple position, was
determined through use of several hypothetical sales prices, net
operating incomes, a market capitalization rate and market driven
capital cost assumptions. Applying the capitalization rate and
the estimated capital costs to each potential sales price, an
assumed net operating income was derived which we apportioned as
per the terms of the ground lease. Our analyses have revealed<PAGE>
that as the sales price increases a higher percentage of the total
property price is attributable to the leasehold position.
The hypothetical values we assumed, began at $20,000,000 increased
to $25,000,000 and thereafter increased in $10,000,000 increments
to $50,000,000. The appropriate percentage distribution splits
between the leasehold and leased fee positions which we derived,
assuming a sale of the fee simple position, translate into the
following:
HYPOTHETICAL % OF FEE SIMPLE % OF FEE SIMPLE
FEE SIMPLE TO LEASEHOLD TO LEASED FEE
$20,000,000 - $25,000,000 20.00% 80.00%
$25,000,001 - $30,000,000 25.00% 75.00%
$30,000,001 - $40,000,000 30.00% 70.00%
$40,000,001 - $50,000,000 35.00% 65.00%
above - $50,000,000 40.00% 60.00%
It should be noted that these property values were not derived
based upon any actual property or market information, but rather
they represent pure hypothetical assumptions. The exercise was
completed in order to reveal the affect on the percentage split
between the property's leased fee and leasehold positions.
We hope this letter is satisfactory and are available to discuss
it at your convenience. A more detailed report delineating the
methodology we employed will be provided shortly.
Sincerely,
/s/David N. Maurer-Hollaender /s/Sharon Locatell
David N. Maurer-Hollaender Sharon Locatell
Senior Managing Director Executive Managing Director
Edward S. Gordon Brown Harris Stevens
Company Incorporated Appraisal & Consulting, LLC
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EXHIBIT 10
UNANIMOUS WRITTEN CONSENT
OF THE STOCKHOLDERS OF
4987 CORPORATION
The undersigned, being all of the holders of the
outstanding stock of 4987 Corporation, a New York corporation (the
"Corporation"), by unanimous consent in writing pursuant to
Section 615(a) of the Business Corporation Law of the State of New
York, having waived notice and without the formality of convening
a meeting, do hereby consent to the adoption of the following
resolutions:
WHEREAS, the Corporation is the lessee under a certain
Lease with Garment Capitol Associates, as lessor, for premises
known as 498 Seventh Avenue (the "Property");
WHEREAS, the Agents on behalf of the Participants in
Garment Capitol Associates desire to seek consent of the
Participants to the sale of the Property;
WHEREAS, the stockholders of the Corporation have
heretofore agreed to cooperate in connection with the sale so that
the sale will include a transfer of all ownership and operating
interests in the Property, including the interest of the
Corporation as lessee or, in the alternative, that the interest of
the Corporation as lessee would be terminated in connection with
such sale;
WHEREAS, the stockholders of the Corporation had
previously agreed, and adopted a resolution to the effect that, if
Brown Harris Stevens Appraisal and Consulting, LLC and Edward S.
Gordon Co. Inc., as consultants engaged to propose an appropriate
allocation with respect to the sharing of sales proceeds between
the fee owner and the lessee of the Property in connection with
the sale thereof, agree as to an allocation formula, then the
Corporation would accept that formula as the basis for the
allocation; and
WHEREAS, the consultants have now agreed to such a
formula, as embodied in the draft letter attached to this Consent,
NOW, THEREFORE, be it
RESOLVED, that the Corporation agrees to terminate its
leasehold estate in the Property, or, at the option of the buyer
of the Property, assign its leasehold interest (without recourse),<PAGE>
in connection with the sale of the property at a price approved by
the Agents on behalf of the Participants in Garment Capitol
Associates so long as the Participants approve a sharing of the
sales proceeds (after expenses) in accordance with the Brown,
Harris/ESG Formula after according priority to payment of the fee
mortgage, any protective advances made thereunder and accrued
interest and repayment of the Participants in Garment Capitol
Associates of their remaining original cash investment of
$5,250,000; and
FURTHER RESOLVED that any officer of the Corporation is
authorized and directed to execute and deliver such documents,
instruments and agreements, including lease terminations or
assignments (without recourse), releases and similar documents, as
may be required to effectuate the transactions relating to the
closing of the sale of the Property and the termination or
assignment (without recourse) of the leasehold estate of the
Corporation in the Property.
IN WITNESS WHEREOF, the undersigned have executed this
Consent, in counterparts, as of the 29th day of March, 1996, which
counterparts taken together shall constitute one document.
Dated: March ___, 1996 /s/ Harry B. Helmsley
Harry B. Helmsley
/s/ Peter L. Malkin
Peter L. Malkin
/s/ Isabel Malkin
Isabel Malkin
/s/ Mindy L. Schneider
Mindy L. Schneider
/s/ Lynn C. Schneider
Lynn C. Schneider
/s/ Jane Schwartz Stein
Jane Schwartz Stein
-2-
<PAGE>
EXHIBIT 11
CONSENT IN LIEU OF MEETING
The undersigned, the directors of 4987 Corporation, hereby
consent to the adoption of the following resolutions, which action
is taken in lieu of a meeting:
WHEREAS, the Corporation is the Lessee under a certain Net
Lease with Garment Capitol Associates, as Lessor, for premises
known as 498 Seventh Avenue; and
WHEREAS, the Agents on behalf of the Participants in Garment
Capitol Associates desire to seek consent of Participants to the
sale of the property; and
WHEREAS, the directors of the Lessee have heretofore agreed
to cooperate in connection with the sale so that the sale will
include the entire fee simple interest in the property, including
the interest of the Lessee or, in the alternative, that the
interest of the Lessee would be terminated in connection with such
sale,
NOW, THEREFORE, be it resolved that the Corporation agrees to
terminate its leasehold estate or, at the option of the buyer of
the property, assign its leasehold interest without recourse, in
connection with the sale of the property at a price approved by
the agents on behalf of Garment Capitol Associates; and
FURTHER RESOLVED that any of the officers of the Corporation,
acting individually, is authorized and directed to execute and
deliver such documents, instruments and agreements, including
lease terminations, releases, assignments (without recourse) and
similar documents, as may be required to effectuate the
transaction relating to the closing of the sale and the
termination or assignment of the leasehold estate of the
Corporation in the Premises.
Dated: as of March 29, 1996 ______________________________
______________________________
______________________________
______________________________
<PAGE>
