SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c) of the Securities
Exchange Act of 1934 (Amendment No.)
[ ] Preliminary Information Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14c-5(d)(2))
[X] Definitive Information Statement
STAMFORD TOWERS LIMITED PARTNERSHIP
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
DEPOSITARY UNITS OF LIMITED PARTNERSHIP INTEREST
--------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
7,826,300
--------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
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 value of the transaction is $61,315,000 representing the purchase
price of the assets and $315,000 representing the reimbursement of
certain amounts.
(4) Proposed maximum aggregate value of transaction:
$61,630,000
--------------------------------------------------------------
(5) Total fee paid:
$12,326
--------------------------------------------------------------
[X] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------
(3) Filing Party:
-------------------------------------------------
(4) Date Filed:
-------------------------------------------------
<PAGE>
STAMFORD TOWERS LIMITED PARTNERSHIP
C/O FIRST DATA INVESTOR SERVICES GROUP, INC.
P.O. BOX 1527
BOSTON, MASSACHUSETTS 02104-1527
1-800-223-3464
May 1, 1998
Dear Unit Holder:
As discussed in the July 1997 letter from Stamford Towers Limited
Partnership (the "PARTNERSHIP"), Stamford Towers, Inc., the general partner of
the Partnership (the "GENERAL PARTNER"), commenced marketing its two commercial
office buildings and the underlying real estate located in Stamford, Connecticut
(collectively, the "PROJECT") for sale in July of 1997. On March 17, 1998 the
Partnership entered into a Purchase and Sale Agreement (the "PURCHASE
AGREEMENT") to sell the Project to Reckson Operating Partnership, L.P., an
unaffiliated entity, for $61,315,000 in cash, subject to normal adjustments (the
"PROPOSED SALE"). The closing of the Proposed Sale is subject to a number of
conditions described in the attached Information Statement. One of these
conditions is that the holders of a majority of the Partnership's limited
partnership interests (the "UNIT Holders") do not disapprove of the Proposed
Sale.
Upon the consummation of the Proposed Sale, the Partnership must pay
its outstanding obligations, including the $18.4 million debt secured by a
mortgage on the Project, and establish reserves for the estimated expenses of
winding up the Partnership and for any contingent liabilities of the
Partnership. Based on estimated net proceeds of the sale (after expenses related
to closing expenses, brokerage commission, legal fees, certain standard
adjustments and satisfaction of mortgage indebtedness) of approximately $44.8
million and estimated liquidation reserves of $250,000, the General Partner
estimates the Partnership will make a distribution from the net proceeds of the
Proposed Sale, together with the Partnership's available cash reserves, in the
amount of approximately $44.6 million or $5.70 per Unit. However, assuming
consummation of the Proposed Sale, there can be no assurance as to the actual
amount of any distribution since such distribution is contingent upon a variety
of factors, including certain closing adjustments and pro-rations. After
satisfaction of all outstanding obligations, the Partnership may be able to make
a final liquidating distribution, but the Partnership does not anticipate that
such distribution, if any, will be significant.
Under the Partnership's Amended and Restated Agreement of Limited
Partnership (the "PARTNERSHIP Agreement"), Unit Holders have the right to object
to the Proposed Sale. The Partnership Agreement provides that any objection must
be received by Stamford Towers Depositary Corp., the assignor limited partner of
the Partnership, within ten days of receipt of this notice and the Information
Statement. However, in order to ensure that Unit Holders have a fair opportunity
to consider and object to the Proposed Sale, the General Partner currently
intends not to proceed with the Proposed Sale on the terms of the Purchase
Agreement if Unit Holders owning a majority of the Units give appropriate notice
of their objection on or before June 1, 1998.
Please note that any Unit Holder who does not provide a notice of
objection within the applicable period will be deemed to have approved the
Proposed Sale. If the Project is sold, the Partnership will dissolve and will
continue to exist solely for the purpose of winding up its affairs.
The attached Information Statement provides detailed information about
the Proposed Sale, including a description of the General Partner's reasons for
deciding to recommend the sale of the Project on the terms described in this
Information Statement and as contained in the Purchase Agreement. See "Summary
of the Purchase Agreement" for description of the Purchase Agreement. All Unit
Holders are urged to review the Information Statement carefully.
Very truly yours,
STAMFORD TOWERS LIMITED PARTNERSHIP
By: STAMFORD TOWERS, INC.,
General Partner
By: /s/ Jeffrey C. Carter
-------------------------------
Jeffrey C. Carter, President
<PAGE>
TABLE OF CONTENTS
Introduction................................................................1
The Partnership.............................................................3
General............................................................3
The Project........................................................3
Project Leases.....................................................3
Partnership Indebtedness...........................................5
On-Site Project Management; Leasing and Sale Brokers...............5
The Proposed Sale...........................................................6
General............................................................6
Background.........................................................6
Reasons for the Proposed Sale......................................7
Summary of the Purchase Agreement...........................................8
General............................................................8
Purchase Price.....................................................8
Partnership's Warranties and Representations.......................8
Title to Property..................................................9
Adjustments at Closing.............................................9
Tax Appeal.........................................................10
Outstanding Zoning Payment Obligations.............................10
Closing and Conditions.............................................10
Expenses...........................................................11
Purchaser Default..................................................11
Partnership Default................................................11
Termination........................................................11
No Governmental Approvals Required.................................11
Effects of Selling the Project..............................................12
Estimated Distributions.....................................................12
Interests of Certain Persons in the Proposed Sale...........................14
Termination of the Partnership..............................................14
Federal Income Tax Consequences of the Sale.................................14
General............................................................14
Income from Partnership Operations.................................15
Income from the Proposed Sale......................................15
Depreciation Recapture.............................................15
Receipt of Liquidating Distributions...............................15
Taxation of Capital Gains and Losses...............................16
Passive Activity Loss Provisions...................................16
Adjusted Tax Basis and At Risk Basis of Partnership Interests......16
Alternative Minimum Tax............................................16
Financial Information.......................................................17
Selected Financial Data.....................................................17
Ownership of Units by Certain Persons and Management........................17
Market for the Partnership Units............................................18
Vote Required...............................................................18
Procedure for Objecting Unit Holders........................................18
Additional Information......................................................18
<PAGE>
STAMFORD TOWERS LIMITED PARTNERSHIP
C/O FIRST DATA INVESTOR SERVICES GROUP, INC.
P.O. BOX 1527
BOSTON, MASSACHUSETTS 02104-1527
1-800-223-3464
INFORMATION STATEMENT
INTRODUCTION
Stamford Towers Limited Partnership (the "PARTNERSHIP") is providing
this Information Statement to the holders ("UNIT HOLDERS") of depository units
of limited partnership interests ("UNITS") in Stamford Towers Depositary Corp.,
a Delaware corporation and the sole limited partner of the Partnership (the
"DEPOSITARY"). The sole general partner of the Partnership is Stamford Towers,
Inc. (the "GENERAL PARTNER").
This Information Statement includes a summary of the material terms of
the Purchase and Sale Agreement, dated March 17, 1998 (the "PURCHASE AGREEMENT")
between the Partnership and Reckson Operating Partnership, L.P., an unaffiliated
entity (the "PURCHASER"). The Purchase Agreement provides for the sale (the
"PROPOSED SALE") of the Partnership's real property, consisting of two parcels
of land in Stamford, Connecticut and two commercial office buildings built on
those parcels (collectively, the "PROJECT"). Subject to certain adjustments and
the satisfaction of various conditions, the Purchaser would pay $61,315,000 to
the Partnership for the Project and would reimburse the Partnership for certain
leasing brokerage commissions and tenant fit-out costs incurred as a result of
recent Project lease transactions, in an amount approximately equal to $315,000.
See "Summary of the Purchase Agreement."
If the Partnership sells the Project pursuant to the Purchase
Agreement, the General Partner currently estimates that a distribution from the
net proceeds of the Proposed Sale, together with the Partnership's excess cash,
less funds necessary for any contingent liabilities and anticipated expenses of
winding up the Partnership's affairs, in the aggregate amount of approximately
$5.70 per Unit would be made following the Proposed Sale. The Partnership would
reserve an amount which the General Partner believes sufficient to satisfy the
remaining obligations of the Partnership at the time of the dissolution. See
"Estimated Distributions." Once the remaining obligations of the Partnership are
satisfied, the Partnership may be able to make a liquidating final distribution
to the Unit Holders. The General Partner does not anticipate that such
distribution, if any, will be significant.
Under the Partnership's Amended and Restated Agreement of Limited
Partnership (the "PARTNERSHIP Agreement"), Unit Holders may, if they choose,
instruct the Depositary to approve or disapprove of a proposed sale of the
Project. If Unit Holders who own more than a majority of the Units instruct the
Depositary to object to the Proposed Sale, the General Partner will not sell the
Project on the terms contemplated by the Purchase Agreement. In that event, the
Partnership would continue to own the Project and to operate in accordance with
the terms of the Partnership Agreement.
Unit Holders who do not wish to object to the Proposed Sale need not do
anything. Their Units will automatically be voted by the Depositary to approve
the Proposed Sale. However, under the terms of the Partnership Agreement, if a
Unit Holder wishes to object to the Proposed Sale, that Unit Holder must inform
the Depositary of such objection within ten days of receipt of this Information
Statement. If a Unit Holder wants the Depositary to object on such Unit Holder's
behalf, it is the responsibility of the Unit Holder to assure that the
Depositary receives appropriate notice within the ten-day period. However, in
order to ensure that Unit Holders have a fair opportunity to consider and object
to the Proposed Sale, the General Partner currently intends not to proceed with
the Proposed Sale if the Unit Holders owning a majority of the Units notify the
Depositary of their objection on or before June 1, 1998.
<PAGE>
Unit Holders should submit any instructions to the Depositary to the
following address:
Stamford Towers Depositary Corp.
c/o First Data Investor Services Group, Inc.
P.O. Box 1527
Boston, Massachusetts 02104-1527
Attn.: Financial Communications
1-800-223-3464
WE ARE NOT ASKING YOU FOR A PROXY, AND YOU ARE REQUESTED NOT TO SEND US
A PROXY.
THIS INFORMATION STATEMENT IS BEING FURNISHED TO YOU IN ACCORDANCE WITH
THE PARTNERSHIP AGREEMENT. THIS INFORMATION STATEMENT CONTAINS SUMMARIES OF
CERTAIN DOCUMENTS BELIEVED TO BE ACCURATE, BUT SUCH SUMMARIES ARE QUALIFIED BY
REFERENCE TO THESE DOCUMENTS.
THIS INFORMATION STATEMENT CONTAINS ESTIMATES, PROJECTIONS AND
APPROXIMATIONS BELIEVED TO BE AS ACCURATE AS POSSIBLE. HOWEVER, ACTUAL RESULTS
AND AMOUNTS AVAILABLE FOR DISTRIBUTION MAY BE LESS THAN THE ESTIMATES INCLUDED
HEREIN.
THE GENERAL PARTNER HAS NOT AUTHORIZED ANYONE ELSE TO PROVIDE
INFORMATION CONCERNING THE PROPOSED SALE OF THE PROJECT. IF ANYONE ELSE PROVIDES
INFORMATION ABOUT THE PROPOSED SALE, THAT INFORMATION CANNOT BE RELIED UPON.
The date of this Information Statement is May 1, 1998.
-2-
<PAGE>
THE PARTNERSHIP
GENERAL
The Partnership was formed on August 14, 1986. The term of the
Partnership expires on December 31, 2036, unless earlier terminated by law or
pursuant to the Partnership Agreement, including by reason of a dissolution upon
a consummation of the Proposed Sale. The Partnership maintains its principal
executive offices at 3 World Financial Center, 200 Vesey Street, 29th Floor, New
York, New York 10285.
The General Partner has the sole authority to control and manage the
Partnership's business and affairs, subject to certain limitations as set forth
in the Partnership Agreement.
The Partnership was formed for the purpose of acquiring, constructing,
developing, owning and operating the Project. However, the Partnership Agreement
also specifies that the sale of the Project is an additional purpose of the
Partnership.
In March, 1988, the Partnership completed an offering of 7,826,300
Units, which Units represent an assignment of economic and voting rights
attributable to limited partnership interests (the "INTERESTS") in the
Partnership. The Depositary, which owns a number of Interests equal to the total
number of Units purchased by the Unit Holders, acts as a depository for the
Interests and votes the Interests represented by the Units in accordance with
the written instructions of the Unit Holders.
THE PROJECT
The Project consists of two 11-story multi-tenant commercial office
buildings, comprised of four levels of parking and seven levels of office space,
located in the central business district of Stamford, Connecticut. The building
located at 750 Washington Boulevard (the "NORTH TOWER") contains approximately
192,939 square feet of rentable floor space; the building located at 680
Washington Boulevard (the "SOUTH TOWER") contains approximately 132,477 square
feet of rentable floor space.
PROJECT LEASES
As of the date hereof, the Partnership has leased approximately 91% of
the rentable space in the Project, consisting of approximately 94% of the
available rentable area of the North Tower and approximately 86% of the
available rentable area of the South Tower. On April 21, 1998, the Partnership
entered into a lease with Swiss Bank Corporation ("SWISS BANK") covering two
floors in the South Tower. Swiss Bank had entered into a letter of intent to
lease space in the South Tower on January 12, 1998. While the majority of the
leased space in the Project is restricted to general office uses, the
Partnership has leased 5,688 square feet in the North Tower for use as an
executive healthcare facility, approximately 3,400 square feet for use as the
Project cafeteria and approximately 500 square feet of ground floor retail space
for use as a sundry shop for Project occupants and visitors. Project office
leases range in size from 2,101 rentable square feet to 135,909 rentable square
feet and expire at times between February, 1999 and September, 2006. Most leases
include five-year renewal options, at the then fair market rental value, which
may be exercised by the tenant upon prior notice to the Partnership. As of the
date hereof, the average rent per square foot of occupied office space was
$23.84 per year. The table below sets forth material information concerning the
Project leases as of April 21, 1998.
-3-
<PAGE>
<TABLE>
<CAPTION>
NORTH TOWER
RENTABLE Current Annual Rent
TENANT SQUARE FEET LEASE EXPIRATION DATE(1) PER SQUARE FOOT
<S> <C> <C> <C>
Citicorp North America, Inc. 135,909 June 30, 2006 $25.00
Millsport, Inc., 10,930 January 31, 2002 $23.30
Memberworks Incorporated 8,976 March 14, 2006 $28.00
Life Extension Institute, Inc.
d/b/a Executive Health Group 5,688 June 19, 2007 $26.00
Telco Holdings, Inc. 5,238 January 31, 2003 $28.00
Robert Half International, Inc. 3,362 September 4, 2002 $28.00
Culinart, Inc. (cafeteria) 3,353 month-to-month 6.5% of Gross Sales
Sirrom Capital Corporation 3,337 January 31, 2003 $28.50
MD Revenues, Inc. &
Interventional Consulting, Inc. 2,495 January 22, 2004 $17.23
Dow Jones & Company 2,101 February 28, 1999 $23.00
Tower Connection (sundry shop) 500 month-to-month $0.00
SOUTH TOWER
Swiss Bank 38,173 April 30, 2002 $32.00
Times Mirror Training, Inc. 36,700 September 20, 2006 $12.33 (2)
Memberworks Incorporated 18,650 March 14, 2006 $19.00
Tradition Financial Services, Inc. 11,605 February 22, 2004 $24.00
Consolidated Hydro, Inc. 8,612 March 31, 2006 $19.75
Project Management Office 1,482 month-to-month $0.00
</TABLE>
(1) All Project tenants (except for Culinart, Inc. and Tower Connection)
have been granted at least one five-year renewal option at then current
fair market rent.
(2) The rent payable by Times Mirror Training, Inc. reflects, among other
things, payment by Times Mirror Training, Inc. of all fit-up expenses.
-4-
<PAGE>
PARTNERSHIP INDEBTEDNESS
In July of 1990, the Partnership obtained financing (the "ORIGINAL
LOAN") from People's Bank ("PEOPLE'S"), of Bridgeport, Connecticut, in the
maximum amount of $25,000,000, maturing in seven years. The Original Loan is
secured with a first mortgage on the Project and an assignment of the Project
leases. The proceeds of the Original Loan were made available to fund certain
expenses of the Project, such as leasing commissions and tenant build-out
advances for the construction of tenant improvements.
In May of 1997, the Partnership refinanced the Original Loan with
People's to extend the maturity of the Original Loan until June 1, 2004 (the
"NEW LOAN"). The New Loan is divided into two components: (i) the Permanent
Portion which currently bears interest at a rate of 7.63%; and (ii) the
Development Portion which currently bears interest at a rate of 7.83%.
The Permanent Portion is comprised of the balance of the Original Loan
at the time of the closing of the New Loan, the closing costs of the New Loan
and any future loan advances under the Development Portion. The Development
Portion consists of any loan advances which the Partnership required, subject to
People's approval, to finance costs associated with leases entered into after
the New Loan was closed. Annually, the balance of loan advances under the
Development Portion are transferred to the Permanent Portion. The Partnership is
required, on a monthly basis, to make debt service payments of interest and
principal under the New Loan in an amount equal to $138,218.
In connection with the New Loan, the Partnership was required to
establish and fund a real estate tax escrow (the "ESCROW") held by People's.
Accordingly, the Partnership is required to deposit with People's, on a monthly
basis, a portion of the funds necessary for People's to pay the next installment
of pro-rated real estate taxes for the Project. The balance held in the Escrow
will be returned to the Partnership upon payment of the outstanding balance of
the New Loan and interest thereon.
In the event the Partnership sells the Project, the Partnership must
pay the outstanding balance of the New Loan and any accrued interest thereon to
the date of repayment. The Partnership must give 30 days' notice to People's of
its intention to pre-pay the New Loan. The Partnership will not incur any
pre-payment fee or penalty. As of December 31, 1997, the outstanding principal
amount of the New Loan was $18.4 million.
ON-SITE PROJECT MANAGEMENT; LEASING AND SALE BROKERS
The Partnership Agreement provides that the General Partner may retain
the services of any person reasonably necessary and appropriate to carry out the
business and affairs of the Partnership.
Insignia/ESG, a division of Insignia Financial Group, Inc., a Delaware
corporation, having its principal offices in Greenville, South Carolina,
provides property management services on behalf of the Partnership. The
Partnership pays an annual fee of 1.5% of Project gross rental income for such
property management services. The Partnership also retains Insignia/ESG as its
exclusive leasing agent or broker for the Project. The Partnership pays
customary brokerage fees to Insignia/ESG, and to any broker representing a
tenant with respect to each Project lease.
The Partnership retained Insignia Capital Advisors, Inc. ("INSIGNIA"),
a division of Insignia Financial Corp., having its principal offices at 200 Park
Avenue, New York, New York 10166, as its exclusive agent or broker in connection
with any sale of the Project which occurs prior to June 30, 1998. In the event
the Partnership sells the Project to the Purchaser pursuant to the Purchase
Agreement, the Partnership will pay Insignia a fee of $919,725 which is 1.5% of
the gross purchase price paid by the Purchaser.
-5-
<PAGE>
THE PROPOSED SALE
GENERAL
The General Partner believes that the Proposed Sale is in the best
interest of the Partnership and the Unit Holders. Various factors, including the
improved operating performance of the Project, the overall health of the
economy, the strengthening national real estate and capital markets and the
decreasing vacancy rate for Class A office space in the central business
district of Stamford, Connecticut, have significantly increased the market value
of the Project over the past year. After giving effect to the lease with Swiss
Bank, the Project is 91% leased. Any further increase in the value of the
Project would be largely contingent on the Project tenants' renewing their
leases at higher rental rates during even more favorable market conditions or
upon the Partnership's procuring new leases with new tenants at higher rental
rates upon the expiration of current leases. The General Partner believes that,
because of the uncertainties and risks associated with the ownership and
operation of commercial real estate, such as speculative future development of
competing commercial office space in downtown Stamford, the sale of the Project
at this time is in the best interests of the Unit Holders. The General Partner
also believes that the price to be paid by the Purchaser for the Project is fair
to the Partnership and the Unit Holders.
If a majority in interest of the Unit Holders instruct the Depositary
to object to the Proposed Sale in the time and manner specified in this
Information Statement, the Proposed Sale will not be consummated in its present
form, and the Purchase Agreement will be terminated. In that event, the
Partnership will continue to own and to operate the Project until December 31,
2036, unless the Partnership is earlier dissolved in accordance with the
Partnership Agreement, or by law.
Even if Unit Holders owning a majority of the Units do not object to
the Proposed Sale, there is no guarantee that the sale to the Purchaser will
occur. In the event the Proposed Sale is not consummated, the General Partner
anticipates that it would continue to market the Project for sale.
BACKGROUND
In July, 1997, the General Partner began marketing the Project for
sale. As noted, the Partnership retained the services of Insignia to market the
Project.
Between July and December, 1997, Insignia provided detailed information
about the Project, and supplemental information about the Stamford commercial
real estate market to potential purchasers. As appropriate, Insignia and the
General Partner permitted potential purchasers to conduct on-site inspections
and investigations of the Project and to review certain relevant Project
documentation. Insignia was required to obtain the potential purchasers'
agreements to treat, as confidential, all non-public information provided by the
Partnership or Insignia with respect to the Project. Insignia requested that all
potential purchasers submit offers to purchase the Project by December 15, 1997.
By that date, Insignia received non-binding offers from 13 potential purchasers.
After the Partnership and Swiss Bank entered into the letter of intent described
under "The Partnership - Project Leases," the General Partner requested that the
potential purchasers submit revised proposals. Revised proposals were received
in early 1998 from two potential purchasers and were reviewed and evaluated by
the General Partner with the assistance of Insignia.
Following discussions and negotiations with the entities which
submitted final purchase offers, the Partnership and the Purchaser entered into
a non-binding Letter of Intent on January 30, 1998, which specified the general
terms and conditions upon which the Partnership would be willing to enter into a
binding written agreement with the Purchaser for the sale of the Project. The
terms of the Purchase Agreement (as described below in "Summary of the Purchase
Agreement") are substantially consistent with the terms outlined in the Letter
of Intent.
On March 17, 1998, the Partnership and the Purchaser entered into the
Purchase Agreement, pursuant to which the Purchaser agreed to purchase the
Project for an aggregate purchase price of $61,315,000, in cash, subject to
customary adjustments and pro-rations and reimbursement of certain leasing and
tenant fit out expenses recently incurred by the Partnership. See "Summary of
the Purchase Agreement."
-6-
<PAGE>
REASONS FOR THE PROPOSED SALE
When the Partnership was organized, its purposes included the
acquisition and development of the Project, the operation of the Project and the
ultimate sale of the Project. On a regular basis, the General Partner reviews
the financial performance of the Partnership and evaluates the operation of the
Project. The General Partner believes that various current economic and market
conditions make a sale of the Project to the Purchaser appropriate at this time.
These factors include:
o The improved operating performance of the Project, including
the recent increase in leasing activity at the Project which has
increased occupancy levels to approximately 91% and average annual rent
per square foot of occupied office space to $23.84;
o The current strength of economic and commercial real estate
markets, including the overall strength of the Stamford, Connecticut
central business district commercial real estate market;
o The current limited supply of substantial blocks of
contiguous space in Class A commercial buildings located in the central
business district in Stamford, Connecticut which has resulted in an
increase in the number of current proposals to develop additional Class
A commercial buildings, which, if completed, would result in increased
competition with the Project for credit-worthy tenants;
o The continuing development of the central business district
in Stamford, Connecticut, including a widening of the central business
district to include more directly the Project; which is located
directly opposite the recently-completed North American headquarters of
Swiss Bank;
o The positive response to Insignia's solicitation of
proposals to purchase the Project;
o The price and other terms agreed to by the Purchaser in the
Purchase Agreement; and
o The limited likelihood that any further increase in the
value of the Project would be significant in the near term in light of
the Partnership's inability to increase rental income unless current
leases are renewed at more favorable rental rates at the end of their
terms, or to the extent existing tenants do not elect to renew their
leases, the Partnership is able to procure new tenants at then more
favorable rates.
The General Partner has concluded that these factors, when weighed
against the risks and uncertainties inherent in continued ownership of the
Project, make the sale of the Project to the Purchaser, at this time, prudent
and in the best interests of the Unit Holders.
Unit Holders should be aware that, if the Proposed Sale is completed,
they would not participate in any future appreciation in the value of the
Project which might occur. See also, "Federal Income Tax Consequences of the
Sale."
-7-
<PAGE>
SUMMARY OF THE PURCHASE AGREEMENT
GENERAL
The material terms of the Purchase Agreement are summarized below.
The Purchase Agreement was the product of extensive arms' length
negotiation between the Purchaser and the General Partner. The Purchaser is
unaffiliated with the Partnership. The Purchaser is a Delaware limited
partnership, organized to own real property. The General Partner believes the
Purchaser has the financial resources necessary to purchase the Project in
accordance with the terms of the Purchase Agreement.
The Purchase Agreement provides for the sale of all of the
Partnership's interest in the Project to the Purchaser, including all of the
Partnership's interest, as landlord, in and to all Project leases. The Project
comprises substantially all of the assets of the Partnership. The New Loan would
be repaid, in full, from the gross sale proceeds received by the Partnership.
The Purchaser would assume all obligations of the Partnership, as landlord,
under all Project leases and leasing brokerage agreements which are to be
performed after the Proposed Sale.
PURCHASE PRICE
Pursuant to the Purchase Agreement, the Partnership will sell the
Project to the Purchaser for a purchase price of $61,315,000 (the "PURCHASE
PRICE"), subject to adjustment and pro-rations as described below. The Purchaser
has already deposited the sum of $2,000,000 (the "DEPOSIT"), in escrow, as a
deposit under the Purchase Agreement. In addition, the Purchaser has agreed to
reimburse the Partnership at the Closing (as hereinafter defined) for recently
incurred leasing brokerage and tenant fit out expenses which the General Partner
estimates will be approximately $315,000 in the aggregate (the "REIMBURSEMENT
AMOUNT"). The balance of the Purchase Price and the Reimbursement Amount will be
paid by wire transfer of immediately available funds at the closing (the
"CLOSING") of the sale of the Project. The Closing is scheduled to occur on or
before the thirtieth (30th) day following the Partnership's confirmation to the
Purchaser that the Partnership has the requisite authority, under the terms of
the Partnership Agreement and this Information Statement, to proceed with the
Proposed Sale.
PARTNERSHIP'S WARRANTIES AND REPRESENTATIONS
Except to the extent expressly stated in the Purchase Agreement, the
Partnership will sell the Project to the Purchaser and will assign all of the
Partnership's interest in and to the Project leases and leasing brokerage
agreements, on an "as is" basis, with all faults. In the Purchase Agreement, the
Partnership has made certain customary limited representations and warranties,
including: (i) that the Partnership has not received, from any municipal
authority, any written notices of material violations of building codes, fire
codes and the like, which have not been complied with by the Partnership; (ii)
the organization of the Partnership and the authority of the General Partner to
sell the Project pursuant to the terms of the Purchase Agreement and the
Partnership Agreement; (iii) that the Tax Appeal (see "Tax Appeal") is the only
pending litigation which could reasonably be expected to have a material adverse
effect on the Project; (iv) the identity of Project tenants, the material terms
of Project leases and the absence of any tenant defaults; and (v) the terms of
brokerage agreements which would be binding upon the Purchaser. Other than
certain representations regarding such matters as the identity of the
Partnership's broker for the transaction, none of the Partnership's
representations will survive the Closing. In the event any of the Partnership's
representations should prove incorrect at the time of Closing, the Partnership
may postpone the Closing for up to 90 days to attempt to rectify such
misrepresentation. If the Partnership is unable to rectify such
misrepresentation within said 90 day period, the Purchaser may elect to
terminate the Purchase Agreement only if the effect of the misrepresentation is
such that: (i) existing Project tenants, collectively, are then in default of
lease payment obligations in excess of $100,000, or (ii) any single Project
tenant, leasing more than 20,000 square feet, is then in default of any lease
payment obligation. In the event the Partnership is unable to cure any
misrepresentation which does not entitle the Purchaser to terminate the Purchase
Agreement, the Partnership would be required to provide the Purchaser with a
credit, at the Closing, in the amount of any economic loss associated with such
uncured misrepresentation. Such credit will not exceed $250,000. As of April 1,
1998, no Project tenants were in default of
-8-
<PAGE>
any lease payment obligations, and, to the General Partner's knowledge,
no Project tenants were in default of any other lease obligations.
As is customary in transactions such as the Proposed Sale, the
Partnership has agreed, in the Purchase Agreement, to continue to operate the
Project, prior to the Closing, in accordance with the practices of a prudent
real estate operator. The Partnership has also agreed not to undertake certain
actions prior to the Closing which would be adverse to the Purchaser's
interests, such as the termination of any existing leases, the granting of new
leases without the Purchaser's consent (except to Swiss Bank as discussed in
"Project Leases") or the consent to a re-zoning of the Project.
TITLE TO PROPERTY
The Purchaser has approved the current state of title to the Project,
as disclosed in a recent title report. The Partnership will be obligated to
convey good title to the Project to the Purchaser at the Closing. However, the
Partnership's obligations in this regard are limited to: (i) procuring the
release of any unpermitted title encumbrances which arise between the date of
the Purchase Agreement and the date of Closing; (ii) procuring the release of
the People's mortgage and any other monetary liens, securing less than
$1,500,000, which arise prior to the Closing; and (iii) correcting any
violations of applicable laws, such as building and fire codes, which are not
the express responsibility of a Project tenant and which would cost the
Partnership less than $200,000, in the aggregate, to correct. The General
Partner does not anticipate that any title defects requiring corrective action
by the Partnership will arise prior to the Closing. At the Closing, the
Partnership would deliver a Quit-Claim Deed to the Purchaser and would not make
any representations concerning the title to the Project which would survive the
Closing.
ADJUSTMENTS AT CLOSING
Certain real estate and other taxes, utility charges, fuel charges,
base rents and other rental payments made by Project tenants for the month of
Closing, will be apportioned as of the Closing in the manner which is customary
for commercial real estate transactions occurring in Stamford, Connecticut. For
a period of six months following the Closing, the Purchaser and the Partnership
will seek to collect any past due rent payments. In the event that, in the six
months following the Closing, any Project tenants shall be entitled to any
refunds by reason of any overpayments of such tenant's share of the Project's
operating expenses, or real property taxes for periods prior to the Closing, the
Partnership shall be required to provide the Purchaser with the funds necessary
to make such refund payments. The General Partner does not anticipate that the
amount of any such refund payments would be significant. Rents collected after
Closing will, after payment of the reasonable costs of collection, be applied in
the following manner: first, to be apportioned between the Partnership and the
Purchaser to reflect their respective periods of ownership during the month in
which the Closing occurs; second, to be paid to the Partnership for any rents
due for the month prior to the month in which the Closing occurs; and third, to
be paid to the Purchaser for the payment of rents due after the month in which
the Closing occurs. Any rent past due at the Closing and not collected during
the six-month period following the Closing would become receivables owned by the
Purchaser. As of March 1, 1998, there were no past due rent payments owed to the
Partnership by any Project tenant.
The Partnership has agreed to deliver the full amount of all tenant
security deposits to the Purchaser at the Closing. In the event any tenant
should commit an act, or fail to pay rent or perform any other obligation, which
gives rise to a default under its lease prior to Closing, the Partnership may
not apply any portion of such tenant's security deposit to compensate the
Partnership for any resulting loss. In such event, the General Partner, on
behalf of the Partnership, would have the option of commencing a separate
post-Closing legal action against such tenant for any amounts owed the
Partnership at the time of the Closing. At the Closing, the Purchaser will
assume all of the Partnership's obligations arising after the Closing under all
Project leases, including all of the Partnership's obligations with respect to
tenant security deposits and any pre-paid rents. The Purchaser will also assume
the Partnership's post-Closing obligations under applicable lease brokerage
agreements as well as certain Project service and maintenance contracts. The
Purchaser may elect to terminate any assigned service and maintenance contracts
after the Closing.
-9-
<PAGE>
TAX APPEAL
In July 1994, the Partnership instituted a legal action challenging the
assessed valuation of the Project for purposes of municipal real estate taxes
(the "TAX APPEAL"). As of the date hereof, the City and the Partnership have
agreed to settle the Tax Appeal on terms favorable to the Partnership. Provided
this settlement is approved by the court having jurisdiction over the Tax Appeal
(which the General Partner fully expects to occur prior to the Closing), the
City of Stamford (the "CITY") will compensate the Partnership for the prior
over-assessment of the Project in the following manner: First, the City will
apply a portion of the Partnership's prior excess tax payments to satisfy all
outstanding Parking Payments obligations of the Partnership (discussed below in
"Zoning Payment Obligations") in the present amount of $563,710; second, the
City will apply $236,164 of such prior excess tax payments in full satisfaction
of the real estate taxes for the Project otherwise due and payable to the City
on January 1, 1998; and third, the City will reduce the real estate taxes for
the Project due on July 1, 1998, by the sum of $42,188 (collectively, the "TAX
CREDIT"). (In view of the fact that the proposed resolution of the Tax Appeal
would fully discharge the real property tax bill due on January 1, 1998, the
City had previously agreed that pending the resolution of the Tax Appeal, the
Partnership need not pay the January 1, 1998, real property tax bill for the
Project. Accordingly, as of March 1, 1998, the Partnership had not paid the
January 1998 real property tax bill.)
At the Closing, the Purchaser will pay the Partnership an amount equal
to the discounted present value of any real property tax savings created by the
Tax Credit which will benefit the Purchaser.
ZONING PAYMENT OBLIGATIONS
When the Project was originally developed, the Partnership was
permitted to construct and maintain a lesser number of on-site parking spaces
for the Project than would otherwise be required under applicable zoning
regulations, provided the Partnership agreed to made certain future parking
payments (the "PARKING PAYMENTS") to the City according to a specified
timetable. Since the Project's occupancy level was, until recently, relatively
low, the Partnership did not make certain of the Parking Payments to the City in
the time and manner originally specified. As of September 30, 1997, the
Partnership owed the City $563,710 in Parking Payments. The favorable resolution
of the Tax Appeal would fully satisfy all outstanding Parking Payments
obligations by the application of a portion of the Tax Credit in the amount of
$563,710 to the Parking Payments obligations.
CLOSING AND CONDITIONS
The obligation of the Partnership to consummate the sale of the Project
to the Purchaser, pursuant to the Purchase Agreement, is expressly contingent
upon Unit Holders holding a majority of the outstanding Units not objecting to
the Proposed Sale in the time and manner specified in this Information
Statement. The Purchaser's obligation to proceed with the purchase of the
Project is also subject to such contingencies as are customary in commercial
real estate transactions in the Stamford, Connecticut market, including the
delivery of good title to the Purchaser, the maintenance of the Project in the
same condition it was in on the date the Purchase Agreement was signed by the
parties, subject to normal wear and tear, the absence of any condemnation or
eminent domain actions or material damage to the Project from fire or other
casualty and the absence of any Partnership misrepresentations. (See
"Partnership's Warranties and Representations"). However, the Purchaser's
obligation to proceed with the Proposed Sale is not contingent upon any
additional inspections or investigations of the Purchaser relative to the
Project. In addition, the Purchaser's obligation to purchase the Project is
subject to the Partnership's procurement of tenant certificates, addressed to
the Purchaser, from Citicorp North America, Inc., Times Mirror Training, Inc.
and Swiss Bank, and from other tenants leasing in the aggregate at least 40% of
the Project, attesting to the absence of landlord and tenant defaults and
certain other customary factual matters. The General Partner expects to be able
to satisfy this condition. Similarly, the Proposed Sale is not dependent upon
the Purchaser's ability to procure financing.
-10-
<PAGE>
EXPENSES
The Purchaser is solely responsible for the costs of its inspections
and investigations of the Project and the Partnership, as well as the costs of
any title search, title insurance policy, or survey which the Purchaser may
obtain. As is customary with real estate transactions in Stamford, Connecticut,
the Partnership will be responsible for 100% of the real estate conveyance taxes
due to the State of Connecticut and the City of Stamford by reason of the sale.
Such conveyance taxes will amount to $680,597, or approximately 1.11% of the
Purchase Price. The Partnership will be responsible for the payment of a
broker's commission to Insignia in the amount of $919,725, or 1.5% of the
Purchase Price. The Partnership and the Purchaser will each be responsible for
the fees of their respective attorneys, accountants and other advisors.
PURCHASER DEFAULT
If Unit Holders owning a majority of the Units do not object to the
Proposed Sale in the time and manner specified in this Information Sheet, and if
the Purchaser fails to purchase the Project in accordance with the terms of the
Purchase Agreement, through no fault of the Partnership or the General Partner,
the Partnership will, as its sole and exclusive remedy by reason of the
Purchaser's default, be entitled to receive and retain the Deposit as liquidated
damages to compensate the Partnership for the losses and damages the Partnership
would incur by reason of such failure on the part of the Purchaser. The
Partnership's damages, in any such situation, would include, without limitation,
the potential loss of other potential purchasers, any diminution in the value of
the Project by reason of any adverse market changes, and the expenses incurred
by the Partnership in connection with the intended sale to the Purchaser,
including attorneys' fees and expenses. Conceivably, the Partnership's actual
damages or losses in the event of a Purchaser default under the Purchase
Agreement could exceed the Deposit.
PARTNERSHIP DEFAULT
In the event Unit Holders owning a majority of the outstanding Units do
not object to the Proposed Sale in the time and manner specified in this
Information Statement, but the Partnership fails, through no fault of the
Purchaser, to proceed with the sale of the Project to the Purchaser as required
by the terms of the Purchase Agreement, the Purchaser will be entitled either
to: (i) seek to compel the Partnership's performance by commencing an action for
specific performance (I.E., seeking a court order directing the Partnership to
sell the Project to the Purchaser pursuant to the terms of the Purchase
Agreement); or (ii) have the Deposit returned to the Purchaser. Any inability to
proceed with the sale by reason of condemnation, eminent domain, or damage due
to fire or other casualty will not constitute a Partnership or a Purchaser
default under the Purchase Agreement, but may nonetheless entitle the Purchaser
to terminate the Purchase Agreement and reclaim the Deposit, if the consequences
any of the foregoing are material and adverse to the Project.
TERMINATION
In the event Unit Holders owning a majority of the Units do object to
the Proposed Sale in the time and manner specified in this Information
Statement, then the Purchaser would, as its exclusive remedy, be entitled to
terminate the Purchase Agreement and to receive the return of the Deposit.
NO GOVERNMENTAL APPROVALS REQUIRED
The Proposed Sale does not require the approval or consent of any
federal or state government or regulatory body.
-11-
<PAGE>
EFFECTS OF SELLING THE PROJECT
After the sale of the Project, the Partnership will dissolve under the
terms of the Partnership Agreement. Pursuant to the Partnership Agreement, the
General Partner will apply the Purchase Price received from the Purchaser and
any other assets of the Partnership as follows:
(i) to pay all the obligations, debts and liabilities of
the Partnership owing to creditors, including the
Partnership's outstanding mortgage indebtedness owed
to People's and the expenses associated with selling
the Project, which, as of December 31, 1997 amounted
to approximately $22,236,000 (including estimated
additional expenses of selling the Project);
(ii) to reimburse the General Partner for certain out-of
pocket and administrative expenses that have accrued
which amounted to approximately $80,110 as of
December 31, 1997;
(iii) to hold approximately $250,000 as reserves for paying
contingent or unforeseen liabilities or obligations
of the Partnership and the expenses of winding up the
affairs of the Partnership; and
(iv) to make distributions to the partners of the
Partnership as described below.
ESTIMATED DISTRIBUTIONS
If the Project is sold to the Purchaser, the Partnership will receive
sale proceeds of $61,315,000 and the Reimbursement Amount. Upon completion of
the sale, the Partnership will dissolve in accordance with the terms of the
Partnership Agreement. Thereafter, the Partnership will continue solely for the
purpose of winding up its affairs and making distributions to the partners of
the Partnership in accordance with the Partnership Agreement. Following the
Proposed Sale, the Partnership will make a distribution to Unit Holders. The
General Partner estimates that this distribution would be approximately $5.70
per Unit.
The following table summarizes the amounts which the General Partner
estimates, as of December 31, 1997, would be available for distribution to the
Unit Holders. This information is based on estimates. Actual
-12-
<PAGE>
amounts available for distribution to the Unit Holders will likely differ based
on the time of the Proposed Sale and the financial condition of the Partnership
at the time of the distribution.
<TABLE>
<CAPTION>
AMOUNT
(In thousands except
for per Unit amount)
ASSETS OF THE PARTNERSHIP
<S> <C>
Gross Proceeds of the Sale $61,315
Reimbursement Amount 315
Estimated other assets of the Partnership (consisting
principally of cash and cash equivalents and accounts
receivable) 5,513
===============================
Total Estimated Assets $67,143
===============================
LIABILITIES AND OBLIGATIONS OF THE PARTNERSHIP
Repayment of principal and accrued interest of mortgage
indebtedness on the Project $(18,482)
Payment of other current liabilities of the Partnership (1,983)
Expenses of the sale (including brokerage, legal and
accounting fees) (1,850)
Reserve for other liabilities and the expenses of
liquidation (250)
===============================
Total Estimated Liabilities $(22,565)
===============================
ESTIMATED NET AMOUNT AVAILABLE FOR DISTRIBUTION TO $44,578
PARTNERS OF THE PARTNERSHIP
DISTRIBUTION TO LIMITED PARTNERS 44,578
DISTRIBUTION TO GENERAL PARTNER (1) 0
ESTIMATED NET AMOUNT AVAILABLE FOR DISTRIBUTION PER UNIT
(7,826,300 UNITS) $5.70
</TABLE>
(1) Pursuant to the Partnership Agreement, the General Partner is entitled
to 1% of the net proceeds of any sale of the Project and a 1%
distribution of cash flow from operations. However, the General Partner
anticipates it will forgo both distributions.
-13-
<PAGE>
Unit Holders should recognize that the amounts set forth in the table
are, in some cases, estimates. Actual amounts available for distribution will
depend on the financial position of the Partnership at the time of the
dissolution and on the estimates of necessary reserves as determined by the
General Partner.
If the Partnership has remaining assets after the satisfaction of all
of its liabilities and expenses, there would be an additional distribution paid
to the Unit Holders. The Partnership does not guarantee that there will be any
additional liquidating distribution or, if there is, the amount of the
distribution.
INTERESTS OF CERTAIN PERSONS IN THE PROPOSED SALE
In connection with the management of the Partnership, the General
Partner must be reimbursed for: (i) all out-of pocket expenses incurred in
connection with the Partnership's business and (ii) those costs related to
performing administrative services necessary for the prudent operation of the
Partnership, subject to certain restrictions as set forth in the Partnership
Agreement. For 1995, 1996 and 1997, the General Partner received $138,002,
$147,113 and $419,501, respectively, under these arrangements.
Upon the dissolution and subsequent termination of the Partnership, the
General Partner will contribute to the Partnership an amount equal to the lesser
of: (a) the deficit balance in its capital account or (b) the excess of 1.01% of
the aggregate capital contributions of the Unit Holders over the aggregate
capital contributions previously made by the General Partner to the Partnership.
As a result of the foregoing provision, the General Partner may elect to reduce
or forgo its 1% distribution of the net sale proceeds or its 1% distribution of
cash flow from operations which it would otherwise be entitled to under the
Partnership Agreement.
TERMINATION OF THE PARTNERSHIP
If the Proposed Sale to the Purchaser is completed, the Partnership
will dissolve. Thereafter, the activities of the Partnership will be limited to
winding up its affairs.
Upon dissolution of the Partnership, the Units will no longer be deemed
outstanding. The rights of Unit Holders will be limited to the right to receive
any distribution or distributions which might become payable. After dissolution
of the Partnership, the Units will no longer be transferable. In addition, the
Partnership will no longer be obligated to file periodic reports and other
information under the Securities Exchange Act of 1934.
FEDERAL INCOME TAX CONSEQUENCES OF THE SALE
The following is a summary of the principal federal income tax
consequences to Unit Holders of the Partnership's selling the Project pursuant
to the Purchase Agreement and of the dissolution of the Partnership. This
summary necessarily does not describe all possible federal income tax
consequences or federal income tax consequences which may affect only certain
Unit Holders. Further, the summary does not address state or local tax
consequences of the Proposed Sale or the dissolution of the Partnership.
GENERAL
The following discussion is a summary of the material federal income
tax consequences of the Proposed Sale for cash and dissolution of the
Partnership to Unit Holders that are United States individual taxpayers or
domestic corporate taxpayers who hold Units as capital assets. The discussion
does not summarize the tax consequences peculiar to nonresident foreign
investors, tax exempt entities, persons who hold Units as inventory or as dealer
property or other persons subject to special treatment under federal income tax
laws. No ruling has been or will be requested from the Internal Revenue Service
as to the federal income tax matters discussed herein. The actual tax
consequences to a particular Unit Holder will depend on the Unit Holder's
circumstances. Accordingly, Unit Holders are urged to consult their tax advisors
with respect to the tax consequences to them of the Proposed
-14-
<PAGE>
Sale and dissolution. Further, persons who are assignees or successors in
interest with respect to the Units of another person should consult with their
tax advisors with respect to the tax consequences to them of the Proposed Sale
and dissolution. The discussion below is based upon the Internal Revenue Code of
1986, as amended (the "INTERNAL REVENUE CODE"), existing judicial decisions,
administrative regulations and published rulings, each of which is subject to
change, possibly on a retroactive basis. It is possible that future legislative,
judicial or administrative changes could adversely affect the tax consequences
to Unit Holders of the Proposed Sale and dissolution.
INCOME FROM PARTNERSHIP OPERATIONS
All items of income, gain, loss, deduction or credit recognized by the
Partnership from operations prior to the sale of the Project will continue to be
allocated among the Partners as provided in the Partnership Agreement. Losses
from operations in 1998 will be allocated 1% to the General Partner and 99% to
the Unit Holders. Each Unit Holder will continue to receive Partnership income
tax information to enable the distributive share of all such Partnership taxable
items allocated during such period and through the period of dissolution to be
reported.
INCOME FROM THE PROPOSED SALE
All items of income, gain, loss, deduction or credit recognized by the
Partnership, resulting from the transfer of the Project, or during the period of
dissolution, will continue to be allocated among the Partners as provided in the
Partnership Agreement. Loss on the Proposed Sale will be allocated 100% to the
Unit Holders. Accordingly, a Unit Holder will be required to report on his tax
return his distributive share of the loss recognized by the Partnership upon the
Proposed Sale. The loss on the Proposed Sale is estimated to be $2.9 million in
total and $0.37 per Unit.
The Project should qualify as property described in Section 1231 of the
Internal Revenue Code because the Project was held by the Partnership for more
than six months ("SECTION 1231 PROPERTY"). If the proceeds of the disposition
are characterized at the Partnership level as loss from the sale or exchange of
Section 1231 Property, such loss will flow through to the Unit Holders. Each
Unit Holder's distributive share of such loss then must be aggregated with such
Unit Holder's recognized gain or loss on the sale or exchange or involuntary
conversion of other Section 1231 Property. If the aggregate of these sums is a
net gain for any Unit Holder, all such gains and losses will generally be
long-term capital gains and losses. If the aggregate of these sums is a net loss
for any Unit Holder, all such gains and losses will be ordinary losses. Gain
from the sale of Section 1231 Property would be treated as ordinary income to
the extent of net losses on previous sales of Section 1231 Property during the
five most recent prior years. Because Section 1231 takes into account each
taxpayer's particular income tax situation, the tax consequences to one Unit
Holder of a sale by the Partnership of its Section 1231 Property may differ from
the consequences to another Unit Holder.
DEPRECIATION RECAPTURE
Since there will be no gain on the Proposed Sale, there will be no
depreciation recapture.
RECEIPT OF LIQUIDATING DISTRIBUTIONS
Because the liquidating distribution will consist entirely of cash, a
Unit Holder will recognize a tax gain (or tax loss) equal to the amount by which
the Unit Holder's tax basis in its Units is less than (or greater than) the
amount of the liquidating distributions. A Unit Holder's tax basis in its Units
will generally equal the price originally paid for the Units (or the tax basis
of the property exchanged for the Units) increased by its distributive share of
Partnership taxable income (including any Partnership loss resulting from the
transfer of the Project), and decreased by the distributive share of Partnership
taxable losses (including any Partnership loss resulting from the sale of the
Project), the amount of cash distributed to the Unit Holders and any decrease in
such Unit Holder's share of partnership liabilities. Gain or loss recognized by
a Unit Holder upon liquidation of the Partnership is generally treated as gain
or loss from the sale or exchange of a capital asset.
-15-
<PAGE>
TAXATION OF CAPITAL GAINS AND LOSSES
In general, individual and corporate taxpayers may utilize capital
losses to offset capital gains; however a Unit Holder's capital losses can be
deducted only to the extent of a Unit Holder's capital gains plus, in the case
of noncorporate Unit Holders, ordinary income of up to $3,000. Noncorporate Unit
Holders may carry over a net capital loss for an unlimited time until the loss
is exhausted. Corporate Unit Holders may be allowed to carry the unused capital
losses to the three preceding tax years and to the five following tax years.
PASSIVE ACTIVITY LOSS PROVISIONS
The passive loss limitations of the Internal Revenue Code generally
provide that individuals, estates, trusts and certain closely held corporations
and personal service corporations can deduct losses from passive activities only
to the extent of their income from such passive activities or investments.
Passive activities are, in general, business activities in which a taxpayer does
not materially participate, such as those of the Partnership. However, losses
with respect to the Partnership that were previously disallowed (as suspended
loss) to a Unit Holder under the passive activity loss rules may be used to
offset income or gain from the Proposed Sale, and to the extent not used to
offset such income or gain, generally may be deducted by such Unit Holder in the
taxable year in which the liquidation of the Partnership is completed. In
addition, deductions previously disallowed to a Unit Holder by certain other
limitations may be allowed to the extent of income and gain recognized in the
Proposed Sale. Suspended losses for the Project total approximately $4.07 per
Unit for any Unit Holder that is an individual, pass-through entity or other
person or entity subject to the passive activity loss limitation rules and who
originally purchased Units in 1988 when the Partnership completed its offering
of the Units. Suspended passive losses are, in general, allowed against such
Unit Holder's income, not just passive income.
ADJUSTED TAX BASIS AND AT-RISK BASIS OF PARTNERSHIP INTERESTS
Generally, the adjusted tax basis of a Unit Holder's Units will equal
the amount paid for its Units, reduced by the Unit Holder's share of Partnership
cash distributions and losses and increased by its share of Partnership income
and its share of Partnership debt. A Unit Holder's amount at-risk in its Units
is generally the sum of the amount paid for its Units plus the Unit Holder's
share of any Partnership borrowing, provided such borrowing is recourse to the
Unit Holder. A Unit Holder's at-risk amount is also adjusted in a similar manner
as a Unit Holder's tax basis in its Units. A Unit Holder's adjusted tax basis
and at-risk basis are important because a Unit Holder may not claim deductions
on a current basis for its allocable share of Partnership losses to the extent
they exceed the amount of the adjusted tax basis which is at-risk. A Unit
Holder's adjusted tax basis in its Units also will determine the amount of gain
or loss on a sale or other disposition of its Units.
ALTERNATIVE MINIMUM TAX
Unit Holders may be subject to the alternative minimum tax provisions
of the Internal Revenue Code. The alternative minimum tax is not imposed on the
Partnership, as such. Instead, in general, each Unit Holder must take into
account its share of the Partnership's tax preference and other items for the
purpose of computing its liability for the alternative minimum tax. Therefore,
Unit Holders are urged to consult their own tax advisors with respect to the
Proposed Sale and its effect on their own alternative minimum tax calculations.
The General Partner recommends that each Unit Holder consult with tax
or legal counsel to determine the tax consequences to such Unit Holder of the
sale of the Project and the dissolution of the Partnership.
-16-
<PAGE>
FINANCIAL INFORMATION
The audited balance sheets of the Partnership at December 31, 1997 and
1996, the audited consolidated statements of operations, statements of partners'
capital (deficit) and statements of cash flows for the years ended December 31,
1997, 1996 and 1995, including notes thereto, are included herein as Annex A
SELECTED FINANCIAL DATA
The following selected financial data for each of the years in the
five-year period ended December 31, 1997, has been derived from the
Partnership's financial statements audited by Ernst & Young LLP, an independent
certified public accountant. The selected financial data set forth below should
be read in conjunction with the audited financial statements and related notes
included in Annex A.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Rental Income $5,074,594 $ 4,144,475 $ 2,947,857 $ 2,486,730 $ 2,392,211
Interest Income 252,763 256,063 319,278 192,911 182,101
Net Loss (4,322,230) (2,660,356) (3,017,904) (3,711,936) (4,387,694)
Net Loss per (.55) (.34) (.38) (.47) (.56)
Unit (1)
Total Assets 64,935,053 69,645,169 69,670,348 70,989,125 74,328,520
Revolving loan 18,356,361 17,798,291 16,483,152 15,407,772 14,951,320
payable
Cash -0- -0- -0- -0- -0-
Distributions per
Unit
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Based upon the weighted average number of Units (7,826,300) outstanding at
year end.
OWNERSHIP OF UNITS BY CERTAIN PERSONS AND MANAGEMENT
Chrysler Master Pension Trust, U/A/D 5/28/56, beneficially owns 450,000
Units, representing approximately 5.75% of the total Units outstanding. The
Partnership does not know of any other person who owns more than 5% of the
outstanding Units. Chrysler Master Pension Trust's address is 12,000 Chrysler
Drive, Highland Park, Michigan.
Neither the General Partner nor any of the executive officers or
directors of the General Partner owns any Units.
-17-
<PAGE>
MARKET FOR THE PARTNERSHIP UNITS
The Units of the Partnership are not listed for trading on any national
securities exchange. Currently, there is no established trading market for the
Units.
VOTE REQUIRED
Under the Partnership Agreement, the Depositary as the sole limited
partner of the Partnership and the Unit Holders have the right to vote on the
terms of the Proposed Sale. Unit Holders have the right to instruct the
Depositary to vote to approve the Proposed Sale or to object to the Proposed
Sale. The Units owned by any Unit Holder who does not instruct the Depositary to
object to the Proposed Sale will be voted by the Depositary to approve the
Proposed Sale. NEITHER THE PARTNERSHIP NOR THE GENERAL PARTNER IS SOLICITING
PROXIES WITH RESPECT TO THE VOTE ON THE PROPOSED SALE.
UNIT HOLDERS SHOULD RECOGNIZE THAT THE FAILURE TO INSTRUCT THE
DEPOSITARY TO OBJECT TO THE PROPOSED SALE WILL BE THE EQUIVALENT OF INSTRUCTING
THE DEPOSITARY TO APPROVE THE PROPOSED SALE.
If the holders of a majority of the outstanding Units instruct the
Depositary to vote to object to the Proposed Sale, the sale of the Project to
the Purchaser on the terms set forth in the Purchase Agreement will not take
place. In that event, the Partnership will continue to own the Project and to
operate its business until the termination of the Partnership on December 31,
2036 or until the Partnership is otherwise dissolved.
PROCEDURE FOR OBJECTING UNIT HOLDERS
Under Section 6.15 of the Partnership Agreement, if a Unit Holder
objects to the terms of the Proposed Sale, that Unit Holder must follow the
procedures set forth in the Partnership Agreement for that Unit Holder's
objection to be effective. The Partnership Agreement requires that any Unit
Holder who objects to the Proposed Sale must notify the Depositary of that Unit
Holder's objection. If a notice of objection is not received by the Depositary
within 10 days of a Unit Holder's receipt of this Information Statement, the
Unit Holder's notice will not be effective under the Partnership Agreement.
Notwithstanding the provision of the Partnership Agreement requiring
notice within 10 days, the General Partner currently does not intend to complete
the sale of the Project pursuant to the Purchase Agreement if Unit Holders
owning a majority of the Units give notice of objection to the sale under the
Purchase Agreement on or before June 1, 1998.
All notices from Unit Holders to the Depositary should be delivered to
Stamford Towers Depositary Corp., c/o First Data Investor Services Group, P.O.
Box 1527, Boston, Massachusetts 012104-1527, Attention: Financial
Communications. Any Unit Holder desiring to give notice to the Depositary is
responsible for assuring receipt of such notice to the Depositary within the
time periods described above. (Notices should not be sent to the General
Partner.)
ADDITIONAL INFORMATION
This Information Statement does not purport to be a complete
description of all agreements and matters relating to the condition of the
Partnership, the Project and the Proposed Sale. The Partnership's Annual Report
on Form 10-K for the year ended December 31, 1997 (the "FORM 10-K") provides
additional information regarding the Partnership. Copies of the Form 10-K are
available without charge to any Unit Holder upon written or oral request
directed to First Data Investor Services Group, P.O. Box 1527, Boston,
Massachusetts 02104-1527; telephone (800) 223-3464. Copies of the Form 10-K, and
other reports filed by the Partnership with the Securities and Exchange
Commission (the "COMMISSION") under the Securities Exchange Act of 1934 can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's regional offices at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and 7 World Trade Center, 13th Floor, New York, New York
10048. Copies of such material may be obtained from
-18-
<PAGE>
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Such material also can be reviewed
through the Commission's Electronic Data Gathering, Analysis and Retrieval
System, which is publicly available through the Commission's Web site
(http://www.sec.gov).
<PAGE>
ANNEX A
STAMFORD PARTNERS LIMITED PARTNERSHIP
FINANCIAL STATEMENTS
DECEMBER 31, 1997
<PAGE>
<TABLE>
<CAPTION>
STAMFORD TOWERS LIMITED PARTNERSHIP
=======================================================================================================
BALANCE SHEETS At December 31, At December 31,
1997 1996
- -------------------------------------------------------------------------------------------------------
Assets Real estate, at cost:
<S> <C> <C>
Land $ -- $ 14,714,483
Buildings and improvements -- 52,933,678
Tenant improvements -- 8,191,558
Furniture, fixtures and equipment -- 293,864
-----------------------------------
-- 76,133,583
Less accumulated depreciation -- (16,104,668)
-----------------------------------
-- 60,028,915
Real estate assets held for disposition 59,532,125 --
Cash and cash equivalents 3,960,408 5,668,459
Restricted cash 1,213,209 337,676
Accounts receivable 65,764 80,245
Deferred rent receivable -- 1,843,289
Deferred charges, net of accumulated amortization of
$12,667 in 1997 and $701,187 in 1996 139,336 53,896
Prepaid expenses, net of accumulated amortization of
$-0- in 1997 and $934,564 in 1996 24,211 1,632,689
- -------------------------------------------------------------------------------------------------------
Total Assets $ 64,935,053 $ 69,645,169
=======================================================================================================
Liabilities and Partners' Capital (Deficit)
Liabilities:
Accounts payable and accrued expenses $ 1,903,249 $ 2,793,018
Interest payable 116,775 134,080
Due to affiliates 80,110 128,262
Revolving loan payable 18,365,631 17,798,291
-----------------------------------
Total Liabilities 20,465,765 20,853,651
-----------------------------------
Partners' Capital (Deficit):
General Partner (273,292) (230,070)
Limited Partners (7,826,300 units outstanding) 44,742,580 49,021,588
-----------------------------------
Total Partners' Capital 44,469,288 48,791,518
- -------------------------------------------------------------------------------------------------------
Total Liabilities and Partners' Capital $ 64,935,053 $ 69,645,169
=======================================================================================================
</TABLE>
<TABLE>
<CAPTION>
===================================================================================================================
STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
===================================================================================================================
For the years ended December 31, 1997, 1996 and 1995
===================================================================================================================
General Limited
Partner Partners Total
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1994 $ (173,287) $ 54,643,065 $ 54,469,778
Net Loss (30,179) (2,987,725) (3,017,904)
- -------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 (203,466) 51,655,340 51,451,874
Net Loss (26,604) (2,633,752) (2,660,356)
- -------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 (230,070) 49,021,588 48,791,518
Net Loss (43,222) (4,279,008) (4,322,230)
- -------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 $ (273,292) $ 44,742,580 $ 44,469,288
===================================================================================================================
</TABLE>
See accompanying notes to the financial statements.
1
<PAGE>
<TABLE>
<CAPTION>
STAMFORD TOWERS LIMITED PARTNERSHIP
===================================================================================================================
STATEMENTS OF OPERATIONS
For the years ended December 31, 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
Income
<S> <C> <C> <C>
Rental $ 5,074,594 $ 4,144,475 $ 2,947,857
Interest 252,763 256,063 319,278
Other 392,117 474,457 331,828
------------------------------------------------
Total Income 5,719,474 4,874,995 3,598,963
- -------------------------------------------------------------------------------------------------------------------
Expenses
Depreciation and amortization 1,633,948 2,070,391 2,446,866
Property operating 2,502,410 2,584,730 2,308,093
Settlement costs 446,688 925,070 --
Provision for loss on real estate
held for disposition 3,310,365 -- --
Interest 1,483,868 1,549,523 1,289,309
Professional fees 244,924 258,524 434,597
Partnership service fees 282,816 115,406 104,289
General and administrative 136,685 31,707 33,713
------------------------------------------------
Total Expenses 10,041,704 7,535,351 6,616,867
- -------------------------------------------------------------------------------------------------------------------
Net Loss $ (4,322,230) $ (2,660,356) $ (3,017,904)
===================================================================================================================
Net Loss Allocated:
To the General Partner $ (43,222) $ (26,604) $ (30,179)
To the Limited Partners (4,279,008) (2,633,752) (2,987,725)
- -------------------------------------------------------------------------------------------------------------------
$ (4,322,230) $ (2,660,356) $ (3,017,904)
===================================================================================================================
Per limited partnership unit
(7,826,300 outstanding) $(0.55) $(.34) $(.38)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
STAMFORD TOWERS LIMITED PARTNERSHIP
===================================================================================================================
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities:
<S> <C> <C> <C>
Net Loss $ (4,322,230) $ (2,660,356) $ (3,017,904)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation 1,420,092 1,783,769 2,179,559
Amortization 213,856 286,622 267,307
Provision for loss on real estate held for disposition 3,310,365 -- --
Increase (decrease) in cash arising from changes in
operating assets and liabilities:
Restricted cash (875,533) (246,218) (2,164)
Accounts receivable 14,481 (9,193) 32,149
Deferred rent receivable 107,381 12,381 526,199
Prepaid expenses (239,779) (392,148) (1,218,849)
Accounts payable and accrued expenses (1,120,380) 886,419 438,889
Interest payable (17,305) 10,044 28,636
Due to affiliates (48,152) (184) 382
------------------------------------------------
Net cash used for operating activities (1,557,204) (328,864) (765,796)
- -------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Additions to real estate (566,184) (1,191,798) (204,504)
------------------------------------------------
Net cash used for investing activities (566,184) (1,191,798) (204,504)
- -------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Deferred charges (152,003) -- --
Mortgage principal payments (125,842) -- --
Borrowings under the revolving loan payable 693,182 1,315,139 1,075,380
------------------------------------------------
Net cash provided by financing activities 415,337 1,315,139 1,075,380
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (1,708,051) (205,523) 105,080
Cash and cash equivalents, beginning of year 5,668,459 5,873,982 5,768,902
------------------------------------------------
Cash and cash equivalents, end of year $ 3,960,408 $ 5,668,459 $ 5,873,982
===================================================================================================================
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for interest $ 1,501,173 $ 1,539,479 $ 1,260,673
- -------------------------------------------------------------------------------------------------------------------
Supplemental Disclosure of Non-Cash Investing Activities:
Write-off of fully depreciated building and improvements $ -- $ 84,926 $ --
Write-off of fully depreciated furniture, fixtures, and equipment 61,911 -- --
Write-off of fully depreciated tenant improvements 76,285 -- --
Write-off of fully amortized mortgage costs 755,083 -- --
Building improvements funded through accounts payable 23,216 -- --
Tenant improvements funded through accounts payable 207,395 423,759 155,840
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Supplemental Disclosure of Non-Cash Operating Activities
In connection with the General Partner's intent to sell the Property in 1997,
deferred rent receivable and prepaid leasing commissions in the amounts of
$1,735,908 and $1,700,963, respectively, were reclassified to real estate assets
held for disposition.
See accompanying notes to the financial statements.
3
<PAGE>
STAMFORD TOWERS LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
1. Organization and Business
Stamford Towers Limited Partnership (the "Partnership"), a Delaware limited
partnership, was formed on August 14, 1986 for the purpose of acquiring two
parcels of land, aggregating 3.63 acres, located in Stamford, Connecticut and
developing, owning and operating two class A office buildings (the "Buildings")
to be constructed thereon (collectively the "Property"). The Buildings contain
approximately 325,000 square feet of rentable space.
The general partner of the Partnership is Stamford Towers, Inc. (the "General
Partner"), an affiliate of Lehman Brothers Inc. (see below).
Construction of the Buildings commenced in July 1987. However, certificates of
occupancy were not received from the City of Stamford until February 6, 1990,
representing a substantial delay from the originally scheduled completion date
of February 1989. Moreover, during the course of construction, substantial cost
overruns were incurred. The Partnership initiated an arbitration proceeding
against Edlar, Inc., a Delaware corporation, ("Edlar") in order to establish
Edlar's responsibility for certain cost overruns, delays, expenses and
liquidated damages in connection with the construction phase of the Property. A
detailed discussion is incorporated by reference to Note 9 "Arbitration
Proceedings with Developer" contained herein.
On July 31, 1993, Shearson Lehman Brothers Inc. sold certain of its domestic
retail brokerage and asset management businesses to Smith Barney, Harris Upham &
Co. Incorporated. Subsequent to the sale, Shearson Lehman Brothers Inc. changed
its name to Lehman Brothers Inc. The transaction did not affect the ownership of
the General Partner.
The Partnership will terminate on December 31, 2036 unless dissolved sooner as
provided within the Agreement.
On January 30, 1998, the Partnership executed a letter of intent for the sale of
the Property to Reckson Operating Partnership, L.P. for gross proceeds of
$61,315,000 (the "Letter of Intent"). On March 17, 1998, the Partnership entered
into a purchase and sale agreement substantively in accordance with the terms
and conditions specified in the Letter of Intent. The sale is expected to close
in the second quarter of 1998.
2. Significant Accounting Policies
REAL ESTATE INVESTMENTS Real estate investments, which consist of buildings and
improvements, tenant improvements and furniture, fixtures and equipment, are
recorded at cost less accumulated depreciation. Cost of the buildings includes
the initial purchase price of the property plus closing costs, acquisition and
legal fees and capital improvements. Depreciation on the buildings and
improvements is computed using the straight-line method based on estimated
useful lives of 35 years. Tenant improvements are depreciated by the
straight-line method over the terms of the related leases. Furniture, fixtures
and equipment are depreciated over their estimated useful lives.
REAL ESTATE ASSETS HELD FOR DISPOSITION Real estate assets held for disposition
are carried at the lower of carrying value or fair market value less costs to
sell. At September 30, 1997, the Partnership's real estate assets were
reclassified as held for disposition and the Partnership suspended depreciation
and amortization in accordance with Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" ("FAS 121"). Contemporaneously, the Partnership
recognized a one-time expense of $16,893,005 as provision for loss on real
estate held for disposition. However, in light of the pending sale of the
Property, the Partnership revised the carrying value of real estate assets held
for disposition at December 31, 1997 and the provision for loss on real estate
held for disposition for the year ended December 31, 1997 was decreased to
$3,310,365.
4
<PAGE>
STAMFORD TOWERS LIMITED PARTNERSHIP
ACCOUNTING FOR IMPAIRMENT The Partnership adopted the provisions of FAS 121 in
the fourth fiscal quarter of 1995. FAS 121 requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. FAS 121 also addresses the
accounting for long-lived assets that are expected to be disposed of.
CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of short-term highly
liquid investments which have maturities of three months or less from the date
of purchase. The carrying value approximates fair value because of the short
maturity of these instruments.
RESTRICTED CASH Restricted cash primarily represents cash held in connection
with tenant security deposits and mortgage escrows.
OFFERING COSTS Offering costs of $6,454,526 are non-amortizable and have been
deducted from the Limited Partners' capital.
DEFERRED RENT RECEIVABLE Deferred rent receivable consisted of rental income
which was recognized on a straight-line basis over the non-cancelable portion of
the leases which would not have been received until later periods as a result of
rental concessions. In connection with the General Partner's intent to sell the
Property, deferred rent receivable was reclassified to real estate assets held
for disposition.
DEFERRED CHARGES Costs incurred in connection with obtaining mortgage financing
are included in deferred charges. These costs are amortized over the life of the
related mortgage loan.
LEASING COMMISSIONS Leasing commissions included in prepaid expenses were being
amortized over the term of the non-cancelable portions of the leases. In
connection with the General Partner's intent to sell the Property in 1997,
leasing commissions were reclassified to real estate assets held for
disposition.
INCOME TAXES No provision for income taxes has been made in the financial
statements since such taxes are the responsibility of the individual partners
rather than that of the Partnership.
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards
No. 107, "Disclosures about Fair Value of Financial Instruments" ("FAS 107"),
requires that the Partnership disclose the estimated fair values of its
financial instruments. Fair values generally represent estimates of amounts at
which a financial instrument could be exchanged between willing parties in a
current transaction other than in forced liquidation.
Fair value estimates are subjective and are dependent on a number of significant
assumptions based on management's judgment regarding future expected loss
experience, current economic conditions, risk characteristics of various
financial instruments, and other factors. In addition, FAS 107 allows a wide
range of valuation techniques, therefore, comparisons between entities, however
similar, may be difficult.
3. The Partnership Agreement
Pursuant to the terms of the Partnership Agreement, all net income from
operations of the Partnership will be allocated in substantially the same manner
as cash distributions from operations. All net losses from operations of the
Partnership generally will be allocated 99% to the Limited Partners and 1% to
the General Partner.
5
<PAGE>
STAMFORD TOWERS LIMITED PARTNERSHIP
Distributions of net cash flow from operations, if any, as defined in the
Partnership Agreement, shall be made to the partners quarterly during each year
on the basis of 99% to the Limited Partners and 1% to the General Partner until
the Limited Partners have received their Preferred Return (14% per annum), as
defined in the Partnership Agreement, and then 90% to the Limited Partners and
10% to the General Partner. Cash distributions from operations will be reduced
to the extent of any debt service payable with respect to the financing (see
Note 7). Upon sale or an interim capital transaction, net proceeds will be
distributed after the close of the calendar quarter in which such a sale or
capital transaction occurs. Such net proceeds will first be distributed 99% to
the Limited Partners and 1% to the General Partner until the Limited Partners
receive their Preferred Return Arrearage and Unrecovered Capital, as defined in
the Partnership Agreement, with any remaining proceeds to be distributed 90% to
the Limited Partners and 10% to the General Partner.
Upon sale or an interim capital transaction, net gains will first be allocated
to the extent of net proceeds distributed to the Limited Partners and General
Partner from related transactions, then to the Limited Partners and General
Partner in proportion to their respective negative balances in their capital
accounts; then the remainder of such net gains should be allocated to the extent
possible so that the positive balances in the capital accounts of the Limited
Partners and the General Partner are in the proportions of 90% and 10%,
respectively. Tax losses from sale or an interim capital transaction will be
allocated to the Limited Partners and General Partner in proportion to their
respective positive balances in their capital accounts after such allocation,
the remainder of the tax losses should be allocated to the extent possible so
that the negative balances in the capital accounts of the Limited Partners and
General Partner are in the proportions of 90% and 10%, respectively.
All net gains and tax losses in connection with the sale of all or substantially
all of the assets of the Partnership or any other event causing a dissolution of
the Partnership shall be allocated in substantially the same manner as net gains
and tax losses from sale or an interim capital transaction.
If, as a result of the dissolution of the Partnership, the capital account of
the General Partner is less than zero, the General Partner shall contribute to
the Partnership an amount equal to the lesser of the deficit balance in its
capital account or the excess of one and one one-hundredth percent of the total
capital contribution of the Limited Partners over the total capital
contributions previously made by the General Partner to the Partnership.
4. Transactions with Related Parties
Certain cash and cash equivalents were on deposit with an affiliate of the
General Partner during a portion of 1996 and all of 1995. As of December 31,
1996 and throughout 1997, no cash and cash equivalents were on deposit with an
affiliate of the General Partner or the Partnership.
Effective as of January 1, 1997, the Partnership began reimbursing certain
expenses incurred by the General Partner and its affiliates in servicing the
Partnership to the extent permitted by the partnership agreement. In prior
years, affiliates of the General Partner had voluntarily absorbed these
expenses. As of December 31, 1997, such amounts paid or accrued totaled
$143,799.
5. Lease Agreement with Citicorp North America, Inc.
Citicorp North America, Inc. ("Citicorp") leases approximately 136,000 rentable
square feet ("RSF") of the North Tower representing 41% of the Property,
pursuant to a lease originally scheduled to expire in June 2001 (the "Original
Lease"). On June 28, 1995, the Partnership executed the First Amendment (the
"Citicorp Lease Extension") to the Original Lease between the Partnership and
Citicorp. The Citicorp Lease Extension, which was effective July 1, 1995, (i)
reduced Citicorp's annual rent from $29.50 to $25 per RSF for the initial three
years and to $24 per RSF for the next two years; (ii) extended the term of the
Original Lease for an additional five years, through June 30, 2006, at an annual
rental rate of $24 per RSF; and (iii) ensures Citicorp's continued occupancy at
the Property through June 30, 2006 (The Original Lease provided an option to
terminate the lease after June 30, 1996, subject to certain terms and
conditions). As a result of the Citicorp Lease Extension, the Partnership
extended the amortization period of the deferred rent relating to the Original
Lease through June 30, 2006, effective July 1, 1995. As of December 31, 1997,
substantially all of the Citicorp space in the North Tower is occupied by
Citicorp and its affiliates.
6
<PAGE>
STAMFORD TOWERS LIMITED PARTNERSHIP
6. Future Minimum Lease Rental Payments
Future minimum rental payments (excluding cancellation penalties) to be received
under the non-cancelable portion of the existing operating leases as of December
31, 1997 are as follows:
Year Amount
--------------------------------------------
1998 $ 6,701,599
1999 6,661,300
2000 6,653,240
2001 6,653,240
2002 6,388,462
Thereafter 17,343,100
--------------------------------------------
$50,400,941
===========
Terms of the non-cancelable portion of the existing operating leases range from
five to ten years. The leases allow for increases in certain property operating
expenses to be passed on to the tenants.
7. Mortgage Note Payable
On July 19, 1990, the Partnership closed a loan with People's Bank ("People's")
to provide mortgage financing to the Partnership (the "First Mortgage Loan").
The First Mortgage Loan was a $25 million, seven year, non-recourse loan with an
11.5% fixed interest rate for the first five years which was set at 3% over the
five-year United States treasury security rate at loan closing.
On February 17, 1994, the Partnership entered into a modification of the First
Mortgage Loan with People's Bank which: (i) reduced the interest rate from 11.5%
to 7.43% for the period February 1, 1994 through the adjustment date on July 19,
1995, at which time the interest rate was reset to 9.03%, (ii) reduced the
principal balance of the First Mortgage Loan from $25 million to $24,449,795;
and (iii) eliminated the interest reserve line item.
Pursuant to the terms of the First Mortgage Loan, as modified, when occupancy at
the Property reaches 50% or greater, the interest rate on the First Mortgage
Loan would be reduced by 25 basis points. During 1996, the Property's occupancy
exceeded 50% thus resulting in a 25-basis point reduction in the interest rate.
Payments of interest are due monthly in arrears and are paid from the
Partnership's funds.
Pursuant to the terms of the First Mortgage Loan, as modified, a real estate tax
escrow account was established with People's Bank into which monthly deposits
equal to 1/12th of the annual real estate taxes will be made. In addition, a
deposit representing an amount equal to the 10% holdback on the contested tax
years of July 1994 through May 31, 1997 was made prior to the closing. As of
December 31, 1997 the balance in the real estate tax escrow account was
$656,626.
On May 15, 1997, the Partnership entered into a second modification of the First
Mortgage Loan with People's Bank which extended the maturity date until June 1,
2004 (the "Modified Mortgage"). The Modified Mortgage is split into two
components: (i) the permanent portion (the "Permanent Portion") which is
comprised of the existing balance of the First Mortgage Loan, closing costs
associated with the Modified Mortgage and any future drawdowns, and (ii) the
development portion (the "Development Portion") from which the Partnership may
request the drawdown of funds with the Lender's approval to fund the costs of
leasing the Property. At closing, the balance of the Permanent Portion was
$18,491,473 which included recent drawdowns for leasing costs and the closing
costs associated with the Modified Mortgage and the balance of the Development
Portion was $5,958,322. Annually, any borrowings under the Development Portion
of the Modified Mortgage will be added to the Permanent Portion and reduce the
funds available for future drawdowns by a commensurate amount. The Permanent
Portion currently bears interest at an initial rate of 7.63% and is amortized
over a 25 year period and the Development Portion currently bears interest at an
initial rate of 7.83%. Interest rates on both the Permanent Portion and the
Development Portion are adjusted annually on June 1, beginning June 1, 1998.
Proceeds available at December 31, 1997 under the Development Portion of the
Modified Mortgage via drawdown of a credit line were $5,958,322, and may be used
on an "as needed" basis to fund certain capital expenditures. Payment of the
outstanding principal amount is due at the end of the seven-year
7
<PAGE>
STAMFORD TOWERS LIMITED PARTNERSHIP
term. The Modified Mortgage may be prepaid in whole or in part at any time
without penalty. As of December 31, 1997, the principal balance of the Modified
Mortgage was $18,365,631 plus interest payable of $116,775 for a total balance
of $18,482,406.
In 1997, prior to the second modification of the First Mortgage Loan, and 1996,
the Partnership drew down on the First Mortgage Loan for tenant improvements in
the amounts of $406,175 and $1,315,139, respectively. In 1995, the Partnership
drew down $1,075,380 for leasing commissions associated with the Citicorp Lease
Extension.
Annual principal maturities of the Modified Mortgage over the next five years
are as follows:
Year Amount
-------------------------------------------
1998 $ 266,508
1999 287,569
2000 310,294
2001 334,816
2002 361,275
Thereafter 16,805,169
-------------------------------------------
$18,365,631
===========
Based on the borrowing rates currently available to the Partnership for mortgage
loans with similar terms and average maturities and considering its maturity,
the fair value of long-term debt approximates its carrying value.
8. Reconciliation of Net Loss to Tax Loss
For the year ended December 31, 1997, net loss reported in the financial
statements exceeded the tax loss by $1,861,328. For the year ended December 31,
1996, net loss reported in the financial statements exceeded the tax loss by
$703,574. For the year ended December 31, 1995, the net loss reported in the
financial statements exceeded the tax loss by $707,321. These differences are
due to the differences between the tax basis and financial statement basis of
buildings and improvements and the use of accelerated methods of depreciating
real estate for tax purposes as compared to the straight-line method used for
financial statement purposes. In addition, rental income is recorded on a
straight-line basis over the terms of the leases for financial statement
purposes, and is reportable for tax purposes when received or receivable.
9. Arbitration Proceedings with the Developer
The Partnership entered into a development contract with an unaffiliated party,
Edlar, Inc. (the "Developer") which was personally guaranteed by Edward Feldman
("Feldman"). Following construction of the Property, the Partnership commenced
an arbitration proceeding in January 1989 against the Developer to resolve
various disputes and seeking certain monetary recoveries. On January 24, 1993,
the arbitration panel issued its decision awarding approximately $8.1 million to
the Partnership, as well as certain declaratory relief. Subsequently, the
Partnership obtained a judgment from a court of the State of New York for the
full amount of arbitration award in the sum of approximately $8.1 million
against the Developer and also against Feldman pursuant to his guaranty.
On or about January 21, 1997, Feldman and his wife commenced a voluntary case
for liquidation pursuant to chapter 7 of the United States Bankruptcy Code. On
July 31, 1997, the Partnership filed a Proof of Claim in the Feldmans' chapter 7
case in the amount of $11,313,232, which includes interest of approximately $2.7
million on the $8.1 million judgment. The summary of the assets and liabilities
filed by Feldman and his wife with the Bankruptcy Court in their chapter 7 case
indicates that their assets are less than 1.5% of the scheduled liabilities.
Based upon such schedules, it is likely that after payment of the expenses of
the administration of Feldmans' chapter 7 case, little or no distribution will
be made to the Partnership as a holder of a general unsecured claim.
10. Litigation
The Partnership had been involved in litigation with the Property's former
construction manager, Gilbane Building Company ("Gilbane"), and a subcontractor,
Moliterno Stone Sales, Inc. ("Moliterno"). In this suit,
8
<PAGE>
STAMFORD TOWERS LIMITED PARTNERSHIP
Gilbane and Moliterno, respectively, sought $2.65 million and $155,000 in
damages, plus interest and other relief. On November 18, 1996, the Connecticut
Superior Court (the "Court") awarded Gilbane $770,070 and Moliterno $155,000.
All remaining claims, including the Partnership's counterclaims, were dismissed.
On October 24, 1997, the Court entered a final judgment containing the foregoing
awards and further awarding Gilbane and Moliterno interest and attorneys' fees
of approximately $469,000. In December 1997, the Partnership paid $1,171,758 to
Gilbane and $200,000 to Moliterno in settlement of all amounts due pursuant to
the final judgment.
11. Subsequent Event
On March 17, 1998, the Partnership entered into an agreement to sell the
Property (the "Purchase Agreement") to Reckson Operating Partnership, L.P. (the
"Buyer"), a Delaware limited partnership unaffiliated with the Partnership.
Pursuant to the terms of the Purchase Agreement, the Buyer agreed to acquire the
Property for consideration in the amount of $61,315,000 in cash (the "Purchase
Price"), subject to adjustments in respect of certain closing costs (the
"Sale").
The proposed Sale is subject to the satisfaction of certain conditions. Pursuant
to the terms of the Partnership Agreement, Limited Partners holding a majority
of limited partnership interests will have the right to disapprove of the Sale.
An information statement will be mailed to the Limited Partners shortly
detailing information concerning the proposed Sale and subsequent distribution
by the Partnership.
9
<PAGE>
STAMFORD TOWERS LIMITED PARTNERSHIP
================================================================================
REPORT OF INDEPENDENT AUDITORS
================================================================================
General and Limited Partners
Stamford Towers Limited Partnership
We have audited the accompanying balance sheets of Stamford Towers Limited
Partnership as of December 31, 1997 and 1996, and the related statements of
operations, partners' capital (deficit) and cash flows for each of the three
years in the period ended December 31, 1997. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 Stamford Towers Limited
Partnership at December 31, 1997 and 1996, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Boston, Massachusetts
February 17, 1998, except for
Note 1 and Note 11, as to which
the date is March 17, 1998
