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As filed with the Securities and Exchange Commission on March 26, 1997
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) March 12, 1997
VORNADO REALTY TRUST
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(Exact Name of Registrant as Specified in Its Charter)
Maryland
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(State or Other Jurisdiction of Incorporation)
1-11954 22-1657560
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(Commission File Number) (IRS Employer Identification No.)
Park 80 West, Plaza II, Saddle Brook, New Jersey 07663
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(Address of Principal Executive Offices) (Zip Code)
(201) 587-1000
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(Registrant's Telephone Number, Including Area Code)
N/A
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(Former Name or Former Address, if Changed Since Last Report)
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Items 1-4. Not Applicable.
Item 5. Other Events.
The summary of the transaction contained herein (the "Mendik
Transaction") does not purport to be complete and is subject to, and qualified
in its entirety by reference to, the terms and provisions of the various
agreements filed as exhibits hereto and incorporated by reference herein. There
can be no assurance that the Mendik Transaction will be completed.
On March 12, 1997, Vornado Realty Trust (the "Company"), a real estate
investment trust ("REIT") organized under the laws of the state of Maryland,
entered into a definitive agreement (the "Consolidation Agreement", a copy of
which is attached as an exhibit hereto and is incorporated herein by reference)
to acquire, through an operating partnership, interests in all or a portion of
seven Manhattan office buildings (the "Mendik Properties") and certain
management and leasing assets held by the Mendik Group (the "Mendik Group",
which means as used herein, individually or collectively as the context may
require, Bernard H. Mendik, David R. Greenbaum and the entities controlled by
them, including Mendik Realty Company, Inc. and the subsidiaries and affiliates
of such entities that own interests in certain partnerships (the "Mendik
Property Partnerships") owning interests in certain of the Mendik Properties and
certain of its affiliates (the "Partners" and, together with the Mendik Group,
the "Mendik Partners"). Simultaneously with the closing of the Mendik
Transaction (as defined below), and in connection therewith, the Company will
convert to an Umbrella Partnership REIT ("UPREIT") by transferring (by
contribution, merger or otherwise) all or substantially all of the interests in
its properties and other assets to an operating partnership, currently named The
Mendik Company, L.P., which will be renamed Vornado Realty L.P. following
closing of the Mendik Transaction (the "Operating Partnership"), of which the
Company will be the sole general partner. Following the consummation of the
Mendik Transaction, the Company's activities as an UPREIT will be conducted
through the Operating Partnership.
A copy of the Company's press release (the "Press Release") announcing
the Mendik Transaction is attached as an exhibit hereto and is incorporated
herein by reference. The Press Release and this Current Report on Form 8-K
contain statements that constitute forward-looking statements as such term is
defined in Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Certain factors, as discussed herein, could cause
actual results to differ materially from those in the forward- looking
statements. Factors that might cause such a material difference include, but are
not limited to (a) changes in the general economic climate, (b) local conditions
such as an oversupply of space or a reduction in demand for real estate in the
area, (c) conditions of tenants, (d) competition from other available space, (e)
increased operating costs and interest expenses, (f) changes in taxation or
zoning laws, (g) government regulations, (h) failure of the Company to continue
to qualify as a REIT, (h) availability of financing on acceptable terms and (i)
potential liability under environmental or other laws or regulations.
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GENERAL
The current estimated consideration for the Mendik Transaction is
approximately $654 million, including $269 million in cash, $168 million in the
limited partnership units of the Operating Partnership and $217 million in
indebtedness. When the Company and the Mendik Group reached an initial
understanding regarding the basic terms with respect to the Mendik Transaction,
the market price of the Company's Common Shares was $52 per share. This cash
portion could increase by as much as $68 million with a corresponding decrease
in the Operating Partnership Units being issued resulting from elections
available to certain of the Mendik Partners.
The Company presently intends to finance most of the cash portion of
the Mendik Transaction through a registered public offering and sale (the
"Offering") of Series A Convertible Preferred Shares of Beneficial Interest,
liquidation preference $25.00 per share (the "Series A Preferred Shares")
expected to occur early in the second quarter of 1997. The Company intends to
contribute the net proceeds of the Offering, to the Operating Partnership
concurrently with the closing of the Mendik Transaction in exchange for a number
of preferred limited partnership units in the Operating Partnership (the
"Preferred Units") equal to the number of Series A Preferred Shares sold. The
Preferred Units will have a distribution preference equal to the distribution
preference on the Series A Preferred Shares, will rank, as to distributions and
upon liquidation, senior to the Class A, C, D and E units of the Operating
Partnership and will automatically convert into Class A units of the Operating
Partnership upon the conversion of the Series A Preferred Shares into Common
Shares.
In addition, the Company has signed a commitment letter (the
"Commitment Letter") with Union Bank of Switzerland ("UBS") pursuant to which
UBS has agreed, upon consummation of the Mendik Transaction to provide the
Operating Partnership a one-year bridge loan of $400 million in connection with
the Mendik Transaction. A copy of the Commitment Letter is attached as an
exhibit hereto and is incorporated herein by reference.
The Consolidation Agreement is subject to the consent of third parties,
including the consent of the Mendik Partners, and other customary conditions. It
is currently expected that the Mendik Transaction will be consummated in the
second quarter of 1997, but there can be no assurance that the proposed
transaction will be completed. The proposed offering of the Series A Preferred
Shares is not conditioned on the consummation of the Mendik Transaction, nor is
the Mendik Transaction conditioned on the sale of the Series A Preferred Shares.
In the event the Mendik Transaction is not consummated, the net proceeds from
the Offering will be used for general corporate purposes.
Bernard Mendik, the Chairman of the Board of Directors of Mendik
Realty, will become Co-Chairman of the Board of Trustees and Chief Executive
Officer of the Mendik Division of the Company. David Greenbaum will become
President of the Mendik Division of the Company. Steven Roth continues as the
Company's Chairman and Chief Executive Officer. Upon consummation of the Mendik
Transaction, Mr. Roth, together with
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Michael Fascitelli, the President of the Company, and Interstate Properties, a
significant shareholder of the Company, will enter into a voting agreement (the
"Voting Agreement", a copy of the form of which is attached as an exhibit hereto
and is incorporated herein by reference) pursuant to which Messrs. Roth and
Fascitelli and Interstate Properties will agree to vote any Common Shares of the
Company they beneficially own in favor of the election of Mr. Mendik to the
Board of Trustees of the Company at every meeting of the shareholders of the
Company at which such matter is considered over the next six years.
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OPERATING PARTNERSHIP
Upon the consummation of the Mendik Transaction, the Company
will convert to an Umbrella Partnership REIT. As such, the Company generally
will not own properties or conduct operations directly; instead, the Company's
principal assets will consist of its interests in the Operating Partnership. The
Company's properties and other assets will be owned, and its operations will be
conducted, by the Operating Partnership and affiliates of the Operating
Partnership. The Company will be the sole general partner of the Operating
Partnership and initially will own approximately 90% of the limited partnership
interests in the Operating Partnership (assuming that (i) the Mendik Partners
elect to receive Units as opposed to cash, (ii) the payment of certain
additional working capital to the Mendik Partners in connection with the closing
is made in Units and (iii) no additional securities of the Company, including
the Series A Preferred Shares, are issued between the date hereof and the
closing of the Mendik Transaction) through the ownership of Class A Units, the
terms of which substantially mirror the economic terms of the Company's
outstanding Common Shares.
The Mendik Partners (other than the Mendik Group) who elect to
receive Units instead of cash will receive a class of Units ("Class D Units" or
"Class E Units") in the Operating Partnership which will entitle the holders
thereof to a preferential annual distribution rate of $4.03 (7.75% of $52, the
market price of the Common Shares at the time the Company and the Mendik Group
reached an initial understanding regarding the basic business terms of the
Mendik Transaction). The Mendik Group will receive a class of Units ("Class C
Units") in the Operating Partnership which will entitle the holders thereof to a
preferential annual distribution rate of $3.38 (6.5% of $52). Class C Units will
automatically convert to Class A Units when the distributions paid to holders of
Class A Units equals $.8450 per quarter ($3.38 annually) for four consecutive
quarters following the consummation of the Mendik Transaction. Class D and Class
E Units will automatically convert to Class A Units when the distributions paid
to holders of Class A Units equals $1.0075 per quarter ($4.03 annually) for four
consecutive quarters following the consummation of the Mendik Transaction.
At any time after a holding period of one year (or two years
in the case of the majority of the Class C Unit holders) following the
consummation of the Mendik Transaction, Class D and Class E Unit holders will
have the right to have their Units redeemed in whole or in part by the Operating
Partnership for cash equal to the fair market value, at the time of redemption,
of one Common Share of the Company for each Unit redeemed or, at the option of
the Company, one Common Share of the Company
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for each Unit tendered, subject to customary anti-dilution provisions (the "Unit
Redemption Right"). In addition to the foregoing, during the period from the
91st day after the Mendik Transaction until the first anniversary of the Mendik
Transaction, holders of Class E Units will have the right to have redeemed their
Class E Units for cash at a 6% discount from the fair market value at the time
of the redemption of one Common Share of the Company for each Unit redeemed.
Beginning one year following the consummation of the Mendik Transaction, holders
of Units may be able to sell Common Shares received upon the exercise of their
Unit Redemption Right in the public market pursuant to registration rights
granted to such holders or available exemptions from registration. No prediction
can be made about the effect that future sales of such Common Shares will have
on the market price for Common Shares.
THE MENDIK PROPERTIES
Upon consummation of the Mendik Transaction, the Operating
Partnership will succeed to ownership interests in seven midtown Manhattan
office properties currently managed by the Mendik Group. The following table
sets forth certain information with respect to the Mendik Properties as of
December 31, 1996, except as to Two Penn Plaza for which the information is as
of March 15, 1997:
<TABLE>
<CAPTION>
OPERATING ANNUAL
PARTNERSHIP'S TOTAL RENT PER
EXPECTED RENTABLE LEASED
OWNERSHIP SQUARE PERCENT SQUARE SIGNIFICANT
PROPERTY INTEREST FEET(1) LEASED FOOT(2) TENANTS(3)
- -------------------------- ------------- --------- -------- -------- ------------------------
<S> <C> <C> <C> <C> <C>
Two Penn Plaza 100.0% 1,474,526 84.2%(4) $27.99 Digital Equipment (12%)
Information
Builders, Inc. (12%)
Eleven Penn Plaza 100.0 956,280 95.5 27.64 Times Mirror (24%)
General Mills (16%)
1740 Broadway 100.0 551,301 100.0 32.85 Mutual of New York (48%)
(The MONY Building) William Douglas
McAdams (11%)
866 United Nations Plaza 100.0 384,815 97.3 31.29 Bear Stearns (17%)
Two Park Avenue (5) 40.0 946,697 97.8 23.59 Times Mirror (30%)
Smith Barney (11%)
330 Madison Avenue (5) 24.8 770,828 96.5 34.77 BDO Seidman (15%)
570 Lexington Avenue 5.6 433,342 33.5 (6) 29.38 (6) (6)
</TABLE>
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(1) Includes 158,123 square feet of retail space, 151,839 square feet of
basement space and, at the 866 United Nations Plaza Property, 42,674
square feet of underground parking garage space.
(2) Represents annualized monthly base rent including tenant pass-throughs
of operating expenses (exclusive of tenant electricity costs) and
excludes rent for any tenant whose lease has not commenced.
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(3) The percentage shown represents the tenant's percentage of square
footage leased at the corresponding Mendik Property.
(4) The percent leased was 69.0% as of December 31, 1996, primarily as a
result of the expiration on October 31, 1996 of a lease with respect to
approximately 430,000 square feet. Since December 31, 1996, the Two
Penn Property Partnership has entered into leases with respect to
approximately 269,000 square feet of this space, although certain
contingencies exist with respect to one lease for approximately 180,000
square feet of this space.
(5) Messrs. Mendik and Greenbaum and entities that they control will retain
certain immaterial ownership interests with respect to these Mendik
Properties.
(6) 570 Lexington Avenue was acquired in 1994 with substantially all of the
building unoccupied. The building has been substantially redeveloped
and currently is being leased.
THE MANAGEMENT ENTITIES
In addition to interests in the Mendik Properties, the
Operating Partnership will acquire all of the interest in the office management
and leasing business currently conducted by the Mendik Group for the four
wholly-owned Mendik Properties and substantially all of the economic interest
and none of the voting interest in the office management and leasing business
for (i) the other three Mendik Properties which are partially owned; and (ii)
the other properties currently serviced by the Mendik Group's management and
leasing business. All of the voting interest and the balance of the economic
interest not acquired by the operating partnership will be owned by Messrs.
Mendik, Greenbaum and Fascitelli.
CONDITIONS TO THE CLOSING OF THE MENDIK TRANSACTION
Certain conditions must be satisfied or waived in order for
the closing of the Mendik Transaction (the "Closing") to be consummated,
including the following: (i) all of the Mendik Property Partnerships must
participate in the Mendik Transaction; (ii) with respect to any particular
Mendik Property Partnership, the Mendik Transaction must be approved by the
Mendik Partners (including the Mendik Group) holding the requisite percentage of
the outstanding partnership interests in such Mendik Property Partnership (which
requisite percentage is not identical for all Mendik Property Partnerships);
(iii) the Mendik Transaction will not be completed unless the closings of the
certain other transactions with certain limited partners and certain other
parties set forth in the Consolidation Agreement have occurred or will occur
concurrently with the Closing; (iv) the Financing Transactions (as defined
below) must be consummated; (v) all required consents of third parties must be
obtained or waived; and (vi) the Mendik Transaction must be consummated on or
before June 30, 1997.
In addition to the closing conditions set forth above,
consummation of the Mendik Transaction is subject to other customary closing
conditions such as the accuracy of certain representations and warranties
contained in the Consolidation Agreement, the delivery of certain opinions and
the absence of any restraining orders or injunctions prohibiting the Closing.
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THE FINANCING TRANSACTIONS
Simultaneously with the consummation of the Mendik
Transaction, the Operating Partnership (or the relevant Mendik Property-owning
entity, as applicable) intends to consummate the following financing
transactions: (i) the partial repayment of approximately $110 million of
existing indebtedness secured by the Two Penn Plaza, Eleven Penn Plaza and 866
United Nations Plaza Properties; (ii) the refinancing of approximately $80
million of existing indebtedness secured by the Two Penn Plaza Property; (iii)
the refinancing of approximately $55 million of existing indebtedness secured by
the Eleven Penn Plaza Property; (iv) the refinancing of approximately $33
million of existing indebtedness secured by the 866 United Nations Plaza
Property; and (v) the refinancing of approximately $65 million of existing
indebtedness secured by the Two Park Avenue Property (collectively, the
"Financing Transactions"). If the Mendik Transaction is consummated, all future
issuances of debt will be at the Operating Partnership level.
OPERATING PARTNERSHIP UNITS
The Units constitute equity interests entitling each limited
partner in the Operating Partnership to his or her pro rata share of cash
distributions in accordance with the class preferences provided for in the
Operating Partnership's partnership agreement (the "Partnership Agreement", a
copy of the form of which is attached as an exhibit hereto and is incorporated
herein by reference). Holders of Units will have the rights to which limited
partners are entitled under the Partnership Agreement and the Delaware Revised
Uniform Limited Partnership Act (the "Delaware Partnership Act"). The Company
does not intend to register the Units to be issued in the Mendik Transaction
pursuant to any Federal or state securities laws, nor to list such Units on any
exchange or national market system. The Partnership Agreement imposes certain
restrictions on the transfer of Units.
DISTRIBUTIONS; ALLOCATIONS OF INCOME AND LOSS
The Partnership Agreement provides for distributions, as
determined in the manner provided in the Partnership Agreement, to the Company
and the limited partners in proportion to their percentage interest in the
Operating Partnership, subject to the Initial Distribution Preferences. The
Company, as general partner of the Operating Partnership, will have the
exclusive right to declare and cause the Operating Partnership to make
distributions as and when the Company deems appropriate or desirable in its sole
discretion. For so long as the Company elects to qualify as a REIT, the Company
will make reasonable efforts (as determined by it in its sole discretion) to
make distributions to partners in amounts such that the Company will be able to
pay shareholder dividends that will satisfy the requirements for qualification
as a REIT and avoid any federal income or excise tax liability to the Company.
The Partnership Agreement provides for the allocation to the general partner and
the limited partners of items of Operating Partnership income and loss.
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The value of each Unit issued in the Mendik Transaction
regardless of its class will equate to one Common Share of the Company; however,
Class C, Class D and Class E Units will have special priorities in the
distributions paid by the Operating Partnership. The Partnership Agreement
provides that the Operating Partnership (when declared by the Company) will make
distributions in the order of preference provided for in the Partnership
Agreement. The order of preference in the Partnership Agreement provides that
distributions will be paid first to the Company as necessary to enable the
Company to pay REIT Expenses (as defined below). Thereafter, distributions will
be paid first to holders of limited partnership interests of any class ranking
senior (as to distributions or redemption or voting rights) to Class C Units,
Class D Units and Class E Units, if any are then outstanding. Distributions will
be paid second to holders of Class D Units and Class E Units (pro rata based on
the ratio of the total number of Class D Units or Class E Units, as applicable,
to the aggregate number of Class D Units and Class E Units taken together on the
relevant partnership record date) for any unpaid past cumulated distributions
and then to holders of Class D and Class E Units a quarterly amount equal to
$1.0075 per unit (an annual return of 7.75% of $52, the market price of the
Common Shares at the time the Company and the Mendik Group reached an initial
understanding regarding the basic business terms of the Mendik Transaction).
Distributions are paid third to Class C Unit holders for any unpaid past
cumulated distributions and then a quarterly amount equal to $.8450 per Unit (an
annual return of 6.5% of $52). Class C Unit holders will also share in any
distribution to Class A Unit holders above $.8450 per Unit, and Class D and
Class E Unit holders will share in any distribution above $1.0075 per Unit.
Class C Units will automatically convert to Class A Units when
the distributions paid to holders of Class A Units equals the per quarter
distribution specified above for Class C Unit holders for four consecutive
quarters following the Mendik Transaction. Class D and Class E Units will
automatically convert to Class A Units when the distributions paid to holders of
Class A Units equals the per quarter distribution specified above for Class D
and Class E Unit holders for four consecutive quarters following the Mendik
Transaction. Until such time as all Class C, Class D and Class E Units have been
converted into Class A Units, the Partnership Agreement will prohibit the
Operating Partnership from issuing any class of limited partnership interests
ranking senior (as to distributions or redemption or voting rights) to Class C
Units or Class D Units or Class E Units, unless either (1) such limited
partnership interests are substantially similar to the terms of securities
issued by the Company and the proceeds of the issuance of such securities have
been contributed to the Operating Partnership or (2) the issuance of such
limited partnership interests has been approved by the holders of a majority of
the Class C, Class D and Class E Units issued in the Mendik Transaction and then
outstanding (taken together as a group).
The Partnership Agreement defines "REIT Expenses" to mean (i)
costs and expenses relating to the continuity of existence of the Company and
any person in which the Company owns an equity interest, (ii) costs and expenses
relating to any offer or registration of securities by the Company, (iii) costs
and expenses associated with preparing and filing periodic reports of the
Company under federal, state and local laws (including Securities and Exchange
Commission filings), (iv) costs and expenses
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associated with the Company's compliance with laws, rules and regulations
applicable to it, and (v) all other operating or administrative expenses
incurred by the Company in the ordinary course of its business.
If the Mendik Transaction and the Offering are consummated,
the Series A Preferred Units of the Operating Partnership acquired by the
Company (which represent the Series A Preferred Shares sold hereunder) will rank
senior to the Class A, C, D and E Units issued in connection with the Mendik
Transaction with respect to payment of dividends and amounts upon liquidation,
dissolution or winding up of the Operating Partnership.
REDEMPTION OF UNITS
Subject to certain limitations, holders of Class C, D and E
Units may exercise their Unit Redemption Right by providing notice to the
Operating Partnership at any time beginning one year in the case of Class D and
E Unit holders and two years in the case of the majority of the Class C Unit
holders following consummation of the Mendik Transaction. Unless the Company
elects to assume and perform the Operating Partnership's obligation with respect
to the Unit Redemption Right, as described below, a redeeming limited partner
will receive cash from the Operating Partnership in an amount equal to the
market value of the Units to be redeemed. The market value of a Unit for this
purpose will be equal to the average of the closing trading price of a Common
Share on the NYSE for the ten trading days before the day on which the
redemption notice was given. In lieu of the Operating Partnership's acquiring
the Units for cash, the Company will have the right (except as described below,
if the Common Shares are not publicly traded) to elect to acquire the Units
directly from a limited partner exercising the Unit Redemption Right, in
exchange for either cash or Common Shares, and, upon such acquisition, the
Company will become the owner of such Units. Upon exercise of the Unit
Redemption Right, the limited partner's right to receive distributions for the
Units so redeemed or exchanged will cease. No redemption or exchange for Common
Shares will occur if delivery of Common Shares would be prohibited either under
the provisions of the Company's Declaration of Trust designed primarily to
protect the Company's qualification as a REIT or under applicable Federal or
state securities laws as long as the Common Shares are publicly traded.
In addition to the foregoing, during the period from the 91st
day after the Mendik Transaction until the first anniversary of the Mendik
Transaction holders of Class E Units will have the right to have redeemed their
Class E Units for cash at a 6% discount from the fair market value at the time
of redemption of one Common Share of the Company for each Unit redeemed.
CONFLICTS OF INTEREST
Messrs. Mendik and Greenbaum will continue to own direct and
indirect managing general partner interests in two of the Mendik Properties (Two
Park Avenue and 330 Madison Avenue), direct and indirect interests in numerous
additional office properties and other real estate assets, and interests in
certain property services
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businesses, including in businesses which provide cleaning and related services,
security services and facilities management services. These interests may give
rise to certain conflicts of interest concerning the fulfillment of Mr. Mendik's
responsibility as an officer and trustee of the Company and Mr. Greenbaum's
responsibility as an officer of the Company. The Company will have an option to
purchase at specified prices the Mendik Group's interests in certain other
Manhattan office properties.
After the consummation of the Mendik Transaction, the Mendik
Group will own an entity which will provide cleaning and related services and
security services to the Mendik Properties acquired in the Mendik Transaction.
Upon the consummation of the Mendik Transaction, the Company will enter into
five-year, non-cancelable contracts with the Mendik Group to provide such
services to the Mendik Properties in which the Operating Partnership will own a
100% interest. Although the Company believes that the terms and conditions of
the contracts pursuant to which these services will be provided, taken as a
whole, will not be less favorable to the Company than those which could have
been obtained from a third party providing comparable services, there can be no
assurance to this effect.
In addition, as described above, the Management Corporation
(which will be controlled by Messrs. Mendik and Greenbaum and not by the
Company) will provide management and leasing services to properties in which the
Operating Partnership has less than a 100% interest as well as to other office
properties (including several properties in which the Mendik Group has an
interest but are not being included in the Mendik Transaction). Certain
conflicts of interest may result from the Management Corporation providing
leasing services both to properties in which the Operating Partnership has an
interest and other properties in which the Mendik Group has an interest.
LEGAL PROCEEDINGS
On January 14, 1997, two individual investors in Mendik Real
Estate Limited Partnership ("RELP"), the publicly held limited partnership that
indirectly owns an effective 60% interest in the Two Park Avenue Property ("Two
Park"), filed a purported class action suit against NY Real Estate Services I,
Inc. ("NY Real Estate"), Mendik RELP Corp., B&B Park Avenue, L.P. (the entity
that owns a 40% interest in Two Park and in which the Operating Partnership
proposes to acquire all of the interests in the Mendik Transaction) and Mr.
Mendik in the Supreme Court of the State of New York, County of New York, on
behalf of all persons holding limited partnership interests in RELP. The
complaint alleges that for reasons which include purported conflicts of
interest, the defendants breached their fiduciary duty to the limited partners
and that NY Real Estate and Mendik RELP Corp. also breached their contractual
duty to the limited partners. The plaintiffs further allege that such a proposed
transfer of the 40% interest in Two Park will result in a burden on the
operation and management of Two Park since the purchaser of the 40% interest
will have no fiduciary duty to RELP, yet all decisions regarding any proposed
sale or refinancing of the property will require its consent, with the result
that, among other things, the transfer will prevent RELP from negotiating for
the sale of Two Park at better terms than a sale of only RELP's 60% interest.
The complaint also alleges,
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among other things, that the transfer of the 40% interest violates RELP's right
of first refusal to purchase the interest being transferred and fails to provide
limited partners in RELP with a comparable transfer opportunity.
Shortly after the filing of the complaint, another limited
partner represented by the same attorneys filed an essentially identical
complaint in the same court. Among other things, both complaints claim that the
purported class has and will continue to suffer unspecified damages, and seek a
declaration that the suits are properly class actions, an accounting and certain
injunctive relief, including an injunction enjoining the transfer of the 40%
interest and a judgment requiring either the liquidation of the partnership and
the appointment of a receiver or an auction of Two Park. The time for defendants
to respond to the complaints and to certain discovery requests has not yet
expired. In the interim, plaintiff's counsel have requested an agreement to
consolidate the two actions and have stated that they may seek to amend the
complaints in unspecified ways, as well as to file a motion seeking a
preliminary injunction.
The Mendik Group intends to vigorously defend against such
actions.
DISSOLUTION, WINDING UP AND TERMINATION
The Operating Partnership will continue until December 31,
2095 (as such date may be extended by the Company in its discretion), unless
sooner dissolved and terminated.
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Item 6. Not Applicable.
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits.
(a) Financial Statements of businesses acquired. Financial statements
for the following entities are attached as Annexes A through F:
Annex Financial Statements
A Financial statements for the years ended December 31, 1996,
1995 and 1994 for Two Penn Plaza Associates L.P. (a Limited
Partnership) (including independent auditors' report)
B Combined financial statements for the years ended December 31,
1996, 1995 and 1994 for M Eleven Associates, M 393 Associates
and Eleven Penn Plaza Company (General Partnerships)
(including independent auditors' report)
C Financial statements for the years ended December 31, 1996,
1995 and 1994 for 1740 Broadway Associates, L.P. (a Limited
Partnership) (including independent auditors' report)
D Financial statements for the years ended December 31, 1996,
1995 and 1994 for 866 U.N. Plaza Associates LLC (a Limited
Liability Company) (including independent auditors' report)
E Financial statements for the years ended December 31, 1996,
1995 and 1994 for Two Park Company (a New York general
partnership) (including independent auditors' report)
F Financial statements for the years ended December 31, 1996,
1995 and 1994 for B&B Park Avenue L.P. (a Limited Partnership)
(including independent auditors' report)
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(b) Pro Forma Financial Information. The following pro forma financial
statements of the Company reflecting the Mendik Transaction are attached as
Annex G:
Annex Financial Statements
G Condensed consolidated pro forma financial statements for the
Company for the year ended December 31, 1996
(c) Exhibits Required by Item 601 of Regulation S-K.
Exhibit No. Exhibit
2.1 Master Consolidation Agreement ("Master Consolidation
Agreement"), dated March 12, 1997, among Vornado Realty Trust,
Vornado/Saddle Brook L.L.C., The Mendik Company, L.P., and
various parties defined therein (collectively as the Mendik
Group). A list of omitted schedules, exhibits and annexes is
attached as the last page to this exhibit. The Registrant
agrees to furnish supplementallya copy of any omitted exhibit,
schedule or annex to the Securities and Exchange Commission
upon request.
2.1(a) Mendik Structure Memorandum, included as Appendix A to the
Master Consolidation Agreement
2.1(b) Vornado Structure Memorandum, included as Appendix B to the
Master Consolidation Agreement
2.1(c) Form of Amended and Restated Agreement of Limited Partnership
of Vornado Realty L.P., included as Exhibit G to the Master
Consolidation Agreement
2.1(d) Form of Voting Agreement between Steven Roth, Michael
Fascitelli and Interstate Properties and Bernard Mendik,
included as Exhibit J to the Master Consolidation Agreement
10.1 Commitment Letter, dated March 7, 1997, between Vornado Realty
Trust and Union Bank of Switzerland (New York Branch) re:
$400,000,000 one-year bridge loan
Page 14
<PAGE> 15
23.1 Consent, dated March 26, 1997, of Friedman, Alpren & Green,
LLP, independent accountants for Two Penn Plaza Associates,
L.P.
23.2 Consent, dated March 26, 1997, of Friedman, Alpren & Green,
LLP, independent accountants for B&B Park Avenue L.P.
23.3 Consent, dated March 26, 1997, of Friedman, Alpren & Green,
LLP, independent accountants for M Eleven Associates, M 393
Associates and Eleven Penn Plaza Company
23.4 Consent, dated March 26, 1997, of Friedman, Alpren & Green,
LLP, independent accountants for 1740 Broadway Associates,
L.P.
23.5 Consent, dated March 26, 1997, of Friedman, Alpren & Green,
LLP, independent accountants for 866 U.N. Plaza Associates LLC
23.6 Consent, dated March 26, 1997, of KPMG Peat Marwick LLP,
independent accountants for Two Park Company
99.1 Press Release, dated March 12, 1997, of Vornado Realty Trust,
announcing its entry into a Master Consolidation Agreement
with Vornado/Saddle Brook L.L.C., The Mendik Company, L.P.,
and various parties defined therein collectively as the Mendik
Group
Item 8. Not Applicable.
Page 15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
VORNADO REALTY TRUST
Dated: March 26, 1997 By: /s/ Joseph Macnow
-------------------
Joseph Macnow
Vice President --
Chief Financial Officer
Page 16
<PAGE> 17
INDEX TO ANNEXES
Annex Financial Statements Page
- ----- -------------------- ----
A Financial statements for the years ended December 31, 1996,
1995 and 1994 for Two Penn Plaza Associates L.P. (a Limited
Partnership) (including independent auditors' report)
B Combined financial statements for the years ended December 31,
1996, 1995 and 1994 for M Eleven Associates, M 393 Associates
and Eleven Penn Plaza Company (General Partnerships)
(including independent auditors' report)
C Financial statements for the years ended December 31, 1996,
1995 and 1994 for 1740 Broadway Associates, L.P. (a Limited
Partnership) (including independent auditors' report)
D Financial statements for the years ended December 31, 1996,
1995 and 1994 for 866 U.N. Plaza Associates LLC (a Limited
Liability Company) (including independent auditors' report)
E Financial statements for the years ended December 31, 1996,
1995 and 1994 for Two Park Company (a New York general
partnership) (including independent auditors' report)
F Financial statements for the years ended December 31, 1996,
1995 and 1994 for B&B Park Avenue L.P. (a Limited Partnership)
(including independent auditors' report)
G Condensed consolidated pro forma financial statements for the
Company for the year ended December 31, 1996
Page 17
<PAGE> 18
ANNEX A
TWO PENN PLAZA ASSOCIATES L.P.
(A LIMITED PARTNERSHIP)
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
AND
INDEPENDENT AUDITORS' REPORT
<PAGE> 19
TWO PENN PLAZA ASSOCIATES L.P.
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
TABLE OF CONTENTS
Independent Auditors' Report 1
Financial Statements
Balance Sheet 2
Statement of Income 3
Statement of Cash Flows 4
Statement of Changes in Partners' Capital Deficiency 5
Notes to Financial Statements 6-14
<PAGE> 20
FRIEDMAN 1700 BROADWAY
ALPREN & NEW YORK, NY 10019
GREEN LLP 212-582-1600
CERTIFIED PUBLIC ACCOUNTANTS FAX 212-265-4761
INDEPENDENT AUDITORS' REPORT
TO THE PARTNERS OF TWO PENN PLAZA ASSOCIATES L.P.
We have audited the accompanying balance sheet of TWO PENN PLAZA ASSOCIATES
L.P. (a limited partnership) as of December 31, 1996 and 1995, and the related
statements of income, cash flows and changes in partners' capital deficiency for
each of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the managing general partner. 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 the
managing general partner, 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 TWO PENN PLAZA ASSOCIATES
L.P. as of December 31, 1996 and 1995, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
As discussed in Note 4(a) to the financial statements, the financial
statements as of December 31, 1995 and for the years ended December 31, 1995 and
1994 have been restated to reflect adjustments to water and sewer expense
previously recorded entirely in 1995.
/s/ FRIEDMAN ALPREN & GREEN LLP
January 15, 1997, except for
Note 2, as to which the date
is March 12, 1997
-1-
<PAGE> 21
TWO PENN PLAZA ASSOCIATES L.P.
BALANCE SHEET
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
ASSETS
Property and improvements - at cost, less accumulated
depreciation and amortization of $ $84,044,177 and
$80,050,988 - Note 5 $ 40,249,466 $ 40,362,894
Cash and short-term investments 7,822,176 5,435,297
Investment in U.S. Treasury obligations - Note 4(e) 8,118,765 5,628,317
Receivables - Note 6 14,954,965 16,610,622
Prepaid leasing costs 3,089,007 3,047,294
Other prepayments 58,131 55,879
Mortgage costs 3,061,956 3,892,110
Tenants' security deposits (cash in bank and
U.S. Treasury Bills) 773,859 807,929
------------- -------------
$ 78,128,325 $ 75,840,342
============= =============
LIABILITIES AND PARTNERS' CAPITAL DEFICIENCY
Liabilities
Mortgages payable - Note 7 $ 159,100,000 $ 159,100,000
Accrued interest payable 839,805 2,503,874
Accounts payable and accrued expenses 1,418,962 915,259
Improvements payable 181,542 121,008
Deferred income 179,885 150,190
Tenants' security deposits payable 866,659 900,729
------------- -------------
162,586,853 163,691,060
Commitments - Notes 7 and 10 -- --
Partners' capital deficiency (84,458,528) (87,850,718)
------------- -------------
$ 78,128,325 $ 75,840,342
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-2-
<PAGE> 22
TWO PENN PLAZA ASSOCIATES L.P.
STATEMENT OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Revenues
Rental income $41,885,873 $43,350,856 $43,067,969
Interest 560,595 438,668 334,670
----------- ----------- -----------
42,446,468 43,789,524 43,402,639
----------- ----------- -----------
Expenses
Renting 79,104 123,260 174,830
Administrative 951,479 1,283,034 1,159,659
Operating 12,347,504 12,815,854 12,651,141
Real estate taxes 8,081,435 8,612,906 8,463,386
----------- ----------- -----------
21,459,522 22,835,054 22,449,016
----------- ----------- -----------
Income before interest expense and
depreciation and amortization 20,986,946 20,954,470 20,953,623
Interest expense 11,932,302 11,982,814 11,840,999
----------- ----------- -----------
Income before depreciation and
amortization 9,054,644 8,971,656 9,112,624
Depreciation and amortization 5,642,317 5,505,290 5,089,126
----------- ----------- -----------
Net income $ 3,412,327 $ 3,466,366 $ 4,023,498
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE> 23
TWO PENN PLAZA ASSOCIATES L.P.
STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 3,412,327 $ 3,466,366 $ 4,023,498
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization of fixed assets 3,993,189 4,043,699 4,051,144
Amortization of leasing and mortgage costs 1,649,128 1,461,591 1,037,982
(Gain) loss on sale of marketable securities 29,155 ( 13,936) --
Changes in assets and liabilities
Interest receivable ( 19,869) ( 42,896) 21,389
Receivables 1,655,657 1,050,799 88,712
Prepaid leasing costs ( 780,677) ( 433,087) ( 466,182)
Other prepayments ( 2,252) 92,881 93,009
Accrued interest payable ( 1,664,069) 35,175 ( 7,927)
Accounts payable and accrued expenses 503,702 ( 25,106) 222,079
Leasing costs payable -- -- ( 76,136)
Deferred income 29,695 ( 485) ( 79,876)
Tenants' security deposits 34,070 ( 79,001) ( 303,956)
Tenants' security deposits payable ( 34,070) 79,001 303,956
------------ ------------ ------------
Net cash provided by operating activities 8,805,986 9,635,001 8,907,692
------------ ------------ ------------
Cash flows from investing activities
Acquisition of improvements and equipment ( 3,819,227) ( 5,887,833) ( 5,104,459)
Acquisition of U.S. Treasury obligations (11,370,611) (10,699,760) ( 7,619,101)
Redemption of U.S. Treasury obligations 8,850,741 7,345,019 9,084,207
Due from partner -- ( 69,371) ( 127,788)
------------ ------------ ------------
Net cash used in investing activities ( 6,339,097) ( 9,311,945) ( 3,767,141)
------------ ------------ ------------
Cash flows from financing activities
Mortgage costs ( 80,010) ( 3,941,591) ( 22,372)
Escrow for mortgage costs -- 3,600,000 ( 3,600,000)
Distributions to partners -- -- ( 2,324,062)
------------ ------------ ------------
Net cash used in financing activities ( 80,010) ( 341,591) ( 5,946,434)
------------ ------------ ------------
Net increase (decrease) in cash and short-term
investments 2,386,879 ( 18,535) ( 805,883)
Cash and short-term investments, beginning of year 5,435,297 5,453,832 6,259,715
------------ ------------ ------------
Cash and short-term investments, end of year $ 7,822,176 $ 5,435,297 $ 5,453,832
============ ============ ============
Supplemental cash flow disclosures
Interest paid $ 13,596,371 $ 11,947,639 $ 11,848,926
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE> 24
TWO PENN PLAZA ASSOCIATES L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL DEFICIENCY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
General Partners Limited Partners
-------------------------------------------- ----------------------------
Union Bank
of Switzerland,
New York Branch,
Mendik as Successor
Realty Trustee for
Bernard H. Company, Nancy Account No. Carborundum
Total Mendik Inc. Creek, Inc. P-34742 Joint Venture
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 $(93,037,094) $(16,003,268) $ (161,648) $ (225,822) $(41,494,642) $(22,359,053)
Net income 4,023,498 951,622 9,612 8,997 1,652,346 890,545
Distributions ( 2,324,062) ( 626,485) ( 6,328) ( 4,968) ( 912,569) ( 491,837)
Unrealized loss on U.S.
Treasury obligations ( 21,199) ( 4,481) ( 45) ( 49) ( 8,997) ( 4,849)
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1994 (91,358,857) (15,682,612) (158,409) (221,842) (40,763,862) (21,965,194)
Transfers of interest
January 1, 1995 -- -- -- -- 24,170,114 --
Net income 3,466,366 968,387 9,782 7,309 542,166 723,598
Reversal of prior year unrealized
loss on U.S. Treasury obligations 21,199 4,481 45 49 8,997 4,849
Unrealized gain on U.S. Treasury
obligations 20,574 5,748 58 43 3,218 4,294
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1995 (87,850,718) (14,703,996) (148,524) (214,441) (16,039,367) (21,232,453)
Transfers of interest
January 2, 1996 -- -- -- -- 16,039,367 --
Transfers of interest
December 13, 1996 -- -- -- 207,584 -- --
Transfers of interest
December 17, 1996 -- -- -- -- -- --
Net income 3,412,327 925,310 9,349 6,899 -- 720,537
Reversal of prior year
unrealized gain on U.S.
Treasury obligations ( 20,574) ( 5,748) ( 58) ( 43) -- ( 4,294)
Unrealized gain on U.S.
Treasury obligations 437 120 1 1 -- 92
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1996 $(84,458,528) $(13,784,314) $ (139,232) $ -0- $ -0- $(20,516,118)
============ ============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Limited Partners
--------------------------------------------------------------------------------------------
Portfolio U
Penby Knatten Bernard H. Holdings UBSCO Nancy
Associates Inc. Mendik Corporation Corporation Creek, Inc.
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 $ (6,396,328) $ (5,117,056) $ (1,279,277) $ -- $ -- $ --
Net income 255,190 204,148 51,038 -- -- --
Distributions ( 140,937) ( 112,750) ( 28,188) -- -- --
Unrealized loss on U.S.
Treasury obligations ( 1,389) ( 1,111) ( 278) -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1994 (6,283,464) (5,026,769) (1,256,705) -- --
Transfers of interest
January 1, 1995 -- -- -- (24,170,114) -- --
Net income 207,351 165,882 41,469 800,422 -- --
Reversal of prior year unrealized
loss on U.S. Treasury obligations 1,389 1,111 278 -- -- --
Unrealized gain on U.S. Treasury
obligations 1,231 985 246 4,751 -- --
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1995 (6,073,493) (4,858,791) (1,214,712) (23,364,941) -- --
Transfers of interest
January 2, 1996 -- -- -- (16,039,367) -- --
Transfers of interest
December 13, 1996 -- -- -- -- -- (207,584)
Transfers of interest
December 17, 1996 -- -- -- 38,130,147 (38,130,147) --
Net income 206,473 165,180 41,293 1,281,966 54,941 379
Reversal of prior year
unrealized gain on U.S.
Treasury obligations ( 1,231) ( 985) ( 246) ( 7,969) -- --
Unrealized gain on U.S.
Treasury obligations 26 21 5 164 7 --
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1996 $ (5,868,225) $ (4,694,575) $ (1,173,660) $ -0- $(38,075,199) $ (207,205)
============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE> 25
TWO PENN PLAZA ASSOCIATES L.P.
NOTES TO FINANCIAL STATEMENTS
1 - ORGANIZATION AND GENERAL
The Partnership, originally named Two Penn Plaza Associates, was
organized in December 1978 to acquire, maintain and operate the property
located at Two Penn Plaza, New York, New York. On December 21, 1993, the
name of the Partnership was changed to Two Penn Plaza Associates L.P.
2 - TRANSFER OF OWNERSHIP
Pursuant to a solicitation contained in a private placement memorandum
dated November 11, 1996, the Partnership obtained the consent of its
partners to participate in an offering of shares of common stock in
accordance with a preliminary registration statement filed with the
Securities and Exchange Commission on December 18, 1996. On March 12, 1997,
the managing general partner entered into an agreement with Vornado Realty
Trust, a publicly traded real estate investment trust ("REIT"). The
partners will be resolicited to obtain their consents to participate in
this transaction, under terms and conditions similar to those stated in the
private placement memorandum dated November 11, 1996. The REIT is a fully
integrated, self-administered and self-managed real estate company which
has qualified as a real estate investment trust for Federal income tax
purposes. Upon completion of the transaction, it is anticipated that the
Partnership will be owned by a company controlled by the REIT.
3 - THE PARTNERSHIP AGREEMENT
(a) Allocation of Distributions and Net Income and Loss
As defined in the agreement, distributions are generally as
follows: first, $210,000 to Bernard H. Mendik and Mendik Realty
Company, Inc. (the "Mendik Group") and then, 20% to the Mendik Group
and 80% to the other partners in proportion to their respective
partnership interests.
Net income and net loss are generally allocated as follows:
first, gross income is allocated in the same ratio as an equal amount
of cash would have been distributed and then, deductions are allocated
in the same ratio as the gross income.
As described in the agreement, certain adjustments in the
distributions and income and loss allocations are made among the
partners for financing costs incurred to return the partners' original
capital contributions.
(Continued)
-6-
<PAGE> 26
TWO PENN PLAZA ASSOCIATES L.P.
NOTES TO FINANCIAL STATEMENTS
3 - THE PARTNERSHIP AGREEMENT (Continued)
(b) Transfers of Interests
On January 1, 1995, Union Bank of Switzerland, New York Branch,
as Successor Trustee for Account P-34742, assigned 25.735% of its
partnership interest to Portfolio U Holdings Corporation. On January
2, 1996, the balance of its interest (17.432%) was assigned to
Portfolio U Holdings Corporation.
On December 17, 1996, Portfolio U Holdings Corporation assigned
its partnership interest to UBSCO Corporation, a Delaware corporation.
Effective December 13, 1996, Nancy Creek, Inc. withdrew as a
general partner and its general partnership interest was transferred
to that of a limited partner.
4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Restatement of Financial Statements
The accompanying financial statements as of December 31, 1995 and
for the years ended December 31, 1995 and 1994 have been restated to
reflect adjustments to prior years' water and sewer expense for
amounts previously recorded entirely in 1995. Restated amounts reflect
an increase in partners' capital deficiency of $321,709 at December
31, 1994. In addition, expenses for the years ended December 31, 1995
and 1994 have been increased (decreased) by $(321,709) and $78,940,
respectively.
(b) Use of Estimates
The managing general partner uses estimates and assumptions in
preparing financial statements. Those estimates and assumptions affect
the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities, and the reported revenues and
expenses.
(c) Rental Income
Leases are classified as operating leases in accordance with the
provisions of Financial Accounting Standards Board (FASB) Statement
No. 13. One of these provisions requires the recognition of scheduled
rent increases and rent concessions on a straight-line basis over the
lease term. Included in rental income for the years ended December 31,
1996, 1995 and 1994 is $(562,614), $(925,432) and $(87,863),
respectively, representing reductions in rental income required under
this provision.
(Continued)
-7-
<PAGE> 27
TWO PENN PLAZA ASSOCIATES L.P.
NOTES TO FINANCIAL STATEMENTS
4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(d) Depreciation and Amortization
Property and improvements are stated at cost. Depreciation and
amortization charges are computed over the following estimated useful
asset lives or periods, primarily on the straight-line basis:
<TABLE>
<CAPTION>
Asset Asset Lives
----------------------- ------------------------------
<S> <C>
Building Lives of the existing building
components, ranging from
15 to 30 years
Building improvements 10 to 39 years
Furniture and equipment 5 to 7 years
Tenant improvements Term of related lease
Leasing costs Term of related lease
Mortgage costs Term of mortgage
</TABLE>
(e) Investment in U.S. Treasury Obligations
The Partnership has adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". U.S. Treasury obligations
are classified as available-for-sale in accordance with the provisions
of SFAS No. 115, and carried at fair value. Net unrealized gains
(losses) at December 31, 1996, 1995 and 1994 (presented as a component
of partners' capital deficiency) are $437, $20,574 and $(21,199),
respectively.
Contractual maturities (including accrued interest) of the
securities at December 31, 1996 are as follows:
<TABLE>
<S> <C>
Within 1 year $2,133,690
1-2 years 5,985,075
----------
$8,118,765
==========
</TABLE>
Included in the investment in U.S. Treasury obligations is
accrued interest of $94,581 and $74,712 at December 31, 1996 and 1995,
respectively.
(Continued)
-8-
<PAGE> 28
TWO PENN PLAZA ASSOCIATES L.P.
NOTES TO FINANCIAL STATEMENTS
4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(f) Fair Value of Financial Instruments
Effective for years ended after December 15, 1995, Statement of
Financial Accounting Standards No. 107, "Disclosures about Fair Value
of Financial Instruments", as amended, requires certain entities to
disclose the fair value of specified financial instruments for which
it is practicable to estimate that value. The fair value of the
investment in U.S. Treasury obligations is presented in Note 4(e). It
was not practicable to estimate the fair value of the mortgages
payable and interest rate exchange agreements because quoted market
prices do not exist and estimates could not be made through other
means without incurring excessive costs.
(g) Income Taxes
The Partnership is not a taxpaying entity for income tax purposes
and, accordingly, no provision has been made for income taxes. The
partners' allocable shares of the Partnership's taxable income or loss
are reportable on their income tax returns.
(h) Cash and Short-Term Investments
The Partnership considers all highly liquid investments with a
maturity of three months or less when purchased to be short-term
investments.
Cash balances and certificates of deposit of approximately
$6,194,000 and $4,706,000 at December 31, 1996 and 1995, respectively,
are maintained in two banks and are insured by the Federal Deposit
Insurance Corporation up to a maximum of $100,000 for each bank.
(Continued)
-9-
<PAGE> 29
TWO PENN PLAZA ASSOCIATES L.P.
NOTES TO FINANCIAL STATEMENTS
5 - PROPERTY AND IMPROVEMENTS
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Land $ 6,014,574 $ 6,014,574
Building 53,707,119 53,707,119
Building improvements 21,800,688 17,287,884
Tenant improvements 41,206,093 38,839,925
Furniture and equipment 1,268,843 1,240,753
Improvements in progress 296,326 3,323,627
------------ ------------
124,293,643 120,413,882
Less - Accumulated depreciation
and amortization 84,044,177 80,050,988
------------ ------------
$ 40,249,466 $ 40,362,894
============ ============
</TABLE>
6 - RECEIVABLES
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Receivable from tenants
Billed and not collected $ 447,346 $ 1,598,274
Escalation accruals 80,208 168,376
Accrual required by FASB
Statement No. 13 - Note 4(c) 14,017,851 14,580,465
------------ ------------
14,545,405 16,347,115
Due from maintenance services
company - Note 8(b) 185,000 25,407
Due from partner 197,159 197,159
Other 27,401 40,941
------------ ------------
$ 14,954,965 $ 16,610,622
============ ============
</TABLE>
(Continued)
-10-
<PAGE> 30
TWO PENN PLAZA ASSOCIATES L.P.
NOTES TO FINANCIAL STATEMENTS
7 - MORTGAGES PAYABLE
On May 11, 1988, the Partnership entered into a loan agreement
pursuant to which National Bank of Kuwait S.A.K., Grand Cayman Island
branch ("NBK") agreed to lend the Partnership up to $225,000,000 to be used
for, but not limited to, the partial or full payment of prior mortgages,
distributions to partners, payment of loan costs, and establishing
revolving credit and working capital facilities. At this time, it is
believed that because of a decline in the property's market value,
additional borrowings may not be available.
The loans mature on May 10, 2000 and require payment of interest at a
floating rate, as defined in the agreement. In addition, the Partnership
has entered into interest rate exchange agreements as follows:
On November 8, 1989, the Partnership entered into interest rate
exchange agreements with various commercial banks (the "Banks") and
NBK, as agent for the Banks, for an aggregate principal amount of
$40,000,000, to expire on November 8, 1999.
On October 6, 1992, the Partnership entered into an interest rate
exchange agreement for $115,000,000 until October 6, 1999.
The fixed interest was paid semiannually at the rate of 9.3625% on the
$40,000,000 mortgage and 6.7475% on the $115,000,000 mortgage.
Beginning November 8, 1996 and October 6, 1996, respectively, the
interest is paid monthly at the rate of 9.2525% on the $40,000,000
mortgage and 6.6725% on the $115,000,000 mortgage.
Interest rates vary on the remaining $4,100,000 of the mortgages
payable balance. The effective rates were approximately 6.2%, 6.75% and
6.5% for the years ended December 31, 1996, 1995 and 1994, respectively.
The overall effective interest rate paid by the Partnership was
approximately 7.5% for each of the years ended December 31, 1996 and 1995
and 7.4% for the year ended December 31, 1994.
(Continued)
-11-
<PAGE> 31
TWO PENN PLAZA ASSOCIATES L.P.
NOTES TO FINANCIAL STATEMENTS
7 - MORTGAGES PAYABLE (Continued)
The partners and NBK had agreed that NBK would not record the new
mortgages arising as borrowings were made, but that NBK would have the
option to do so upon giving notice to the Partnership, with the Partnership
being responsible for payment of the mortgage recording tax. If for any
reason NBK could not record the mortgage notes, then certain partners
agreed to guarantee the debt. The partners also could voluntarily record
the mortgage. In 1994, at the voluntary request of the Partnership, the
Partnership paid $3,600,000 into a mortgage escrow deposit account. In
1995, NBK recorded mortgages of $131,000,000, requiring a total payment of
$3,941,591 for mortgage recording taxes, title insurance, and other costs.
The Partnership paid the additional amount due in excess of the balance in
the escrow account. Total costs were charged to mortgage costs and are
being amortized over the remaining term of the loans.
8 - RELATED PARTY TRANSACTIONS
(a) Management Services
Management services are provided to the Partnership by Mendik
Realty Company, Inc., a general partner of the Partnership. The annual
management fee is 1-1/2% of rental receipts, as defined. Management
fees for the years ended December 31, 1996, 1995 and 1994 were
$645,539, $667,048 and $651,203, respectively.
(b) Maintenance Services
Maintenance services for the property are provided at cost plus
an allocable share of overhead expenses by a company that is
controlled by a general partner of the Partnership. Services of the
building engineers are provided at cost. Profits earned from direct
tenant services are shared with the Partnership.
For the years ended December 31, 1996, 1995 and 1994, cleaning
and related expenses were $4,209,139, $4,167,915 and $4,009,013,
engineering and preventive maintenance was $780,007, $902,157 and
$747,694, and the Partnership's share of profits from tenant services
was $326,549, $359,293 and $417,077, respectively. Amounts receivable
from the maintenance services company were $185,000 and $25,407 at
December 31, 1996 and 1995, respectively.
(Continued)
-12-
<PAGE> 32
TWO PENN PLAZA ASSOCIATES L.P.
NOTES TO FINANCIAL STATEMENTS
8 - RELATED PARTY TRANSACTIONS (Continued)
(b) Maintenance Services (Continued)
The maintenance services company occupied space in the building
under leases which were terminated on February 1, 1995. The leases,
for approximately 9,000 square feet, required base rent (including
electric) of $191,819 and provided for additional rent based on
increases in real estate taxes and operating expenses. Rental income
from the company for the years ended December 31, 1995 and 1994 was
$18,659 and $206,153, respectively.
(c) Security Services
Security services for the property are provided at cost plus an
allocable share of overhead expenses by a company whose controlling
stockholder is a general partner of the Partnership. Profits earned
from direct tenant services are shared equally with the Partnership.
The cost of security services provided by this company for the years
ended December 31, 1996, 1995 and 1994 was $621,709, $708,366 and
$637,048, respectively.
(d) Construction Services
Ambassador Construction Co., Inc., a partner of a partner in the
Partnership, provides construction and related services for the
property. Costs for the years ended December 31, 1996, 1995 and 1994
were $110,399, $1,433,418 and $645,341, respectively.
9 - LEASE ARRANGEMENTS
Space in the building is rented to a large number of tenants under
various lease agreements. These leases, which are classified as operating
leases, include renewal options and provisions for additional rent based on
increases in property taxes, operating expenses or porter wage rates, and
utilities over base period amounts.
(Continued)
-13-
<PAGE> 33
TWO PENN PLAZA ASSOCIATES L.P.
NOTES TO FINANCIAL STATEMENTS
9 - LEASE ARRANGEMENTS (Continued)
Approximate minimum future rentals required under operating leases,
excluding rentals that are cancelable at the tenant's option, are as
follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
1997 $ 26,667,000
1998 19,979,000
1999 19,616,000
2000 16,574,000
2001 13,959,000
Thereafter 65,691,000
------------
$162,486,000
============
</TABLE>
Escalations (contingent rentals) included in rental income were
$2,752,775, $3,696,514 and $3,881,091 for the years ended December 31,
1996, 1995 and 1994, respectively.
Approximately 43% of total rental income was derived from two tenants
whose leases expire between October 31, 1996 and January 31, 1998. The
lease which expired October 31, 1996 represented approximately 30% of total
rental income and approximately $9,920,000 of annual base rents. The other
lease represented approximately $4,672,000 of annual base rents.
10 - COMMITMENTS
Pursuant to the terms of leases with various tenants, the Partnership
is obligated to pay approximately $2,050,000 of the cost of initial
alterations to be made to the leased premises. As of December 31, 1996,
approximately $121,000 of these costs have been incurred.
-14-
<PAGE> 34
ANNEX B
M ELEVEN ASSOCIATES,
M 393 ASSOCIATES AND
ELEVEN PENN PLAZA COMPANY
(GENERAL PARTNERSHIPS)
COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
AND
INDEPENDENT AUDITORS' REPORT
<PAGE> 35
M ELEVEN ASSOCIATES,
M 393 ASSOCIATES AND
ELEVEN PENN PLAZA COMPANY
COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
TABLE OF CONTENTS
Independent Auditors' Report 1
Combined Financial Statements
Balance Sheet at December 31, 1996 and 1995 2
Statement of Income 3
Statement of Cash Flows 4
Statement of Changes in Partners' Capital Deficiency 5
Notes to Combined Financial Statements 6-15
<PAGE> 36
FRIEDMAN 1700 BROADWAY
ALPREN & NEW YORK, NY 10019
GREEN LLP 212-582-1600
CERTIFIED PUBLIC ACCOUNTANTS FAX 212-265-4761
INDEPENDENT AUDITORS' REPORT
TO THE PARTNERS OF M ELEVEN ASSOCIATES, M 393 ASSOCIATES
AND ELEVEN PENN PLAZA COMPANY
We have audited the accompanying combined balance sheet of M ELEVEN
ASSOCIATES, M 393 ASSOCIATES AND ELEVEN PENN PLAZA COMPANY (general
partnerships) as of December 31, 1996 and 1995, and the related combined
statements of income, cash flows and changes in partners' capital deficiency for
each of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Partnerships' 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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of M ELEVEN
ASSOCIATES, M 393 ASSOCIATES AND ELEVEN PENN PLAZA COMPANY as of December 31,
1996 and 1995, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
/s/ FRIEDMAN ALPREN & GREEN LLP
-------------------------------
January 14, 1997, except for
Note 2, as to which the date
is March 12, 1997
<PAGE> 37
M ELEVEN ASSOCIATES,
M 393 ASSOCIATES AND
ELEVEN PENN PLAZA COMPANY
COMBINED BALANCE SHEET
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
ASSETS
Property and improvements - at cost, less accumulated
depreciation and amortization of $46,520,422 and
$43,201,381 - Note 4 $ 36,266,165 $ 34,271,529
Cash 716,244 952,032
Restricted cash - Note 7 1,062,888 3,556,630
Receivables - Note 5 21,810,111 21,857,329
Escrow deposits, real estate taxes - Note 7 374,822 330,821
Escrow deposits, tenant costs - Note 6 147,341 140,119
Prepaid real estate taxes 2,037,886 1,984,926
Prepaid leasing costs 3,758,264 3,629,698
Other prepayments 86,491 87,201
Unamortized mortgage costs 293,594 31,844
Tenants' security deposits - Note 10 679,995 666,797
-------------- --------------
$ 67,233,801 $ 67,508,926
============== ==============
LIABILITIES AND PARTNERS' CAPITAL DEFICIENCY
Liabilities
Mortgages payable - Note 7 $ 74,968,471 $ 76,963,344
Accrued interest payable 199,778 193,468
Accounts payable and accrued expenses 407,327 417,942
Improvements payable 112,262 25,989
Leasing costs payable 604,163 -
Deferred income 86,389 176,882
Tenants' security deposits payable 663,764 651,074
-------------- --------------
77,042,154 78,428,699
Commitment - Note 11 -- --
Partners' capital deficiency (9,808,353) (10,919,773)
-------------- --------------
$ 67,233,801 $ 67,508,926
============== ==============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
-2-
<PAGE> 38
M ELEVEN ASSOCIATES,
M 393 ASSOCIATES AND
ELEVEN PENN PLAZA COMPANY
COMBINED STATEMENT OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---------------- ---------------- ----------------
<S> <C> <C> <C>
Revenues
Rental income $ 24,374,745 $ 24,270,234 $ 24,478,684
Lease cancellation income -- 7,479,701 --
Interest 574,153 201,451 73,147
---------------- ---------------- ----------------
24,948,898 31,951,386 24,551,831
---------------- ---------------- ----------------
Expenses
Renting 28,782 29,778 41,930
Administrative 840,638 991,813 865,893
Operating 7,644,611 7,397,211 6,755,338
Real estate taxes 4,071,360 4,156,110 4,623,700
---------------- ---------------- ----------------
12,585,391 12,574,912 12,286,861
---------------- ---------------- ----------------
Income before interest expense and
depreciation and amortization 12,363,507 19,376,474 12,264,970
Interest expense 7,099,948 7,222,720 7,003,505
---------------- ---------------- ----------------
Income before depreciation and
amortization 5,263,559 12,153,754 5,261,465
Depreciation and amortization 4,152,139 4,654,746 3,737,260
---------------- ---------------- ----------------
Net income $ 1,111,420 $ 7,499,008 $ 1,524,205
================ ================ ================
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
-3-
<PAGE> 39
M ELEVEN ASSOCIATES,
M 393 ASSOCIATES AND
ELEVEN PENN PLAZA COMPANY
COMBINED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 1,111,420 $ 7,499,008 $ 1,524,205
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization of fixed assets 3,319,040 3,558,110 2,721,099
Amortization of leasing and mortgage costs 833,099 1,096,636 1,016,161
Changes in assets and liabilities
Restricted cash 2,493,742 ( 3,004,182) ( 552,448)
Receivables 522,218 ( 5,435,467) ( 1,479,172)
Escrow deposits, real estate taxes ( 44,001) ( 330,821) --
Prepaid real estate taxes ( 52,960) 215,022 ( 2,199,948)
Prepaid leasing costs ( 800,639) ( 396,916) ( 381,705)
Other prepayments 710 483 330,359
Other assets -- -- 16,000
Accrued interest payable 6,310 ( 444,521) 29,185
Accounts payable and accrued expenses (10,615) 73,576 ( 63,874)
Leasing costs payable 604,163 ( 106,546) ( 354,901)
Lease cancellation obligation -- ( 13,523) ( 54,866)
Deferred income ( 90,493) 176,882 --
Tenants' security deposits ( 13,198) ( 89,980) 23,045
Tenants' security deposits payable 12,690 74,257 ( 23,045)
----------- ----------- -----------
Net cash provided by operating activities 7,891,486 2,872,018 550,095
----------- ----------- -----------
Cash flows from investing activities
Acquisition of improvements ( 5,227,403) ( 708,698) ( 2,389,987)
Con Edison rebate receivable ( 475,000) -- --
Escrow deposits, tenant costs ( 7,222) ( 7,666) 842,287
Due from partners -- -- 111,000
----------- ----------- -----------
Net cash used in investing activities ( 5,709,625) ( 716,364) ( 1,436,700)
----------- ----------- -----------
Cash flows from financing activities
Principal payments on mortgage ( 1,994,873) (2,199,041) ( 984,017)
Mortgage costs ( 422,776) (16,628) ( 659,994)
----------- ----------- -----------
Net cash used in financing activities ( 2,417,649) (2,215,669) ( 1,644,011)
----------- ----------- -----------
Net decrease in cash ( 235,788) ( 60,015) ( 2,530,616)
Cash, beginning of year 952,032 1,012,047 3,542,663
----------- ----------- -----------
Cash, end of year $ 716,244 $ 952,032 $ 1,012,047
=========== =========== ===========
Supplemental cash flow disclosures
Interest paid $ 7,093,638 $ 7,667,241 $ 6,969,600
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
-4-
<PAGE> 40
M ELEVEN ASSOCIATES,
M 393 ASSOCIATES AND
ELEVEN PENN PLAZA COMPANY
COMBINED STATEMENT OF CHANGES IN PARTNERS' CAPITAL DEFICIENCY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Balance, January 1, 1994 $ (19,942,986)
Net income 1,524,205
-------------
Balance, December 31, 1994 (18,418,781)
Net income 7,499,008
-------------
Balance, December 31, 1995 (10,919,773)
Net income 1,111,420
-------------
Balance, December 31, 1996 $ ( 9,808,353)
=============
The accompanying notes are an integral part of these combined financial
statements.
-5-
<PAGE> 41
M ELEVEN ASSOCIATES,
M 393 ASSOCIATES AND
ELEVEN PENN PLAZA COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
1 - ORGANIZATION
Eleven Penn Plaza Company (the "Partnership") was organized in 1980
and acquired the property located at Eleven Penn Plaza (formerly 393
Seventh Avenue), New York, New York on July 1, 1980. M Eleven Associates
and M 393 Associates each own a 50% interest in Eleven Penn Plaza Company.
All three entities (the "Partnerships") are general partnerships.
2 - TRANSFER OF OWNERSHIP
Pursuant to a solicitation contained in a private placement memorandum
dated November 11, 1996, the Partnerships obtained the consent of their
partners to participate in an offering of shares of common stock in
accordance with a preliminary registration statement filed with the
Securities and Exchange Commission on December 18, 1996. On March 12, 1997,
the Partnerships entered into an agreement with Vornado Realty Trust, a
publicly traded real estate investment trust ("REIT"). The partners will be
resolicited to obtain their consents to participate in this transaction,
under terms and conditions similar to those stated in the private placement
memorandum dated November 11, 1996. The REIT is a fully integrated,
self-administered and self-managed real estate company which has qualified
as a real estate investment trust for Federal income tax purposes. Upon
completion of the transaction, it is anticipated that the Partnerships will
be owned by a company controlled by the REIT.
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Combination
The accompanying combined financial statements include the
accounts of the Partnerships. All material intercompany transactions
have been eliminated.
(b) Use of Estimates
Management uses estimates and assumptions in preparing financial
statements. Those estimates and assumptions affect the reported
amounts of assets and liabilities, the disclosure of contingent assets
and liabilities, and the reported revenues and expenses.
(Continued)
-6-
<PAGE> 42
M ELEVEN ASSOCIATES,
M 393 ASSOCIATES AND
ELEVEN PENN PLAZA COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(c) Rental Income
Leases are classified as operating leases in accordance with the
provisions of Financial Accounting Standards Board (FASB) Statement
No. 13. One of these provisions requires the recognition of scheduled
rent increases and deferred rent concessions on a straight-line basis
over the lease term. Included in rental income for the years ended
December 31, 1996, 1995 and 1994 is $648,901, $399,100 and $1,366,630,
respectively, representing the amounts required to be accrued under
this provision.
(d) Depreciation and Amortization
Property and improvements are stated at cost. Depreciation and
amortization is computed over estimated useful asset lives or periods,
primarily on the straight-line basis.
Details are as follows:
Asset Asset Lives or Periods
----------------------- --------------------------------
Building Lives of the building's components,
ranging from 8-1/2 to 23-1/2 years
Building improvements 15 to 39 years
Furniture and equipment 4 to 7 years
Tenant improvements Term of related lease
Leasing costs Term of related lease
Mortgage costs Term of mortgage
(Continued)
-7-
<PAGE> 43
M ELEVEN ASSOCIATES,
M 393 ASSOCIATES AND
ELEVEN PENN PLAZA COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(e) Fair Value of Financial Instruments
Effective for years ended after December 15, 1995, Statement of
Financial Accounting Standards No. 107, "Disclosures about Fair Value
of Financial Instruments", as amended, requires certain entities to
disclose the fair value of specified financial instruments for which
it is practicable to estimate that value. It was not practicable to
estimate the fair value of the mortgages payable at December 31, 1996
because quoted market prices do not exist and an estimate could not be
made through other means without incurring excessive costs.
(f) Income Taxes
The Partnerships are not taxpaying entities for income tax
purposes and, accordingly, no provision has been made for income
taxes. The partners' allocable shares of the Partnerships' taxable
income or loss are reportable on their income tax returns.
(g) Concentrations of Credit Risk for Cash
At December 31, 1996 and 1995, cash balances, maintained in two
banks by the Partnership and one bank by each of the other entities,
are insured by the Federal Deposit Insurance Corporation up to a
maximum of $100,000 in each bank for each entity.
(Continued)
-8-
<PAGE> 44
M ELEVEN ASSOCIATES,
M 393 ASSOCIATES AND
ELEVEN PENN PLAZA COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
4 - PROPERTY AND IMPROVEMENTS
<TABLE>
<CAPTION>
1996 1995
---------------- ----------------
<S> <C> <C>
Land $ 6,213,802 $ 6,213,802
Building 32,123,817 32,123,817
Building improvements 17,047,344 16,555,076
Tenant improvements 24,611,011 21,113,133
Furniture and equipment 800,756 758,888
Building improvements in progress 1,786,072 446,250
Tenant improvements in progress 203,785 261,944
---------------- ----------------
82,786,587 77,472,910
Less - Accumulated depreciation
and amortization 46,520,422 43,201,381
---------------- ----------------
$ 36,266,165 $ 34,271,529
================ ================
</TABLE>
5 - RECEIVABLES
<TABLE>
<CAPTION>
1996 1995
---------------- ----------------
<S> <C> <C>
Receivable from tenants
Billed and not collected $ 347,511 $ 75,783
Accruals 271,101 577,981
Lease cancellation (a) 5,259,514 6,315,744
Accruals required by FASB
Statement No. 13 - Note 3(c) 15,368,413 14,719,512
Con Edison rebate - chiller replacement 475,000 -
Due from maintenance services
and security services companies,
net - Notes 8(b) and 8(c) 23,547 163,673
Insurance claims 64,114 4,092
Other 911 544
---------------- ----------------
$ 21,810,111 $ 21,857,329
================ ================
</TABLE>
(Continued)
-9-
<PAGE> 45
M ELEVEN ASSOCIATES,
M 393 ASSOCIATES AND
ELEVEN PENN PLAZA COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
5 - RECEIVABLES (Continued)
(a) In 1995, the Partnership entered into an agreement with a tenant to
terminate, effective October 1, 1995, the tenant's obligations under a
lease covering certain space in the property. The present value of
total principal payments to be received, allocable to this
transaction, was $6,528,000. Interest has been imputed at 8%. Monthly
payments will range from approximately $9,000 to $138,000 from October
1, 1995 through June 1, 2001. Additionally, payments of approximately
$253,000 and $1,188,000 were received in October 1995 and January
1996, respectively. Income recognized in 1995, net of an adjustment of
approximately $1,409,000 for rent income previously recognized on the
straight-line basis (see Note 3(c)), was approximately $5,119,000. In
addition, related prepaid leasing costs and unamortized tenant
improvements of approximately $181,000 and $669,000, respectively,
were written off at October 1, 1995.
An agreement with the same tenant provides for the surrender of
additional space in 1997. The present value of principal payments to
be received, allocable to this transaction, total $17,938,000, and
monthly payments will be required through June 1, 2001. Interest will
also be imputed at 8%. Income to be recognized in 1997, net of an
adjustment of approximately $3,691,000 for rent income previously
recognized on the straight-line basis (see Note 3(c)), will be
approximately $14,247,000. In addition, related prepaid leasing costs
and unamortized tenant improvements of approximately $578,000 and
$2,100,000, respectively, will be written off in 1997.
6 - ESCROW DEPOSITS, TENANT COSTS
Payments required to be made by the Partnership for tenant improvement
and leasing costs for a tenant are held in escrow. The funds are released
as invoices are approved.
(Continued)
-10-
<PAGE> 46
M ELEVEN ASSOCIATES,
M 393 ASSOCIATES AND
ELEVEN PENN PLAZA COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
7 - MORTGAGES PAYABLE
<TABLE>
<CAPTION>
1996 1995
---------------- ----------------
<S> <C> <C>
The Equitable Life Assurance
Society of the United States (a) $ 53,835,471 $ 55,830,344
Citicorp Real Estate, Inc. (b) 21,133,000 21,133,000
---------------- ----------------
$ 74,968,471 $ 76,963,344
================ ================
</TABLE>
(a) The Partnership borrowed $60,000,000 from The Equitable Life Assurance
Society of the United States, secured by a first mortgage on the
property. The mortgage agreement required monthly payments of $540,956
from January 2, 1994 through January 1, 1995 and $614,723 through
January 1, 1996, including interest at 9.25% a year. Effective January
30, 1996, monthly payments of $604,829 including interest at 9.25% a
year are required through January 31, 1999, the extended maturity
date, at which time the principal balance of approximately $48,850,000
will be payable. The Partnership can prepay the principal balance, in
full, but not in part, without penalty at any time during the last
three months prior to maturity, with 30 days' written notice. At any
other time, prepayment of principal can be made, in full, but not in
part, by giving 30 days' written notice and paying a 2% prepayment
penalty.
Annual maturities of principal at December 31, 1996 are approximately
as follows:
Year Ending
December 31,
------------
1997 $ 2,200,000
1998 2,500,000
1999 49,100,000
-------------
$ 53,800,000
=============
The Partnership is also required to make monthly payments into a real
estate tax escrow account.
(Continued)
-11-
<PAGE> 47
M ELEVEN ASSOCIATES,
M 393 ASSOCIATES AND
ELEVEN PENN PLAZA COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
7 - MORTGAGES PAYABLE (Continued)
(b) A second mortgage loan with Citicorp Real Estate, Inc. matured on
March 30, 1994 and was extended to February 1, 1996. Interest only was
paid at a variable base rate, as defined. The effective rates for the
period January 1, 1996 through January 29, 1996 and for the years
ended December 31, 1995 and 1994 were 8.75%, 9.20% and 7.50%,
respectively. Effective January 30, 1996, the maturity date was
extended to January 31, 1999, and payments of interest only at 9.25% a
year are required. The mortgage principal balance can be prepaid, in
full or in part, at any time without penalty.
(c) An agreement for the collection of rents was entered into during 1994
between the mortgagees and the Partnership, pursuant to which all
rents are deposited into an account directly controlled by the
mortgagees. Any cash required by the Partnership to fund operations
must be requisitioned from the mortgagees.
8 - RELATED PARTY TRANSACTIONS
(a) Management Services
Management services are provided by Mendik Realty Company, Inc.,
a corporation which is a general partner of a partner in the
Partnership. The annual management fee is 2% of gross rental income.
Total management fees for the years ended December 31, 1996, 1995 and
1994 were $503,935, $533,029 and $462,395, respectively. The amounts
payable at December 31, 1996 and 1995 were $11,015 and $23,174,
respectively.
(b) Maintenance Services
Maintenance services for the property are provided at cost plus
an allocable share of overhead expenses by a company controlled by the
managing partner of the Partnership. Services of building engineers
are provided at cost. Profits earned from direct tenant services are
shared with the Partnership.
(Continued)
-12-
<PAGE> 48
M ELEVEN ASSOCIATES,
M 393 ASSOCIATES AND
ELEVEN PENN PLAZA COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
8 - RELATED PARTY TRANSACTIONS (Continued)
(b) Maintenance Services (Continued)
Cleaning and related expenses for the years ended December 31,
1996, 1995 and 1994 were $2,685,969, $2,476,880 and $2,238,451,
respectively, engineering and preventive maintenance services were
$668,513, $764,855 and $675,818, respectively, and the Partnership's
share of the profits from tenant services was $178,788, $153,797 and
$171,871, respectively. The net amounts receivable from the
maintenance services company at December 31, 1996 and 1995 were
$36,009 and $162,697, respectively.
(c) Security Services
Security services for the property are provided at cost plus an
allocable share of overhead expenses by a company whose stockholder is
the managing partner of the Partnership. Profits earned from direct
tenant services are shared with the Partnership. Security services
provided by this company for the years ended December 31, 1996, 1995
and 1994 were $374,641, $343,271 and $358,783, respectively. The net
amount payable at December 31, 1996 was $12,462, and the amount
receivable at December 31, 1995 was $976.
9 - LEASE ARRANGEMENTS
Space in the building is rented by the Partnership to a large number
of tenants under various lease agreements. These leases, which are
classified as operating leases, include renewal options and provisions for
additional rent based on increases in real estate taxes, operating expenses
or porter wage rates, and utilities over base period amounts.
(Continued)
-13-
<PAGE> 49
M ELEVEN ASSOCIATES,
M 393 ASSOCIATES AND
ELEVEN PENN PLAZA COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
9 - LEASE ARRANGEMENTS (Continued)
Approximate minimum future rentals required under operating leases at
December 31, 1996, excluding rentals that are cancelable at the tenant's
option, are as follows:
Year Ending
December 31,
------------
1997 $ 15,382,000
1998 16,379,000
1999 15,581,000
2000 14,446,000
2001 14,928,000
Thereafter 54,998,000
-------------
$ 131,714,000
==============
Escalations (contingent rentals) included in rental income were
$2,414,610, $2,468,169 and $2,461,280 for the years ended December 31,
1996, 1995 and 1994, respectively.
At December 31, 1996, a tenant with an annual base rent of
approximately $4,147,000 under a lease expiring December 31, 2002 provided
22% of base rental income. Another tenant, who is surrendering its lease as
of January 1, 1997, provided approximately $4,387,000, or 23%, of annual
base rental income. The surrender agreement is described in Note 5(a).
The maintenance services company occupies space in the building under
a 10-year lease which began on February 1, 1995. The lease, for
approximately 12,300 square feet, requires annual base rent (including
electric) of $98,400 and provides for additional rent based on increases in
real estate taxes. The lease provided for a 16-month rent abatement until
August 1996. Included in the amount required to be accrued by FASB
Statement No. 13 at December 31, 1996 is $131,097 for this lease.
(Continued)
-14-
<PAGE> 50
M ELEVEN ASSOCIATES,
M 393 ASSOCIATES AND
ELEVEN PENN PLAZA COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
10 - TENANTS' SECURITY DEPOSITS
In addition to cash deposits, the Partnership is holding letters of
credit of $102,795 at December 31, 1996 and 1995 as tenants' security
deposits pursuant to lease agreements.
11 - COMMITMENT
The Partnership has entered into a contract for a chiller replacement
project. The total cost of the project will be approximately $2,500,000, of
which approximately $475,000 will be funded by a Con Edison rebate program.
At December 31, 1996, approximately $2,256,000 of these costs have been
incurred, of which approximately $2,247,000 has been paid. The rebate
receivable from Con Edison of $475,000 has been recorded at December 31,
1996.
-15-
<PAGE> 51
ANNEX C
1740 BROADWAY ASSOCIATES, L.P.
(A LIMITED PARTNERSHIP)
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
AND
INDEPENDENT AUDITORS' REPORT
<PAGE> 52
1740 BROADWAY ASSOCIATES, L.P.
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
TABLE OF CONTENTS
Independent Auditors' Report 1
Financial Statements
Balance Sheet at December 31, 1996 and 1995 2
Statement of Income 3
Statement of Cash Flows 4
Statement of Changes in Partners' Capital 5
Notes to Financial Statements 6-13
<PAGE> 53
FRIEDMAN 1700 BROADWAY
ALPREN & NEW YORK, NY 10019
GREEN LLP 212-582-1600
CERTIFIED PUBLIC ACCOUNTANTS FAX 212-265-4761
INDEPENDENT AUDITORS' REPORT
TO THE PARTNERS OF 1740 BROADWAY ASSOCIATES, L.P.
We have audited the accompanying balance sheet of 1740 BROADWAY ASSOCIATES,
L.P. (a limited partnership) as of December 31, 1996 and 1995, and the related
statements of income, cash flows and changes in partners' capital for each of
the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the managing general partner. 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 the
managing general partner, 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 1740 BROADWAY ASSOCIATES,
L.P. as of December 31, 1996 and 1995, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
/S/ FRIEDMAN ALPREN & GREEN LLP
January 16, 1997, except for
Note 2, as to which the date
is March 12, 1997
-1-
<PAGE> 54
1740 BROADWAY ASSOCIATES, L.P.
BALANCE SHEET
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Property and improvements - at cost, less
accumulated depreciation and amortization of
$18,085,937 and $14,957,089 - Note 5 $ 96,741,899 $ 99,017,284
Cash and short-term investments 4,557,595 2,320,557
Investment in U.S. Treasury obligations - Note 4(d) 2,119,196 4,890,481
Receivables - Note 6 12,110,468 9,680,435
Prepaid leasing costs, less accumulated amortization
of $623,857 and $478,844 5,128,964 1,668,658
Tenant acquisition costs, less accumulated amortization
of $2,547,797 and $2,062,988 6,907,943 7,669,918
Other prepayments 19,145 19,456
Tenants' security deposits - Note 10 525,158 527,123
------------ ------------
$128,110,368 $125,793,912
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Tenant acquisition costs payable - Note 7 $ 4,524,761 $ 6,290,088
Accounts payable and accrued expenses 267,325 224,930
Leasing costs payable 1,301,115 --
Improvements payable 130,279 --
Deferred income -- 28,118
Tenants' security deposits payable 525,158 527,123
------------ ------------
6,748,638 7,070,259
Commitments - Note 11 -- --
Partners' capital 121,361,730 118,723,653
------------ ------------
$128,110,368 $125,793,912
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-2-
<PAGE> 55
1740 BROADWAY ASSOCIATES, L.P.
STATEMENT OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Revenues
Rental income $20,035,207 $20,477,492 $20,894,991
Lease cancellation income 2,150,943 -- --
Interest 520,228 936,262 498,069
----------- ----------- -----------
22,706,378 21,413,754 21,393,060
----------- ----------- -----------
Expenses
Renting 23,483 20,847 25,145
Administrative 502,324 567,837 325,085
Operating 4,665,046 4,529,149 4,266,154
Real estate taxes 3,866,918 3,771,745 3,753,418
----------- ----------- -----------
9,057,771 8,889,578 8,369,802
----------- ----------- -----------
Income before depreciation and
amortization 13,648,607 12,524,176 13,023,258
Depreciation and amortization 3,758,670 3,979,628 3,947,037
----------- ----------- -----------
Net income $ 9,889,937 $ 8,544,548 $ 9,076,221
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE> 56
1740 BROADWAY ASSOCIATES, L.P.
STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 9,889,937 $ 8,544,548 $ 9,076,221
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization of fixed assets 3,128,848 3,114,097 3,084,137
Amortization of leasing, tenant acquisition and
organization costs 629,822 865,531 862,900
Changes in assets and liabilities
Accrued interest, U.S. Treasury obligations 33,851 46,696 ( 83,772)
Receivables ( 2,574,236) ( 388,441) ( 3,037,072)
Prepaid leasing costs ( 3,605,319) ( 7,473) ( 295,099)
Tenant acquisition costs 277,166 -- ( 1,707,906)
Other prepayments 311 ( 8,952) ( 10,504)
Tenant acquisition costs payable ( 1,765,327) ( 994,229) 485,545
Accounts payable and accrued expenses 42,395 58,463 ( 49,411)
Leasing costs payable 1,301,115 -- --
Deferred income ( 28,118) ( 53,498) 62,539
Tenants' security deposits 1,965 1,934 ( 7,848)
Tenants' security deposits payable ( 1,965) ( 1,934) 7,848
------------ ------------ ------------
Net cash provided by operating activities 7,330,445 11,176,742 8,387,578
------------ ------------ ------------
Cash flows from investing activities
Acquisition of property and improvements ( 723,184) ( 870,626) ( 807,256)
Acquisition of U.S. Treasury obligations ( 7,968,520) (18,564,266) (11,108,954)
Redemption of U.S. Treasury obligations 10,688,130 21,622,418 4,501,224
Loan receivable 144,203 119,985 91,253
------------ ------------ ------------
Net cash provided by (used in)
investing activities 2,140,629 2,307,511 ( 7,323,733)
------------ ------------ ------------
Cash flows from financing activities
Distributions to partners ( 7,234,036) (15,263,195) ( 5,817,593)
------------ ------------ ------------
Net increase (decrease) in cash and
short-term investments 2,237,038 ( 1,778,942) ( 4,753,748)
Cash and short-term investments, beginning of year 2,320,557 4,099,499 8,853,247
------------ ------------ ------------
Cash and short-term investments, end of year $ 4,557,595 $ 2,320,557 $ 4,099,499
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE> 57
1740 BROADWAY ASSOCIATES, L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
General Partners Limited Partners
----------------------------------- ----------------
Union Bank
of Switzerland,
New York Branch,
as Successor
Mendik Nancy Trustee for
Total 1740 Corp. Creek, Inc. Account P-34742
------------- ------------- ------------- ----------------
<S> <C> <C> <C> <C>
Balance, January 1, 1994 $ 122,168,116 $ 41,375 $ 590,929 $ 59,661,550
Net income 9,076,221 3,077 43,900 4,432,311
Distributions ( 5,817,593) ( 1,972) ( 28,139) ( 2,840,981)
Unrealized loss on U.S. Treasury
obligations ( 114,233) ( 39) ( 553) ( 55,784)
------------- ------------- ------------- -------------
Balance, December 31, 1994 125,312,511 42,441 606,137 61,197,096
Transfers of interest January 1, 1995 -- -- -- (61,197,096)
Net income 8,544,548 2,897 41,328 --
Distributions ( 15,263,195) ( 5,174) ( 73,827) --
Reversal of prior year unrealized loss
on U.S. Treasury obligations 114,233 39 553 --
Unrealized gain on U.S. Treasury
obligations 15,556 5 75 --
------------- ------------- ------------- -------------
Balance, December 31, 1995 118,723,653 40,208 574,266 --
Transfers of interest December 17, 1996 -- -- -- --
Net income 9,889,937 3,352 47,837 --
Distributions ( 7,234,036) ( 2,452) ( 34,990) --
Reversal of prior year unrealized gain
on U.S. Treasury obligations ( 15,556) ( 5) ( 75) --
Unrealized loss on U.S. Treasury
obligations ( 2,268) ( 1) ( 11) --
------------- ------------- ------------- -------------
Balance, December 31, 1996 $ 121,361,730 $ 41,102 $ 587,027 $ -0-
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
Limited Partners
-------------------------------------------------------------------------------
Carborundum 1740 Broadway Portfolio U
Center Investment Holdings UBSCO
Joint Venture Company Corporation Corporation
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Balance, January 1, 1994 $ 58,502,226 $ 3,372,036 $ -- $ --
Net income 4,346,183 250,750 -- --
Distributions ( 2,785,777) ( 160,724) -- --
Unrealized loss on U.S. Treasury
obligations ( 54,701) ( 3,156) -- --
------------- ------------- ------------- -------------
Balance, December 31, 1994 60,007,931 3,458,906 -- --
Transfers of interest January 1, 1995 -- -- 61,197,096 --
Net income 4,091,589 236,062 4,172,672 --
Distributions ( 7,308,840) ( 421,678) ( 7,453,676) --
Reversal of prior year unrealized loss
on U.S. Treasury obligations 54,701 3,156 55,784 --
Unrealized gain on U.S. Treasury
obligations 7,449 430 7,597 --
------------- ------------- ------------- -------------
Balance, December 31, 1995 56,852,830 3,276,876 57,979,473 --
Transfers of interest December 17, 1996 -- -- ( 59,069,325) 59,069,325
Net income 4,735,835 273,230 4,631,203 198,480
Distributions ( 3,464,046) ( 199,856) ( 3,532,692) --
Reversal of prior year unrealized gain
on U.S. Treasury obligations ( 7,449) ( 430) ( 7,597) --
Unrealized loss on U.S. Treasury
obligations ( 1,086) ( 63) ( 1,062) ( 45)
------------- ------------- ------------- -------------
Balance, December 31, 1996 $ 58,116,084 $ 3,349,757 $ -0- $ 59,267,760
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE> 58
1740 BROADWAY ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS
1 - ORGANIZATION
1740 Broadway Associates, L.P. was organized on December 11, 1990 to
acquire, maintain and operate the property located at 1740 Broadway, New
York, New York. The property was acquired December 17, 1990.
2 - TRANSFER OF OWNERSHIP
Pursuant to a solicitation contained in a private placement memorandum
dated November 11, 1996, the Partnership obtained the consent of its
partners to participate in an offering of shares of common stock in
accordance with a preliminary registration statement filed with the
Securities and Exchange Commission on December 18, 1996. On March 12, 1997,
the managing general partner entered into an agreement with Vornado Realty
Trust, a publicly traded real estate investment trust ("REIT"). The
partners will be resolicited to obtain their consents to participate in
this transaction, under terms and conditions similar to those stated in the
private placement memorandum dated November 11, 1996. The REIT is a fully
integrated, self-administered and self-managed real estate company which
has qualified as a real estate investment trust for Federal income tax
purposes. Upon completion of the transaction, it is anticipated that the
Partnership will be owned by a company controlled by the REIT.
3 - THE PARTNERSHIP AGREEMENT
(a) Capital Contributions
In addition to partners' initial capital contributions of
$60,000,000 and investment capital contributions of $50,000,000, each
partner has agreed to contribute additional capital aggregating
$8,000,000 to fund the Partnership's additional capital needs, as
defined. As of December 31, 1996 and 1995, the partners have
contributed $6,351,878 in additional capital.
(b) Allocation of Net Income, Net Loss and Distributions
As defined in the agreement, allocations to the partners are in
accordance with their respective partnership interests.
(c) Transfers of Interests
On January 1, 1995, Union Bank of Switzerland, New York Branch,
as Successor Trustee for Account P-34742, assigned its partnership
interest to Portfolio U Holdings Corporation, a Delaware corporation.
(Continued)
-6-
<PAGE> 59
1740 BROADWAY ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS
3 - THE PARTNERSHIP AGREEMENT (Continued)
(c) Transfers of Interests (Continued)
On December 17, 1996, Portfolio U Holdings Corporation assigned
its partnership interest to UBSCO Corporation, a Delaware corporation.
4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Use of Estimates
The managing general partner uses estimates and assumptions in
preparing financial statements. Those estimates and assumptions affect
the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities, and the reported revenues and
expenses.
(b) Rental Income
Leases are classified as operating leases in accordance with the
provisions of Financial Accounting Standards Board (FASB) Statement
No. 13. One of these provisions requires the recognition of scheduled
rent increases and deferred rent concessions on a straight-line basis
over the lease term. Rental income includes $2,040,294, $599,138 and
$1,161,628 for the years ended December 31, 1996, 1995 and 1994,
respectively, representing the amounts required to be accrued under
this provision (see Note 6).
(c) Depreciation and Amortization
Property and improvements are stated at cost. Depreciation and
amortization is computed using the straight-line method over the
following estimated useful asset lives:
<TABLE>
<CAPTION>
Asset Useful Asset Lives
------------------------ ----------------------
<S> <C>
Building 31-1/2 years
Building improvements 31-1/2 and 39 years
Tenant improvements Term of related lease
Equipment 5 and 7 years
Leasing costs Term of related lease
Tenant acquisition costs Term of related lease
Organization costs 5 years
</TABLE>
Organization costs have been fully amortized.
(Continued)
-7-
<PAGE> 60
1740 BROADWAY ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS
4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(d) Investment in U.S. Treasury Obligations
The Partnership has adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". U.S. Treasury obligations
are classified as available-for-sale and carried at fair value. The
net unrealized gain (loss) at December 31, 1996 and 1995 (presented as
components of partners' capital) was $(2,268) and $15,556,
respectively. Contractual maturities (including accrued interest) of
the securities at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Within 1 year $ 621,148 $1,489,068
1 to 2 years 1,498,048 3,401,413
---------- ----------
$2,119,196 $4,890,481
========== ==========
</TABLE>
Accrued interest included in the investment in U.S. Treasury
obligations totals $29,731 and $63,582 at December 31, 1996 and 1995,
respectively.
(e) Fair Value of Financial Instruments
Effective for years ended after December 15, 1995, Statement of
Financial Accounting Standards No. 107, "Disclosures about Fair Value
of Financial Instruments", as amended, requires certain entities to
disclose the fair value of specified financial instruments for which
it is practicable to estimate that value. The fair value of the
investment in U.S. Treasury obligations is presented in Note 4(d). It
was not practicable to estimate the fair value of notes and loans
receivable because quoted market prices do not exist and estimates
could not be made through other means without incurring excessive
costs.
(Continued)
-8-
<PAGE> 61
1740 BROADWAY ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS
4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(f) Income Taxes
The Partnership is not a taxpaying entity for income tax purposes
and, accordingly, no provision has been made for income taxes. The
partners' allocable shares of the Partnership's taxable income or loss
are reportable on their income tax returns.
(g) Cash and Short-Term Investments
The Partnership considers all highly liquid investments with a
maturity of three months or less when purchased to be short-term
investments.
Cash balances of approximately $4,180,000 and $1,956,000 at
December 31, 1996 and 1995, respectively, are maintained in one bank,
generally in interest-bearing accounts, and are insured by the Federal
Deposit Insurance Corporation up to a maximum of $100,000.
5 - PROPERTY AND IMPROVEMENTS
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Land $ 20,520,077 $ 20,520,077
Building 86,722,856 86,722,856
Building improvements 3,009,502 1,435,392
Tenant improvements 4,384,732 4,384,732
Furniture and equipment 40,692 40,692
Improvements in progress 149,977 870,624
------------ ------------
114,827,836 113,974,373
Less - Accumulated depreciation
and amortization 18,085,937 14,957,089
------------ ------------
$ 96,741,899 $ 99,017,284
============ ============
</TABLE>
(Continued)
-9-
<PAGE> 62
1740 BROADWAY ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS
6 - RECEIVABLES
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Receivable from tenants - billed
and not collected $ 112,097 $ 53,176
Lease cancellation (a) 677,797 --
Escalation accruals 175,571 286,821
Accrual required by FASB
Statement No. 13 - Note 4(b) 9,504,880 7,464,586
Note receivable - tenant
improvements (b) 167,323 182,524
Loan receivable (c) 1,444,799 1,589,002
Due from maintenance services
company - Note 8(b) 19,032 96,091
Other 8,969 8,235
----------- -----------
$12,110,468 $ 9,680,435
=========== ===========
</TABLE>
(a) A lease cancellation agreement with a tenant, effective August 1,
1996, provides for payments by the tenant of $1,200,000 plus 17
monthly payments of $58,961. The total of the monthly payments,
$1,002,328, was recorded at its present value at August 1, 1996,
assuming an 8% interest rate.
(b) Matures on September 1, 2003 and requires monthly payments of $3,024
including interest at 12% a year.
(c) The loan, which is receivable from the subtenant described in Note 7,
matures on February 1, 2001 and requires monthly payments of $23,790
including interest at 10% a year. The balance due at maturity will be
approximately $737,000.
7 - TENANT ACQUISITION COSTS
Under the provisions of a leasing arrangement which commenced in
November 1992, the Partnership has assumed the tenant's obligation under a
pre-existing lease expiring in November 2000. The space was subleased as of
April 28, 1993 for the full lease term. The Partnership's total estimated
cost, net of sublease income, is $9,456,000, which is being amortized on a
straight-line basis over the term of the tenant's lease with the
Partnership, expiring December 2007.
(Continued)
-10-
<PAGE> 63
1740 BROADWAY ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS
8 - RELATED PARTY TRANSACTIONS
(a) Management and Leasing Services
Management and leasing services are provided to the Partnership
by Mendik Realty Company, Inc. (MRC), whose controlling stockholder is
also the controlling stockholder of Mendik 1740 Corp., a general
partner of the Partnership. The annual management fee is 1% of rental
receipts, as defined, increasing to 1-1/2% when payments of interest
on the investment loans and distributions of net cash flow to the
partners equal or exceed 9% of the outstanding investment loans and
capital contributed, as defined. Leasing commissions are calculated in
accordance with the management agreement and are generally consistent
with industry guidelines.
Compensation for these services for the years ended December 31,
1996, 1995 and 1994 was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Management fees $293,539 $298,509 $198,759
Leasing costs 300,597 285 55,712
-------- -------- --------
$594,136 $298,794 $254,471
======== ======== ========
</TABLE>
The amount payable to MRC for leasing costs at December 31, 1996
was $30,506.
(b) Maintenance Services
Maintenance services for the property are provided at cost plus
an allocable share of overhead expenses by a company that is
controlled by the controlling stockholder of Mendik 1740 Corp.
Services of the building engineers are provided at cost. Profits
earned from direct tenant services are shared equally with the
Partnership.
For the years ended December 31, 1996, 1995 and 1994, cleaning
and related expenses were $1,712,745, $1,554,121 and $1,396,463,
engineering and preventive maintenance was $505,151, $526,814 and
$441,505, and the Partnership's share of the profits from tenant
services was $82,848, $95,874 and $93,719, respectively. Amounts
receivable from the maintenance services company were $19,032 and
$96,091 at December 31, 1996 and 1995, respectively.
(Continued)
-11-
<PAGE> 64
1740 BROADWAY ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS
8 - RELATED PARTY TRANSACTIONS (Continued)
(c) Security Services
Security services for the property are provided at cost plus an
allocable share of overhead expenses by a company whose stockholder is
the controlling stockholder of Mendik 1740 Corp. Profits earned from
direct tenant services are shared equally with the Partnership.
Security services provided by this company for the years ended
December 31, 1996, 1995 and 1994 were $345,432, $409,988 and $343,986,
respectively.
9 - LEASE ARRANGEMENTS
Space in the building is rented to a large number of tenants under
various lease agreements. These leases, which are classified as operating
leases, include renewal options and provisions for additional rent based on
increases in property taxes, operating expenses and utilities over base
period amounts.
Approximate minimum future rentals required under operating leases at
December 31, 1996, excluding rentals that are cancelable at the tenant's
option, are summarized as follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
1997 $ 19,273,000
1998 14,592,000
1999 15,684,000
2000 14,926,000
2001 14,471,000
Thereafter 150,909,000
------------
$229,855,000
</TABLE>
Escalations (contingent rentals) included in rental income were
$1,321,308, $1,551,127 and $1,431,149 for the years ended December 31,
1996, 1995 and 1994, respectively.
(Continued)
-12-
<PAGE> 65
1740 BROADWAY ASSOCIATES, L.P.
NOTES TO FINANCIAL STATEMENTS
9 - LEASE ARRANGEMENTS (Continued)
Approximately 41% of base rental income for the year ended December
31, 1995 was derived from an insurance company under several leases
expiring between February 28, 1998 and December 31, 2002. Another tenant's
annual base rent, under a lease expiring December 31, 1997, was
approximately 12% of base rental income for 1995. A third tenant's annual
base rent, under a lease expiring December 14, 2007, represented
approximately 11% of base rental income.
Approximately 39% of base rental income for the year ended December
31, 1996 was derived from the insurance company under several leases
expiring between February 28, 1998 and May 31, 2016. The second tenant
mentioned above terminated its lease effective August 1, 1996, as described
in Note 6(a). The third tenant accounted for approximately 13% of base
rental income for 1996. All of these leases provide for additional rents
based on increases in certain expenses over base period amounts.
10 - TENANTS' SECURITY DEPOSITS
In addition to cash deposits, the Partnership is holding letters of
credit of $705,494 at December 31, 1996 and 1995 as tenants' security
deposits pursuant to lease agreements.
11 - COMMITMENTS
The Partnership has agreed to reimburse a tenant up to a maximum of
approximately $2,900,000 for Initial Tenant Changes, as defined. At
December 31, 1996 and 1995, the Partnership has paid approximately
$1,650,000 for such changes.
The Partnership has agreed to reimburse a second tenant approximately
$5,050,000 for alterations on various areas. At December 31, 1996, only
nominal costs have been incurred.
-13-
<PAGE> 66
ANNEX D
866 U.N. PLAZA ASSOCIATES LLC
(A LIMITED LIABILITY COMPANY)
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
AND
INDEPENDENT AUDITORS' REPORT
<PAGE> 67
866 U.N. PLAZA ASSOCIATES LLC
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
TABLE OF CONTENTS
Independent Auditors' Report 1
Financial Statements
Balance Sheet at December 31, 1996 and 1995 2
Statement of Income 3
Statement of Cash Flows 4
Statement of Changes in Members' Equity Deficiency 5
Notes to Financial Statements 6-14
<PAGE> 68
[LETTERHEAD] 1700 BROADWAY
FRIEDMAN NEW YORK, NY 10019
ALPREN & 212-582-1600
GREEN LLP FAX 212-265-4761
CERTIFIED PUBLIC ACCOUNTANTS
INDEPENDENT AUDITORS' REPORT
TO THE MEMBERS OF 866 U.N. PLAZA ASSOCIATES LLC
We have audited the accompanying balance sheet of 866 U.N. PLAZA
ASSOCIATES LLC (a limited liability company) as of December 31, 1996 and 1995,
and the related statements of income, cash flows and changes in members' equity
deficiency for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the Company'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 866 U.N. PLAZA ASSOCIATES
LLC as of December 31, 1996 and 1995, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
/S/ Friedman Alpren & Green LLP
January 15, 1997, except for
Note 2, as to which the date
is March 12,1997
-1-
<PAGE> 69
866 U.N. PLAZA ASSOCIATES LLC
BALANCE SHEET
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
- ------
Property and improvements - at cost, less accumulated
depreciation and amortization - 1996 - $16,028,152;
1995 - $14,958,830 - Note 4 $ 13,420,975 $ 13,893,568
Cash and short-term investments 4,132,259 3,164,525
Investment in U.S. Treasury obligations and marketable
security - Note 3 9,675,238 8,327,190
Receivables - Note 5 3,761,165 5,087,724
Prepaid leasing costs 1,606,397 1,851,500
Other prepayments 69,492 63,890
Unamortized mortgage costs 221,309 264,757
Tenants' security deposits - Note 9 444,401 343,124
------------ ------------
$ 33,331,236 $ 32,996,278
============ ============
LIABILITIES AND MEMBERS' EQUITY DEFICIENCY
Liabilities
Mortgages payable - Note 6 $ 49,779,004 $ 49,729,004
Accrued mortgage interest payable 178,709 240,736
Accounts payable and accrued expenses 269,263 306,810
Improvements payable 52,887 36,083
Tenants' security deposits payable 444,401 343,124
------------ ------------
50,724,264 50,655,757
Commitment - Note 10 -- --
Members' equity deficiency (17,393,028) (17,659,479)
------------ ------------
$ 33,331,236 $ 32,996,278
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-2-
<PAGE> 70
866 U.N. PLAZA ASSOCIATES LLC
STATEMENT OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Revenues
Rental income $ 12,257,747 $ 12,234,046 $ 12,371,657
Lease cancellation income 13,915 138,230 19,878
Interest and dividends 607,161 645,681 545,947
Loss on sale of marketable securities, net -- -- (49,700)
------------ ------------ ------------
12,878,823 13,017,957 12,887,782
------------ ------------ ------------
Expenses
Renting 21,463 23,660 17,442
Administrative 473,974 506,360 496,608
Operating 3,458,780 3,292,711 3,281,969
Real estate taxes 2,710,171 2,896,483 3,059,875
------------ ------------ ------------
6,664,388 6,719,214 6,855,894
------------ ------------ ------------
Income before interest expense and
depreciation and amortization 6,214,435 6,298,743 6,031,888
Interest expense 3,782,762 4,264,946 4,280,929
------------ ------------ ------------
Income before depreciation and
amortization 2,431,673 2,033,797 1,750,959
Depreciation and amortization 1,593,933 1,620,500 1,580,989
------------ ------------ ------------
Net income $ 837,740 $ 413,297 $ 169,970
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE> 71
866 U.N. PLAZA ASSOCIATES LLC
STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 837,740 $ 413,297 $ 169,970
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization of fixed assets 1,069,322 1,083,537 1,079,105
Amortization of leasing and mortgage costs 524,613 536,963 501,884
Loss on sale of marketable securities -- -- 49,700
Changes in assets and liabilities
Accrued interest receivable ( 14,896) 9,807 ( 71,984)
Receivables 416,059 328,460 ( 439,653)
Prepaid leasing costs ( 155,290) ( 250,145) ( 107,116)
Other prepayments ( 18,092) ( 29,856) ( 12,084)
Accrued mortgage interest payable ( 62,027) 81,341 ( 91,385)
Accounts payable and accrued expenses ( 37,547) 77,451 ( 11,605)
Leasing costs payable -- ( 11,504) ( 156,288)
Tenants' security deposits ( 101,277) ( 12,551) ( 7,213)
Tenants' security deposits payable 101,277 12,551 7,213
----------- ----------- -----------
Net cash provided by operating activities 2,559,882 2,239,351 910,544
----------- ----------- -----------
Cash flows from investing activities
Acquisition of property and improvements ( 763,396) (1,135,328) (1,350,403)
Con Edison rebate - improvements 166,667 -- --
Receivable from cooperative apartment
corporations - improvements 910,500 ( 910,500) --
Escrow deposits - tenant improvements 16,804 368,154 818,240
Purchase of U.S. Treasury obligations (8,008,823) (6,734,506) (9,159,490)
Sale and redemption of U.S. Treasury obligations 6,576,416 7,248,382 6,764,960
Purchase of marketable debt security ( 32,032) ( 317,017) --
Sale of marketable securities -- -- 2,586,618
----------- ----------- -----------
Net cash used in investing activities (1,133,864) (1,480,815) ( 340,075)
----------- ----------- -----------
Cash flows from financing activities
Mortgage principal payments - Equitable -- ( 62,305) ( 65,926)
Mortgage payable - Sumitomo 50,000 -- --
Mortgage costs ( 68,282) -- (3,964)
Distributions to members ( 440,002) ( 440,002) ( 330,000)
----------- ----------- -----------
Net cash used in financing activities (458,284) ( 502,307) ( 399,890)
----------- ----------- -----------
Net increase in cash and short-term investments 967,734 256,229 170,579
Cash and short-term investments, beginning of year 3,164,525 2,908,296 2,737,717
----------- ----------- -----------
Cash and short-term investments, end of year $ 4,132,259 $ 3,164,525 $ 2,908,296
=========== =========== ===========
Supplemental cash flow disclosures
Interest paid $ 3,844,789 $ 4,183,605 $ 4,372,314
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE> 72
866 U.N. PLAZA ASSOCIATES LLC
STATEMENT OF CHANGES IN MEMBERS' EQUITY DEFICIENCY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
The Mendik Ambassador
Company, Lawrence E. Menby Construction Madlyn
Total L.P. Goldschmidt Associates Co., Inc. Braverman
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 $(17,658,190) $( 6,586,773) $( 1,162,382) $( 7,206,844) $( 540,026) $( 486,542)
Net income 169,970 72,237 12,748 61,810 4,632 4,173
Distributions ( 330,000) ( 140,250) ( 24,750) ( 120,003) ( 8,993) ( 8,102)
Unrealized loss on U.S. Treasury
obligations ( 275,318) ( 117,010) ( 20,649) ( 100,120) ( 7,503) ( 6,759)
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1994 (18,093,538) ( 6,771,796) ( 1,195,033) ( 7,365,157) ( 551,890) ( 497,230)
Net income 413,297 175,650 30,998 150,297 11,264 10,147
Distributions ( 440,002) ( 187,001) ( 33,000) ( 160,006) ( 11,990) ( 10,802)
Reversal of prior year unrealized
loss on U.S. Treasury obligations 275,318 117,010 20,649 100,120 7,503 6,759
Unrealized gain on U.S. Treasury
obligations 185,446 78,814 13,909 67,438 5,054 4,553
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1995 (17,659,479) ( 6,587,323) ( 1,162,477) ( 7,207,308) ( 540,059) ( 486,573)
Net income 837,740 356,040 62,831 304,602 22,870 20,525
Distributions ( 440,002) ( 187,001) ( 33,000) ( 160,006) ( 11,990) (10,802)
Reversal of prior year unrealized
gain on U.S. Treasury obligations ( 185,446) ( 78,814) ( 13,909) ( 67,438) ( 5,054) ( 4,553)
Unrealized gain on U.S. Treasury
obligations 54,159 23,017 4,062 19,693 1,478 1,327
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1996 $(17,393,028) $( 6,474,081) $( 1,142,493) $( 7,110,457) $( 532,755) $( 480,076)
============ ============ ============ ============ ============ ============
<CAPTION>
Leonard A. Ronald S. Jesse Bernard H. Vicki A.
Lauder Lauder Fierstein Mendik Albert
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993 $( 180,360) $( 180,360) $( 486,542) $( 774,878) $( 53,483)
Net income 1,546 1,546 4,173 6,646 459
Distributions ( 3,003) ( 3,003) ( 8,102) ( 12,903) ( 891)
Unrealized loss on U.S. Treasury
obligations ( 2,505) ( 2,505) ( 6,759) ( 10,765) ( 743)
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1994 ( 184,322) ( 184,322) ( 497,230) ( 791,900) ( 54,658)
Net income 3,760 3,760 10,147 16,160 1,114
Distributions ( 4,004) ( 4,004) ( 10,802) ( 17,205) ( 1,188)
Reversal of prior year unrealized
loss on U.S. Treasury obligations 2,505 2,505 6,759 10,765 743
Unrealized gain on U.S. Treasury
obligations 1,687 1,687 4,553 7,251 500
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1995 ( 180,374) ( 180,374) ( 486,573) ( 774,929) ( 53,489)
Net income 7,623 7,623 20,608 32,756 2,262
Distributions ( 4,004) ( 4,004) ( 10,802) ( 17,205) ( 1,188)
Reversal of prior year unrealized
gain on U.S. Treasury obligations ( 1,687) ( 1,687) ( 4,553) ( 7,251) ( 500)
Unrealized gain on U.S. Treasury
obligations 493 493 1,332 2,118 146
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1996 $( 177,949) $( 177,949) $( 479,988) $( 764,511) $( 52,769)
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE> 73
866 U.N. PLAZA ASSOCIATES LLC
NOTES TO FINANCIAL STATEMENTS
1 - ORGANIZATION
In 1978, 866 U.N. Plaza Associates (a general partnership) was
organized and acquired the commercial property located at 866 United
Nations Plaza, New York, New York. Most of the space in the building is
generally leased to missions to the United Nations.
Effective September 8, 1995, the Partnership converted to a limited
liability company. Ownership percentages were unchanged by the conversion,
and the Partnership's income tax basis for assets and liabilities carried
over to the limited liability company. Amounts previously designated as
partners' capital deficiency have been reclassified to members' equity
deficiency for comparative purposes.
2 - TRANSFER OF OWNERSHIP
Pursuant to a solicitation contained in a private placement memorandum
dated November 11, 1996, the Company obtained the consent of its members to
participate in an offering of shares of common stock in accordance with a
preliminary registration statement filed with the Securities and Exchange
Commission on December 18, 1996. On March 12, 1997, the Company entered
into an agreement with Vornado Realty Trust, a publicly traded real estate
investment trust ("REIT"). The members will be resolicited to obtain their
consents to participate in this transaction, under terms and conditions
similar to those stated in the private placement memorandum dated November
11, 1996. The REIT is a fully integrated, self-administered and
self-managed real estate company which has qualified as a real estate
investment trust for Federal income tax purposes. Upon completion of the
transaction, it is anticipated that the Company will be owned by a company
controlled by the REIT.
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Use of Estimates
Management uses estimates and assumptions in preparing financial
statements. Those estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and
liabilities, and the reported revenues and expenses.
(Continued)
-6-
<PAGE> 74
866 U.N. PLAZA ASSOCIATES LLC
NOTES TO FINANCIAL STATEMENTS
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(b) Rental Income
Leases are classified as operating leases in accordance with the
provisions of Financial Accounting Standards Board (FASB) Statement No. 13.
One of these provisions requires the recognition of scheduled rent
increases and deferred rent concessions on a straight-line basis over the
lease term. Included in rental income for the years ended December 31,
1996, 1995 and 1994 is $(343,598), $47,159 and $292,589, respectively,
representing the accrual (reduction) required by this provision (see Note
5).
(c) Depreciation and Amortization
Property and improvements are stated at cost. Depreciation and
amortization is computed over estimated useful asset lives or periods,
primarily on the straight-line basis.
Details are as follows:
Asset Asset Lives or Periods
----------------------- ----------------------
Building Lives of the building's components, ranging
from 3 to 30 years
Building improvements 15 to 39 years
Furniture and equipment 5 to 7 years
Tenant improvements Term of related lease
Leasing costs Term of related lease
Mortgage costs Term of mortgage
(Continued)
-7-
<PAGE> 75
866 U.N. PLAZA ASSOCIATES LLC
NOTES TO FINANCIAL STATEMENTS
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(d) Investment in U.S. Treasury Obligations and Marketable Security
U.S. Treasury obligations and the marketable security are classified
as available-for-sale in accordance with the provisions of Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities", and are carried at fair value. The net
unrealized gain (loss) at December 31, 1996, 1995 and 1994 (presented as a
component of members' equity deficiency) was $54,159, $185,446 and
$(275,318), respectively. Contractual maturities (including accrued
interest) of the U.S. Treasury obligations at December 31, 1996 and 1995
are as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Within 1 year $1,822,539 $1,233,539
1 to 4 years 7,491,226 6,776,634
---------- ----------
$9,313,765 $8,010,173
========== ==========
</TABLE>
Accrued interest included in the investment in U.S. Treasury
obligations is $125,512 and $106,407 at December 31, 1996 and 1995,
respectively.
The fair value of the marketable security, an investment in a mutual
fund, was $361,473 and $317,017 at December 31, 1996 and 1995,
respectively.
(e) Fair Value of Financial Instruments
Effective for years ended after December 15, 1995, Statement of
Financial Accounting Standards No. 107, "Disclosures about Fair Value of
Financial Instruments", as amended, requires certain entities to disclose
the fair value of specified financial instruments for which it is
practicable to estimate that value. The fair value of the U.S. Treasury
Bill and U.S. government discount notes included in short-term investments
approximates carrying value. The fair values of the investment in U.S.
Treasury obligations and the investment in the marketable security are
presented in Note 3(d). It was not practicable to estimate the fair value
of the mortgages payable at December 31, 1996 and 1995 because quoted
market prices do not exist and estimates could not be made through other
means without incurring excessive costs.
(Continued)
-8-
<PAGE> 76
866 U.N. PLAZA ASSOCIATES LLC
NOTES TO FINANCIAL STATEMENTS
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(f) Income Taxes
The Company is not a taxpaying entity for income tax purposes and,
accordingly, no provision has been made for income taxes. The members'
allocable shares of the Company 's taxable income or loss are reportable on
their income tax returns.
(g) Cash and Short-Term Investments
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be short-term investments.
Cash balances of approximately $3,827,000 and $1,958,000 at December
31, 1996 and 1995, respectively, are maintained in one bank and are insured
by the Federal Deposit Insurance Corporation up to a maximum of $100,000.
Short-term investments at December 31, 1995 include a U.S. Treasury Bill
with a cost of approximately $1,035,000.
4 - PROPERTY AND IMPROVEMENTS
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Land $ 4,279,686 $ 4,279,686
Building 12,210,181 12,210,181
Building improvements 3,120,210 3,105,450
Tenant improvements 8,530,973 7,968,075
Furniture and equipment 443,832 443,832
Improvements in progress 864,245 845,174
----------- -----------
29,449,127 28,852,398
Less - Accumulated depreciation
and amortization 16,028,152 14,958,830
----------- -----------
$13,420,975 $13,893,568
=========== ===========
</TABLE>
(Continued)
-9-
<PAGE> 77
866 U.N. PLAZA ASSOCIATES LLC
NOTES TO FINANCIAL STATEMENTS
5 - RECEIVABLES
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Receivable from tenants
Billed and not collected $ 88,399 $ 155,615
Escalation accruals 82,368 10,627
Accruals required by FASB
Statement No. 13 - Note 3(b) 3,459,423 3,803,021
Cooperative apartment corporations
860 West Tower, Inc. 80,768 512,609
870 East Tower, Inc. 50,207 480,084
Due from maintenance services
company - Note 7(b) -- 125,768
---------- ----------
$3,761,165 $5,087,724
========== ==========
</TABLE>
6 - MORTGAGES PAYABLE
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Sumitomo Trust and Banking Co., Ltd. (a) $49,779,004 $40,000,000
The Equitable Life Assurance
Society of the United States (b) -- 9,729,004
----------- -----------
$49,779,004 $49,729,004
=========== ===========
</TABLE>
(a) A credit facility of up to $50,000,000 exists with Sumitomo. The
facility is to be used as follows: (i) for working capital, tenant
improvements, leasing commissions and other purposes as determined by
the Company, (ii) to pay mortgage recording fees and taxes on
additional mortgages under this facility.
The mortgage constitutes a first mortgage lien on the land and a
second mortgage lien on the building and improvements and matures on
December 14, 1998, unless extended by the borrower to December 14,
2000. On January 2, 1996, in conjunction with the final advance under
the credit facility to purchase the Equitable mortgage, the existing
mortgages were consolidated to form a single first mortgage on the
property.
(Continued)
-10-
<PAGE> 78
866 U.N. PLAZA ASSOCIATES LLC
NOTES TO FINANCIAL STATEMENTS
6 - MORTGAGES PAYABLE (Continued)
Interest is payable monthly at either the LIBOR rate or a fixed rate
option. The fixed rate option has been chosen as indicated until December
14, 1998: $15,000,000 at 6.72%, $15,000,000 at 9.45%, $2,000,000 at 9.87%,
$1,000,000 at 9.25%, $7,000,000 at 6.75% and $9,779,004 at 6.10%.
(b) The first mortgage lien on the building and improvements, dated December
19, 1985, matured on January 1, 1996 and required monthly payments of
$96,180, including interest at 11-1/8%. On January 2, 1996, the mortgage
was purchased by Sumitomo Trust and Banking Co., Ltd.
7 - RELATED PARTY TRANSACTIONS
(a) Management and Leasing Services
Management and leasing services are provided to the Company by Mendik
Realty Company, Inc., which is a general partner of The Mendik Company,
L.P., a member of the Company. The annual management fee is 2-1/2% of gross
collections. Leasing commissions are calculated according to industry
guidelines.
A summary of the compensation for these services for the years ended
December 31, 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Management fees $329,099 $278,520 $334,073
Leasing costs 102,285 134,490 73,732
-------- -------- --------
$431,384 $413,010 $407,805
======== ======== ========
</TABLE>
(b) Maintenance Services
Maintenance services for the property are provided at cost plus an
allocable share of overhead expenses by a company controlled by a general
partner of The Mendik Company, L.P. Services of building engineers are
provided at cost. Profits earned from direct tenant services are shared
with the Company.
(Continued)
-11-
<PAGE> 79
866 U.N. PLAZA ASSOCIATES LLC
NOTES TO FINANCIAL STATEMENTS
7 - RELATED PARTY TRANSACTIONS (Continued)
(b) Maintenance Services (Continued)
For the years ended December 31, 1996, 1995 and 1994, cleaning and
related services were $1,242,097, $1,104,670 and $1,115,881, engineering
and preventive maintenance services were $963,120, $1,029,500 and $889,136,
and the Company's share of profits from tenant services was $26,801,
$29,629 and $44,174, respectively. The amount payable to the maintenance
services company at December 31, 1996 was $5,467. The amount receivable
from the maintenance services company at December 31, 1995 was $125,768.
(c) Security Services
Security services for the property are provided at cost plus an
allocable share of overhead expenses by a company whose stockholder is a
general partner of The Mendik Company, L.P. Profits earned from direct
tenant services are shared with the Company. Security services for the
years ended December 31, 1996, 1995 and 1994 were $339,494, $332,503 and
$323,776, respectively.
(d) Construction Services
Ambassador Construction Co., Inc., a member of the Company, provides
construction and related services for the property. Costs for the years
ended December 31, 1996, 1995 and 1994 were $162,748, $385,242 and
$1,033,380, respectively.
8 - LEASE ARRANGEMENTS
Space in the building is rented to a large number of tenants under various
lease agreements. These leases, which are classified as operating leases,
include renewal options and provisions for additional rent based on increases in
real estate taxes, operating expenses or porter wage rates, utilities and the
Consumer Price Index over base period amounts.
(Continued)
-12-
<PAGE> 80
866 U.N. PLAZA ASSOCIATES LLC
NOTES TO FINANCIAL STATEMENTS
8 - LEASE ARRANGEMENTS (Continued)
Approximate minimum future rentals required under operating leases at
December 31, 1996, excluding rentals that are cancelable at the tenant's
option, are summarized as follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
1997 $ 9,849,000
1998 7,430,000
1999 6,601,000
2000 5,765,000
2001 5,275,000
Thereafter 17,061,000
----------
$51,981,000
===========
</TABLE>
Escalations (contingent rentals) included in rental income were $773,995,
$808,437 and $1,030,647 for the years ended December 31, 1996, 1995 and 1994,
respectively.
Approximately 21% of base rental income is derived from a tenant whose
lease expires October 30, 1997 and whose base rent is approximately $2,200,000.
Another tenant's lease, which provides for an annual base rent of approximately
$1,092,000 (approximately 10% of base rental income), expires March 31, 2006.
9 - TENANTS' SECURITY DEPOSITS
In addition to cash deposits, the Company is holding letters of credit of
$109,840 at December 31, 1996 and 1995, pursuant to lease agreements.
(Continued)
-13-
<PAGE> 81
866 U.N. PLAZA ASSOCIATES LLC
NOTES TO FINANCIAL STATEMENTS
10 - COMMITMENT
The Company is in the process of installing new state-of-the-art air
conditioning equipment in the property. The total cost of the project will
be approximately $3,600,000, of which approximately $500,000 will be funded
by a Con Edison rebate program. In addition, the cooperative apartment
corporations will fund approximately $2,070,000, representing two-thirds of
the balance. The net cost of the project to the Company will be
approximately $1,030,000.
At December 31, 1996, approximately $3,073,000 of the total cost of
the project has been incurred, of which $1,725,000 has been billed to the
cooperative apartment corporations. At December 31, 1995, approximately
$1,400,000 had been incurred, of which $910,000 had been billed to the
cooperative apartment corporations.
-14-
<PAGE> 82
Annex E
Two Park Company
(A New York General Partnership)
Financial Statements
December 31, 1996 and 1995
<PAGE> 83
[KPMG PEAT MARWICK LLP LETTERHEAD]
Independent Auditors' Report
The Partners
Two Park Company:
We have audited the accompanying balance sheets of Two Park Company (a New
York general partnership) as of December 31, 1996 and 1995, and the related
statements of operations, changes in partners' capital and cash flows for each
of the years in the three-year period ended December 31, 1996. 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 Two Park Company as of
December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1996,
in conformity with generally accepted accounting principles.
/s/ KPMG Pear Marwick LLP
March 14, 1997
<PAGE> 84
TWO PARK COMPANY
<TABLE>
<CAPTION>
================================================================================================
BALANCE SHEETS AT DECEMBER 31, AT DECEMBER 31,
1996 1995
- ------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Property and improvements (Note 4) $ 99,905,783 $153,245,733
Cash and cash equivalents 3,685,644 2,993,717
Restricted cash 450,398 594,200
U.S. Treasuries and Agencies, net of unamortized premium
of $1,604 in 1996 and $20,373 in 1995 2,121,910 2,458,794
Rent and other receivables
net of allowance for doubtful accounts of
$118,611 in 1996 and $65,009 in 1995 411,588 505,539
Deferred rent receivable 9,907,586 7,831,616
Leasing costs, less accumulated amortization of
$4,521,623 in 1996 and $3,662,905 in 1995 6,701,968 7,561,649
Mortgage costs, less accumulated amortization of
$1,563,160 in 1996 and $1,587,661 in 1995 325,509 576,103
Other assets 285,128 307,444
- ------------------------------------------------------------------------------------------------
TOTAL ASSETS $123,795,514 $176,074,795
================================================================================================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgages payable (Note 6) $ 65,000,000 $ 65,000,000
Accrued interest payable 553,263 553,263
Accounts payable and accrued expenses 358,088 398,477
Due to affiliates (Note 7) 706,714 847,058
Security deposits payable 450,398 594,200
Improvements payable 31,007 227,289
Deferred rental income 6,515,337 7,355,711
-------------------------------
Total Liabilities 73,614,807 74,975,998
Partners' Capital 50,180,707 101,098,797
- ------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $123,795,514 $176,074,795
================================================================================================
</TABLE>
<TABLE>
<CAPTION>
===========================================================================================
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
M/H
TWO PARK B & B PARK
TOTAL ASSOCIATES AVENUE LP
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993 $ 107,149,063 $ 64,285,838 $ 42,863,225
Net loss (3,344,017) (2,006,410) (1,337,607)
- -------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1994 $ 103,805,046 $ 62,279,428 $ 41,525,618
Net loss (2,706,249) (1,623,749) (1,082,500)
- -------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 $ 101,098,797 $ 60,655,679 $ 40,443,118
Net loss (50,918,090) (30,550,854) (20,367,236)
- -------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 $ 50,180,707 $ 30,104,825 $ 20,075,882
===========================================================================================
</TABLE>
See accompanying notes to the financial statements.
Page 2
<PAGE> 85
TWO PARK COMPANY
<TABLE>
<CAPTION>
===================================================================================================================
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME
Rental $ 23,143,570 $ 21,387,332 $ 19,813,810
Tenant expense reimbursements 2,106,736 2,369,564 2,857,458
Interest 207,478 138,906 219,612
------------------------------------------------------
Total income 25,457,784 23,895,802 22,890,880
- -------------------------------------------------------------------------------------------------------------------
EXPENSES
Operating 6,736,363 6,879,327 6,629,875
Depreciation and amortization 8,194,646 7,548,566 7,026,980
Real estate taxes 3,949,017 3,905,082 4,161,549
Interest expense 6,532,083 7,533,674 7,619,110
Administrative 779,205 703,006 772,086
Renting 36,004 32,396 25,297
Provision for write-down of property and improvements 50,148,556 -- --
------------------------------------------------------
Total expenses 76,375,874 26,602,051 26,234,897
- -------------------------------------------------------------------------------------------------------------------
NET LOSS $(50,918,090) $ (2,706,249) $ (3,344,017)
===================================================================================================================
</TABLE>
See accompanying notes to the financial statements.
Page 3
<PAGE> 86
TWO PARK COMPANY
<TABLE>
<CAPTION>
==========================================================================================================================
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $(50,918,090) $ (2,706,249) $(3,344,017)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Provision for write-down of property and improvements 50,148,556 -- --
Depreciation and amortization 8,194,646 7,548,565 7,026,980
Net premium (discount) amortization - U.S. Treasuries
and agencies (25,350) 50,092 (32,175)
Provision for losses on rents and receivables -- -- 384,916
Increase (decrease) in cash arising from changes
in operating assets and liabilities:
Restricted cash 143,802 (19,910) (31,857)
Rent and other receivables 93,951 13,885 (388,444)
Deferred rent receivable (2,075,970) 5,113,158 (234,949)
Leasing costs (112,770) (2,663,345) (1,123,135)
Other assets 22,316 (233,431) 170,569
Accrued interest payable -- (91,494) 27,617
Accounts payable and accrued expenses (40,389) (174,707) 203,374
Due to affiliates (140,344) 411,377 345,526
Security deposits payable (143,802) 19,910 31,857
Deferred income (840,374) 7,281,441 (158,457)
-----------------------------------------------------
Net cash provided by operating activities 4,306,182 14,549,292 2,877,805
- --------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and improvements (3,976,489) (5,651,860) (4,147,411)
Acquisition of U.S. Treasuries and Agencies (3,021,038) (3,574,183) (4,659,415)
Redemption of U.S. Treasuries and Agencies 3,383,272 4,074,449 4,565,357
-----------------------------------------------------
Net cash used for investing activities (3,614,255) (5,151,594) (4,241,469)
- --------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgages payable -- (10,000,000) --
-----------------------------------------------------
Net cash used for financing activities -- (10,000,000) --
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 691,927 (602,302) (1,363,664)
Cash and cash equivalents, beginning of period 2,993,717 3,596,019 4,959,683
-----------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,685,644 $ 2,993,717 $ 3,596,019
==========================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest $ 6,532,083 $ 7,625,168 $ 7,591,493
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the financial statements.
Page 4
<PAGE> 87
TWO PARK COMPANY
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
1. ORGANIZATION
Two Park Company, a New York general partnership (the "Partnership"), was
organized on December 18, 1986 for the purpose of acquiring, maintaining and
operating the property located at Two Park Avenue, New York, New York (the
"Property"). The Property is a 28-story office building that contains
approximately 948,000 net rentable square feet. The building includes two lower
levels consisting of a subway concourse, a small tenant garage containing
approximately 43 spaces, rentable storage areas and mechanical facilities. The
Property was acquired on December 22, 1986.
2. THE PARTNERSHIP AGREEMENT
CAPITAL CONTRIBUTIONS Capital contributions have been funded 60% by M/H Two Park
Associates and 40% by B&B Park Avenue L.P. Additional capital contributions as
required will be funded in the same ratio.
DISTRIBUTIONS Cash flow, as defined in the Partnership Agreement, is to be
distributed within 10 days after each fiscal quarter in the same ratio as the
capital contributions.
ALLOCATION OF NET INCOME AND NET LOSS Net income and net loss are to be
allocated in accordance with the "Distribution Percentages" as long as capital
account balances are positive. Otherwise net loss is allocated as follows;
first, to the extent of positive capital account balances in accordance with the
distribution percentages, then to the partner, if any, whose account balance is
positive until such capital account is reduced to zero and then in accordance
with the distribution percentages.
ALLOCATION OF GAINS AND LOSSES FROM CAPITAL TRANSACTIONS These items are to be
allocated first to increase or decrease the capital accounts to zero and then in
accordance with the distribution percentages.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
RENTAL INCOME AND DEFERRED RENT The Partnership rents its property to tenants
under operating leases with various terms. Deferred rent receivable and deferred
rental income consist of rental income which is recognized on the straight-line
basis over the lease terms in accordance with the provisions of Statement of
Financial Accounting Standards No. 13 "Accounting for Leases".
REAL ESTATE Property and improvements are stated at cost less accumulated
depreciation and amortization and less any write-down for impairment in carrying
value. Depreciation and amortization charges are computed using the
straight-line method over the following estimated useful asset lives:
<TABLE>
<CAPTION>
Asset Useful Asset Life
----- -----------------
<S> <C>
Building 35 years
Building improvements 31-1/2 years
Tenant improvements Term of related lease
Furniture, fixtures and equipment 5-7 years
</TABLE>
ACCOUNTING FOR IMPAIRMENT In March 1995, the Financial Accounting Standards
Board issued 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"), which requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amounts. FAS 121 also addresses the accounting for long
lived assets that are expected to be disposed of. The Partnership adopted FAS
121 in the fourth quarter of 1995.
Page 5
<PAGE> 88
TWO PARK COMPANY
FAIR VALUE OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards
No. 107, "Disclosures about Fair Value of Financial Instruments" ("FAS 107"),
requires 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 a forced liquidation.
Fair value estimates are subjective and are dependent on a number of significant
assumptions based on management's judgement 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.
LEASING COSTS Leasing costs are capitalized and amortized over the terms of the
respective leases.
MORTGAGE COSTS Mortgage costs are capitalized and amortized over the terms of
the mortgages payable.
INCOME TAXES The Partnership allocates all profits, losses and other taxable
items to the partners. No provision for income taxes is made in the financial
statements as the liabilities for such taxes are those of the partners rather
than the Partnership.
RESTRICTED CASH Restricted cash consists of tenant security deposits.
CASH EQUIVALENTS Cash equivalents consist of short-term, highly liquid
investments which have maturities of three months or less from the date of
issuance. The carrying value approximates the fair value of these assets because
of the short maturity of these instruments.
MARKETABLE SECURITIES Marketable securities, which consist of United States
Treasury securities and Agencies, are carried at amortized cost, which
approximates market.
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 amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Management's review of recoverability of the carrying amount
of the Property and related accounts is one such estimate. Actual results could
differ from those estimates.
4. PROPERTY AND IMPROVEMENTS
A summary of property and improvements follows:
<TABLE>
<CAPTION>
1996 1995
-----------------------------------
<S> <C> <C>
Land $ 17,389,411 $ 26,118,173
Building and improvements 69,188,976 142,995,340
Tenant improvements 13,244,146 30,436,260
Furniture, fixtures & equipment 83,250 1,478,302
-----------------------------------
99,905,783 201,028,075
Less - Accumulated depreciation
and amortization -- (47,782,342)
-----------------------------------
Property and improvements $ 99,905,783 $ 153,245,733
Leasing costs 6,701,968 7,561,649
Deferred rent receivable 9,907,586 7,831,616
Deferred rental income (6,515,337) (7,355,711)
-----------------------------------
$ 110,000,000 $ 161,283,287
-----------------------------------
</TABLE>
Page 6
<PAGE> 89
TWO PARK COMPANY
At December 31, 1996 and 1995, the Partnership completed reviews of
recoverability of the carrying amount of the Property and related accounts based
upon estimated undiscounted cash flows expected to result from the Property's
use and eventual disposition. As of December 31, 1995, it was management's
intention to hold the Property for long-term investment and, therefore
management concluded that the sum of the undiscounted future cash flows
estimated to be generated by the Property over the investment's estimated
holding period was greater than its carrying value.
Based upon continued improvements in the Midtown Manhattan commercial real
estate market in 1996, management reassessed their investment strategy.
Currently, management anticipates positioning the Property for sale over the
next 12 to 24 months and, as a result, the sum of the undiscounted future cash
flow estimated to be generated by the Property over this shorter holding period
is less than its carrying value. Based on the guidance of FAS 121, the
Partnership recorded a provision of $50,148,556 to reduce the Property's
carrying value to its estimated fair value of $110,000,000 at December 31, 1996.
The fair value was obtained from an appraisal report prepared by an independent
appraiser.
5. TENANTS' SECURITY
Additional security pledged in the form of letters of credit and U.S. Treasury
Notes of approximately $1,605,980 have been established by various tenants as
security for payments due under their leases.
6. MORTGAGES PAYABLE
A summary of mortgages payable to a lender follows:
<TABLE>
<CAPTION>
1996 1995
----------------------------------
<S> <C> <C>
9.75% mortgage note $60,000,000 $60,000,000
11.50% mortgage note 5,000,000 5,000,000
----------------------------------
$65,000,000 $65,000,000
----------------------------------
</TABLE>
The $60,000,000 first mortgage is for a term of twelve years and accrues
interest at the rate of 9.75% per annum. Interest only is payable in monthly
installments until the maturity date (December 19, 1998) at which time the full
amount of principal and any accrued interest shall be due and payable. On June
15, 1989, the Partnership placed a second mortgage on the Property in the amount
of $10,000,000. Interest only was payable in monthly installments at a rate of
10.791% through June 15, 1992 and thereafter at the rate of 10.625% through
December 19, 1998 at which time the full amount of principal and any accrued
interest would have been due and payable. In November 1995, the Partnership
prepaid, without penalty, the $10,000,000 second mortgage from proceeds received
from a tenant under a lease extension agreement. On December 26, 1990, the
Partnership placed a third mortgage on the Property in the amount of $5,000,000.
Interest only is payable in monthly installments at a rate of 11.5% through its
maturity date (December 19, 1998) at which time the full amount of principal and
any accrued interest shall be due and payable.
The lender has the right to accelerate the maturity date of the mortgages to a
date not earlier than December 31, 1996, upon at least 180 days prior notice
(June 19, 1996). Effective January 1, 1995, the loans are payable to Portfolio U
Holdings Corporation, a sole stockholder of a general partner and a limited
partner in B & B Park Avenue L.P.
Based on the maturity date and call feature of the mortgage notes, the fair
value of the mortgages payable approximates their carrying value.
7. RELATED PARTY TRANSACTIONS
MANAGEMENT SERVICES Management services are provided by Mendik Realty Company,
Inc. ("MRC"), an affiliate of a general partner of each of the partners in the
Partnership. The annual management fee is 2% of gross operating revenues, as
defined. Management fees for the years ended December 31, 1996, 1995 and 1994
were $494,916, $444,572 and $448,433, respectively.
Page 7
<PAGE> 90
TWO PARK COMPANY
LEASING SERVICES Leasing services are provided to the Partnership by MRC and
other unaffiliated brokers. Leasing commissions are calculated in accordance
with the management agreement and are generally consistent with industry
guidelines; however, a 25% override is payable to MRC when an unaffiliated
broker is used. If the cost of all leasing services exceeds 3% of gross
operating revenue, as defined, the fees otherwise payable to MRC will be
deferred and payable only if such 3% limit is not exceeded in any subsequent
year. No leasing commissions were paid during the years ended December 31, 1996,
1995 and 1994. The deferred liabilities to MRC as of December 31, 1996 and 1995
were approximately $706,714 and $610,877, respectively.
MAINTENANCE SERVICES Building Maintenance Service LLC, ("BMS"), an affiliate of
a general partner of each of the partners of the Partnership, provides cleaning
and related services and metal and marble cleaning services to the Partnership.
These services, provided by BMS at its cost (plus an allocable share of overhead
expenses), totalled $2,477,553, $2,620,086 and $2,304,719 for the years ended
December 31, 1996, 1995 and 1994, respectively. In addition, BMS provides
engineering services to the Partnership. The salaries and benefits of the
Property's engineering staff totalled $451,654, $494,647 and $464,818 for the
years ended December 31, 1996, 1995 and 1994, respectively.
SECURITY SERVICES Guard Management Service Corporation, an affiliate of a
general partner of each of the partners of the Partnership, provides security
services to the Partnership at its cost (plus an allocable share of overhead
expenses), totalling $300,951, $274,372 and $286,297 for the years ended
December 31, 1996, 1995 and 1994, respectively.
8. RENTAL INCOME UNDER OPERATING LEASES
Space in the building is rented to tenants under various lease agreements. These
leases, which are classified as operating leases, include renewal options and
provisions for additional rent based on increases in real estate taxes,
operating expenses and utilities over predetermined amounts. Future annual
minimum rental payments to be received from operating leases (which are not
cancellable by their terms) are summarized as follows:
<TABLE>
<CAPTION>
Year Ending
December 31, Amount
------------ ------
<S> <C>
1997 $ 20,552,245
1998 18,472,801
1999 16,143,353
2000 15,014,726
2001 15,902,106
Thereafter 112,024,128
------------
$198,109,359
------------
</TABLE>
The Property was 98%, 97% and 92% leased at December 31, 1996, 1995 and 1994,
respectively. As of December 31, 1996, significant tenants of the office
building are Times Mirror Company Inc. and Smith Barney. Times Mirror
Company Inc. leases approximately 287,000 square feet under various leases
scheduled to expire in 2010. Smith Barney leases approximately 100,000
square feet under a lease scheduled to expire in May 1998. The Times Mirror
Company Inc. and Smith Barney leases generated 25% and 12%, respectively, of
the Property's 1996 rental income.
9. COMMITMENTS
Pursuant to the terms of leases with various tenants, the Partnership is
obligated to pay approximately $1.8 million of the cost of alterations to be
made to the leased premises. As of December 31, 1996, approximately $1.4 million
of these costs have been incurred.
Page 8
<PAGE> 91
Annex F
B&B PARK AVENUE L.P.
(A LIMITED PARTNERSHIP)
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
AND
INDEPENDENT AUDITORS' REPORT
<PAGE> 92
B&B PARK AVENUE L.P.
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
TABLE OF CONTENTS
Independent Auditors' Report 1
Financial Statements
Balance Sheet at December 31, 1996 and 1995 2
Statement of Operations 3
Statement of Cash Flows 4
Statement of Changes in Partners' Capital 5
Notes to Financial Statements 6-9
<PAGE> 93
FRIEDMAN 1700 BROADWAY
ALPREN & NEW YORK, NY 10019
GREEN LLP 212-582-1600
CERTIFIED PUBLIC ACCOUNTANTS FAX 212-265-4761
INDEPENDENT AUDITORS' REPORT
TO THE PARTNERS OF B&B PARK AVENUE L.P.
We have audited the accompanying balance sheet of B&B PARK AVENUE L.P. (a
limited partnership) as of December 31, 1996 and 1995, and the related
statements of operations, cash flows and changes in partners' capital for each
of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the managing general partner. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of Two Park Company, a
general partnership, the investment in which, as discussed in Note 4 to the
financial statements, is accounted for by the equity method of accounting. The
investment in Two Park Company was $17,935,304 and $17,543,118 as of December
31, 1996 and 1995, respectively, and the distributive share of its net income
(loss) was $392,186, $(382,500) and $(637,607) for the years ended December 31,
1996, 1995 and 1994, respectively. The financial statements of Two Park Company
were audited by other auditors whose reports have been furnished to us, and our
opinion, insofar as it relates to the amounts included for Two Park Company, is
based solely on the reports of the other auditors.
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 the
managing general partner, as well as evaluating the overall financial statement
presentation. We believe that our audits and the reports of other auditors
provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of B&B PARK AVENUE L.P. as of December 31, 1996 and 1995,
and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
/s/ FRIEDMAN ALPREN & GREEN LLP
-------------------------------
January 15, 1997, except for
Note 2, as to which the date
is March 12, 1997
-1-
<PAGE> 94
B&B PARK AVENUE L.P.
BALANCE SHEET
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
ASSETS
Investment in Two Park Company - Notes 4 and 5 $17,935,304 $17,543,118
Cash 371 145,691
Due from maintenance services company - Note 6 712 78,064
----------- -----------
$17,936,387 $17,766,873
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accrued expenses $ 9,200 $ 9,700
Partners' capital 17,927,187 17,757,173
----------- -----------
$17,936,387 $17,766,873
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-2-
<PAGE> 95
B&B PARK AVENUE L.P.
STATEMENT OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
--------- ---------- ---------
<S> <C> <C> <C>
Revenues
Distributive share of net income (loss) from
Two Park Company $ 392,186 $(382,500) $(637,607)
Rebate, maintenance services company -
Note 6 49,712 82,377 79,795
Interest income 3,612 1,044 --
--------- --------- ---------
445,510 (299,079) (557,812)
Expenses
Professional fees 60,496 82,610 45,608
--------- --------- ---------
Net income (loss) $ 385,014 $(381,689) $(603,420)
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE> 96
B&B PARK AVENUE L.P.
STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ 385,014 $(381,689) $(603,420)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities
Distributive share of net (income) loss from
Two Park Company (392,186) 382,500 637,607
Changes in assets and liabilities
Due from maintenance services company 77,352 ( 2,727) ( 29)
Accrued expenses ( 500) ( 10,700) 15,400
--------- --------- ---------
Net cash provided by (used in)
operating activities 69,680 ( 12,616) 49,558
Cash flows from financing activities
Distributions to partners (215,000) -- --
--------- --------- ---------
Net decrease in cash (145,320) ( 12,616) 49,558
Cash, beginning of year 145,691 158,307 108,749
--------- --------- ---------
Cash, end of year $ 371 $ 145,691 $ 158,307
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE> 97
B&B PARK AVENUE L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Limited Partners
---------------------------
General Partners
------------------------------- Carborundum
Nancy Mendik Center Bernard H.
Total Creek, Inc. Corporation Joint Venture Mendik
------------ ------------ ------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993 $ 18,742,282 $ 58,492 $ (160,423) $ 18,844,213 $ --
Net loss (603,420) (6,004) ( 3,017) (594,399) --
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1994 18,138,862 52,488 (163,440) 18,249,814 --
Net loss (381,689) (3,798) ( 1,908) (375,983) --
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1995 17,757,173 48,690 (165,348) 17,873,831 --
Net income 385,014 3,830 1,926 379,258 --
Distributions (215,000) (2,150) -- (212,850) --
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1996 $ 17,927,187 $ 50,370 $ (163,422) $ 18,040,239 $ -0-
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE> 98
B&B PARK AVENUE L.P.
NOTES TO FINANCIAL STATEMENTS
1 - ORGANIZATION
B&B Park Avenue L.P., a Delaware limited partnership, was organized on
December 15, 1986 to acquire a 40% general partnership interest in Two Park
Company. The property located at Two Park Avenue, New York, New York was
acquired by Two Park Company on December 22, 1986.
2 - TRANSFER OF OWNERSHIP
Pursuant to a solicitation contained in a private placement memorandum
dated November 11, 1996, the Partnership obtained the consent of its
partners to participate in an offering of shares of common stock in
accordance with a preliminary registration statement filed with the
Securities and Exchange Commission on December 18, 1996. On March 12, 1997,
the managing general partner entered into an agreement with Vornado Realty
Trust, a publicly traded real estate investment trust ("REIT"). The
partners will be resolicited to obtain their consents to participate in
this transaction, under terms and conditions similar to those stated in the
private placement memorandum dated November 11, 1996. The REIT is a fully
integrated, self-administered and self-managed real estate company which
has qualified as a real estate investment trust for Federal income tax
purposes. Upon completion of the transaction, it is anticipated that the
Partnership will be owned by a company controlled by the REIT.
3 - THE PARTNERSHIP AGREEMENT
Capital Contributions
Of the total initial capital, $37,425,103 was contributed by Delaware
Acres, Inc. (CLP) and $378,031 by New York Acres, Inc. (CGP). On September
30, 1992, the partnership interests of CLP and CGP were transferred to
Carborundum Center Joint Venture (MGP) and Nancy Creek, Inc. (Nancy Creek),
respectively. Additional capital contributions required for improvements
and leasing costs of the property are to be contributed by MGP. Mendik
Corporation (Mendco) and Bernard H. Mendik (Mendik) are not required to
make cash contributions.
Distributions
Net cash from operations is to be distributed as follows: After
repaying loans as required, 99% to MGP, until an amount equal to an 8%
annual preferred return (as defined) has been received, and 1% to the
general partners (as defined); then 99% to Mendik and 1% to Mendco until
Mendik has received his special preferred return (as defined); then 85% to
MGP, 14% to Mendik and 1% to the general partners until all distributions
to Nancy Creek aggregate $200,000; all remaining cash: 85% to MGP, 14% to
Mendik and 1% to Mendco.
(Continued)
-6-
<PAGE> 99
B&B PARK AVENUE L.P.
NOTES TO FINANCIAL STATEMENTS
3 - THE PARTNERSHIP AGREEMENT (Continued)
Distributions (Continued)
Net proceeds from sales and refinancing will be distributed as
follows: first, 99% to MGP and 1% to Nancy Creek until each has received an
8% cumulative return (as defined); then to MGP and Nancy Creek until each
has received its adjusted total capital (as defined); then 99% to Mendik
and 1% to Mendco until Mendik has received the unpaid special cumulative
return (as defined); then 50% to Mendco and 50% to MGP until each has
received its unpaid deferred incentive share (as defined); finally, the
remainder, 79.17% to MGP, 20.33% to Mendik and .5% to Mendco.
Allocation of Loss or Income
Net losses will be allocated first to the extent that capital accounts
exceed certain amounts, as defined. However, as this criterion does not
presently exist, net losses are allocated .995% to Nancy Creek, 98.505% to
MGP and .5% to Mendco.
Net income will generally be allocated in the same manner as cash is
distributed.
4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The managing general partner uses estimates and assumptions in
preparing financial statements. Those estimates and assumptions affect the
reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities, and the reported revenues and expenses.
Investment in Two Park Company
The investment in Two Park Company is recorded on the equity method,
reflecting cost adjusted for the Partnership's interest in the net income
or losses of, and distributions from, that partnership.
As of December 31, 1996, the managing general partner of Two Park
Company concluded that the total estimated undiscounted future cash flow to
be generated by its property, from operations and its eventual disposition,
over an estimated holding period is less than its carrying value. As a
result, Two Park Company recorded a write-down of $50,148,556 at December
31, 1996 to reduce the property's carrying value to its estimated fair
value. The Partnership had previously determined that, prior to 1993, its
investment in Two Park Company had declined in value and that such decline
was deemed to be other than temporary. Accordingly, the investment was
written down by $25,000,000 prior to 1993, and the Partnership's 1996
financial statements do not reflect its distributive share of the 1996
write-down by Two Park Company. The difference between the carrying amount
(Continued)
-7-
<PAGE> 100
B&B PARK AVENUE L.P.
NOTES TO FINANCIAL STATEMENTS
4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Investment in Two Park Company (Continued)
of the investment and the underlying equity in the investee is being
amortized over the life of the property, with amortization being reflected
as reductions in the distributive share of net losses from Two Park
Company.
Income Taxes
The Partnership is not a taxpaying entity for income tax purposes and,
accordingly, no provision has been made for income taxes. The partners'
allocable shares of the Partnership's taxable income or loss are reportable
on their income tax returns.
Concentration of Credit Risk for Cash
Cash at December 31, 1995 included approximately $18,000 in excess of
amounts insured by the Federal Deposit Insurance Corporation.
5 - INVESTMENT IN TWO PARK COMPANY
Summarized financial information of Two Park Company is as follows:
<TABLE>
<CAPTION>
1996 1995
----------------- -----------------
<S> <C> <C>
Balance Sheet
Assets
Property and improvements $ 99,905,783 $ 153,245,733
Cash and short-term investments 6,257,952 6,046,711
Receivables 10,604,302 8,644,599
Prepaid expenses 6,701,968 7,561,649
Unamortized costs 325,509 576,103
----------------- -----------------
$ 123,795,514 $ 176,074,795
================= =================
Liabilities and Partners' Capital
Mortgage payable $ 65,000,000 $ 65,000,000
Accrued interest payable 553,263 553,263
Accounts payable and accrued expenses 1,064,802 1,245,535
Security deposits payable 450,398 594,200
Deferred income 6,515,337 7,355,711
Improvements payable 31,007 227,289
Partners' capital 50,180,707 101,098,797
----------------- -----------------
$ 123,795,514 $ 176,074,795
================= =================
</TABLE>
(Continued)
-8-
<PAGE> 101
B&B PARK AVENUE L.P.
NOTES TO FINANCIAL STATEMENTS
5 - INVESTMENT IN TWO PARK COMPANY (Continued)
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Statement of Operations
Revenues $ 25,457,784 $ 23,895,802 $ 22,890,880
Expenses 11,500,589 11,519,811 11,588,807
------------ ------------ ------------
Income before interest expense,
depreciation and amortization
and write-down of property and
improvements 13,957,195 12,375,991 11,302,073
------------ ------------ ------------
Interest expense 6,532,083 7,533,674 7,619,110
Depreciation and amortization 8,194,646 7,548,566 7,026,980
Loss on write-down of property and
improvements 50,148,556 -- --
------------ ------------ ------------
64,875,285 15,082,240 14,646,090
------------ ------------ ------------
Net loss $(50,918,090) $ (2,706,249) $ (3,344,017)
============ ============ ============
</TABLE>
6 - RELATED PARTY TRANSACTION
Maintenance services for the Two Park Avenue property are provided by
a company that is controlled by a stockholder of a general partner of the
Partnership (Mendik). As defined in the maintenance contract, the
Partnership is entitled to receive a 20% share of the profits realized by
the maintenance services company from the performance of tenant services.
The Partnership's share of profits realized from tenant services for the
years ended December 31, 1996, 1995 and 1994 was $49,712, $82,377 and
$79,795, respectively.
-9-
<PAGE> 102
CONDENSED CONSOLIDATED PRO FORMA FINANCIAL INFORMATION
The unaudited condensed consoliated pro forma financial information set
forth below presents (i) the condensed consolidated pro forma statement of
income for Vornado Realty Trust (the "Company") for the year ended December 31,
1996 as if the Mendik Transaction and certain related transactions were
consummated and the Offering and the use of proceeds therefrom had occurred on
January 1, 1996 and (ii) the condensed consolidated pro forma balance sheet of
the Company as of December 31, 1996 as if the Mendik Transaction and certain
related transactions were consummated and the Offering and the use of proceeds
therefrom had occurred on December 31, 1996.
Historical Mendik financial information consists of (a) combined
financial statements of entities owning the following properties: 11 Penn Plaza,
2 Penn Plaza, 866 U.N. Plaza and 1740 Broadway, (b) equity interests in entities
owning 2 Park Avenue (40%), 570 Lexington Avenue (5.7%) and 330 Madison Avenue
(24.75%) and (c) the Mendik Group.
The unaudited condensed consolidated pro forma financial information
is not necessarily indicative of what the Company's actual results of operations
or financial position would have been had the Mendik Transaction and related
transactions been consummated and had the Offering and the use of proceeds
therefrom occurred on the dates indicated, nor does it purport to represent the
Company's results of operations or financial position for any future period.
The unaudited condensed consolidated pro forma financial information should
be read in conjunction with the Consolidated Financial Statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 and the financial statements of the entities involved in the
Mendik Transaction, incorporated herein by reference. In management's opinion,
all adjustments necessary to reflect the Mendik Transaction and the related
transactions and the Offering and the use of proceeds therefrom have been made.
<PAGE> 103
CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET
DECEMBER 31, 1996
(Amounts in thousands)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA COMPANY
VORNADO MENDIK ADJUSTMENTS PRO FORMA
------- ------ ----------- ---------
<S> <C> <C> <C> <C>
ASSETS:
Real estate, net ......................................... $246,249 $187,433 $389,000 (A) $822,682
Cash and cash equivalents ................................ 117,245 50,654 (268,992) (A) 63,499
(50,908) (A)
215,500 (B)
Investment in and advances to
Alexander's, Inc. ....................................... 107,628 107,628
Investment in partnerships ............................... 19,863 19,863
Investment in Management Company ......................... 7,425 (A) 7,425
Officer's deferred compensation
expense .................................................. 22,917 22,917
Mortgage note receivable ................................. 17,000 17,000
Receivable arising from
straight-lining of rents ................................. 17,052 42,219 (42,219) (A) 17,052
Other assets ............................................. 37,113 42,855 (6,908) (A) 52,673
(17,718) (A)
(2,669) (C)
-------- -------- -------- ----------
$565,204 $343,024 $222,511 $1,130,739
======== ======== ======== ==========
LIABILITIES:
Notes and mortgages payable .............................. $232,387 $283,847 $ (5,000) (A) $ 400,768
(110,466) (A)
Due for US Treasury Obligations .......................... 9,636 9,636
Deferred leasing fee income .............................. 8,373 8,373
Officer's deferred compensation payable................... 25,000 25,000
Negative investment in partnership ....................... 5,399 (5,399) (A) --
Other liabilities ........................................ 13,551 13,806 (314) (C) 27,043
Minority interest ........................................ 168,162 (A) 168,162
-------- -------- -------- ----------
288,947 303,052 46,983 638,982
-------- -------- -------- ----------
PREFERRED EQUITY ............................................ 215,500 (B) 215,500
COMMON EQUITY ............................................... 276,257 39,972 (39,972) (A) 276,257
-------- -------- -------- ----------
276,257 39,972 175,528 491,757
-------- -------- -------- ----------
$565,204 $343,024 $222,511 $1,130,739
======== ======== ======== ==========
</TABLE>
2
<PAGE> 104
CONDENSED CONSOLIDATED PRO FORMA INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1996
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA COMPANY
VORNADO MENDIK ADJUSTMENTS PRO FORMA
------- ------ ----------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Property rentals ........................................ $ 87,424 $ 87,261 $ 7,071 (F) $ 181,712
(44) (G)
Expense reimbursements .................................. 26,644 13,551 40,195
Other income ............................................ 2,819 5,378 (5,378) (G) 2,819
--------- --------- --------- ---------
116,887 106,190 (1,649) 224,726
--------- --------- --------- ---------
EXPENSES:
Operating ............................................... 36,412 46,691 (39) (G) 83,180
116 (J)
Depreciation and amortization ........................... 11,589 14,133 (144) (G) 35,559
9,981 (H)
General and administrative .............................. 5,167 6,783 (3,788) (G) 8,162
Amortization of officer's deferred
compensation expense ................................ 2,083 2,083
--------- --------- --------- ---------
55,251 67,607 6,126 128,984
--------- --------- --------- ---------
Operating income ............................................ 61,636 38,583 (4,477) 95,742
Income applicable to Alexander's ........................ 7,956 7,956
Equity in net income of Management Companies ............ 1,855 1,471 (G) 3,326
Equity in net income of investees ....................... 1,663 1,755 (K) 3,418
Interest income on mortgage note receivable ............. 2,579 2,579
Interest and dividend income ............................ 3,151 2,536 (20) (G) 2,858
(2,809) (D)
Interest and debt expense ............................... (16,726) (23,998) 9,016 (E) (31,708)
Net gain on marketable securities ....................... 913 913
Minority interest ....................................... (6,673) (L) (6,673)
--------- --------- --------- ---------
Net income .................................................. 61,364 18,784 (1,737) 78,411
Preferred stock dividends ................................... -- -- (15,575) (I) (15,575)
--------- --------- --------- ---------
Net income applicable to common shareholders ................ $ 61,364 $ 18,784 $ (17,312) $ 62,836
========= ========= ========= =========
Net income per share, based on 24,603,442 shares ............ $ 2.49 $ 2.55
========= =========
OTHER DATA:
Funds from Operations (1):
Net income applicable to common shareholders ............ $ 61,364 $ 18,784 $ (17,312) $ 62,836
Depreciation and amortization of real property .......... 10,583 14,133 9,837 34,553
Straight-lining of property rent escalations ............ (2,676) (1,783) (7,071) (11,530)
Leasing fees received in excess of
income recognized ................................... 1,805 1,805
Proportionate share of adjustments to income
from equity investments to arrive at FFO ............ (1,760) 2,747 (970) 17
--------- --------- --------- ---------
$ 69,316 $ 33,881 $ (15,516) $ 87,681
========= ========= ========= =========
Cash flow provided by (used) in:
Operating activities .................................... $ 70,703 $ 29,267 13,669 113,639
Investing activities .................................... $ 14,912 $ (8,262) (326,688) (320,038)
Financing activities .................................... $ (15,046) $ (11,706) $ 206,713 179,961
</TABLE>
(1) Funds from operations does not represent cash generated from operating
activities in accordance with generally accepted accounting principles and
is not necessarily indicative of cash available to fund cash needs. Funds
from operations should not be considered as an alternative to net income
as an indicator of the Company's operating performance or as an
alternative to cash flows as a measure of liquidity. The Company's
definition of funds from operations does not conform to the NAREIT
definition because the Company deducts the effect of the straight-lining
of property rentals.
3
<PAGE> 105
NOTES TO CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
(A) The Acquisitions will be accounted for as purchases applying the provisions
of Accounting Principles Board Opinion No. 16. The respective purchase
costs will be allocated to acquired assets and assumed liabilities using
their relative fair values as of the closing dates, based on valuations and
other studies which are not yet complete. Accordingly, the excess of the
purchase cost over the net assets acquired has not yet been allocated to
individual assets and liabilities. However, the Company believes that the
excess purchase price will be allocated principally to real estate.
The purchase costs and preliminary allocation of the excess of cost over
net assets acquired is as follows: (in thousands)
<TABLE>
<S> <C> <C>
Issuance of units of operating partnership......................... $ 168,162
Cash paid directly associated with the acquisition:
Acquisition of partnership interest............................. 114,660
Cash used to reduce existing debt............................... 110,466
Acquisition of Management Company............................... 7,425
Fees and expenses............................................... 28,192
Other........................................................... 8,249 268,992
---------- ----------
Purchase Price..................................................... 437,154
----------
Pro forma net book value of assets acquired:
Net book value of assets acquired per historical
financial statements............................................ $ 39,972
Write-off of deferred assets:
Receivable arising from the straight-lining of rents............ (42,219)
Tenant acquisition costs........................................ (6,908)
Deferred lease fees and loan costs.............................. (17,718)
Cash not acquired.................................................. (50,908)
Cash used to reduce existing debt.................................. 110,466
Debt forgiven...................................................... 5,000
Negative investment in partnerships................................ 5,399
-----------
Pro forma net book value of assets acquired........................ 43,084
-----------
Pro forma excess of liabilities over assets acquired............... $ 394,070
===========
Preliminary allocation of excess:
Allocated to real estate........................................ $ 5,070
389,000
-----------
$ 394,070
===========
The total purchase price of $437,154 above excludes the following:
Indebtedness -- wholly owned properties.......................... $ 168,000
-- partially owned properties....................... 49,279 $ 217,279
----------
Purchase price, as above........................................... 437,154
-----------
Total purchase price, including debt............................... $ 654,433
===========
</TABLE>
(B) Reflects proceeds from Offering of $225,000, net of offering costs of
$9,500.
(C) To reflect adjustments required to record the Company's investment in the
Management Company from consolidation to the equity method of accounting.
(D) Reflects a reduction in interest income associated with the use of
approximately $53,500 of cash and cash equivalents.
(E) Reflects decrease in interest expense and loan cost amortization resulting
from the reduction and refinancing of debt.
(F) To adjust rentals arising for the straight-lining of rent.
(G) To reflect adjustments required to record the Company's investment in the
Management Company under the equity method accounting.
(H) Increase in depreciation due to preliminary allocation of purchase price.
(I) To reflect the dividends on the Series A Preferred Shares at 6.5%, plus
amortization on $9,500 offering cost.
(J) Increase in operating expenses due to contract changes.
(K) Increase in Equity - investees, due to net decrease in interest expense
on refinanced debt.
(L) To reflect minority interest of 9.6% in operating partnership.
4
<PAGE> 106
Annex G
CONDENSED CONSOLIDATED PRO FORMA FINANCIAL INFORMATION
The unaudited condensed consolidated pro forma financial information set
forth below presents (i) the condensed consolidated pro forma statement of
income for the Company for the year ended December 31, 1996 as if the Mendik
Transaction and certain related transactions were consummated and the Offering
and the use of proceeds therefrom had occurred on January 1, 1996 and (ii) the
condensed consolidated pro forma balance sheet of the Company as of December 31,
1996 as if the Mendik Transaction and certain related transactions were
consummated and the Offering and the use of proceeds therefrom had occurred on
December 31, 1996.
Historical Mendik financial information consists of (a) combined financial
statements of entities owning the following properties: Eleven Penn Plaza, Two
Penn Plaza, 866 U.N. Plaza and 1740 Broadway, (b) equity interests in entities
owning Two Park Avenue (40%), 570 Lexington Avenue (5.7%) and 330 Madison Avenue
(24.75%) (collectively, the "investees") and (c) the Mendik management
operations.
The unaudited condensed consolidated pro forma financial information is not
necessarily indicative of what the Company's actual results of operations or
financial position would have been had the Mendik Transaction and related
transactions been consummated and had the Offering and the use of proceeds
therefrom occurred on the dates indicated, nor does it purport to represent the
Company's results of operations or financial position for any future period.
The unaudited condensed consolidated pro forma financial information should
be read in conjunction with the Consolidated Financial Statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 10-K and the financial statements of the significant entities
involved in the Mendik Transaction included in this Current Report on Form 8-K
filed with the Commission on March 26, 1997, incorporated herein by reference.
In management's opinion, all adjustments necessary to reflect the Mendik
Transaction and the related transactions and the Offering and the use of
proceeds therefrom have been made.
<PAGE> 107
CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET
DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
VORNADO MENDIK ADJUSTMENTS COMPANY
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
ASSETS:
Real estate, net................. $ 246,249 $ 187,433 $ 389,000 (A) $ 822,682
Cash and cash equivalents........ 117,245 50,654 (268,992) (A) 63,499
(50,908) (A)
215,500 (B)
Investment in and advances to
Alexander's, Inc.............. 107,628 107,628
Investment in partnerships....... 19,863 19,863
Investment in Management
Company....................... 7,425 (A) 7,425
Officer's deferred compensation
expense....................... 22,917 22,917
Mortgage note receivable......... 17,000 17,000
Receivable arising from straight-
lining of rents............... 17,052 42,219 (42,219) (A) 17,052
Other assets..................... 37,113 42,855 (6,908) (A) 52,673
(17,718) (A)
(2,669) (C)
--------- -------- -------- ----------
$ 565,204 $ 343,024 $ 222,511 $1,130,739
========= ======== ======== ==========
LIABILITIES:
Notes and mortgages payable...... $ 232,387 $ 283,847 $ (5,000) (A) $ 400,768
(110,466) (A)
Due for U.S. Treasury
Obligations................... 9,636 9,636
Deferred leasing fee income...... 8,373 8,373
Officer's deferred compensation
payable ...................... 25,000 25,000
Negative investment in
partnership................... 5,399 (5,399) (A) --
Other liabilities................ 13,551 13,806 (314) (C) 27,043
--------- -------- -------- ----------
288,947 303,052 (121,179) 470,820
--------- -------- -------- ----------
Minority interests................. -- -- 168,162 (A) 168,162
--------- -------- -------- ----------
PREFERRED SHAREHOLDERS' EQUITY..... 215,500 (B) 215,500
COMMON SHAREHOLDERS' EQUITY........ 276,257 39,972 (39,972) (A) 276,257
--------- -------- -------- ----------
276,257 39,972 175,528 491,757
--------- -------- -------- ----------
$ 565,204 $ 343,024 $ 222,511 $1,130,739
========= ======== ======== ==========
</TABLE>
2
<PAGE> 108
CONDENSED CONSOLIDATED PRO FORMA INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA COMPANY
VORNADO MENDIK ADJUSTMENTS PRO FORMA
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Property rentals................................ $ 87,424 $ 87,261 $ 7,071(F) $ 181,712
(44)(C)
Expense reimbursements.......................... 26,644 13,551 40,195
Other income.................................... 2,819 5,378 (5,378)(C) 2,819
-------- -------- --------- ---------
116,887 106,190 1,649 224,726
-------- -------- --------- ---------
EXPENSES:
Operating....................................... 36,412 46,691 (39)(C) 83,180
116(I)
Depreciation and amortization................... 11,589 14,133 (144)(C) 35,559
9,981(G)
General and administrative...................... 5,167 6,783 (3,788)(C) 8,162
Amortization of officer's deferred compensation
expense....................................... 2,083 2,083
-------- -------- --------- ---------
55,251 67,607 6,126 128,984
-------- -------- --------- ---------
Operating income.................................... 61,636 38,583 (4,477) 95,742
Income applicable to Alexander's................ 7,956 7,956
Equity in net income of management companies.... 1,855 1,471(C) 3,326
Equity in net income of investees............... 1,663 1,755(J) 3,418
Interest income on mortgage note receivable..... 2,579 2,579
Interest and dividend income.................... 3,151 2,536 (20)(C) 2,858
(2,809)(D)
Interest and debt expense....................... (16,726) (23,998) 9,016(E) (31,708)
Net gain on marketable securities............... 913 913
Minority interest............................... (10,075)(K) (10,075)
-------- -------- --------- ---------
Net income.......................................... 61,364 18,784 (5,139) 75,009
Preferred stock dividends........................... -- -- (15,575)(H) (15,575)
-------- -------- --------- ---------
Net income applicable to common shareholders........ $ 61,364 $ 18,784 $ (20,714) $ 59,434
======== ======== ========= =========
Net income per share, based on 24,603,442 shares.... $ 2.49 $ 2.42
OTHER DATA:
Funds from operations (1):
Net income applicable to common shareholders.... $ 61,364 $ 18,784 $ (20,714) $ 59,434
Depreciation and amortization of real
property...................................... 10,583 14,133 9,837 34,553
Straight-lining of property rent escalations........ (2,676) (1,783) (7,071) (11,530)
Leasing fees received in excess of income
recognized.................................... 1,805 1,805
Proportionate share of adjustments to income
from equity investments to arrive at FFO...... (1,760) 2,747 (970) 17
-------- -------- --------- ---------
$ 69,316 $ 33,881 $ (18,918) $ 84,279
======== ======== ========= =========
CASH FLOW PROVIDED BY (USED) IN:
Operating activities............................ $ 70,703 $ 29,267 $ 13,669 $ 113,639
Investing activities............................ $ 14,912 $ (8,262) $ (326,688) $ (320,038)
Financing activities............................ $ (15,046) $ (11,706) $ 206,713 $ 179,961
</TABLE>
- ---------------
(1) Funds from operations does not represent cash generated from operating
activities in accordance with generally accepted accounting principles and
is not necessarily indicative of cash available to fund cash needs. Funds
from operations should not be considered as an alternative to net income as
an indicator of the Company's operating performance or as an alternative to
cash flows as a measure of liquidity. The Company's definition of funds from
operations does not conform to the NAREIT definition because the Company
deducts the effect of the straight-lining of property rentals for rent
escalations.
3
<PAGE> 109
NOTES TO CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
(A) The Mendik acquisition will be accounted for as purchases applying the
provisions of Accounting Principles Board Opinion No. 16. The respective
purchase costs will be allocated to acquired assets and assumed liabilities
using their relative fair values as of the closing dates, based on
valuations and other studies which are not yet complete. Accordingly, the
excess of the purchase cost over the net assets acquired has not yet been
allocated to individual assets and liabilities. However, the Company
believes that the excess purchase price will be allocated principally to
real estate.
The purchase costs and preliminary allocation of the excess of cost over
net assets acquired is as follows: (in thousands)
<TABLE>
<S> <C> <C>
Issuance of units of operating partnership.................. $ 168,162
Cash paid directly associated with the Mendik acquisition:
Acquisition of partnership interest..................... 114,660
Cash used to reduce existing debt....................... 110,466
Acquisition of Mendik management operations............. 7,425
Fees and expenses....................................... 28,192
Other................................................... 8,249 268,992
-------- --------
Purchase Price.............................................. 437,154
---------
Pro forma net book value of assets acquired:
Net book value of assets acquired per historical financial
statements................................................ $ 39,972
Write-off of deferred assets:
Receivable arising from the straight-lining of rents.... (42,219)
Tenant acquisition costs................................ (6,908)
Deferred lease fees and loan costs...................... (17,718)
Cash not acquired........................................... (50,908)
Cash used to reduce existing debt........................... 110,466
Debt forgiven............................................... 5,000
Negative investment in partnerships......................... 5,399
---------
Pro forma net book value of assets acquired................. 43,084
---------
Pro forma excess of liabilities over assets acquired........ $ 394,070
=========
Preliminary allocation of excess:
Allocated to Mendik management operations............... $ 5,070
Allocated to real estate
389,000
---------
$ 394,070
=========
The total purchase price of $437,154 above excludes the
following:
Debt -- wholly owned properties.................... $ 168,000
-- partially owned properties................. 49,279 $ 217,279
---------
Purchase price, as above.................................... 437,154
---------
Total purchase price, including debt........................ $ 654,433
=========
</TABLE>
(B) Reflects proceeds from this Offering of $225,000, net of offering costs.
(C) To reflect adjustments required to record the Company's investment in the
Mendik management operations under the equity method of accounting.
(D) Reflects a reduction in interest income associated with the use of
approximately $53,500 of cash and cash equivalents.
(E) Reflects decrease in interest expense and loan cost amortization resulting
from the reduction and refinancing of debt.
(F) To adjust rentals arising from the straight-lining of property rentals for
rent escalations.
(G) Increase in depreciation due to preliminary allocation of purchase price.
(H) To reflect the assumed dividends on the Series A Preferred Shares at 6.0%,
plus amortization of offering costs.
(I) Increase in operating expenses due to contract changes.
(J) Increase in Equity -- investees, due to net decrease in interest expense on
refinanced debt.
(K) To reflect minority interest of 9.6% in the Operating Partnership.
3
<PAGE> 110
INDEX TO EXHIBITS
Exhibit No. Exhibit Page
- ----------- ------- ----
2.1 Master Consolidation Agreement (the "Master Consolidation
Agreement"), dated March 12, 1997, among Vornado Realty Trust,
Vornado/Saddle Brook L.L.C., The Mendik Company, L.P., and
various parties defined therein (collectively as the Mendik
Group). A list of omitted schedules, exhibits and annexes is
attached as the last page to this exhibit. The Registrant
agrees to furnish supplementally a copy of any omitted
exhibit, schedule or annex to the Securities and Exchange
Commission upon request.
2.1(a) Mendik Structure Memorandum, included as Appendix A to the
Master Consolidation Agreement
2.1(b) Vornado Structure Memorandum, included as Appendix B to the
Master Consolidation Agreement
2.1(c) Form of Amended and Restated Agreement of Limited Partnership
of Vornado Realty L.P., included as Exhibit G to the Master
Consolidation Agreement
2.1(d) Form of Voting Agreement between Steven Roth, Michael
Fascitelli and Interstate Properties and Bernard Mendik,
included as Exhibit J to the Master Consolidation Agreement
10.1 Commitment Letter, dated March 7, 1997, between Vornado Realty
Trust and Union Bank of Switzerland (New York Branch) re:
$400,000,000 one-year bridge loan
23.1 Consent, dated March 26, 1997, of Friedman, Alpren & Green,
LLP, independent accountants for Two Penn Plaza Associates,
L.P.
<PAGE> 111
Exhibit No. Exhibit Page
- ----------- ------- ----
23.2 Consent, dated March 26, 1997, of Friedman, Alpren & Green,
LLP, independent accountants for B&B Park Avenue L.P.
23.3 Consent, dated March 26, 1997, of Friedman, Alpren & Green,
LLP, independent accountants for M Eleven Associates, M 393
Associates and Eleven Penn Plaza Company
23.4 Consent, dated March 26, 1997, of Friedman, Alpren & Green,
LLP, independent accountants for 1740 Broadway Associates,
L.P.
23.5 Consent, dated March 26, 1997, of Friedman, Alpren & Green,
LLP, independent accountants for 866 U.N. Plaza Associates LLC
23.6 Consent, dated March 26, 1997, of KPMG Peat Marwick LLP,
independent accountants for Two Park Company
99.1 Press Release, dated March 12, 1997, of Vornado Realty Trust,
announcing its entry into a Master Consolidation Agreement
with Vornado/Saddle Brook L.L.C., The Mendik Company, L.P.,
and various parties defined therein collectively as the Mendik
Group
<PAGE> 1
Exhibit 2.1
MASTER CONSOLIDATION AGREEMENT
Among
VORNADO REALTY TRUST,
VORNADO/SADDLE BROOK L.L.C.,
THE MENDIK COMPANY, L.P.
And
Various Parties Defined Herein Collectively as
THE MENDIK GROUP
March 12, 1997
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TABLE OF CONTENTS
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ARTICLE I PRE-CONSOLIDATION TRANSACTIONS ...................................................... 4
SECTION 1.1 Transfer of REIT Management Assets and Major Partner's Interests ............. 4
SECTION 1.2 Recapitalization of the Operating Partnership ................................ 5
SECTION 1.3 Transfer of Third-Party Management Assets .................................... 5
ARTICLE II THE CONSOLIDATION .................................................................. 7
SECTION 2.1 Transfer of Property Partnership Assets and Related Transactions ............. 7
SECTION 2.2 Transfer of Vornado Assets ................................................... 7
SECTION 2.3 Operating Partnership Transactions ........................................... 7
SECTION 2.4 Mendik/FW LLC Transactions ................................................... 8
SECTION 2.5 Acquisition of Units by Vornado and the Operating Partnership ................ 9
SECTION 2.6 Closing; Effective Time ...................................................... 9
ARTICLE III REPRESENTATIONS AND WARRANTIES .................................................... 11
SECTION 3.1 Representations and Warranties of Vornado .................................... 11
(a) Organization, Standing and Corporate Power of Vornado and Vornado Sub ....... 11
(b) Vornado Subsidiaries ........................................................ 11
(c) Capital Structure ........................................................... 12
(d) Authority; Noncontravention; Consents ....................................... 13
(e) SEC Documents; Financial Statements; Undisclosed Liabilities ................ 14
(f) Absence of Certain Changes or Events ........................................ 14
(g) Litigation .................................................................. 15
(h) Properties .................................................................. 15
(i) Environmental Matters ....................................................... 16
(j) Related Party Transactions .................................................. 16
(k) Absence of Changes in Benefit Plans; ERISA Compliance ....................... 17
(l) Taxes ....................................................................... 17
(m) No Payments to Employees, Officers or Directors ............................. 18
(n) Brokers; Schedule of Fees and Expenses ...................................... 18
(o) Compliance with Laws ........................................................ 18
(p) Contracts; Debt Instruments ................................................. 19
(q) Interim Operations of Vornado Sub ........................................... 19
(r) Vote Required ............................................................... 19
(s) Investment Company Act of 1940 .............................................. 19
SECTION 3.2 Representations and Warranties of Mendik/FW LLC .............................. 19
(a) Organization, Standing and Corporate Power of the Operating Partnership and
the Mendik Group ........................................................ 20
(b) Property Partnerships ........................................................ 20
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(c) Interests in the Property Partnerships and the Property-Owning Entities .... 21
(d) Authority; Noncontravention; Consents ...................................... 21
(e) Financial Statements; Undisclosed Liabilities .............................. 22
(f) Absence of Certain Changes or Events ....................................... 23
(g) Litigation ................................................................. 23
(h) Properties ................................................................. 23
(i) Environmental Matters ...................................................... 25
(j) No Employees of the Property Partnerships or the Property-Owning Entities;
ERISA Compliance ....................................................... 25
(k) Taxes ...................................................................... 25
(l) Brokers; Schedule of Fees and Expenses ..................................... 26
(m) Compliance with Laws ....................................................... 26
(n) Contracts; Debt Instruments ................................................ 26
(o) REIT Qualification Tax Matters ............................................. 27
(p) Management Business Assets ................................................. 27
(q) Interim Operations of the Operating Partnership ............................ 27
SECTION 3.3 Additional Representations and Warranties of Mendik/FW LLC ................. 29
(a) Authority; Noncontravention; Consents ...................................... 29
(b) Undisclosed Liabilities .................................................... 30
(c) Litigation ................................................................. 30
(d) Title to Management Assets ................................................. 30
(e) Compliance with Laws ....................................................... 30
(f) No Liens on Partners' Interests ............................................ 31
(g) REIT Qualification Tax Matters ............................................. 31
ARTICLE IV
COVENANTS ............................................................................... 32
SECTION 4.1 Conduct of Business by each of the Operating Partnership, the Property
Partnerships and the Property-Owning Entities ...................... 32
SECTION 4.2 Conduct of Business by Vornado .............................................. 35
SECTION 4.3 Other Actions ............................................................... 35
ARTICLE V ADDITIONAL COVENANTS ............................................................... 37
SECTION 5.1 Preparation of the Memorandum ............................................... 37
SECTION 5.2 Access to Information; Confidentiality ...................................... 37
SECTION 5.3 Commercially Reasonable Efforts; Notification ............................... 39
SECTION 5.4 Tax Treatment; Legal Opinions ............................................... 39
SECTION 5.5 Vornado Voting Agreement .................................................... 40
SECTION 5.6 No Solicitation of Transactions by the Mendik Group ......................... 40
SECTION 5.7 Public Announcements ........................................................ 40
SECTION 5.8 Transfer Taxes .............................................................. 40
SECTION 5.9 Benefit Plans and Other Employee Arrangements ............................... 41
(a) Benefit Plans .............................................................. 41
(b) Employment Agreements ...................................................... 41
(c) Noncompetition and Severance Agreements .................................... 42
(d) Employee Options ........................................................... 42
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(e) No Employees at the Property Partnerships or the Property-Owning Entities . 42
SECTION 5.10 Service Business Transactions ............................................. 42
SECTION 5.11 Amendment of M 330 Associates Property Partnership Agreement .............. 42
SECTION 5.12 Major Partner Agreements .................................................. 43
SECTION 5.13 Financing Transactions .................................................... 47
SECTION 5.14 Closing Documents ......................................................... 48
SECTION 5.15 Cleaning Business Transactions ............................................ 49
SECTION 5.16 Reservation of Vornado Common Shares ...................................... 49
SECTION 5.17 Amendment of Major Partner Agreements ..................................... 49
SECTION 5.18 Reimbursement of Loans Made by Mendik Realty With Respect to
570 Lexington Avenue .............................................. 50
SECTION 5.19 Delivery of Audited Financial Statements .................................. 50
ARTICLE VI CONDITIONS
PRECEDENT .............................................................................. 51
SECTION 6.1 Conditions to Each Party's Obligation to Effect the Consolidation .......... 51
(a) No Injunctions or Restraints .............................................. 51
(b) Consents .................................................................. 51
(c) Financing Transactions .................................................... 51
(d) Closing Documents ......................................................... 51
(e) Bring-downs of Tax Certificates and Opinions .............................. 51
(f) FWM Purchase Agreement .................................................... 51
SECTION 6.2 Conditions to Obligations of Vornado and Vornado Sub ....................... 51
(a) Representations and Warranties ............................................ 52
(b) Performance of Obligations of the Mendik Group ............................ 52
(c) Bring-downs of Other Opinions ............................................. 52
(d) Partner Authority ......................................................... 52
SECTION 6.3 Conditions to Obligations of the Mendik Group and the Operating
Partnership ....................................................... 52
(a) Representations and Warranties ............................................ 52
(b) Performance of Obligations of Vornado and Vornado Sub ..................... 53
(c) Bring-down of Other Opinions .............................................. 53
(d) Vornado Board Representation .............................................. 53
SECTION 6.4. Absence of Material Adverse Change is Not a Condition to Each Party's
Obligation to Effect the Consolidation ............................ 53
ARTICLE VII ACTIONS OF THE MENDIK GROUP ..................................................... 54
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER .............................................. 56
SECTION 8.1 Termination ................................................................ 56
SECTION 8.2 Certain Expenses and Fees .................................................. 57
SECTION 8.3 Effect of Termination ...................................................... 58
SECTION 8.4 Amendment .................................................................. 58
SECTION 8.5 Extension; Waiver .......................................................... 59
ARTICLE IX INDEMNIFICATION;
INSURANCE .............................................................................. 60
SECTION 9.1 Indemnification ............................................................ 60
SECTION 9.2 General Partner Liability Insurance ........................................ 60
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ARTICLE X GENERAL
PROVISIONS ............................................................................. 61
SECTION 10.1 Survival of Representations and Warranties ............................... 61
SECTION 10.2 Notices .................................................................. 61
SECTION 10.3 Certain Definitions ...................................................... 62
SECTION 10.4 Interpretation ........................................................... 65
SECTION 10.5 Counterparts ............................................................. 65
SECTION 10.6 Entire Agreement; No Third-Party Beneficiaries ........................... 65
SECTION 10.7 Governing Law ............................................................ 66
SECTION 10.8 Assignment ............................................................... 66
SECTION 10.9 Enforcement .............................................................. 66
SECTION 10.10 Severability ............................................................. 66
SECTION 10.11 Ability to Bind the Mendik Group ......................................... 67
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APPENDICES:
APPENDIX A: Mendik Structure Memorandum
APPENDIX B: Vornado Structure Memorandum
EXHIBITS:
EXHIBIT A: Form of Contribution Agreement (REIT Management Assets)
EXHIBIT B: Form of Contribution Agreement (Third-Party Management Assets)
EXHIBIT C-1: Form of Assignment and Assumption Agreement (Management
Corporation Voting Stock, Management Corporation Non-Voting Stock
and Management Corporation Note)
EXHIBIT C-2: Form of letter from Mendik Realty to the Operating Partnership
EXHIBIT D: Management Corporation Shareholders Agreement
EXHIBIT E-1: Form of Assignment and Assumption Agreement (Management
Corporation Non-Voting Stock and the Management Corporation Note)
EXHIBIT E-2: Form of Letter Agreement between Mendik/FW LLC and the Operating
Partnership
EXHIBIT F-1: Form of Two Penn Plaza Associates Partner Interest Contribution
Agreement
EXHIBIT F-2: Form of Eleven Penn Partnerships Partner Interest Contribution
Agreement
EXHIBIT F-3: Form of 1740 Broadway Associates Contribution Agreement
EXHIBIT F-4: Form of 866 U.N. Plaza Associates Partner Interest Contribution
Agreement
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EXHIBIT F-5: Form of B&B Partner Interest Contribution Agreement
EXHIBIT F-6: Form of M 330 Partner Interest Contribution Agreement
EXHIBIT F-7: Form of 570 Lexington Associates and 570 Lexington Investors
Partner Interest Contribution Agreement
EXHIBIT F-8: Form of 1740 Broadway Investment Company Partner Interest
Contribution Agreement
EXHIBIT G: Form of First Amended and Restated Agreement of Limited
Partnership of the Operating Partnership
EXHIBIT H: Form of Registration Rights Agreement
EXHIBIT I: Form of Unit Redemption Agreement
EXHIBIT J: Form of Vornado Voting Agreement
EXHIBIT K-1: Form of Noncompetition Agreement Between Vornado and Bernard H.
Mendik
EXHIBIT K-2: Form of Employment Agreement Between Vornado and David R.
Greenbaum
EXHIBIT L-1: Form of Severance and Noncompetition Agreement Between Vornado
and each of Christopher G. Bonk, Michael M. Downey, John J.
Silberstein, David L. Sims and Kevin R. Wang
EXHIBIT L-2: Form of Letter Agreement with respect to certain indemnification
rights of each of Christopher G. Bonk, Michael M. Downey, John J.
Silberstein, David L. Sims and Kevin R. Wang as an employee of
Vornado
EXHIBIT M: [RESERVED]
EXHIBIT N: Form of Master Property Services Agreement (Wholly-Owned
Properties)
EXHIBIT O: Form of Master Property Services Agreement (Partially-Owned
Properties)
EXHIBIT P: Form of M 330 Amendment
EXHIBIT Q: Form of Mendik License Agreement
EXHIBIT R: Form of Indemnification Agreement
EXHIBIT S: [RESERVED]
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EXHIBIT T: [RESERVED]
EXHIBIT U-1: List of Mendik Excluded Assets Subject to Options and Rights of
First Refusal
EXHIBIT U-2: Form of Option Agreement for Mendik Excluded Assets
EXHIBIT V: Forms of factual certificates for tax opinions
</TABLE>
vi
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Schedules (Attached to the Vornado Disclosure Letter or the Mendik Disclosure
Letter, as applicable):
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Schedule 3.1(b): Vornado Subsidiaries
Schedule 3.1(c): Vornado Securities
Schedule 3.1(d): Vornado Authority and Consents
Schedule 3.1(e): Vornado Undisclosed Liabilities
Schedule 3.1(f): Vornado Material Adverse Changes
Schedule 3.1(g): Vornado Litigation
Schedule 3.1(h): Vornado Properties
Schedule 3.1(i): Vornado Environmental Matters and Reports
Schedule 3.1(j): Vornado Related Party Transactions
Schedule 3.1(k)(i): Vornado Benefit Plans
Schedule 3.1(k)(ii): Vornado ERISA Compliance
Schedule 3.1(l): Vornado Taxes
Schedule 3.1(m): Vornado Payments to Employees, Officers, Trustees and
Directors
Schedule 3.1(p)(i): Vornado Contracts
Schedule 3.1(p)(ii): Vornado Debt Instruments
Schedule 3.2(b)(1): Property Partnership Assets
Schedule 3.2(b)(2): Property Partnership Agreements
Schedule 3.2(c)(1): Partners in the Property Partnerships and the
Property-Owning Entities
Schedule 3.2(c)(2): Property Partnership Securities
Schedule 3.2(d): Mendik Authority and Consents
Schedule 3.2(e)(i): Mendik Financial Statements
Schedule 3.2(e)(ii): Mendik Undisclosed Liabilities
Schedule 3.2(f): Mendik Material Adverse Changes
Schedule 3.2(g): Mendik Litigation
Schedule 3.2(h): Mendik Properties
Schedule 3.2(k): Mendik Taxes
Schedule 3.2(m): Mendik Compliance
Schedule 3.2(n)(i): Mendik Contracts
Schedule 3.2(n)(ii): Mendik Defaults
Schedule 3.2(n)(iii)(A): Mendik Mortgage Indebtedness
Schedule 3.2(n)(iii)(B): Mendik Debt Instruments
Schedule 3.2(o) REIT Qualification Tax Matters
Schedule 3.2(p)(1): Management Business Liens
Schedule 3.2(p)(2): Management Business Excluded Assets
Schedule 3.2(p)(3) Management Business Breaches
Schedule 4.1: Mendik Covenants
Schedule 5.2: Mendik Third-Party Disclosures
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Schedule 5.13: Financing Transactions
Schedule 5.15: Cleaning Business Transactions
Schedule 6.1(b): Mendik Required Third-Party Consents
</TABLE>
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Annexes:
ANNEX A: Mendik Voting Group
ANNEX B: Mendik Executives
ANNEX C: Persons with "Knowledge" with respect to the Operating Partnership,
the Mendik Group the Property Partnerships and the Property-Owning
Entities
ANNEX D: Persons with "Knowledge" with respect to Vornado and Vornado Sub
</TABLE>
viii
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INDEX OF DEFINITIONS
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<CAPTION>
Defined Term Section
- ------------ -------
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"1740 Broadway Associates" .................................. 10.3
"1740 Broadway Cash Investors" .............................. 10.3
"1740 Broadway Investment Company" .......................... 10.3
"1740 Broadway Mortgage" .................................... 5.12(c)
"1740 Major Partner Agreement" .............................. 5.12(a)
"1740 Solicitation Document" ................................ 5.1(b)
"1740 Specified Payments" ................................... 5.12(b)
"1940 Act" .................................................. 10.3
"330 Madison Company" ....................................... 10.3
"570 Lexington Associates" .................................. 10.3
"570 Lexington Company" ..................................... 10.3
"570 Lexington Investors" ................................... 10.3
"866 U.N. Plaza Associates" ................................. 10.3
"ADA" ....................................................... 3.2(m)
"Affiliate" ................................................. 10.3
"Aggregate Shortfall" ....................................... 5.12(b)
"Agreement" ................................................. Introduction
"Alexander's" ............................................... 3.1(b)
"B&B" ....................................................... 10.3
"B&B Loan" .................................................. 5.12(a)
"B&B Shortfalls" ............................................ 5.12(b)
"Break-up Expenses" ......................................... 8.2(b)
"Break-Up Fee" .............................................. 8.2(b)
"Bridge Loan" ............................................... 5.12(c)
"Bridge Loan Maturity Date" ................................. 5.12(c)
"Certificate of Merger" ..................................... 2.6(b)
"Closing Date" .............................................. 2.6(a)
"Code" ...................................................... 10.3
"Competing Transaction" ..................................... 5.6
"Consolidation" ............................................. Recitals
"DGCL" ...................................................... 10.3
"Effective Time" ............................................ 2.6(b)
"Eleven Penn Partnerships" .................................. 10.3
"Eleven Penn Plaza Company" ................................. 10.3
"Encumbrances" .............................................. 3.1(h)
"ERISA" ..................................................... 10.3
"Exchange Act" .............................................. 10.3
"Existing Mendik Management Entities" ....................... Introduction
"Financing Transactions" .................................... 5.13(a)
"FWM" ....................................................... 10.3
"FWM Purchase Agreement" .................................... Recitals
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"GAAP" ...................................................... 3.1(e)
"Governmental Entity" ....................................... 3.1(d)
"GPL Insurance" ............................................. 9.2
"Indemnification Agreement" ................................. 9.1
"Initial General Partner" ................................... Introduction
"Initial Reserve" ........................................... 5.12(a)
"Interim Period" ............................................ 5.12(b)
"Knowledge" ................................................. 10.3
"Laws" ...................................................... 3.1(d)
"Liens" ..................................................... 3.1(b)
"M 330 Amendment" ........................................... 5.11
"M 330 Associates" .......................................... 10.3
"M 393 Associates" .......................................... 10.3
"M Eleven Associates" ....................................... 10.3
"M/F Associates" ............................................ 10.3
"M/F Eleven Associates" ..................................... 10.3
"M/S Associates" ............................................ 10.3
"M/S Eleven Associates" ..................................... 10.3
"M/S Limited Partners" ...................................... 10.3
"M/S Limited Partners Agreements" ........................... Recitals
"Major Partner" ............................................. Recitals
"Major Partner Agreements" .................................. Recitals
"Management Business Assets" ................................ Recitals
"Management Corporation" .................................... 10.3
"Management Corporation Nonvoting Stock" .................... 1.3(c)
"Management Corporation Note" ............................... 1.3(c)
"Management Corporation Shareholders Agreement" ............. 1.3(d)
"Management Corporation Voting Stock" ....................... 1.3(c)
"Management LLC" ............................................ 10.3
"Managing General Partners" ................................. Recitals
"Master Property Services Agreement (Partially-Owned
Properties)" ............................................ 5.10(b)
"Master Property Services Agreement (Wholly-Owned
Properties)" ............................................ 5.10(a)
"Memorandum" ................................................ 5.1
"Mendik 1740 Corp" .......................................... 10.3
"Mendik 570 Corp" ........................................... 10.3
"Mendik Audited Entities" ................................... 3.2(e)
"Mendik Audited Financial Statements" ....................... 3.3(b)
"Mendik Cleaning Company" ................................... Recitals
"Mendik Core Assets" ........................................ 5.6
"Mendik Disclosure Letter" .................................. 10.3
"Mendik Draft Audited Financial Statements" ................. 3.2(e)
"Mendik Engineering Reports" ................................ 3.2(h)
"Mendik Environmental Reports" .............................. 3.2(i)
"Mendik Expenses" ........................................... 8.2(a)
"Mendik Final Unaudited Financial Statements" ............... 3.2(e)
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"Mendik Financial Statements" ............................... 3.3(b)
"Mendik Financial Statements Date" .......................... 3.2(e)
"Mendik Group" .............................................. Introduction
"Mendik Holdings" ........................................... Introduction
"Mendik License Agreement" .................................. 5.14(a)
"Mendik Management Company" ................................. Introduction
"Mendik Material Adverse Change" ............................ 3.2(f)
"Mendik Material Adverse Effect" ............................ 3.2(a)
"Mendik Partnership" ........................................ 10.3
"Mendik Properties" ......................................... Recitals
"Mendik Properties Compliance Reports" ...................... 3.2(h)
"Mendik Realty" ............................................. Introduction
"Mendik Security Company" ................................... Recitals
"Mendik Share Option Agreements" ............................ Recitals
"Mendik Structure Memorandum" ............................... 2.1
"Mendik Sub" ................................................ 10.3
"Mendik Unaudited Entities" ................................. 3.2(e)
"Mendik Unaudited Financial Statements" ..................... 3.2(e)
"Mendik Voting Agreements" .................................. Recitals
"Mendik Voting Group" ....................................... Recitals
"Mendik/FW Deficit" ......................................... 5.1(b)
"Mendik/FW LLC" ............................................. Introduction
"Mendik/FW Purchaser" ....................................... 5.12(b)
"Merrill" ................................................... 3.2(l)
"Mr. Fascitelli" ............................................ 10.3
"Mr. Greenbaum" ............................................. Introduction
"Mr. Mendik" ................................................ Introduction
"New Management Entities" ................................... 10.3
"Operating Partnership" ..................................... Introduction
"Operating Partnership Agreement" ........................... 2.3(a)
"Option" .................................................... 5.12(b)
"Option Agreement" .......................................... 5.12(b)
"Option Closing Date" ....................................... 8.12(b)
"Option Price" .............................................. 5.12(b)
"Outside Date" .............................................. 5.12(a)
"Partner" ................................................... 10.3
"Partner Consent" ........................................... 10.3
"Partner Interest Contribution Agreement" ................... 2.1
"Partnership Material Adverse Effect" ....................... 3.3(a)
"Permitted Distributions" ................................... 5.12(b)
"Person" .................................................... 10.3
"Property Cleaning Contract" ................................ 5.10(b)
"Property Partnership" ...................................... 10.3
"Property Partnership Agreements" ........................... 3.2(b)
"Property Restrictions" ..................................... 3.1(h)
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"Property-Owning Entity" .................................... 10.3
"Registration Rights Agreement" ............................. 2.3(b)
"REIT" ...................................................... 10.3
"REIT Management Assets" .................................... Recitals
"Restricted Share Agreement" ................................ 5.9(d)
"SEC" ....................................................... 10.3
"Securities Act" ............................................ 10.3
"Superior Competing Transaction" ............................ Article VII
"Taxes" ..................................................... 3.1(l)
"Third-Party Management Assets" ............................. Recitals
"Transactions" .............................................. Recitals
"Transfer Taxes" ............................................ 5.8
"Two Park Company" .......................................... 10.3
"Two Penn Plaza Associates" ................................. 10.3
"Unit Redemption Agreement" ................................. 2.5(b)
"Unitholders" ............................................... 2.3(a)
"Units" ..................................................... 1.2
"Vornado" ................................................... Introduction
"Vornado 1740 Sub" .......................................... 5.12(a)
"Vornado Benefit Plans" ..................................... 3.1(k)
"Vornado Common Shares" ..................................... 10.3
"Vornado Disclosure Letter" ................................. 10.3
"Vornado Employee Share Plans" .............................. 3.1(c)
"Vornado Engineering Reports" ............................... 3.1(h)
"Vornado Environmental Reports" ............................. 3.1(i)
"Vornado Excess Shares" ..................................... 3.1(c)
"Vornado Financial Statements" .............................. 3.1(e)
"Vornado Financial Statements Date" ......................... 3.1(f)
"Vornado Material Adverse Change" ........................... 3.1(f)
"Vornado Material Adverse Effect" ........................... 3.1(a)
"Vornado Options" ........................................... 3.1(c)
"Vornado Preferred Shares" .................................. 3.1(c)
"Vornado Properties" ........................................ 3.1(h)
"Vornado SEC Documents" ..................................... 3.1(e)
"Vornado Structure Memorandum" .............................. 2.2
"Vornado Subsidiary" ........................................ 3.1(b)
"Vornado Voting Agreement" .................................. 5.5
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THIS MASTER CONSOLIDATION AGREEMENT (this "AGREEMENT") dated as of March
12, 1997 is made and entered into among Vornado Realty Trust, a Maryland real
estate investment trust ("VORNADO"), Vornado/Saddle Brook L.L.C., a Delaware
limited liability company and wholly-owned subsidiary of Vornado ("VORNADO
SUB"), The Mendik Company, L.P., a Delaware limited partnership (the "OPERATING
PARTNERSHIP"), The Mendik Company, Inc., a Maryland corporation and currently
the sole general partner of the Operating Partnership (the "INITIAL GENERAL
PARTNER"), FW/Mendik REIT, L.L.C., a Delaware limited liability company and
currently the sole limited partner in the Operating Partnership ("MENDIK/FW
LLC"), Mendik Holdings LLC, a Delaware limited liability company ("MENDIK
HOLDINGS"), Mendik Realty Company, Inc., a New York corporation ("MENDIK
REALTY"), Mendik Managing Agent Company, Inc., a New York corporation ("MENDIK
MANAGEMENT COMPANY," and together with Mendik Realty, the "EXISTING MENDIK
MANAGEMENT ENTITIES"), Bernard H. Mendik, individually ("MR. MENDIK"), and David
R. Greenbaum, individually ("MR. GREENBAUM") (the Initial General Partner,
Mendik/FW LLC, Mendik Holdings, the Existing Mendik Management Entities, Mr.
Mendik and Mr. Greenbaum are referred to herein collectively as the "MENDIK
GROUP").
RECITALS
(a) Vornado is an existing Maryland REIT which owns, directly or
indirectly, interests in certain shopping centers as well as certain other real
estate and other assets.
(b) The Property-Owning Entities (other than M 393 Associates and M Eleven
Associates) own the fee interests in seven office properties in Manhattan (Two
Penn Plaza, Eleven Penn Plaza, 1740 Broadway, 866 United Nations Plaza, Two Park
Avenue, 330 Madison Avenue and 570 Lexington Avenue) (collectively, the "MENDIK
PROPERTIES").
(c) Mr. Mendik or an Affiliate of Mr. Mendik is a general partner or
managing member, as the case may be, of each of the Property Partnerships
(collectively, the "MANAGING GENERAL PARTNERS").
(d) Mr. Mendik and the Existing Mendik Management Entities (i) possess
rights under certain contracts or other agreements to provide management and
leasing services for the Mendik Properties in which the Operating Partnership
will own, directly or indirectly, all of the interests immediately following the
Effective Time (the "REIT MANAGEMENT ASSETS"), and (ii) possess rights under
certain contracts or other agreements to provide management and leasing services
for the Mendik Properties in which the Operating Partnership will own, directly
or indirectly, some but not all of the interests immediately following the
Effective Time and for certain properties in which the Operating Partnership
will not own an interest, and own certain personal property that will be
transferred to the Management Corporation (collectively, the "THIRD-PARTY
MANAGEMENT ASSETS," and, together with the REIT Management Assets, the
"MANAGEMENT BUSINESS ASSETS").
<PAGE> 15
(e) Mendik/FW LLC has entered into agreements with an investor who owns
interests in Two Penn Plaza Associates, 1740 Broadway Associates and B&B (the
"MAJOR PARTNER") pursuant to which Mendik/FW LLC has the right to acquire the
interests of the Major Partner in those Property Partnerships (as in effect on
the date hereof, the "MAJOR PARTNER AGREEMENTS").
(f) Vornado and the Mendik Group desire to effect the transfer (by means of
contribution, merger or otherwise) of certain assets of Vornado, the Mendik
Property Interests and substantially all of the interests in the Management
Business Assets to Vornado Sub, the Operating Partnership, the Management
Corporation and/or the Management LLC, upon the terms and subject to the
conditions set forth in this Agreement (the "CONSOLIDATION").
(g) Vornado has formed Vornado Sub for the sole purpose of acquiring
certain of Vornado's assets and subsequently merging with and into the Operating
Partnership upon the terms set forth in this Agreement.
(h) The Operating Partnership will form Mendik Sub for the sole purpose of
acquiring certain of the Mendik Property Interests in order to facilitate the
conversion of certain of the Property Partnerships into limited liability
companies pursuant to the terms of this Agreement and applicable law.
(i) Mr. Mendik and Mr. Greenbaum, individually or jointly, control Building
Maintenance Service LLC, a New York limited liability company (the "MENDIK
CLEANING COMPANY"), and Guard Management Service Corp., a New York corporation
(the "MENDIK SECURITY COMPANY"), which provide cleaning and security services,
respectively, for the Mendik Properties and certain other office properties in
the New York metropolitan area.
(j) Vornado, Vornado Sub and Mendik/FW LLC desire to make certain
representations, warranties, covenants and agreements in connection with the
Consolidation and also to prescribe various conditions to the Consolidation.
(k) Concurrently with the execution of this Agreement and as an inducement
to Vornado to enter into this Agreement, Mr. Mendik, Mr. Greenbaum, certain
entities they control and certain of their affiliates (collectively, the "MENDIK
VOTING GROUP") (the members of which are listed on ANNEX A) have entered into
voting agreements (the "MENDIK VOTING AGREEMENTS") with respect to the interests
of each member of the Mendik Voting Group in the Property Partnerships.
(l) Concurrently with the execution of this Agreement and as an inducement
to the Mendik Group to enter into this Agreement, Vornado has employed and
entered into a share option agreement (the "MENDIK SHARE OPTION AGREEMENTS")
with each of the seven executive officers of Mendik Realty listed on ANNEX B.
(m) Concurrently with the execution of this Agreement and as an inducement
to FWM to consent to this Agreement, Vornado, certain members of the Mendik
Group and FWM have entered into an agreement whereby the interests of FWM in
Mendik/FW LLC may,
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under certain circumstances, be acquired by Vornado Sub and certain mutual
indemnities will be provided to the Operating Partnership (the "FWM PURCHASE
AGREEMENT").
(n) The Operating Partnership has entered into one or more agreements with
the M/S Limited Partners pursuant to which, among other things, concurrently
with the closing of the Consolidation, the Operating Partnership will acquire
the interests of the M/S Limited Partners in the Eleven Penn Partnerships in
exchange for Units (as defined below) (the "M/S LIMITED PARTNERS AGREEMENTS").
(o) The transactions contemplated by this Agreement, the Mendik Voting
Agreements, the M/S Limited Partners Agreements, the Mendik Share Option
Agreements, the FWM Purchase Agreement and the other agreements and documents
contemplated hereby, including, without limitation, the Consolidation, are
referred to collectively in this Agreement as the "TRANSACTIONS."
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
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<PAGE> 17
ARTICLE I
PRE-CONSOLIDATION TRANSACTIONS
SECTION 1.1 Transfer of REIT Management Assets and Major Partner's
Interests. Immediately prior to the Effective Time (as defined below), the
following transactions shall occur:s.
(a) Mendik Realty shall contribute the REIT Management Assets to
Mendik Holdings in exchange for an interest in Mendik Holdings, pursuant to
a Contribution Agreement substantially in the form of EXHIBIT A.
(b) Mendik Holdings shall contribute to Mendik/FW LLC, as an
additional capital contribution in respect of Mendik Holdings' interest in
Mendik/FW LLC, and Mendik/FW LLC shall receive from Mendik Holdings, the
REIT Management Assets, pursuant to a Contribution Agreement substantially
in the form of the Contribution Agreement referred to in subsection (a)
above.
(c) Mendik/FW LLC shall contribute to the Operating Partnership, as an
additional capital contribution in respect of Mendik/FW LLC's interest in
the Operating Partnership, and the Operating Partnership shall receive from
Mendik/FW LLC, an undivided ninety-nine percent (99%) interest in the REIT
Management Assets, pursuant to a Contribution Agreement substantially in
the form of the Contribution Agreement referred to in subsection (a) above.
(d) Mendik/FW LLC shall contribute to the Management Corporation an
undivided one percent (1%) interest in the REIT Management Assets, pursuant
to the Assignment and Assumption Agreement described in Section 1.3(c)
below.
(e) The Operating Partnership and the Management Corporation shall
contribute their interests in the REIT Management Assets to the Management
LLC in exchange for interests of 99% and 1%, respectively, in the
Management LLC.
(f) Mendik/FW LLC shall contribute to the Operating Partnership, as an
additional capital contribution in respect of Mendik/FW LLC's interest in
the Operating Partnership, and the Operating Partnership shall receive from
Mendik/FW LLC, either:
(i) in the event the transactions described in Sections 5.12(a)
and (b) have not been consummated, Mendik/FW LLC's rights under the
Major Partner Agreements; or
(ii) in the event the transactions described in Sections 5.12(a)
and (b) have been consummated, Mendik/FW LLC's interests in B&B and
Mendik/FW LLC's rights under the Major Partner Agreement relating to
the Major Partner's interest in Two Penn Plaza Associates.
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<PAGE> 18
SECTION 1.2 Recapitalization of the Operating Partnership. Immediately
following the completion of the transactions described in Section 1.1, the
Initial General Partner and Mendik/FW LLC shall cause the Operating Partnership
to be recapitalized and to issue (i) 1,000 units of partnership interest in the
Operating Partnership ("UNITS") to the Initial General Partner as the sole
general partner of the Operating Partnership and (ii) 2,329,654 Units to
Mendik/FW LLC as the sole limited partner in the Operating Partnership, subject
to adjustment as set forth in the Mendik Structure Memorandum (as defined
below).
SECTION 1.3 Transfer of Third-Party Management Assets. Immediately prior to
the Effective Time, the following transactions shall occur:
(a) Mr. Mendik and the Existing Mendik Management Entities shall
contribute the Third-Party Management Assets to Mendik Holdings in exchange
for an interest in Mendik Holdings, pursuant to a Contribution Agreement
substantially in the form of EXHIBIT B.
(b) Mendik Holdings shall contribute to Mendik/FW LLC, as an
additional capital contribution in respect of Mendik Holdings's interest in
Mendik/FW LLC, and Mendik/FW LLC shall receive from Mendik Holdings, the
Third-Party Management Assets, pursuant to a Contribution Agreement
substantially in the form of the Contribution Agreement referred to in
subsection (a) above.
(c) (i) Mendik/FW LLC shall transfer the Third-Party Management
Assets, as well as the interest in the REIT Management Assets described in
Section 1.1(d) above, to the Management Corporation in exchange for (A) 75
shares of voting common stock, par value $.01 per share, of the Management
Corporation (the "MANAGEMENT CORPORATION VOTING STOCK"), which will
represent a five percent (5%) economic interest in the Management
Corporation, (B) 1,425 shares of nonvoting common stock, par value $.01 per
share, of the Management Corporation (the "MANAGEMENT CORPORATION NONVOTING
STOCK"), which will represent a ninety-five percent (95%) economic interest
in the Management Corporation, and (C) a promissory note issued by the
Management Corporation in the amount of SIX MILLION DOLLARS ($6,000,000)
(the "MANAGEMENT CORPORATION NOTE"), all pursuant to an Assignment and
Assumption Agreement substantially in the form of EXHIBIT C-1.
(ii) In connection with the transfer of the Third Party
Management Assets to the Management Corporation, Mendik Realty and
Mendik Management Company, as applicable, shall make certain covenants
to the Operating Partnership with respect to certain of the
Third-Party Management Assets pursuant to a letter substantially in
the form of EXHIBIT C-2.
(d) (i) Mendik/FW LLC shall sell to Mr. Fascitelli thirty-seven (37)
shares of Management Corporation Voting Stock in exchange for cash in the
amount of THIRTY-SEVEN THOUSAND DOLLARS ($37,000);
(ii) Mendik/FW LLC shall sell to Mr. Mendik nineteen (19) shares
of Management Corporation Voting Stock in exchange for cash in the
amount of NINETEEN THOUSAND DOLLARS ($19,000);
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<PAGE> 19
(iii) Mendik/FW LLC shall sell to Mr. Greenbaum nineteen (19)
shares of Management Corporation Voting Stock in exchange for cash in
the amount of NINETEEN THOUSAND DOLLARS ($19,000); and
(iv) The Management Corporation, Mr. Fascitelli, Mr. Mendik and
Mr. Greenbaum shall enter into a Shareholders Agreement with respect
to their interests in the Management Corporation (the "MANAGEMENT
CORPORATION SHAREHOLDERS AGREEMENT") substantially in the form of
EXHIBIT D.
(e) Mendik/FW LLC shall transfer the Management Corporation Nonvoting
Stock and the Management Corporation Note to the Operating Partnership in
exchange for cash in the amount of $7,425,000, pursuant to an Assignment
and Assumption Agreement substantially in the form of EXHIBIT E-1. A
portion of the consideration paid for such assets may be repaid by
Mendik/FW LLC to the Operating Partnership under certain circumstances
pursuant to a letter agreement to be entered into by Mendik/FW LLC and the
Operating Partnership substantially in the form of EXHIBIT E-2.
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<PAGE> 20
ARTICLE II
THE CONSOLIDATION
SECTION 2.1 Transfer of Property Partnership Assets and Related
Transactions. Effective as of the Effective Time, the Operating Partnership
shall acquire (or, in certain circumstances as described in the memorandum
relating to the proposed transfer of interests in the Mendik Properties attached
hereto as APPENDIX A (the "MENDIK STRUCTURE MEMORANDUM"), the Operating
Partnership shall acquire through Mendik Sub) the interests of the Partners
substantially in the manner described in the Mendik Structure Memorandum and in
exchange for a combination of cash and Units as set forth in (or as determined
in accordance with) the Mendik Structure Memorandum, all pursuant to partner
interest contribution agreements substantially in the forms attached hereto as
EXHIBITS F-1, F-2, F-3, F-4, F-5, F-6, F-7 and F-8 (each a "PARTNER INTEREST
CONTRIBUTION AGREEMENT"); provided, however, that in the event the transactions
described in Section 5.12(a) are consummated, then the interests of the Partners
in 1740 Broadway Associates will be transferred to the Vornado 1740 Sub (as
defined below) on the terms set forth in Sections 5.12(a) and (b) and pursuant
to documents substantially as described in Sections 5.12(a) and (b).
SECTION 2.2 Transfer of Vornado Assets. Effective as of the Effective Time,
the Operating Partnership shall acquire at least ninety-five percent (95%) of
the assets held, directly or indirectly, by Vornado and its consolidated
subsidiaries (based on the aggregate fair market value thereof) substantially in
the manner described in the memorandum relating to the proposed transfer of the
assets of Vornado attached hereto as APPENDIX B (the "VORNADO STRUCTURE
MEMORANDUM") and in exchange for Units as set forth in (or determined in
accordance with) the Vornado Structure Memorandum (together with such changes
therein as may be necessary or appropriate to effect savings in transfer taxes,
provided any such changes shall not materially alter the amounts, quality or
character of the assets that are to be acquired by the Operating Partnership).
SECTION 2.3 Operating Partnership Transactions. Effective as of the
Effective Time, the following transactions relating to the Operating Partnership
shall occur:
(a) Vornado, the Initial General Partner, Mendik/FW LLC, Mendik 570
Corp, the Mendik Partnership, the Major Partner, the M/S Limited Partners
and each Partner (or any distributee of such Partner) who receives Units in
the Consolidation (collectively, "UNITHOLDERS") shall execute and deliver a
First Amended and Restated Agreement of Limited Partnership of the
Operating Partnership substantially in the form of EXHIBIT G (the
"OPERATING PARTNERSHIP AGREEMENT"), pursuant to which:
(i) Vornado shall be admitted as an additional general partner of
the Operating Partnership;
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<PAGE> 21
(ii) the 1,000 Units representing the Initial General Partner's
interest in the Operating Partnership shall be converted into a
limited partner interest in the Operating Partnership;
(iii) each of the Units in the Operating Partnership held by the
Initial General Partner and Mendik/FW LLC shall be deemed to be Class
C Units;
(iv) each of the Units in the Operating Partnership received by
Vornado and the Major Partner in the Consolidation shall be deemed to
be Class A Units;
(v) each of the Units in the Operating Partnership received by
the Partners (or their distributees) in the Transactions shall be
deemed to be Class D Units, subject to the conversion of the Units
received by certain Affiliates of the Mendik Group into Class C Units
pursuant to the terms of the Operating Partnership Agreement;
(vi) each of the Units in the Operating Partnership received by
the M/S Limited Partners in connection with the Transactions shall be
deemed to be Class E Units; and
(vii) the name of the Operating Partnership shall be changed to
Vornado Realty L.P.
(b) Vornado shall execute and deliver for the benefit of each
Unitholder (other than Vornado and the Major Partner) a Registration Rights
Agreement substantially in the form of EXHIBIT H (the "REGISTRATION RIGHTS
AGREEMENT").
(c) Mendik Realty shall assign its interest as a tenant under a lease
for certain space at 330 Madison Avenue to the Operating Partnership or to
such other entity as the parties may mutually agree.
SECTION 2.4 Mendik/FW LLC Transactions. Effective as of the Effective Time,
the following transactions relating to Mendik/FW LLC shall occur:
(a) Vornado Sub shall acquire all of the membership interest of FWM in
Mendik/FW LLC for cash pursuant to the FWM Purchase Agreement.
(b) Mendik/FW LLC shall redeem the interest in Mendik/FW LLC acquired
by Vornado Sub pursuant to subsection (a) above for 870,865 Units, from
those Units Mendik/FW LLC is to receive in connection with the
recapitalization of the Operating Partnership pursuant to Section 1.2.
(c) The parties hereto acknowledge that, notwithstanding that Vornado
Sub will be a member of Mendik/FW LLC for a specified period as described
above, none of Vornado, Vornado Sub or any of their affiliates shall have
any responsibility for any obligation of Mendik/FW LLC hereunder or under
any related document, nor shall the fact that Vornado Sub will be a member
of Mendik/FW LLC for a specified period of time give rise to any defense on
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<PAGE> 22
the part of Mendik/FW LLC to the performance of or compliance with any
obligation or covenant hereunder or under any related document.
SECTION 2.5 Acquisition of Units by Vornado and the Operating Partnership.
Immediately following the Effective Time, the following transactions shall
occur:
(a) Vornado shall acquire the Units issued to the Major Partner
pursuant to Section 2.1 in exchange for 962 Vornado Common Shares.
(b) The Operating Partnership shall acquire Units issued to any
Partners (or their distributees) who elect to sell such Units to the
Operating Partnership pursuant to the solicitation of such Partners by the
Memorandum (as defined below) for cash at a purchase price of $52.00 per
Unit, pursuant to a Unit Redemption Agreement in substantially the form of
EXHIBIT I (the "UNIT REDEMPTION AGREEMENT").
(c) Immediately following the completion of the transactions described
in clauses (a) and (b) immediately above, Exhibit A to the Operating
Partnership Agreement shall be amended to reflect the then-current
ownership of Units.
SECTION 2.6 Closing; Effective Time.
(a) The closing of the Consolidation will take place at 10:00 a.m. on a
date to be specified by the parties, which (subject to satisfaction or waiver of
the conditions set forth in Sections 6.2 and 6.3) shall be no later than the
fifth day after satisfaction or waiver of the conditions set forth in Section
6.1 (the "CLOSING DATE"), at the offices of Proskauer, Rose, Goetz & Mendelsohn
LLP, 1585 Broadway, New York, New York 10036, unless another date or place is
agreed to by the parties hereto.
(b) As soon as practicable following the satisfaction or waiver of the
conditions set forth in Article VI, Vornado Sub and the Operating Partnership
shall file a certificate of merger or other appropriate documents (the
"CERTIFICATE OF MERGER") executed in accordance with the DGCL and shall make all
other filings or recordings required under the DGCL. The Consolidation shall
become effective upon the filing of the Certificate of Merger with the Secretary
of State of the State of Delaware, or at such later time which Vornado, the
Operating Partnership and Mendik/FW LLC have agreed upon and designated in such
filing in accordance with applicable law (the time the Consolidation becomes
effective being the "EFFECTIVE TIME"), it being understood that the parties
shall cause the Effective Time to occur on the Closing Date.
(c) Notwithstanding anything to the contrary contained in this Agreement or
otherwise, the parties hereto hereby agree and understand that the Transactions
may occur in any order and that each of the Transactions shall be deemed to be
effective only as of the Effective Time and only upon the effectiveness of all
of the Transactions; provided, as set forth above certain of the Transactions
shall be completed prior to certain other of the Transactions in order (i) to
maintain the separate legal existence of the various entities participating in
the Transactions
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and (ii) to avoid, to the greatest extent possible, the
imposition of any Taxes (as defined below) (including, without limitation any
Transfer Taxes (as defined below)) on any of the Transactions or on any of the
parties hereto.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Representations and Warranties of Vornado. Vornado and Vornado
Sub represent and warrant to the Operating Partnership and Mendik/FW LLC as
follows, which representations and warranties shall be true and shall be given
only as of the date of this Agreement and shall not survive following the
Effective Time:
(a) Organization, Standing and Corporate Power of Vornado and Vornado
Sub. Vornado is a REIT duly organized and validly existing under the laws
of the State of Maryland. Vornado Sub is a Delaware limited liability
company duly organized and validly existing under the laws of the State of
Delaware. Each of Vornado and Vornado Sub has the requisite corporate or
other (as the case may be) power and authority to carry on its business as
now being conducted. Each of Vornado and Vornado Sub is duly qualified or
licensed to do business and is in good standing in each jurisdiction in
which the nature of its business or the ownership or leasing of its
properties makes such qualification or licensing necessary, other than in
such jurisdictions where the failure to be so qualified or licensed,
individually or in the aggregate, would not have a material adverse effect
on the business, properties, assets, financial condition or results of
operations of Vornado, Vornado Sub and the Vornado Subsidiaries (as
hereinafter defined), taken as a whole (a "VORNADO MATERIAL ADVERSE
EFFECT"). Each of Vornado and Vornado Sub has delivered to the Operating
Partnership and the Mendik Group complete and correct copies of its
Declaration of Trust, Articles of Incorporation or Certificate of
Organization (as the case may be) and Bylaws or Operating Agreement (as the
case may be), as amended or supplemented to the date of this Agreement.
(b) Vornado Subsidiaries. SCHEDULE 3.1(B) to the Vornado Disclosure
Letter sets forth for each entity in which Vornado, directly or indirectly,
owns or controls 50% or more of the voting or economic interest (each, a
"VORNADO SUBSIDIARY") and for Alexander's, Inc., a Delaware corporation
("ALEXANDER'S"), the name of each such entity and the ownership interest
therein of Vornado. Except as set forth in SCHEDULE 3.1(B) to the Vornado
Disclosure Letter, (A) all the outstanding shares of capital stock of each
Vornado Subsidiary that is a corporation have been validly issued and are
fully paid and nonassessable and are owned by Vornado or another Vornado
Subsidiary free and clear of all pledges, claims, liens, charges, security
interests, and encumbrances of any kind or nature whatsoever (collectively,
"LIENS") and (B) all equity interests in each Vornado Subsidiary that is a
partnership, joint venture, limited liability company or trust are owned by
Vornado or another Vornado Subsidiary free and clear of all Liens except,
in the case of clause (A) and (B), for Liens that, in the aggregate, do not
have a Vornado Material Adverse Effect. Except for the capital stock of or
other equity or ownership interests in the Vornado Subsidiaries, investment
securities and except as set forth in SCHEDULE 3.1(B) to the Vornado
Disclosure Letter, Vornado does not own, directly or indirectly, any
capital stock or other ownership interest in any Person. Each Vornado
Subsidiary that is a corporation is duly incorporated and validly existing
under the laws of its jurisdiction of incorporation and has the requisite
corporate power and authority to carry on its business as now being
conducted, and each
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<PAGE> 25
Vornado Subsidiary that is a partnership, limited liability company or
trust is duly organized and validly existing under the laws of its
jurisdiction of organization and has the requisite power and authority to
carry on its business as now being conducted, except for such failures as,
in the aggregate, do not have a Vornado Material Adverse Effect. Each
Vornado Subsidiary is duly qualified or licensed to do business and is in
good standing in each jurisdiction in which the nature of its business or
the ownership or leasing of its properties makes such qualification or
licensing necessary, other than in such jurisdictions where the failure to
be so qualified or licensed, individually or in the aggregate, would not
have a Vornado Material Adverse Effect. Complete and correct copies of the
Articles of Incorporation, Bylaws, other comparable organizational
documents and partnership, operating and joint venture agreements of each
Vornado Subsidiary, as amended to the date of this Agreement, have been
delivered or made available to the Operating Partnership and the Mendik
Group.
(c) Capital Structure. The authorized shares of beneficial interest of
Vornado consist of 50,000,000 Vornado Common Shares, 1,000,000 preferred
shares of beneficial interest, no par value per share ("VORNADO PREFERRED
SHARES") and 51,000,000 excess shares of beneficial interest, par value
$.04 per share ("VORNADO EXCESS SHARES"). On the date hereof, (i)
26,087,910 Vornado Common Shares (excluding 459,770 Vornado Common Shares
held in trust for the benefit of Mr. Fascitelli) and no Vornado Preferred
Shares or, to the Knowledge of Vornado, Vornado Excess Shares were issued
and outstanding, (ii) no Vornado Common Shares or Vornado Preferred Shares
were held by Vornado in its treasury, (iii) 728,066 Vornado Common Shares
were available for issuance under Vornado's employee benefit or incentive
plans ("VORNADO EMPLOYEE SHARE PLANS"), and (iv) 3,338,385 Vornado Common
Shares (including 459,770 Vornado Common Shares held in trust for the
benefit of Mr. Fascitelli) were issuable upon exercise of outstanding stock
options ("VORNADO OPTIONS") to purchase Vornado Common Shares. On the date
of this Agreement, except as set forth in this Section 3.1(c), no shares of
beneficial interest or other voting securities of Vornado were issued,
reserved for issuance or outstanding. There are no outstanding share
appreciation rights relating to any shares of beneficial interest of
Vornado. All outstanding shares of beneficial interest of Vornado are duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights. Except as set forth in SCHEDULE 3.1(C) to the Vornado
Disclosure Letter or as set forth in any partnership, operating or joint
venture agreements of each Vornado Subsidiary, there are no bonds,
debentures, notes or other indebtedness of Vornado which give the holder
thereof the right to vote (or which are convertible into, or exchangeable
for, securities having the right to vote) on any matters on which
shareholders of Vornado may vote. Except (A) for the Vornado Options, (B)
as set forth in SCHEDULE 3.1(C) to the Vornado Disclosure Letter or (C) as
set forth in any partnership, operating or joint venture agreements of any
Vornado Subsidiary, there are no outstanding securities, options, warrants,
calls, rights, commitments, agreements, arrangements or undertakings of any
kind to which Vornado or any Vornado Subsidiary is a party or by which such
entity is bound, obligating Vornado or any Vornado Subsidiary to issue,
deliver or sell, or cause to be issued, delivered or sold, additional
shares of beneficial interest, voting securities or other ownership
interests of Vornado or of any Vornado Subsidiary or obligating Vornado or
any Vornado Subsidiary to issue, grant, extend or enter into any such
security, option, warrant, call, right, commitment, agreement, arrangement
or undertaking (other than to Vornado or a Vornado Subsidiary). Except as
set forth in SCHEDULE 3.1(C) to the Vornado Disclosure Letter, there are
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no outstanding contractual obligations of Vornado or any Vornado Subsidiary
to repurchase, redeem or otherwise acquire any shares of beneficial
interest or other ownership interests in Vornado or any Vornado Subsidiary
or to make any material investment (in the form of a loan, capital
contribution or otherwise) in any Person (other than a Vornado Subsidiary).
(d) Authority; Noncontravention; Consents. Each of Vornado and Vornado
Sub has the requisite corporate or other (as the case may be) power and
authority to enter into this Agreement and to consummate the transactions
contemplated by this Agreement to which Vornado or Vornado Sub (as the case
may be) is a party. The execution and delivery of this Agreement by each of
Vornado and Vornado Sub and the consummation by each of Vornado and Vornado
Sub of the transactions contemplated by this Agreement to which Vornado or
Vornado Sub (as the case may be) is a party have been duly authorized by
all necessary corporate or other (as the case may be) action on the part of
each of Vornado and Vornado Sub. This Agreement has been duly executed and
delivered by each of Vornado and Vornado Sub and constitutes a valid and
binding obligation of each of Vornado and Vornado Sub, enforceable against
each of Vornado and Vornado Sub in accordance with its terms, except as
such enforcement may be limited by (i) applicable bankruptcy or insolvency
laws (or other laws affecting creditors' rights generally) or (ii) general
principles of equity. Except as set forth in SCHEDULE 3.1(D) to the Vornado
Disclosure Letter, the execution and delivery of this Agreement by each of
Vornado and Vornado Sub do not, and the consummation of the transactions
contemplated by this Agreement to which Vornado or Vornado Sub (as the case
may be) is a party and compliance by each of Vornado and Vornado Sub with
the provisions of this Agreement will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration
of any obligation or to loss of a material benefit under, or result in the
creation of any Lien upon any of the properties or assets of Vornado,
Vornado Sub, or any other Vornado Subsidiary under, (i) the Declaration of
Trust, Articles of Incorporation or Certificate of Organization (as the
case may be) or By-laws or Operating Agreement (as the case may be) of
Vornado and Vornado Sub or the comparable charter or organizational
documents or partnership or similar agreement (as the case may be) of any
other Vornado Subsidiary, each as amended or supplemented to the date of
this Agreement, (ii) any loan or credit agreement, note, bond, mortgage,
indenture, reciprocal easement agreement, lease or other agreement,
instrument, permit, concession, franchise or license applicable to Vornado,
Vornado Sub or any other Vornado Subsidiary or their respective properties
or assets or (iii) subject to the governmental filings and other matters
referred to in the following sentence, any judgment, order, decree,
statute, law, ordinance, rule or regulation (collectively, "LAWS")
applicable to Vornado, Vornado Sub or any other Vornado Subsidiary or their
respective properties or assets, other than, in the case of clause (ii) or
(iii), any such conflicts, violations, defaults, rights or Liens that
individually or in the aggregate would not (x) have a Vornado Material
Adverse Effect or (y) prevent the consummation of the Transactions. No
consent, approval, order or authorization of, or registration, declaration
or filing with, any federal, state or local government or any court,
administrative or regulatory agency or commission or other governmental
authority or agency, domestic or foreign (a "GOVERNMENTAL ENTITY"), is
required by or with respect to Vornado, Vornado Sub or any Vornado
Subsidiary in connection with the execution and delivery of this Agreement
or the consummation by Vornado or Vornado Sub, as the case may be, of any
of the transactions contemplated by this Agreement,
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except for (1) the filing with the SEC of a report on Form 8-K, as may be
required in connection with this Agreement and the transactions
contemplated by this Agreement, (2) such filings as may be required in
connection with the payment of any Transfer Taxes (as hereinafter defined)
and (3) such other consents, approvals, orders, authorizations,
registrations, declarations and filings as are set forth in SCHEDULE 3.1(D)
to the Vornado Disclosure Letter or (A) as may be required under (x)
federal, state or local environmental laws or (y) the "blue sky" laws of
various states or (B) which, if not obtained or made, would not, in the
aggregate, have a Vornado Material Adverse Effect or prevent the
consummation of the Transactions.
(e) SEC Documents; Financial Statements; Undisclosed Liabilities.
Vornado has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC. The Vornado Annual
Report on Form 10-K for the year ended December 31, 1996 (including all
documents incorporated therein by reference) and the Vornado Proxy
Statement on Schedule 14A relating to the 1996 annual meeting of Vornado
shareholders (collectively, the "VORNADO SEC DOCUMENTS") as of their
respective filing dates, complied in all material respects with all
applicable requirements of the Securities Act and the Exchange Act and the
rules and regulations promulgated thereunder. The consolidated financial
statements of Vornado included in the Vornado Annual Report on Form 10-K
for the year ended December 31, 1996 (the "VORNADO FINANCIAL STATEMENTS")
complied as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principals ("GAAP") applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and
fairly presented, in accordance with the applicable requirements of GAAP,
the consolidated financial position of Vornado and the Vornado
Subsidiaries, taken as a whole, as of the dates thereof and the
consolidated results of operations and cash flows for the periods then
ended, except for liabilities and obligations which would not have a
Vornado Material Adverse Effect. Except as set forth in the Vornado
Financial Statements or in SCHEDULE 3.1(E) to the Vornado Disclosure
Letter, to the Knowledge of Vornado, neither Vornado nor any Vornado
Subsidiary has any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) required by GAAP to be set
forth on a consolidated balance sheet of Vornado or which, individually or
in the aggregate, would have a Vornado Material Adverse Effect.
(f) Absence of Certain Changes or Events. Except as disclosed in the
Vornado SEC Documents or in SCHEDULE 3.1(F) to the Vornado Disclosure
Letter, since December 31, 1996 (the "VORNADO FINANCIAL STATEMENTS DATE")
to a time immediately prior to the execution of this Agreement, there has
not been (i) an occurrence or circumstance that would have a Vornado
Material Adverse Effect (a "VORNADO MATERIAL ADVERSE CHANGE"), nor has
there been any occurrence or circumstance that with the passage of time
would reasonably be expected to result in a Vornado Material Adverse
Change, (ii) except for regular quarterly dividends not in excess of $.64
per Vornado Common Share, any declaration, setting aside or payment of any
dividend or distribution (whether in cash, stock or property) with respect
to any of Vornado's shares of beneficial interest, (iii) any split,
combination or reclassification of any of Vornado's shares of beneficial
interest or any issuance or the authorization of any issuance of any other
securities in respect of, in lieu of or in substitution for, or giving the
right to acquire by
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exchange or exercise, its shares of beneficial interest or any issuance of
an ownership interest in any Vornado Subsidiary, (iv) any damage,
destruction or loss, not covered by insurance, that has had or would have a
Vornado Material Adverse Effect or (v) any change in accounting methods,
principles or practices by Vornado or any Vornado Subsidiary except insofar
as may have been disclosed in the Vornado SEC Documents or required by a
change in GAAP.
(g) Litigation. Except as disclosed in the Vornado SEC Documents or in
SCHEDULE 3.1(G) to the Vornado Disclosure Letter, and other than personal
injury and other routine tort litigation that has arisen from the ordinary
course of operations of Vornado and the Vornado Subsidiaries which are
covered by adequate insurance (other than deductibles), there is no suit,
action or proceeding pending or, to the knowledge of Vornado and Vornado
Sub, threatened against or affecting Vornado or any Vornado Subsidiary
which, if determined adversely to Vornado or any Vornado Subsidiary,
individually or in the aggregate, could reasonably be expected to (A) have
a Vornado Material Adverse Effect or (B) prevent the consummation of any of
the Transactions, nor is there any judgment, decree, injunction, rule or
order of any Governmental Entity or arbitrator outstanding against Vornado
or any Vornado Subsidiary having, or which, insofar as reasonably can be
foreseen, in the future would have either such effect.
(h) Properties. Except as provided in SCHEDULE 3.1(H) to the Vornado
Disclosure Letter, Vornado or one of the Vornado Subsidiaries owns fee
simple title to each of the real properties identified in SCHEDULE 3.1(H)
to the Vornado Disclosure Letter (the "VORNADO PROPERTIES"), which are all
of the real estate properties owned by them. The Vornado Properties are
owned free and clear of rights of way, written agreements, liens, mortgages
or deeds of trust, claims against title, charges which are liens, security
interests or other encumbrances on title ("ENCUMBRANCES"), other than
tenant leases, and Encumbrances disclosed on existing title reports or
existing surveys (copies of which title reports and surveys have previously
been delivered or made available to the Operating Partnership and the
Mendik Group) and except for such other Encumbrances which, taken as a
whole with respect to the Vornado Properties, do not have a Vornado
Material Adverse Effect. Except as provided in SCHEDULE 3.1(H) to the
Vornado Disclosure Letter or in the engineering reports listed in SCHEDULE
3.1(H) to the Vornado Disclosure Letter and previously delivered or made
available to the Mendik Group (the "VORNADO ENGINEERING REPORTS"), (i) none
of Vornado or any Vornado Subsidiary has received notice that any
certificate, permit or license from any Governmental Entity having
jurisdiction over any of the Vornado Properties or any agreement, easement
or other right which is necessary to permit the lawful use and operation of
the buildings and improvements on any of the Vornado Properties or which is
necessary to permit the lawful use and operation of all driveways, roads
and other means of egress and ingress to and from any of the Vornado
Properties has not been obtained and is not in full force and effect, or of
any pending threat of modification or cancellation of any of same that, in
the case of any of the foregoing, has not been cured, (ii) none of Vornado
or any Vornado Subsidiary has received written notice of any material
violation of any federal, state or municipal law, ordinance, order,
regulation or requirement affecting any portion of any of the Vornado
Properties issued by any Governmental Entity that has not been cured, (iii)
there is no physical damage to any Vornado Property for which there is no
insurance in effect covering the cost of the restoration, except for
matters referred to in clauses (i), (ii) and (iii) above which, in the
aggregate, do not have a Vornado Material Adverse Effect. Except as
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<PAGE> 29
set forth in SCHEDULE 3.1(H) to the Vornado Disclosure Letter or in the
Vornado Engineering Reports, none of Vornado or any of the Vornado
Subsidiaries has received any notice from any Governmental Entity to the
effect that (1) any condemnation or rezoning proceedings are pending or
threatened with respect to any of the Vornado Properties or (2) any zoning,
building or similar law, code, ordinance, order or regulation is or will be
violated by the continued maintenance, operation or use of any buildings or
other improvements on any of the Vornado Properties or by the continued
maintenance, operation or use of the parking areas, except for any matters
referred to in clause (1) or (2) above which, in the aggregate, do not have
a Vornado Material Adverse Effect. Except as set forth in SCHEDULE 3.1(H)
to the Vornado Disclosure Letter or in the Vornado Engineering Reports, (A)
all work to be performed, payments to be made and actions to be taken by
Vornado or Vornado Subsidiaries prior to the date hereof pursuant to any
agreement entered into with a governmental body or authority in connection
with a site approval, zoning reclassification or other similar action
relating to the Vornado Properties (e.g., Local Improvement District, Road
Improvement District, Environmental Mitigation) has been performed, paid or
taken, as the case may be, and, (B) to the Knowledge of Vornado, there are
no planned or proposed work, payments or actions that may be required after
the date hereof pursuant to such agreements, except for any such planned or
proposed work, payments or actions described in clause (A) or (B) which, in
the aggregate, if they did not happen, would not reasonably be expected to
have a Vornado Material Adverse Effect.
(i) Environmental Matters. Except as disclosed in the Vornado SEC
Documents, as set forth in SCHEDULE 3.1(I) to the Vornado Disclosure Letter
or set forth in the environmental reports relating to certain of the
Vornado Properties (the "VORNADO ENVIRONMENTAL REPORTS"), which Vornado
Environmental Reports are listed in SCHEDULE 3.1(I) to the Vornado
Disclosure Letter and have previously been provided or made available to
the Mendik Group, none of Vornado, any of the Vornado Subsidiaries or, to
the Knowledge of Vornado, any other Person has caused or permitted (A) the
unlawful presence of any Hazardous Materials on any of the Vornado
Properties or (B) any unlawful spills, releases, discharges or disposal of
Hazardous Materials to have occurred or be presently occurring on or from
the Vornado Properties as a result of any construction on or operation and
use of such properties, which presence or occurrence would, in the
aggregate, have a Vornado Material Adverse Effect; and in connection with
the construction on or operation and use of the Vornado Properties, Vornado
and the Vornado Subsidiaries have not failed to comply in any material
respect with all applicable local, state and federal environmental laws,
regulations, ordinances and administrative and judicial orders relating to
the generation, recycling, reuse, sale, storage, handling, transport and
disposal of any Hazardous Materials, except to the extent such failure to
comply, in the aggregate, would not have a Vornado Material Adverse Effect.
(j) Related Party Transactions. Except as set forth in SCHEDULE 3.1(J)
to the Vornado Disclosure Letter or in the Vornado SEC Documents, there are
no arrangements, agreements and contracts entered into by Vornado, Vornado
Sub or any of the Vornado Subsidiaries with (i) any Person who is an
officer, director or affiliate of Vornado, Vornado Sub or any of the
Vornado Subsidiaries, any relative of any of the foregoing or any entity of
which any of the foregoing is an affiliate or (ii) any Person who acquired
Vornado Common Shares in a
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<PAGE> 30
private placement. Copies of all of the foregoing documents have previously
been delivered or made available to the Mendik Group.
(k) Absence of Changes in Benefit Plans; ERISA Compliance.
(i) Except as disclosed in the Vornado SEC Documents or in
SCHEDULE 3.1(K)(I) to the Vornado Disclosure Letter and except as
permitted by Section 4.2 (for the purpose of this sentence, as if
Section 4.2 had been in effect since December 31, 1995), since the
Vornado Financial Statements Date, there has not been any adoption or
amendment by Vornado or any Vornado Subsidiary of any bonus, pension,
profit sharing, deferred compensation, incentive compensation, share
ownership, share purchase, share option, phantom share, retirement,
vacation, severance, disability, death benefit, hospitalization,
medical or other employee benefit plan, arrangement or understanding
(whether or not legally binding or oral or in writing) providing
benefits to any current or former employee, officer, trustee or
director of Vornado, any Vornado Subsidiary, or any Person affiliated
with Vornado under Section 414 (b), (c), (m) or (o) of the Code
(collectively, "VORNADO BENEFIT PLANS").
(ii) Except as described in the Vornado SEC Documents or in
SCHEDULE 3.1(K)(II) to the Vornado Disclosure Letter or as would not
have a Vornado Material Adverse Effect, (A) all Vornado Benefit Plans,
including any such plan that is an "employee benefit plan" as defined
in Section 3(3) of ERISA, are in compliance with all applicable
requirements of law, including ERISA and the Code and (B) none of
Vornado or any Vornado Subsidiary has any liabilities or obligations
with respect to any such Vornado Benefit Plans, whether accrued,
contingent or otherwise, nor to the Knowledge of Vornado are any such
liabilities or obligations expected to be incurred. Except as set
forth in SCHEDULE 3.1(K)(II), the execution of, and performance of the
transactions contemplated in, this Agreement will not (either alone or
upon the occurrence of any additional or subsequent events) constitute
an event under any Vornado Benefit Plan, policy, arrangement or
agreement or any trust or loan that will or may result in any payment
(whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any employee or director.
(l) Taxes.
(i) Each of Vornado and each Vornado Subsidiary has (A) filed all
tax returns and reports required to be filed by it (after giving
effect to any filing extension properly granted by a Governmental
Entity having authority to do so) and all such returns and reports are
accurate and complete in all material respects, and (B) paid (or
Vornado has paid on its behalf) all Taxes (as defined below) shown on
such returns and reports as required to be paid by it, and the Vornado
Financial Statements reflect an adequate reserve for all material
Taxes payable by Vornado (and by those Vornado Subsidiaries and whose
financial statements are contained therein) for all taxable periods
and portions thereof through the date of such financial statements,
except for such failures that do not have a Vornado Material Adverse
Effect. Complete and correct copies of all federal, state and local
tax returns and reports for Vornado and each Vornado Subsidiary and
all written communications relating thereto have been delivered or
made available to the Operating Partnership and the Mendik Group.
Since the Vornado Financial Statement
17
<PAGE> 31
Date, none of Vornado or any Vornado Subsidiary has incurred any
liability for Taxes under Sections 857(b), 860(c) or 4981 of the Code,
and none of Vornado or any Vornado Subsidiary has incurred any
material liability for Taxes other than Taxes incurred in connection
with the transactions described in Section 2.2 or in the ordinary
course of business. To the Knowledge of Vornado, no event has
occurred, and no condition or circumstance exists, which presents a
material risk that any material Tax described in the preceding
sentence with respect to the period described in said sentence will be
imposed upon Vornado. Except as set forth in SCHEDULE 3.1(L) to the
Vornado Disclosure Letter or as reserved for in the Vornado Financial
Statements, no deficiencies for any Taxes have been assessed or, to
the Knowledge of Vornado, proposed or asserted against Vornado or any
of the Vornado Subsidiaries, and no requests for waivers of the time
to assess any such Taxes are pending, except for such deficiencies
that do not have a Vornado Material Adverse Effect. As used in this
Agreement, "TAXES" shall include all federal, state, local and foreign
income, property, sales, excise and other taxes, tariffs or
governmental charges of any nature whatsoever, together with
penalties, interest or additions to Tax with respect thereto.
(ii) Each of Vornado, beginning with its taxable year ended
December 31, 1993 and through the most recent December 31, and
Alexander's, beginning with its taxable year ended December 31, 1995
and through the most recent December 31, has been subject to taxation
as a REIT within the meaning of the Code and has satisfied all
requirements to qualify as a REIT for such years, (B) has operated,
and intends to continue to operate, in such a manner as to qualify as
a REIT for the tax year ending December 31, 1997, and (C) has not
taken or omitted to take any action which would reasonably be expected
to result in a challenge to its status as a REIT, and to Vornado's
Knowledge, no such challenge is pending or threatened. None of Vornado
or any Vornado Subsidiary holds any asset that is subject to a consent
filed pursuant to Section 341(f) of the Code and the regulations
thereunder.
(m) No Payments to Employees, Officers or Directors. Except as set
forth in SCHEDULE 3.1(M) to the Vornado Disclosure Letter or as otherwise
specifically provided for in this Agreement, there is no employment or
severance contract, or other agreement requiring payments to be made or
increasing any amounts payable thereunder on a change of control or
otherwise as a result of the consummation of any of the Transactions, with
respect to any employee, officer, trustee or director of Vornado or any
Vornado Subsidiary.
(n) Brokers; Schedule of Fees and Expenses. No broker, investment
banker, financial advisor or other Person, other than Goldman, Sachs & Co.,
the fees and expenses of which have previously been disclosed to the
Operating Partnership and the Mendik Group and will be paid by Vornado (or
by the Operating Partnership if the Consolidation is consummated), is
entitled, or would, assuming closing of the Transactions, be entitled, to
any broker's, finder's, financial advisor's or other similar fee or
commission in connection with the Transactions based upon arrangements made
by or on behalf of Vornado, Vornado Sub or any other Vornado Subsidiary.
(o) Compliance with Laws. To the Knowledge of Vornado, except as
disclosed in the Vornado SEC Documents, none of Vornado or any of the
Vornado Subsidiaries has violated or failed to comply with any statute,
law, ordinance, regulation, rule, judgment,
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<PAGE> 32
decree or order of any Governmental Entity applicable to its business,
properties or operations, except for any violations and failures to comply
that would not, in the aggregate, reasonably be expected to result in a
Vornado Material Adverse Effect.
(p) Contracts; Debt Instruments.
(i) Except as disclosed in the Vornado Financial Statements, none
of Vornado or any Vornado Subsidiary has received notice of any
default that has not been cured under, or to the Knowledge of Vornado,
is in violation of or in default under (nor, to the Knowledge of
Vornado, does there exist any condition which upon the passage of time
or the giving of notice or both would cause such a violation of or
default under), any material loan or credit agreement, note, bond,
mortgage, indenture, lease, permit, concession, franchise, license or
any other material contract, agreement, arrangement or understanding,
to which it is a party or by which it or any of its properties or
assets is bound, except as set forth in SCHEDULE 3.1(P)(I) to the
Vornado Disclosure Letter and except for violations or defaults that
would not, in the aggregate, result in a Vornado Material Adverse
Effect.
(ii) Except as expressly identified in the most recent financial
statements contained in the Vornado SEC Documents and except as
permitted by Section 4.2, SCHEDULE 3.1(P)(II) to the Vornado
Disclosure Letter sets forth (x) a list of all loan or credit
agreements, notes, bonds, mortgages, indentures and other agreements
and instruments evidencing any indebtedness of Vornado or any of the
Vornado Subsidiaries for borrowed money in effect as of the date
hereof and that will be in effect after the Closing Date and (y) the
respective principal amounts outstanding thereunder on December 31,
1996.
(q) Interim Operations of Vornado Sub. Vornado Sub was formed solely
for the purpose of engaging in the transactions contemplated by this
Agreement and has not engaged in any business activities or conducted any
operations other than in connection with the transactions contemplated by
this Agreement.
(r) Vote Required. Other than votes or consents by the Board of
Trustees of Vornado or a Vornado Subsidiary with respect to actions to be
taken by any Vornado Subsidiary, all of which will be obtained prior to the
Effective Time, no vote of the holders of any class or series of Vornado's
shares of beneficial interest is necessary (under applicable law, its
Declaration of Trust or otherwise) to approve this Agreement and the
transactions contemplated hereby, and the affirmative vote of a majority of
the members of Vornado's Board of Trustees, which vote has been obtained,
is the only vote necessary (under applicable law or otherwise) to approve
this Agreement and the transactions contemplated hereby.
(s) Investment Company Act of 1940. None of Vornado, Vornado Sub or
any of the Vornado Subsidiaries is, or at the Effective Time will be,
required to be registered as an "investment company" under the 1940 Act (as
hereinafter defined).
SECTION 3.2 Representations and Warranties of Mendik/FW LLC. Mendik/FW LLC
represents and warrants to Vornado and Vornado Sub as follows, which
representations and
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warranties shall be true and shall be given only as of the date of this
Agreement and shall not survive following the date of this Agreement:
(a) Organization, Standing and Corporate Power of the Operating
Partnership and the Mendik Group. Each of the Operating Partnership and
each member of the Mendik Group that is an entity is duly organized and
validly existing under the laws of its respective jurisdiction of
organization, and has the requisite power and authority to carry on its
business as now being conducted. Each member of the Mendik Group that is an
individual has the full right, power and capacity to own and dispose of
property and to undertake the Transactions to which such individual is a
party pursuant to this Agreement. Each of the Operating Partnership and
each member of the Mendik Group that is an entity is duly qualified or
licensed to do business and is in good standing in each jurisdiction in
which the nature of its business or the ownership or leasing of its
properties makes such qualification or licensing necessary, other than in
such jurisdictions where the failure to be so qualified or licensed,
individually or in the aggregate, would not have a material adverse effect
on the business, properties, assets, financial condition or results of
operations of (i) the Operating Partnership (as constituted as of the date
of this Agreement), the New Management Entities, the Property Partnerships
or the Property-Owning Entities, all of the foregoing taken as a whole, or
(ii) the Operating Partnership (considered as it is expected to be
constituted immediately following the Effective Time) (either (i) or (ii),
a "MENDIK MATERIAL ADVERSE EFFECT"). Each of the Operating Partnership and
each member of the Mendik Group that is an entity has delivered to Vornado
and Vornado Sub complete and correct copies of its Articles of
Incorporation, Bylaws, other organizational documents and partnership and
joint venture agreements, as applicable, as amended or supplemented to the
date of this Agreement.
(b) Property Partnerships. Each Property Partnership and each
Property-Owning Entity (as hereinafter defined) is duly organized and
validly existing under the laws of its respective jurisdiction of
organization and has the requisite power and authority to carry on its
business as now being conducted. Each Property Partnership and each
Property-Owning Entity is duly qualified or licensed to do business and is
in good standing in each jurisdiction in which the nature of its business
or the ownership or leasing of its properties makes such qualification or
licensing necessary, other than in such jurisdictions where the failure to
be so qualified or licensed, individually or in the aggregate, would not
have a Mendik Material Adverse Effect. Except as set forth in SCHEDULE
3.2(B)(1) to the Mendik Disclosure Letter, none of the Property
Partnerships or Property-Owning Entities has conducted or currently
conducts any business or has owned or owns any assets other than cash and
investment securities and direct or indirect interests in another Property
Partnership, in a Property-Owning Entity or in a Mendik Property.
SCHEDULE 3.2(B)(2) to the Mendik Disclosure Letter sets forth for each
of the Property Partnerships and each of the Property-Owning Entities the
relevant partnership or operating agreements and all amendments thereto
(collectively, the "PROPERTY PARTNERSHIP AGREEMENTS"). The Mendik Group has
delivered to Vornado complete and correct copies of (i) each Property
Partnership Agreement, (ii) the Major Partner Agreements and (iii) the M/S
Limited Partners Agreements.
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(c) Interests in the Property Partnerships and the Property-Owning
Entities. SCHEDULE 3.2(C)(1) to the Mendik Disclosure Letter sets forth for
each Property Partnership and each Property-Owning Entity the names of all
the partners and, to the Knowledge of the Mendik Group, holders of
beneficial interests in each such Property Partnership or Property-Owning
Entity. Except as set forth in SCHEDULE 3.2(C)(2) to the Mendik Disclosure
Letter or in the Property Partnership Agreements, there are no bonds,
debentures, notes or other indebtedness of any Property Partnership or
Property-Owning Entity which give the holder thereof the right to vote (or
convertible into, or exchangeable for, interests having the right to vote)
on any matters on which Partners may vote. Except as set forth in SCHEDULE
3.2(C)(2) to the Mendik Disclosure Letter or in the Property Partnership
Agreements, as of the date of this Agreement there are no outstanding
securities, options, warrants, calls, rights, commitments, agreements,
arrangements or undertakings of any kind to which any Property Partnership
or Property-Owning Entity is a party or by which such entity is bound,
obligating any Property Partnership or Property-Owning Entity to issue,
deliver or sell, or cause to be issued, delivered or sold, additional
partnership interests or other ownership interests of any Property
Partnership or Property-Owning Entity or obligating any Property
Partnership or Property-Owning Entity to issue, grant, extend or enter into
any such security, option, warrant, call, right, commitment, agreement,
arrangement or undertaking. Except as set forth in SCHEDULE 3.2(C)(2) to
the Mendik Disclosure Letter or in the Property Partnership Agreements,
there are no outstanding contractual obligations of any Property
Partnership or Property-Owning Entity to repurchase, redeem or otherwise
acquire any partnership interests or other ownership interests in any
Property Partnership or Property-Owning Entity or to make any material
investment (in the form of a loan, capital contribution or otherwise) in
any Person (other than another Property Partnership or Property-Owning
Entity). Except as set forth in the Property Partnership Agreements, to the
Knowledge of the Mendik Group, there are no Liens on the interests of the
Major Partner, the M/S Limited Partners or any of the Partners in any of
the Property Partnerships.
(d) Authority; Noncontravention; Consents. Each of the Operating
Partnership and each member of the Mendik Group has the requisite power and
authority to enter into this Agreement and to consummate the transactions
contemplated by this Agreement to which it is a party. The execution and
delivery of this Agreement by each of the Operating Partnership and each
member of the Mendik Group and the consummation by each of them of the
transactions contemplated by this Agreement to which it is a party have
been duly authorized by all necessary corporate, partnership or other
action on the part of each of them. This Agreement has been duly executed
and delivered by each of the Operating Partnership and each member of the
Mendik Group and constitutes a valid and binding obligation of each of the
Operating Partnership and each member of the Mendik Group, enforceable
against each of them in accordance with its terms, except as such
enforcement may be limited by (i) applicable bankruptcy or insolvency laws
(or other laws affecting creditors' rights generally) or (ii) general
principles of equity. Except for Partner Consents and as set forth in
SCHEDULE 3.2(D) to the Mendik Disclosure Letter, the execution and delivery
of this Agreement by each of the Operating Partnership and each member of
the Mendik Group do not, and the consummation of the transactions
contemplated by this Agreement to which the Operating Partnership or any
member of the Mendik Group (as the case may be) is a party and compliance
by each of the Operating Partnership and each member of the Mendik Group
with the provisions of this Agreement will
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<PAGE> 35
not, conflict with, or result in any violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to loss of a
material benefit under, or result in the creation of any Lien upon any of
the properties or assets of the Operating Partnership, any member of the
Mendik Group, any Property Partnership or any Property-Owning Entity under,
(i) the applicable organizational documents of any of them, each as amended
or supplemented to the date of this Agreement, (ii) any loan or credit
agreement, note, bond, mortgage, indenture, reciprocal easement agreement,
lease or other agreement, instrument, permit, concession, franchise or
license applicable to the Operating Partnership, any member of the Mendik
Group, any Property Partnership or any Property-Owning Entity or their
respective properties or assets or (iii) subject to the governmental
filings and other matters referred to in the following sentence, any Laws
applicable to the Operating Partnership, any member of the Mendik Group,
any Property Partnership or any Property-Owning Entity or their respective
properties or assets, other than, in the case of clause (ii) or (iii), any
such conflicts, violations, defaults, rights or Liens that individually or
in the aggregate would not (x) have a Mendik Material Adverse Effect or (y)
prevent the consummation of the Transactions. No consent, approval, order
or authorization of, or registration, declaration or filing with, any
Governmental Entity is required by or with respect to the Operating
Partnership or any member of the Mendik Group, in connection with the
execution and delivery of this Agreement or the consummation by the
Operating Partnership or any member of the Mendik Group, as the case may
be, of any of the transactions contemplated by this Agreement, except for
(1) such filings as may be required in connection with the payment of any
Transfer Taxes and (2) such other consents, approvals, orders,
authorizations, registrations, declarations and filings (A) as may be
required under (x) federal, state or local environmental laws or (y) the
"blue sky" laws of various states or (B) which, if not obtained or made,
would not, in the aggregate, have a Mendik Material Adverse Effect or
prevent the consummation of the Transactions.
(e) Financial Statements; Undisclosed Liabilities.
(i) SCHEDULE 3.2(E)(I) to the Mendik Disclosure Letter sets forth
a complete and correct list of certain of the Property Partnerships
and the Property-Owning Entities (collectively, the "MENDIK AUDITED
ENTITIES") for which unaudited financial statements have been
previously provided to Vornado (the "MENDIK DRAFT AUDITED FINANCIAL
STATEMENTS"). The Mendik Draft Audited Financial Statements have been
prepared in accordance with GAAP applied on a consistent basis during
the periods involved (except as may be indicated in the notes thereto)
and fairly presented, in accordance with the applicable requirements
of GAAP, the financial position of the Mendik Audited Entities, taken
as a whole, as of December 31, 1996 (the "MENDIK FINANCIAL STATEMENTS
DATE"), and the results of operations and cash flows for the year then
ended, except for such matters as would not have a Mendik Material
Adverse Effect. SCHEDULE 3.2(E)(I) to the Mendik Disclosure Letter
also sets forth a complete and correct list of the Operating
Partnership, the Existing Mendik Management Entities and certain of
the Property Partnerships and Property-Owning Entities (collectively,
the "MENDIK UNAUDITED ENTITIES") for which unaudited financial
statements have been previously provided to Vornado and for which
audited financial statements will not be provided to Vornado prior to
the Closing Date (the "MENDIK FINAL UNAUDITED FINANCIAL STATEMENTS"
and, together with the Mendik Draft Audited Financial Statements, the
"MENDIK UNAUDITED FINANCIAL STATEMENTS"). The Mendik Final
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Unaudited Financial Statements accurately reflected the financial
position (on a tax basis or a GAAP basis, as applicable) of the Mendik
Unaudited Entities, taken as a whole, as of the Mendik Financial
Statements Date, and the results of operations and cash flows (on a
tax basis or a GAAP basis, as applicable) for the year then ended,
except for such matters as would not have a Mendik Material Adverse
Effect.
(ii) Except as set forth in the tenant lease abstracts relating
to tenant leases at the Mendik Properties which have previously been
provided to Vornado or in SCHEDULE 3.2(E)(II) to the Mendik Disclosure
Letter, none of the Mendik Audited Entities or the Mendik Unaudited
Entities has any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) that is not reflected in
the Mendik Unaudited Financial Statements and, except for such
liabilities and obligations which would not, individually or in the
aggregate, have a Mendik Material Adverse Effect.
(f) Absence of Certain Changes or Events. Except as disclosed in
SCHEDULE 3.2(F) to the Mendik Disclosure Letter, since the Mendik Financial
Statements Date to a time immediately prior to the execution of this
Agreement, each of the Operating Partnership, each Property Partnership and
each Property-Owning Entity has conducted its business only in the ordinary
course and there has not been (i) any occurrence or circumstance that would
have a Mendik Material Adverse Effect (a "MENDIK MATERIAL ADVERSE CHANGE"),
nor has there been any occurrence or circumstance that with the passage of
time would reasonably be expected to result in a Mendik Material Adverse
Change, (ii) any damage, destruction or loss, not covered by insurance,
that has had or would have a Mendik Material Adverse Effect or (iii) any
change in accounting methods, principles or practices by the Operating
Partnership, any Property Partnership or any Property-Owning Entity except
insofar as may have been disclosed in the Mendik Unaudited Financial
Statements or required by a change in GAAP.
(g) Litigation. Except as disclosed in the Mendik Unaudited Financial
Statements or in SCHEDULE 3.2(G) to the Mendik Unaudited Disclosure Letter,
and other than personal injury and other routine tort litigation (including
potential claims referred to in accident reports maintained by the Mendik
Group) that has arisen from the ordinary course of operations of the
Operating Partnership, the members of the Mendik Group, the Property
Partnerships and the Property-Owning Entities which are covered by adequate
insurance (other than deductibles), there is no suit, action or proceeding
pending or, to the Knowledge of the Mendik Group, threatened against or
affecting the Operating Partnership, any member of the Mendik Group, any
Property Partnership or any Property-Owning Entity which, if determined
adversely to the Operating Partnership, any member of the Mendik Group, any
Property Partnership or any Property-Owning Entity, individually or in the
aggregate, could reasonably be expected to (A) have a Mendik Material
Adverse Effect or (B) prevent the consummation of any of the Transactions,
nor is there any judgment, decree, injunction, rule or order of any
Governmental Entity or arbitrator outstanding against the Operating
Partnership, any member of the Mendik Group or any Property Partnership
having, or which, insofar as reasonably can be foreseen, in the future
would have either such effect.
(h) Properties. Except as set forth in SCHEDULE 3.2(B)(1) to the
Mendik Disclosure Letter, the Mendik Properties are all of the real estate
properties in which any of the
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Operating Partnership, any Property Partnership or any Property-Owning
Entity owns or has ever owned interests. In each case (except as provided
below), each Property-Owning Entity (other than M 393 Associates and M
Eleven Associates) owns fee simple title to its respective Mendik Property
free and clear of Encumbrances, other than tenant leases referred to in the
rent roll for each of the Mendik Properties as described in Section
3.2(n)(ii), and Encumbrances disclosed on existing title reports or
existing surveys (copies of which title reports and surveys have previously
been delivered or made available to Vornado) and except for such other
Encumbrances which, taken as a whole with respect to the Mendik Properties,
do not have a Mendik Material Adverse Effect. Except as provided in
SCHEDULE 3.2(H) to the Mendik Disclosure Letter, except as set forth in the
engineering reports listed in SCHEDULE 3.2(H) and previously delivered to
Vornado (collectively, the "MENDIK ENGINEERING REPORTS") and except as set
forth in the municipal violations search reports relating to the Mendik
Properties previously delivered to Vornado (collectively, the "MENDIK
PROPERTIES COMPLIANCE REPORTS"), (i) none of the Property Partnerships, any
Property-Owning Entity or any member of the Mendik Group has received
notice that any certificate, permit or license from any Governmental Entity
having jurisdiction over any of the Mendik Properties or any agreement,
easement or other right which is necessary to permit the lawful use and
operation of the buildings and improvements on any of the Mendik Properties
or which is necessary to permit the lawful use and operation of all
driveways, roads and other means of egress and ingress to and from any of
the Mendik Properties has not been obtained and is not in full force and
effect, or of any pending threat of modification or cancellation of any of
same that, in the case of any of the foregoing, has not been cured, (ii)
none of the Operating Partnership, any member of the Mendik Group, any
Property Partnership or any Property-Owning Entity has received written
notice of any material violation of any federal, state or municipal law,
ordinance, order, regulation or requirement affecting any portion of any of
the Mendik Properties issued by any Governmental Entity that has not been
cured, or (iii) there is no physical damage to any Mendik Property for
which there is no insurance in effect covering the cost of the restoration,
except for matters referred to in clauses (i), (ii) and (iii) above which,
in the aggregate, do not have a Mendik Material Adverse Effect. Except as
set forth in SCHEDULE 3.2(H) to the Mendik Disclosure Letter, except as set
forth in the Mendik Engineering Reports and except as set forth in the
Mendik Properties Compliance Reports, none of the Operating Partnership,
any member of the Mendik Group, any Property Partnership or any
Property-Owning Entity has received any notice from any Governmental Entity
to the effect that (1) any condemnation or rezoning proceedings are pending
or threatened with respect to any of the Mendik Properties or (2) any
zoning, building or similar law, code, ordinance, order or regulation is or
will be violated by the continued maintenance, operation or use of any
buildings or other improvements on any of the Mendik Properties or by the
continued maintenance, operation or use of the parking areas, except for
any matters referred to in clause (1) or (2) above which, in the aggregate,
do not have a Mendik Material Adverse Effect. Except as set forth in
SCHEDULE 3.2(H) to the Mendik Disclosure Letter or in the Mendik
Engineering Reports, (A) all work to be performed, payments to be made and
actions to be taken by the Operating Partnership, any Property Partnership
or any Property-Owning Entity prior to the date hereof pursuant to any
agreement entered into with a governmental body or authority in connection
with a site approval, zoning reclassification or other similar action
relating to the Mendik Properties (e.g., Local Improvement District, Road
Improvement District, Environmental Mitigation) has been performed, paid or
taken, as the case may be, and, (B) to the Knowledge of the Mendik Group,
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there are no planned or proposed work, payments or actions that may be
required after the date hereof pursuant to such agreements, except for any
such planned or proposed work, payments or actions described in clause (A)
or (B) which, in the aggregate, if they did not happen, would not
reasonably be expected to have a Mendik Material Adverse Effect.
(i) Environmental Matters. Mendik/FW LLC previously provided to
Vornado and Vornado Sub a copy of the environmental reports prepared by Law
Engineering and Environmental Services, P.C. with respect to each of the
Mendik Properties other than 570 Lexington Avenue and by LaBella
Associates, P.C. with respect to 570 Lexington Associates (the "MENDIK
ENVIRONMENTAL REPORTS"). Except as set forth in the Mendik Environmental
Reports, none of the Operating Partnership, any member of the Mendik Group,
any Property Partnership or any Property-Owning Entity or, to the Knowledge
of the Mendik Group, any other Person has caused or permitted (A) the
unlawful presence of any Hazardous Materials on any of the Mendik
Properties, or (B) any unlawful spills, releases, discharges or disposal of
Hazardous Materials to have occurred or be presently occurring on or from
the Mendik Properties as a result of any construction on or operation and
use of such properties, which presence or occurrence would, in the
aggregate, have a Mendik Material Adverse Effect; and in connection with
the construction on or operation and use of the Mendik Properties, the
Operating Partnership, the members of the Mendik Group and the Property
Partnerships have not failed to comply in any material respect with all
applicable local, state and federal environmental laws, regulations,
ordinances and administrative and judicial orders relating to the
generation, recycling, reuse, sale, storage, handling, transport and
disposal of any Hazardous Materials, except to the extent such failure to
comply, in the aggregate, would not have a Mendik Material Adverse Effect.
(j) No Employees of the Property Partnerships or the Property-Owning
Entities; ERISA Compliance.
(i) None of the Operating Partnership, any Property Partnership
or any Property-Owning Entity currently has any employees.
(ii) None of the Operating Partnership, any Property Partnership
or any Property-Owning Entity has adopted any bonus, pension, profit
sharing, deferred compensation, incentive compensation, share
ownership, share purchase, share option, phantom share, retirement,
vacation, severance, disability, death benefit, hospitalization,
medical or other employee benefit plan, arrangement or understanding
(whether or not legally binding or oral or in writing) providing
benefits to any current or former employee, officer or director of the
Operating Partnership, any Property Partnership or any Property-Owning
Entity, or any Person affiliated with any of them under Section 414
(b), (c), (m) or (o) of the Code.
(k) Taxes. Except as set forth in SCHEDULE 3.2(K) to the Mendik
Disclosure Letter, each of the Property Partnerships and the
Property-Owning Entities has (A) filed all tax returns and reports required
to be filed by it (after giving effect to any filing extension properly
granted by a Governmental Entity having authority to do so) and all such
returns and reports are accurate and complete in all material respects, and
(B) paid (or a member of the Mendik Group has paid on its behalf) all Taxes
shown on such returns and reports as required to be paid by it, and the
Mendik Unaudited Financial Statements reflect an adequate reserve for all
material Taxes
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payable by any of the Property Partnerships or the Property-Owning Entities
for all taxable periods and portions thereof through the Mendik Financial
Statements Date. Complete and correct copies of all federal, state and
local tax returns and reports for each Property Partnership and
Property-Owning Entity and all written communications relating thereto have
been delivered or made available to Vornado. Since the Mendik Financial
Statements Date, none of the Property Partnerships or Property-Owning
Entities has incurred any material liability for Taxes other than Transfer
Taxes incurred in connection with the transactions described in Section 2.1
or Taxes incurred in the ordinary course of business. To the Knowledge of
the Operating Partnership, the members of the Mendik Group, the Property
Partnerships and the Property-Owning Entities, no event has occurred, and
no condition or circumstance exists, which presents a material risk that
any material Tax described in the preceding sentence with respect to the
period described in said sentence, will be imposed upon any of the Property
Partnerships or the Property-Owning Entities. Except as set forth in
SCHEDULE 3.2(K) to the Mendik Disclosure Letter or as reserved for in the
Mendik Unaudited Financial Statements no deficiencies for any Taxes have
been assessed or, to the Knowledge of the Mendik Group, proposed or
asserted against any of the Property Partnerships or the Property-Owning
Entities, and no requests for waivers of the time to assess any such Taxes
are pending.
(l) Brokers; Schedule of Fees and Expenses. No broker, investment
banker, financial advisor or other Person, other than Merrill, Lynch & Co.
("MERRILL"), the fees and expenses of which have previously been disclosed
to Vornado and Vornado Sub and will be paid by the Operating Partnership if
the Consolidation is consummated, is entitled, or would, assuming closing
of the Transactions be entitled, to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with the
Transactions based upon arrangements made by or on behalf of the Operating
Partnership, any member of the Mendik Group, any Property Partnership or
any Property-Owning Entity.
(m) Compliance with Laws. Except as set forth in the Mendik Properties
Compliance Reports, in SCHEDULE 3.2(M) to the Mendik Disclosure Letter or
in the Mendik Unaudited Financial Statements, (i) none of the Property
Partnerships, any Property-Owning Entity or any member of the Mendik Group
has received notice of any violation or failure to comply with any statute,
law, ordinance, regulation rule, judgment, decree or order of any
Governmental Entity applicable to the Mendik Properties which has not been
cured and (ii) to the Knowledge of the Mendik Group, none of the Operating
Partnership, any Property Partnership, any Property-Owning Entity and any
member of the Mendik Group has violated or failed to comply with any
statute, law, ordinance, regulation, rule, judgment, decree or order of any
Governmental Entity applicable to its business or operations, except, with
respect to clause (i) or (ii), for any violations and failures to comply
(A) with Title III of the Americans with Disabilities Act, as amended (the
"ADA") or (B) that would not, in the aggregate, reasonably be expected to
result in a Mendik Material Adverse Effect.
(n) Contracts; Debt Instruments.
(i) A complete and correct rent roll for each of the Mendik
Properties as of February 1, 1997 has previously been delivered to
Vornado. SCHEDULE 3.2(N)(I) to the Mendik Group Disclosure Letter
lists all management, leasing, cleaning, security and other
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contracts (other than purchase orders, tenant leases and the Property
Partnership Agreements) relating to the Mendik Properties that will
remain in effect following the Effective Time.
(ii) Except as disclosed in the Mendik Unaudited Financial
Statements, none of the Operating Partnership, any Property
Partnership or any Property-Owning Entity has received notice of any
default that has not been cured under or, to the knowledge of the
Mendik Group is in violation of or in default under, (nor, to the
Knowledge of the Mendik Group, does there exist any condition which
upon the passage of time or the giving of notice or both would cause
such a violation of or default under), any material loan or credit
agreement, note, bond, mortgage, indenture, lease, permit, concession,
franchise, license or any other material contract, agreement,
arrangement or understanding, to which it is a party or by which it or
any of its properties or assets is bound, except as set forth in
SCHEDULE 3.2(N)(II) to the Mendik Disclosure Letter and except for
violations or defaults that would not, in the aggregate, result in a
Mendik Material Adverse Effect.
(iii) Except as expressly identified in the Mendik Unaudited
Financial Statements, (x) SCHEDULE 3.2(N)(III)(A) to the Mendik
Disclosure Letter sets forth the outstanding principal amount of
mortgage indebtedness secured by each of the Mendik Properties as of
December 31, 1996 and (y) SCHEDULE 3.2(N)(III)(B) to the Mendik
Disclosure Letter sets forth a list of all loan or credit agreements,
notes, bonds, mortgages, indentures and other agreements and
instruments evidencing all such mortgage indebtedness that is in
effect as of the date hereof and that will be in effect after the
Closing Date.
(o) REIT Qualification Tax Matters. SCHEDULE 3.2(O) to the Mendik
Disclosure Letter is incorporated herein by reference.
(p) Management Business Assets. Mr. Mendik, Mendik Realty and Mendik
Management Company collectively have good and valid title to the Management
Business Assets, free and clear of any Liens, except for Liens set forth in
SCHEDULE 3.2(P)(1) to the Mendik Disclosure Letter and except for Liens
which, in the aggregate, do not have a Mendik Material Adverse Effect.
Except as set forth in SCHEDULE 3.2(P)(2) to the Mendik Disclosure Letter
and except for interests in real property, the Management Business Assets
comprise substantially all of the assets of the Existing Mendik Management
Entities. Except as set forth in SCHEDULE 3.2(P)(3) to the Mendik
Disclosure Letter and except for such breaches or defaults as would not
have, in the aggregate, a Mendik Material Adverse Effect, the Existing
Mendik Management Entities have not breached any of the contracts included
in the Management Business Assets and, to the Knowledge of the Mendik
Group, no other party to any of such contracts has breached or defaulted
under the terms thereof. A true and complete copy of each of the contracts
included in the Management Business Assets has previously been provided to
or made available to Vornado.
(q) Interim Operations of the Operating Partnership. The Operating
Partnership was formed for the purpose of acquiring the Mendik Property
Interests and certain interests in the Management Business Assets, which
acquisitions were proposed to occur in connection with an initial public
offering by the Initial General Partner. The Operating Partnership has not
engaged in any business activities or conducted any operations other than
in
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connection with the proposed initial public offering by the Initial General
Partner or the transactions contemplated by this Agreement.
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SECTION 3.3 Additional Representations and Warranties of Mendik/FW LLC.
Mendik/FW LLC represents and warrants to the Operating Partnership as follows,
which representations and warranties shall be true and shall be given only as of
the date of this Agreement (except that any representation and warranty that
speaks as of the Effective Time shall be true and shall be given as of the
Effective Time):
(a) Authority; Noncontravention; Consents.
(i) Each of the Operating Partnership and each member of the
Mendik Group has the requisite power and authority to enter into this
Agreement and to consummate the transactions contemplated by this
Agreement to which it is a party. The execution and delivery of this
Agreement by each of the Operating Partnership and each member of the
Mendik Group and the consummation by each of them of the transactions
contemplated by this Agreement to which it is a party have been duly
authorized by all necessary corporate, partnership or other action on
the part of each of them. The execution and delivery of this Agreement
by each of the Operating Partnership and each member of the Mendik
Group do not, and, except for Partner Consents and as set forth in
SCHEDULE 3.2(D) to the Mendik Disclosure Letter, the consummation of
the transactions contemplated by this Agreement to which the Operating
Partnership or any member of the Mendik Group (as the case may be) is
a party and compliance by each of the Operating Partnership and each
member of the Mendik Group with the provisions of this Agreement will
not, conflict with, or result in any violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a
right of termination, cancellation or acceleration of any obligation
or to loss of a material benefit under, or result in the creation of
any Lien upon any of the properties or assets of the Operating
Partnership, any member of the Mendik Group, any Property Partnership
or any Property-Owning Entity under, (A) the applicable organizational
documents of any of them, each as amended or supplemented to the date
of this Agreement and as of the Effective Time, or (B) any loan or
credit agreement, note, bond, mortgage, indenture, reciprocal easement
agreement, lease or other agreement, instrument, permit, concession,
franchise or license applicable to the Operating Partnership, any
member of the Mendik Group, any Property Partnership or any
Property-Owning Entity or their respective properties or assets, other
than, in the case of clause (B), any such conflicts, violations,
defaults, rights or Liens that, individually or in the aggregate,
would not (x) have a material adverse effect on the business,
properties, assets, financial condition or results of operations of
the Operating Partnership (considered as it is expected to be
constituted immediately following the Effective Time), the applicable
Property Partnership or the applicable Property-Owning Entity (each,
as applicable, a "PARTNERSHIP MATERIAL ADVERSE EFFECT") or (y) prevent
the consummation of any of the Transactions.
(ii) As of the Effective Time, all Partner Consents and the
consents of the Major Partner and the M/S Limited Partners to the
transfer of their interests in the Property Partnerships will be in
full force and effect and will represent valid and binding obligations
of each respective Partner, the Major Partner or each of the M/S
Limited Partners, as applicable, enforceable against each such Person
in accordance with its terms, except as such enforcement may be
limited by (A) applicable bankruptcy or insolvency laws (other than
laws affecting creditors' rights generally) or (B) general principles
of equity.
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(b) Undisclosed Liabilities. Except as set forth in the tenant lease
abstracts relating to tenant leases at the Mendik Properties which have
previously been provided to Vornado or in SCHEDULE 3.2(E)(II) to the Mendik
Disclosure Letter, (i) to the Knowledge of the Mendik Group, none of the
Mendik Audited Entities has any liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise) required by GAAP to be
set forth on a balance sheet of any of such entities or in the notes
thereto that is not so set forth in the Mendik Draft Audited Financial
Statements or the audited financial statements to be provided to Vornado
pursuant to Section 5.19 or otherwise (the "MENDIK AUDITED FINANCIAL
STATEMENTS," and, together with the Mendik Unaudited Financial Statements,
the "MENDIK FINANCIAL STATEMENTS") and (ii) none of the Mendik Unaudited
Entities has any liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise) that is not reflected in the Mendik
Final Unaudited Financial Statements, except for, in the case of (i) and
(ii) above, such liabilities and obligations which would not, individually
or in the aggregate, have a Partnership Material Adverse Effect; provided,
however, if the Mendik Audited Financial Statements with respect to a
Mendik Audited Entity do not present substantially the same financial
position and results of operations and cash flows as are set forth in the
Mendik Draft Audited Financial Statements for such entity, then such entity
shall be deemed to be a "Mendik Unaudited Entity" for purposes of this
Section 3.3(b).
(c) Litigation. Except as disclosed in the Mendik Financial Statements
or in SCHEDULE 3.2(G) to the Mendik Disclosure Letter, and other than
personal injury and other routine tort litigation (including potential
claims referred to in accident reports maintained by the Mendik Group) that
has arisen from the ordinary course of operations of the Operating
Partnership, the members of the Mendik Group, the Property Partnerships and
the Property-Owning Entities which are covered by adequate insurance (other
than deductibles), there is no suit, action or proceeding pending or, to
the Knowledge of the Mendik Group, threatened against or affecting the
Operating Partnership, any member of the Mendik Group, any Property
Partnership or any Property-Owning Entity which, if determined adversely to
the Operating Partnership, any member of the Mendik Group, any Property
Partnership or any Property-Owning Entity, individually or in the
aggregate, could reasonably be expected to (A) have a Partnership Material
Adverse Effect or (B) prevent the consummation of any of the Transactions.
(d) Title to Management Assets. Mr. Mendik, Mendik Realty and Mendik
Management Company collectively have good and valid title to the Management
Business Assets free and clear of any Liens, except for Liens set forth in
SCHEDULE 3.2(P)(1) and except for Liens which, individually or in the
aggregate, do not have a material adverse effect on the business,
properties, assets, financial condition or results of operations of the
applicable Existing Mendik Management Entity. Except as set forth in
SCHEDULE 3.2(P)(2) and except for interests in real property, the
Management Business Assets comprise substantially all of the assets of the
Existing Mendik Management Entities.
(e) Compliance with Laws. To the Knowledge of the Mendik Group, except
as set forth in the Mendik Properties Compliance Reports, in SCHEDULE
3.2(M) to the Mendik Disclosure Letter or in the Mendik Financial
Statements, none of the Operating Partnership, any member of the Mendik
Group, any Property Partnership or any Property-Owning Entity has violated
or failed to comply with any statute, law, ordinance, regulation, rule,
judgment, decree
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or order of any Governmental Entity, except for (i) violations and failures
to comply with respect to the use or operation of any of the Mendik
Properties (including, without limitation, violations of the ADA) and (ii)
violations and failures to comply that would not, individually or in the
aggregate, reasonably be expected to result in a Partnership Material
Adverse Effect.
(f) No Liens on Partners' Interests. Except for pledges of partnership
interests to a Property Partnership or the other partners to secure a
partner's obligations to meet capital calls or other obligations in such
amounts as are set forth in the Property Partnership Agreements and except
as contemplated in the Financing Transaction relating to Two Penn Plaza, as
of the Effective Time, to the Knowledge of the Mendik Group, there will be
no Liens on the interests of the Major Partner, the M/S Limited Partners,
B&B, 1740 Broadway Investment Company, 570 Lexington Associates, 570
Lexington Investors, M 393 Associates, M Eleven Associates or any of the
Partners in any of the Property Partnerships or any of the Property-Owning
Entities.
(g) REIT Qualification Tax Matters. As of the Effective Time, the
representation made in SECTION 3.2(O) will be true and correct.
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ARTICLE IV
COVENANTS
SECTION 4.1 Conduct of Business by each of the Operating Partnership, the
Property Partnerships and the Property-Owning Entities. During the period from
the date of this Agreement to the Effective Time, the Mendik Group shall cause
(or, in the case of the Property Partnerships and the Property-Owning Entities,
shall use commercially reasonable efforts to cause, subject to any obligations
imposed by the Property Partnership Agreements, loan agreements and the
fiduciary duties of the Managing General Partners) the Operating Partnership,
each of the Existing Mendik Management Entities, each Property Partnership and
each Property-Owning Entity to (i) carry on its businesses in the usual, regular
and ordinary course in substantially the same manner as heretofore conducted
and, to the extent consistent therewith, use commercially reasonable efforts to
preserve intact its current business organization, goodwill and ongoing
businesses, (ii) maintain insurance policies on the Mendik Properties of the
same kind and the same amount as the insurance policies in effect with respect
to the Mendik Properties as of the date of this Agreement, (iii) confer on a
regular basis with representatives of Vornado regarding material matters
relating to such businesses, (iv) promptly notify Vornado of any material
emergency or other material change in the condition (financial or otherwise),
business, properties, assets, liabilities, prospects or the normal course of its
businesses or in the operation of its properties, or of any material
governmental complaints, investigations or hearings (or communications
indicating that the same may be contemplated), and (v) duly and timely file all
reports, tax returns and other documents required to be filed with Federal,
state, local and other authorities, subject to extensions permitted by law.
Without limiting the generality of the foregoing, during the period from
the date of this Agreement to the Effective Time, except as set forth in
SCHEDULE 4.1 to the Mendik Disclosure Letter, without the written consent of
Vornado, the Mendik Group shall cause (or, in the case of the Property
Partnerships and the Property-Owning Entities, shall use commercially reasonable
efforts to cause, subject to any obligations imposed by the Property Partnership
Agreements, loan agreements and the fiduciary duties of the Managing General
Partners) the Operating Partnership, each Property Partnership and each
Property-Owning Entity not to (and not to authorize or commit or agree to):
(a) (i) declare, set aside or pay any dividends on, or make any other
distributions in respect of, the capital stock, beneficial interests or any
ownership interests of the Operating Partnership, any Property Partnership or
any Property-Owning Entity, except for (w) anticipated distributions to the
Partners and the Major Partner by the Property Partnerships as set forth in
SCHEDULE 4.1 to the Mendik Disclosure Letter, (x) payments to the Major Partner
under the terms of the Major Partner Agreements, (y) payments to certain lenders
under the agreements relating to the Financing Transactions (as hereinafter
defined) as set forth in SCHEDULE 4.1 to the Mendik Disclosure Letter and (z)
distributions by certain of the Property Partnerships of cash out of the cash
reserves of such Property Partnerships to or on behalf of the Partners, the M/S
Limited Partners and the Major Partner pursuant to the Partner Interest
Contribution Agreements,
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the M/S Limited Partners Agreements or the Major Partner Agreements, as
applicable, and as contemplated by this Agreement, (ii) split, combine or
reclassify any capital stock, beneficial interests or any other ownership
interests or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of such capital stock,
shares of beneficial interest, partnership interests or other ownership
interests, or (iii) purchase, redeem or otherwise acquire any shares of
such capital stock, shares of beneficial interest, partnership interests or
other ownership interests or any options, warrants or rights to acquire, or
security convertible into, shares of such capital stock, shares of such
beneficial interest, such partnership interests or such other ownership
interests;
(b) except as contemplated by this Agreement, issue, deliver or sell,
or grant any option or other right in respect of, any shares of capital
stock, other voting securities, shares of beneficial interest, partnership
interests or other ownership interests of the Operating Partnership, any
Property Partnership or any Property-Owning Entity or any securities
convertible into, or any rights, warrants or options to acquire, any such
shares of capital stock, other voting securities, shares of beneficial
interest, partnership interests, other ownership interests or convertible
securities;
(c) except as contemplated by this Agreement, amend the Operating
Partnership Agreement, any Property Partnership Agreement or the Major
Partner Agreements (except as provided in Section 5.17) or the M/S Limited
Partners Agreements;
(d) except as contemplated by this Agreement, merge or consolidate
with any Person;
(e) except as contemplated by this Agreement, in any transaction or
series of related transactions involving capital, securities or other
assets or indebtedness of the Operating Partnership, any Property
Partnership, any Property-Owning Entity or any combination thereof, without
obtaining the prior written consent of Vornado, which consent shall not
unreasonably be withheld or delayed: (i) acquire or agree to acquire by
purchasing all or a substantial portion of the equity securities or all or
substantially all of the assets of, or by any other manner, any business or
any corporation, partnership, limited liability company, joint venture,
association, business trust or other business organization or division
thereof or interest therein; (ii) subject to any material Encumbrance or
Lien or sell, lease (excluding tenant leases) or otherwise dispose of any
of the Mendik Properties (or any interests therein or portion thereof), the
Management Business Assets or any other material assets, or assign or
encumber the right to receive income, dividends, distributions and the like
from such assets; or (iii) incur any indebtedness for borrowed money or
guarantee any such indebtedness of another Person, issue or sell any debt
securities or warrants or other rights to acquire any debt securities of
the Operating Partnership, any Property Partnership or any Property-Owning
Entity, enter into any "keep well" or other agreement to maintain any
financial statement condition of another person or enter into any
arrangement having the economic effect of any of the foregoing, prepay or
refinance any indebtedness or make any loans, advances or capital
contributions to, or investments in, any other Person (provided, however,
that (1) the Mendik Group shall have the right to obtain financing on
behalf of 570 Lexington Associates or 570 Lexington Company, to cover
anticipated capital needs at the 570 Lexington Avenue property, and (2) the
Mendik Group shall have the right to
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settle the current dispute regarding the principal amount of the loan
secured by the 330 Madison Avenue property with the lender thereof (A) at
any time on or before April 13, 1997, or (B) thereafter, at any time at
least thirty (30) days prior to the date on which the maturity date of the
loan would otherwise be accelerated, taking into account any standstill or
extension agreement reached with the lender or any agreement of 330 Madison
Company to make sufficient payment to the lender so as to avoid an
accelerated maturity of the loan (but in no event less than ninety (90)
days prior to the stated maturity of the loan); provided further, that,
notwithstanding clause (2) above, the Mendik Group shall consult with
Vornado and the Operating Partnership regarding the discussions with such
lender and 330 Madison Company's strategy in connection therewith);
(f) make any tax election (unless required by law or necessary to
preserve the status of the Management LLC, the Operating Partnership, any
Property Partnership or any Property-Owning Entity as a partnership for
federal income tax purposes), except for elections under Section 754 of the
Code made by any Property-Owning Entity (excluding Two Park Company) made
after consultation with Vornado;
(g) (i) change in any material manner any of its methods, principles
or practices of accounting from those upon which the Mendik Financial
Statements were prepared, or (ii) make or rescind any express or deemed
election relating to taxes, settle or compromise any claim, action, suit,
litigation, proceeding, arbitration, investigation, audit or controversy
relating to taxes, except in the case of settlements or compromises
relating to certiorari proceedings with respect to real estate taxes for
any years for which the applicable real estate tax returns are not closed,
or change any of its methods of reporting income or deductions for federal
income tax purposes from those employed in the preparation of its federal
income tax returns for the most recently completed taxable year except, in
the case of clause (i), as may be required by applicable law or GAAP;
(h) subject to Section 4.1(i), pay, discharge, settle or satisfy any
claims, liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment, discharge or
satisfaction of any of the foregoing in the ordinary course of business
consistent with past practice or in accordance with their terms, of
liabilities reflected or reserved against in, or contemplated by, the
Mendik Financial Statements (or the notes thereto) or incurred in the
ordinary course of business consistent with past practice;
(i) except for the settlement of the currently existing litigation
involving certain members of the Mendik Group, the M/S Limited Partners and
certain Affiliates of the M/S Limited Partners on the terms set forth in
the M/S Limited Partners Agreements, settle any litigation claims against
the Operating Partnership or any Property Partnership that are not covered
by insurance (other than deductibles) (including any shareholder derivative
or class action claims arising out of or in connection with any of the
Transactions);
(j) make any loans, advances or capital contributions to, or
investments in, any other Person, other than loans, advances and capital
contributions by Mendik 570 Corp and 570 Lexington Investors to 570
Lexington Company, pursuant to the terms of the Agreement of Limited
Partnership of 570 Lexington Company as in effect on the date hereof;
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(k) distribute any casualty, condemnation or other disposition
proceeds; or
(l) enter into a lease with a tenant for space at any Mendik Property,
other than leases (i) for which a signed letter of intent has been entered
into and disclosed to Vornado prior to the date of this Agreement or (ii)
which relate to, individually or in a series of related leases, less than
50,000 square feet at any of the Mendik Properties.
SECTION 4.2 Conduct of Business by Vornado. During the period from the date
of this Agreement to the Effective Time, Vornado shall, and shall cause (or, in
the case of Vornado Subsidiaries that Vornado does not control, shall use
commercially reasonable efforts to cause) the Vornado Subsidiaries each to (i)
carry on its businesses in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted and, to the extent
consistent therewith, use commercially reasonable efforts to preserve intact its
current business organization, goodwill and ongoing businesses, (ii) confer on a
regular basis with representatives of Mendik/FW LLC to report operational
matters which would have a Vornado Material Adverse Effect, (iii) promptly
notify Mendik/FW LLC of any material emergency or other material change in the
condition (financial or otherwise), business, properties, assets, liabilities,
prospects or the normal course of its businesses or in the operation of its
properties, or of any material governmental complaints, investigations or
hearings (or communications indicating that the same may be contemplated), (iv)
maintain its books and records in accordance with GAAP consistently applied, (v)
duly and timely file all reports, tax returns and other documents required to be
filed with Federal, state, local and other authorities, subject to extensions
permitted by law and (vi) promptly deliver to Mendik/FW LLC true and correct
copies of any report, statement or schedule filed with the SEC subsequent to the
date of this Agreement; provided, however, for purposes of this Section 4.2
only, an emergency, change, complaint, investigation or hearing shall be deemed
material only if it would reasonably be expected to have a Vornado Material
Adverse Effect.
In addition, during the period from the date of this agreement to the
Effective Time, Vornado shall not issue any Vornado Common Shares or other
securities convertible into Vornado Common Shares to any Affiliates of Vornado
except (i) pursuant to the terms of the Vornado Benefit Plans, (ii) pursuant to
an agreement entered into by Vornado and an Affiliate of Vornado prior to the
date of this Agreement or (iii) for Vornado Common Shares or other securities
convertible into Vornado Common Shares which are issued in exchange for fair
value, as determined in good faith by the disinterested members of Vornado's
Board of Trustees.
SECTION 4.3 Other Actions.
(a) Mendik/FW LLC shall not and shall cause (or, in the case of members of
the Mendik Group that Mendik/FW LLC does not control, the Property Partnerships
and the Property-Owning Entities, Mendik/FW LLC shall use commercially
reasonable efforts to cause, subject, in the case of the Property Partnerships
and the Property-Owning Entities, to the Property Partnership Agreements, any
loan agreements and the fiduciary duties of the Managing General Partners) each
member of the Mendik Group and each Property Partnership or Property-Owning
Entity not to take or omit to take any action in bad faith that would result in
(x) any of
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the representations and warranties of such party (without giving effect to any
"Knowledge" qualification and without respect to the date as of which any such
representations and warranties are made) set forth in this Agreement that are
qualified as to materiality becoming untrue, (y) any of such representations and
warranties (without giving effect to any "Knowledge" qualification and without
respect to the date as of which any such representations and warranties are
made) that are not so qualified becoming untrue in any material respect or (z)
except as contemplated by Article VII, any of the conditions to the
Consolidation set forth in Article VI not being satisfied.
(b) Vornado shall not and shall cause (or, in the case of Vornado
Subsidiaries that Vornado does not control, shall use commercially reasonable
efforts to cause) any Vornado Subsidiary not to take or omit to take any action
in bad faith that would result in (x) any of the representations and warranties
of such party (without giving effect to any "Knowledge" qualification and
without respect to the date as of which any such representations and warranties
are made) set forth in this Agreement that are qualified as to materiality
becoming untrue, (y) any of such representations and warranties (without giving
effect to any "Knowledge" qualification and without respect to the date as of
which any such representations and warranties are made) that are not so
qualified becoming untrue in any material respect or (z) except as contemplated
by Article VII, any of the conditions to the Consolidation set forth in Article
VI not being satisfied.
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ARTICLE V
ADDITIONAL COVENANTS
SECTION 5.1 Preparation of the Memorandum.
(a) As soon as practicable following the date of this Agreement, (i)
Vornado, the Operating Partnership and the Mendik Group shall prepare a
Confidential Solicitation of Consents and Private Placement Memorandum relating
to the offer by the Operating Partnership to acquire the interests of the
Partners (other than 1740 Broadway Investment Company and the 1740 Broadway Cash
Investors) in the Property Partnerships (the "MEMORANDUM") in form and substance
satisfactory to each of Vornado, the Operating Partnership and the Mendik Group
and (ii) the Mendik Group shall use its commercially reasonable efforts to cause
the Memorandum to be mailed as promptly as practicable to the Partners (other
than 1740 Broadway Investment Company and the 1740 Broadway Cash Investors) (and
their distributees). Whenever any event occurs which is required to be set forth
in an amendment or supplement to the Memorandum, Vornado, the Operating
Partnership or the Mendik Group, as the case may be, shall promptly inform each
of the others of such occurrence and cooperate in mailing to the Partners (other
than 1740 Broadway Investment Company and the 1740 Broadway Cash Investors) (and
their distributees) such amendment or supplement. Vornado or the Operating
Partnership, as the case may be, shall take any action required to be taken
under any applicable state securities or "blue sky" laws in connection with the
issuance of Vornado Common Shares or Units pursuant to the Transactions, and the
other parties shall furnish all information concerning such party and the
holders of the ownership interests in such party and rights to acquire ownership
interests as may be reasonably requested in connection with any such action.
(b) As soon as practicable following the date of this Agreement, (i)
Vornado, the Operating Partnership and the Mendik Group shall prepare a
Confidential Solicitation of Consents relating to the offer by the Operating
Partnership to acquire the interests of the 1740 Broadway Cash Investors (the
"1740 SOLICITATION DOCUMENT") in form and substance satisfactory to each of
Vornado, the Operating Partnership and the Mendik Group and (ii) the Mendik
Group shall use its commercially reasonable efforts to cause the 1740
Solicitation Document to be mailed as promptly as practicable to the 1740
Broadway Cash Investors. Whenever any event occurs which is required to be set
forth in an amendment or supplement to the 1740 Solicitation Document, Vornado,
the Operating Partnership or the Mendik Group, as the case may be, shall
promptly inform each of the others of such occurrence and cooperate in mailing
to the 1740 Broadway Cash Investors such amendment or supplement.
SECTION 5.2 Access to Information; Confidentiality.
(a) Subject to the requirements of confidentiality agreements with third
parties entered into prior to January 25, 1997, as amended, Vornado, the
Operating Partnership and each member of the Mendik Group that is an entity
shall, and shall cause each of its respective subsidiaries and affiliates that
is an entity and any employees, agents, officers, directors,
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shareholders, partners and advisors of itself or any of its subsidiaries or
affiliates that are entities to, (i) afford to the other parties and to the
officers, employees, accountants, counsel, financial advisors and other
representatives of such other parties, reasonable access during normal business
hours prior to the Effective Time to all of their respective properties, books,
contracts, commitments, personnel and records, (ii) during such period, furnish
promptly to the other parties (A) as applicable, a copy of each report,
schedule, registration statement and other document filed by it during such
period pursuant to the requirements of federal or state securities laws, (B) all
other information concerning its business, properties and personnel as any other
party may reasonably request and (C) reports heretofore or hereafter furnished
to any of the foregoing entities or persons by securities analysts or
accountants, (iii) hold, any nonpublic information now or hereafter acquired
from any of the parties in strict confidence and shall not use such information
for any purpose except in connection with the Transactions and shall not
disclose any such information to any Person other than its own subsidiaries and
directors, trustees, officers, employees, accountants, counsel, financial
advisors and other representatives and affiliates without the prior written
consent of the party whose nonpublic information would be disclosed; provided,
however, that, notwithstanding the foregoing: (1) the Operating Partnership or
the Property Partnerships may, without the prior written consent of Vornado,
discuss or disclose any of such information to (v) lenders with respect to the
Financing Transactions (as defined below), (w) the Major Partner, (x) the M/S
Limited Partners or one or more of the Partners, (y) the Persons listed in
SCHEDULE 5.2 to the Mendik Disclosure Letter and (z) the respective officers,
employees, accountants, counsel, financial advisors and other representatives of
any of the foregoing for the purpose of providing information to, or engaging in
discussions with, such persons and their representatives with respect to the
Transactions; (2) Vornado may, without the prior written consent of the Mendik
Group, discuss or disclose any of such information to any Persons from whom
consents are or may be required as listed in SCHEDULE 3.1(D) to the Vornado
Disclosure Letter; and (3) Vornado, the Operating Partnership, any of the
Property Partnerships and any member of the Mendik Group may, without the prior
written consent of any party hereto, discuss or disclose any of such information
to any Persons to whom disclosure of such information was previously permitted
pursuant to any confidentiality agreements between or among any of the parties
hereto.
(b) The obligations set forth in Section 5.2(a) shall not apply to any
information which (i) becomes generally available to the public, other than as a
result of a disclosure of such nonpublic information by a party in violation of
this Section 5.2, (ii) was available to a party or to such party's subsidiaries
and directors, trustees, officers, employees, accountants, counsel, financial
advisors and other representatives and affiliates on a non-confidential basis
prior to the date of this Agreement, (iii) becomes available to a party through
a Person not otherwise bound by the terms of any confidentiality agreement or
provision (or other applicable restriction prohibiting disclosure) with respect
thereto or (iv) is required to be disclosed by applicable law, regulation or
legal process or is required by the rules or policies of the New York Stock
Exchange in order to maintain current trading in Vornado Common Shares (in which
event Vornado shall comply with the provisions of Section 5.7). In the event a
party becomes legally obligated to disclose any nonpublic information with
respect to another party, the disclosing party shall promptly notify the other
party in writing prior to any such disclosure so that the other party may seek a
protective order or other appropriate remedy. At the request of
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another party, any party holding nonpublic information of such other party shall
promptly return such information to such other party or, at the direction of
such other party, cause to be destroyed such nonpublic information.
(c) The confidentiality provisions contained in this Section 5.2 supersede
any and all prior agreements or understandings, whether written or oral, between
or among the parties with respect to the matters covered by this Section 5.2.
(d) The parties expressly agree that, notwithstanding anything else
contained in this Agreement to the contrary, the provisions of this Section 5.2
shall survive after any termination of this Agreement pursuant to Section 8.1.
SECTION 5.3 Commercially Reasonable Efforts; Notification.
(a) Subject to the terms and conditions herein provided, Vornado, the
Operating Partnership and the members of the Mendik Group shall: (i) use all
commercially reasonable efforts to cooperate with one another in (A) determining
which filings are required to be made prior to the Effective Time with, and
which consents, approvals, permits or authorizations are required to be obtained
prior to the Effective Time from, Governmental Entities and any third parties in
connection with the execution and delivery of this Agreement, and the
consummation of the Transactions and (B) timely making all such filings and
timely seeking all such consents, approvals, permits and authorizations; (ii)
use all commercially reasonable efforts to obtain in writing any consents
required from third parties to effectuate the Consolidation, such consents to be
in form reasonably satisfactory to the Operating Partnership, Vornado and the
Mendik Group; and (iii) use all commercially reasonable efforts to take, or
cause to be taken, all other actions and do, or cause to be done, all other
things necessary, proper or appropriate to consummate and make effective the
Transactions. If, at any time after the Effective Time, any further action is
necessary or desirable to carry out the purpose of this Agreement, the proper
officers and trustees of Vornado, and, where appropriate, the proper
representatives of the Operating Partnership and the Mendik Group, shall take
all such necessary action.
(b) The Operating Partnership and the Mendik Group shall give prompt notice
to Vornado, and Vornado or Vornado Sub shall give prompt notice to the Operating
Partnership and the Mendik Group, of the failure by it to comply with or satisfy
in any material respect any covenant, condition or agreement to be complied with
or satisfied by it under this Agreement; provided, however, that no such
notification shall affect the covenants or agreements of the parties or the
conditions to the obligations of the parties under this Agreement.
SECTION 5.4 Tax Treatment; Legal Opinions. Each of Vornado, the Operating
Partnership and each member of the Mendik Group shall use its commercially
reasonable efforts (i) to cause the transfer of assets to the Operating
Partnership(whether by contribution, merger or otherwise) not to result in the
recognition of any taxable income or gain for federal income tax purposes other
than as a result of Section 752 of the Code and (ii) to obtain the opinions of
counsel referred to in Sections 6.1(e), 6.2(c) and 6.3(c).
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SECTION 5.5 Vornado Voting Agreement. At Closing, certain shareholders of
Vornado shall enter into a voting agreement with respect to election of Mr.
Mendik as a member of the Board of Trustees of Vornado substantially in the form
of EXHIBIT J (the "VORNADO VOTING AGREEMENT").
SECTION 5.6 No Solicitation of Transactions by the Mendik Group. Unless and
until this Agreement is terminated in accordance with its terms, (a) subject to
Section 7.1, no member of the Mendik Group shall, directly or indirectly,
through any members, partners, directors, officers, employees, agents or others
under its control (as the case may be), in any manner invite, solicit, encourage
or initiate any inquiries, proposals, discussions or negotiations by or with any
Person (other than Vornado and its affiliates, representatives and agents), or
participate in or continue any such discussions or negotiations, or provide any
confidential information or data to any third party concerning, any Competing
Transaction (as defined below) and (b) the Mendik Group shall notify Vornado in
writing (as promptly as practicable) in the event that it receives any
inquiries, proposals or requests for information relating to any Competing
Transaction. For purposes of this Agreement, (i) "COMPETING TRANSACTION" shall
mean any sale, transfer or other disposition or roll-up (other than in
connection with a debt financing) with a third party (or group acting together),
in a single transaction or series of related transactions, involving more than
two million square feet of office space in one or more of the Mendik Core Assets
(as defined below) or the ownership interests therein to be contributed to the
Operating Partnership (or Vornado) pursuant to this Agreement except in
connection with (A) the Transactions or (B) the proposed initial public offering
of The Mendik Company, Inc. as described in Amendment No. 1 to the Registration
Statement dated January 29, 1997; and (ii) "MENDIK CORE ASSETS" shall mean the
330 Madison Avenue property, the Two Park Avenue property, the Two Penn Plaza
property, the 1740 Broadway property, the 866 United Nations Plaza property and
the Eleven Penn Plaza property.
SECTION 5.7 Public Announcements. Subject to the provisions of Section
5.2(b) with respect to the disclosure of nonpublic information of another party,
Vornado and Vornado Sub on the one hand and the Operating Partnership and the
members of the Mendik Group on the other hand shall not issue any press release
or make any written public statement with respect to any of the Transactions
without the consent of the other party, except as may be required, based upon
advice of counsel, by applicable law, pursuant to court process or by
obligations pursuant to any listing agreement with any national securities
exchange (in each of which events the disclosing party shall consult with the
other before issuing, and provide the other the opportunity to review and
comment upon, any such press release or other such public statement). The
parties agree that the initial press release to be issued with respect to any of
the Transactions will be in the form agreed to by the parties hereto prior to
the execution of this Agreement.
SECTION 5.8 Transfer Taxes. Vornado, the Operating Partnership and the
Mendik Group shall cooperate in the preparation, execution and filing of all
returns, questionnaires, applications or other documents regarding any real
property transfer, sales, use, transfer, value added, stock transfer and stamp
taxes, any transfer, recording, registration and other fees and any similar
taxes (together with any related interests, penalties or additions to tax,
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"TRANSFER TAXES") which become payable in connection with the Transactions,
which such Transfer Taxes shall be paid by the Major Partner, the M/S Limited
Partners or the individual Partners (or on behalf of such Partners by the
Managing General Partners) as described in the Major Partner Agreements, the M/S
Limited Partners Agreements or the Partner Interest Contribution Agreements, as
applicable. Notwithstanding the foregoing, from and after the Effective Time,
the Operating Partnership shall pay, without deduction or withholding from any
amounts payable hereunder, all Transfer Taxes to the extent the same arise by
reason of the Operating Partnership's acquisition, directly or indirectly, of
additional interests in the Mendik Properties in which the Operating Partnership
will own, directly or indirectly, some but not all of the interests immediately
following the Effective Time (other than (i) any such Transfer Taxes incurred in
connection with the Consolidation that are to be paid by the Major Partner, the
M/S Limited Partners or the individual Partners in the Property Partnerships
from distributions by the Property Partnerships made prior to the Closing as
described in the Major Partner Agreements, the M/S Limited Partners Agreements
or the Partner Interest Contribution Agreements, as applicable and (ii) any such
Transfer Taxes to the extent they would not have been imposed but for a
Unitholder's failure to comply with any applicable holding period requirements,
including the holding period requirements, with respect to certain transfers to
REITs imposed in connection with the New York Real Estate Transfer Tax of
Article 31 of the Tax Law and the New York City Real Property Transfer Tax
imposed by Title II of Chapter 46 of the Administrative Code of the City of New
York).
SECTION 5.9 Benefit Plans and Other Employee Arrangements.
(a) Benefit Plans. After the Effective Time, Vornado shall provide benefits
to employees of the Mendik Group employed by Vornado that are not less favorable
to such employees than those currently provided to such employees by the Mendik
Group. With respect to any Vornado Benefit Plan which is an "employee benefit
plan" as defined in Section 3(3) of ERISA, solely for purposes of determining
eligibility to participate, vesting and entitlement to benefits, service with
the Mendik Group shall be treated as service with Vornado or the Vornado
Subsidiaries (as applicable); provided, however, that such service shall not be
recognized to the extent that such recognition would result in a duplication of
benefits (or is not otherwise recognized for such purposes under the Vornado
Benefit Plans). With respect to medical benefits provided by Vornado on and
after the Closing Date, coverage that would otherwise be denied due to a
preexisting illness shall be provided to those employees who were covered by a
plan sponsored by the Mendik Group before the Closing Date, but only to the
extent that such illness was covered under such a plan before the Closing Date.
Except as otherwise provided herein (including pursuant to subsections (b) and
(c) below), Vornado shall be under no obligation to maintain the compensation
and benefits currently provided by the Mendik Group to its employees.
(b) Employment Agreements.
(i) At the Closing, Vornado shall enter into a Noncompetition
Agreement with Mr. Mendik substantially in the form of EXHIBIT K-1; and
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(ii) At the Closing, Vornado shall enter into an Employment Agreement
with Mr. Greenbaum substantially in the form of EXHIBIT K-2.
(c) Noncompetition and Severance Agreements. At the Closing, Vornado shall
enter into a Severance and Noncompetition Agreement with each of Christopher G.
Bonk, Michael M. Downey, John J. Silberstein, David L. Sims and Kevin R. Wang
which shall become effective as of the Effective Time and shall be substantially
in the form of EXHIBIT L-1. In addition, at the Closing, Vornado shall agree to
indemnify each of Christopher G. Bonk, Michael M. Downey, John J. Silberstein,
David L. Sims and Kevin R. Wang with respect to any actions taken by any of them
as employees of Vornado pursuant to a letter substantially in the form of
EXHIBIT L-2.
(d) Employee Options. At the Closing, Vornado shall grant to certain
employees of the Mendik Group, as determined by the Mendik Group, a total of
86,000 options, in the aggregate, to purchase Vornado Common Shares upon the
same terms and conditions as grants currently are made to Vornado employees
under the Vornado Benefit Plans.
(e) No Employees at the Property Partnerships or the Property-Owning
Entities. Between the date of this Agreement and the Effective Time, none of the
Operating Partnership, the Property Partnerships and the Property-Owning
Entities shall hire any person as an employee without the prior written consent
of Vornado.
SECTION 5.10 Service Business Transactions. At the Closing:
(a) The Operating Partnership shall enter into a Master Property Services
Agreement (Wholly-Owned Properties) and all related agreements contemplated
thereby with the Mendik Cleaning Company and the Mendik Security Company with
respect to the Mendik Properties in which the Operating Partnership will own
100% of the interests (the "MASTER PROPERTY SERVICES AGREEMENT (WHOLLY-OWNED
PROPERTIES)") substantially in the form of EXHIBIT N.
(b) The Operating Partnership shall enter into a Master Property Services
Agreement (Partially-Owned Properties) with the Mendik Cleaning Company and the
Mendik Security Company with respect to the Mendik Properties in which the
Operating Partnership will not own 100% of the interests (the "MASTER PROPERTY
SERVICES AGREEMENT (PARTIALLY-OWNED PROPERTIES)") substantially in the form of
EXHIBIT O.
SECTION 5.11 Amendment of M330 Associates Property Partnership Agreement.
At the Closing, the Operating Partnership and the Mendik Partnership shall
execute an amendment to the M 330 Associates Property Partnership Agreement (the
"M 330 AMENDMENT") substantially in the form of EXHIBIT P.
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SECTION 5.12 Major Partner Agreements.
(a) In the event the Closing has not occurred on or prior to the later of
(A) April 15, 1997 and (B) such later date to which the closing under the Major
Partner Agreements may be extended (the "OUTSIDE DATE"), and this Agreement has
not yet been terminated prior to the Outside Date, then, subject to Section
5.12(b) and Section 5.12(f), Vornado, or its subsidiary (the "VORNADO 1740
SUB"), shall on the Outside Date:
(i) pay or cause to be paid to Mendik/FW LLC $750,000, representing an
amount equal to the downpayment made by Mendik/FW LLC pursuant to the Major
Partner Agreement with respect to the acquisition of the Major Partner's
interest in 1740 Broadway Associates (the "1740 MAJOR PARTNER AGREEMENT") in
consideration for which Mendik/FW LLC shall assign its interest in the 1740
Major Partner Agreement to Vornado 1740 Sub and Vornado 1740 Sub shall assume
the obligations of Mendik/FW LLC thereunder (including payment of the balance of
the purchase price thereunder in the amount of $72,250,000);
(ii)(A) close under the 1740 Major Partner Agreement in accordance with the
terms thereof, provided that the acquisition of such interest shall not result
in any cost or expense to Vornado or Vornado 1740 Sub or any material liability
other than funding (w) the balance of the purchase price of $72,250,000, (x) the
distribution to the Major Partner of $2,486,212, (y) the required escrows under
the lease with William Douglas McAdams (which are in the estimated aggregate
amount of approximately $1,800,000 which shall be funded from the cash reserves
of 1740 Broadway Associates) and (z) Transfer Taxes incurred in connection with
the 1740 Major Partner Agreement to the extent such Transfer Taxes exceed
$2,250,000 (which excess Transfer Taxes, if any, shall be funded from the
Initial Reserve);
(ii)(B) at the Closing or thereafter, in the event there are insufficient
cash reserves in 1740 Broadway Associates or cash flow to fund costs and escrows
described in (ii)(A) above (other than the balance of the purchase price),
Vornado 1740 Sub shall pay an additional amount up to the Initial Reserve, which
shall also be available for working capital and similar requirements;
(iii) deliver to 1740 Broadway Investment Company (A) $3,250,000 in
consideration for the interests of 1740 Broadway Investment Company in 1740
Broadway Associates with the closing of the sale of the interests of 1740
Broadway Investment Company in 1740 Broadway Associates to be in accordance with
a Partner Interest Contribution Agreement to be entered into between 1740
Broadway Investment Company and Vornado 1740 Sub, which Partner Interest
Contribution Agreement shall be in substantially the same form as the Partner
Interest Contribution Agreement attached hereto as Exhibit F-8 and (B) $43,340
which represents its shares of cash reserves in 1740 Broadway Associates;
(iv) deliver to Mendik 1740 Corp (A) $49,442, in consideration for the
interests of Mendik 1740 Corp in 1740 Broadway Associates with the closing of
the sale of the interests of Mendik 1740 Corp in 1740 Broadway Associates to be
in accordance with a Partner Interest Contribution Agreement to be entered into
between Mendik 1740 Corp and Vornado 1740
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Sub, which Partner Interest Contribution Agreement shall be in
substantially the same form as the Partner Interest Contribution Agreement
attached hereto as Exhibit F-8 and (B) $660, which represents its share of
cash reserves of 1740 Broadway Associates; and
(v) make a non-recourse loan to Mendik/FW LLC in the amount of
$14,775,000 (the "B&B LOAN"), which loan shall be used by Mendik/FW LLC to
close the acquisition of the Major Partner's interest in B&B and return to
Mendik/FW LLC the downpayment in the amount of $1,325,000.
The amount to be funded by Vornado or Vornado 1740 Sub pursuant to clause (v)
above shall be (A) on the same terms as the Bridge Loan (as defined below)
except with respect to the amount of the loan and the security therefor, (B)
secured by a perfected first security interest in the interests of B&B in Two
Park Company and (C) cross-defaulted with the obligations of Mendik/FW Purchaser
under Section 5.12(b)(ii); provided, however, in the event the option described
in clause (b)(v) below is exercised, and Vornado 1740 Sub has made the Bridge
Loan, then the B&B Loan would also be secured by, and cross-collateralized with,
the 1740 Broadway Mortgage and the 1740 Broadway Mortgage would be increased by
an amount equal to the amount of the B&B Loan.
(vi) notwithstanding anything to the contrary contained herein,
Vornado or Vornado 1740 Sub shall pay $94.5 million at the closing, which
shall include a reserve of approximately $1 million working capital and
other requirements, and shall not be obligated to pay any amount in excess
of $94.5 million with respect to the items described in (a) above.
(b) In the event Vornado 1740 Sub shall purchase the interests and fund the
B&B Loan as described in clauses (a)(i) through (a)(v) above, then during the
period (the "INTERIM PERIOD"), from the date of such funding until the earliest
of (A) the Closing Date, (B) the date upon which a closing under the Option
Agreement (as defined below) shall occur and (C) the termination or expiration
of the Option Agreement:
(i) Vornado 1740 Sub shall keep in existence 1740 Broadway Associates
and, after payment of expenses of operation and ownership of 1740 Broadway,
shall be permitted to make no distributions of cash flow from the 1740
Broadway or cash reserves held by 1740 Broadway Associates, except Vornado
1740 Sub shall be permitted to make "Permitted Distributions." "PERMITTED
DISTRIBUTIONS" shall be equal to the sum of "B & B Shortfalls" and 1740
Specified Payments. As used herein, "B & B SHORTFALLS" shall mean accrued
and unpaid interest under the B & B Loan during the Interim Period, and
"1740 SPECIFIED PAYMENTS" shall mean interest charges that would have been
payable on the Bridge Loan during the Interim Period had the Bridge Loan
been made.
(ii) In the event that any funds shall be required for Permitted
Distributions, then any such amounts shall be funded by Mendik/FW Purchaser
within twenty (20) days after notice from Vornado 1740 Sub.
(iii) Mendik Realty shall continue to provide management services
pursuant to the terms of the existing Management Agreement with respect to
1740 Broadway.
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(iv) Mendik/FW LLC or its designee ("MENDIK/FW PURCHASER") shall make
all decisions with respect to the ownership and operation of 1740 Broadway,
provided however that Vornado 1740 Sub shall have certain rights of
approval to be mutually agreed upon.
(v) Mendik/FW Purchaser shall have the option to purchase the
interests in 1740 Broadway Associates then owned by Vornado 1740 Sub (the
"OPTION") for $79,725,000 (the "OPTION PRICE"). The Option shall be
pursuant to a mutually acceptable written Option Agreement, in recordable
form (the "OPTION AGREEMENT"), to be entered into on the Outside Date and
containing the following terms:
(1) the Option must be exercised in writing within ten (10) days
after the termination of this Agreement (and shall be deemed exercised
upon the termination of this Agreement, unless otherwise waived by
Vornado), but the Option shall be null and void if the Closing Date
shall occur;
(2) provided the Option is exercised pursuant to (1) above, the
closing under the Option Agreement shall take place within five (5)
Business Days after exercise (the "OPTION CLOSING DATE");
(3) Vornado 1740 Sub shall convey such title to the direct and
indirect interests in 1740 Broadway Associates as it received from the
Major Partner, 1740 Broadway Investment Company and Mendik 1740 Corp;
(4) Mendik/FW Purchaser shall pay all Transfer Taxes in
connection with the closing of the Option;
(5) on the Option Closing Date, Mendik/FW Purchaser shall pay to
Vornado 1740 Sub the Option Price;
(6) the failure by Mendik/FW Purchaser to pay any amounts
required pursuant to (b)(ii) above within twenty (20) days after
written notice from Vornado 1740 Sub shall result in the irrevocable
termination under the Option Agreement, provided such failure shall
not constitute an irrevocable termination unless Vornado 1740 Sub
delivers a second written notice of such failure and Mendik/FW
Purchaser fails to pay such amounts within ten (10) days of such
second notice; and
(7) the B&B Loan shall be repaid upon the closing of the Option
(unless Vornado 1740 Sub shall make the Bridge Loan pursuant to clause
(c) below).
(c) In the event this Agreement is terminated prior to the Outside Date
other than pursuant to Paragraphs 8.1(b), 8.1(d) or 8.1(i) hereof, or the
Agreement is terminated after the Outside Date and the Option is exercised or
deemed exercised, Vornado shall provide, at the
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request of Mendik/FW Purchaser, non-recourse financing to Mendik/FW Purchaser
(the "BRIDGE LOAN") in an amount equal to $79,725,000. In the event this
Agreement is terminated, other than pursuant to Paragraphs 8.1(b), 8.1(d) or
8.1(i) hereof, Vornado shall or shall cause Vornado 1740 Sub to make the B & B
Loan unless the B&B Loan was previously made. The Bridge Loan, if any, (A) shall
bear interest, adjusted monthly, at a rate equal to the sum of the 30-day LIBOR
rate plus 200 basis points, (B) shall mature on the earlier of the first
anniversary of the date of the Bridge Loan and the Outside Date (the "BRIDGE
LOAN MATURITY DATE") (provided, however, that the Bridge Loan Maturity Date
shall be accelerated to the date that (x) a Competing Transaction is consummated
by the Mendik Group or (y) an initial public offering is consummated by the
Initial General Partner or an Affiliate thereof) and (C) shall be secured by a
recorded first mortgage in the full amount of the Bridge Loan (the "1740
BROADWAY MORTGAGE") on the 1740 Broadway property (as increased by an amount
equal to the B&B Loan), and, as a condition to the making of the Bridge Loan,
Mendik/FW LLC shall pay the mortgage recording tax therefor. The Bridge Loan and
the B&B Loan shall, from and after the Bridge Loan Maturity Date, bear interest
at a rate equal to the sum of the 30-day LIBOR rate plus 500 basis points. A fee
equal to 1% of the principal amount on the Bridge Loan (including the B&B Loan)
shall be due and payable by Mendik/FW Purchaser to Vornado 1740 Sub unless the
Bridge Loan and the B&B Loan are repaid prior to the first anniversary of the
earlier of the maturity of the Outside Date or the making of the Bridge Loan.
Vornado shall have no obligation to fund the Bridge Loan if there is a default
by Mendik/FW Purchaser pursuant to Section 5.12(b)(ii).
(d) The Bridge Loan documents shall provide that all rents and other income
from 1740 Broadway (other than from casualty and similar capital events) will be
deposited by tenants (and any other Persons regularly making payments to 1740
Broadway Associates) directly into a lockbox account maintained in the name of
the lender in a depository institution selected by the lender. Concurrently with
the funding of the Bridge Loan, Mendik/FW Purchaser shall notify each tenant and
other such person to make its rent and other payments accordingly. The funds in
the lockbox will be disbursed on the lender's authorization on behalf of
Mendik/FW Purchaser against third-party invoices submitted by Mendik/FW
Purchaser to the lender on a monthly basis, together with Mendik/FW Purchaser's
certificate that the invoiced amounts are due and payable, or were due and
payable and have been paid by Mendik/FW Purchaser, and in either event that the
same have not been the subject of a previous request for disbursement, and such
other information or detail as the lender may reasonably request. Any funds
remaining in the lockbox after the payment of (A) amounts required to fund
real-estate-tax and insurance-premium escrow accounts (which Mendik/FW Purchaser
will establish at closing and maintain in the name of lender), (B) monthly
scheduled interest, (C) budgeted and approved operating expenses and (D)
budgeted and approved capital expenditures, shall be retained in the lockbox to
be available for future draws as permitted hereby. Mendik/FW Purchaser shall pay
the costs of arranging and maintaining the lockbox. Prior to the funding of the
Bridge Loan, Mendik/FW Purchaser will submit, for the lender's approval (not to
be unreasonably withheld), an operating and capital budget for the ensuing
twelve (12) months, and once approved, such budget shall be complied with,
subject to a five percent (5%) variance on expenses (such variance shall be
applied on a line-item basis, except for (x) immaterial items which may be
aggregated for such variance, (y) variances in certain non-discretionary
expenses such as real estate taxes and (z) emergencies, but only to the extent
necessary to prevent personal injury, or imminent material damage to property or
potential criminal
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liability; provided, however, that, in the event of a variance described in
clause (z), Mendik/FW Purchaser shall notify the lender of such variance as soon
as possible). Mendik/FW Purchaser will have the right to submit proposed
modifications to the approved budget, which modifications shall be subject to
lender's approval, not to be unreasonably withheld. Unless otherwise elected by
Vornado, a subsidiary of Vornado will act as the lender.
(e) In the event this Agreement is terminated, Mendik/FW LLC shall fund its
own costs and expenses and those of Vornado and Vornado 1740 Sub in connection
with (i) the closing of the 1740 Major Partner Agreement, (ii) the negotiation
and closing of the B&B Loan, and (iii) the preparation and closing of the Bridge
Loan, and each party shall fund its own costs and expenses in connection with
the preparation of the Option Agreement and the conveyance of 1740 Broadway
pursuant to the Option Agreement (other than Transfer Taxes payable in
connection therewith, which shall be borne by Mendik/FW LLC). In the event the
Closing occurs, all of the expenses described above, shall be funded by the
Operating Partnership (or the Operating Partnership shall reimburse the
appropriate party for such expenses funded by it prior thereto).
(f) As a condition to the obligations of Vornado and Vornado 1740 Sub under
Section 5.12(a) and (b), Mendik/FW LLC shall cause to be delivered to Vornado an
opinion of Proskauer Rose Goetz & Mendelsohn LLP in form and substance
satisfactory to Vornado to the effect that either (i) under the terms of Section
5.12(a) and (b), Vornado 1740 Sub will be regarded as the owner of 100% of the
ownership interests in 1740 Broadway Associates and, subject to the customary
exceptions to enforceability, Section 5.12 is otherwise enforceable against
Mendik/FW LLC in accordance with its terms or (ii) under the terms of Section
5.12(a) and (b), Vornado 1740 Sub will have the rights of a perfected secured
lender in respect of 100% of the ownership interests in 1740 Broadway Associates
and, subject to the customary exceptions to enforceability, Section 5.12(a) and
(b) is otherwise enforceable in accordance with its terms. Further, as a
condition to the obligations of Vornado and its affiliates to make the Bridge
Loan under Section 5.12(c) and (d), Vornado shall have received legal advice
satisfactory to it from Sullivan & Cromwell that the Bridge Loan should not be
subject to fraudulent conveyance or preference claims or defenses.
SECTION 5.13 Financing Transactions.
(a) The Operating Partnership and the Mendik Group shall, and the Mendik
Group shall cause the Property Partnerships and the Property-Owning Entities to,
use their commercially reasonable efforts to complete the proposed financing
transactions with respect to certain of the Mendik Properties substantially on
the terms set forth in the respective documents listed in SCHEDULE 5.13 to the
Mendik Disclosure Letter (except that, at Vornado's option but subject to the
approval of the lender, the proposed loan secured by Two Penn Plaza may have a
floating interest rate for the first twelve (12) months of its term), which
documents have previously been provided to Vornado with respect to Two Penn
Plaza, Eleven Penn Plaza, 866 United Nations Plaza and Two Park Avenue
(collectively, the "FINANCING TRANSACTIONS").
(b) In the event the Operating Partnership and the Mendik Group are unable,
despite their commercially reasonable efforts, to complete the Financing
Transactions as
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contemplated, then the Operating Partnership and each member of the Mendik Group
shall use its commercially reasonable efforts (taking into account the time
available to obtain any replacement financings) to obtain replacement financings
for the above properties on terms then available (even if such terms are less
favorable than the financings described in the documents listed in SCHEDULE 5.13
to the Mendik Disclosure Letter); provided, however, that Vornado shall have the
right to approve or disapprove any replacement financing proposals, which
approval or disapproval must be given within twenty-four (24) hours of the
receipt of notice of any such proposals (and Vornado shall be deemed to have
approved any such proposals if Vornado shall fail to respond to any such notice
within such twenty-four-hour period); provided further, however, in the event
the Operating Partnership and the Mendik Group obtain such replacement financing
proposals then the condition set forth in Section 6.1(c) shall be deemed to be
satisfied with respect to the Financing Transactions to which such replacement
financing proposals relate regardless of whether Vornado disapproves any such
replacement financing proposals; and provided, finally, in the event Vornado
disapproves any such replacement financing proposals, then Vornado shall be
obligated to obtain replacement financings with respect to such Financing
Transactions, which replacement financings must comply with the restrictions on
the refinancing of certain of the Mendik Properties as set forth in the
Operating Partnership Agreement.
(c) Notwithstanding anything contained herein to the contrary, prior to or
after the consummation of the Financing Transactions, Vornado or the Operating
Partnership shall have the right to negotiate and obtain replacement financings;
provided, however, that any such replacement financings must comply with the
restrictions on the refinancing of certain of the Mendik Properties as set forth
in the Operating Partnership Agreement; provided further, however, that, except
as set forth in Section 5.13(b), in no event may Vornado or the Operating
Partnership negotiate or obtain replacement financing for the Financing
Transaction with respect to the Eleven Penn Plaza property prior to the closing
of such Financing Transaction.
SECTION 5.14 Closing Documents.
(a) At the Closing, each of the parties hereto, as appropriate, shall duly
execute and deliver the following agreements and other documents to which it is
a party:
(i) each of the Contribution Agreements and Assignment and Assumption
Agreements identified in Sections 1.1 and 1.2;
(ii) each of the Partner Interest Contribution Agreements and
Assignment and Assumption Agreements identified in Section 2.1;
(iii) the Operating Partnership Agreement;
(iv) the Registration Rights Agreement;
(v) the Unit Redemption Agreement;
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(vi) the employment agreements and option agreements identified in
Section 5.9;
(vii) the Master Property Services Agreement (Wholly-Owned Properties)
and all related agreements contemplated thereby;
(viii) the Master Property Services Agreement (Partially-Owned
Properties);
(ix) the Management Corporation Voting Agreement;
(x) the Vornado Voting Agreement;
(xi) a License Agreement substantially in the form of EXHIBIT Q (the
"MENDIK LICENSE AGREEMENT");
(xii) the Indemnification Agreement referred to in Section 9.1;
(xiii) one or more agreements among the Operating Partnership and Mr.
Mendik and Mr. Greenbaum and certain of their Affiliates relating to
certain options and rights of first refusal to be held by the Operating
Partnership with respect to certain real property interests owned, directly
or indirectly, by Mr. Mendik and Mr. Greenbaum and not being contributed to
the Operating Partnership in the Consolidation and identified in EXHIBIT
U-1, each substantially in the form of EXHIBIT U-2 with respect to options,
and, with respect to rights of first refusal, in the form and substance
reasonably acceptable to Vornado; and
(xiv) the M 330 Amendment.
(b) Prior to or simultaneously with the Closing, each of the parties
hereto, as appropriate, shall use their commercially reasonable efforts to
consummate the transactions described in this Agreement (but the foregoing shall
not be construed as impairing the rights of any party hereunder to require the
conditions to such party's obligations hereunder to be satisfied).
SECTION 5.15 Cleaning Business Transactions. Prior to the Closing Date, the
Mendik Group and Vornado shall cause the transactions described in SCHEDULE 5.15
to the Mendik Disclosure Letter to be consummated.
SECTION 5.16 Reservation of Vornado Common Shares. At or prior to the
Closing Date, Vornado shall cause to be reserved a sufficient number of Vornado
Common Shares to satisfy its obligation to redeem Units held by Unitholders (if
Vornado were to elect to issue Common Shares upon such redemption) pursuant to
the terms of the Operating Partnership Agreement; provided that, the number of
Vornado Common Shares so reserved shall be subject to reduction as Units are
redeemed (in exchange for either Vornado Common Shares or cash) over time.
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SECTION 5.17 Amendment of Major Partner Agreements. Prior to the Closing
Date, Mendik/FW LLC shall cause the Major Partner Agreements to be amended to
allow for the consummation of the Transactions as contemplated by this
Agreement, which amendments shall be in form and substance reasonably
satisfactory to Vornado.
SECTION 5.18 Reimbursement of Loans Made by Mendik Realty With Respect to
570 Lexington Avenue. On or prior to the Closing Date, Vornado shall pay to
Mendik Realty an amount equal to the amount loaned by Mendik Realty to Mendik
570 Corp, 570 Lexington Investors or the Partners in 570 Lexington Associates or
570 Lexington Investors after October 1, 1996 and prior to the Closing Date in
respect of the obligations of either of such entities or any of such Partners to
make capital contributions to 570 Lexington Associates or 570 Lexington
Investors, as applicable.
SECTION 5.19 Delivery of Audited Financial Statements.
(a) On or prior to March 14, 1997, Mendik/FW LLC shall deliver to Vornado
audited financial statements for each of Two Penn Plaza Associates, Eleven Penn
Plaza Company, M 393 Associates, M Eleven Associates, 1740 Broadway Associates
and 866 U.N. Plaza Associates.
(b) On or prior to March 18, 1997, Mendik/FW LLC shall deliver to Vornado
audited financial statements for each of Two Park Company, B&B, 330 Madison
Company, M 330 Associates, 570 Lexington Company, 570 Lexington Associates and
570 Lexington Investors.
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ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1 Conditions to Each Party's Obligation to Effect the
Consolidation. The respective obligation of each party to effect the
Consolidation and to consummate the other Transactions contemplated to occur at
the Closing is subject to the satisfaction or waiver on or prior to the
Effective Time of the following conditions:
(a) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the Consolidation or any of the other Transactions
shall be in effect.
(b) Consents. All Partner Consents shall have been obtained, and all
consents of certain third parties listed in SCHEDULE 6.1(B) to the Mendik
Disclosure Letter shall have been obtained, which consents shall be in form
and substance reasonably satisfactory to Vornado and the Operating
Partnership.
(c) Financing Transactions. Each of the Financing Transactions shall
have been funded and otherwise consummated (or replacement loans shall have
been funded and otherwise consummated on then current market terms, even if
such terms are less favorable than the terms described in the documents
listed in SCHEDULE 5.13 to the Mendik Disclosure Letter).
(d) Closing Documents. The agreements and other documents required to
be duly executed and delivered by the parties thereto pursuant to Section
5.14 shall have been so executed and delivered and shall remain in full
force and effect.
(e) Bring-downs of Tax Certificates and Opinions. On the date hereof,
Vornado and Mendik/FW LLC have received legal opinions from Sullivan &
Cromwell and Roberts & Holland LLP as to certain tax matters based upon,
among other things, the related factual certificates of certain Persons. At
the Closing, Vornado and Mendik/FW LLC shall have received legal opinions
from each such firm in form satisfactory to Vornado and Mendik/FW LLC,
dated the Closing Date, as to certain tax matters and based upon, in part,
factual certificates provided by Mr. Mendik or Mr. Greenbaum, solely in his
capacity as an employee of Vornado and not in his individual capacity,
dated the Closing Date, which factual certificates shall be substantially
in the form of EXHIBIT V.
(f) FWM Purchase Agreement. The Closing under the FWM Purchase
Agreement shall occur simultaneously with the Closing of this Agreement.
SECTION 6.2 Conditions to Obligations of Vornado and Vornado Sub. The
obligation of Vornado and Vornado Sub to effect the Consolidation and to
consummate the other Transactions contemplated to occur on the Closing Date is
further subject to the following conditions, any one or more of which may be
waived by Vornado and Vornado Sub:
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(a) Representations and Warranties. The representations and warranties
of Mendik/FW LLC set forth in this Agreement shall have been true and
correct as of the date of this Agreement (and shall not be required to be
true or correct as of any subsequent date, except as expressly set forth in
this Agreement). Vornado, Vornado Sub and the Operating Partnership shall
have received a certificate (which certificate may be qualified by
Knowledge to the same extent as such representations and warranties are so
qualified) signed on behalf of Mendik/FW LLC to such effect. The condition
set forth in the first sentence of this Section 6.2(a) shall be deemed
satisfied unless any or all breaches of Mendik/FW LLC's representations and
warranties in this Agreement (without giving effect to any materiality
qualification or limitation) is reasonably expected to have a Mendik
Material Adverse Effect and such breaches occurred with the Knowledge of
Mendik/FW LLC.
(b) Performance of Obligations of the Mendik Group. The Mendik Group
and the Operating Partnership shall have performed in all material respects
all obligations required to be performed by them under this Agreement at or
prior to the Effective Time, and Vornado, Vornado Sub and the Operating
Partnership shall have received a certificate signed on behalf of the
Mendik Group and the Operating Partnership to such effect.
(c) Bring-downs of Other Opinions. On the date hereof, Vornado and
Vornado Sub have received legal opinions from Hogan & Hartson L.L.P. and
Proskauer, Rose, Goetz & Mendelsohn LLP as to certain legal matters. At the
Closing, Vornado and Vornado Sub shall have received legal opinions from
each such firm, dated the Closing Date, to the effect that they reaffirm as
of the Closing Date their opinions delivered on the date hereof and that
all agreements to be executed by the Operating Partnership or any member of
the Mendik Group at the Closing (other than Mr. Mendik and Mr. Greenbaum)
shall be duly authorized, executed and delivered by such party.
(d) Partner Authority. The Operating Partnership shall have received
legal opinions, in form and substance reasonably satisfactory to Vornado
and the Operating Partnership, to the effect that the Partner Consent
executed by each Partner which is a corporation, a limited liability
company or a general or limited partnership is duly authorized, executed
and delivered in accordance with the applicable organizational documents of
each of such entities.
SECTION 6.3 Conditions to Obligations of the Mendik Group and the Operating
Partnership. The obligation of the Mendik Group and the Operating Partnership to
effect the Consolidation and to consummate the other Transactions contemplated
to occur on the Closing Date is further subject to the following conditions, any
one or more of which may be waived by the Mendik Group and the Operating
Partnership:
(a) Representations and Warranties. The representations and warranties
of Vornado and Vornado Sub set forth in this Agreement shall be true and correct
as of the date of this Agreement (and shall not be required to be true or
correct as of any subsequent date), and the Mendik Group and the Operating
Partnership shall have received a certificate (which certificate may be
qualified by Knowledge to the same extent as such representations and warranties
are so qualified) signed on behalf of Vornado and Vornado Sub to such effect.
The condition set forth
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in this Section 6.3(a) shall be deemed satisfied unless any or all breaches
of Vornado's and Vornado Sub's representations and warranties in this
Agreement (without giving effect to any materiality qualification or
limitation) is reasonably expected to have a Vornado Material Adverse
Effect and such breaches occurred with the Knowledge of Vornado or Vornado
Sub.
(b) Performance of Obligations of Vornado and Vornado Sub. Vornado and
Vornado Sub shall have performed in all material respects all obligations
required to be performed by them under this Agreement at or prior to the
Effective Time, and the Mendik Group and the Operating Partnership shall
have received a certificate signed on behalf Vornado and Vornado Sub to
such effect.
(c) Bring-down of Other Opinions. On the date hereof, the Mendik Group
and the Operating Partnership have received legal opinions from Sullivan &
Cromwell and Ballard Spahr Andrews & Ingersoll as to certain legal matters.
At the Closing, the Mendik Group and the Operating Partnership shall have
received legal opinions from each such firm, dated the Closing Date, to the
effect that they reaffirm as of the Closing Date their opinions delivered
on the date hereof and that all agreements to be executed by Vornado or
Vornado Sub at the Closing shall be duly authorized, executed and delivered
by such party.
(d) Vornado Board Representation. At or prior to the Closing, the size
of the Board of Trustees of Vornado shall have been increased from seven
members to eight members and Mr. Mendik shall have been elected, effective
as of the Closing Date, a member of Vornado's Board of Trustees for an
initial term expiring at the next annual meeting of Vornado shareholders.
SECTION 6.4. Absence of Material Adverse Change is Not a Condition to Each
Party's Obligation to Effect the Consolidation. Except as expressly set forth in
Sections 6.1, 6.2 and 6.3, the respective obligation of each party to effect the
Consolidation and to consummate the other Transactions contemplated to occur at
the Closing shall not be affected by any acts, events or circumstances occurring
after the date hereof that, individually or in the aggregate, have resulted or
reasonably would be expected to result in a Vornado Material Adverse Change or a
Mendik Material Adverse Change (including, without limitation, the death of Mr.
Mendik and/or Mr. Greenbaum, the occurrence of a default by any tenant at a
Mendik Property or Vornado Property, casualty or condemnation with respect to
any Mendik Property or Vornado Property, or an act of war or civil disturbance
or other force majeure).
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ARTICLE VII
ACTIONS OF THE MENDIK GROUP
Notwithstanding Section 5.6 or any other provision of this Agreement to the
contrary, any member of the Mendik Group or the entire Mendik Group may, if
required by the fiduciary obligations of any member of the Mendik Group, as
determined in good faith by such member of the Mendik Group upon advice of
outside legal counsel:
(a) to the extent applicable, comply with Rule 14e-2(a) promulgated
under the Exchange Act with respect to a Competing Transaction;
(b) consider any Competing Transaction, provided that such Competing
Transaction was not, directly or indirectly, invited, solicited, encouraged
or initiated in any manner after February 13, 1997 by any member of the
Mendik Group or any members, partners, directors, officers, employees,
agents or others under its control;
(c) subject to Section 5.2(b), provide information in response to a
request therefor by a Person who has proposed an unsolicited Competing
Transaction;
(d) engage in negotiations or discussions with any Person who has
proposed an unsolicited Competing Transaction if a member of the Mendik
Group determines in good faith and upon advice of outside legal counsel
that such action is necessary in order for the Mendik Group or any member
thereof to comply with its fiduciary duties and, with respect to providing
information, the Mendik Group receives from such Person so requesting such
information an executed confidentiality agreement on terms substantially
similar to those contained in Section 5.2;
(e) disclose to the M/S Limited Partners or Partners in any Property
Partnership and other Persons to whom Units would be issued at the Closing
hereunder any information that, in the opinion of the Mendik Group or any
member thereof upon advice of outside legal counsel, is required to be
disclosed under applicable law or as a result of any fiduciary duty;
provided that, the Mendik Group receives from the M/S Limited Partners or
such Partner or other Person an executed confidentiality agreement on terms
substantially similar to those contained in Section 5.2; and
(f) approve or recommend (and in connection therewith withdraw or
modify its approval or recommendation of this Agreement or the
Consolidation) a Superior Competing Transaction (as defined below) and/or
enter into an agreement with respect to such Superior Competing
Transaction. For purposes of this Agreement, "SUPERIOR COMPETING
TRANSACTION" means a proposal of a Competing Transaction which has not,
directly or indirectly, been invited, solicited, encouraged or initiated
after February 13, 1997 in any manner by any member of the Mendik Group or
any members, partners, directors, officers, employees, agents or others
under its control and which the Mendik Group or any member thereof
determines in good faith (after consultation with Merrill) (i) to be more
favorable than the Consolidation to the Partners and
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<PAGE> 68
other Persons to whom Units would be issued at the Closing hereunder (or,
if the proposed Competing Transaction involves fewer than all of the Mendik
Core Assets, to the Partners and other Persons to whom Units would be
issued at the Closing hereunder with respect to such assets), considered as
a group, and (ii) is reasonably capable of being consummated.
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ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.1 Termination. At any time prior to the Closing, this Agreement
(i) shall terminate in the event the FWM Purchase Agreement is terminated in
accordance with its terms or (ii) may be terminated by:
(a) the mutual written consent duly authorized by the parties hereto;
(b) Vornado (if neither it nor Vornado Sub is in breach of any of its
material obligations hereunder), if there has been a knowing
misrepresentation or a knowing breach of any representation or warranty as
of the date hereof (or, with respect to those representations which are
expressly by the terms of this Agreement to be true and to be made as of
the Effective Time, as of the Closing Date) on the part of the Mendik Group
set forth in this Agreement such that the condition set forth in Section
6.2(a) would not be satisfied;
(c) the Mendik Group (if it is not in breach of any of its material
obligations hereunder), if there has been a knowing misrepresentation or a
knowing breach of any representation or warranty as of the date hereof on
the part of Vornado or Vornado Sub set forth in this Agreement such that
the condition set forth in Section 6.3(a) would not be satisfied;
(d) Vornado (if neither it nor Vornado Sub is in breach of any of its
material obligations hereunder), upon a breach of any material covenant or
agreement on the part of the Mendik Group set forth in this Agreement such
that the condition set forth in Section 6.2(b) is or would be incapable of
being satisfied by June 30, 1997;
(e) the Mendik Group (if it is not in breach of any of its material
obligations hereunder), upon a breach of any material covenant or agreement
on the part of Vornado or Vornado Sub set forth in this Agreement such that
the condition set forth in Section 6.3(b) is or would be incapable of being
satisfied by June 30, 1997;
(f) either Vornado or the Mendik Group, if any judgment, injunction,
order, decree or action by any Governmental Entity of competent authority
preventing the consummation of the Consolidation shall have become final
and nonappealable;
(g) either Vornado or the Mendik Group, if the Consolidation shall not
have been consummated before June 30, 1997 (other than solely as a result
of a failure to obtain the requisite Partner Consents); provided, however,
that a party that has willfully and materially breached a covenant or
agreement of such party set forth in this Agreement shall not be entitled
to exercise its right to terminate under this Section 8.1(g);
(h) either Vornado or the Mendik Group, if all Partner Consents have
not been obtained by June 30, 1997 (or as otherwise extended); and
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(i) either Vornado or (provided the Mendik Group shall have complied
with Article VII) the Mendik Group, if prior to the end of the Partner
Consent Period, (A) the Mendik Group shall have withdrawn or modified in
any manner adverse to Vornado its approval or recommendation to the
Partners of the Consolidation or this Agreement in connection with, or
approved or recommended, a Superior Competing Transaction or (B) one or
more members of the Mendik Group shall have entered into a definitive
agreement with respect to any Competing Transaction.
SECTION 8.2 Certain Expenses and Fees.
(a) Expenses. In the event that the Consolidation is consummated, the
Operating Partnership shall pay all reasonable legal, accounting, financial
advisory and other transaction costs, including out of pocket expenses, travel
and entertainment costs incurred by the Mendik Group or Vornado in connection
with the transfers of assets to the Operating Partnership (whether by
contribution, merger or otherwise) and other formation transactions with respect
to the Operating Partnership (including costs previously or subsequently
incurred with respect to the Operating Partnership's roll-up transactions and
proposed initial public offering and all Transfer Taxes to the extent required
by Section 5.8, provided that costs incurred prior to January 31, 1997 will be
paid subject to the limitations of the second sentence of Section 4(c)(ii) of
the FWM Purchase Agreement). In the event that the Consolidation is not
consummated, Vornado shall bear all of the costs incurred by it in connection
with the Consolidation and, unless this Agreement has been terminated pursuant
to Section 8.1(b) or 8.1(d), fifty percent (50%) of all reasonable legal and
accounting costs incurred by the Mendik Group (the "MENDIK EXPENSES") in
connection with this Agreement and the Consolidation (including, without
limitation, negotiating, documenting and implementing the Consolidation and all
due diligence expenses, but not including any such costs related to the Initial
General Partner's proposed initial public offering) or the acquisition of the
interests of the M/S Limited Partners in the Eleven Penn Partnerships.
(b) Break-up Fees and Expenses. The Mendik Group agrees that if this
Agreement shall be terminated (1) pursuant to Section 8.1(i) and prior to such
termination or within one (1) year thereafter one or more members of the Mendik
Group or any of its Affiliates executes a definitive agreement with respect to a
Competing Transaction which is subsequently consummated (whether within or after
one (1) year after the termination) or (2) pursuant to Section 8.1(b), (d), (g)
or (h) and within one (1) year thereafter one or more members of the Mendik
Group or any of its Affiliates executes a definitive agreement with respect to a
Competing Transaction which is subsequently consummated (whether within or after
one (1) year after the termination) with a third party (or group acting
together) with whom such members of the Mendik Group or any of its Affiliates
had substantive discussions regarding a Competing Transaction after February 13,
1997 and prior to any such termination, then Mendik/FW LLC shall pay (provided
that neither Vornado nor Vornado Sub was in breach of any of its material
obligations hereunder at the time of termination), as directed by Vornado, a fee
in an amount equal to the Break-Up Fee (as defined below); provided, however,
the Mendik Group shall have no obligation to pay a Break-Up Fee or any Break-Up
Expenses (as defined below) if the Mendik Group consummates an initial public
offering other than as described in clause (B) below or the
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Mendik Group consummates a transaction involving any of the Mendik Properties or
interests therein (or all or any part of the assets of the Existing Mendik
Management Entities) that is not a Competing Transaction. The Mendik Group
agrees that if this Agreement shall be terminated (1) pursuant to Section 8.1(i)
or (2) pursuant to Section 8.1(b), (d) or (g) and within one (1) year thereafter
one or more members of the Mendik Group or any of its Affiliates (A) executes a
definitive agreement with respect to a Competing Transaction which is
subsequently consummated (whether within or after one (1) year after the
termination) with a third party (or group acting together) with whom no such
members of the Mendik Group or any of its Affiliates had substantive discussions
regarding a Competing Transaction after February 13, 1997 and prior to any such
termination or (B) consummates an initial public offering involving properties
containing more than one million square feet of office space (but excluding
properties in which any member of the Mendik Group or any of its Affiliates,
directly or indirectly, has an interest or a relationship (such as a management
or leasing contract)) in addition to the Mendik Core Assets, then Mendik/FW LLC
shall pay (provided that neither Vornado nor Vornado Sub was in breach of any of
its material obligations hereunder at the time of such termination), as directed
by Vornado, a fee in an amount equal to the Break-Up Expenses; provided,
however, the Mendik Group shall have no obligation to pay a Break-Up Fee or any
Break-Up Expenses if the Mendik Group consummates an initial public offering
other than as described in clause (B) above or the Mendik Group or any of its
Affiliates consummates a transaction involving any of the Mendik Properties or
interests therein (or all or any part of the assets of the Existing Mendik
Management Entities) that is not a Competing Transaction. Payment of any of the
Break-Up Fee or Break-Up Expenses shall be made, as directed by Vornado, by wire
transfer of immediately available funds promptly, but in no event later than
fifteen (15) days after the date the event giving rise to the obligation to make
such payment occurred. In furtherance of its obligations hereunder, Mendik/FW
LLC hereby agrees not to distribute to its beneficial owners any amounts which,
in the aggregate, would have a material adverse effect on the ability of
Mendik/FW LLC to meet its obligations hereunder. The "BREAK-UP FEE" shall be an
amount equal to $15,000,000. The Break-Up Fee shall be reduced by any amounts
previously paid in respect of Break-Up Expenses (other than any Mendik Expenses
included therein). The "BREAK-UP EXPENSES" shall be an amount equal to the
reasonable legal and accounting expenses incurred by Vornado in connection with
this Agreement and the Consolidation (including, without limitation,
negotiating, documenting and implementing the Consolidation and all due
diligence expenses.
SECTION 8.3 Effect of Termination. In the event of termination of this
Agreement by either the Mendik Group or Vornado as provided in Section 8.1, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of Vornado or the Mendik Group, other than Section
5.2, Section 5.12, Section 8.2, this Section 8.3 and Section 10.1 and any other
provision hereof which by its terms contemplates survival beyond the termination
hereof, except that no such provision may be enforced by a party hereto to the
extent that such termination results from a material breach by such party of any
of its representations, warranties, covenants or agreements set forth in this
Agreement.
SECTION 8.4 Amendment. This Agreement may not be modified or amended except
by an instrument or instruments in writing signed by the party against whom
enforcement of such modification or amendment is sought.
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SECTION 8.5 Extension; Waiver. At any time prior to the Effective Time, the
parties may (a) extend the time for the performance of any of the obligations or
other acts of the other party, (b) waive any inaccuracies in the representations
and warranties of the other party contained in this Agreement or in any document
delivered pursuant to this Agreement or (c) waive compliance with any of the
agreements or conditions of the other party contained in this Agreement. Any
agreement on the part of a party to any such extension or waiver shall be valid
only if set forth in an instrument in writing signed on behalf of such party.
The failure of any party to this Agreement to assert any of its rights under
this Agreement or otherwise shall not constitute a waiver of those rights.
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ARTICLE IX
INDEMNIFICATION; INSURANCE
SECTION 9.1 Indemnification. At Closing, Vornado, the Operating
Partnership, Mendik/FW LLC and certain other Persons shall enter into an
Indemnification Agreement substantially in the form of EXHIBIT R (the
"INDEMNIFICATION AGREEMENT").
SECTION 9.2 General Partner Liability Insurance. In addition to and not in
lieu of any other obligations it may have pursuant to this Article IX, the
Mendik Group shall use all commercially reasonable efforts to obtain general
partner's liability insurance ("GPL INSURANCE") to provide coverage for Vornado,
the Operating Partnership, the Managing General Partners, the Initial General
Partner and certain other Persons with respect to any actions taken by or on
behalf of the Operating Partnership, a Property Partnership or a Property-Owning
Entity in the Consolidation. Without limiting the foregoing, the Mendik Group
shall use all commercially reasonable efforts to obtain such GPL Insurance on
terms, other than price, substantially similar to the terms provided under a GPL
Insurance policy issued by American International Specialty Lines Insurance
Company to certain members of the Mendik Group and certain of their Affiliates
with respect to the solicitation of consents undertaken by the Operating
Partnership and the Initial General Partner beginning on or about November 11,
1996. The costs of such GPL Insurance shall be borne by the Operating
Partnership.
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ARTICLE X
GENERAL PROVISIONS
SECTION 10.1 Survival of Representations and Warranties. None of the
representations or warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time, except that the
representations and warranties set forth in Section 3.3, and only such
representations and warranties, shall survive following the Effective Time and
shall continue to have effect until March 31, 1998, and shall have no effect
following such date, subject to and in accordance with the Indemnification
Agreement. Notwithstanding anything contained in this Agreement to the contrary,
following the Effective Time, in no event shall any party hereto have any
liability with respect to any and all failures to perform any of the obligations
required to be performed by such party prior to the Closing under Article IV or
Sections 5.1, 5.3, 5.4, 5.5, 5.6 and 5.13, all of which failures to perform
being deemed waived upon the Effective Time.
SECTION 10.2 Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally, sent by overnight courier (providing proof of
delivery) to the parties or sent by telecopy (providing confirmation of
transmission) at the following addresses or telecopy numbers (or at such other
address or telecopy number for a party as shall be specified by like notice):
(a) if to Vornado, to
Vornado Realty Trust
Park 80 West, Plaza II
Saddle Brook, New Jersey 07663
Attention: Michael D. Fascitelli
Telecopy: (201) 291-1093
with a copy to:
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Attention: Patricia A. Ceruzzi
Telecopy: (212) 558-4771
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(b) if to the Operating Partnership or any Person or Entity included
in the Mendik Group, to
Mendik Realty Company, Inc.
330 Madison Avenue
New York New York 10017
Attention: David R. Greenbaum
Telecopy: (212) 867-4833
with a copy to:
Hogan & Hartson L.L.P.
555 13th Street, N.W.
Washington, D.C. 20004-1109
Attention: J. Warren Gorrell, Jr.
Telecopy: (202) 637-5910
SECTION 10.3 Certain Definitions. For purposes of this Agreement:
"AFFILIATE" means, with respect to any Person, another Person that
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, such first Person.
"B&B" means B&B Park Avenue L.P., a Delaware limited partnership.
"CODE" means the Internal Revenue Code of 1986, as amended.
"DGCL" means the General Corporation Law of the State of Delaware.
"866 U.N. PLAZA ASSOCIATES" means 866 U.N. Plaza Associates LLC, a New
York limited liability company.
"ELEVEN PENN PARTNERSHIPS" means M/F Associates, M/F Eleven
Associates, M/S Associates and M/S Eleven Associates, collectively.
"ELEVEN PENN PLAZA COMPANY" means Eleven Penn Plaza Company, a New
York general partnership.
"ERISA" means the Employee's Retirement Income Security Act of 1974,
as amended.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"570 LEXINGTON ASSOCIATES" means 570 Lexington Associates, L.P., a New
York limited partnership.
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"570 LEXINGTON COMPANY" means 570 Lexington Company, L.P., a New York
limited partnership.
"570 LEXINGTON INVESTORS" means 570 Lexington Investors, a New York
general partnership.
"FWM" means FWM, L.P., a Texas limited partnership.
"KNOWLEDGE" when used herein with respect to the Mendik Group shall
mean the actual knowledge of the persons listed on ANNEX C, and, with
respect to the matters referred to in Sections 3.2(e)(ii), 3.2(g), 3.2(h),
3.2(i), 3.2(m), 3.3(b), 3.3(c) and 3.3(e), the actual knowledge of such
persons after consultation with each person serving as the building manager
(or similar official) at each of the Mendik Properties, and when used
herein with respect to Vornado or Vornado Sub shall mean the actual
knowledge of the persons listed on ANNEX D.
"MANAGEMENT CORPORATION" means a corporation to be formed prior to the
Closing Date to acquire substantially all of the Third-Party Management
Assets and a one percent (1%) interest in the Management LLC.
"MANAGEMENT LLC" means a limited liability company to be formed prior
to the Closing Date to acquire the REIT Management Assets.
"M ELEVEN ASSOCIATES" means M Eleven Associates, a New York general
partnership.
"MENDIK DISCLOSURE LETTER" means the letter previously delivered to
Vornado by Mendik/FW LLC disclosing certain information in connection with
this Agreement.
"MENDIK 1740 CORP" means Mendik 1740 Corp., a New York corporation.
"MENDIK 570 CORP" means Mendik 570 Corp., a New York corporation.
"MENDIK PARTNERSHIP" means The Mendik Partnership, L.P., a Delaware
limited partnership.
"MENDIK SUB" means a limited liability company to be formed prior to
the Closing Date to acquire interests in certain of the Mendik Properties
in the Consolidation.
"M/F ASSOCIATES" means M/F Associates, a New York limited partnership.
"M/F ELEVEN ASSOCIATES" means M/F Eleven Associates, a New York
limited partnership.
"MR. FASCITELLI" means Michael D. Fascitelli, individually.
"M/S ASSOCIATES" means M/S Associates, a New York limited partnership.
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"M/S ELEVEN ASSOCIATES" means M/S Eleven Associates, a New York
limited partnership.
"M/S LIMITED PARTNERS" means the entities which are the limited
partners in both M/S Associates and M/S Eleven Associates.
"M 330 ASSOCIATES" means M 330 Associates, a New York limited
partnership.
"M 393 ASSOCIATES" means M 393 Associates, a New York general
partnership.
"NEW MANAGEMENT ENTITIES" means the Management Corporation and the
Management LLC.
"1940 ACT" means the Investment Company Act of 1940, as amended.
"PARTNER" means each partner (other than the Major Partner, the M/S
Limited Partners, Quantam 570 Lexington, L.P. and 570 Lexington Investors)
in the Property Partnerships.
"PARTNER CONSENT" means the consent of a "Direct Partner" (as
identified in Schedule 3.2(c)(1), other than Quantum 570 Lexington, L.P.,
the Major Partner, the M/S Limited Partners, 1740 Broadway Investment
Company (with respect to its interest in 1740 Broadway Associates) and 570
Lexington Investors (with respect to its interest in 570 Lexington
Associates)) in a Property Partnership to the Consolidation pursuant to a
solicitation of such Partner Consents by means of the Memorandum; provided,
however, in the event the transactions described in Section 5.12 are
consummated, then the term "Partner Consents" shall not include the
consents of any of the "Direct Partners" in 1740 Broadway Associates or
1740 Broadway Investment Company.
"PERSON" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity.
"PROPERTY-OWNING ENTITY" means each of Two Penn Plaza Associates,
Eleven Penn Plaza Company, M Eleven Associates, M 393 Associates, 1740
Broadway Associates, 866 U.N. Plaza Associates, Two Park Company and 330
Madison Company and 570 Lexington Company.
"PROPERTY PARTNERSHIP" means each of Two Penn Plaza Associates, the
Eleven Penn Partnerships, 1740 Broadway Associates, 1740 Broadway
Investment Company, 866 U.N. Plaza Associates, B&B, M 330 Associates, 570
Lexington Investors and 570 Lexington Associates.
"REIT" means a real estate investment trust described in Sections
856-859 of the Code.
"SEC" means the United States Securities and Exchange Commission.
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"SECURITIES ACT" means the Securities Act of 1933, as amended.
"1740 BROADWAY ASSOCIATES" means 1740 Broadway Associates, a Delaware
limited partnership.
"1740 BROADWAY CASH INVESTORS" means the Partners in 1740 Broadway
Investment Company (other than Mr. Mendik, Mendik 1740 Corp and Mil
Equities) with respect to their interests in 1740 Broadway Investment
Company.
"1740 BROADWAY INVESTMENT COMPANY" means 1740 Broadway Investment
Company, a New York general partnership.
"330 MADISON COMPANY" means 330 Madison Company, a New York general
partnership.
"TWO PARK COMPANY" means Two Park Company, a New York general
partnership.
"TWO PENN PLAZA ASSOCIATES" means Two Penn Plaza Associates, L.P., a
New York limited partnership.
"VORNADO COMMON SHARES" means common shares of beneficial interest,
par value $.04 per share, of Vornado.
"VORNADO DISCLOSURE LETTER" means the letter previously delivered to
the Operating Partnership and the Mendik Group by Vornado disclosing
certain information in connection with this Agreement.
SECTION 10.4 Interpretation. When a reference is made in this Agreement to
a Section, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include",
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation."
SECTION 10.5 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
SECTION 10.6 Entire Agreement; No Third-Party Beneficiaries. This Agreement
and the other agreements entered into in connection with the Transactions (i)
constitute the entire agreement and supersede all prior oral or written
agreements, comments or understandings among the parties with respect to the
subject matter of this Agreement and (ii) except for the provisions of Sections
5.9 and Article IX, are not intended to confer upon any Person other than the
parties to such agreements any rights or remedies. Accordingly, it is the
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explicit intention of the parties hereto that no Person other than the parties
to such agreements is or shall be entitled to bring any action to enforce any
provision of this Agreement against any of the parties hereto, and that the
covenants, undertakings, and agreements set forth in this Agreement shall be
solely for the benefit of, and shall be enforceable only by the parties to such
agreements or their respective successors and assigns as permitted hereunder.
SECTION 10.7 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, REGARDLESS OF
THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICT OF
LAWS THEREOF.
SECTION 10.8 Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned or delegated, in
whole or in part, by operation of law or otherwise by any of the parties without
the prior written consent of the other parties. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of, and be
enforceable by, the parties and their respective successors and assigns.
SECTION 10.9 Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of Maryland or New York or in any Maryland or New York
State court located in Maryland or New York, this being in addition to any other
remedy to which they are entitled at law or in equity. In addition, each of the
parties hereto (a) consents to submit itself (without making such submission
exclusive) to the personal jurisdiction of any federal court located in the
State of Maryland or New York or any Maryland or New York State court in the
event any dispute arises out of this Agreement or any of the transactions
contemplated by this Agreement and (b) agrees that it will not attempt to deny
or defeat such personal jurisdiction by motion or other request for leave from
any such court.
SECTION 10.10 Severability. If any provision of this Agreement is held to
be illegal, invalid or unenforceable under any current or future law, and if the
rights or obligations of the parties under this Agreement would not be
materially and adversely affected thereby, such provision shall be fully
separable, and this Agreement shall be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part thereof,
the remaining provisions of this Agreement shall remain in full force and effect
and shall not be affected by the illegal, invalid or unenforceable provision or
by its severance therefrom. In lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as a part of this Agreement, a
legal, valid and enforceable provision as similar in terms to such illegal,
invalid or unenforceable provision as may be possible, and the parties hereto
request the court or any arbitrator to whom disputes relating to this Agreement
are submitted to reform the otherwise illegal, invalid or unenforceable
provision in accordance with this Section 10.10.
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SECTION 10.11 Ability to Bind the Mendik Group. In the event a provision
herein provides for the giving of any approval, consent or similar matter by the
Mendik Group (as distinguished from any particular member of the Mendik Group)
then the giving of the same by Mendik Holdings shall be deemed to be the giving
of the same by the Mendik Group.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement,
or have caused this Agreement to be signed by their respective officers, general
partners or members, as applicable, thereunto duly authorized, all as of the
date first written above.
VORNADO REALTY TRUST
By:/s/Michael Fascitelli
------------------------
Name: Michael Fascitelli
Title:President
VORNADO/SADDLE BROOK L.L.C.
By: Vornado Realty Trust, Sole Member
By:/s/Michael Fascitelli
--------------------------------
Name: Michael Fascitelli
Title:President
THE MENDIK COMPANY, L.P.
By:The Mendik Company, Inc., General Partner
By:/s/David R. Greenbaum
--------------------------------
David R. Greenbaum
President
THE MENDIK COMPANY, INC.
By:/s/David R. Greenbaum
--------------------------------
David R. Greenbaum
President
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FW/MENDIK REIT, L.L.C.
By: Mendik Holdings LLC, Member
By: Mendik Holdings, Inc.,
Managing Member
By:/s/David R. Greenbaum
----------------------------
David R. Greenbaum
President
MENDIK HOLDINGS LLC
By: Mendik Holdings, Inc.,
Managing Member
By:/s/David R. Greenbaum
----------------------------
David R. Greenbaum
President
MENDIK REALTY COMPANY, INC.
By:/s/David R. Greenbaum
----------------------------
David R. Greenbaum
President
MENDIK MANAGING AGENT COMPANY, INC.
By:/s/David R. Greenbaum
----------------------------
David R. Greenbaum
President
/s/Bernard H. Mendik
----------------------------
Bernard H. Mendik
/s/David R. Greenbaum
----------------------------
David R. Greenbaum
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ANNEX A
MEMBERS OF THE MENDIK VOTING GROUP
Bernard H. Mendik
David R. Greenbaum
Christopher G. Bonk
John J. Silberstein
Mendik Realty Company, Inc.
The Mendik Partnership, L.P.
Mendik 1740 Corp.
Mendik RELP Corporation
Mendik 570 Corp.
<PAGE> 84
ANNEX B
EXECUTIVE OFFICERS OF MENDIK REALTY COMPANY, INC.
Bernard H. Mendik
David R. Greenbaum
Christopher G. Bonk
Michael M. Downey
John J. Silberstein
David L. Sims
Kevin R. Wang
<PAGE> 85
ANNEX C
MENDIK PERSONS WITH "KNOWLEDGE"
Bernard H. Mendik
David R. Greenbaum
Christopher G. Bonk
John J. Silberstein
<PAGE> 86
ANNEX D
VORNADO PERSONS WITH "KNOWLEDGE"
Steven Roth
Michael Fascitelli
Joseph Macnow
Ross Morrison
<PAGE> 87
List of Omitted Schedules,
Exhibits and Annexes
<TABLE>
<CAPTION>
<S> <C>
EXHIBITS:
EXHIBIT A: Form of Contribution Agreement (REIT Management Assets)
EXHIBIT B: Form of Contribution Agreement (Third-Party Management Assets)
EXHIBIT C-1: Form of Assignment and Assumption Agreement (Management
Corporation Voting Stock, Management Corporation Non-Voting Stock
and Management Corporation Note)
EXHIBIT C-2: Form of letter from Mendik Realty to the Operating Partnership
EXHIBIT D: Management Corporation Shareholders Agreement
EXHIBIT E-1: Form of Assignment and Assumption Agreement (Management
Corporation Non-Voting Stock and the Management Corporation Note)
EXHIBIT E-2: Form of Letter Agreement between Mendik/FW LLC and the Operating
Partnership
EXHIBIT F-1: Form of Two Penn Plaza Associates Partner Interest Contribution
Agreement
EXHIBIT F-2: Form of Eleven Penn Partnerships Partner Interest Contribution
Agreement
EXHIBIT F-3: Form of 1740 Broadway Associates Contribution Agreement
EXHIBIT F-4: Form of 866 U.N. Plaza Associates Partner Interest Contribution
Agreement
</TABLE>
1
<PAGE> 88
<TABLE>
<S> <C>
EXHIBIT F-5: Form of B&B Partner Interest Contribution Agreement
EXHIBIT F-6: Form of M 330 Partner Interest Contribution Agreement
EXHIBIT F-7: Form of 570 Lexington Associates and 570 Lexington Investors
Partner Interest Contribution Agreement
EXHIBIT F-8: Form of 1740 Broadway Investment Company Partner Interest
Contribution Agreement
EXHIBIT H: Form of Registration Rights Agreement
EXHIBIT I: Form of Unit Redemption Agreement
EXHIBIT K-1: Form of Noncompetition Agreement Between Vornado and Bernard H.
Mendik
EXHIBIT K-2: Form of Employment Agreement Between Vornado and David R.
Greenbaum
EXHIBIT L-1: Form of Severance and Noncompetition Agreement Between Vornado
and each of Christopher G. Bonk, Michael M. Downey, John J.
Silberstein, David L. Sims and Kevin R. Wang
EXHIBIT L-2: Form of Letter Agreement with respect to certain indemnification
rights of each of Christopher G. Bonk, Michael M. Downey, John J.
Silberstein, David L. Sims and Kevin R. Wang as an employee of
Vornado
EXHIBIT N: Form of Master Property Services Agreement (Wholly-Owned
Properties)
EXHIBIT O: Form of Master Property Services Agreement (Partially-Owned
Properties)
EXHIBIT P: Form of M 330 Amendment
EXHIBIT Q: Form of Mendik License Agreement
EXHIBIT R: Form of Indemnification Agreement
</TABLE>
2
<PAGE> 89
<TABLE>
<S> <C>
EXHIBIT U-1: List of Mendik Excluded Assets Subject to Options and Rights of
First Refusal
EXHIBIT U-2: Form of Option Agreement for Mendik Excluded Assets
EXHIBIT V: Forms of factual certificates for tax opinions
</TABLE>
3
<PAGE> 90
Schedules (Attached to the Vornado Disclosure Letter or the Mendik Disclosure
Letter, as applicable):
<TABLE>
<S> <C>
Schedule 3.1(b): Vornado Subsidiaries
Schedule 3.1(c): Vornado Securities
Schedule 3.1(d): Vornado Authority and Consents
Schedule 3.1(e): Vornado Undisclosed Liabilities
Schedule 3.1(f): Vornado Material Adverse Changes
Schedule 3.1(g): Vornado Litigation
Schedule 3.1(h): Vornado Properties
Schedule 3.1(i): Vornado Environmental Matters and Reports
Schedule 3.1(j): Vornado Related Party Transactions
Schedule 3.1(k)(i): Vornado Benefit Plans
Schedule 3.1(k)(ii): Vornado ERISA Compliance
Schedule 3.1(l): Vornado Taxes
Schedule 3.1(m): Vornado Payments to Employees, Officers, Trustees and
Directors
Schedule 3.1(p)(i): Vornado Contracts
Schedule 3.1(p)(ii): Vornado Debt Instruments
Schedule 3.2(b)(1): Property Partnership Assets
Schedule 3.2(b)(2): Property Partnership Agreements
Schedule 3.2(c)(1): Partners in the Property Partnerships and the
Property-Owning Entities
Schedule 3.2(c)(2): Property Partnership Securities
Schedule 3.2(d): Mendik Authority and Consents
Schedule 3.2(e)(i): Mendik Financial Statements
Schedule 3.2(e)(ii): Mendik Undisclosed Liabilities
Schedule 3.2(f): Mendik Material Adverse Changes
Schedule 3.2(g): Mendik Litigation
Schedule 3.2(h): Mendik Properties
Schedule 3.2(k): Mendik Taxes
Schedule 3.2(m): Mendik Compliance
Schedule 3.2(n)(i): Mendik Contracts
Schedule 3.2(n)(ii): Mendik Defaults
Schedule 3.2(n)(iii)(A): Mendik Mortgage Indebtedness
Schedule 3.2(n)(iii)(B): Mendik Debt Instruments
Schedule 3.2(o) REIT Qualification Tax Matters
Schedule 3.2(p)(1): Management Business Liens
Schedule 3.2(p)(2): Management Business Excluded Assets
Schedule 3.2(p)(3) Management Business Breaches
Schedule 4.1: Mendik Covenants
Schedule 5.2: Mendik Third-Party Disclosures
</TABLE>
4
<PAGE> 91
<TABLE>
<S> <C>
Schedule 5.13: Financing Transactions
Schedule 5.15: Cleaning Business Transactions
Schedule 6.1(b): Mendik Required Third-Party Consents
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Annexes:
ANNEX A: Mendik Voting Group
ANNEX B: Mendik Executives
ANNEX C: Persons with "Knowledge" with respect to the Operating Partnership,
the Mendik Group the Property Partnerships and the Property-Owning
Entities
ANNEX D: Persons with "Knowledge" with respect to Vornado and Vornado Sub
</TABLE>
5
<PAGE> 1
Exhibit 2.1(a)
APPENDIX A
Structure for Transfers of Mendik Property Interests to Operating Partnership
A. Two Penn Plaza
1. The Major Partner's limited partnership interests in Two Penn Plaza
Associates would be transferred to the Operating Partnership, as the assignee of
Mendik/FW LLC of the Major Partner Agreement with respect to Two Penn Plaza
Associates, in exchange for the number of Units set forth on Schedule A with
respect to such transfers, in accordance with the terms of such Major Partner
Agreement as the same may be hereafter amended, with the consent of Vornado (not
to be unreasonably withheld or delayed). Such assignment of the Major Partner
Agreement would provide that any refunds of real estate taxes received with
respect to Two Penn Plaza for periods prior to the Closing Date would be
retained by Mendik/FW LLC.
2. The Mendik Partnership L.P.'s general partnership interest in Two Penn
Plaza Associates would be transferred to a limited liability company ("LLC")
which is wholly owned by the Operating Partnership ("OP Sub-2 Penn") in exchange
for the number of Units set forth on Schedule A with respect to such transfer.
3. The interests of all of the other partners in Two Penn Plaza Associates,
L.P. would be transferred to the Operating Partnership in exchange for the
number of Units set forth on Schedule A with respect to such transfers. As a
result, OP Sub-2 Penn would be the sole general partner of Two Penn Plaza
Associates and the Operating Partnership would be the sole limited partner
thereof.
4. The Major Partner would transfer its Units to Vornado in exchange for a
like number of shares.
B. 11 Penn Plaza
1. Eleven Penn Plaza Company would be converted to an LLC. M 393 Associates
would be converted to an LLC. A qualified REIT subsidiary would contribute a
small amount of cash (as set forth on Schedule A with respect to such transfer)
to M 393 Associates LLC in exchange for a small interest in M 393 Associates
LLC.
2. The interests of all of the partners of M/F Associates, M/F Eleven
Associates, M/S Associates and M/S Eleven Associates would be transferred to a
wholly owned LLC of the Operating Partnership ("OP Sub-11 Penn") in exchange for
the number of Units set forth on Schedule A with respect to such transfers. As a
result, all of such partnerships would dissolve by operation of law. Upon such
dissolutions, the interests in M 393 Associates LLC would be owned by
<PAGE> 2
OP Sub-11 Penn and the qualified REIT subsidiary. All of the interests in M
Eleven Associates would be owned by OP Sub-11 Penn and would dissolve by
operation of law.
3. Eleven Penn Plaza Company LLC would be owned 50% by OP Sub-11 Penn and
50% by M 393 Associates LLC.
C. 1740 Broadway
1. If the Closing Date shall be on or before the Outside Date (as defined
in Section 5.12 of the Agreement):
a. The Major Partner interests in 1740 Broadway Associates would be
purchased by a wholly owned LLC of the Operating Partnership ("OP Sub-
1740"), as the assignee of Mendik/FW LLC of the Major Partner Agreement
with respect to 1740 Broadway Associates, for cash (in the amount set forth
on Schedule A annexed hereto and made a part hereof with respect to such
transfers) in accordance with the terms of such Major Partner Agreement as
the same may be hereafter amended, with the consent of Vornado (not to be
unreasonably withheld or delayed). Such assignment of the Major Partner
Agreement would provide that any refunds of real estate taxes received with
respect to 1740 Broadway for periods prior to the Closing Date would be
retained by Mendik/FW LLC.
b. The interests of the partners in 1740 Broadway Investment Company
other than the interests of Mr. Mendik, MIL Equities and 1740 Corp., would
be purchased by the Operating Partnership for cash in the amount set forth
on Schedule A with respect to such transfer. The interests of Mr. Mendik,
MIL Equities and Mendik 1740 Corp. in 1740 Broadway Investment Company
would be transferred to the Operating Partnership for the number of Units
set forth on Schedule A with respect to such transfers. Upon such purchase
and transfers, 1740 Broadway Investment Company would dissolve by operation
of law.
c. Mendik 1740 Corp.'s interest in 1740 Broadway Associates would be
transferred to Op Sub-1740 in exchange for Units, in the number set forth
on Schedule A with respect to such transfer. As a result, OP Sub-1740 would
be the sole partner of 1740 Broadway Associates, and OP Sub-1740 and the
Operating Partnership would be the limited partners of 1740 Broadway
Associates.
d. If less than all of the partners in 1740 Broadway Investment
Company consent to the transfers of their interests, then 1740 Broadway
Investment Company would transfer its interest as a partner in 1740
Broadway Associates, L.P. to the Operating Partnership for cash in the
amount set forth on Schedule A with respect to such transfer.
2. If the Closing Date shall be after the Outside Date and the Vornado 1740
Sub (as defined in Section 5.12 of the Agreement) shall have acquired
-2-
<PAGE> 3
all of the interests in 1740 Broadway Associates as contemplated by Section 5.12
of the Agreement, then the Vornado 1740 Sub would transfer all of such interests
to the Operating Partnership or to OP Sub-1740, as Vornado shall elect. As a
result, 1740 Broadway Associates would be wholly owned by the Operating
Partnership and/or OP Sub-1740.
The assignment of the Major Partner Agreement from Mendik/FW LLC to Vornado
in accordance with Section 5.12 of the Agreement would provide that any refunds
of real estate taxes received with respect to 1740 Broadway for periods prior to
the Outside Date would be retained by Mendik/FW LLC.
D. 866 U.N. Plaza
At the closing, all of the interests in 866 U.N. Plaza Associates LLC would
be transferred to the Operating Partnership in exchange for the number of Units
set forth on Schedule A with respect to such transfers. As a result, the
Operating Partnership would be the sole member of 866 U.N. Plaza Associates LLC.
E. Two Park
1. a. If the Closing Date shall be on or before the Outside Date, then the
Major Partner interests in B&B would be purchased by a wholly owned LLC of the
Operating Partnership ("OP Sub-B&B"), as the assignee of Mendik/FW LLC of the
Major Partner Agreement with respect to B&B, for cash (in the amount set forth
on Schedule A with respect to such transfers) in accordance with the terms of
such Major Partner Agreement as the same may be hereafter amended, with the
consent of Vornado (not to be unreasonably withheld or delayed). Immediately
after such acquisition, OP Sub-B&B would transfer its interest as a limited
partner in B&B to the Operating Partnership. Such assignment of the Major
Partner Agreement would provide that any refunds of real estate taxes received
with respect to Two Park Avenue for periods prior to the Closing Date would be
retained by Mendik/FW LLC.
b. If the Closing Date shall be after the Outside Date and Mendik/FW LLC
shall have acquired the Major Partner interests in B&B for cash (in the amount
set forth on Schedule A with respect to such transfers), which cash shall have
been loaned to Mendik/FW LLC by the Vornado 1740 Sub pursuant to the B&B Loan
(as defined in Section 5.12 of the Agreement), then OP Sub-B&B shall acquire
such interests directly from Mendik/FW LLC pursuant to the Contribution
Agreement described in Section 1.1(f) of the Agreement. Immediately after such
acquisition, Op Sub-B&B would transfer its interest as a limited partner in B&B
to the Operating Partnership. Such Contribution Agreement relating to the
transfer of the Major Partner interest in B&B would provide that any refunds of
real estate taxes received with respect to Two Park Avenue for periods prior to
the Closing Date would be retained by Mendik/FW LLC.
-3-
<PAGE> 4
2. The interest of Mendik RELP Corporation (formerly Mendik Corporation) in
B&B would be transferred to OP Sub-B&B in exchange for the number of Units set
forth on Schedule A with respect to such transfer.
3. The limited partnership interest of Mr. Mendik in B&B would be
transferred to the Operating Partnership.
4. As a result of the ongoing transfers, Op Sub-B&B would be the sole
general partner of B&B and the Operating Partnership would be the limited
partner.
F. 330 Madison
1. A portion of the general partnership interest held by The Mendik
Partnership L.P. (formerly The Mendik Company, L.P.) in M 330 Associates
(including the right to receive 100% of the priority payments payable to The
Mendik Partnership, L.P., but excluding any rights or obligations of The Mendik
Partnership, L.P. as managing general partner) would be converted to a limited
partnership interest. The Mendik Partnership L.P. would retain a 1% general
partnership interest and would remain as managing partner of M 330 Associates.
The conversion of The Mendik Partnership L.P.'s interest would expressly provide
that the converted interest excludes any rights or obligations of The Mendik
Partnership L.P. as managing general partner.
2. At the closing, The Mendik Partnership, L.P.'s interest as a limited
partner in M 330 Associates would be transferred to the Operating Partnership in
exchange for the number of Units set forth on Schedule A with respect to such
transfers.
3. The .4644% interest of Knatten Inc. as a general partner in M 330
Associates would be transferred to a wholly owned LLC of the Operating
Partnership ("OP Sub-330") in exchange for the number of Units set forth on
Schedule A with respect to such transfers. All of the remaining limited
partnership interests in M 330 Associates also would be transferred to the
Operating Partnership in exchange for the number of Units set forth on Schedule
A with respect to such transfers. As a result, M 330 Associates would be owned
98.5356% by the Operating Partnership, .4644% by OP Sub-330 as general partner
and 1% by The Mendik Partnership, L.P. as managing general partner.
4. By reason of the transfer to OP Sub-330 of Knatten's general partnership
interest in M 330 Associates, OP Sub-330 would become the "Administrative
General Partner" of M 330 Associates.
5. Partners in M 330 Associates may receive additional Units as set forth
in the applicable Partner Interest Contribution Agreement with respect to 330
Madison Avenue.
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<PAGE> 5
G. 570 Lexington
1. The interests of the partners in 570 Lexington Investors would be
transferred to the Operating Partnership in exchange for the number of Units set
forth on Schedule A with respect to such transfers. Upon such purchase and
transfers, 570 Lexington Investors would dissolve by operation of law. The
outstanding principal balance [together with accrued interest thereon] of the
promissory note, dated as of October 1, 1996, from 570 Lexington Investors to
Mendik Realty, given with respect to the capital contributions to 570 Lexington
Associates made by Mendik Realty after October 1, 1996, on behalf of and as a
loan to 570 Lexington Investors, will be paid by the Operating Partnership
simultaneously with the consummation of the foregoing transfers. The outstanding
principal balance of such promissory note, as of March 1, 1997, is $280,000.
2. Mendik 570 Corp. would transfer its general partnership interest in 570
Lexington Associates to a wholly owned LLC of the Operating Partnership ("OP
Sub-570") in exchange for the number of Units set forth on Schedule A with
respect to such transfers.
3. The interests of The Mendik Partnership, L.P. (formerly The Mendik
Company, L.P.) as special limited partner would be transferred to the Operating
Partnership in exchange for the number of Units set forth on Schedule A with
respect to such transfer. As a result, the general partners of 570 Lexington
Associates, L.P. would be Quantum 570 Lexington L.P., OP Sub-570 and the limited
partner and special limited partner would be the Operating Partnership.
After giving effect to all of the foregoing transfers, the Operating
Partnership or a subsidiary of the Operating Partnership would have acquired the
interests of the Partners in exchange for a combination of cash and Units as set
forth on Schedule A, all pursuant to the Partner Interest Contribution
Agreements. The number of Units issued to each class of Partners in Eleven Penn
Plaza, 330 Madison Avenue and 866 U.N. Plaza, as set forth on Schedule A, may
increase based upon adjustments made with respect to "Net Other Assets" as more
particularly described in the respective Partner Interest Contribution
Agreements affecting the contribution of interests in such properties. The
number of Units issued to Mendik/FW LLC in the recapitalization of the Operating
Partnership pursuant to Section 1.2 of this Agreement shall be reduced by an
amount equal to the quotient of (x) the sum of (i) the amount by which "Net
Other Assets" (as defined in the Partner Interest Contribution Agreements with
respect to Eleven Penn Plaza Company) of Eleven Penn Plaza Company exceeds $0 as
of the Closing Date, and (ii) the amount by which "Net Other Assets" (as defined
in the Partner Interest Contribution Agreement with respect to 866 U.N. Plaza
Associates) of 866 U.N. Plaza Associates exceeds $9,250,000 as of the Closing
Date.
In the event that any of the foregoing transfers cannot be consummated as a
result of the failure to obtain any necessary consents in connection with the
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<PAGE> 6
transfers contemplated hereby, the Mendik Group, Vornado and the Operating
Partnership will use commercially reasonable efforts to restructure the
transfers of interests to the Operating Partnership so as to effect a result
similar to the structure contemplated by this Appendix A, provided that the same
shall not change in any material respect the rights and obligations of the
parties from those otherwise contemplated in this Agreement.
<TABLE>
<CAPTION>
SCHEDULE A
================================================================================
BUILDINGS UNITS CASH
- --------------------------------------------------------------------------------
<S> <C> <C>
2 PENN PLAZA:
Mendik Investors - Class C 22,373
Other Investors - Class D 26,006
Major Partner 962
- --------------------------------------------------------------------------------
11 PENN PLAZA:
Mendik Investors - Class C 87,017
Other Investors - Class D 321,018
M/S Limited Partners - Class E 388,124
- --------------------------------------------------------------------------------
1740 BROADWAY:
Mendik Investors - Class C 16,336*
Other Investors - Cash $ 2,450,000
Major Partner $ 73,000,000
- --------------------------------------------------------------------------------
866 UNITED NATIONS PLAZA:
Mendik Investors - Class C 70,757
Other Investors - Class D 121,548
- --------------------------------------------------------------------------------
</TABLE>
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* If the Closing Date shall be after the Outside Date and the Vornado 1740
Sub shall have acquired all of the interests of the Mendik Investors for
cash as contemplated by Section 5.12 of the Agreement, these Class C Units
would not be distributed to the Mendik Investors. In addition, if less than
all of the partners in 1740 Broadway Investment Company consent to the
transfer of their interests, these Class C Units would not be distributed
and, in lieu thereof, additional cash, in the amount of $849,472, would be
paid to 1740 Broadway Investment Company in consideration of its interest
in 1740 Broadway Associates.
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<PAGE> 7
<TABLE>
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<S> <C> <C>
2 PARK AVENUE:
Mendik Investors - Class C 423 $ 14,775,000
Major Partner
- --------------------------------------------------------------------------------
330 MADISON AVENUE:
Mendik Investors - Class C 103,244
Other Investors - Class D 104,444
- --------------------------------------------------------------------------------
570 LEXINGTON AVENUE:
Mendik Investors - Class C 46,151
Other Investors - Class D 30,770
- --------------------------------------------------------------------------------
TOTAL BY CLASS:
Mendik Investors - Class C 346,301
Other Investors - Class D 603,786
M/S Limited Partners - Class E 388,124
Major Partner 962 $ 87,775,000
Other Investors - Cash 2,450,000
TOTAL 1,339,173 $ 90,225,000
================================================================================
</TABLE>
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<PAGE> 8
Schedule 1
<TABLE>
<CAPTION>
Shareholder Common Shares
- ----------- -------------
<S> <C>
Mr. Steven Roth 774,250*
Mr. Michael Fascitelli 0**
Interstate Properties 6,471,500***
</TABLE>
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* Of these Shares, 750,000 are pledged to secure a loan from the Company.
** As of the date of this agreement, Mr. Michael Fascitelli owns options to
acquire 1,750,000 Common Shares, subject to certain vesting restrictions.
*** Of these Shares, 2,000,000 are pledged to Fleet Bank to secure Interstate
Properties' line of credit.
-8-
<PAGE> 9
Schedule 2
1,038,118
-9-
<PAGE> 1
Exhibit 2.1(b)
Appendix B
March ___, 1997
RE: Vornado Realty Trust -- UPREIT Formation
All of the transactions set forth in the following, including the transfers
to Delaware LLC 1, are intended to take place and be effective on the same date.
The contributions to Delaware LLC 1 are intended to be the last step in this
sequence and it is necessary that all of the liquidations, dissolutions and
mergers provided for herein be completed and effective prior to the
contributions to Delaware LLC 1. The limited liability company is the survivor
in all mergers of corporations with limited liability companies.
I. PROPERTIES HELD DIRECTLY BY VORNADO REALTY TRUST
All property, other than interests in qualified REIT subsidiaries, held
directly by Vornado Realty Trust ("Vornado") will be transferred to a
newly-formed Delaware limited liability company ("Delaware LLC 1"). This
property includes:
East Brunswick Warehouse
[Saddle Brook Office (lease)]
[nonvoting shares in Vornado Management Corp.]
II. PROPERTIES HELD BY VORNADO THROUGH QUALIFIED REIT
SUBSIDIARIES ("QRSs") OTHER THAN THOSE UNDER VORNADO
FINANCE CORP. ("VFC")
A. Non-Pennsylvania Properties.
1. Delaware Entities
Vornado Investments Corp. will transfer all of its assets,
including securities and its shares in Alexander's, Inc., to
Delaware LLC 1.
<PAGE> 2
2. New Jersey Entities
Vornado will transfer 1% of the interests in each of:
Bridgeland Warehouses, Inc.
Durham Leasing Corporation
Hackbridge Corporation
Littleton Holding Corporation
Kearny Leasing Corporation
Kearny Holding Corporation
Montclair Holding Corporation
North Bergen Stores, Inc.
Clementon Holding Corp.
No. Plainfield Holding Corp.
Rahway Leasing Corporation
Watchung Holding Corporation
(the "New Jersey Direct QRSs")
to a newly-formed Delaware LLC ("Delaware LLC 2"). Immediately
following that transfer Vornado will own all of the interests in
Delaware LLC 2.
Then each of the New Jersey Direct QRSs will be merged into a
newly-formed New Jersey limited liability company (New Jersey
LLCs 1 through 12"). All of the interests in New Jersey LLCs 1
through 12 will be held by Vornado, either directly or through
Delaware LLC2, immediately following those mergers. Vornado will
then contribute the interests that it holds directly in New
Jersey LLCs 1 through 12, and the interests in Delaware LLC 2, to
Delaware LLC 1.
3. New York Entities
Each of:
Cross Avenue Broadway Corporation
14th Street Acquisition Corporation
Greenwich Holding Corporation
Menands Holding Corporation
Two Guys from Harrison, N.Y., Inc.
(the "New York Direct QRSs")
will transfer its assets to a newly-formed New York
limited liability company ("New York LLCs 1 through 5).
Immediately following those transfers, the
2
<PAGE> 3
New York Direct QRSs will own all of the interests in New York
LLCs 1 through 5, but on the same date the New York Direct QRSs
will contribute the interests in New York LLCs 1 through 5 to
Delaware LLC 1. The New York Direct QRSs will continue to exist
as direct subsidiaries of Vornado.
In addition, 825 Seventh Avenue Holding Corporation ("825
Corporation") will transfer all of its assets other than 21% of
the interests in [825 Seventh Avenue LLC] to a newly-formed New
York limited liability company ("New York LLC 6"), the interests
in New York LLC 6 will be contributed on the same date to
Delaware LLC 1.*
4. Maryland Entities
Each of:
Hagerstown Holding Corporation
T.G. Stores, Inc.
(the "Maryland Direct QRSs")
will merge into a newly-formed Maryland limited liability company
("Maryland LLCs 1 and 2"). All of the interests in Maryland LLCs
1 and 2 will be held by Vornado immediately following the
mergers, but will be contributed on that same date to Delaware
LLC 1.
5. Connecticut Entities
None.
6. Massachusetts Entities
Vornado will transfer 1% of the interests in each of:
Two Guys Mass., Inc.
Springfield Holding Corporation
(the "Massachusetts Direct QRSs")
- --------
* Alternatively, if consent to the transfer of the 21% interest is obtained,
825 Seventh Avenue Holding Corporation will transfer all of its assets to
New York LLC 6.
3
<PAGE> 4
to a newly-formed Delaware LLC ("Delaware LLC 3"). Immediately
following that transfer Vornado will own all of the interests in
Delaware LLC 3.
Then the Massachusetts direct QRSs will each merge into a
newly-formed Massachusetts limited liability company
("Massachusetts LLCs 1 and 2"). Following those mergers Vornado
will own, either directly or through Delaware LLC 3, all of the
interests in Massachusetts LLCs 1 and 2. Vornado will then
contribute the interests that it holds directly in Massachusetts
LLCs 1 and 2, and the interests in Delaware LLC 3, to Delaware
LLC 1.
7. Texas Entities
None.
B. Pennsylvania Properties
Bethlehem Holding Company* will form a wholly-owned limited liability
company subsidiary ("Pennsylvania LLC 1"), then contribute its assets
to a newly-formed Pennsylvania limited partnership ("Pennsylvania LP
1") in which the Bethlehem Holding Company will hold a 99% limited
partnership interest and Pennsylvania LLC 1 will hold a 1% general
partnership interest. Immediately following but on the same date as
those transactions, Bethlehem Holding Company will contribute its
limited partnership interests in Pennsylvania LP 1 and the membership
interests in Pennsylvania LLC 1 to Delaware LLC 1.**
- --------
* This entity is organized as a business trust. It is owned by Vornado
Acquisition Corp., a subsidiary of Vornado.
** [We are considering whether this Pennsylvania business trust can be
transferred under Delaware LLC 1 without dropping its property into a
lower-tier limited partnership.]
4
<PAGE> 5
Gallery Market Holding Company* will form a wholly-owned limited
liability company subsidiary ("Pennsylvania LLC 2"), then contribute
its assets to a newly-formed Pennsylvania limited partnership
("Pennsylvania LP 2") in which Gallery Market Holding Company will
hold a 99% limited partnership interest and Pennsylvania LLC 2 will
hold a 1% general partnership interest. Immediately following but on
the same date as those transactions, Gallery Market Holding Company
will contribute its limited partnership interests in Pennsylvania LP 2
and the membership interests in Pennsylvania LLC 2 to Delaware LLC
1.**
III. PROPERTIES HELD BY VORNADO THROUGH VFC
A. VFC's Formation of a Lower-tier Partnership
VFC will form a Delaware limited liability company ("Delaware LLC 4")
and then contribute all of the interests in
Vornado Holding Corporation
Lanthorp Enterprises, Inc.
Atlantic City Holding Corporation
Bordentown Holding Corporation
Phillipsburg Holding Corp.
Camden Holding Corporation
Cumberland Holding Corporation
Delran Holding Corporation
Dover Holding Corporation
Evesham Holding Corporation
Hanover Holding Corp.
Hanover Public Warehousing, Inc.
Hanover Industries, Inc.
T.G. Hanover, Inc.
Hanover Leasing Corporation
Jersey City Leasing Corporation
Lawnside Holding Corporation
The Second Lawnside Corp.
Whitehorse Lawnside Corp.
- ----------------------
* This entity is organized as a business trust that is wholly-owned by
Vornado.
** [We are considering whether this Pennsylvania business trust can be moved
under Delaware LLC 1 without dropping its properties into a lower-tier
partnerships.]
5
<PAGE> 6
Lawnwhite Holding Corp.
Lodi Industries Corporation
Lodi Leasing Corporation
Manalapan Industries, Inc.
Middletown Holding Corporation
New Hanover, Inc.
New Woodbridge, Inc.
Star Universal Corporation
Turnersville Holding Corporation
Two Guys From Harrison, Inc.
Unado Corp.
Amherst Industries Inc.
Amherst Holding Corporation
Brentwood Development Corp.
Henrietta Holding Corporation
Rochester Holding Corporation
The 2nd Rochester Corp.
Dundalk Stores Corp.
Eudowood Holding Corporation
Glen Burnie Shopping Plaza, Inc.
Two Guys - Conn., Inc.
Newington Holding Corporation
Chicopee Holding Corporation
Dallas Skillman Abrams Crossing Corporation
Lewisville Town Centre Corporation
Mesquite Crossing Corporation
to a newly-formed Delaware limited partnership ("Delaware LP 1")
in which the 99% limited partnership interest will be held by
VFC and the 1% general partnership interest will be held by
Delaware LLC 4. VFC will contribute all of its interests in
Delaware LP 1 and Delaware LLC 4 to Delaware LLC 1. VFC will
continue to exist as a direct subsidiary of Vornado.
B. Activities Beneath the Delaware LP 1
1. Non-Vornado Holding Corporation QRSs
a. Delaware Entities
Lanthorp Enterprises, Inc. will merge into a
newly-formed Delaware limited liability company
("Delaware LLC 5"). Following that merger, Delaware LP 1
will own all of the interests in Delaware LLC 5.
b. New Jersey Entities
6
<PAGE> 7
Delaware LP 1 will transfer 1% of the
interests in each of:
Atlantic City Holding Corporation
Bordentown Holding Corporation
Phillipsburg Holding Corp.
Camden Holding Corporation
Cumberland Holding Corporation
Delran Holding Corporation
Dover Holding Corporation
Evesham Holding Corporation
Hanover Holding Corporation
Hanover Public Warehousing, Inc.
Hanover Industries, Inc.
T.G. Hanover, Inc.
Hanover Leasing Corporation
Jersey City Leasing Corporation
Lawnside Holding Corporation
The Second Lawnside Corp.
Whitehorse Lawnside Corp.
Lawnwhite Holding Corp.
Lodi Industries Corporation
Lodi Leasing Corporation
Manalapan Industries, Inc.
Middletown Holding Corporation
New Hanover, Inc.
New Woodbridge, Inc.
Star Universal Corporation
Turnersville Holding Corporation
Two Guys From Harrison, Inc.
Unado Corp.
(together, the "New Jersey VFC QRSs")
to a newly-formed Delaware limited liability
company ("Delaware LLC 6"). Immediately
following that transfer Delaware LP 1 will
own all of the interests in Delaware LLC 6.
Then each of the New Jersey VFC QRSs will
merge into a newly-formed New Jersey limited
liability company ("New Jersey LLCs 13
through 40"). Following those mergers,
Delaware LP 1 will own all of the interests
in New Jersey LLCs
7
<PAGE> 8
13 through 40, either directly or, as to 1%, indirectly through
Delaware LLC 6.*
c. New York Entities
Each of:
Amherst Industries, Inc.
Amherst Holding Corporation
Brentwood Development Corp.
Henrietta Holding Corporation
Rochester Holding Corporation
The 2nd Rochester Corp.
will merge into a newly-formed New York limited liability company
("New York LLCs 7 through 12"). Following those mergers, Delaware LP
1 will own all of the interests in New York LLCs 7 through 12.
d. Pennsylvania Entities
None.
e. Maryland Entities
Each of:
Dundalk Stores Corp.
Eudowood Holding Corporation
Glen Burnie Shopping Plaza, Inc.
will merge into a newly-formed Maryland limited liability company
("Maryland LLCs 3 through 5"). Following those mergers, Delaware LP
1 will own all of the interests in Maryland LLCs 3 through 5.
- --------------
* If required approvals for the mergers of the New Jersey VFC QRSs cannot be
obtained in a timely fashion, they will drop their assets into New Jersey
limited liability company subsidiaries (using a wholly-owned Delaware LLC sub
as a 1% member, then distribute the interests in those limited liability
companies to Delaware LP 1. After that distribution, Delaware LP 1 will
transfer the shares in the New Jersey VFC QRSs (which at that point will just
be shells) to Vornado or a subsidiary of Vornado.
8
<PAGE> 9
f. Connecticut Entities
Prior to VFC's transfer of the interests in the VFC QRSs to
Delaware LP 1, as described in Part III, A above, each of:
Two Guys - Conn., Inc.
Newington Holding Corporation
will transfer 1% of their assets to a Delaware limited
convey their assets to a newly-formed Delaware limited
liability company ("Delaware LLC 7"). Immediately following
that transfer Two Guys - Conn., Inc. and Newington Holding
Corporation will own all of the interests in Delaware LLC 7.
After that conveyance, Two Guys - Conn., Inc. and Delaware
LLC 7 will transfer their assets (other than, in the case of
Two Guys - Conn., Inc., the membership interests in Delaware
LLC 7, and, in the case of Delaware LLC 7, its interest in
the Newington Holding Corporation property) to a
newly-formed Connecticut limited liability company
("Connecticut LLC 1"). Newington Holding Corporation and
Delaware LLC 7 will make a similar transfer to a
newly-formed Connecticut limited liability company
("Connecticut LLC 2").
Two Guys - Conn. Inc. and Newington Holding Corporation will
then (i) dissolve or (ii) if state regulatory approvals
delay their dissolution, distribute all of their assets to
VFC, after which distribution VFC will transfer the stock of
Two Guys - Conn., Inc. and Newington Holding Corporation
(which at that point are only corporate shells) to another
Vornado subsidiary.*
- --------
* If Two Guys - Conn., Inc. and Newington Holding Corporation are to
dissolve, that dissolution will occur after VFC transfers its assets to
Delaware LP 1.
9
<PAGE> 10
g. Massachusetts Entities
Delaware LP 1 will transfer 1% of the interests in Chicopee
Holding Corporation to a newly-formed Delaware limited
liability company ("Delaware LLC 8"). Immediately following
that contribution, Delaware LP 1 will own all of the
interests in Delaware LLC 8.
Chicopee Holding Corporation will then merge into a
newly-formed Massachusetts limited liability company
("Massachusetts LLC 3"). Following that merger, Delaware LP
1 will own all of the interests in Massachusetts LLC 3,
either directly or, as to 1%, indirectly through Delaware
LLC 8.
h. Texas Entities
Each of:
Dallas Skillman Abrams Crossing
Corporation
Lewisville Town Centre Corporation
Mesquite Crossing Corporation
will form a wholly-owned Texas limited liability company
("Texas LLCs 1 through 3"), then contribute their properties
to newly-formed Texas limited partnerships ("Texas LPs 1
through 3") in which the foregoing corporations (the "Texas
QRSs") will hold direct 99% limited partnership interests
and in which Texas LLCs 1 through 3 will hold the 1% general
partnership interests. The Texas QRSs will then dissolve
before VFC contributes its direct and indirect interests in
Delaware LP 1 and Delaware LLC 2 to Delaware LLC 1.
2. Vornado Holding Corporation and its Subsidiaries
a. Step 1
10
<PAGE> 11
After the transfer of the VFC subsidiaries to Delaware LP 1
and Delaware LLC 4 as described above in III, A, each of:
Bensalem Holding Company
Lancaster Holding Company
Marple Holding Company
Philadelphia Holding Company
Pike Holding Company
Two Guys From Harrison Company
Upper Moreland Holding Company
York Holding Company
will form a wholly-owned Pennsylvania limited liability
company ("Pennsylvania LLCs 3 through 10"), then contribute
their properties to newly-formed Pennsylvania limited
partnerships ("Pennsylvania LPs 3 through 10") in which the
foregoing entities (the "Pennsylvania QRSs") will hold
direct 99% limited partnership interests and in which
Pennsylvania LLCs 3 through 10 will hold the 1% general
partnership interests.
b. Step 2:
Vornado Holding Corporation will then dissolve.
c. Step 3:
The Pennsylvania QRSs will then dissolve, causing Delaware
LP 1 to own all of the interests in Pennsylvania LLCs 3
through 10 and, directly or indirectly, Pennsylvania LPs 3
through 10.]
IV. MERGER INTO OPERATING PARTNERSHIP
Following the completion of the steps described above, Delaware LLC 1 will
merge into an existing Delaware limited partnership, Vornado Realty L.P. Vornado
will receive 26,087,910 Units in Vornado Realty L.P., and such additional Units
(with such designations, preferences and other rights) as Vornado (as General
Partner of Vornado Realty L.P.) would be entitled to receive assuming that the
First Amended and Restated Agreement of Limited Partnership of Vornado Realty
L.P. were in effect as of the date hereof,
11
<PAGE> 12
including Sections 4.2.A. and 4.2.E., provided that Vornado shall contribute to
the Operating Partnership, or shall use for the payment of Vornado's or Vornado
Sub's obligations under the Master Contribution Agreement, the proceeds or other
consideration from the issuance of Vornado's securities between the date hereof
and the Closing or shall contribute to the Operating Partnership any assets
purchased with such proceeds or other consideration.
V. 1740 BROADWAY ACQUISITION
Delaware LLC 1 will form a wholly-owned single member limited liability
company that will acquire all the interests in 1740 Broadway Associates from
1740 Broadway Investment Company.
12
<PAGE> 1
Exhibit 2.1(c)
EXHIBIT G
-----------------------------------------
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
VORNADO REALTY L.P.
-----------------------------------------
Dated as of: ___, 1997
-----------------------------------------
IN RELIANCE UPON CERTAIN EXEMPTIONS FROM REGISTRATION, THE PARTNERSHIP INTERESTS
BEING OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. ACCORDINGLY, NO
PARTNERSHIP INTEREST MAY BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED
UNLESS SUBSEQUENTLY REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS, OR UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE, AND
UNLESS THE OTHER TRANSFER RESTRICTIONS CONTAINED HEREIN HAVE BEEN SATISFIED.
INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS
OF THEIR INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF
THE PERSON OR ENTITY CREATING THE SECURITIES AND THE TERMS OF THE OFFERING,
INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN
RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY
AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE
ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I
DEFINED TERMS.............................. 1
ARTICLE II
ORGANIZATIONAL MATTER.......................... 14
Section 2.1 Organization............................................... 14
Section 2.2 Name....................................................... 14
Section 2.3 Registered Office and Agent; Principal Office.............. 14
Section 2.4 Term....................................................... 15
ARTICLE III
PURPOSE................................. 15
Section 3.1 Purpose and Business....................................... 15
Section 3.2 Powers..................................................... 15
Section 3.3 Partnership Only for Purposes Specified.................... 16
ARTICLE IV
CAPITAL CONTRIBUTIONS AND ISSUANCES
OF PARTNERSHIP INTERESTS......................... 16
Section 4.1 Capital Contributions of the Partners...................... 16
Section 4.2 Issuances of Partnership Interests......................... 17
Section 4.3 No Preemptive Rights....................................... 20
Section 4.4 Other Contribution Provisions.............................. 20
Section 4.5 No Interest on Capital..................................... 20
ARTICLE V
DISTRIBUTIONS.............................. 20
Section 5.1 Requirement and Characterization of Distributions.......... 20
Section 5.2 Amounts Withheld........................................... 22
Section 5.3 Distributions Upon Liquidation............................. 22
Section 5.4 Revisions to Reflect Issuance of Additional Partnership
Interests.................................................. 22
ARTICLE VI
ALLOCATIONS............................... 23
Section 6.1 Allocations For Capital Account Purposes................... 23
Section 6.2 Revisions to Allocations to Reflect Issuance of
Additional Partnership Interests........................... 24
ARTICLE VII
MANAGEMENT AND OPERATIONS OF BUSINESS.................. 25
Section 7.1 Management................................................. 25
Section 7.2 Certificate of Limited Partnership......................... 28
Section 7.3 Title to Partnership Assets................................ 28
Section 7.4 Reimbursement of the General Partner....................... 29
Section 7.5 Outside Activities of the General Partner...................30
Section 7.6 Transactions with Affiliates............................... 31
Section 7.7 Indemnification............................................ 32
i--
<PAGE> 3
Section 7.8 Liability of the General Partner........................... 34
Section 7.9 Other Matters Concerning the General Partner............... 34
Section 7.10 Reliance by Third Parties.................................. 35
Section 7.11 Restrictions on General Partner's Authority................ 35
Section 7.12 Loans by Third Parties..................................... 43
ARTICLE VIII
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS................ 43
Section 8.1 Limitation of Liability.................................... 43
Section 8.2 Management of Business..................................... 43
Section 8.3 Outside Activities of Limited Partners..................... 43
Section 8.4 Return of Capital.......................................... 44
Section 8.5 Rights of Limited Partners Relating to the Partnership..... 44
Section 8.6 Redemption Right........................................... 45
Section 8.7 Right of Offset............................................ 48
ARTICLE IX
BOOKS, RECORDS, ACCOUNTING AND REPORTS.................. 49
Section 9.1 Records and Accounting..................................... 49
Section 9.2 Fiscal Year................................................ 49
Section 9.3 Reports.................................................... 49
ARTICLE X
TAX MATTERS............................... 50
Section 10.1 Preparation of Tax Returns................................. 50
Section 10.2 Tax Elections.............................................. 50
Section 10.3 Tax Matters Partner........................................ 50
Section 10.4 Organizational Expenses.................................... 51
Section 10.5 Withholding................................................ 51
ARTICLE XI
TRANSFERS AND WITHDRAWALS........................ 52
Section 11.1 Transfer................................................... 52
Section 11.2 Transfers of Partnership Interests of General Partner...... 52
Section 11.3 Limited Partners' Rights to Transfer....................... 53
Section 11.4 Substituted Limited Partners............................... 54
Section 11.5 Assignees.................................................. 54
Section 11.6 General Provisions......................................... 55
Section 11.7 Payment of Incremental Tax................................. 56
ARTICLE XII
ADMISSION OF PARTNERS.......................... 57
Section 12.1 Admission of Successor General Partner..................... 57
Section 12.2 Admission of Additional Limited Partners................... 57
Section 12.3 Amendment of Agreement and Certificate of Limited
Partnership................................................ 57
ARTICLE XIII
DISSOLUTION AND LIQUIDATION....................... 58
Section 13.1 Dissolution................................................ 58
Section 13.2 Winding Up................................................. 58
ii--
<PAGE> 4
Section 13.3 Compliance with Timing Requirements of Regulations......... 59
Section 13.4 Deemed Distribution and Recontribution..................... 59
Section 13.5 Rights of Limited Partners................................. 60
Section 13.6 Notice of Dissolution...................................... 60
Section 13.7 Cancellation of Certificate of Limited Partnership........ 60
Section 13.8 Reasonable Time for Winding Up............................. 60
Section 13.9 Waiver of Partition........................................ 60
Section 13.10 Liability of Liquidator.................................... 60
ARTICLE XIV
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS............... 61
Section 14.1 Amendments................................................. 61
Section 14.2 Meetings of the Partners................................... 62
ARTICLE XV
GENERAL PROVISIONS............................ 63
Section 15.1 Addresses and Notice....................................... 63
Section 15.2 Titles and Captions........................................ 63
Section 15.3 Pronouns and Plurals....................................... 63
Section 15.4 Further Action............................................. 63
Section 15.5 Binding Effect............................................. 63
Section 15.6 Creditors; Other Third Parties............................. 63
Section 15.7 Waiver..................................................... 64
Section 15.8 Counterparts............................................... 64
Section 15.9 Applicable Law............................................. 64
Section 15.10 Invalidity of Provisions................................... 64
Section 15.11 Power of Attorney.......................................... 64
Section 15.12 Entire Agreement........................................... 65
Section 15.13 No Rights as Shareholders.................................. 65
Section 15.14 Limitation to Preserve REIT Status ........................ 65
iii--
<PAGE> 5
EXHIBIT A
PARTNERS AND
PARTNERSHIP INTERESTS
EXHIBIT B
CAPITAL ACCOUNT MAINTENANCE
EXHIBIT C
SPECIAL ALLOCATION RULES
EXHIBIT D
NOTICE OF REDEMPTION
EXHIBIT E
VALUE OF CONTRIBUTED PROPERTY
EXHIBIT F
RESTRICTED PARTNERS
iv--
<PAGE> 6
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
VORNADO REALTY L.P.
THIS FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF
Vornado Realty L.P., dated as of ________________, 1997, is entered into by and
among Vornado Realty Trust, a Maryland real estate investment trust as the
General Partner of and a Limited Partner in the Partnership, FW/Mendik REIT,
L.L.C., a Delaware limited liability company, as a Limited Partner in the
Partnership, and The Mendik Company, Inc., a Maryland corporation, as a Limited
Partner in the Partnership, together with any other Persons who become Partners
in the Partnership as provided herein.
WHEREAS, the Partnership was formed under the name "Mendik Real Estate
Group, L.P." on October 2, 1996, and, on October 2, 1996, the Partnership
adopted an Agreement of Limited Partnership (the "Prior Agreement");
WHEREAS, on November 7, 1996, the general partner of the Partnership
changed the Partnership's name to "The Mendik Company, L.P." and, in connection
therewith, caused a certificate of Amendment to the Certificate of Limited
Partnership of the Partnership to be filed in the office of the Delaware
Secretary of State on November 8, 1996;
WHEREAS, FW/Mendik REIT, L.L.C. and The Mendik Company, Inc., the
partners of the Partnership under the Prior Agreement, have immediately prior to
the Effective Date recapitalized the Partnership and propose to admit Vornado
Realty Trust as the substituted General Partner of the Partnership and to merge
with Vornado Sub and admit Vornado Realty Trust as an Additional Limited Partner
in the Partnership and to recognize the conversion of the General Partnership
Interest held by The Mendik Company, Inc. into a Limited Partnership Interest in
the Partnership, and, in connection with the foregoing transactions, the parties
hereto have agreed to amend and restate the Prior Agreement on the terms set
forth below;
NOW, THEREFORE, in consideration of the mutual covenants set forth
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby amend
and restate the Prior Agreement in its entirety and agree to continue the
Partnership as a limited partnership under the Delaware Revised Uniform Limited
Partnership Act, as amended from time to time, as follows:
ARTICLE I
DEFINED TERMS
The following definitions shall be for all purposes, unless
otherwise clearly indicated to the contrary, applied to the terms used in this
Agreement.
"Act" means the Delaware Revised Uniform Limited Partnership
Act, as it may be amended from time to time, and any successor to such statute.
"Additional Limited Partner" means a Person admitted to the
Partnership as a Limited Partner pursuant to Section 12.2 hereof and who is
shown as such on the books and records of the Partnership.
<PAGE> 7
"Adjusted Capital Account" means the Capital Account
maintained for each Partner as of the end of each Partnership Year (i) increased
by any amounts which such Partner is obligated to restore pursuant to any
provision of this Agreement or is deemed to be obligated to restore pursuant to
the penultimate sentences of Regulations Sections 1.704-2(g)(1) and
1.704-2(i)(5) and (ii) decreased by the items described in Regulations Sections
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and 1.704-1(b)(2)(ii)(d)(6).
The foregoing definition of Adjusted Capital Account is intended to comply with
the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be
interpreted consistently therewith.
"Adjusted Capital Account Deficit" means, with respect to any
Partner, the deficit balance, if any, in such Partner's Adjusted Capital Account
as of the end of the relevant Partnership Year.
"Adjusted Property" means any property the Carrying Value of
which has been adjusted pursuant to Exhibit B hereto.
"Adjustment Date" has the meaning set forth in Section 4.2.B
hereof.
"Affiliate" means, with respect to any Person, (i) any Person
directly or indirectly controlling, controlled by or under common control with
such Person, (ii) any Person owning or controlling ten percent (10%) or more of
the outstanding voting interests of such Person, (iii) any Person of which such
Person owns or controls ten percent (10%) or more of the voting interests or
(iv) any officer, director, general partner or trustee of such Person or any
Person referred to in clauses (i), (ii), and (iii) above. For purposes of this
definition, "control," when used with respect to any Person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise,
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Affiliated Transferee" means, with respect to any Limited
Partner, a member of such Limited Partner's Immediate Family, a trust formed
solely for the benefit of such Limited Partner and/or members of such Limited
Partner's Immediate Family, or any partnership, limited liability company, joint
venture, corporation or other business entity all of the interests in which are,
and remain, owned and controlled solely by such Limited Partner and/or members
of such Limited Partner's Immediate Family, and if the Limited Partner is an
entity and owned Partnership Units on the Effective Date, Persons who, as of the
Effective Date, owned interests in or were beneficiaries of such Limited Partner
and continue to own such interests (or be beneficiaries) at the time of the
proposed transfers.
"Agreed Value" means (i) in the case of any Contributed
Property contributed to the Partnership as part of or in connection with the
Consolidation, the amount set forth on Exhibit E attached hereto as the Agreed
Value of such Property; (ii) in the case of any other Contributed Property, the
704(c) Value of such property as of the time of its contribution to the
Partnership, reduced by any liabilities either assumed by the Partnership upon
such contribution or to which such property is subject when contributed; and
(iii) in the case of any property distributed to a Partner by the Partnership,
the Partnership's Carrying Value of such property at the time such property is
distributed, reduced by any indebtedness either assumed by such Partner upon
such distribution or to which such property is subject at the time of
distribution as determined under Section 752 of the Code and the regulations
thereunder.
"Agreement" means this First Amended and Restated Agreement of
Limited Partnership, as it may be amended, supplemented or restated from time to
time.
"Assignee" means a Person to whom one or more Partnership
Units have been transferred in a manner permitted under this Agreement, but who
has not become a Substituted Limited Partner, and who has the rights set forth
in Section 11.5 hereof.
2--
<PAGE> 8
"Bankruptcy" with respect to any Person shall be deemed to
have occurred when (a) the Person commences a voluntary proceeding seeking
liquidation, reorganization or other relief under any bankruptcy, insolvency or
other similar law now or hereafter in effect, (b) the Person is adjudged as
bankrupt or insolvent, or a final and nonappealable order for relief under any
bankruptcy, insolvency or similar law now or hereafter in effect has been
entered against the Person, (c) the Person executes and delivers a general
assignment for the benefit of the Person's creditors, (d) the Person files an
answer or other pleading admitting or failing to contest the material
allegations of a petition filed against the Person in any proceeding of the
nature described in clause (b) above, (e) the Person seeks, consents to or
acquiesces in the appointment of a trustee, receiver or liquidator for the
Person or for all or any substantial part of the Person's properties, (f) any
proceeding seeking liquidation, reorganization or other relief under any
bankruptcy, insolvency or other similar law now or hereafter in effect has not
been dismissed within one hundred twenty (120) days after the commencement
thereof, (g) the appointment without the Person's consent or acquiescence of a
trustee, receiver of liquidator has not been vacated or stayed within ninety
(90) days of such appointment or (h) an appointment referred to in clause (g) is
not vacated within ninety (90) days after the expiration of any such stay.
"Book-Tax Disparities" means, with respect to any item of
Contributed Property or Adjusted Property, as of the date of any determination,
the difference between the Carrying Value of such Contributed Property or
Adjusted Property and the adjusted basis thereof for federal income tax purposes
as of such date. A Partner's share of the Partnership's Book-Tax Disparities in
all of its Contributed Property and Adjusted Property will be reflected by the
difference between such Partner's Capital Account balance as maintained pursuant
to Exhibit B hereto and the hypothetical balance of such Partner's Capital
Account computed as if it had been maintained, with respect to each such
Contributed Property or Adjusted Property, strictly in accordance with federal
income tax accounting principles.
"Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in New York, New York are authorized or
required by law to close.
"Capital Account" means the Capital Account maintained for a
Partner pursuant to Exhibit B hereto.
"Capital Contribution" means, with respect to any Partner, any
cash, cash equivalents or the Agreed Value of Contributed Property which such
Partner contributes or is deemed to contribute to the Partnership pursuant to
Section 4.1 or 4.2 hereof.
"Carrying Value" means (i) with respect to a Contributed
Property or Adjusted Property, the 704(c) Value of such property reduced (but
not below zero) by all Depreciation with respect to such Contributed Property or
Adjusted Property, as the case may be, charged to the Partners' Capital Accounts
and (ii) with respect to any other Partnership property, the adjusted basis of
such property for federal income tax purposes, all as of the time of
determination. The Carrying Value of any property shall be adjusted from time to
time in accordance with Exhibit B hereto, and to reflect changes, additions or
other adjustments to the Carrying Value for dispositions and acquisitions of
Partnership properties, as deemed appropriate by the General Partner.
"Cash Amount" means an amount of cash equal to the Value on
the Valuation Date of the Shares Amount, subject to Section 8.6.A(iv).
"Certificate" means the Certificate of Limited Partnership of
the Partnership filed in the office of the Delaware Secretary of State on
October 2, 1996, as amended by a Certificate of Amendment filed in Delaware on
November 8, 1996, and as further amended from time to time in accordance with
the terms hereof and the Act.
3--
<PAGE> 9
"Charter Documents" has the meaning set forth in Section
7.11.D hereof.
"Class A Unit" means any Partnership Unit that is not
specifically designated by the General Partner as being of another specified
class of Partnership Units.
"Class B Unit" means a Partnership Unit that is specifically
designated by the General Partner as being a Class B Unit.
"Class C Accumulated Amount" has the meaning set forth in
Section 4.2.D(i).
"Class C Preferential Distribution" has the meaning set forth
in Section 5.1.B.
"Class C Unit" means any Partnership Unit that is specifically
designated by the General Partner as being a Class C Unit.
"Class D/E Accumulated Amount" has the meaning set forth in
Section 4.2.D(ii).
"Class D/E Preferential Distribution" has the meaning set
forth in Section 5.1.B.
"Class D Unit" means a Partnership Unit that is specifically
designated by the General Partner as being a Class D Unit.
"Class E Unit" means any Partnership Unit that is specifically
designated by the General Partner as being a Class E Unit.
"Code" means the Internal Revenue Code of 1986, as amended and
in effect from time to time, as interpreted by the applicable regulations
thereunder. Any reference herein to a specific section or sections of the Code
shall be deemed to include a reference to any corresponding provision of future
law.
"Consent" means the consent or approval of a proposed action
by a Partner given in accordance with Section 14.2 hereof.
"Consent of Certain Limited Partners" means Consent of the
holders of 75% in the aggregate of the Two Penn Plaza Units, the Eleven Penn
Plaza Units, and the 866 U.N. Plaza Units, collectively considered as one group,
provided that:
(A) if:
(i) there has been a prior transaction
involving the Two Penn Plaza Property, the Eleven
Penn Plaza Property, or the 866 U.N. Plaza Property,
as the case may be, that has been approved by the
holders of the Two Penn Plaza Units, the Eleven Penn
Plaza Units, or the 866 U.N. Plaza Units, as the case
may be, pursuant to Section 7.11.C(1), 7.11.C(2) or
7.11.C(3), as applicable, and
(ii) no holder of Two Penn Plaza Units,
Eleven Penn Plaza Units, or 866 U.N. Plaza Units, as
applicable with respect to a transaction involving
Two Penn Plaza, Eleven Penn Plaza or 866 U.N. Plaza,
respectively, would recognize gain for federal income
tax purposes with respect to (but only with respect
to) such Partnership Units in excess of $1.00 as a
result of the sale or other disposition of all such
Partnership
4--
<PAGE> 10
Units for $1.00 (that is, no Limited Partner has a
"negative capital account" with respect to such
Partnership Units),
then the "Certain Limited Partners" shall not be considered to
include the holders of such Partnership Units; and
(B) if any holder of Two Penn Plaza Units, Eleven Penn Plaza
Units or 866 U.N. Plaza Units, as applicable, has received
from the Partnership the payment described in Section
7.11.C(7) in respect of such Partnership Units, and the amount
of such payment is, at the time that it is made, equal to the
full amount that would be payable under Section 7.11.C(7) with
respect to such Partnership Units if the Two Penn Plaza
Property, the Eleven Penn Plaza Property, or the 866 U.N.
Plaza Property, as applicable, were to have been sold on such
date for its market value, then the "Certain Limited Partners"
shall not include such holder.
"Consent of the Outside Limited Partners" means the Consent of
Limited Partners (excluding for this purpose any Limited Partnership Interests
held by the General Partner, any Person of which the General Partner owns or
controls more than fifty percent (50%) of the voting interests and any Person
owning or controlling, directly or indirectly, more than fifty percent (50%) of
the outstanding voting interests of the General Partner) holding Percentage
Interests regardless of class that are greater than fifty percent (50%) of the
aggregate Percentage Interest of all Limited Partners of all classes taken
together who are not excluded for the purposes hereof.
"Consolidation" means the transactions whereby the Partnership
will acquire all or substantially all of the interests in the assets currently
owned by the General Partner, interests in certain office properties located in
midtown Manhattan, and certain property management businesses that provide
services to those office properties and to other properties in the New York
metropolitan area, in exchange for Partnership Units, all as described in a
Master Consolidation Agreement dated as of March __, 1997 among the General
Partner, Vornado Sub, the Partnership and the other entities named therein.
"Consolidation Transaction" has the meaning set forth in
Section 7.11.C(6) hereof.
"Contributed Property" means each property or other asset
contributed to the Partnership, in such form as may be permitted by the Act, but
excluding cash contributed or deemed contributed to the Partnership. Once the
Carrying Value of a Contributed Property is adjusted pursuant to Exhibit B
hereto, such property shall no longer constitute a Contributed Property for
purposes of Exhibit B hereto, but shall be deemed an Adjusted Property for such
purposes.
"Conversion Factor" means 1.0; provided that in the event that
the General Partner Entity (i) declares (and the applicable record date has
passed or will have passed before a redeeming Partner would receive cash or
Common Shares in respect of the Partnership Units being redeemed) or pays a
dividend on its outstanding Shares in Shares or makes a distribution to all
holders of its outstanding Shares in Shares, (ii) subdivides its outstanding
Shares or (iii) combines its outstanding Shares into a smaller number of Shares,
the Conversion Factor shall be adjusted by multiplying the Conversion Factor by
a fraction, the numerator of which shall be the number of Shares issued and
outstanding on the record date for such dividend, distribution, subdivision or
combination (assuming for such purposes that such dividend, distribution,
subdivision or combination has occurred as of such time) and the denominator of
which shall be the actual number of Shares (determined without the above
assumption) issued and outstanding on the record date for such dividend,
distribution, subdivision or combination; and provided further that in the event
that an entity shall cease to be the General Partner Entity (the "Predecessor
Entity") and another entity shall become the General Partner Entity (the
"Successor Entity"), the Conversion Factor shall be adjusted by multiplying the
Conversion Factor by a
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fraction, the numerator of which is the Value of one Share of the Predecessor
Entity, determined as of the time immediately prior to when the Successor Entity
becomes the General Partner Entity, and the denominator of which is the Value of
one Share of the Successor Entity, determined as of that same date. (For
purposes of the second proviso in the preceding sentence, in the event that any
shareholders of the Predecessor Entity will receive consideration in connection
with the transaction in which the Successor Entity becomes the General Partner
Entity, the numerator in the fraction described above for determining the
adjustment to the Conversion Factor (that is, the Value of one Share of the
Predecessor Entity) shall be the sum of the greatest amount of cash and the fair
market value of any securities and other consideration that the holder of one
Share in the Predecessor Entity could have received in such transaction
(determined without regard to any provisions governing fractional shares).) Any
adjustment to the Conversion Factor shall become effective immediately after the
effective date of such event retroactive to the record date, if any, for the
event giving rise thereto; it being intended that (x) adjustments to the
Conversion Factor are to be made in order to avoid unintended dilution or
anti-dilution as a result of transactions in which Shares are issued, redeemed
or exchanged without a corresponding issuance, redemption or exchange of
Partnership Units and (y) if a Specified Redemption Date shall fall between the
record date and the effective date of any event of the type described above,
that the Conversion Factor applicable to such redemption shall be adjusted to
take into account such event.
"Convertible Funding Debt" has the meaning set forth in
Section 7.5.F hereof.
"Debt" means, as to any Person, as of any date of
determination, (i) all indebtedness of such Person for borrowed money or for the
deferred purchase price of property or services, (ii) all amounts owed by such
Person to banks or other Persons in respect of reimbursement obligations under
letters of credit, surety bonds and other similar instruments guaranteeing
payment or other performance of obligations by such Person, (iii) all
indebtedness for borrowed money or for the deferred purchase price of property
or services secured by any lien on any property owned by such Person, to the
extent attributable to such Person's interest in such property, even though such
Person has not assumed or become liable for the payment thereof, and (iv)
obligations of such Person incurred in connection with entering into a lease
which, in accordance with generally accepted accounting principles, should be
capitalized.
"Declaration of Trust" means the Declaration of Trust or other
similar organizational document governing the General Partner, as amended,
supplemented or restated from time to time.
"Deemed Partnership Interest Value" means, as of any date with
respect to any class of Partnership Interests, the Deemed Value of the
Partnership Interest of such class multiplied by the applicable Partner's
Percentage Interest of such class.
"Deemed Value of the Partnership Interest" means, as of any
date with respect to any class of Partnership Interests, (a) if the common
shares of beneficial interest (or other comparable equity interests) of the
General Partner are Publicly Traded (i) the total number of shares of beneficial
interest (or other comparable equity interest) of the General Partner
corresponding to such class of Partnership Interest (as provided for in Section
4.2.B hereof) issued and outstanding as of the close of business on such date
(excluding any treasury shares) multiplied by the Value of a share of such
beneficial interest (or other comparable equity interest) on such date divided
by (ii) the Percentage Interest of the General Partner in such class of
Partnership Interests on such date, and (b) otherwise, the aggregate Value of
such class of Partnership Interests determined as set forth in the fourth and
fifth sentences of the definition of Value.
"Depreciation" means, for each fiscal year, an amount equal to
the federal income tax depreciation, amortization, or other cost recovery
deduction allowable with respect to an asset for such year, except that if the
Carrying Value of an asset differs from its adjusted basis for federal income
tax purposes at the beginning of such year or other period, Depreciation shall
be an amount which bears the same ratio to such
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<PAGE> 12
beginning Carrying Value as the federal income tax depreciation, amortization,
or other cost recovery deduction for such year bears to such beginning adjusted
tax basis; provided, however, that if the federal income tax depreciation,
amortization, or other cost recovery deduction for such year is zero,
Depreciation shall be determined with reference to such beginning Carrying Value
using any reasonable method selected by the General Partner.
"866 U.N. Plaza Associates" means 866 United Nations Plaza
Associates LLC, a New York limited liability company.
"866 U.N. Plaza Property" has the meaning set forth in Section
7.11.C hereof.
"866 U.N. Plaza Units" has the meaning set forth in Section
7.11.C hereof.
"Effective Date" means the date of the closing of the
Consolidation.
"Eleven Penn Partnerships" means M/F Associates, a New York
limited partnership, M/F Eleven Associates, a New York limited partnership, M/S
Associates, a New York limited partnership, and M/S Eleven Associates, a New
York limited partnership.
"Eleven Penn Plaza Property" has the meaning set forth in
Section 7.11.C hereof.
"Eleven Penn Plaza Units" has the meaning set forth in Section
7.11.C hereof.
"Equity Merger" has the meaning set forth in Section 7.11.D
hereof.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchanged Property" has the meaning set forth in Section
7.11.C hereof.
"Funding Debt" means the incurrence of any Debt by or on
behalf of the General Partner for the purpose of providing funds to the
Partnership.
"Funds From Operations" shall mean, with respect to any
period, the General Partner's "funds from operations," calculated in a manner
consistent with the calculation of such measure as it is used in the General
Partner's consolidated financial statements appearing in its most recent public
filing on Form 10-K or Form 10-Q (whichever is more recent).
"FW/Mendik LLC" means FW/Mendik REIT, L.L.C., a Delaware
limited liability company.
"General Partner" means Vornado Realty Trust, a Maryland real
estate investment trust, or its successors as general partner of the
Partnership.
"General Partner Entity" means the General Partner; provided,
however, that if (i) the common shares of beneficial interest (or other
comparable equity interests) of the General Partner are at any time not Publicly
Traded and (ii) the shares of common stock (or other comparable equity
interests) of an entity that owns, directly or indirectly, fifty percent (50%)
or more of the common shares of beneficial interest (or other comparable equity
interests) of the General Partner are Publicly Traded, the term "General Partner
Entity" shall refer to such entity whose shares of common stock (or other
comparable equity securities) are Publicly Traded. If both
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<PAGE> 13
requirements set forth in clauses (i) and (ii) above are not satisfied, then the
term "General Partner Entity" shall mean the General Partner.
"General Partner Payment" has the meaning set forth in Section
15.14 hereof.
"General Partnership Interest" means a Partnership Interest
held by the General Partner that is a general partnership interest. A General
Partnership Interest may be expressed as a number of Partnership Units.
"Immediate Family" means, with respect to any natural Person,
such natural Person's spouse, parents, descendants, nephews, nieces, brothers
and sisters.
"Incapacity" or "Incapacitated" means, (i) as to any
individual Partner, death, total physical disability or entry by a court of
competent jurisdiction adjudicating such Partner incompetent to manage his or
her Person or estate, (ii) as to any corporation which is a Partner, the filing
of a certificate of dissolution, or its equivalent, for the corporation or the
revocation of its charter, (iii) as to any partnership which is a Partner, the
dissolution and commencement of winding up of the partnership, (iv) as to any
estate which is a Partner, the distribution by the fiduciary of the estate's
entire interest in the Partnership, (v) as to any trustee of a trust which is a
Partner, the termination of the trust (but not the substitution of a new
trustee) or (vi) as to any Partner, the Bankruptcy of such Partner.
"Indemnitee" means (i) any Person made a party to a proceeding
or threatened with being made a party to a proceeding by reason of its status as
(A) the General Partner, (B) a Limited Partner or (C) an officer of the
Partnership (or any Subsidiary or other entity in which the Partnership owns an
equity interest) or a trustee/director, officer or shareholder of the General
Partner or the General Partner Entity (or any Subsidiary or other entity in
which the General Partner owns an equity interest (so long as the General
Partner's ownership of an interest in such entity is not prohibited by Section
7.5.A) or for which the General Partner, acting on behalf of the Partnership,
requests the trustee/director, officer or shareholder to serve as a director,
officer, trustee or agent, including serving as a trustee of an employee benefit
plan) and (ii) such other Persons (including Affiliates of the General Partner,
a Limited Partner or the Partnership) as the General Partner may designate from
time to time (whether before or after the event giving rise to potential
liability), in its sole and absolute discretion.
"IRS" means the Internal Revenue Service, which administers
the internal revenue laws of the United States.
"Limited Partner" means any Person named as a Limited Partner
in Exhibit A attached hereto, as such Exhibit may be amended and restated from
time to time, or any Substituted Limited Partner or Additional Limited Partner,
in such Person's capacity as a Limited Partner in the Partnership.
"Limited Partnership Interest" means a Partnership Interest of
a Limited Partner in the Partnership representing a fractional part of the
Partnership Interests of all Limited Partners and includes any and all benefits
to which the holder of such a Partnership Interest may be entitled as provided
in this Agreement, together with all obligations of such Person to comply with
the terms and provisions of this Agreement. A Limited Partnership Interest may
be expressed as a number of Partnership Units.
"Liquidating Event" has the meaning set forth in Section 13.1
hereof.
"Liquidating Transaction" has the meaning set forth in Section
7.11.C hereof.
"Liquidator" has the meaning set forth in Section 13.2.A
hereof.
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"Majority in Interest" means Partners (excluding the General
Partner) who hold more than fifty percent (50%) of the outstanding Percentage
Interests not held by the General Partner.
"Mendik Owner" means, with respect to Bernard H. Mendik or
David R. Greenbaum, as applicable, any member of his Immediate Family and any
trust formed solely for the benefit of him and/or members of his Immediate
Family, or any partnership, limited liability company, joint venture,
corporation or other business entity all of the interests in which are, and
remain, owned and controlled solely by him and/or members of his Immediate
Family.
"Net Income" means, for any taxable period, the excess, if
any, of the Partnership's items of income and gain for such taxable period over
the Partnership's items of loss and deduction for such taxable period. The items
included in the calculation of Net Income shall be determined in accordance with
Exhibit B hereto. If an item of income, gain, loss or deduction that has been
included in the initial computation of Net Income is subjected to the special
allocation rules in Exhibit C hereto, Net Income or the resulting Net Loss,
whichever the case may be, shall be recomputed without regard to such item.
"Net Loss" means, for any taxable period, the excess, if any,
of the Partnership's items of loss and deduction for such taxable period over
the Partnership's items of income and gain for such taxable period. The items
included in the calculation of Net Loss shall be determined in accordance with
Exhibit B. If an item of income, gain, loss or deduction that has been included
in the initial computation of Net Loss is subjected to the special allocation
rules in Exhibit C hereto, Net Loss or the resulting Net Income, whichever the
case may be, shall be recomputed without regard to such item.
"New Securities" means (i) any rights, options, warrants or
convertible or exchangeable securities having the right to subscribe for or
purchase shares of beneficial interest (or other comparable equity interest) of
the General Partner, excluding grants under any Stock Option Plan, or (ii) any
Debt issued by the General Partner that provides any of the rights described in
clause (i).
"Non-Class D/E Units" has the meaning set forth in Section
5.1(B)(vii).
"Nonrecourse Built-in Gain" means, with respect to any
Contributed Properties or Adjusted Properties that are subject to a mortgage or
negative pledge securing a Nonrecourse Liability, the amount of any taxable gain
that would be allocated to the Partners pursuant to Section 2.B of Exhibit C
hereto if such properties were disposed of in a taxable transaction in full
satisfaction of such liabilities and for no other consideration.
"Nonrecourse Deductions" has the meaning set forth in
Regulations Section 1.704-2(b)(1), and the amount of Nonrecourse Deductions for
a Partnership Year shall be determined in accordance with the rules of
Regulations Section 1.704-2(c).
"Nonrecourse Liability" has the meaning set forth in
Regulations Section 1.752-1(a)(2).
"Notice of Redemption" means a Notice of Redemption
substantially in the form of Exhibit D attached hereto.
"Partner" means the General Partner or a Limited Partner, and
"Partners" means the General Partner and the Limited Partners.
"Partner Minimum Gain" means an amount, with respect to each
Partner Nonrecourse Debt, equal to the Partnership Minimum Gain that would
result if such Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Regulations Section 1.704-2(i)(3).
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<PAGE> 15
"Partner Nonrecourse Debt" has the meaning set forth in
Regulations Section 1.704-2(b)(4).
"Partner Nonrecourse Deductions" has the meaning set forth in
Regulations Section 1.704-2(i)(2), and the amount of Partner Nonrecourse
Deductions with respect to a Partner Nonrecourse Debt for a Partnership Year
shall be determined in accordance with the rules of Regulations Section
1.704-2(i)(2).
"Partnership" means the limited partnership formed under the
Act and continued upon the terms and conditions set forth in this Agreement, and
any successor thereto.
"Partnership Interest" means a Limited Partnership Interest or
the General Partnership Interest, as the context requires, and includes any and
all benefits to which the holder of such a Partnership Interest may be entitled
as provided in this Agreement, together with all obligations of such Person to
comply with the terms and provisions of this Agreement. A Partnership Interest
may be expressed as a number of Partnership Units.
"Partnership Minimum Gain" has the meaning set forth in
Regulations Section 1.704-2(b)(2), and the amount of Partnership Minimum Gain,
as well as any net increase or decrease in Partnership Minimum Gain, for a
Partnership Year shall be determined in accordance with the rules of Regulations
Section 1.704-2(d).
"Partnership Record Date" means the record date established by
the General Partner either (i) for the making of any distribution pursuant to
Section 5.1 hereof, which record date shall be the same as the record date
established by the General Partner Entity for a distribution to its shareholders
of some or all of its portion of such distribution received by the General
Partner if the shares of common stock (or comparable equity interests) of the
General Partner Entity are Publicly Traded, or (ii) if applicable, for
determining the Partners entitled to vote on or consent to any proposed action
for which the consent or approval of the Partners is sought pursuant to Section
14.2 hereof.
"Partnership Unit" means a fractional, undivided share of the
Partnership Interests of all Partners issued pursuant to Sections 4.1 and 4.2
hereof, and includes Class A Units, Class B Units, Class C Units, Class D Units,
Class E Units and any other classes or series of Partnership Units established
after the date hereof. The number of Partnership Units outstanding and the
Percentage Interests in the Partnership represented by such Partnership Units
are set forth in Exhibit A hereto, as such Exhibit may be amended and restated
from time to time. The ownership of Partnership Units may be evidenced by a
certificate in a form approved by the General Partner.
"Partnership Year" means the fiscal year of the Partnership.
"Percentage Interest" means, as to a Partner holding a
Partnership Interest of any class issued hereunder, its interest in such class,
determined by dividing the Partnership Units of such class owned by such Partner
by the total number of Partnership Units of such class then outstanding as
specified in Exhibit A attached hereto, as such exhibit may be amended and
restated from time to time, multiplied by the aggregate Percentage Interest
allocable to such class of Partnership Interests. For such time or times as the
Partnership shall at any time have outstanding more than one class of
Partnership Interests, the Percentage Interest attributable to each class of
Partnership Interests shall be determined as set forth in Section 4.2.B hereof.
"Person" means a natural person, partnership (whether general
or limited), trust, estate, association, corporation, limited liability company,
unincorporated organization, custodian, nominee or any other individual or
entity in its own or any representative capacity.
"Predecessor Entity" has the meaning set forth in the
definition of "Conversion Factor" herein.
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<PAGE> 16
"Preference Units" has the meaning set forth in Section 4.2.E.
"Publicly Traded" means listed or admitted to trading on the
New York Stock Exchange, the American Stock Exchange or another national
securities exchange or designated for quotation on the NASDAQ National Market,
or any successor to any of the foregoing.
"Qualified REIT Subsidiary" means any Subsidiary of the
General Partner that is a "qualified REIT subsidiary" within the meaning Section
856(i) of the Code. Except as otherwise specifically provided herein, a
Qualified REIT Subsidiary of the General Partner that holds as its only assets
direct and/or indirect interests in the Partnership will not be treated as an
entity separate from the General Partner.
"Recapture Income" means any gain recognized by the
Partnership (computed without regard to any adjustment required by Section 743
of the Code) upon the disposition of any property or asset of the Partnership,
which gain is characterized as ordinary income because it represents the
recapture of deductions previously taken with respect to such property or asset.
"Redeeming Partner" has the meaning set forth in Section 8.6.A
hereof.
"Redemption Amount" means either the Cash Amount or the Shares
Amount, as determined by the General Partner in its sole and absolute
discretion; provided that in the event that the Shares are not Publicly Traded
at the time a Redeeming Partner exercises its Redemption Right, the Redemption
Amount shall be paid only in the form of the Cash Amount unless the Redeeming
Partner, in its sole and absolute discretion, consents to payment of the
Redemption Amount in the form of the Shares Amount; provided further, the
foregoing is subject to Section 8.6.A(iv). A Redeeming Partner shall have no
right, without the General Partner's consent, in its sole and absolute
discretion, to receive the Redemption Amount in the form of the Shares Amount.
"Redemption Right" has the meaning set forth in Section 8.6.A
hereof.
"Regulations" means the Income Tax Regulations promulgated
under the Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"REIT" means a real estate investment trust under Section 856
of the Code.
"REIT Expenses" shall mean (i) costs and expenses relating to
the continuity of existence of the General Partner and any Person in which the
General Partner owns an equity interest, to the extent not prohibited by Section
7.5.A (and excluding expenses relating to any Person in which the General
Partner acquired an interest with the Consent of the Outside Limited Partners,
unless the Consent of the Outside Limited Partners has been obtained to include
such expenses within the definition of "REIT Expenses"), other than the
Partnership (which Persons shall, for purposes of this definition, be included
within the definition of "General Partner"), including taxes, fees and
assessments associated therewith (other than federal, state or local income
taxes imposed upon the General Partner as a result of the General Partner's
failure to distribute to its shareholders an amount equal to its taxable
income), any and all costs, expenses or fees payable to any trustee or director
of the General Partner or such Persons, (ii) costs and expenses relating to any
offer or registration of securities by the General Partner (the proceeds of
which will be contributed or advanced to the Partnership) and all statements,
reports, fees and expenses incidental thereto, including underwriting discounts
and selling commissions applicable to any such offer of securities, (iii) costs
and expenses associated with the preparation and filing of any periodic reports
by the General Partner under federal, state or local laws or regulations,
including filings with the SEC, (iv) costs and expenses associated with
compliance by the General Partner with laws, rules and regulations promulgated
by any regulatory body, including the Securities and Exchange Commission, and
(v) all other operating or administrative costs of the General Partner incurred
in the ordinary course of its business; provided, however, that any of the
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<PAGE> 17
foregoing expenses that are determined by the General Partner to be expenses
relating to the ownership and operation of, or for the benefit of, the
Partnership shall be treated, subject to Section 7.4.E hereof, as reimbursable
expenses under Section 7.4.B hereof rather than as "REIT Expenses".
"REIT Requirements" has the meaning set forth in Section 5.1.A
hereof.
"Replacement Property" has the meaning set forth in Section
7.11.C hereof.
"Residual Gain" or "Residual Loss" means any item of gain or
loss, as the case may be, of the Partnership recognized for federal income tax
purposes resulting from a sale, exchange or other disposition of Contributed
Property or Adjusted Property, to the extent such item of gain or loss is not
allocated pursuant to Section 2.B.1(a) or 2.B.2(a) of Exhibit C hereto to
eliminate Book-Tax Disparities.
"Restricted Partner" means any of FW/Mendik LLC, Bernard H.
Mendik, David R. Greenbaum, any Mendik Owner and any other Person identified on
Exhibit F hereto.
"Safe Harbors" has the meaning set forth in Section 11.6.F
hereof.
"Securities Act" means the Securities Act of 1933, as amended.
"704(c) Value" of any Contributed Property means the fair
market value of such property at the time of contribution as determined by the
General Partner using such reasonable method of valuation as it may adopt.
Subject to Exhibit B hereto, the General Partner shall, in its sole and absolute
discretion, use such method as it deems reasonable and appropriate to allocate
the aggregate of the 704(c) Values of Contributed Properties in a single or
integrated transaction among each separate property on a basis proportional to
their fair market values. The 704(c) Values of the Contributed Properties
contributed to the Partnership as part of or in connection with the
Consolidation are set forth on Exhibit E attached hereto.
"Share" means a share of beneficial interest (or other
comparable equity interest) of the General Partner Entity. Shares may be issued
in one or more classes or series in accordance with the terms of the Declaration
of Trust (or, if the General Partner is not the General Partner Entity, the
organizational documents of the General Partner Entity). In the event that there
is more than one class or series of Shares, the term "Shares" shall, as the
context requires, be deemed to refer to the class or series of Shares that
correspond to the class or series of Partnership Interests for which the
reference to Shares is made. When used with reference to Class A Units, Class C
Units, Class D Units or Class E Units, the term "Shares" refers to common shares
of beneficial interest (or other comparable equity interest) of the General
Partner Entity.
"Shares Amount" means a number of Shares equal to the product
of the number of Partnership Units offered for redemption by a Redeeming Partner
times the Conversion Factor; provided, that in the event the General Partner
Entity issues to all holders of Shares rights, options, warrants or convertible
or exchangeable securities entitling such holders to subscribe for or purchase
Shares or any other securities or property (collectively, the "rights"), then
the Shares Amount shall also include such rights that a holder of that number of
Shares would be entitled to receive; and provided, further, that the Shares
Amount shall be adjusted pursuant to Section 7.5 hereof in the event that the
General Partner acquires material assets other than on behalf of the
Partnership.
"Specified Redemption Date" means the tenth Business Day after
receipt by the General Partner of a Notice of Redemption; provided, that if the
Shares are not Publicly Traded, the Specified Redemption Date means the
thirtieth Business Day after receipt by the General Partner of a Notice of
Redemption.
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"Stock Option Plan" means any share or stock incentive plan or
similar compensation arrangement (including, without limitation, any arrangement
whereby the Partnership or the General Partner delivers Units or shares of
capital stock of the General Partner into a "rabbi trust") of the General
Partner, the Partnership or any Affiliate of the Partnership or the General
Partner, as the context may require.
"Subsidiary" means, with respect to any Person, any
corporation, limited liability company, partnership or joint venture, or other
entity of which a majority of (i) the voting power of the voting equity
securities or (ii) the outstanding equity interests is owned, directly or
indirectly, by such Person.
"Substituted Limited Partner" means a Person who is admitted
as a Limited Partner to the Partnership pursuant to Section 11.4 hereof.
"Successor Entity" has the meaning set forth in the definition
of "Conversion Factor" herein.
"Successor Partnership" has the meaning set forth in Section
7.11.C hereof.
"Tenant" means any tenant from which the General Partner
derives rent, either directly or indirectly through limited liability companies
or partnerships, including the Partnership, or through any Qualified REIT
Subsidiary.
"Terminating Capital Transaction" means any sale or other
disposition of all or substantially all of the assets of the Partnership for
cash or a related series of transactions that, taken together, result in the
sale or other disposition of all or substantially all of the assets of the
Partnership for cash.
"Termination Transaction" has the meaning set forth in Section
11.2.B hereof.
"Title 8" means Title 8 of the Corporations and Associations
Article of the Annotated Code of Maryland.
"Transferred Property" has the meaning set forth in Section
7.11.C. hereof.
"Two Penn Plaza Associates" means Two Penn Plaza Associates,
L.P., a New York limited partnership.
"Two Penn Plaza Property" has the meaning set forth in Section
7.11.C hereof.
"Two Penn Plaza Units" has the meaning set forth in Section
7.11.C hereof.
"Unrealized Gain" attributable to any item of Partnership
property means, as of any date of determination, the excess, if any, of (i) the
fair market value of such property (as determined under Exhibit B hereto) as of
such date, over (ii) the Carrying Value of such property (prior to any
adjustment to be made pursuant to Exhibit B hereto) as of such date.
"Unrealized Loss" attributable to any item of Partnership
property means, as of any date of determination, the excess, if any, of (i) the
Carrying Value of such property (prior to any adjustment to be made pursuant to
Exhibit B hereto) as of such date, over (ii) the fair market value of such
property (as determined under Exhibit B hereto) as of such date.
"Valuation Date" means the date of receipt by the General
Partner of a Notice of Redemption or, if such date is not a Business Day, the
first Business Day thereafter.
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"Value" means, with respect to any outstanding Shares of the
General Partner Entity that are Publicly Traded, the average of the daily market
price for the ten (10) consecutive trading days immediately preceding the date
with respect to which value must be determined or, if such day is not a Business
Day, the immediately preceding Business Day. The market price for each such
trading day shall be the closing price, regular way, on such day, or if no such
sale takes place on such day, the average of the closing bid and asked prices on
such day. In the event that the outstanding Shares of the General Partner Entity
are Publicly Traded and the Shares Amount includes rights that a holder of
Shares would be entitled to receive, then the Value of such rights shall be
determined by the General Partner acting in good faith on the basis of such
quotations and other information as it considers, in its reasonable judgment,
appropriate. In the event that the Shares of the General Partner Entity are not
Publicly Traded, the Value of the Shares Amount per Partnership Unit offered for
redemption (which will be the Cash Amount per Partnership Unit offered for
redemption payable pursuant to Section 8.6.A hereof) means the amount that a
holder of one Partnership Unit would receive if each of the assets of the
Partnership were to be sold for its fair market value on the Specified
Redemption Date, the Partnership were to pay all of its outstanding liabilities,
and the remaining proceeds were to be distributed to the Partners in accordance
with the terms of this Agreement. Such Value shall be determined by the General
Partner, acting in good faith and based upon a commercially reasonable estimate
of the amount that would be realized by the Partnership if each asset of the
Partnership (and each asset of each partnership, limited liability company,
joint venture or other entity in which the Partnership owns a direct or indirect
interest) were sold to an unrelated purchaser in an arms' length transaction
where neither the purchaser nor the seller were under economic compulsion to
enter into the transaction (without regard to any discount in value as a result
of the Partnership's minority interest in any property or any illiquidity of the
Partnership's interest in any property). In connection with determining the
Deemed Value of the Partnership Interest for purposes of determining the number
of additional Partnership Units issuable upon a Capital Contribution funded by
an underwritten public offering of shares of beneficial interest (or other
comparable equity interest) of the General Partner, the Value of such shares
shall be the public offering price per share of such class of beneficial
interest (or other comparable equity interest) sold.
"Vornado Sub" means Vornado/Saddle Brook L.L.C., a Delaware
limited liability company and a wholly-owned subsidiary of the General Partner.
ARTICLE II
ORGANIZATIONAL MATTERS
Section 2.1 Organization
The Partnership is a limited partnership organized pursuant to
the provisions of the Act and upon the terms and conditions set forth in the
Prior Agreement. The Partners hereby continue the Partnership and amend and
restate the Prior Agreement in its entirety. Except as expressly provided herein
to the contrary, the rights and obligations of the Partners and the
administration and termination of the Partnership shall be governed by the Act.
The Partnership Interest of each Partner shall be personal property for all
purposes.
Section 2.2 Name
The name of the Partnership is Vornado Realty L.P. The
Partnership's business may be conducted under any other name or names deemed
advisable by the General Partner, including the name of the General Partner or
any Affiliate thereof. The words "Limited Partnership," "L.P.," "Ltd." or
similar words or letters shall be included in the Partnership's name where
necessary for the purposes of complying with the laws of any jurisdiction that
so requires. The General Partner in its sole and absolute discretion may change
the name of the
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Partnership at any time and from time to time and shall notify the Limited
Partners of such change in the next regular communication to the Limited
Partners.
Section 2.3 Registered Office and Agent; Principal Office
The address of the registered office of the Partnership in the
State of Delaware shall be located at Corporation Trust Center, 1209 Orange
Street, Wilmington, County of New Castle, Delaware 19801, and the registered
agent for service of process on the Partnership in the State of Delaware at such
registered office shall be Corporation Trust Company. The principal office of
the Partnership shall be Vornado Realty L.P., Park 80 West, Plaza II, Saddle
Brook, New Jersey 07663, or such other place as the General Partner may from
time to time designate by notice to the Limited Partners. The Partnership may
maintain offices at such other place or places within or outside the State of
Delaware as the General Partner deems advisable.
Section 2.4 Term
The term of the Partnership commenced on October 2, 1996, the
date on which the Certificate was filed in the office of the Secretary of State
of the State of Delaware in accordance with the Act, and shall continue until
December 31, 2095 (as such date may be extended by the General Partner in its
sole discretion), unless it is dissolved sooner pursuant to the provisions of
Article XIII hereof or as otherwise provided by law.
ARTICLE III
PURPOSE
Section 3.1 Purpose and Business
The purpose and nature of the business to be conducted by the
Partnership is (i) to conduct any business that may be lawfully conducted by a
limited partnership organized pursuant to the Act; provided, however, that such
business shall be limited to and conducted in such a manner as to permit the
General Partner Entity (or the General Partner, as applicable) at all times to
be classified as a REIT and avoid the imposition of federal income and excise
taxes on the General Partner Entity (or the General Partner, as applicable),
unless the General Partner Entity (or the General Partner, as applicable) ceases
to qualify, or is not qualified, as a REIT for any reason or reasons; (ii) to
enter into any partnership, joint venture, limited liability company or other
similar arrangement to engage in any of the foregoing or the ownership of
interests in any entity engaged, directly or indirectly, in any of the
foregoing; and (iii) to do anything necessary or incidental to the foregoing. In
connection with the foregoing, the Limited Partners acknowledge that the status
of the General Partner Entity (or the General Partner, as applicable) as a REIT
and the avoidance of federal income and excise taxes on the General Partner
Entity (or the General Partner, as applicable) inures to the benefit of all the
Partners and not solely the General Partner or its Affiliates. Notwithstanding
the foregoing, the Limited Partners acknowledge and agree that the General
Partner Entity (or the General Partner, as applicable) may terminate its status
as a REIT under the Code at any time to the full extent permitted under the
Declaration of Trust.
Section 3.2 Powers
The Partnership shall have full power and authority to do any
and all acts and things necessary, appropriate, proper, advisable, incidental to
or convenient for the furtherance and accomplishment of the purposes and
business described herein and for the protection and benefit of the Partnership,
including, without limitation, directly or through its ownership interest in
other entities, to enter into, perform and carry out contracts of any kind,
borrow money and issue evidences of indebtedness whether or not secured by
mortgage, deed of trust, pledge or other lien, acquire, own, manage, improve and
develop real property, and lease, sell, transfer and
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dispose of real property; provided, however, that the Partnership shall not
take, or refrain from taking, any action which, in the judgment of the General
Partner, in its sole and absolute discretion, (i) could adversely affect the
ability of the General Partner Entity (or the General Partner, as applicable) to
continue to qualify as a REIT, (ii) could subject the General Partner Entity (or
the General Partner, as applicable) to any additional taxes under Section 857 or
Section 4981 of the Code or (iii) could violate any law or regulation of any
governmental body or agency having jurisdiction over the General Partner Entity
(or the General Partner, if different) or its securities, unless such action (or
inaction) shall have been specifically consented to by the General Partner in
writing.
Section 3.3 Partnership Only for Purposes Specified
The Partnership shall be a partnership only for the purposes
specified in Section 3.1 above, and this Agreement shall not be deemed to create
a partnership among the Partners with respect to any activities whatsoever other
than the activities within the purposes of the Partnership as specified in
Section 3.1 above.
ARTICLE IV
CAPITAL CONTRIBUTIONS AND ISSUANCES
OF PARTNERSHIP INTERESTS
Section 4.1 Capital Contributions of the Partners
A. Capital Contributions to the Partnership on the Effective
Date. The Mendik Company, Inc. and FW/Mendik LLC previously made Capital
Contributions to the Partnership. Immediately prior to the Effective Date, the
Partnership was recapitalized and FW/Mendik LLC was issued [_________] Class D
Units as the sole Limited Partner of the Partnership and The Mendik Company,
Inc. was issued 1,000 Class D Units as the then general partner of the
Partnership, which Units will be subject to Section 4.2.D(iii). On the Effective
Date, the General Partner and certain other Persons will make additional Capital
Contributions to the Partnership in connection with the Consolidation. On the
Effective Date, the General Partner will be admitted to the Partnership as a
substituted General Partner, and the General Partnership Interest held by The
Mendik Company, Inc. will be converted into a Limited Partnership Interest.
Thereafter, the General Partner will complete Exhibit A hereto to reflect the
Capital Contributions made by each Partner, the number of Partnership Units (by
class) held by each Partner and the Percentage Interest in the Partnership
represented by such Partnership Units. The Capital Accounts of the Partners and
the Carrying Values of the Partnership's Assets shall be determined as of the
Effective Date pursuant to Section I.D of Exhibit B hereto to reflect the
Capital Contributions made prior to and on the Effective Date.
B. General Partnership Interest. A number of Partnership Units
held by the General Partner equal to one percent (1%) of all outstanding
Partnership Units shall be deemed to be the General Partner Partnership Units
and shall be the General Partnership Interest. All other Partnership Units held
by the General Partner shall be Limited Partnership Interests and shall be held
by the General Partner in its capacity as a Limited Partner in the Partnership.
C. Capital Contributions By Merger. To the extent the
Partnership acquires any property by the merger of any other Person into the
Partnership, Persons who receive Partnership Interests in exchange for their
interests in the Person merging into the Partnership shall become Partners and
shall be deemed to have made Capital Contributions as provided in the applicable
merger agreement and as set forth in Exhibit A hereto.
D. No Obligation to Make Additional Capital Contributions.
Except as provided in Sections 7.5 and 10.5 hereof, the Partners shall have no
obligation to make any additional Capital Contributions
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or provide any additional funding to the Partnership (whether in the form of
loans, repayments of loans or otherwise). No Partner shall have any obligation
to restore any deficit that may exist in its Capital Account, either upon a
liquidation of the Partnership or otherwise.
Section 4.2 Issuances of Partnership Interests
A. General. The General Partner is hereby authorized to cause
the Partnership from time to time to issue to Partners (including the General
Partner and its Affiliates) or other Persons (including, without limitation, in
connection with the contribution of property to the Partnership) Partnership
Units or other Partnership Interests in one or more classes, or in one or more
series of any of such classes, with such designations, preferences and relative,
participating, optional or other special rights, powers and duties, including
rights, powers and duties senior to Limited Partnership Interests, all as shall
be determined, subject to applicable Delaware law, by the General Partner in its
sole and absolute discretion, including, without limitation, (i) the allocations
of items of Partnership income, gain, loss, deduction and credit to each such
class or series of Partnership Interests, (ii) the right of each such class or
series of Partnership Interests to share in Partnership distributions and (iii)
the rights of each such class or series of Partnership Interests upon
dissolution and liquidation of the Partnership; provided that, no such
Partnership Units or other Partnership Interests shall be issued (x) to the
General Partner unless either (a) the Partnership Interests are issued in
connection with the grant, award or issuance of Shares or other equity interests
in the General Partner having designations, preferences and other rights such
that the economic interests attributable to such Shares or other equity
interests are substantially similar to the designations, preferences and other
rights (except voting rights) of the additional Partnership Interests issued to
the General Partner in accordance with this Section 4.2.A, or (b) the
Partnership Interests are issued to all Partners holding Partnership Interests
in the same class in proportion to their respective Percentage Interests in such
class or (c) the Partnership Interests are issued in connection with a
Termination Transaction or a transaction in which another person is merged,
combined or consolidated with or into the General Partner and in exchange for
the transfer or contribution of all or substantially all of the assets of such
other person by the General Partner to the Partnership, or (y) to any Person in
violation of Section 4.2.E. In the event that the Partnership issues Partnership
Interests pursuant to this Section 4.2.A, the General Partner shall make such
revisions to this Agreement (including but not limited to the revisions
described in Section 5.4, Section 6.2 and Section 8.6 hereof) as it deems
necessary to reflect the issuance of such additional Partnership Interests.
B. Percentage Interest Adjustments in the Case of Capital
Contributions for Partnership Units. Upon the acceptance of additional Capital
Contributions in exchange for Partnership Units, the Percentage Interest related
thereto shall be equal to a fraction, the numerator of which is equal to the
amount of cash, if any, plus the Agreed Value of Contributed Property, if any,
contributed with respect to such additional Partnership Units and the
denominator of which is equal to the sum of (i) the Deemed Value of the
Partnership Interests for all outstanding classes (computed as of the Business
Day immediately preceding the date on which the additional Capital Contributions
are made (such contribution date being referred to as an "Adjustment Date"))
plus (ii) the aggregate amount of additional Capital Contributions contributed
to the Partnership on such Adjustment Date in respect of such additional
Partnership Units. The Percentage Interest of each other Partner holding
Partnership Interests not making a full pro rata Capital Contribution shall be
adjusted to a fraction the numerator of which is equal to the sum of (i) the
Deemed Partnership Interest Value of such Limited Partner (computed as of the
Business Day immediately preceding the Adjustment Date) plus (ii) the amount of
additional Capital Contributions (such amount being equal to the amount of cash,
if any, plus the Agreed Value of Contributed Property, if any, so contributed),
if any, made by such Partner to the Partnership in respect of such Partnership
Interest as of such Adjustment Date and the denominator of which is equal to the
sum of (i) the Deemed Value of the Partnership Interests of all outstanding
classes (computed as of the Business Day immediately preceding such Adjustment
Date) plus (ii) the aggregate amount of the additional Capital Contributions
contributed to the Partnership on such Adjustment Date in respect of such
additional Partnership Interests. For purposes of calculating a Partner's
Percentage Interest pursuant to this Section 4.2.B, cash Capital Contributions
by the General Partner will be
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deemed to equal the cash contributed by the General Partner plus (a) in the case
of cash contributions funded by an offering of any equity interests in or other
securities of the General Partner, the offering costs attributable to the cash
contributed to the Partnership, and (b) in the case of Partnership Units issued
pursuant to Section 7.5.E hereof, an amount equal to the difference between the
Value of the Shares sold pursuant to any Stock Option Plan and the net proceeds
of such sale.
C. Classes of Partnership Units. From and after the Effective
Date, subject to Section 4.2.A above, the Partnership shall have four classes of
Partnership Units entitled "Class A Units", "Class B Units", "Class C Units",
"Class D Units" and "Class E Units" which shall be issued to the Partners in
connection with the Consolidation as set forth below:
(i) the General Partner will receive Class A Units in
respect of its General Partnership Interest and its Limited Partnership
Interest;
(ii) initially, no Class B Units will be issued to any
Partner;
(iii) as specified on Exhibit A, certain Persons will
receive Class C Units, certain Persons will receive Class D Units and certain
Persons will receive Class E Units in respect of their Limited Partnership
Interests.
The General Partner may, in its sole and absolute discretion but subject to
Section 4.2.E, issue to newly admitted Partners Class A Units, Class B Units,
Class C Units, Class D Units, Class E Units or Partnership Units of any other
class established by the Partnership in accordance with Section 4.2.A (subject
to Section 4.2.E below) in exchange for the contribution by such Partners of
cash, real estate partnership interests, stock, notes or any other assets or
consideration; provided that any Partnership Unit that is not specifically
designated by the General Partner as being of a particular class shall be deemed
to be a Class A Unit unless the context clearly requires otherwise.
D. Conversion of Class C Units, Class D Units and Class E
Units.
(i) At such time as all holders of Class A Units have received
quarterly distributions in accordance with Article V equal to $.845 per
Partnership Unit for each of four consecutive quarters (without including for
these purposes distributions, if any, made to holders of Class A Units pursuant
to Subsections 4.2.D(i) and 4.2.D(ii)), the Class C Units will be converted
automatically into Class A Units and thereafter will have the same distribution
rights as all other Class A Units. The foregoing conversion will be deemed to
have occurred as of the first day of the quarter immediately succeeding the
fourth consecutive quarter with respect to which the distributions described in
the preceding sentence are made.
At any time prior to the first distribution made
in respect of Partnership Units that were converted from Class C Units to Class
A Units pursuant to this Subsection 4.2.D(i), the General Partner may, in its
sole discretion but subject to Section 5.2.B, elect to make a one-time
distribution of the Class C Accumulated Amount, calculated as of the date of
such distribution, pro rata among those Persons who hold Class A Units;
provided, however, that the foregoing distribution right shall only be available
if during each of the preceding four (4) consecutive fiscal quarters the
Partnership has earned Funds From Operations sufficient to enable the
Partnership to distribute to holders of Class A Units on a per Partnership Unit
basis (assuming a 100% payout of Funds From Operations) at least $0.845 per
Partnership Unit (which payment must be made in a quarter prior to the quarter
in which Class C Units are converted to Class A Units pursuant to the preceding
paragraph). For purposes hereof, the "Class C Accumulated Amount" means, as of
any date the lesser of (A) $1,500,000.00 and (B)(x)the sum of all amounts
previously distributed to holders of Class C Units pursuant to Subsections
5.1.B(iv) and 5.1.B(v) during the most recently completed twelve (12)
consecutive fiscal quarters less (y) the sum of all amounts previously
distributed to holders of Class A Units (excluding Class A Units that were
converted from
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Class C Units prior to such distribution) during such period pursuant to
Subsection 5.1.B(vi) but not Subsection 5.1.B(vii); provided that the Class C
Accumulated Amount shall not exceed the Partnership's aggregate Funds From
Operations for such twelve quarter period less (without duplication) the
distributions pursuant to Subsections 5.1(B)(i) through (vi).
(ii) At such time as all holders of Class A Units have
received quarterly distributions in accordance with Article V in an amount at
least equal to $1.0075 per Partnership Unit for each of four consecutive
quarters (without including for these purposes distributions, if any, made to
holders of Class A Units pursuant to Subsections 4.2.D(i) and 4.2.D(ii)), the
Class D Units and the Class E Units, if any, will be converted automatically
into Class A Units and thereafter will have the same distribution rights as all
other Class A Units. The foregoing conversion will be deemed to have occurred as
of the first day of the quarter immediately succeeding the fourth consecutive
quarter with respect to which the distributions described in the preceding
sentence are made.
At any time prior to the first distribution made in respect of
Partnership Units that were converted from Class D Units or Class E Units to
Class A Units pursuant to this Subsection 5.1.D(ii), the General Partner may, in
its sole discretion but subject to Section 5.2.B, elect to make a one time
distribution of the Class D/E Accumulated Amount, calculated as of the date of
such distribution, pro rata among those Persons who hold Class A Units;
provided, however, that the foregoing distribution right shall only be available
if during each of the preceding four (4) consecutive fiscal quarters the
Partnership has earned Funds From Operations sufficient to enable the
Partnership to distribute to holders of Class A Units on a per Partnership Unit
basis (assuming a 100% payout of Funds From Operations) at least $1.0075 per
Partnership Unit. For purposes hereof, the "Class D/E Accumulated Amount" means,
as of any date the lesser of (A) $1,500,000 less any amount distributed pursuant
to Subsection 4.2.D(i) above and (B) (x) the sum of all amounts previously
distributed to holders of Class D Units and Class E Units pursuant to
Subsections 5.1.B(ii) and (iii) during the most recently completed twelve (12)
consecutive fiscal quarters less (y) the sum of all amounts previously
distributed to holders of Class A Units (excluding Class A Units that were
converted from Class D Units or Class E Units prior to or during such period, if
any) during such period pursuant to Subsections 5.1.B(vi) and (vii) during such
period and less the Class C Accumulated Amount distributed previously or
contemporaneously therewith, provided that the maximum amount of the Class D/E
Accumulated Amount shall not exceed the Partnership's Funds From Operations less
(without duplication) distributions pursuant to Subsections 5.1.B(i) through
(vii).
(iii) Immediately after the time on the Effective Date at
which this Agreement becomes effective, every Class D Unit held by any of Mr.
Mendik, Mr. Greenbaum or any Mendik Owner with respect to either such individual
shall automatically, and without any further payment or action of any kind by
any Person, be converted into Class C Units and thereafter shall have all of the
same distribution rights as any other Class C Unit, and the General Partner
shall reflect said conversion on Exhibit A.*
E. Limitation on the Issuance of Partnership Units. The
General Partner may not, without the Consent of the Outside Limited Partners
(taking into account, for these purposes, only those Limited Partnership
Interests being issued concurrently herewith as part of the Consolidation),
cause the Partnership to issue any Limited Partnership Interests of any class
ranking senior (as to distributions or redemption or voting rights) to the Class
C Units, the Class D Units or the Class E Units ("Preference Units") unless the
distribution and redemption (but not voting) rights of such Partnership Units
are substantially similar to the terms of securities issued by the General
Partner and the proceeds or other consideration from the issuance of such
securities have been contributed to the Partnership. The foregoing limitation
will expire with respect to the Partnership Units
- ----------
* In final agreement, total Class D Units covered by this Section will be .
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of any such class at such time as the Partnership Units of that class issued in
connection with the Consolidation are no longer outstanding, whether as a result
of redemption, conversion to another class or otherwise.
Section 4.3 No Preemptive Rights
Except to the extent expressly granted by the General Partner
(on behalf of the Partnership) pursuant to another agreement, no Person shall
have any preemptive, preferential or other similar right with respect to (i)
additional Capital Contributions or loans to the Partnership or (ii) issuance or
sale of any Partnership Units or other Partnership Interests.
Section 4.4 Other Contribution Provisions
In the event that any Partner is admitted to the Partnership
and is given a Capital Account in exchange for services rendered to the
Partnership, such transaction shall be treated by the Partnership and the
affected Partner as if the Partnership had compensated such Partner in cash for
the fair market value of such services, and the Partner had contributed such
cash to the capital of the Partnership.
Section 4.5 No Interest on Capital
No Partner shall be entitled to interest on its Capital
Contributions or its Capital Account.
ARTICLE V
DISTRIBUTIONS
Section 5.1 Requirement and Characterization of Distributions
A. General. Subject to Section 5.1.C, the General Partner
shall have the exclusive right and authority to declare and cause the
Partnership to make distributions as and when the General Partner deems
appropriate or desirable in its sole discretion. Notwithstanding anything to the
contrary contained herein, in no event may a Partner receive a distribution with
respect to a Partnership Unit for a quarter or shorter period if such Partner is
entitled to receive a distribution for such quarter or shorter period with
respect to a Share for which such Partnership Unit has been redeemed or
exchanged. Unless otherwise expressly provided for herein or in an agreement at
the time a new class of Partnership Interests is created in accordance with
Article IV hereof, no Partnership Interest shall be entitled to a distribution
in preference to any other Partnership Interest. For so long as the General
Partner elects to qualify as a REIT, the General Partner shall make such
reasonable efforts, as determined by it in its sole and absolute discretion and
consistent with the qualification of the General Partner Entity or the General
Partner (as applicable) as a REIT, to make distributions to the Partners in
amounts such that the General Partner will receive amounts sufficient to enable
the General Partner Entity or the General Partner (as applicable) to pay
shareholder dividends that will (1) satisfy the requirements for qualification
as a REIT under the Code and the Regulations (the "REIT Requirements") and (2)
avoid any federal income or excise tax liability for the General Partner Entity
or the General Partner (as applicable).
B. Method. When, as and if declared by the General Partner,
the Partnership will make distributions to the General Partner in any amount
necessary to enable the General Partner to pay REIT Expenses, and thereafter:
(i) first, to holders of Preference Units in an amount
equal to preferential distributions accumulated and unpaid on
such Preference Units in accordance with their terms;
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(ii) second, to holders of Class D Units and Class E
Units (pro rata based on the ratio of the total number of
Class D Units or Class E Units, as applicable, to the
aggregate number of Class D Units and Class E Units taken
together on the Partnership Record Date) in an amount equal to
any accumulated and unpaid Class D/E Preferential
Distributions;
(iii) third, to holders of Class D Units and Class E
Units (pro rata based on the ratio of the total number of
Class D Units or Class E Units, as applicable, to the
aggregate number of Class D Units and Class E Units taken
together on the Partnership Record Date) until such holders
have received with respect to the quarter for which such
distribution is made an amount per Class D Unit and Class E
Unit, respectively, determined based on a distribution rate of
$1.0075 per quarter (the "Class D/E Preferential
Distribution") pro rated to take into account the actual
number of days in such period and the number of days in the
period that such Class D Units or
Class E Units, as applicable, were outstanding; provided,
however, that if the General Partner does not distribute
sufficient cash to pay the Class D/E Preferential
Distribution, then the Class D/E Preferential Distribution
will cumulate, without interest, and be payable by the
Partnership in the future pursuant to clause (ii) above;
(iv) fourth, to holders of Class C Units in an amount
equal to any accumulated and unpaid Class C Preferential
Distributions;
(v) fifth, to holders of Class C Units until such
holders have received with respect to the quarter for which
such distribution is made an amount per Class C Unit to be
determined based on a distribution rate of $.845 per quarter
(the "Class C Preferential Distribution") pro rated to take
into account the actual number of days in such period and the
number of days in the period that such Class C Units were
outstanding; provided, however, that if the General Partner
does not distribute sufficient cash to pay the Class C
Preferential Distribution, then the Class C Preferential
Distribution will cumulate, without interest, and be payable
by the Partnership in the future pursuant to clause (iv)
above;
(vi) sixth, to the holders of Units other than Class
C Units, Class D Units and Class E Units (the "Other Units")
until the holders of such Other Units have received with
respect to the quarter for which such distribution is made an
amount per Partnership Unit equal to the amount that would
have been payable to such holders under clause (v) above if
the Partnership Units held by them had been Class C Units;
provided that with respect to the distribution, if any, for
the first quarter or portion thereof ending following the
Effective Date, if the Partnership elects to distribute
sufficient cash the General Partner shall be entitled to
receive a distribution at the foregoing rate for the entire
fiscal quarter to which such period relates notwithstanding
that the General Partner did not hold Class A Units for the
entire quarter;
(vii) seventh, to the holders of Partnership Units
other than Class D Units and Class E Units (the "Non-Class D/E
Units") until the holders of such Non-Class D/E Units have
received with respect to the quarter for which such
distribution is made a total amount per Partnership Unit equal
(taking into account distributions made to such holders of
Non-Class D/E Units with respect to such quarter under clause
(v) or clause (vi) above as applicable) equal to the amount
paid per Class D Unit at such time pursuant to clause (iii)
above; provided that with respect to the distribution for the
first quarter or portion thereof ending following the
Effective Date, if the Partnership elects to distribute
sufficient cash the General Partner shall be entitled to
receive a
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distribution at the foregoing rate for the entire fiscal
quarter to which such period relates notwithstanding that the
General Partner did not hold Class A Units for the entire
quarter;
(viii) eighth, to holders of Class A Units as
described in Subsection 4.2.D(i);
(ix) ninth, to holders of Class A Units as described
in Subsection 4.2.D(ii);
(x) tenth, to all holders of Partnership Units (of
all classes), pro rata in proportion to their respective
Percentage Interest, in an amount sufficient to permit to the
General Partner to satisfy the REIT Requirements and to avoid
any federal income or excise tax liability for the General
Partner Entity (or the General Partner, as applicable);
(xi) eleventh, to the extent of remaining
distribution amount, to holders of Partnership Units in
proportion to their respective Percentage Interests.
Each holder of Partnership Interests that are entitled to any preference in
distribution shall be entitled to a distribution in accordance with the rights
of any such class of Partnership Interests (and, within such class, pro rata in
proportion to the respective Percentage Interests on such Partnership Record
Date).
C. Minimum Distributions if General Partner Not a REIT or Not
Publicly Traded. In addition, if the General Partner Entity is not a REIT or the
common shares of beneficial interest (or other comparable equity interests) of
the General Partner Entity are not Publicly Traded, the General Partner shall
use commercially reasonable efforts (including, if appropriate, incurring
indebtedness), as determined by the General Partner in its sole discretion
exercised in good faith, to make cash distributions pursuant to Section 5.1.B
above at least annually for each taxable year of the Partnership beginning prior
to the twentieth (20th) anniversary of the Effective Date in an aggregate amount
with respect to each such taxable year at least equal to 95% of the
Partnership's taxable income for such year other than gain subject to Section
704(c) of the Code allocable to the Class A Units, with such distributions to be
made not later than 60 days after the end of such year; provided, the foregoing
shall not create any obligation on the part of the General Partner to contribute
or loan funds to the Partnership or dispose of assets. Notwithstanding Section
14.1.D.(iv), this Section 5.1.C may be amended with the Consent of Certain
Limited Partners.
Section 5.2 Amounts Withheld
All amounts withheld pursuant to the Code or any provisions of
any state or local tax law and Section 10.5 hereof with respect to any
allocation, payment or distribution to the General Partner, the Limited Partners
or Assignees shall be treated as amounts distributed to the General Partner,
Limited Partners or Assignees pursuant to Section 5.1 above for all purposes
under this Agreement.
Section 5.3 Distributions Upon Liquidation
Proceeds from a Terminating Capital Transaction shall be
distributed to the Partners in accordance with Section 13.2 hereof.
Section 5.4 Revisions to Reflect Issuance of Additional Partnership
Interests
In the event that the Partnership issues additional
Partnership Interests to the General Partner or any Additional Limited Partner
pursuant to Article IV hereof, the General Partner shall make such revisions to
this Article V as it deems necessary to reflect the issuance of such additional
Partnership Interests.
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ARTICLE VI
ALLOCATIONS
Section 6.1 Allocations For Capital Account Purposes
For purposes of maintaining the Capital Accounts and in
determining the rights of the Partners among themselves, the Partnership's items
of income, gain, loss and deduction (computed in accordance with Exhibit B
hereto) shall be allocated among the Partners in each taxable year (or portion
thereof) as provided herein below.
A. Net Income. After giving effect to the special allocations
set forth in Section 1 of Exhibit C hereto and Section 6.1.E below, Net Income
shall be allocated (i) first, to the General Partner to the extent that Net
Losses previously allocated to the General Partner pursuant to the last sentence
of Section 6.1.B below exceed Net Income previously allocated to the General
Partner pursuant to this clause (i) of Section 6.1.A, (ii) second, to holders of
Class D Units and Class E Units until their aggregate allocations of Net Income
under this clause (ii) equal the sum of (x) the aggregate Net Losses allocated
to them under clause (ix) of Section 6.1.B and (ii) all distributions made
pursuant to clause (ii) of Section 5.1.B; (iii) third, to holders of Class D
Units until their aggregate allocations of Net Income under this clause (iii)
equal the sum of (x) the aggregate Net Losses allocated to them under clause
(viii) of Section 6.1.B and (y) all distributions made pursuant to clause (iii)
of Section 5.1.B with respect to which there was not a corresponding
distribution to holders of Units other than Class D Units and Class E Units
pursuant to clauses (vi) or (vii) of Section 5.1.B; (iv) fourth, to holders of
Class C Units until their aggregate allocations of Net Income under this clause
(iv) equal the sum of (x) the aggregate Net Losses allocated to them under
clause (vii) of Section 6.1.B and (ii) all distributions made pursuant to clause
(iv) of Section 5.1.B; (v) fifth, to holders of Class C Units until their
aggregate allocations of Net Income under this clause (v) equal the sum of (x)
the aggregate Net Losses allocated to them under clause (vi) of Section 6.1.B
and (y) all distributions made pursuant to clause (v) of Section 5.1.B with
respect to which there was not a corresponding distribution to holders of Units
other than Class C or D Units pursuant to clause (vi) of Section 5.1.B; (vi)
sixth, to all holders of Units until the aggregate allocations of Net Income
under this clause (vi) equal the sum of (x) aggregate Net Losses allocated under
clause (v) of Section 6.1.B, (y) all distributions made pursuant to clauses (vi)
or (vii) of Section 5.1.B, and (z) all distributions made pursuant to clauses
(iii) or (v) of Section 5.1.B that were not taken into account in clauses (iii)
or (v) of this Section 6.1.A as a result of distributions pursuant to clauses
(vi) and (vii) of Section 5.1.B; (vii) seventh, to holders of Class A Units
until their aggregate allocations of Net Income under this clause (vii) equal
the sum of (x) the aggregate Net Losses allocated to them under clause (iv) of
Section 6.1.B and (y) all distributions made pursuant to clause (viii) of
Section 5.1.B, with such Net Income to be allocated only to those holders of
Class A Units who received distributions under said clause (viii); (viii)
eighth, to holders of Class A Units until their aggregate allocations of Net
Income under this clause (viii) equal the sum of (x) the aggregate Net Losses
allocated to them under clause (iii) of Section 6.1.B and (y) all distributions
made pursuant to clause (ix) of Section 5.1.B, with such Net Income to be
allocated only to those holders of Class A Units who received distributions
under said clause (ix) of Section 5.1.B; (ix) ninth, to all holders of Units pro
rata in accordance with their Percentage Interests until the aggregate
allocations of Net Income under this clause (ix) equal the sum of (x) aggregate
Net Losses allocated under clause (ii) of Section 6.1.B and (y) all
distributions made pursuant to clause (xi) of Section 5.1.B.; and (x) tenth, to
all holders of Units in proportion to their respective Percentage Interests.
B. Net Losses. After giving effect to the special allocations
set forth in Section 1 of Exhibit C hereto and Section 6.1.E below, Net Losses
shall be allocated (i) first, to all holders of Units in proportion to their
respective Percentage Interests until the aggregate allocations of Net Losses
pursuant to this clause (i) equal the aggregate amount of allocations of Net
Income pursuant to clause (x) of Section 6.1.A; (ii) second, to all holders of
Units pro rata in accordance with their Percentage Interests until the aggregate
allocations of Net Losses under this clause (ii) equal the aggregate amount of
Net Income allocated pursuant to clause (ix)
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of Section 6.1.A; (iii) third, to holders of Class A Units until the aggregate
allocations of Net Losses pursuant to this clause (iii) equal the aggregate
amount of allocations of Net Income pursuant to clause (viii) of Section 6.1.A.;
(iv) fourth to holders of Class A Units until the aggregate allocations of Net
Losses pursuant to this clause (iii) equal the aggregate amount of allocations
of Net Income pursuant to clause (vii) of Section 6.1.A.; (v) fifth, to all
holders of Units until the aggregate allocation of Net Losses pursuant to this
clause (v) equal the aggregate amount of Net Income allocated pursuant to clause
(vi) of Section 6.1.A; (vi) sixth, to holders of Class C Units until the
aggregate allocations of Net Losses under this clause (vi) equal the aggregate
amount of Net Income allocated pursuant to clause (v) of Section 6.1.A; (vii)
seventh, to holders of Class C Units until the aggregate allocations of Net
Losses under this clause (vii) equal the aggregate amount of Net Income
allocated pursuant to clause (iv) of Section 6.1.A; (viii) eighth, to holders of
Class D Units and Class E Units until the aggregate allocations of Net Losses
under this clause (viii) equal the aggregate amount of Net Income allocated
pursuant to clause (iii) of Section 6.1.A; (ix) ninth, to holders of Class D
Units and Class E Units until the aggregate allocations of Net Losses under this
clause (ix) equal the aggregate amount of Net Income allocated pursuant to
clause (ii) of Section 6.1.A; and (x) thereafter, to holders of all Units in
proportion to their Percentage Interests; provided that, Net Losses shall not be
allocated to any Limited Partner pursuant to this Section 6.1.B to the extent
that such allocation would cause such Limited Partner to have an Adjusted
Capital Account Deficit (or increase any existing Adjusted Capital Account
Deficit) at the end of such taxable year (or portion thereof). All Net Losses in
excess of the limitations set forth in this Section 6.1.B shall be allocated to
the General Partner.
C. Allocation of Nonrecourse Debt. For purposes of Regulations
Section 1.752-3(a), the Partners agree that Nonrecourse Liabilities of the
Partnership in excess of the sum of (i) the amount of Partnership Minimum Gain
and (ii) the total amount of Nonrecourse Built-in Gain shall be allocated among
the Partners in accordance with their respective Percentage Interests.
D. Recapture Income. Any gain allocated to the Partners upon
the sale or other taxable disposition of any Partnership asset shall, to the
extent possible after taking into account other required allocations of gain
pursuant to Exhibit C hereto, be characterized as Recapture Income in the same
proportions and to the same extent as such Partners have been allocated any
deductions directly or indirectly giving rise to the treatment of such gains as
Recapture Income.
E. Cancellation of Indebtedness Income. Any cancellation of
indebtedness income required to be recognized by the Partnership with respect to
the Two Penn Plaza Property in connection with the acquisition of the Two Penn
Plaza Property by the Partnership and the restructuring of the outstanding
indebtedness with respect thereto shall be allocated solely to holders of Two
Penn Plaza Units. In the event that cancellation of indebtedness income is
recognized with respect to the property at 330 Madison Avenue as a result of
resolving the dispute with the lender under the loan outstanding upon
consummation of the Consolidation that is secured by a mortgage on such
property, holders of the Partnership Units issued with respect to M 330
Associates, a New York limited partnership, shall be specially allocated
cancellation of indebtedness income in an amount equal to their proportionate
share of the dollar amount of the discount as a result of the settlement
resulting in the recognition of such cancellation of indebtedness income.
Section 6.2 Revisions to Allocations to Reflect Issuance of Additional
Partnership Interests
In the event that the Partnership issues additional
Partnership Interests to the General Partner or any Additional Limited Partner
pursuant to Article IV hereof, the General Partner shall make such revisions to
this Article VI as it deems necessary to reflect the terms of the issuance of
such additional Partnership Interests, including making preferential allocations
to classes of Partnership Interests that are entitled thereto.
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ARTICLE VII
MANAGEMENT AND OPERATIONS OF BUSINESS
Section 7.1 Management
A. Powers of General Partner. Except as otherwise expressly
provided in this Agreement, all management powers over the business and affairs
of the Partnership are and shall be exclusively vested in the General Partner,
and no Limited Partner shall have any right to participate in or exercise
control or management power over the business and affairs of the Partnership.
The General Partner may not be removed by the Limited Partners with or without
cause. In addition to the powers now or hereafter granted a general partner of a
limited partnership under applicable law or which are granted to the General
Partner under any other provision of this Agreement, the General Partner,
subject to Sections 7.6.A, 7.6.D and 7.11 below, shall have full power and
authority to do all things deemed necessary or desirable by it, on such terms
and conditions as the General Partner in its sole discretion deems appropriate,
to conduct the business of the Partnership, to exercise all powers set forth in
Section 3.2 hereof and to effectuate the purposes set forth in Section 3.1
hereof, including, without limitation:
(1) the making of any expenditures, the lending, subject
to Section 7.6.D, or borrowing of money (including,
without limitation, making prepayments on loans and
borrowing money to permit the Partnership to make
distributions to its Partners in such amounts as are
required under Section 5.1.C hereof or will permit
the General Partner Entity or the General Partner (as
applicable) (as long as the General Partner Entity or
the General Partner qualifies as a REIT) to avoid the
payment of any federal income tax (including, for
this purpose, any excise tax pursuant to Section 4981
of the Code) and to make distributions to its
shareholders sufficient to permit the General Partner
Entity or the General Partner (as applicable) to
satisfy the REIT Requirements), the assumption or
guarantee of, or other contracting for, indebtedness
and other liabilities, the issuance of evidences of
indebtedness (including the securing of same by
mortgage, deed of trust or other lien or encumbrance
on the Partnership's assets) and the incurring of any
obligations the General Partner deems necessary or
desirable for the conduct of the activities of the
Partnership;
(2) the making of tax, regulatory and other filings, or
rendering of periodic or other reports to
governmental or other agencies having jurisdiction
over the business or assets of the Partnership;
(3) the acquisition, disposition, sale, mortgage, pledge,
encumbrance, hypothecation or exchange of any or all
of the assets of the Partnership (including the
exercise or grant of any conversion, option,
privilege or subscription right or other right
available in connection with any assets at any time
held by the Partnership) or the merger or other
combination of the Partnership with or into another
entity, on such terms as the General Partner deems
proper in its sole and absolute discretion;
(4) the use of the assets of the Partnership (including,
without limitation, cash on hand) for any purpose
consistent with the terms of this Agreement,
including, without limitation, the financing of the
conduct of the operations of the Partnership or any
of the Partnership's Subsidiaries, the lending of
funds to other Persons, subject to Section 7.6.D, and
the repayment of obligations of the Partnership and
its Subsidiaries and any other Person in which the
Partnership has an equity investment and the making
of capital contributions to its Subsidiaries;
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(5) the management, operation, leasing, landscaping,
repair, alteration, demolition or improvement of any
real property or improvements owned by the
Partnership or any Subsidiary of the Partnership or
any other Person in which the Partnership has made a
direct or indirect equity investment;
(6) the negotiation, execution, and performance of any
contracts, conveyances or other instruments that the
General Partner considers useful or necessary to the
conduct of the Partnership's operations or the
implementation of the General Partner's powers under
this Agreement, including contracting with
contractors, developers, consultants, accountants,
legal counsel, other professional advisors and other
agents and the payment of their expenses and
compensation out of the Partnership's assets;
(7) the distribution of Partnership cash or other
Partnership assets in accordance with this Agreement;
(8) the holding, managing, investing and reinvesting of
cash and other assets of the Partnership and, in
connection therewith, the opening, maintaining and
closing of bank and brokerage accounts and the
drawing of checks or other orders for the payment of
moneys;
(9) the collection and receipt of revenues and income of
the Partnership;
(10) the selection and dismissal of employees of the
Partnership (including, without limitation, employees
having titles such as "president," "vice president,"
"secretary" and "treasurer") and agents, outside
attorneys, accountants, consultants and contractors
of the Partnership, and the determination of their
compensation and other terms of employment or hiring;
(11) the maintenance of such insurance for the benefit of
the Partnership and the Partners;
(12) the formation of, or acquisition of an interest in,
and the contribution of property to, any further
limited or general partnerships, joint ventures,
limited liability companies or other relationships
that it deems desirable (including, without
limitation, the acquisition of interests in, and the
contributions of property to its Subsidiaries and any
other Person in which it has an equity investment
from time to time);
(13) the control of any matters affecting the rights and
obligations of the Partnership, including the
settlement, compromise, submission to arbitration or
any other form of dispute resolution or abandonment
of any claim, cause of action, liability, debt or
damages due or owing to or from the Partnership, the
commencement or defense of suits, legal proceedings,
administrative proceedings, arbitrations or other
forms of dispute resolution, the representation of
the Partnership in all suits or legal proceedings,
administrative proceedings, arbitrations or other
forms of dispute resolution, the incurring of legal
expense and the indemnification of any Person against
liabilities and contingencies to the extent permitted
by law;
(14) the determination of the fair market value of any
Partnership property distributed in kind, using such
reasonable method of valuation as the General Partner
may adopt;
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(15) the exercise, directly or indirectly, through any
attorney-in-fact acting under a general or limited
power of attorney, of any right, including the right
to vote, appurtenant to any assets or investment held
by the Partnership;
(16) the exercise of any of the powers of the General
Partner enumerated in this Agreement on behalf of or
in connection with any Subsidiary of the Partnership
or any other Person in which the Partnership has a
direct or indirect interest, individually or jointly
with any such Subsidiary or other Person;
(17) the exercise of any of the powers of the General
Partner enumerated in this Agreement on behalf of any
Person in which the Partnership does not have any
interest pursuant to contractual or other
arrangements with such Person;
(18) the making, executing and delivering of any and all
deeds, leases, notes, deeds to secure debt,
mortgages, deeds of trust, security agreements,
conveyances, contracts, guarantees, warranties,
indemnities, waivers, releases or other legal
instruments or agreements in writing necessary or
appropriate in the judgment of the General Partner
for the accomplishment of any of the powers of the
General Partner under this Agreement;
(19) the distribution of cash to acquire Partnership Units
held by a Limited Partner in connection with a
Limited Partner's exercise of its Redemption Right
under Section 8.6 hereof;
(20) the amendment and restatement of Exhibit A hereto to
reflect accurately at all times the Capital
Contributions and Percentage Interests of the
Partners as the same are adjusted from time to time
to the extent necessary to reflect redemptions,
Capital Contributions, the issuance of Partnership
Units, the admission of any Additional Limited
Partner or any Substituted Limited Partner or
otherwise, which amendment and restatement,
notwithstanding anything in this Agreement to the
contrary, shall not be deemed an amendment of this
Agreement, as long as the matter or event being
reflected in Exhibit A hereto otherwise is
authorized by this Agreement;
(21) the approval and/or implementation of any merger
(including a triangular merger), consolidation or
other combination between the Partnership and another
person that is not prohibited under this Agreement,
whether with or without Consent, the terms of Section
17-211(g) of the Act shall be applicable such that
the General Partner shall have the right to effect
any amendment to this Agreement or effect the
adoption of a new partnership agreement for a limited
partnership if it is the surviving or resulting
limited partnership on the merger or consolidation
(except as may be expressly prohibited under Section
7.11.D., Section 14.1.C, Section 14.1.D or Section
14.1.F); and
(22) the taking of any and all actions necessary or
desirable in furtherance of, in connection with or
incidental to the foregoing.
B. No Approval by Limited Partners. Except as provided
in Section 7.11 below, each of the Limited Partners agrees that the General
Partner is authorized to execute, deliver and perform the above- mentioned
agreements and transactions on behalf of the Partnership without any further
act, approval or vote of the Partners, notwithstanding any other provision of
this Agreement, the Act or any applicable law, rule or regulation, to the full
extent permitted under the Act or other applicable law. The execution, delivery
or
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performance by the General Partner or the Partnership of any agreement
authorized or permitted under this Agreement shall not constitute a breach by
the General Partner of any duty that the General Partner may owe the Partnership
or the Limited Partners or any other Persons under this Agreement or of any duty
stated or implied by law or equity.
C. Insurance. At all times from and after the date hereof, the
General Partner may cause the Partnership to obtain and maintain (i) casualty,
liability and other insurance on the properties of the Partnership, (ii)
liability insurance for the Indemnitees hereunder and (iii) such other insurance
as the General Partner, in its sole and absolute discretion, determines to be
necessary.
D. Working Capital and Other Reserves. At all times from and
after the date hereof, the General Partner may cause the Partnership to
establish and maintain working capital reserves in such amounts as the General
Partner, in its sole and absolute discretion, deems appropriate and reasonable
(both in purpose and amount) from time to time, including upon liquidation of
the Partnership pursuant to Section 13.2 hereof.
E. No Obligations to Consider Tax Consequences of Limited
Partners. In exercising its authority under this Agreement, the General Partner
may, but shall be under no obligation to, take into account the tax consequences
to any Partner (including the General Partner) of any action taken (or not
taken) by it. The General Partner and the Partnership shall not have liability
to a Limited Partner for monetary damages or otherwise for losses sustained,
liabilities incurred or benefits not derived by such Limited Partner in
connection with such decisions, provided that the General Partner has acted in
good faith and not beyond its authority under this Agreement.
Section 7.2 Certificate of Limited Partnership
The Partnership has caused the Certificate to be filed with
the Secretary of State of Delaware. To the extent that such action is determined
by the General Partner to be reasonable and necessary or appropriate, the
General Partner shall file amendments to and restatements of the Certificate and
do all the things to maintain the Partnership as a limited partnership (or a
partnership in which the limited partners have limited liability) under the laws
of the State of Delaware and each other state, the District of Columbia or other
jurisdiction in which the Partnership may elect to do business or own property.
Subject to the terms of Section 8.5.A(4) hereof, the General Partner shall not
be required, before or after filing, to deliver or mail a copy of the
Certificate or any amendment thereto to any Limited Partner. The General Partner
shall use all reasonable efforts to cause to be filed such other certificates or
documents as may be reasonable and necessary or appropriate for the formation,
continuation, qualification and operation of a limited partnership (or a
partnership in which the limited partners have limited liability) in the State
of Delaware and any other state, the District of Columbia or other jurisdiction
in which the Partnership may elect to do business or own property.
Section 7.3 Title to Partnership Assets
Title to Partnership assets, whether real, personal or mixed
and whether tangible or intangible, shall be deemed to be owned by the
Partnership as an entity, and no Partners, individually or collectively, shall
have any ownership interest in such Partnership assets or any portion thereof.
Title to any or all of the Partnership assets may be held in the name of the
Partnership, the General Partner or one or more nominees, as the General Partner
may determine, including Affiliates of the General Partner. The General Partner
hereby declares and warrants that any Partnership assets for which legal title
is held in the name of the General Partner or any nominee or Affiliate of the
General Partner shall be held by the General Partner for the use and benefit of
the Partnership in accordance with the provisions of this Agreement. All
Partnership assets shall be recorded as the property of the Partnership in its
books and records, irrespective of the name in which legal title to such
Partnership assets is held.
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Section 7.4 Reimbursement of the General Partner
A. No Compensation. Except as provided in this Section 7.4 and
elsewhere in this Agreement (including the provisions of Articles V and VI
hereof regarding distributions, payments and allocations to which it may be
entitled), the General Partner shall not be compensated for its services as
general partner of the Partnership.
B. Responsibility for Partnership Expenses. The Partnership
shall be responsible for and shall pay all expenses relating to the
Partnership's organization, the ownership of its assets and its operations. The
General Partner shall be reimbursed on a monthly basis, or such other basis as
the General Partner may determine in its sole and absolute discretion, for all
expenses it incurs relating to the ownership and operation of, or for the
benefit of, the Partnership (including, without limitation, expenses related to
the management and administration of any Subsidiaries of the General Partner or
the Partnership or Affiliates of the Partnership such as auditing expenses and
filing fees); provided that (x), the amount of any such reimbursement shall be
reduced by (i) any interest earned by the General Partner with respect to bank
accounts or other instruments or accounts held by it as permitted in Section
7.5.A below and (ii) any amount derived by the General Partner from any
investments permitted in Section 7.5.A below and (y) REIT Expenses shall not be
treated as Partnership expenses for purposes of this Section 7.4.B. The General
Partner shall determine in good faith the amount of expenses incurred by it
related to the ownership and operation of, or for the benefit of, the
Partnership. In the event that certain expenses are incurred for the benefit of
the Partnership and other entities (including the General Partner), such
expenses will be allocated to the Partnership and such other entities in such a
manner as the General Partner in its sole and absolute discretion deems fair and
reasonable. Such reimbursements shall be in addition to any reimbursement to the
General Partner pursuant to Section 10.3.C hereof and as a result of
indemnification pursuant to Section 7.7 below. All payments and reimbursements
hereunder shall be characterized for federal income tax purposes as expenses of
the Partnership incurred on its behalf, and not as expenses of the General
Partner.
C. Partnership Interest Issuance Expenses. The General Partner
shall also be reimbursed for all expenses it incurs relating to any issuance of
additional Partnership Interests, Debt of the Partnership or rights, options,
warrants or convertible or exchangeable securities pursuant to Article IV hereof
(including, without limitation, all costs, expenses, damages and other payments
resulting from or arising in connection with litigation related to any of the
foregoing), all of which expenses are considered by the Partners to constitute
expenses of, and for the benefit of, the Partnership.
D. Purchases of Shares by the General Partner. In the event
that the General Partner exercises its rights under the Declaration of Trust to
purchase shares or otherwise elects to purchase from its shareholders Shares in
connection with a share repurchase or similar program or for the purpose of
delivering such Shares to satisfy an obligation under any dividend reinvestment
or share purchase program adopted by the General Partner, any employee share
purchase plan adopted by the General Partner or any similar obligation or
arrangement undertaken by the General Partner in the future, the purchase price
paid by the General Partner for such Shares and any other expenses incurred by
the General Partner in connection with such purchase shall be considered REIT
Expenses, and the Partnership shall distribute cash to the General Partner to
offset such expenses pursuant to Section 5.1, subject to the conditions that:
(i) if such Shares subsequently are to be sold by the General Partner, the
General Partner pays to the Partnership any proceeds received by the General
Partner for such Shares (provided that a transfer of Shares for Partnership
Units pursuant to Section 8.6 hereof would not be considered a sale for such
purposes); and (ii) if such Shares are not retransferred by the General Partner
within thirty (30) days after the purchase thereof, the General Partner shall
cause the Partnership to cancel a number of Partnership Units of the appropriate
class (rounded to the nearest whole Partnership Unit) held by the General
Partner equal to the product attained by multiplying the number of such Shares
by a fraction, the numerator of which is one and the denominator of which is the
Conversion Factor.
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E. Tax Treatment of Certain Reimbursements. If and to the
extent that any reimbursement made pursuant to this Section 7.4 is determined
for federal income tax purposes not to constitute a payment of expenses of the
Partnership, then such reimbursement shall be treated as a distribution pursuant
to clause (i) of Section 5.1.B. hereof.
Section 7.5 Outside Activities of the General Partner
A. General. Without the Consent of the Outside Limited
Partners, except as set forth in this Section 7.5.A, the General Partner shall
not, directly or indirectly, enter into or conduct any business other than in
connection with the ownership, acquisition and disposition of Partnership
Interests as a General Partner or Limited Partner and the management of the
business of the Partnership and such activities as are incidental to any of the
foregoing. Without the Consent of the Outside Limited Partners, the assets of
the General Partner shall be limited to Partnership Interests and permitted debt
obligations of the Partnership (as contemplated by Section 7.5.F below), so that
Shares and Partnership Units are completely fungible except as otherwise
specifically provided herein; provided, that the General Partner shall be
permitted to hold (i) interests in entities, including Qualified REIT
Subsidiaries, that hold no material assets; (ii) interests in Qualified REIT
Subsidiaries (or other entities that are not taxed as corporations for federal
income tax purposes) that own only interests in the Partnership and/or interests
in other Qualified REIT Subsidiaries (or other entities that are not taxed as
corporations for federal income tax purposes) that either hold no assets or hold
only interests in the Partnership; (iii) assets and/or interests in entities,
including Qualified REIT Subsidiaries, that hold assets, having an aggregate
value not greater than five percent (5%) of the total market value of the
General Partner Entity (determined by reference to the value of all outstanding
equity securities of the General Partner Entity), provided that (X) the General
Partner Entity will apply the net income from such assets (other than net income
derived as a result of a Qualified REIT Subsidiary's ownership of an interest in
the Partnership) to offset REIT Expenses before utilizing the distribution
provisions of Section 5.1.B(i), (Y) the General Partner will contribute all net
income generated by such assets and/or interests (other than net income derived
as a result of a Qualified REIT Subsidiary's ownership of an interest in the
Partnership) to the Operating Partnership (after taking into account REIT
Expenses as described in clause (X) above), and (Z) the General Partner will use
commercially reasonable efforts to transfer such assets and interests (other
than interests in Qualified REIT Subsidiaries and the Partnership) to the
Operating Partnership or an entity controlled by the Operating Partnership as
soon as such a transfer can be made without causing the REIT or the Operating
Partnership to incur any material expenses in connection therewith; and (iv)
such bank accounts or similar instruments or account in its own name as it deems
necessary to carry out its responsibilities and purposes as contemplated under
this Agreement and its organizational documents; and, provided, further, that
the General Partner shall be permitted to acquire, directly or through a
Qualified REIT Subsidiary (or other entities that are not taxed as corporations
for federal income tax purposes), up to a one percent (1%) interest in any
partnership or limited liability company at least ninety-nine percent (99%) of
the equity of which is owned directly or indirectly by the Partnership. The
General Partner and any of its Affiliates may acquire Limited Partnership
Interests and shall be entitled to exercise all rights of a Limited Partner
relating to such Limited Partnership Interests.
B. Repurchase of Shares. In the event the General Partner
exercises its rights under the Declaration of Trust to purchase Shares or
otherwise elects to purchase from its shareholders Shares in connection with a
share repurchase or similar program or for the purpose of delivering such Shares
to satisfy an obligation under any dividend reinvestment or share purchase
program adopted by the General Partner, any employee share purchase plan adopted
by the General Partner or any similar obligation or arrangement undertaken by
the General Partner in the future, and the General Partner does not resell said
Shares within thirty (30) days after the purchase thereof as contemplated in
Section 7.4.D(i), then the General Partner shall cause the Partnership to
purchase from the General Partner (and eliminate) that number of Partnership
Units of the appropriate class equal to the product obtained by multiplying the
number of Shares purchased by the General Partner times a fraction,
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the numerator of which is one and the denominator of which is the Conversion
Factor, on the same terms and for the same aggregate price that the General
Partner purchased such Shares.
C. Forfeiture of Shares. In the event the Partnership or the
General Partner acquires Shares as a result of the forfeiture of such Shares
under a restricted or similar share plan, then the General Partner shall cause
the Partnership to cancel that number of Partnership Units of the appropriate
class equal to the number of Shares so acquired, and, if the Partnership
acquired such Shares, it shall transfer such Shares to the General Partner for
cancellation.
D. Issuances of Shares. After the Effective Date, the General
Partner shall not grant, award, or issue any additional Shares (other than
Shares issued pursuant to Section 8.6 hereof or pursuant to a dividend or
distribution (including any share split) of Shares to all of its shareholders),
other equity securities of the General Partner, New Securities or Convertible
Funding Debt unless (i) the General Partner shall cause, pursuant to Section
4.2.A hereof, the Partnership to issue to the General Partner Partnership
Interests or rights, options, warrants or convertible or exchangeable securities
of the Partnership having designations, preferences and other rights, all such
that the economic interests are substantially the same as those of such
additional Shares, other equity securities, New Securities or Convertible
Funding Debt, as the case may be, and (ii) the General Partner transfers to the
Partnership, as an additional Capital Contribution, the proceeds from the grant,
award, or issuance of such additional Shares, other equity securities, New
Securities or Convertible Funding Debt, as the case may be, or from the exercise
of rights contained in such additional Shares, other equity securities, New
Securities or Convertible Funding Debt, as the case may be. Without limiting the
foregoing, the General Partner is expressly authorized to issue additional
Shares, other equity securities, New Securities or Convertible Funding Debt, as
the case may be, for less than fair market value, and the General Partner is
expressly authorized, pursuant to Section 4.2.A hereof, to cause the Partnership
to issue to the General Partner corresponding Partnership Interests, as long as
(a) the General Partner concludes in good faith that such issuance is in the
interests of the General Partner and the Partnership (for example, and not by
way of limitation, the issuance of Shares and corresponding Partnership Units
pursuant to a share purchase plan providing for purchases of Shares, either by
employees or shareholders, at a discount from fair market value or pursuant to
employee share options that have an exercise price that is less than the fair
market value of the Shares, either at the time of issuance or at the time of
exercise) and (b) the General Partner transfers all proceeds from any such
issuance or exercise to the Partnership as an additional Capital Contribution.
E. Stock Option Plan. If at any time or from time to time, the
General Partner sells Shares pursuant to any Stock Option Plan, the General
Partner shall transfer the net proceeds of the sale of such Shares to the
Partnership as an additional Capital Contribution in exchange for an amount of
additional Partnership Units equal to the number of Shares so sold divided by
the Conversion Factor.
F. Funding Debt. The General Partner may incur a Funding Debt,
including, without limitation, a Funding Debt that is convertible into Shares or
otherwise constitutes a class of New Securities ("Convertible Funding Debt"),
subject to the condition that the General Partner lends to the Partnership the
net proceeds of such Funding Debt; provided, that Convertible Funding Debt shall
be issued pursuant to Section 7.5.D above; and, provided, further, that the
General Partner shall not be obligated to lend the net proceeds of any Funding
Debt to the Partnership in a manner that would be inconsistent with the General
Partner's ability to remain qualified as a REIT. If the General Partner enters
into any Funding Debt, the loan to the Partnership shall be on comparable terms
and conditions, including interest rate, repayment schedule and costs and
expenses, as are applicable with respect to or incurred in connection with such
Funding Debt.
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Section 7.6 Transactions with Affiliates
A. Transactions with Certain Affiliates. Except as expressly
permitted by this Agreement (other than Section 7.1.A hereof, which shall not be
considered authority for a transaction that otherwise would be prohibited by
this Section 7.6.A), the Partnership shall not, directly or indirectly, sell,
transfer or convey any property to, or purchase any property from, or borrow
funds from, or lend funds to, any Partner or any Affiliate of the Partnership or
the General Partner or the General Partner Entity that is not also a Subsidiary
of the Partnership, except pursuant to a transaction that has been approved by a
majority of the disinterested trustees (or directors) of the General Partner or
General Partner Entity (as applicable), taking into account the fiduciary duties
of the General Partner or General Partner Entity (as applicable) to the Limited
Partners.
B. Benefit Plans. The General Partner, in its sole and
absolute discretion and without the approval of the Limited Partners, may
propose and adopt on behalf of the Partnership employee benefit plans funded by
the Partnership for the benefit of employees of the General Partner, the
Partnership, Subsidiaries of the Partnership or any Affiliate of any of them in
respect of services performed, directly or indirectly, for the benefit of the
Partnership, the General Partner, or any of the Partnership's Subsidiaries.
C. Conflict Avoidance. The General Partner is expressly
authorized to enter into, in the name and on behalf of the Partnership, a right
of first opportunity arrangement and other conflict avoidance agreements with
various Affiliates of the Partnership and General Partner on such terms as the
General Partner, in its sole and absolute discretion, believes are advisable.
D. Limitation on Loans to the General Partner. Except with the
Consent of the Outside Limited Partners, the General Partner may not cause the
Partnership to loan money to the General Partner or to any Subsidiary or
Affiliate of the General Partner which is not also a Subsidiary or an entity in
which the Partnership owns an equity interest.
Section 7.7 Indemnification
A. General. To the maximum extent permitted by applicable law
at the time, the Partnership, without requiring a preliminary determination of
the ultimate entitlement to indemnification, shall indemnify each Indemnitee
from and against any and all losses, claims, damages, liabilities, joint or
several, expenses (including, without limitation, attorneys fees and other legal
fees and expenses), judgments, fines, settlements and other amounts arising from
or in connection with any and all claims, demands, actions, suits or
proceedings, civil, criminal, administrative or investigative incurred by the
Indemnitee and relating to the Partnership or the General Partner or the
formation or the current (and, in the case of the General Partner's right to
indemnification from the Partnership, prior) operations of, or the current (and,
in the case of the General Partner's right to indemnification from the
Partnership, prior) ownership of property by, either of them as set forth in
this Agreement in which any such Indemnitee may be involved, or is threatened to
be involved, as a party or otherwise, unless it is established by a final
determination of a court of competent jurisdiction that: (i) the act or omission
of the Indemnitee was material to the matter giving rise to the proceeding and
either was committed in bad faith or was the result of active and deliberate
dishonesty, (ii) the Indemnitee actually received an improper personal benefit
in money, property or services or (iii) in the case of any criminal proceeding,
the Indemnitee had reasonable cause to believe that the act or omission was
unlawful. The obligations of the Partnership under this Section 7.7 shall
include reimbursement of the General Partner for any indemnification or advance
of expenses by the General Partner pursuant to Title 8, the Declaration of Trust
or its Bylaws. Without limitation, the foregoing indemnity shall extend to any
liability of any Indemnitee, pursuant to a loan guarantee, contractual
obligations for any indebtedness or other obligations or otherwise, for any
indebtedness of the Partnership or any Subsidiary of the Partnership (including,
without limitation, any indebtedness which the Partnership or any
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Subsidiary of the Partnership has assumed or taken subject to). The General
Partner is hereby authorized and empowered, on behalf of the Partnership, to
enter into one or more indemnity agreements not inconsistent with the provisions
of this Section 7.7 in favor of any Indemnitee having or potentially having
liability for any such indebtedness. The termination of any proceeding by
judgment, order or settlement does not create a presumption that the Indemnitee
did not meet the requisite standard of conduct set forth in this Section 7.7.A.
Any indemnification pursuant to this Section 7.7 shall be made only out of the
assets of the Partnership and any insurance proceeds from the liability policy
covering the General Partner and any Indemnitees, and neither the General
Partner nor any Limited Partner shall have any obligation to contribute to the
capital of the Partnership or otherwise provide funds to enable the Partnership
to fund its obligations under this Section 7.7.
B. Advancement of Expenses. Reasonable expenses expected to be
incurred by an Indemnitee shall be paid or reimbursed by the Partnership in
advance of the final disposition of any and all claims, demands, actions, suits
or proceedings, civil, criminal, administrative or investigative made or
threatened against an Indemnitee, in the case of any trustee/director or officer
who is an Indemnitee upon receipt by the Partnership of (i) a written
affirmation by the Indemnitee of the Indemnitee's good faith belief that the
standard of conduct necessary for indemnification by the Partnership as
authorized in this Section 7.7.A has been met and (ii) a written undertaking by
or on behalf of the Indemnitee to repay the amount if it shall ultimately be
determined that the standard of conduct has not been met.
C. No Limitation of Rights. The indemnification provided by
this Section 7.7 shall be in addition to any other rights to which an Indemnitee
or any other Person may be entitled under any agreement, pursuant to any vote of
the Partners, as a matter of law or otherwise, and shall continue as to an
Indemnitee who has ceased to serve in such capacity unless otherwise provided in
a written agreement pursuant to which such Indemnitee is indemnified.
D. Insurance. The Partnership may purchase and maintain
insurance on behalf of the Indemnitees and such other Persons as the General
Partner shall determine against any liability that may be asserted against or
expenses that may be incurred by such Person in connection with the
Partnership's activities, regardless of whether the Partnership would have the
power to indemnify such Person against such liability under the provisions of
this Agreement.
E. Benefit Plan Fiduciary. For purposes of this Section 7.7,
(i) the Partnership shall be deemed to have requested an Indemnitee to serve as
fiduciary of an employee benefit plan whenever the performance by it of its
duties to the Partnership also imposes duties on, or otherwise involves services
by, it to the plan or participants or beneficiaries of the plan, (ii) excise
taxes assessed on an Indemnitee with respect to an employee benefit plan
pursuant to applicable law shall constitute fines within the meaning of this
Section 7.7 and (iii) actions taken or omitted by the Indemnitee with respect to
an employee benefit plan in the performance of its duties for a purpose
reasonably believed by it to be in the interest of the participants and
beneficiaries of the plan shall be deemed to be related to the Partnership.
F. No Personal Liability for Limited Partners. In no event may
an Indemnitee subject any of the Partners to liability by reason of the
indemnification provisions set forth in this Agreement.
G. Interested Transactions. An Indemnitee shall not be denied
indemnification in whole or in part under this Section 7.7 because the
Indemnitee had an interest in the transaction with respect to which the
indemnification applies if the transaction was otherwise permitted by the terms
of this Agreement.
H. Benefit. The provisions of this Section 7.7 are for the
benefit of the Indemnitees, their heirs, successors, assigns and administrators
and shall not be deemed to create any rights for the benefit of any other
Persons. Any amendment, modification or repeal of this Section 7.7, or any
provision hereof, shall be
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prospective only and shall not in any way affect the obligation of the
Partnership to any Indemnitee under this Section 7.7 as in effect immediately
prior to such amendment, modification or repeal with respect to claims arising
from or related to matters occurring, in whole or in part, prior to such
amendment, modification or repeal, regardless of when such claims may arise or
be asserted.
I. Indemnification Payments Not Distributions. If and to the
extent any payments to the General Partner pursuant to this Section 7.7
constitute gross income to the General Partner (as opposed to the repayment of
advances made on behalf of the Partnership), such amounts shall constitute
guaranteed payments within the meaning of Section 707(c) of the Code, shall be
treated consistently therewith by the Partnership and all Partners, and shall
not be treated as distributions for purposes of computing the Partners' Capital
Accounts.
Section 7.8 Liability of the General Partner
A. General. Notwithstanding anything to the contrary set forth
in this Agreement, the General Partner and its directors and officers shall not
be liable for monetary damages to the Partnership, any Partners or any Assignees
for losses sustained, liabilities incurred or benefits not derived as a result
of errors in judgment or mistakes of fact or law or of any act or omission if
the General Partner acted in good faith.
B. No Obligation to Consider Separate Interests of Limited
Partners or Shareholders. The Limited Partners expressly acknowledge that the
General Partner is acting on behalf of the Partnership and the General Partner's
shareholders collectively, that the General Partner is under no obligation to
consider the separate interests of the Limited Partners (including, without
limitation, the tax consequences to Limited Partners or Assignees or to such
shareholders) in deciding whether to cause the Partnership to take (or decline
to take) any actions and that the General Partner shall not be liable for
monetary damages or otherwise for losses sustained, liabilities incurred or
benefits not derived by Limited Partners in connection with such decisions,
provided that the General Partner has acted in good faith.
C. Actions of Agents. Subject to its obligations and duties as
General Partner set forth in Section 7.1.A above, the General Partner may
exercise any of the powers granted to it by this Agreement and perform any of
the duties imposed upon it hereunder either directly or by or through its
agents. The General Partner shall not be responsible for any misconduct or
negligence on the part of any such agent appointed by the General Partner in
good faith.
D. Effect of Amendment. Any amendment, modification or repeal
of this Section 7.8 or any provision hereof shall be prospective only and shall
not in any way affect the limitations on the General Partner's liability to the
Partnership and the Limited Partners under this Section 7.8 as in effect
immediately prior to such amendment, modification or repeal with respect to
claims arising from or relating to matters occurring, in whole or in part, prior
to such amendment, modification or repeal, regardless of when such claims may
arise or be asserted.
Section 7.9 Other Matters Concerning the General Partner
A. Reliance on Documents. The General Partner may rely and
shall be protected in acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice, request, consent,
order, bond, debenture or other paper or document believed by it in good faith
to be genuine and to have been signed or presented by the proper party or
parties.
B. Reliance on Advisors. The General Partner may consult with
legal counsel, accountants, appraisers, management consultants, investment
bankers and other consultants and advisors selected by it, and any act taken or
omitted to be taken in reliance upon the opinion of such Persons as to matters
which the General
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Partner reasonably believes to be within such Person's professional or expert
competence shall be conclusively presumed to have been done or omitted in good
faith and in accordance with such opinion.
C. Action Through Agents. The General Partner shall have the
right, in respect of any of its powers or obligations hereunder, to act through
any of its duly authorized officers and a duly appointed attorney or
attorneys-in-fact. Each such attorney shall, to the extent provided by the
General Partner in the power of attorney, have full power and authority to do
and perform all and every act and duty which is permitted or required to be done
by the General Partner hereunder.
D. Actions to Maintain REIT Status or Avoid Taxation of the
General Partner Entity or the General Partner (as applicable). Notwithstanding
any other provisions of this Agreement (other than the limitations on the
General Partner's authority set forth in Sections 7.5, 7.6.A, 7.6.D, and 7.11)
or the Act, any action of the General Partner on behalf of the Partnership or
any decision of the General Partner to refrain from acting on behalf of the
Partnership undertaken in the good faith belief that such action or omission is
necessary or advisable in order (i) to protect the ability of the General
Partner Entity or the General Partner (as applicable) to continue to satisfy the
REIT Requirements or (ii) to allow the General Partner Entity or the General
Partner (as applicable) to avoid incurring any liability for taxes under Section
857 or 4981 of the Code, is expressly authorized under this Agreement and is
deemed approved by all of the Limited Partners.
Section 7.10 Reliance by Third Parties
Notwithstanding anything to the contrary in this Agreement
(other than the limitations on the General Partner's authority set forth in
Sections 7.5, 7.6.A, 7.6.D, and 7.11), any Person dealing with the Partnership
shall be entitled to assume that the General Partner has full power and
authority, without consent or approval of any other Partner or Person, to
encumber, sell or otherwise use in any manner any and all assets of the
Partnership, to enter into any contracts on behalf of the Partnership and to
take any and all actions on behalf of the Partnership, and such Person shall be
entitled to deal with the General Partner as if the General Partner were the
Partnership's sole party in interest, both legally and beneficially. Each
Limited Partner hereby waives any and all defenses or other remedies which may
be available against such Person to contest, negate or disaffirm any action of
the General Partner in connection with any such dealing. In no event shall any
Person dealing with the General Partner or its representatives be obligated to
ascertain that the terms of this Agreement have been complied with or to inquire
into the necessity or expedience of any act or action of the General Partner or
its representatives. Each and every certificate, document or other instrument
executed on behalf of the Partnership by the General Partner or its
representatives shall be conclusive evidence in favor of any and every Person
relying thereon or claiming thereunder that (i) at the time of the execution and
delivery of such certificate, document or instrument, this Agreement was in full
force and effect, (ii) the Person executing and delivering such certificate,
document or instrument was duly authorized and empowered to do so for and on
behalf of the Partnership, and (iii) such certificate, document or instrument
was duly executed and delivered in accordance with the terms and provisions of
this Agreement and is binding upon the Partnership.
Section 7.11 Restrictions on General Partner's Authority
A. Consent Required. The General Partner may not take any
action in contravention of an express prohibition or limitation of this
Agreement without the written Consent of (i) all Partners adversely affected or
(ii) such lower percentage of the Limited Partnership Interests as may be
specifically provided for under a provision of this Agreement or the Act.
B. Intentionally Omitted.
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C. Required Consent of Certain Partners. (i) The
General Partner may not, directly or indirectly,
cause the Partnership to take any action prohibited
by this Section 7.11.C without the requisite approval
as provided in this Section 7.11.C.
(1) For a period of twenty (20) years following the
Effective Date, the General Partner may not, directly
or indirectly, cause the Partnership to sell,
exchange or otherwise dispose of the property located
at Two Penn Plaza, New York, New York or any indirect
interest therein (collectively, the "Two Penn Plaza
Property") (other than an involuntary sale pursuant
to foreclosure of the mortgage secured by the Two
Penn Plaza Property or otherwise, including pursuant
to (x) an event described in Section 1033 of the Code
(as determined without reference to the property, if
any, into which the Two Penn Plaza Property is
converted), other than a disposition resulting from
the mere threat or imminence of a requisition or
condemnation and (y) a deed in lieu of foreclosure
(provided that the General Partner may not execute
any deed in lieu of foreclosure unless the maturity
of the indebtedness secured by the Two Penn Plaza
Property has occurred, whether by reason of
acceleration or otherwise, or a proceeding in
connection with a Bankruptcy of the Partnership, the
fee owning entity or any intermediate Person between
them) to any Person without the Consent of the
Partners at the time of the proposed sale, exchange
or other disposition (other than the General Partner
or the General Partner Entity or any Subsidiary of
either the General Partner or the General Partner
Entity) who hold seventy-five percent (75%) of the
Partnership Units which were issued with respect to
Two Penn Plaza Associates in the Consolidation and
which remain outstanding (whether held by the
original recipient of such Partnership Units or by a
successor or transferee of the original recipient,
but not including the General Partner or the General
Partner Entity or any Subsidiary of either the
General Partner or the General Partner Entity)
(referred to as "Two Penn Plaza Units"). In addition,
during such twenty-year period, the General Partner
may not, directly or indirectly, cause the
Partnership to repay, earlier than one year prior to
its stated maturity, any indebtedness secured by the
Two Penn Plaza Property without the Consent of
Partners holding seventy-five percent (75%) of the
Two Penn Plaza Units, unless such repayment (a) is
made in connection with the refinancing (on a basis
such that the new debt would be considered a
Nonrecourse Liability, or, as contemplated and only
to the extent required by clause (2) below, a Partner
Nonrecourse Debt) of such indebtedness for an amount
not less than the principal amount of such
indebtedness on the date of such refinancing, with
such refinancing indebtedness (1) providing for the
least amount of principal amortization as is
available on commercially reasonable terms and (2)
permitting (but not requiring) a guarantee of such
indebtedness by the holders of the Two Penn Plaza
Units who elect to join in such guarantee in a form
and on terms consistent with the guarantees by the
holders of the Two Penn Plaza Units in effect
immediately prior to such refinancing, provided that
the opportunity to provide such guarantee is
obtainable on commercially reasonable terms, or (b)
is made in connection with an involuntary sale
pursuant to foreclosure of the mortgage secured by
the Two Penn Plaza Property or otherwise, including
pursuant to a deed in lieu of foreclosure (provided
that the General Partner may not execute any deed in
lieu of foreclosure unless the maturity of the
indebtedness secured by the Two Penn Plaza Property
has been accelerated) or a proceeding in connection
with a Bankruptcy of the Partnership, the fee-owning
entity or any intermediate Person between them.
During such twenty-year period, the General Partner
shall use commercially reasonable efforts during
the one-year period prior to the stated maturity
of such indebtedness to cause the Partnership to
refinance (on a basis such that the new
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debt would be considered a Nonrecourse Liability, or,
as contemplated and only to the extent required by
clause (2) below, a Partner Nonrecourse Debt) the
indebtedness for an amount not less than the
principal amount of such indebtedness on the date of
such refinancing, provided such refinancing can be
obtained on commercially reasonable terms, with such
refinancing indebtedness (1) providing for the least
amount of principal amortization as is available on
commercially reasonable terms and (2) permitting (but
not requiring) a guarantee of such indebtedness by
the holders of the Two Penn Plaza Units who elect to
join in such guarantee in a form and on terms
consistent with the guarantees by the holders of the
Two Penn Plaza Units in effect immediately prior to
such refinancing, provided that the opportunity to
provide such guarantee is obtainable on commercially
reasonable terms. Finally, during such twenty-year
period, the General Partner shall not, without the
Consent of Partners holding seventy-five percent
(75%) of the Two Penn Plaza Units, incur indebtedness
secured by the Two Penn Plaza Property if, at the
time such indebtedness is incurred, the aggregate
amount of the indebtedness secured by the Two Penn
Plaza Property would exceed the greater of (i)
seventy percent (70%) of the fair market value of the
Two Penn Plaza Property (or the interest therein)
securing such indebtedness or (ii) the then
outstanding indebtedness being refinanced plus all
costs (including prepayment fees, "breakage" payments
and similar costs) incurred in connection with such
refinancing. All references in this Section 7.11.C to
"commercially reasonable terms" shall be as
determined by the General Partner in its sole
discretion, exercised in good faith.
(2) For a period of twenty (20) years following the
Effective Date, the General Partner may not, directly
or indirectly, cause the Partnership to sell,
exchange or otherwise dispose of the property located
at Eleven Penn Plaza, New York, New York or any
indirect interest therein (collectively, the "Eleven
Penn Plaza Property") (other than an involuntary sale
pursuant to foreclosure of the mortgage secured by
the Eleven Penn Plaza Property or otherwise,
including pursuant to (x) an event described in
Section 1033 of the Code (as determined without
reference to the property, if any, into which the
Eleven Penn Plaza Property is converted), other than
a disposition resulting from the mere threat or
imminence of a requisition or condemnation and (y) a
deed in lieu of foreclosure (provided that the
General Partner may not execute any deed in lieu of
foreclosure unless the maturity of the indebtedness
secured by the Eleven Penn Plaza Property has
occurred, whether by reason of acceleration or
otherwise, or a proceeding in connection with a
Bankruptcy of the Partnership, the fee-owning entity
or any intermediate Person between them) to any
Person without the Consent of the Partners at the
time of the proposed sale, exchange or other
disposition who hold seventy-five percent (75%) of
the Partnership Units which were issued with respect
to the Eleven Penn Partnerships in the Consolidation
and which remain outstanding (whether held by the
original recipient of such Partnership Units or by a
successor or transferee of the original recipient,
but not including the General Partner or the General
Partner Entity or any Subsidiary of either the
General Partner or the General Partner Entity)
(referred to as "Eleven Penn Plaza Units"). In
addition, during such twenty-year period, the General
Partner may not, directly or indirectly, cause the
Partnership to repay, earlier than one year prior to
its stated maturity, any indebtedness secured by the
Eleven Penn Plaza Property without the Consent of
Partners who hold seventy-five percent (75%) of the
Eleven Penn Plaza Units, unless such repayment (a) is
made in connection with the refinancing (on a basis
such that the new debt would be considered a
Nonrecourse Liability, or, as contemplated and only
to the extent required by clause (2) below, a
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Partner Nonrecourse Debt) of such indebtedness for an
amount not less than the principal amount of such
indebtedness on the date of such refinancing, with
such refinancing indebtedness (1) providing for the
least amount of principal amortization as is
available on commercially reasonable terms and (2)
permitting (but not requiring) a guarantee of such
indebtedness by the holders of the Eleven Penn Plaza
Units who elect to join in such guarantee in a form
and on terms consistent with the guarantees by the
holders of the Eleven Penn Plaza Units in effect
immediately prior to such refinancing, provided that
the opportunity to provide such guarantee is
obtainable on commercially reasonable terms, or (b)
is made in connection with an involuntary sale
pursuant to foreclosure of the mortgage secured by
the Eleven Penn Plaza Property or otherwise,
including pursuant to a deed in lieu of foreclosure
(provided that the General Partner may not execute
any deed in lieu of foreclosure unless the maturity
of the indebtedness secured by the Eleven Penn Plaza
Property has been accelerated) or a proceeding in
connection with a Bankruptcy of the Partnership, the
fee-owning entity or any intermediate Person between
them. During such twenty-year period, the General
Partner shall use commercially reasonable efforts
during the one-year period prior to the stated
maturity of such indebtedness to cause the
Partnership to refinance (on a basis such that the
new debt would be considered a Nonrecourse Liability,
or, as contemplated and only to the extent required
by clause (2) below, a Partner Nonrecourse Debt) the
indebtedness for an amount not less than the
principal amount of such indebtedness on the date of
such refinancing, provided such refinancing can be
obtained on commercially reasonable terms, with such
refinancing indebtedness (1) providing for the least
amount of principal amortization as is available on
commercially reasonable terms and (2) permitting (but
not requiring) a guarantee of such indebtedness by
the holders of the Eleven Penn Plaza Units who elect
to join in such guarantee in a form and on terms
consistent with the guarantees by the holders of the
Eleven Penn Plaza Units in effect immediately prior
to such refinancing, provided that the opportunity to
provide such guarantee is obtainable on commercially
reasonable terms. Finally, during such twenty-year
period, the General Partner shall not, without the
Consent of Partners holding seventy-five percent
(75%) of the Eleven Penn Plaza Units, incur
indebtedness secured by the Eleven Penn Plaza
Property if, at the time such indebtedness is
incurred, the aggregate amount of the indebtedness
secured by the Eleven Penn Plaza Property would
exceed the greater of (i) seventy percent (70%) of
the fair market value of the Eleven Penn Plaza
Property (or the interest therein) securing such
indebtedness or (ii) the then outstanding
indebtedness being refinanced plus all costs
(including prepayment fees, "breakage" payments and
similar costs) incurred in connection with such
refinancing.
(3) For a period of twenty (20) years following the
Effective Date, the General Partner may not, directly
or indirectly, cause the Partnership to sell,
exchange, or otherwise dispose of the property
located at 866 U.N. Plaza, New York, New York or any
indirect interest therein (collectively, the "866
U.N. Plaza Property") (other than an involuntary sale
pursuant to foreclosure of the mortgage secured by
the 866 U.N. Plaza Property or otherwise, including
pursuant to (x) an event described in Section 1033 of
the Code (as determined without reference to the
property, if any, into which the 866 U.N. Plaza
Property is converted), other than a disposition
resulting from the mere threat or imminence of a
requisition or condemnation and (y) a deed in lieu of
foreclosure (provided that the General Partner may
not execute any deed in lieu of foreclosure unless
the maturity of the indebtedness secured by the 866
U.N. Plaza Property has occurred, whether by reason
of acceleration or otherwise, or a proceeding in
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connection with a Bankruptcy of the Partnership, the
fee-owning entity or any intermediate Person between
them) to any Person without the Consent of the
Partners at the time of the proposed sale, exchange
or other disposition (other than the General Partner
or the General Partner Entity or any Subsidiary of
either of the General Partner of the General Partner
or the General Partner Entity) who hold seventy-five
percent (75%) of the Partnership Units which were
issued with respect to 866 U.N. Plaza Associates in
the Consolidation and which remain outstanding
(whether held by the original recipient of such
Partnership Units or by a successor or transferee of
the original recipient, but not including the General
Partner or the General Partner Entity or any
Subsidiary of either the General Partner or the
General Partner Entity) (referred to as "866 U.N.
Plaza Units"). In addition, during such twenty-year
period, the General Partner may not, directly or
indirectly, cause the Partnership to repay, earlier
than one year prior to its stated maturity, any
indebtedness secured by the 866 U.N. Plaza Property
without the Consent of Partners holding seventy-five
percent (75%) of the 866 U.N. Plaza Units, unless
such repayment (a) is made in connection with the
refinancing (on a basis such that the new debt would
be considered a Nonrecourse Liability or, as
contemplated and only to the extent required by
clause (2) below, a Partner Nonrecourse Debt) of such
indebtedness for an amount not less than the
principal amount of such indebtedness on the date of
such refinancing, with such refinancing indebtedness
(1) providing for the least amount of principal
amortization as is available on commercially
reasonable terms and (2) permitting (but not
requiring) a guarantee of such indebtedness by the
holders of the 866 U.N. Plaza Units who elect to join
in such guarantee in a form and on terms consistent
with the guarantees by the holders of the 866 U.N.
Plaza Units in effect immediately prior to such
refinancing, provided that the opportunity to provide
such guarantee is obtainable on commercially
reasonable terms, or (b) is made in connection with
an involuntary sale pursuant to foreclosure of the
mortgage secured by the 866 U.N. Plaza Property or
otherwise, including pursuant to a deed in lieu of
foreclosure (provided that the General Partner may
not execute any deed in lieu of foreclosure unless
the maturity of the indebtedness secured by the 866
U.N. Plaza Property has been accelerated) or a
proceeding in connection with a Bankruptcy of the
Partnership, of the fee-owning entity or any
intermediate Person between them. During such
twenty-year period, the General Partner shall use
commercially reasonable efforts during the one-year
period prior to the stated maturity of such
indebtedness to cause the Partnership to refinance
(on a basis such that the new debt would be
considered a Nonrecourse Liability, or, as
contemplated and only to the extent required by
clause (2) below, a Partner Nonrecourse Debt) the
indebtedness for an amount not less than the
principal amount of such indebtedness on the date of
such refinancing, provided such refinancing can be
obtained on commercially reasonable terms, with such
refinancing indebtedness (1) providing for the least
amount of principal amortization as is available on
commercially reasonable terms and (2) permitting (but
not requiring) a guarantee of such indebtedness by
the holders of the 866 U.N. Plaza Units who elect to
join in such guarantee in a form and on terms
consistent with the guarantees by the holders of the
866 U.N. Plaza Units in effect immediately prior to
such refinancing, provided that the opportunity to
provide such guarantee is obtainable on commercially
reasonable terms. Finally, during such twenty-year
period, the General Partner shall not, without the
Consent of Partners holding seventy-five percent
(75%) of the 866 U.N. Plaza Units, incur indebtedness
secured by the 866 U.N. Plaza Property if, at the
time such indebtedness is incurred, the aggregate
amount of the indebtedness secured by the 866 U.N.
Plaza Property would exceed the greater of (i)
seventy percent (70%) of the fair market value of the
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866 U.N. Plaza Property (or the interest therein)
securing such indebtedness or (ii) the then
outstanding indebtedness being refinanced plus all
costs (including prepayment fees, "breakage" payments
and similar costs) incurred in connection with such
refinancing.
(4) Subparagraphs (1), (2), and (3) shall not apply to
any transaction that involves the Two Penn Plaza
Property, the Eleven Penn Plaza Property or the 866
U.N. Plaza Property, as the case may be (which
Property is referred to as the "Exchanged Property"),
if such transaction qualifies as a like-kind exchange
under Section 1031 of the Code or an involuntary
conversion under Section 1033 of the Code (other than
an involuntary conversion under Section 1033 of the
Code that is described in the second parenthetical to
subparagraphs (1), (2) or (3), as the case may be) in
which no gain is recognized by the Partnership as
long as the following conditions are satisfied: (x)
in the case of a Section 1031 like-kind exchange,
such exchange is not with a "related party" within
the meaning of Section 1031(f)(3) of the Code; (y)
the property received in exchange for the Exchanged
Property (referred to as the "Replacement Property")
is acquired in the same taxable year of the
Partnership in which the disposition of the Exchanged
Property occurs and is secured by nonrecourse
indebtedness in an amount not less than the
outstanding principal amount of the nonrecourse
indebtedness secured by the Exchanged Property at the
time of the exchange, nor greater than the amount
that would be permitted under Sections 7.11.C(1),
(2), or (3), as the case may be (except that 70% of
fair market value shall be determined by reference to
the Replacement Property and not the Exchanged
Property, with a maturity not earlier than, and a
principal amortization rate not more rapid than, the
maturity and principal amortization rate of such
indebtedness secured by the Exchanged Property, which
indebtedness permits (but does not require) a
guarantee of such indebtedness by the holders of the
Two Penn Plaza Units, the Eleven Penn Plaza Units or
the 866 U.N. Plaza Units, as the case may be, who
elect to join in such guarantee in a form and on
terms consistent with the guarantees by the holders
of the Two Penn Plaza Units, the Eleven Penn Plaza
Units or the 866 U.N. Plaza Units, as the case may
be, in effect immediately prior to the time of the
exchange, and (z) the Replacement Property is
thereafter treated for all purposes of the
restrictions in this Section 7.11.C as the Exchanged
Property and the indebtedness secured by such
Replacement Property is subject to the same
restrictions and agreements as apply with respect to
the indebtedness secured by the Exchanged Property.
(5) Subparagraphs (1), (2), and (3) shall not apply to
any transaction that involves the Two Penn Plaza
Property, the Eleven Penn Plaza Property or the 866
U.N. Plaza Property, as the case may be (which
Property is referred to as the "Transferred
Property"), if (x) such transaction is one in which
no gain is recognized with respect to the Two Penn
Plaza Property, the Eleven Penn Plaza Property or the
866 U.N. Plaza Property by the Partnership or the
holders of the Two Penn Plaza Units, the Eleven Penn
Plaza Units, or the 866 U.N. Plaza Units, as the case
may be (other than gain, if any, resulting solely
because the share, if any, of indebtedness allocable
to a Partnership Unit is reduced or eliminated),
provided that (i) the amount of indebtedness secured
by the Two Penn Plaza Property, the Eleven Penn Plaza
Property or the 866 U.N. Plaza Property, as
applicable, is not decreased as a result of the
transaction and the amount of indebtedness secured by
the Two Penn Plaza Property, the Eleven Penn Plaza
Property or the 866 U.N. Plaza Property, as
applicable, that is a Nonrecourse Liability or
Partner Nonrecourse Debt is not reduced, except as
permitted by the relevant provisions of
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Subparagraph (1), (2) or (3) of this Section 7.11.C,
and (ii) the indebtedness secured by the Two Penn
Plaza Property, the Eleven Penn Plaza Property or the
866 U.N. Plaza Property, as applicable, continues to
be taken into account in determining the Partners'
basis in their Partnership Interests under rules
similar to those provided in Section 752 of the Code
and (y) the entity to which such Transferred Property
is transferred agrees, for the benefit of the holders
of the Two Penn Plaza Units, the Eleven Penn Plaza
Units or the 866 U.N. Plaza Units, as the case may
be, that all of the restrictions of this Section
7.11.C shall apply to the Transferred Property and
the indebtedness outstanding with respect thereto in
the same manner and to the extent set forth in this
Section 7.11.C and such agreement is reflected in the
partnership agreement (or other comparable governing
instrument) of the entity to which the Transferred
Property is transferred.
(6) Subparagraphs (1), (2), and (3) shall not apply to
any transaction that involves either a merger or
consolidation of the Partnership with or into another
entity that qualifies as a "partnership" for federal
income tax purposes (the "Successor Partnership") or
a transfer of all or substantially all of the assets
of the Partnership to a Successor Partnership and
dissolution of the Partnership in connection
therewith (in either case, a "Consolidation
Transaction") so long as (x) no gain is recognized
with respect to the Two Penn Plaza Property, the
Eleven Penn Plaza Property or the 866 U.N. Plaza
Property by the Partnership or the holders of the Two
Penn Plaza Units, the Eleven Penn Plaza Units or the
866 U.N. Plaza Units, as the case may be, in
connection with such Consolidation Transaction (other
than gain, if any, resulting solely because the
share, if any, of indebtedness allocable to a
Partnership Unit is reduced or eliminated, provided
that the amount of indebtedness secured by the Two
Penn Plaza Property, the Eleven Penn Plaza Property
or the 866 U.N. Plaza Property, as applicable, is not
decreased as a result of the transaction and the
amount of indebtedness secured by the Two Penn Plaza
Property, the Eleven Penn Plaza Property or the 866
U.N. Plaza Property, as applicable, that is a
Nonrecourse Liability or Partner Nonrecourse Debt is
not reduced, except as permitted by the relevant
provisions of Subparagraph (1), (2) or (3) of this
Section 7.11.C, and (y) the Successor Partnership
agrees in writing, for the benefit of the holders of
the Two Penn Plaza Units, the Eleven Penn Plaza Units
or the 866 U.N. Plaza Units, as the case may be, that
all of the restrictions of this Section 7.11.C shall
apply to the Two Penn Plaza Property, the Eleven Penn
Plaza Property and the 866 U.N. Plaza Property and
the indebtedness outstanding with respect thereto in
the same manner and to the extent set forth in this
Section 7.11.C.
(7) Subparagraphs (1), (2) and (3) shall not apply to any
transaction not otherwise described in Subparagraph
(4), (5) or (6) involving the Two Penn Plaza
Property, the Eleven Penn Plaza Property and/or the
866 U.N. Plaza Property if, concurrently with the
consummation of such transaction, the Partnership
pays to the holders of the Two Penn Plaza Units, the
Eleven Penn Plaza Units and/or the 866 U.N. Plaza
Units, as applicable, in addition to any amounts
otherwise distributable under Article V hereof, an
amount equal to the lesser of (x) the aggregate
federal, state and local income taxes payable by each
holder of Two Penn Plaza Units, as applicable, as a
result of or in connection with such transactions, or
(y) the aggregate federal, state and local income
taxes that would have been payable by such holder (or
its predecessor in interest) if the relevant property
had been sold on the Effective Date for its 704(c)
Value; provided that the amount referred to in clause
(y) shall be reduced to reflect (I) reductions in the
Book/Tax Disparity with respect to the Two Penn Plaza
Property, the Eleven Penn Plaza
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Property and/or the 866 U.N. Plaza Property, as
applicable, and (II) with respect to a holder who
acquired Two Penn Plaza Units, Eleven Penn Plaza
Units and/or 866 U.N. Plaza Units, as applicable,
subsequent to the Effective Date, the reduction in
gain that results from such holder's having a special
inside basis under Section 743 of the Code in the Two
Penn Plaza Property, the Eleven Penn Plaza Property
or the 866 U.N. Plaza Property, as applicable (by
treating the special inside basis as the basis for
determining gain on the deemed sale described in
clause (y)), but, in either (I) or (II), the gain
with respect to which the tax is computed may not be
so reduced beneath the "negative basis" associated,
as of the Effective Time, with the Two Penn Plaza
Units, the Eleven Penn Plaza Units or the 866 U.N.
Plaza Units, as appropriate, plus in the case of
either (x) or (y), an amount equal to the aggregate
federal, state and local income taxes payable by the
recipient thereof as the result of the receipt of the
payments provided for in this subparagraph (7)
(including for this purpose all taxes on payments
hereunder intended to compensate the recipient
thereof for taxes owed by the recipient). For
purposes of the preceding sentence, (x) all income
arising from the transaction that is treated as
ordinary income under the applicable provisions of
the Code and is allocated to the holders of the Two
Penn Plaza Units, the Eleven Penn Plaza Units and/or
the 866 U.N. Plaza Units, as applicable, shall be
treated as subject to federal, state and local income
tax at the effective tax rate imposed on ordinary
income of New York City residents, determined using
the maximum federal, New York State and New York City
rates on ordinary income then in effect and (y) all
other income arising from the transaction and all
payments provided for in this subparagraph (7) shall
be treated as subject to federal, state and local
income tax at the effective tax rate imposed on
long-term capital gains of New York City residents,
determined using the maximum federal, New York State
and New York City rates on long-term capital gains
then in effect.
If at any time prior to the twentieth (20th) anniversary of
the Effective Date, the Partnership pays the amounts described in subparagraph
(7) above in respect of any Partnership Units entitled to the benefits of
Section 7.11.C(1), (2) or (3), and the amount of such payment is, at the time
that it is made, equal to the full amount that would be payable under such
Sections with respect to such Partnership Units if the Two Penn Plaza Property,
the Eleven Penn Plaza Property, or the 866 U.N. Plaza Property, as applicable,
were to have been sold on such date for its market value, then the provisions of
Section 7.11.C shall thereafter cease to apply to those Partnership Units.
(ii) Nothing herein shall be deemed to require that the
Partnership or the General Partner take any action to avoid or prevent an
involuntary disposition of any property, whether pursuant to foreclosure of a
mortgage secured by such property or otherwise, including pursuant to a deed in
lieu of foreclosure or a proceeding in connection with a Bankruptcy.
(iii) Nothing herein shall prevent the sale, exchange,
transfer or other disposition of any property pursuant to the dissolution and
liquidation of the Partnership in accordance with Article XIII hereof (other
than Section 13.1(v), which shall be subject to this Section 7.11.C).
D. Merger or Consolidation in Which the Partnership is Not the
Surviving Entity. In the event that the Partnership is to merge or consolidate
with or into any other entity in a transaction in which holders of Partnership
Units will receive consideration other than cash or equity securities that are
Publicly Traded (an "Equity Merger") and such Equity Merger would be prohibited
by Section 7.11.C but for the application of Section 7.11.C(6) (and not Section
7.1.C(4), (5) or (7)), then, unless the Consent of Certain Limited Partners is
obtained:
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(i) the partnership agreement, limited liability agreement or
other operative governing documents (the "Charter Documents")
of the entity that is the surviving entity in such Equity
Merger must contain provisions that are comparable in all
material respects to, or the entity that is the surviving
entity in such Equity Merger must otherwise agree in writing,
for the benefit of the holders of the Two Penn Plaza Units,
the Eleven Penn Plaza Units, and the 866 U.N. Plaza Units, to
restrictions that are comparable in all material respects to
the provisions of Section 4.2.A, Article V and Article VI
(except for differences that would be permitted pursuant to
Sections 4.2, 5.1.C, 5.4, 6.2 and 14.1.B(3) if such changes
were to be made to this Agreement), Section 7.6.A, Section
7.11.A, this Section 7.11.D, Section 8.6 (and all defined
terms set forth in Article I that relate to the Redemption
Right), Section 11.2, Section 13.1, Section 13.2.A(3) (except
as permitted pursuant to Sections 4.2, 5.4, 6.2 and
14.1.B(3)), Section 14.1.C, Section 14.1.D, and Section 14.2,
all as in effect immediately prior to the Equity Merger; and
(ii) the Equity Merger shall not cause a holder of a
Partnership Unit to be a general partner or to have liability
equivalent to that of a general partner in a partnership or
otherwise modify the limited liability of a Limited Partner
under this Agreement.
Section 7.12 Loans by Third Parties
The Partnership may incur Debt, or enter into similar credit,
guarantee, financing or refinancing arrangements for any purpose (including,
without limitation, in connection with any acquisition of property) with any
Person upon such terms as the General Partner determines appropriate; provided,
that the Partnership shall not incur any Debt that is recourse to the General
Partner unless, and then only to the extent that, the General Partner has
expressly agreed.
ARTICLE VIII
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
Section 8.1 Limitation of Liability
The Limited Partners shall have no liability under this
Agreement except as expressly provided in this Agreement, including Section 10.5
hereof, or under the Act.
Section 8.2 Management of Business
No Limited Partner or Assignee (other than the General
Partner, any of its Affiliates or any officer, director, employee, partner,
agent or trustee of the General Partner, the Partnership or any of their
Affiliates, in their capacity as such) shall take part in the operation,
management or control (within the meaning of the Act) of the Partnership's
business, transact any business in the Partnership's name or have the power to
sign documents for or otherwise bind the Partnership. The transaction of any
such business by the General Partner, any of its Affiliates or any officer,
director, employee, partner, agent or trustee of the General Partner, the
Partnership or any of their Affiliates, in their capacity as such, shall not
affect, impair or eliminate the limitations on the liability of the Limited
Partners or Assignees under this Agreement.
Section 8.3 Outside Activities of Limited Partners
Subject to Section 7.5 hereof, and subject to any agreements
entered into pursuant to Section 7.6.C hereof and to any other agreements
entered into by a Limited Partner or its Affiliates with the Partnership or a
Subsidiary, any Limited Partner (other than the General Partner) and any
officer, director,
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employee, agent, trustee, Affiliate or shareholder of any Limited Partner shall
be entitled to and may have business interests and engage in business activities
in addition to those relating to the Partnership, including business interests
and activities in direct or indirect competition with the Partnership. Neither
the Partnership nor any Partners shall have any rights by virtue of this
Agreement in any business ventures of any Limited Partner or Assignee. None of
the Limited Partners (other than the General Partner) nor any other Person shall
have any rights by virtue of this Agreement or the partnership relationship
established hereby in any business ventures of any other Person (other than the
General Partner to the extent expressly provided herein), and such Person shall
have no obligation pursuant to this Agreement to offer any interest in any such
business ventures to the Partnership, any Limited Partner or any such other
Person, even if such opportunity is of a character which, if presented to the
Partnership, any Limited Partner or such other Person, could be taken by such
Person.
Section 8.4 Return of Capital
Except pursuant to the right of redemption set forth in
Section 8.6 below, no Limited Partner shall be entitled to the withdrawal or
return of its Capital Contribution, except to the extent of distributions made
pursuant to this Agreement or upon termination of the Partnership as provided
herein. No Limited Partner or Assignee shall have priority over any other
Limited Partner or Assignee either as to the return of Capital Contributions
(except as permitted by Section 4.2.A hereof) or, except to the extent provided
by Exhibit C hereto or as permitted by Sections 4.2.A, 5.1.B(i) hereof or
otherwise expressly provided in this Agreement, as to profits, losses,
distributions or credits.
Section 8.5 Rights of Limited Partners Relating to the Partnership
A. General. In addition to other rights provided by
this Agreement or by the Act, and except as limited by Section 8.5.D below, each
Limited Partner shall have the right, for a purpose reasonably related to such
Limited Partner's interest as a limited partner in the Partnership, upon written
demand with a statement of the purpose of such demand and at such Limited
Partner's own expense:
(1) to obtain a copy of the most recent annual and
quarterly reports filed with the Securities and
Exchange Commission by the General Partner Entity
pursuant to the Exchange Act;
(2) to obtain a copy of the Partnership's federal, state
and local income tax returns for each Partnership
Year;
(3) to obtain a current list of the name and last known
business, residence or mailing address of each
Partner; and
(4) to obtain a copy of this Agreement and the
Certificate and all amendments thereto, together with
copies of all powers of attorney pursuant to which
this Agreement, the Certificate and all amendments
thereto have been executed.
B. Notice of Conversion Factor. The Partnership shall
notify each Limited Partner upon request of the then current Conversion Factor
and any changes that have been made thereto.
C. Notice of Extraordinary Transaction of the General
Partner Entity. The General Partner Entity shall not make any extraordinary
distributions of cash or property to its shareholders or effect a merger
(including, without limitation, a triangular merger), a sale of all or
substantially all of its assets or any other similar extraordinary transaction
without notifying the Limited Partners of its intention to make such
distribution or effect such merger, sale or other extraordinary transaction at
least twenty (20) days prior to the record date to determine shareholders
eligible to receive such distribution or to vote upon the approval of such
merger, sale or other
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extraordinary transaction (or, if no such record date is applicable, at least
twenty (20) days before consummation of such merger, sale or other extraordinary
transaction). This provision for such notice shall not be deemed (i) to permit
any transaction that otherwise is prohibited by this Agreement or requires a
Consent of the Partners or (ii) to require a Consent of the Limited Partners to
a transaction that does not otherwise require Consent under this Agreement. Each
Limited Partner agrees, as a condition to the receipt of the notice pursuant
hereto, to keep confidential the information set forth therein until such time
as the General Partner Entity has made public disclosure thereof and to use such
information during such period of confidentiality solely for purposes of
determining whether or not to exercise the Redemption Right; provided, however,
that a Limited Partner may disclose such information to its attorney, accountant
and/or financial advisor for purposes of obtaining advice with respect to such
exercise so long as such attorney, accountant and/or financial advisor agrees to
receive and hold such information subject to this confidentiality requirement.
D. Confidentiality. Notwithstanding any other provision of
this Section 8.5, the General Partner may keep confidential from the Limited
Partners, for such period of time as the General Partner determines in its sole
and absolute discretion to be reasonable, any information that (i) the General
Partner reasonably believes to be in the nature of trade secrets or other
information the disclosure of which the General Partner in good faith believes
is not in the best interests of the Partnership or could damage the Partnership
or its business or (ii) the Partnership is required by law or by agreements with
unaffiliated third parties to keep confidential.
Section 8.6 Redemption Right
A. General. (i) Subject to Section 8.6.C below, on or after
the date one (1) year (or, in the case of Partnership Units owned by a
Restricted Partner on or before the Effective Date, two (2) years) after the
Effective Date (or, if later, the date of the issuance of a Partnership Unit to
a Limited Partner pursuant to Article IV hereof) which one-year (or two-year, if
applicable) period shall commence upon the issuance of such Partnership Unit
regardless of whether such Partnership Unit is designated upon issuance as a
Class A Unit, a Class B Unit, a Class C Unit, a Class D Unit, a Class E Unit or
otherwise and shall include any class A Unit issued in exchange for such
Partnership Unit pursuant to Section 4.2.D), or on or after such date prior to
the expiration of such one-year period or two-year period, as applicable, as the
General Partner, in its sole and absolute discretion, designates with respect to
any or all Partnership Units then outstanding, the holder of a Partnership Unit
(if other than the General Partner or the General Partner Entity or any
Subsidiary of either the General Partner or the General Partner Entity) shall
have the right (the "Redemption Right") to require the Partnership to redeem
such Partnership Unit on a Specified Redemption Date and at a redemption price
equal to and in the form of the Cash Amount to be paid by the Partnership. In
addition, at any time commencing on the ninety-first (91st) day after the
Effective Date and continuing until (but not after) the first anniversary of the
Effective Date, any holder of a Class E Unit shall have the right (which shall
also be deemed a Redemption Right hereunder) to require the Partnership to
redeem such Partnership Unit on a Specified Redemption Date and at a redemption
price equal to and in the form of ninety-four percent (94%) of the Cash Amount
to be paid by the Partnership. Any such Redemption Right shall be exercised
pursuant to a Notice of Redemption delivered to the Partnership (with a copy to
the General Partner) by the Limited Partner who is exercising the Redemption
Right (the "Redeeming Partner"). A Limited Partner may not exercise the
Redemption Right for less than one thousand (1,000) Partnership Units or, if
such Redeeming Partner holds less than one thousand (1,000) Partnership Units,
for less than all of the Partnership Units held by such Redeeming Partner.
(ii) The Redeeming Partner shall have no right with respect to
any Partnership Units so redeemed to receive any distributions paid after the
Specified Redemption Date.
(iii) The Assignee of any Limited Partner may exercise the rights
of such Limited Partner pursuant to this Section 8.6, and such Limited Partner
shall be deemed to have assigned such rights to such Assignee and
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shall be bound by the exercise of such rights by such Limited Partner's
Assignee. In connection with any exercise of the such rights by such Assignee on
behalf of such Limited Partner, the Cash Amount shall be paid by the Partnership
directly to such Assignee and not to such Limited Partner.
(iv) In the event that the General Partner provides notice to the
Limited Partners, pursuant to Section 8.5.C hereof, the Redemption Right shall
be exercisable, subject to the one-year limitation contained in Section
8.6(a)(i) (and, for purposes of this clause (iv), the two-year limitation
imposed on Restricted Partners under this Section 8.6 shall be shortened to one
year after the Effective Date beyond the first anniversary of the Effective
Date), during the period commencing on the date on which the General Partner
provides such notice and ending on the record date to determine shareholders
eligible to receive such distribution or to vote upon the approval of such
merger, sale or other extraordinary transaction (or, if no such record date is
applicable, the date that is twenty (20) days after the date the General Partner
provides such notice pursuant to Section 8.5.C hereof). In the event that this
subparagraph (iv) applies, the Specified Redemption Date shall be the sooner of
(1) the tenth (10th) Business Day after the Partnership receives the Redemption
Notice or (2) the Business Day immediately preceding the record date to
determine shareholders eligible to receive a distribution or vote on approval;
provided that if such time determined pursuant to clause (1) or (2) above occurs
in less than ten (10) Business Days and the Partnership elects to redeem the
subject Partnership Units for cash, the Partnership will have up to ten (10)
Business Days from receipt of the Redemption Notice to deliver payment in
respect of such Partnership Units.
(v) Notwithstanding the terms of Section 8.6.A(i) or anything
else in this Agreement to the contrary, if there shall have been a merger or
consolidation of the General Partner, or a sale or all or substantially all of
the assets of the General Partner as an entirety, and in either case, in
connection therewith, the shareholders of the General Partner are obligated to
accept cash and/or debt obligations in full or partial consideration for their
Shares, then the portion of the Redemption Amount per Partnership Unit that
corresponds to the portion of Value of the total consideration receivable for
one Share multiplied by the Conversion Factor (a "Unit Equivalent") that is
required to be accepted in cash and/or debt obligations shall thereafter be an
amount of cash equal to the sum of (i) the cash payable for a Unit Equivalent on
the date of the closing of such merger, consolidation or sale and (ii) the Value
on the date of the closing of such merger, consolidation, or sale of the debt
obligations to be received with respect to a Unit Equivalent, adjusted as set
forth below (this amount of cash is referred to as the "Required Cash Payment")
(the percentage that the Required Cash Payment represents of the total
Redemption Amount with respect to a Partnership Unit, determined as of such
closing date, is referred to as the "Pro Rata Portion"). The balance of the
Redemption Amount per Partnership Unit shall be determined as provided for in
the definitions of Conversion Factor, Redemption Amount, Shares Amount, Cash
Amount and Value. In the event that the merger, consolidation or sale giving
rise to the application of this clause (v) occurs at a time when there shall be
any Persons the consent of whom is required pursuant to the definition of
"Consent of Certain Limited Partners", then the Required Cash Payment shall be
increased by a cash payment to the extent required to provide such Limited
Partner, upon the exercise of its Redemption Right with respect to a Partnership
Unit, with an Internal Rate of Return on such Required Cash Payment for the
period from the date of such merger, consolidation or sale to the date of the
redemption of the Partnership Unit, when taken together with the Pro Rata
Portion of all distributions received by such Limited Partner with respect to
such Partnership Unit from and after the effective date of the merger,
consolidation or sale equal to the Treasury Constant Yield. As used herein, the
"Treasury Constant Yield" shall mean the arithmetic mean of the rates published
as "Treasury Constant Maturities" as of 5:00 p.m., New York time, for the five
business days preceding the effective date of the merger, consolidation or sale,
as shown on the USD screen of the Telerate service (or if such service is not
available, under Section 504 in the weekly statistical release designated
H.15(519) (or any successor publication) published by the Board of Governors of
the Federal Reserve System, for "On the Run" U.S. Treasury obligations
corresponding to the twentieth anniversary of the date hereof). If no such
maturity shall so exactly correspond, yields for the two most closely
corresponding published maturities shall be calculated pursuant to the foregoing
sentence and the Treasury Constant Yield shall be interpolated or extrapolated
(as applicable) from such yields on a straight-line basis (rounding, in the case
of relevant periods, to the nearest month). As used herein, "Internal Rate of
Return"
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shall mean, with respect to a rate of return of the Constant Treasury Yield,
commencing on the effective date of the merger, consolidation or sale,
compounded quarterly to the extent not paid on a current basis, taking into
account the timing and amounts of this Pro Rata Portion of all distributions by
the Partnership to such Partner with respect to such Partnership Unit; for
purposes of computing the Internal Rate of Return, distributions to a Partner at
any time during a month shall be deemed to be made and received on the day
actually made.
B. General Partner Assumption of Right. (i) If a Limited
Partner has delivered a Notice of Redemption (other than a Notice of Redemption
relating to a Class E Unit given prior to the first anniversary of the Effective
Date), the General Partner may, in its sole and absolute discretion (subject to
any limitations on ownership and transfer of Shares set forth in the Declaration
of Trust), elect to assume directly and satisfy a Redemption Right by paying to
the Redeeming Partner either the Cash Amount or the Shares Amount, as the
General Partner determines in its sole and absolute discretion (provided that
payment of the Redemption Amount in the form of Shares shall be in Shares
registered under Section 12 of the Exchange Act and listed for trading on the
exchange or national market on which the Shares are Publicly Traded, and
provided, further, that in the event that the Shares are not Publicly Traded at
the time a Redeeming Partner exercises its Redemption Right, the Redemption
Amount shall be paid only in the form of the Cash Amount unless the Redeeming
Partner, in its sole and absolute discretion, consents to payment of the
Redemption Amount in the form of the Shares Amount), on the Specified Redemption
Date, whereupon the General Partner shall acquire the Partnership Units offered
for redemption by the Redeeming Partner and shall be treated for all purposes of
this Agreement as the owner of such Partnership Units and such Partnership Units
shall automatically convert to Class D Units upon acquisition by the General
Partner. Unless the General Partner, in its sole and absolute discretion, shall
exercise its right to assume directly and satisfy the Redemption Right, the
General Partner shall not have any obligation to the Redeeming Partner or to the
Partnership with respect to the Redeeming Partner's exercise of the Redemption
Right. In the event the General Partner shall exercise its right to satisfy the
Redemption Right in the manner described in the first sentence of this Section
8.6.B and shall fully perform its obligations in connection therewith, the
Partnership shall have no right or obligation to pay any amount to the Redeeming
Partner with respect to such Redeeming Partner's exercise of the Redemption
Right, and each of the Redeeming Partner, the Partnership and the General
Partner shall, for federal income tax purposes, treat the transaction between
the General Partner and the Redeeming Partner as a sale of the Redeeming
Partner's Partnership Units to the General Partner. Nothing contained in this
Section 8.6.B shall imply any right of the General Partner to require any
Limited Partner to exercise the Redemption Right afforded to such Limited
Partner pursuant to Section 8.6.A above.
(ii) In the event that the General Partner determines to pay
the Redeeming Partner the Redemption Amount in the form of Shares, the total
number of Shares to be paid to the Redeeming Partner in exchange for the
Redeeming Partner's Partnership Units shall be the applicable Shares Amount. In
the event this amount is not a whole number of Shares, the Redeeming Partner
shall be paid (i) that number of Shares which equals the nearest whole number
less than such amount plus (ii) an amount of cash which the General Partner
determines, in its reasonable discretion, to represent the fair value of the
remaining fractional Share which would otherwise be payable to the Redeeming
Partner.
(iii) Each Redeeming Partner agrees to execute such documents
as the General Partner may reasonably require in connection with the issuance of
Shares upon exercise of the Redemption Right.
C. Exceptions to Exercise of Redemption Right. Notwithstanding
the provisions of Sections 8.6.A and 8.6.B above, a Partner shall not be
entitled to exercise the Redemption Right pursuant to Section 8.6.A above if
(but only as long as) the delivery of Shares to such Partner on the Specified
Redemption Date (i) would be prohibited under the Declaration of Trust, or (ii)
as long as the Shares are Publicly Traded, would be prohibited under applicable
federal or state securities laws or regulations (assuming the General Partner
would in fact assume and satisfy the Redemption Right).
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D. No Liens on Partnership Units Delivered for Redemption.
Each Limited Partner covenants and agrees with the General Partner that all
Partnership Units delivered for redemption shall be delivered to the Partnership
or the General Partner, as the case may be, free and clear of all liens, and,
notwithstanding anything contained herein to the contrary, neither the General
Partner nor the Partnership shall be under any obligation to acquire Partnership
Units which are or may be subject to any liens. Each Limited Partner further
agrees that, in the event any state or local property transfer tax is payable as
a result of the transfer of its Partnership Units to the Partnership or the
General Partner, such Limited Partner shall assume and pay such transfer tax.
E. Additional Partnership Interests. In the event that the
Partnership issues Partnership Interests to any Additional Limited Partner
pursuant to Article IV hereof, the General Partner shall make such amendments to
this Section 8.6 as it determines are necessary to reflect the issuance of such
Partnership Interests (including setting forth any restrictions on the exercise
of the Redemption Right with respect to such Partnership Interests).
F. Transfer Tax Limitations. Notwithstanding anything herein
to the contrary, until the first business day following the second anniversary
of the Effective Date, the Partnership and the General Partner shall have the
right, in connection with a Limited Partner's exercise of its Redemption Right:
(1) to condition the payment of the redemption price
under Section 8.6(A)(i) upon the General Partner's
sole satisfaction that any New York Real Estate
Transfer Tax and New York City Real Property Transfer
Tax payable by reason of such Limited Partner's
redemption prior to the expiration of two years
following the Effective Date shall have been paid in
full or that adequate provision has been made
therefor (as determined by the General Partner in its
sole discretion); and
(2) if the General Partner elects under Section 8.6.B to
pay the Shares Amount, then such Limited Partner
shall be obligated, as a condition to the effective
exercise of the Redemption Right, to escrow with the
General Partner an amount equal to the New York Real
Estate Transfer Tax and New York City Real Property
Transfer Tax that would have been payable as of the
exercise of the Redemption Right, assuming such
Limited Partner transferred the Share Amount received
on such date prior to the expiration of two years
following the Effective Date. Such escrow may be used
by the General Partner or the Limited Partner who
provided such escrow for the payment of the taxes
described in this subparagraph (2) above, provided,
in the latter event, the General Partner shall have
determined, in its good faith discretion, that such
tax will be paid. Such escrow shall be released to
the Limited Partner, to the extent not used, after
the expiration of the 2-year period if the General
Partner shall determine in its sole discretion
exercised in good faith that no such transfer tax
shall have been due and payable.
Section 8.7 Right of Offset
The General Partner shall have the right to offset any amounts
owed to the Partnership or the General Partner by any Limited Partner pursuant
to (i) any written agreement between such Limited Partner and the Partnership,
the General Partner or an Affiliate of either of them pursuant to which such
Limited Partner acquired Partnership Units or (ii) the provisions of Section
5.2, Section 8.6.F or Section 11.7 of this Agreement, against any amounts owed
to such Limited Partner by the Partnership or the General Partner hereunder,
including the right to cancel or acquire, as applicable, the Units held by such
Limited Partner, based on the Cash Amount that would be payable therefor,
assuming a redemption as of the date of cancellation or acquisition, as
applicable.
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In exercising the foregoing offset rights, the General partner shall be required
to give a Limited Partner, in the case of an offset against a distribution, five
(5) days prior written notice (provided, however, that if a distribution is to
be made at any time during such five day period the General Partner may retain
the distribution payable to any Limited Partner to whom such a written notice
has been given to the extent of the amount owed by such limited Partner pending
the passage of such period and upon the passage of such period without payment
of all amounts owed by the applicable Limited Partner, the General Partner shall
be entitled to the right of offset described above, it being understood that if
the Limited Partner pays in full the amount owed the General Partner shall
promptly release the retained distribution to such Limited Partner) and, in the
case of an offset against Partnership Units (through cancellation or
acquisition), ten (10) days' prior written notice, in each case of the amount
owed (determined as of a date reasonably close to the date of such notice) and
the proposed offset and the Limited Partner has not paid the amount owed within
such period.
ARTICLE IX
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 9.1 Records and Accounting
The General Partner shall keep or cause to be kept at the
principal office of the Partnership appropriate books and records with respect
to the Partnership's business, including, without limitation, all books and
records necessary to provide to the Limited Partners any information, lists and
copies of documents required to be provided pursuant to Section 9.3 below. Any
records maintained by or on behalf of the Partnership in the regular course of
its business may be kept on, or be in the form of, punch cards, magnetic tape,
computer disk, photographs, micrographics or any other information storage
device, provided that the records so maintained are convertible into clearly
legible written form within a reasonable period of time. The books of the
Partnership shall be maintained, for financial and tax reporting purposes, on an
accrual basis in accordance with generally accepted accounting principles.
Section 9.2 Fiscal Year
The fiscal year of the Partnership shall be the calendar year.
Section 9.3 Reports
A. Annual Reports. As soon as practicable, but in no
event later than the date on which the General Partner Entity mails its annual
report to its shareholders, the General Partner shall cause to be mailed to each
Limited Partner an annual report, as of the close of the most recently ended
Partnership Year, containing financial statements of the Partnership, or of the
General Partner Entity if such statements are prepared solely on a consolidated
basis with the Partnership, for such Partnership Year, presented in accordance
with generally accepted accounting principles, such statements to be audited by
a nationally recognized firm of independent public accountants selected by the
General Partner Entity.
B. Quarterly Reports. If and to the extent that the
General Partner Entity mails quarterly reports to its shareholders, as soon as
practicable, but in no event later than the date on which such reports are
mailed, the General Partner shall cause to be mailed to each Limited Partner a
report containing unaudited financial statements, as of the last day of such
quarter, of the Partnership, or of the General Partner Entity if such statements
are prepared solely on a consolidated basis with the Partnership, and such other
information as may be required by applicable law or regulation, or as the
General Partner determines to be appropriate.
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ARTICLE X
TAX MATTERS
Section 10.1 Preparation of Tax Returns
The General Partner shall arrange for the preparation and
timely filing of all returns of Partnership income, gains, deductions, losses
and other items required of the Partnership for federal and state income tax
purposes and shall use all reasonable efforts to furnish, within ninety (90)
days of the close of each taxable year, the tax information reasonably required
by Limited Partners for federal and state income tax reporting purposes.
Section 10.2 Tax Elections
Except as otherwise provided herein, the General Partner
shall, in its sole and absolute discretion, determine whether to make any
available election pursuant to the Code; provided, that the General Partner
shall make the election under Section 754 of the Code in accordance with
applicable regulations thereunder. The General Partner shall have the right to
seek to revoke any such election (including, without limitation, the election
under Section 754 of the Code) upon the General Partner's determination in its
sole and absolute discretion that such revocation is in the best interests of
the Partners.
Section 10.3 Tax Matters Partner
A. General. The General Partner shall be the "tax matters
partner" of the Partnership for federal income tax purposes. Pursuant to Section
6223(c)(3) of the Code, upon receipt of notice from the IRS of the beginning of
an administrative proceeding with respect to the Partnership, the tax matters
partner shall furnish the IRS with the name, address, taxpayer identification
number and profit interest of each of the Limited Partners and any Assignees;
provided, that such information is provided to the Partnership by the Limited
Partners.
B. Powers. The tax matters partner is authorized, but
not required:
(1) to enter into any settlement with the IRS
with respect to any administrative or
judicial proceedings for the adjustment of
Partnership items required to be taken into
account by a Partner for income tax purposes
(such administrative proceedings being
referred to as a "tax audit" and such
judicial proceedings being referred to as
"judicial review"), and in the settlement
agreement the tax matters partner may
expressly state that such agreement shall
bind all Partners, except that such
settlement agreement shall not bind any
Partner (i) who (within the time prescribed
pursuant to the Code and Regulations) files
a statement with the IRS providing that the
tax matters partner shall not have the
authority to enter into a settlement
agreement on behalf of such Partner or (ii)
who is a "notice partner" (as defined in
Section 6231(a)(8) of the Code) or a member
of a "notice group" (as defined in Section
6223(b)(2) of the Code);
(2) in the event that a notice of a final
administrative adjustment at the Partnership
level of any item required to be taken into
account by a Partner for tax purposes (a
"final adjustment") is mailed to the tax
matters partner, to seek judicial review of
such final adjustment, including the filing
of a petition for readjustment with the Tax
Court or the filing of a complaint for
refund with the United States Claims Court
or the District Court of the United States
for the district in which the Partnership's
principal place of business is located;
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(3) to intervene in any action brought by any
other Partner for judicial review of a final
adjustment;
(4) to file a request for an administrative
adjustment with the IRS at any time and, if
any part of such request is not allowed by
the IRS, to file an appropriate pleading
(petition or complaint) for judicial review
with respect to such request;
(5) to enter into an agreement with the IRS to
extend the period for assessing any tax
which is attributable to any item required
to be taken into account by a Partner for
tax purposes, or an item affected by such
item; and
(6) to take any other action on behalf of the
Partners of the Partnership in connection
with any tax audit or judicial review
proceeding to the extent permitted by
applicable law or regulations.
The taking of any action and the incurring of any expense by
the tax matters partner in connection with any such proceeding, except to the
extent required by law, is a matter in the sole and absolute discretion of the
tax matters partner and the provisions relating to indemnification of the
General Partner set forth in Section 7.7 hereof shall be fully applicable to the
tax matters partner in its capacity as such.
C. Reimbursement. The tax matters partner shall receive no
compensation for its services. All third party costs and expenses incurred by
the tax matters partner in performing its duties as such (including legal and
accounting fees and expenses) shall be borne by the Partnership. Nothing herein
shall be construed to restrict the Partnership from engaging an accounting firm
or a law firm to assist the tax matters partner in discharging its duties
hereunder, as long as the compensation paid by the Partnership for such services
is reasonable.
Section 10.4 Organizational Expenses
The Partnership shall elect to deduct expenses, if any,
incurred by it in organizing the Partnership ratably over a sixty (60) month
period as provided in Section 709 of the Code.
Section 10.5 Withholding
Each Limited Partner hereby authorizes the Partnership to
withhold from or pay on behalf of or with respect to such Limited Partner any
amount of federal, state, local, or foreign taxes that the General Partner
determines that the Partnership is required to withhold or pay with respect to
any amount distributable or allocable to such Limited Partner pursuant to this
Agreement, including, without limitation, any taxes required to be withheld or
paid by the Partnership pursuant to Section 1441, 1442, 1445, or 1446 of the
Code. Any amount paid on behalf of or with respect to a Limited Partner shall
constitute a recourse loan by the Partnership to such Limited Partner, which
loan shall be repaid by such Limited Partner within fifteen (15) days after
notice from the General Partner that such payment must be made unless (i) the
Partnership withholds such payment from a distribution which would otherwise be
made to the Limited Partner or (ii) the General Partner determines, in its sole
and absolute discretion, that such payment may be satisfied out of the available
funds of the Partnership which would, but for such payment, be distributed to
the Limited Partner. Any amounts withheld pursuant to the foregoing clauses (i)
or (ii) shall be treated as having been distributed to such Limited Partner.
Each Limited Partner hereby unconditionally and irrevocably grants to the
Partnership a security interest in such Limited Partner's Partnership Interest
to secure such Limited Partner's obligation to pay to the Partnership any
amounts required to be paid pursuant to this Section 10.5. In the event that a
Limited Partner fails to pay any amounts
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owed to the Partnership pursuant to this Section 10.5 when due, the General
Partner may, in its sole and absolute discretion, elect to make the payment to
the Partnership on behalf of such defaulting Limited Partner, and in such event
shall be deemed to have loaned such amount to such defaulting Limited Partner
and shall succeed to all rights and remedies of the Partnership as against such
defaulting Limited Partner (including, without limitation, the right to receive
distributions). Any amounts payable by a Limited Partner hereunder shall bear
interest at the base rate on corporate loans at large United States money center
commercial banks, as published from time to time in the Wall Street Journal,
plus four (4) percentage points (but not higher than the maximum lawful rate)
from the date such amount is due (i.e., fifteen (15) days after demand) until
such amount is paid in full. Each Limited Partner shall take such actions as the
Partnership or the General Partner shall request in order to perfect or enforce
the security interest created hereunder.
ARTICLE XI
TRANSFERS AND WITHDRAWALS
Section 11.1 Transfer
A. Definition. The term "transfer," when used in this Article
XI with respect to a Partnership Interest or a Partnership Unit, shall be deemed
to refer to a transaction by which the General Partner purports to assign all or
any part of its General Partnership Interest to another Person or by which a
Limited Partner purports to assign all or any part of its Limited Partnership
Interest to another Person, and includes a sale, assignment, gift, pledge,
encumbrance, hypothecation, mortgage, exchange or any other disposition by law
or otherwise. The term "transfer" when used in this Article XI does not include
any redemption or repurchase of Partnership Units by the Partnership from a
Partner (including the General Partner) or acquisition of Partnership Units from
a Limited Partner by the General Partner pursuant to Section 8.6 hereof or
otherwise. No part of the interest of a Limited Partner shall be subject to the
claims of any creditor, any spouse for alimony or support, or to legal process,
and no part of the interest of a Limited Partner may be voluntarily or
involuntarily alienated or encumbered except as may be specifically provided for
in this Agreement.
B. General. No Partnership Interest shall be transferred, in
whole or in part, except in accordance with the terms and conditions set forth
in this Article XI. Any transfer or purported transfer of a Partnership Interest
not made in accordance with this Article XI shall be null and void.
Section 11.2 Transfers of Partnership Interests of General Partner
A. Except for transfers of Partnership Units to the
Partnership as provided in Section 7.5 or Section 8.6 hereof, the General
Partner may not transfer any of its Partnership Interest (including both its
General Partnership Interest and its Limited Partnership Interest) except in
connection with a transaction described in Section 11.2.B below or as otherwise
expressly permitted under this Agreement), nor shall the General Partner
withdraw as General Partner except in connection with a transaction described in
Section 11.2.B below.
B. The General Partner shall not engage in any merger
(including a triangular merger), consolidation or other combination with or into
another person, sale of all or substantially all of its assets or any
reclassification, recapitalization or change of the terms of any outstanding
Common Shares (other than a change in par value, or from par value to no par
value, or as a result of a subdivision or combination as described in the
definition of "Conversion Factor") ("Termination Transaction"), unless , in
connection therewith, all Limited Partners (other than the General Partner, the
General Partner Entity and any entities controlled by either of them) will have
the right to elect to receive, or, subject to Section 7.11.C., will receive, for
each Partnership Unit an amount of cash, securities, or other property equal to
the product of the Conversion Factor and the greatest amount of cash, securities
or other property paid to a holder of Shares, if any, corresponding to such
Partnership
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Unit in consideration of one such Share; provided, that if, in connection with
the Termination Transaction, a purchase, tender or exchange offer shall have
first been made to and accepted by the holders of more than fifty percent (50%)
of the outstanding Shares and a holder of Partnership Units did not receive
advance written notice (whether from the General Partner, the offeror or
otherwise) of the offer and an opportunity to redeem its Partnership Units
substantially in accordance with the provisions in Section 8.6, then such holder
of Partnership Units shall receive, or shall have the right to elect to receive,
the greatest amount of cash, securities, or other property which such holder
would have received had it exercised the Redemption Right and received Shares in
exchange for its Partnership Units immediately prior to such purchase, tender or
exchange offer and had thereupon accepted such purchase, tender or exchange
offer and to the extent required by the terms thereof applicable to all other
holders of Shares participating in the purchase, tender or exchange offer,
participated in all other phases of such Termination Transaction as well.
Section 11.3 Limited Partners' Rights to Transfer
A. General. Subject to the provisions of Sections 11.3.C,
11.3.D, 11.3.E, 11.4 and 11.6 below, prior to the first anniversary (or, in the
case of a Restricted Partner, the second anniversary, subject, in the case of
Mr. Mendik or Mr. Greenbaum, to any shorter period that may apply as a result of
Section _____ of his employment agreement with the Partnership) of the Effective
Date, the Limited Partnership Interest of any Partner may not be transferred in
whole or in part, directly, indirectly or beneficially, without the prior
written consent of the General Partner, which consent the General Partner may
withhold in its sole discretion; provided, however, that it is expressly
understood that subject to the provisions of Sections 11.3.C, 11.3.D, 11.3.E,
11.4 and 11.6 below each Limited Partner will be permitted to make one or more
transfers to any Affiliated Transferee of such Limited Partner. Commencing on
the first anniversary after the Effective Date (or (x) in the case of a holder
of Class E Units but only with respect to such Class E Units, the ninety-first
(91st) day after the Effective Date, and (y) in the case of a Restricted
Partner, the second anniversary after the Effective Date, subject, in the case
of Mr. Mendik or Mr. Greenbaum, to any shorter period that may apply as a result
of Section _____ of his employment agreement with the Partnership but in no
event less than one (1) year), and subject to the provisions of Sections 11.3.C,
11.3.D, 11.3.E, 11.4 and 11.6 below, a Limited Partner (other than the General
Partner or the General Partner Entity or any Subsidiary of either of them) may
transfer all or any portion of its Limited Partnership Interest to any person,
provided such Limited Partner obtains the prior written consent of the General
Partner, which consent may be withheld only if the General Partner determines in
its sole discretion exercised in good faith that such a transfer would cause the
Partnership or any or all of the Partners other than the Limited Partner seeking
to transfer its rights as a Limited Partner to be subject to tax liability as a
result of such transfer. Any purported transfer attempted in violation of the
foregoing sentence shall be deemed void ab initio and shall have no force or
effect.
B. Incapacitated Limited Partners. If a Limited Partner is
subject to Incapacity, the executor, administrator, trustee, committee,
guardian, conservator or receiver of such Limited Partner's estate shall have
all the rights of a Limited Partner, but not more rights than those enjoyed by
other Limited Partners for the purpose of settling or managing the estate and
such power as the Incapacitated Limited Partner possessed to transfer all or any
part of its interest in the Partnership. The Incapacity of a Limited Partner, in
and of itself, shall not dissolve or terminate the Partnership.
C. No Transfers Violating Securities Laws. The General Partner
may prohibit any transfer of Partnership Units by a Limited Partner if, in the
opinion of legal counsel to the Partnership, such transfer would require filing
of a registration statement under the Securities Act or would otherwise violate
any federal, or state securities laws or regulations applicable to the
Partnership or the Partnership Unit.
D. No Transfers Affecting Tax Status of Partnership. No
transfer of Partnership Units by a Limited Partner (including a redemption or
exchange pursuant to Section 8.6 hereof) may be made to any
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Person if (i) in the opinion of legal counsel for the Partnership, it would
result in the Partnership being treated as an association taxable as a
corporation for federal income tax purposes or would result in a termination of
the Partnership for federal income tax purposes (except as a result of the
redemption or exchange for Shares of all Partnership Units held by all Limited
Partners other than the General Partner or the General Partner Entity or any
Subsidiary of either the General Partner or the General Partner Entity or
pursuant to a transaction not prohibited under Section 11.2 hereof), (ii) in the
opinion of legal counsel for the Partnership, it would adversely affect the
ability of the General Partner Entity or the General Partner (as applicable) to
continue to qualify as a REIT or would subject the General Partner Entity or the
General Partner (as applicable) to any additional taxes under Section 857 or
Section 4981 of the Code or (iii) such transfer is effectuated through an
"established securities market" or a "secondary market (or the substantial
equivalent thereof)" within the meaning of Section 7704 of the Code.
E. No Transfers to Holders of Nonrecourse Liabilities. No
pledge or transfer of any Partnership Units may be made to a lender to the
Partnership or any Person who is related (within the meaning of Section
1.752-4(b) of the Regulations) to any lender to the Partnership whose loan
constitutes a Nonrecourse Liability without the consent of the General Partner,
in its sole and absolute discretion; provided, that as a condition to such
consent the lender will be required to enter into an arrangement with the
Partnership and the General Partner to exchange or redeem for the Redemption
Amount any Partnership Units in which a security interest is held simultaneously
with the time at which such lender would be deemed to be a partner in the
Partnership for purposes of allocating liabilities to such lender under Section
752 of the Code.
Section 11.4 Substituted Limited Partners
A. Consent of General Partner. No Limited Partner shall have
the right to substitute a transferee as a Limited Partner in its place without
the consent of the General Partner to the admission of a transferee of the
interest of a Limited Partner pursuant to this Section 11.4 as a Substituted
Limited Partner, which consent may be given or withheld by the General Partner
in its sole and absolute discretion. The General Partner's failure or refusal to
permit a transferee of any such interests to become a Substituted Limited
Partner shall not give rise to any cause of action against the Partnership or
any Partner.
B. Rights of Substituted Limited Partner. A transferee who has
been admitted as a Substituted Limited Partner in accordance with this Article
XI shall have all the rights and powers and be subject to all the restrictions
and liabilities of a Limited Partner under this Agreement. The admission of any
transferee as a Substituted Limited Partner shall be conditioned upon the
transferee executing and delivering to the Partnership an acceptance of all the
terms and conditions of this Agreement (including, without limitation, the
provisions of Section 15.11 hereof and such other documents or instruments as
may be required to effect the admission).
C. Amendment and Restatement of Exhibit A. Upon the admission
of a Substituted Limited Partner, the General Partner shall amend and restate
Exhibit A hereto to reflect the name, address, Capital Account, number of
Partnership Units, and Percentage Interest of such Substituted Limited Partner
and to eliminate or adjust, if necessary, the name, address, Capital Account and
Percentage Interest of the predecessor of such Substituted Limited Partner.
Section 11.5 Assignees
If the General Partner, in its sole and absolute discretion,
does not consent to the admission of any permitted transferee under Section 11.3
above as a Substituted Limited Partner, as described in Section 11.4 above, such
transferee shall be considered an Assignee for purposes of this Agreement,
subject, however, to Section 11.7 hereof. An Assignee shall be entitled to all
the rights of an assignee of a limited partnership interest
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under the Act, including the right to receive distributions from the Partnership
and the share of Net Income, Net Losses, gain, loss and Recapture Income
attributable to the Partnership Units assigned to such transferee, and shall
have the rights granted to the Limited Partners under Section 8.6 hereof, but
shall not be deemed to be a holder of Partnership Units for any other purpose
under this Agreement, and shall not be entitled to vote such Partnership Units
in any matter presented to the Limited Partners for a vote (such Partnership
Units being deemed to have been voted on such matter in the same proportion as
all other Partnership Units held by Limited Partners are voted). In the event
any such transferee desires to make a further assignment of any such Partnership
Units, such transferee shall be subject to all the provisions of this Article XI
to the same extent and in the same manner as any Limited Partner desiring to
make an assignment of Partnership Units.
Section 11.6 General Provisions
A. Withdrawal of Limited Partner. No Limited Partner
may withdraw from the Partnership other than as a result of a permitted transfer
of all of such Limited Partner's Partnership Units in accordance with this
Article XI or pursuant to redemption of all of its Partnership Units under
Section 8.6 hereof.
B. Termination of Status as Limited Partner. Any
Limited Partner who shall transfer all of its Partnership Units in a transfer
permitted pursuant to this Article XI or pursuant to redemption of all of its
Partnership Units under Section 8.6 hereof shall cease to be a Limited Partner.
C. Timing of Transfers. Transfers pursuant to this
Article XI may only be made on the first day of a fiscal quarter of the
Partnership, unless the General Partner otherwise agrees.
D. Allocations. If any Partnership Interest is
transferred during any quarterly segment of the Partnership's fiscal year in
compliance with the provisions of this Article XI or redeemed or transferred
pursuant to Section 8.6 hereof, Net Income, Net Losses, each item thereof and
all other items attributable to such interest for such fiscal year shall be
divided and allocated between the transferor Partner and the transferee Partner
by taking into account their varying interests during the fiscal year in
accordance with Section 706(d) of the Code, using the interim closing of the
books method (unless the General Partner, in its sole and absolute discretion,
elects to adopt a daily, weekly, or a monthly proration period, in which event
Net Income, Net Losses, each item thereof and all other items attributable to
such interest for such fiscal year shall be prorated based upon the applicable
method selected by the General Partner). Solely for purposes of making such
allocations, each of such items for the calendar month in which the transfer or
redemption occurs shall be allocated to the Person who is a Partner as of
midnight on the last day of said month. All distributions attributable to any
Partnership Unit with respect to which the Partnership Record Date is before the
date of such transfer, assignment or redemption shall be made to the transferor
Partner or the Redeeming Partner, as the case may be, and, in the case of a
transfer or assignment other than a redemption, all distributions thereafter
attributable to such Partnership Unit shall be made to the transferee Partner.
E. Additional Restrictions. In addition to any other
restrictions on transfer herein contained, including without limitation the
provisions of this Article XI, in no event may any transfer or assignment of a
Partnership Interest by any Partner (including pursuant to Section 8.6 hereof)
be made without the express consent of the General Partner, in its sole and
absolute discretion, (i) to any person or entity who lacks the legal right,
power or capacity to own a Partnership Interest; (ii) in violation of applicable
law; (iii) of any component portion of a Partnership Interest, such as the
Capital Account, or rights to distributions, separate and apart from all other
components of a Partnership Interest; (iv) if in the opinion of legal counsel to
the Partnership such transfer would cause a termination of the Partnership for
federal or state income tax purposes (except as a result of the redemption or
exchange for Shares of all Partnership Units held by all Limited Partners or
pursuant to a transaction not prohibited under Section 11.2 hereof); (v) if in
the opinion of counsel to the Partnership, such transfer would cause the
Partnership to cease to be classified as a partnership for federal income tax
purposes
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(except as a result of the redemption or exchange for Shares of all Partnership
Units held by all Limited Partners or pursuant to a transaction not prohibited
under Section 11.2 hereof); (vi) if such transfer would cause the Partnership to
become, with respect to any employee benefit plan subject to Title I of ERISA, a
"party-in-interest" (as defined in Section 3(14) of ERISA) or a "disqualified
person" (as defined in Section 4975(c) of the Code); (vii) if such transfer
would, in the opinion of counsel to the Partnership, cause any portion of the
assets of the Partnership to constitute assets of any employee benefit plan
pursuant to Department of Labor Regulations Section 2510.1-101; (viii) if such
transfer requires the registration of such Partnership Interest pursuant to any
applicable federal or state securities laws; (ix) if such transfer is
effectuated through an "established securities market" or a "secondary market"
(or the substantial equivalent thereof) within the meaning of Section 7704 of
the Code or such transfer causes the Partnership to become a "publicly traded
partnership," as such term is defined in Section 469(k)(2) or Section 7704(b) of
the Code; (x) if such transfer subjects the Partnership to regulation under the
Investment Company Act of 1940, the Investment Advisors Act of 1940 or the
Employee Retirement Income Security Act of 1974, each as amended; (xi) if the
transferee or assignee of such Partnership Interest is unable to make the
representations set forth in Section 15.15 hereof or such transfer could
otherwise adversely affect the ability of the General Partner Entity or the
General Partner (as applicable) to remain qualified as a REIT; or (xii) if in
the opinion of legal counsel for the Partnership, such transfer would adversely
affect the ability of the General Partner Entity or the General Partner (as
applicable) to continue to qualify as a REIT or subject the General Partner
Entity or the General Partner (as applicable) to any additional taxes under
Section 857 or Section 4981 of the Code.
F. Avoidance of "Publicly Traded Partnership" Status. The
General Partner shall (a) use commercially reasonable efforts (as determined by
it in its sole discretion exercised in good faith) to monitor the transfers of
interests in the Partnership to determine (i) if such interests are being traded
on an "established securities market" or a "secondary market (or the substantial
equivalent thereof)" within the meaning of Section 7704 of the Code and (ii)
whether additional transfers of interests would result in the Partnership being
unable to qualify for at least one of the "safe harbors" set forth in
Regulations Section 1.7704-1 (or such other guidance subsequently published by
the IRS setting forth safe harbors under which interests will not be treated as
"readily tradable on a secondary market (or the substantial equivalent thereof)"
within the meaning of Section 7704 of the Code) (the "Safe Harbors") and (b)
take such steps as it believes are commercially reasonable and appropriate (as
determined by it in its sole discretion exercised in good faith) to prevent any
trading of interests or any recognition by the Partnership of transfers made on
such markets and, except as otherwise provided herein, to insure that at least
one of the Safe Harbors is met.
Section 11.7 Payment of Incremental Tax
Notwithstanding anything herein to the contrary, until the
business day immediately following the second anniversary of the Effective Date,
no Person shall be admitted as a Substitute Limited Partner and no person shall
be considered an Assignee for purposes of this Agreement, and any transaction or
other form of conveyance or disposition of any sort whatsoever purporting to
transfer an interest in this Agreement or in the Partnership or substitute a
limited partner shall be null and void and of no force and effect unless
concurrently with such purported transfer the transferor shall establish to the
sole satisfaction of the General Partner exercised in good faith that any New
York State Transfer Tax and/or New York City Real Estate Transfer Tax payable in
connection with the purported transfer by reason of the transferor's failure to
hold for a two-year period the Partnership Units issued as of the Effective Date
shall have been paid. A Limited Partner shall be obligated to pay the transfer
taxes described above in this Section 11.7.
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ARTICLE XII
ADMISSION OF PARTNERS
Section 12.1 Admission of Successor General Partner
A successor to all of the General Partner's General
Partnership Interest pursuant to Section 11.2 hereof who is proposed to be
admitted as a successor General Partner shall be admitted to the Partnership as
the General Partner, effective upon such transfer. Any such transferee shall
carry on the business of the Partnership without dissolution. In each case, the
admission shall be subject to the successor General Partner's executing and
delivering to the Partnership an acceptance of all of the terms and conditions
of this Agreement and such other documents or instruments as may be required to
effect the admission.
Section 12.2 Admission of Additional Limited Partners
A. General. No Person shall be admitted as an Additional
Limited Partner without the consent of the General Partner, which consent shall
be given or withheld in the General Partner's sole and absolute discretion. A
Person who makes a Capital Contribution to the Partnership in accordance with
this Agreement, including, without limitation, pursuant to Section 4.1.C hereof,
or who exercises an option to receive Partnership Units shall be admitted to the
Partnership as an Additional Limited Partner only with the consent of the
General Partner and only upon furnishing to the General Partner (i) evidence of
acceptance in form satisfactory to the General Partner of all of the terms and
conditions of this Agreement, including, without limitation, the power of
attorney granted in Section 15.11 hereof and (ii) such other documents or
instruments as may be required in the discretion of the General Partner in order
to effect such Person's admission as an Additional Limited Partner. The
admission of any Person as an Additional Limited Partner shall become effective
on the date upon which the name of such Person is recorded on the books and
records of the Partnership, following the consent of the General Partner to such
admission.
B. Allocations to Additional Limited Partners. If any
Additional Limited Partner is admitted to the Partnership on any day other than
the first day of a Partnership Year, then Net Income, Net Losses, each item
thereof and all other items allocable among Partners and Assignees for such
Partnership Year shall be allocated among such Additional Limited Partner and
all other Partners and Assignees by taking into account their varying interests
during the Partnership Year in accordance with Section 706(d) of the Code, using
the interim closing of the books method (unless the General Partner, in its sole
and absolute discretion, elects to adopt a daily, weekly or monthly proration
method, in which event Net Income, Net Losses, and each item thereof would be
prorated based upon the applicable period selected by the General Partner).
Solely for purposes of making such allocations, each of such items for the
calendar month in which an admission of any Additional Limited Partner occurs
shall be allocated among all the Partners and Assignees including such
Additional Limited Partner. All distributions with respect to which the
Partnership Record Date is before the date of such admission shall be made
solely to Partners and Assignees other than the Additional Limited Partner, and
all distributions thereafter shall be made to all the Partners and Assignees
including such Additional Limited Partner.
Section 12.3 Amendment of Agreement and Certificate of Limited Partnership
For the admission to the Partnership of any Partner, the
General Partner shall take all steps necessary and appropriate under the Act to
amend the records of the Partnership (including an amendment and restatement of
Exhibit A hereto) and, if necessary, to prepare as soon as practical an
amendment of this Agreement and, if required by law, shall prepare and file an
amendment to the Certificate and may for this purpose exercise the power of
attorney granted pursuant to Section 15.11 hereof.
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ARTICLE XIII
DISSOLUTION AND LIQUIDATION
Section 13.1 Dissolution
The Partnership shall not be dissolved by the admission of
Substituted Limited Partners or Additional Limited Partners or by the admission
of a successor General Partner in accordance with the terms of this Agreement.
Upon the withdrawal of the General Partner, any successor General Partner shall
continue the business of the Partnership. The Partnership shall dissolve, and
its affairs shall be wound up, upon the first to occur of any of the following
(each a "Liquidating Event") :
(i) the expiration of its term as provided in
Section 2.4 hereof;
(ii) an event of withdrawal of the General
Partner, as defined in the Act (other than an event of Bankruptcy), unless,
within ninety (90) days after the withdrawal a Majority in Interest of the
remaining Partners Consent in writing to continue the business of the
Partnership and to the appointment, effective as of the date of withdrawal, of a
substitute General Partner;
(iii) an election to dissolve the Partnership made
by the General Partner, in its sole and absolute discretion, after December 31,
2046;
(iv) entry of a decree of judicial dissolution of
the Partnership pursuant to the provisions of the Act;
(v) the sale of all or substantially all of the
assets and properties of the Partnership for cash or for marketable securities
(subject to Section 7.11.C); or
(vi) a final and nonappealable judgment is
entered by a court of competent jurisdiction ruling that the General Partner is
bankrupt or insolvent, or a final and nonappealable order for relief is entered
by a court with appropriate jurisdiction against the General Partner, in each
case under any federal or state bankruptcy or insolvency laws as now or
hereafter in effect, unless prior to or within ninety days after of the entry of
such order or judgment a Majority in Interest of the remaining Partners Consent
in writing to continue the business of the Partnership and to the appointment,
effective as of a date prior to the date of such order or judgment, of a
substitute General Partner.
Section 13.2 Winding Up
A. General. Upon the occurrence of a Liquidating Event, the
Partnership shall continue solely for the purposes of winding up its affairs in
an orderly manner, liquidating its assets, and satisfying the claims of its
creditors and Partners. No Partner shall take any action that is inconsistent
with, or not necessary to or appropriate for, the winding up of the
Partnership's business and affairs. The General Partner (or, in the event there
is no remaining General Partner, any Person elected by a Majority in Interest of
the Limited Partners (the "Liquidator")) shall be responsible for overseeing the
winding up and dissolution of the Partnership and shall take full account of the
Partnership's liabilities and property and the Partnership property shall be
liquidated as promptly as is consistent with obtaining the fair value thereof,
and the proceeds therefrom (which may, to the extent determined by the General
Partner, include equity or other securities of the General Partner or any other
entity) shall be applied and distributed in the following order:
(1) First, to the payment and discharge of all of the
Partnership's debts and liabilities to creditors
other than the Partners;
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(2) Second, to the payment and discharge of all of the
Partnership's debts and liabilities to the Partners;
and
(3) The balance, if any, to the Partners in accordance
with their Capital Accounts, after giving effect to
all contributions, distributions, and allocations for
all periods. [Consider incorporating old 14.1.B(3)
here]
The General Partner shall not receive any additional compensation for any
services performed pursuant to this Article XIII.
B. Deferred Liquidation. Notwithstanding the provisions of
Section 13.2.A above which require liquidation of the assets of the Partnership,
but subject to the order of priorities set forth therein, if prior to or upon
dissolution of the Partnership the Liquidator determines that an immediate sale
of part or all of the Partnership's assets would be impractical or would cause
undue loss to the Partners, the Liquidator may, in its sole and absolute
discretion, defer for a reasonable time the liquidation of any assets except
those necessary to satisfy liabilities of the Partnership (including to those
Partners as creditors) or distribute to the Partners, in lieu of cash, as
tenants in common and in accordance with the provisions of Section 13.2.A above,
undivided interests in such Partnership assets as the Liquidator deems not
suitable for liquidation. Any such distributions in kind shall be made only if,
in the good faith judgment of the Liquidator, such distributions in kind are in
the best interest of the Partners, and shall be subject to such conditions
relating to the disposition and management of such properties as the Liquidator
deems reasonable and equitable and to any agreements governing the operation of
such properties at such time. The Liquidator shall determine the fair market
value of any property distributed in kind using such reasonable method of
valuation as it may adopt.
Section 13.3 Compliance with Timing Requirements of Regulations
Subject to Section 13.4 below, in the event the Partnership is
"liquidated" within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g),
distributions shall be made pursuant to this Article XIII to the General Partner
and Limited Partners who have positive Capital Accounts in compliance with
Regulations Section 1.704-1(b)(2)(ii)(b)(2). If any Partner has a deficit
balance in its Capital Account (after giving effect to all contributions,
distributions and allocations for all taxable years, including the year during
which such liquidation occurs), such Partner shall have no obligation to make
any contribution to the capital of the Partnership with respect to such deficit,
and such deficit shall not be considered a debt owed to the Partnership or to
any other Person for any purpose whatsoever. In the discretion of the General
Partner, a pro rata portion of the distributions that would otherwise be made to
the General Partner and Limited Partners pursuant to this Article XIII may be:
(A) distributed to a trust established for the benefit of the General Partner
and Limited Partners for the purposes of liquidating Partnership assets,
collecting amounts owed to the Partnership and paying any contingent or
unforeseen liabilities or obligations of the Partnership or of the General
Partner arising out of or in connection with the Partnership (in which case the
assets of any such trust shall be distributed to the General Partner and Limited
Partners from time to time, in the reasonable discretion of the General Partner,
in the same proportions as the amount distributed to such trust by the
Partnership would otherwise have been distributed to the General Partner and
Limited Partners pursuant to this Agreement); or (B) withheld to provide a
reasonable reserve for Partnership liabilities (contingent or otherwise) and to
reflect the unrealized portion of any installment obligations owed to the
Partnership, provided, that such withheld amounts shall be distributed to the
General Partner and Limited Partners as soon as practicable.
Section 13.4 Deemed Distribution and Recontribution
Notwithstanding any other provision of this Article XIII, in
the event the Partnership is deemed liquidated within the meaning of Regulations
Section 1.704-1(b)(2)(ii)(g) but no Liquidating Event has occurred,
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the Partnership's property shall not be liquidated, the Partnership's
liabilities shall not be paid or discharged and the Partnership's affairs shall
not be wound up. Instead, for federal income tax purposes and for purposes of
maintaining Capital Accounts pursuant to Exhibit B hereto, the Partnership shall
be deemed to have distributed its assets in kind to the General Partner and
Limited Partners, who shall be deemed to have assumed and taken such assets
subject to all Partnership liabilities, all in accordance with their respective
Capital Accounts. Immediately thereafter, the General Partner and Limited
Partners shall be deemed to have recontributed the Partnership assets in kind to
the Partnership, which shall be deemed to have assumed and taken such assets
subject to all such liabilities.
Section 13.5 Rights of Limited Partners
Except as otherwise provided in this Agreement, each Limited
Partner shall look solely to the assets of the Partnership for the return of its
Capital Contributions and shall have no right or power to demand or receive
property other than cash from the Partnership. Except as otherwise expressly
provided in this Agreement, no Limited Partner shall have priority over any
other Limited Partner as to the return of its Capital Contributions,
distributions, or allocations.
Section 13.6 Notice of Dissolution
In the event a Liquidating Event occurs or an event occurs
that would, but for provisions of an election or objection by one or more
Partners pursuant to Section 13.1 above, result in a dissolution of the
Partnership, the General Partner shall, within thirty (30) days thereafter,
provide written notice thereof to each of the Partners and to all other parties
with whom the Partnership regularly conducts business (as determined in the
discretion of the General Partner) and shall publish notice thereof in a
newspaper of general circulation in each place in which the Partnership
regularly conducts business (as determined in the discretion of the General
Partner).
Section 13.7 Cancellation of Certificate of Limited Partnership
Upon the completion of the liquidation of the Partnership cash
and property as provided in Section 13.2 above, the Partnership shall be
terminated and the Certificate and all qualifications of the Partnership as a
foreign limited partnership in jurisdictions other than the State of Delaware
shall be canceled and such other actions as may be necessary to terminate the
Partnership shall be taken.
Section 13.8 Reasonable Time for Winding Up
A reasonable time shall be allowed for the orderly winding up
of the business and affairs of the Partnership and the liquidation of its assets
pursuant to Section 13.2 above, in order to minimize any losses otherwise
attendant upon such winding-up, and the provisions of this Agreement shall
remain in effect among the Partners during the period of liquidation.
Section 13.9 Waiver of Partition
Each Partner hereby waives any right to partition of the
Partnership property.
Section 13.10 Liability of Liquidator
The Liquidator shall be indemnified and held harmless by the
Partnership in the same manner and to the same degree as an Indemnitee may be
indemnified pursuant to Section 7.11 hereof.
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ARTICLE XIV
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS
Section 14.1 Amendments
A. General. Amendments to this Agreement may be proposed only
by the General Partner. Following such proposal (except an amendment pursuant to
Section 14.1.B below), the General Partner shall submit any proposed amendment
to the Limited Partners and shall seek the written vote of the Partners on the
proposed amendment or shall call a meeting to vote thereon and to transact any
other business that it may deem appropriate. For purposes of obtaining a written
vote, the General Partner may require a response within a reasonable specified
time, but not less than fifteen (15) days, and failure to respond in such time
period shall constitute a vote which is consistent with the General Partner's
recommendation with respect to the proposal; provided, however, that in the case
of any Consent required under Section 7.11.C or 7.11.D, the General Partner
shall be required to give the Limited Partners (other than Mr. Mendik, Mr.
Greenbaum or any Mendik Owners with respect thereto) entitled to vote thereon
two (2) written requests for a response and in determining the votes cast for or
against such Consent the Partnership Units of Limited Partners (other than Mr.
Mendik, Mr. Greenbaum or any Mendik Owners with respect thereto) entitled to
vote thereon who do not respond in writing to either such request within the
time period established by the General Partner shall be deemed to have been
voted for or against the proposed Consent in the same proportion as the votes
actually received.
B. Amendments Not Requiring Limited Partner Approval. Subject
to Section 14.1.C and 14.1.D, the General Partner shall have the power, without
the Consent of the Limited Partners, to amend this Agreement as may be required
to reflect any changes to this Agreement that the General Partner deems
necessary or appropriate in its sole discretion, provided that such change does
not adversely affect or eliminate any right granted to a Limited Partner
pursuant to any of the provisions of this Agreement specified in Section 14.1.C
or Section 14.1.D as requiring a particular minimum vote. The General Partner
shall notify the Limited Partners when any action under this Section 14.1.B is
taken in the next regular communication to the Limited Partners.
C. Amendments Requiring Limited Partner Approval (Excluding
General Partner). Without the Consent of the Outside Limited Partners, the
General Partner shall not amend Section 4.2.A, Section 5.1.C, Section 7.5,
Section 7.6, Section 7.8, Section 11.2, Section 13.1, this Section 14.1.C or
Section 14.2.
D. Other Amendments Requiring Certain Limited Partner
Approval. Notwithstanding anything in this Section 14.1 to the contrary, this
Agreement shall not be amended with respect to any Partner adversely affected
without the Consent of such Partner adversely affected if such amendment would
(i) convert a Limited Partner's interest in the Partnership into a general
partner's interest, (ii) modify the limited liability of a Limited Partner,
(iii) amend Section 7.11.A, (iv) amend Article V, Article VI, or Section
13.2.A(3) (except as permitted pursuant to Sections 4.2, 5.1.C, 5.4 and 6.2, (v)
amend Section 8.6 or any defined terms set forth in Article I that relate to the
Redemption Right (except as permitted in Section 8.6.E), or (vi) amend this
Section 14.1.D. In addition, any amendment to Section 7.11.C of this Agreement
shall require the following consent:
(i) In the event that the amendment to Section 7.11.C affects
the Two Penn Plaza Property or the rights of holders of Two
Penn Plaza Units, such amendment shall require the Consent of
Partners (other than the General Partner or the General
Partner Entity or any Subsidiary of either the General Partner
or the General Partner Entity) who hold seventy-five percent
(75%) of the Two Penn Plaza Units;
(ii) In the event that the amendment to Section 7.11.C affects
the Eleven Penn Plaza Property or the rights of holders of
Eleven Penn Plaza Units, such amendment shall require the
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Consent of Partners (other than the General Partner or the
General Partner Entity or any Subsidiary of either the General
Partner or the General Partner Entity) who hold seventy-five
percent (75%) of the Eleven Penn Plaza Units; and
(iii) In the event that the amendment to Section 7.11.C
affects the 866 U.N. Plaza Property or the rights of holders
of 866 U.N. Plaza Units, such amendment shall require the
Consent of Partners (other than the General Partner or the
General Partner Entity or any Subsidiary of either the General
Partner or the General Partner Entity) who hold seventy-five
percent (75%) of the 866 U.N. Plaza Units.
E. Amendment and Restatement of Exhibit A Not An Amendment.
Notwithstanding anything in this Article XIV or elsewhere in this Agreement to
the contrary, any amendment and restatement of Exhibit A hereto by the General
Partner to reflect events or changes otherwise authorized or permitted by this
Agreement, whether pursuant to Section 7.1.A(20) hereof or otherwise, shall not
be deemed an amendment of this Agreement and may be done at any time and from
time to time, as necessary by the General Partner without the Consent of the
Limited Partners.
F. Amendment by Merger. In the event that the Partnership
participates in any merger (including a triangular merger), consolidation or
combination with another entity in a transaction not otherwise prohibited by
this Agreement and as a result of such merger, consolidation or combination this
Agreement is to be amended (or a new agreement for a limited partnership or
limited liability company, as applicable, is to be adopted for the surviving
entity) and any of the Outside Limited Partners (as defined herein in "Consent
of Outside Limited Partners") will hold equity interests in the continuing or
surviving entity, then any such amendments to this Agreement (or changes from
this Agreement reflected in the new agreement for the surviving entity) shall
require the consents provided in Section 14.1.C and Section 14.1.D.
Section 14.2 Meetings of the Partners
A. General. Meetings of the Partners may be called only by the
General Partner. The call shall state the nature of the business to be
transacted. Notice of any such meeting shall be given to all Partners not less
than seven (7) days nor more than thirty (30) days prior to the date of such
meeting; provided that a Partner's attendance at any meeting of Partners shall
be deemed a waiver of the foregoing notice requirement with respect to such
Partner. Partners may vote in person or by proxy at such meeting. Whenever the
vote or Consent of Partners is permitted or required under this Agreement, such
vote or Consent may be given at a meeting of Partners or may be given in
accordance with the procedure prescribed in Section 14.1.A above. Except as
otherwise expressly provided in this Agreement, the Consent of holders of a
majority of the Percentage Interests held by Limited Partners (including Limited
Partnership Interests held by the General Partner) shall control.
B. Actions Without a Meeting. Any action required or permitted
to be taken at a meeting of the Partners may be taken without a meeting if a
written consent setting forth the action so taken is signed by a majority of the
Percentage Interests of the Partners (or such other percentage as is expressly
required by this Agreement). Such consent may be in one instrument or in several
instruments, and shall have the same force and effect as a vote of a majority of
the Percentage Interests of the Partners (or such other percentage as is
expressly required by this Agreement). Such consent shall be filed with the
General Partner. An action so taken shall be deemed to have been taken at a
meeting held on the effective date so certified.
C. Proxy. Each Limited Partner may authorize any Person or
Persons to act for such Limited Partner by proxy on all matters in which a
Limited Partner is entitled to participate, including waiving notice of any
meeting, or voting or participating at a meeting. Every proxy must be signed by
the Limited Partner or its attorney-in-fact. No proxy shall be valid after the
expiration of eleven (11) months from the date thereof unless
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otherwise provided in the proxy. Every proxy shall be revocable at the pleasure
of the Limited Partner executing it, such revocation to be effective upon the
Partnership's receipt of notice thereof in writing.
D. Conduct of Meeting. Each meeting of Partners shall be
conducted by the General Partner or such other Person as the General Partner may
appoint pursuant to such rules for the conduct of the meeting as the General
Partner or such other Person deems appropriate.
ARTICLE XV
GENERAL PROVISIONS
Section 15.1 Addresses and Notice
Any notice, demand, request or report required or permitted to
be given or made to a Partner or Assignee under this Agreement shall be in
writing and shall be deemed given or made when delivered in person or when sent
by first class United States mail or by other means of written communication to
the Partner or Assignee at the address set forth in Exhibit A hereto or such
other address as the Partners shall notify the General Partner in writing.
Section 15.2 Titles and Captions
All article or section titles or captions in this Agreement
are for convenience only. They shall not be deemed part of this Agreement and in
no way define, limit, extend or describe the scope or intent of any provisions
hereof. Except as specifically provided otherwise, references to "Articles" and
"Sections" are to Articles and Sections of this Agreement.
Section 15.3 Pronouns and Plurals
Whenever the context may require, any pronoun used in this
Agreement shall include the corresponding masculine, feminine or neuter forms,
and the singular form of nouns, pronouns and verbs shall include the plural and
vice versa.
Section 15.4 Further Action
The parties shall execute and deliver all documents, provide
all information and take or refrain from taking action as may be necessary or
appropriate to achieve the purposes of this Agreement.
Section 15.5 Binding Effect
This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their heirs, executors, administrators, successors,
legal representatives and permitted assigns.
Section 15.6 Creditors; Other Third Parties
Other than as expressly set forth herein with regard to any
Indemnitee, none of the provisions of this Agreement shall be for the benefit
of, or shall be enforceable by, any creditor or other third party having
dealings with the Partnership.
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Section 15.7 Waiver
No failure by any party to insist upon the strict performance
of any covenant, duty, agreement or condition of this Agreement or to exercise
any right or remedy consequent upon a breach thereof shall constitute waiver of
any such breach or any other covenant, duty, agreement or condition.
Section 15.8 Counterparts
This Agreement may be executed in counterparts, all of which
together shall constitute one agreement binding on all the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart. Each party shall become bound by this Agreement immediately
upon affixing its signature hereto.
Section 15.9 Applicable Law
This Agreement shall be construed and enforced in accordance
with and governed by the laws of the State of Delaware, without regard to the
principles of conflicts of law.
Section 15.10 Invalidity of Provisions
If any provision of this Agreement is or becomes invalid,
illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall not be
affected thereby.
Section 15.11 Power of Attorney
A. General. Each Limited Partner and each Assignee who accepts
Partnership Units (or any rights, benefits or privileges associated therewith)
is deemed to irrevocably constitute and appoint the General Partner, any
Liquidator and authorized officers and attorneys-in-fact of each, and each of
those acting singly, in each case with full power of substitution, as its true
and lawful agent and attorney-in-fact, with full power and authority in its
name, place and stead to:
(1) execute, swear to, acknowledge, deliver, file and
record in the appropriate public offices (a) all
certificates, documents and other instruments
(including, without limitation, this Agreement and
the Certificate and all amendments or restatements
thereof) that the General Partner or any Liquidator
deems appropriate or necessary to form, qualify or
continue the existence or qualification of the
Partnership as a limited partnership (or a
partnership in which the limited partners have
limited liability) in the State of Delaware and in
all other jurisdictions in which the Partnership may
conduct business or own property, (b) all instruments
that the General Partner or any Liquidator deems
appropriate or necessary to reflect any amendment,
change, modification or restatement of this Agreement
in accordance with its terms, (c) all conveyances and
other instruments or documents that the General
Partner or any Liquidator deems appropriate or
necessary to reflect the dissolution and liquidation
of the Partnership pursuant to the terms of this
Agreement, including, without limitation, a
certificate of cancellation, (d) all instruments
relating to the admission, withdrawal, removal or
substitution of any Partner pursuant to, or other
events described in, Article XI, XII or XIII hereof
or the Capital Contribution of any Partner and (e)
all certificates, documents and other instruments
relating to the determination of the rights,
preferences and privileges of Partnership Interests;
and
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(2) execute, swear to, acknowledge and file all ballots,
consents, approvals, waivers, certificates and other
instruments appropriate or necessary, in the sole and
absolute discretion of the General Partner or any
Liquidator, to make, evidence, give, confirm or
ratify any vote, consent, approval, agreement or
other action which is made or given by the Partners
hereunder or is consistent with the terms of this
Agreement or appropriate or necessary, in the sole
discretion of the General Partner or any Liquidator,
to effectuate the terms or intent of this Agreement.
Nothing contained in this Section 15.11 shall be construed as
authorizing the General Partner or any Liquidator to amend this Agreement except
in accordance with Article XIV hereof or as may be otherwise expressly provided
for in this Agreement.
B. Irrevocable Nature. The foregoing power of attorney is
hereby declared to be irrevocable and a power coupled with an interest, in
recognition of the fact that each of the Partners will be relying upon the power
of the General Partner or any Liquidator to act as contemplated by this
Agreement in any filing or other action by it on behalf of the Partnership, and
it shall survive and not be affected by the subsequent Incapacity of any Limited
Partner or Assignee and the transfer of all or any portion of such Limited
Partner's or Assignee's Partnership Units and shall extend to such Limited
Partner's or Assignee's heirs, successors, assigns and personal representatives.
Each such Limited Partner or Assignee hereby agrees to be bound by any
representation made by the General Partner or any Liquidator, acting in good
faith pursuant to such power of attorney; and each such Limited Partner or
Assignee hereby waives any and all defenses which may be available to contest,
negate or disaffirm the action of the General Partner or any Liquidator, taken
in good faith under such power of attorney. Each Limited Partner or Assignee
shall execute and deliver to the General Partner or the Liquidator, within
fifteen (15) days after receipt of the General Partner's or Liquidator's request
therefor, such further designation, powers of attorney and other instruments as
the General Partner or the Liquidator, as the case may be, deems necessary to
effectuate this Agreement and the purposes of the Partnership.
Section 15.12 Entire Agreement
This Agreement contains the entire understanding and agreement
among the Partners with respect to the subject matter hereof and supersedes any
prior written oral understandings or agreements among them with respect thereto.
Section 15.13 No Rights as Shareholders
Nothing contained in this Agreement shall be construed as
conferring upon the holders of the Partnership Units any rights whatsoever as
shareholders of the General Partner Entity or the General Partner (if
different), including, without limitation, any right to receive dividends or
other distributions made to shareholders of the General Partner Entity or the
General Partner (if different) or to vote or to consent or receive notice as
shareholders in respect to any meeting of shareholders for the election of
directors of the General Partner Entity or the General Partner (if different) or
any other matter.
Section 15.14 Limitation to Preserve REIT Status
To the extent that any amount paid or credited to the General
Partner or its officers, directors, employees or agents pursuant to Section 7.4
or Section 7.7 hereof would constitute gross income to the General Partner
Entity or the General Partner (if it is to be qualified as a REIT) for purposes
of Section 856(c)(2) or 856(c)(3) of the Code (a "General Partner Payment")
then, notwithstanding any other provision of this Agreement, the amount of such
General Partner Payments for any fiscal year shall not exceed the lesser of:
65--
<PAGE> 71
(i) an amount equal to the excess, if any, of (a) 5% of the
General Partner Entity's or the General Partner's (if it is to be qualified as a
REIT) total gross income (but not including the amount of any General Partner
Payments) for the fiscal year over (b) the amount of gross income (within the
meaning of Section 856(c)(2) of the Code) derived by the General Partner Entity
or the General Partner (if it is to be qualified as a REIT) from sources other
than those described in subsections (A) through (H) of Section 856(c)(2) of the
Code (but not including the amount of any General Partner Payments); or
(ii) an amount equal to the excess, if any of (a) 25% of the
General Partner Entity's or the General Partner's (if it is to be qualified as a
REIT) total gross income (but not including the amount of any General Partner
Payments) for the fiscal year over (b) the amount of gross income (within the
meaning of Section 856(c)(3) of the Code) derived by the General Partner Entity
or the General Partner (if it is to be qualified as a REIT) from sources other
than those described in subsections (A) through (I) of Section 856(c)(3) of the
Code (but not including the amount of any General Partner Payments);
provided, however, that General Partner Payments in excess of the amounts set
forth in subparagraphs (i) and (ii) above may be made if the General Partner
Entity or the General Partner (if it is to be qualified as a REIT), as a
condition precedent, obtains an opinion of tax counsel that the receipt of such
excess amounts would not adversely affect the General Partner Entity's or the
General Partner's (if it is to be qualified as a REIT) ability to qualify as a
REIT. To the extent General Partner Payments may not be made in a year due to
the foregoing limitations, such General Partner Payments shall carry over and be
treated as arising in the following year, provided, however, that such amounts
shall not carry over for more than five years, and if not paid within such five
year period, shall expire; provided, further, that (i) as General Partner
Payments are made, such payments shall be applied first to carry over amounts
outstanding, if any, and (ii) with respect to carry over amounts for more than
one Partnership Year, such payments shall be applied to the earliest Partnership
Year first.
66--
<PAGE> 72
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
GENERAL PARTNER:
VORNADO REALTY TRUST
By: _______________________________
Name: _______________________________
Title: _______________________________
LIMITED PARTNERS:
THE MENDIK COMPANY, INC.
By: _______________________________
Name: _______________________________
Title: _______________________________
FW/MENDIK REIT, L.L.C.
By: Mendik Holdings LLC, member
By: Mendik Holdings, Inc., managing member
By: _______________________________
Name: _______________________________
Title: _______________________________
[ADD OTHER LIMITED PARTNERS]
67--
<PAGE> 73
EXHIBIT A
PARTNERS AND PARTNERSHIP INTERESTS
<TABLE>
<CAPTION>
Agreed
Preferred Class A Class B Class C Class D Class E Initial
Partnership Partnership Partnership Partnership Partnership Partnership Capital Percentage
Name and Address of Partner Units Units* Units Units Units Units Account Interest
- --------------------------- ------- -------- ------- ------- ------- ------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GENERAL PARTNER:
Vornado Trust
Park 80 West, Plaza Two
Saddle Brook, New Jersey
LIMITED PARTNERS:
Vornado Trust
Park 80 West, Plaza Two
Saddle Brook, New Jersey
The Mendik Company, Inc.
330 Madison Avenue
New York, New York
FW/Mendik REIT, L.L.C.
[Address]
[List Other Partners]
100.00%
TOTAL ========
======= ======== ======= ======= ======= ====== =========
</TABLE>
- ----------
* [NOTE: AT THE EFFECTIVE DATE THE GENERAL PARTNER'S TOTAL CLASS A UNITS MUST
EQUAL THE NUMBER OF OUTSTANDING COMMON SHARES]
-1-
<PAGE> 74
EXHIBIT B
CAPITAL ACCOUNT MAINTENANCE
1. Capital Accounts of the Partners
A. The Partnership shall maintain for each Partner a separate
Capital Account in accordance with the rules of Regulations Section
l.704-l(b)(2)(iv). Such Capital Account shall be increased by (i) the amount of
all Capital Contributions and any other deemed contributions made by such
Partner to the Partnership pursuant to this Agreement and (ii) all items of
Partnership income and gain (including income and gain exempt from tax) computed
in accordance with Section 1.B hereof and allocated to such Partner pursuant to
Section 6.1 of the Agreement and Exhibit C hereof, and decreased by (x) the
amount of cash or Agreed Value of all actual and deemed distributions of cash or
property made to such Partner pursuant to this Agreement and (y) all items of
Partnership deduction and loss computed in accordance with Section 1.B hereof
and allocated to such Partner pursuant to Section 6.1 of the Agreement and
Exhibit C hereof.
B. For purposes of computing the amount of any item of income,
gain, deduction or loss to be reflected in the Partners' Capital Accounts,
unless otherwise specified in this Agreement, the determination, recognition and
classification of any such item shall be the same as its determination,
recognition and classification for federal income tax purposes determined in
accordance with Section 703(a) of the Code (for this purpose all items of
income, gain, loss or deduction required to be stated separately pursuant to
Section 703(a)(1) of the Code shall be included in taxable income or loss), with
the following adjustments:
(1) Except as otherwise provided in Regulations Section
1.704-1(b)(2)(iv)(m), the computation of all items of
income, gain, loss and deduction shall be made
without regard to any election under Section 754 of
the Code which may be made by the Partnership,
provided that the amounts of any adjustments to the
adjusted bases of the assets of the Partnership made
pursuant to Section 734 of the Code as a result of
the distribution of property by the Partnership to a
Partner (to the extent that such adjustments have not
previously been reflected in the Partners' Capital
Accounts) shall be reflected in the Capital Accounts
of the Partners in the manner and subject to the
limitations prescribed in Regulations Section
l.704-1(b)(2)(iv)(m)(4).
(2) The computation of all items of income, gain, and
deduction shall be made without regard to the fact
that items described in Sections 705(a)(l)(B) or
705(a)(2)(B) of the Code are not includable in gross
income or are neither currently deductible nor
capitalized for federal income tax purposes.
(3) Any income, gain or loss attributable to the taxable
disposition of any Partnership property shall be
determined as if the adjusted basis of such property
as of such date of disposition were equal in amount
to the Partnership's Carrying Value with respect to
such property as of such date.
(4) In lieu of the depreciation, amortization, and other
cost recovery deductions taken into account in
computing such taxable income or loss, there shall be
taken into account Depreciation for such fiscal year.
B-1
<PAGE> 75
(5) In the event the Carrying Value of any Partnership
Asset is adjusted pursuant to Section 1.D hereof, the
amount of any such adjustment shall be taken into
account as gain or loss from the disposition of such
asset.
(6) Any items specially allocated under Section 2 of
Exhibit C hereof shall not be taken into account.
C. Generally, a transferee (including any Assignee) of a
Partnership Unit shall succeed to a pro rata portion of the Capital Account of
the transferor. The Capital Accounts of such reconstituted Partnership shall be
maintained in accordance with the principles of this Exhibit B.
D. (1) Consistent with the provisions of Regulations
Section 1.704-1(b)(2)(iv)(f), and as provided in
Section 1.D(2), the Carrying Values of all
Partnership assets shall be adjusted upward or
downward to reflect any Unrealized Gain or Unrealized
Loss attributable to such Partnership property, as of
the times of the adjustments provided in Section
1.D(2) hereof, as if such Unrealized Gain or
Unrealized Loss had been recognized on an actual sale
of each such property and allocated pursuant to
Section 6.1 of the Agreement.
(2) Such adjustments shall be made as of the following
times: (a) immediately prior to the acquisition of an
additional interest in the Partnership by any new or
existing Partner in exchange for more than a de
minimis Capital Contribution; (b) immediately prior
to the distribution by the Partnership to a Partner
of more than a de minimis amount of property as
consideration for an interest in the Partnership; and
(c) immediately prior to the liquidation of the
Partnership within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g), provided, however, that
adjustments pursuant to clauses (a) and (b) above
shall be made only if the General Partner determines
that such adjustments are necessary or appropriate to
reflect the relative economic interests of the
Partners in the Partnership.
(3) In accordance with Regulations Section 1.704-
1(b)(2)(iv)(e), the Carrying Value of Partnership
assets distributed in kind shall be adjusted upward
or downward to reflect any Unrealized Gain or
Unrealized Loss attributable to such Partnership
property, as of the time any such asset is
distributed.
(4) In determining Unrealized Gain or Unrealized Loss for
purposes of this Exhibit B, the aggregate cash amount
and fair market value of all Partnership assets
(including cash or cash equivalents) shall be
determined by the General Partner using such
reasonable method of valuation as it may adopt, or in
the case of a liquidating distribution pursuant to
Article XIII of the Agreement, shall be determined
and allocated by the Liquidator using such reasonable
methods of valuation as it may adopt. The General
Partner, or the Liquidator, as the case may be, shall
allocate such aggregate fair market value among the
assets of the Partnership in such manner as it
determines in its sole and absolute discretion to
arrive at a fair market value for individual
properties.
E. The provisions of the Agreement (including this
Exhibit B and the other Exhibits to the Agreement) relating to the maintenance
of Capital Accounts are intended to comply with Regulations Section 1.704-1(b),
and shall be interpreted and applied in a manner consistent with such
Regulations. In the event the General Partner shall determine that it is prudent
to modify the manner in which the Capital Accounts, or any debits or credits
thereto (including, without limitation, debits or credits relating to
liabilities which are
B-2
<PAGE> 76
secured by contributed or distributed property or which are assumed by the
Partnership, the General Partner, or the Limited Partners) are computed in order
to comply with such Regulations, the General Partner may make such modification
without regard to Article XIV of the Agreement, provided that it is not likely
to have a material effect on the amounts distributable to any Person pursuant to
Article XIII of the Agreement upon the dissolution of the Partnership. The
General Partner also shall (i) make any adjustments that are necessary or
appropriate to maintain equality between the Capital Accounts of the Partners
and the amount of Partnership capital reflected on the Partnership's balance
sheet, as computed for book purposes, in accordance with Regulations Section
1.704-1(b)(2)(iv)(q), and (ii) make any appropriate modifications in the event
unanticipated events might otherwise cause this Agreement not to comply with
Regulations Section 1.704-1(b).
2. No Interest
No interest shall be paid by the Partnership on Capital
Contributions or on balances in Partners' Capital Accounts.
3. No Withdrawal
No Partner shall be entitled to withdraw any part of its
Capital Contribution or Capital Account or to receive any distribution from the
Partnership, except as provided in Articles IV, V, VII and XIII of the
Agreement.
B-3
<PAGE> 77
EXHIBIT C
SPECIAL ALLOCATION RULES
1. Special Allocation Rules.
Notwithstanding any other provision of the Agreement or this
Exhibit C, the following special allocations shall be made in the following
order:
A. Minimum Gain Chargeback. Notwithstanding the provisions of
Section 6.1 of the Agreement or any other provisions of this Exhibit C, if there
is a net decrease in Partnership Minimum Gain during any Partnership Year, each
Partner shall be specially allocated items of Partnership income and gain for
such year (and, if necessary, subsequent years) in an amount equal to such
Partner's share of the net decrease in Partnership Minimum Gain, as determined
under Regulations Section 1.704-2(g). Allocations pursuant to the previous
sentence shall be made in proportion to the respective amounts required to be
allocated to each Partner pursuant thereto. The items to be so allocated shall
be determined in accordance with Regulations Section 1.704-2(f)(6). This Section
1.A is intended to comply with the minimum gain chargeback requirements in
Regulations Section 1.704-2(f) and for purposes of this Section 1.A only, each
Partner's Adjusted Capital Account Deficit shall be determined prior to any
other allocations pursuant to Section 6.1 of this Agreement with respect to such
Partnership Year and without regard to any decrease in Partner Minimum Gain
during such Partnership Year.
B. Partner Minimum Gain Chargeback. Notwithstanding any other
provision of Section 6.1 of this Agreement or any other provisions of this
Exhibit C (except Section 1.A hereof), if there is a net decrease in Partner
Minimum Gain attributable to a Partner Nonrecourse Debt during any Partnership
Year, each Partner who has a share of the Partner Minimum Gain attributable to
such Partner Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i)(5), shall be specially allocated items of Partnership income and
gain for such year (and, if necessary, subsequent years) in an amount equal to
such Partner's share of the net decrease in Partner Minimum Gain attributable to
such Partner Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i)(5). Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each General
Partner and Limited Partner pursuant thereto. The items to be so allocated shall
be determined in accordance with Regulations Section 1.704-2(i)(4). This
Section 1.B is intended to comply with the minimum gain chargeback requirement
in such Section of the Regulations and shall be interpreted consistently
therewith. Solely for purposes of this Section 1.B, each Partner's Adjusted
Capital Account Deficit shall be determined prior to any other allocations
pursuant to Section 6.1 of the Agreement or this Exhibit with respect to such
Partnership Year, other than allocations pursuant to Section 1.A hereof.
C. Qualified Income Offset. In the event any Partner
unexpectedly receives any adjustments, allocations or distributions described in
Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or
1.704-1(b)(2)(ii)(d)(6), and after giving effect to the allocations required
under Sections 1.A and 1.B hereof with respect to such Partnership Year, such
Partner has an Adjusted Capital Account Deficit, items of Partnership income and
gain (consisting of a pro rata portion of each item of Partnership income,
including gross income and gain for the Partnership Year) shall be specially
allocated to such Partner in an amount and manner sufficient to eliminate, to
the extent required by the Regulations, its Adjusted Capital Account Deficit
created by such adjustments, allocations or distributions as quickly as
possible. This Section 1.C is intended to constitute a "qualified income offset"
under Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted
consistently therewith.
D. Gross Income Allocation. In the event that any Partner has
an Adjusted Capital Account Deficit at the end of any Partnership Year (after
taking into account allocations to be made under the preceding paragraphs hereof
with respect to such Partnership Year), each such Partner shall be specially
allocated items of
C-1
<PAGE> 78
Partnership income and gain (consisting of a pro rata portion of each item of
Partnership income, including gross income and gain for the Partnership Year) in
an amount and manner sufficient to eliminate, to the extent required by the
Regulations, its Adjusted Capital Account Deficit.
E. Nonrecourse Deductions. Nonrecourse Deductions for any
Partnership Year shall be allocated to the Partners in accordance with their
respective Percentage Interests. If the General Partner determines in its good
faith discretion that the Partnership's Nonrecourse Deductions must be allocated
in a different ratio to satisfy the safe harbor requirements of the Regulations
promulgated under Section 704(b) of the Code, the General Partner is authorized,
upon notice to the Limited Partners, to revise the prescribed ratio for such
Partnership Year to the numerically closest ratio which would satisfy such
requirements.
F. Partner Nonrecourse Deductions. Any Partner Nonrecourse
Deductions for any Partnership Year shall be specially allocated to the Partner
who bears the economic risk of loss with respect to the Partner Nonrecourse Debt
to which such Partner Nonrecourse Deductions are attributable in accordance with
Regulations Sections 1.704-2(b)(4) and 1.704-2(i).
G. Code Section 754 Adjustments. To the extent an adjustment
to the adjusted tax basis of any Partnership asset pursuant to Section 734(b) or
743(b) of the Code is required, pursuant to Regulations Section
1.704-l(b)(2)(iv)(m), to be taken into account in determining Capital Accounts,
the amount of such adjustment to the Capital Accounts shall be treated as an
item of gain (if the adjustment increases the basis of the asset) or loss (if
the adjustment decreases such basis), and such item of gain or loss shall be
specially allocated to the Partners in a manner consistent with the manner in
which their Capital Accounts are required to be adjusted pursuant to such
Section of the Regulations.
2. Allocations for Tax Purposes
A. Except as otherwise provided in this Section 2, for federal
income tax purposes, each item of income, gain, loss and deduction shall be
allocated among the Partners in the same manner as its correlative item of
"book" income, gain, loss or deduction is allocated pursuant to Section 6.1 of
the Agreement and Section 1 of this Exhibit C.
B. In an attempt to eliminate Book-Tax Disparities
attributable to a Contributed Property or Adjusted Property, items of income,
gain, loss, and deduction shall be allocated for federal income tax purposes
among the Partners as follows:
(1) (a) In the case of a Contributed Property,
such items attributable thereto shall be
allocated among the Partners consistent with
the principles of Section 704(c) of the Code
to take into account the variation between
the 704(c) Value of such property and its
adjusted basis at the time of contribution
(taking into account Section 2.C of this
Exhibit C); and
(b) any item of Residual Gain or Residual Loss
attributable to a Contributed Property shall
be allocated among the Partners in the same
manner as its correlative item of "book"
gain or loss is allocated pursuant to
Section 6.1 of the Agreement and Section 1
of this Exhibit C.
C-2
<PAGE> 79
(2) (a) In the case of an Adjusted Property, such
items shall
(i) first, be allocated among the Partners in a
manner consistent with the principles of Section
704(c) of the Code to take into account the
Unrealized Gain or Unrealized Loss attributable to
such property and the allocations thereof pursuant to
Exhibit B;
(ii) second, in the event such property was
originally a Contributed Property, be allocated among
the Partners in a manner consistent with Section
2.B(1) of this Exhibit C; and
(b) any item of Residual Gain or Residual Loss
attributable to an Adjusted Property shall
be allocated among the Partners in the same
manner its correlative item of "book" gain
or loss is allocated pursuant to Section 6.1
of the Agreement and Section 1 of this
Exhibit C.
C. To the extent Regulations promulgated pursuant to
Section 704(c) of the Code permit a Partnership to utilize alternative methods
to eliminate the disparities between the Carrying Value of property and its
adjusted basis, the General Partner shall, subject to the following, have the
authority to elect the method to be used by the Partnership and such election
shall be binding on all Partners. With respect to the Contributed Properties
transferred to the Partnership in connection with the Consolidation, the
Partnership shall elect to use the "traditional method" set forth in Treasury
Regulation Section 1.704-3(b).
C-3
<PAGE> 80
EXHIBIT D
NOTICE OF REDEMPTION
The undersigned hereby irrevocably (i) elects to redeem
_________ Partnership Units in Vornado Realty L.P. in accordance with the terms
of the First Amended and Restated Agreement of Limited Partnership of Vornado
Realty L.P., as amended (the "Partnership Agreement"), and the Redemption Right
referred to therein, (ii) surrenders such Partnership Units and all right, title
and interest therein and (iii) directs that promptly after the Specified
Redemption Date the Cash Amount or Shares Amount (as determined by the General
Partner) deliverable upon exercise of the Redemption Right be delivered to the
address specified below, and if Shares are to be delivered, such Shares be
registered or placed in the name(s) and at the address(es) specified below. The
undersigned hereby represents, warrants, and certifies that the undersigned (a)
has marketable and unencumbered title to such Partnership Units, free and clear
of the rights of or interests of any other person or entity, (b) has the full
right, power and authority to redeem and surrender such Partnership Units as
provided herein and (c) has obtained the consent or approval of all persons or
entities, if any, having the right to consult or approve such redemption and
surrender. Capitalized terms used herein have the meanings assigned to them in
the Partnership Agreement.
Dated:____________ Name of Limited Partner:___________________________________
_________________________________
(Signature of Limited Partner)
_________________________________
(Street Address)
_________________________________
(City) (State) (Zip Code)
Signature Guaranteed by:___________________________
IF SHARES ARE TO BE ISSUED, ISSUE TO:
Name:
Please insert social security or identifying number:
D-1
<PAGE> 81
EXHIBIT E
VALUE OF CONTRIBUTED PROPERTY
<TABLE>
<CAPTION>
UNDERLYING PROPERTY 704(c) VALUE AGREED VALUE
- ------------------- ------------ ------------
<S> <C> <C>
</TABLE>
E-1
<PAGE> 82
EXHIBIT F
RESTRICTED PARTNERS
FW/Mendik, L.L.C.
Bernard H. Mendik
David R. Greenbaum
Any Mendik Owner
Mendik Realty Co., Inc.
The Mendik Partnership, L.P.
[2750 Associates]
Mil Equities
Mendik 1740 Corp.
Mendik RELP Corp.
20 Broad Street Company
[Mendik 570 Corp.]
[any other Mendik affiliates (other than certain employees) who take Partnership
Units as a result of the Consolidation]
F-1
<PAGE> 1
Exhibit 2.1(d)
EXHIBIT J
VOTING AGREEMENT
VOTING AGREEMENT (this "Agreement"), dated as of March __, 1997, by and
among certain undersigned shareholders (each a "Shareholder" and collectively,
the "Shareholders") of Vornado Realty Trust, a Maryland real estate investment
trust (the "Company"), and Bernard H. Mendik ("Mr. Mendik").
WHEREAS, pursuant to that certain Master Consolidation Agreement, dated as
of March __, 1997, among the Company, Vornado/Saddle Brook L.L.C., a Delaware
limited liability company, The Mendik Company, L.P., a Delaware limited
partnership (the "Operating Partnership"), and various other parties defined
therein collectively as the Mendik Group (the "Consolidation Agreement"), the
Operating Partnership will acquire (through merger, contribution, transfer or
otherwise) the assets of the Company, the Mendik Property Interests (as defined
in the Consolidation Agreement) and substantially all of the interests in the
Management Business Assets (as defined in the Consolidation Agreement); and
WHEREAS, each Shareholder currently exercises direct or indirect voting
control over the number of common shares of beneficial interest, $.04 par value
per share, of the Company ("Common Shares") set forth opposite such
Shareholder's name on Schedule 1 hereto; and
WHEREAS, in order to induce the Mendik Group to enter into the
Consolidation Agreement and to consummate the Consolidation in accordance with
the terms thereof, each Shareholder has agreed, upon the terms and subject to
the conditions set forth herein, to vote such Shareholder's Shares (as defined
below) in favor of the election of Mr. Mendik to the Board of Trustees of the
Company.
NOW, THEREFORE, for good and valuable consideration, the receipt,
sufficiency and adequacy of which are hereby acknowledged, the parties hereto
agree as follows:
1. Representations of the Shareholders. Each Shareholder represents and
warrants to Mr. Mendik that (a) such Shareholder exercises exclusive voting
control over such Shareholder's Shares and, except as set forth on Schedule 1
hereto or as contemplated by this Agreement, there are no rights, agreements,
arrangements or commitments of any character to which such Shareholder is a
party relating to the pledge, disposition or voting of any of such Shareholder's
Shares and there are no voting trusts or voting agreements with respect to such
Shareholder's Shares, (b) such Shareholder is duly authorized to execute and
deliver this Agreement, and (c) this Agreement is a valid and binding obligation
of such Shareholder enforceable against such Shareholder in accordance with its
terms, except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other laws affecting the rights of creditors
generally and by general equitable principles.
-1-
<PAGE> 2
2. Agreement to Vote Shares. Subject to the terms and conditions of this
Agreement, each Shareholder agrees during the term of this Agreement to vote, or
cause to be voted, such Shareholder's Shares in favor of the election of Mr.
Mendik to the Board of Trustees of the Company at every meeting of the
shareholders of the Company at which such matter is considered and at every
adjournment thereof. For all purposes of this Agreement, with respect to any
Shareholder, "Shares" shall mean those Common Shares, if any, held of record or
beneficially owned by and for the account of such Shareholder from time to time
during the term of this Agreement or over which such Shareholder exercises
voting control.
3. No Voting Trusts. Each Shareholder agrees that such Shareholder will
not, nor will such Shareholder permit any Affiliate to, deposit any of such
Shareholder's Shares in a voting trust or grant any proxies or otherwise subject
any of such Shareholder's Shares to any right, agreement, arrangement or
commitment with respect to the voting of such Shares inconsistent with the
express terms of this Agreement; provided, however, that, subject to Section 4,
nothing herein shall be deemed to restrict any Shareholder's right or ability to
sell, transfer, pledge or otherwise dispose of or encumber any of such
Shareholder's Shares at any time.
4. Disposition of Shares. Nothing contained herein shall be deemed to
require any Shareholder to own or hold beneficially or of record any Common
Shares or impose any limitation on any Shareholder's right or ability to sell,
transfer, pledge or otherwise dispose of or encumber any of such Shareholder's
Shares at any time; provided, however, that each Shareholder agrees that such
Shareholder shall not transfer such Shareholder's Shares to an Affiliate of such
Shareholder unless such Affiliate agrees prior to such transfer to be bound by
all of the terms and conditions of this Agreement by executing a counterpart
signature page to this Agreement and delivering the same to Mr. Mendik. As used
herein, "Affiliate", with respect to a Shareholder shall mean (i) an entity more
than fifty percent (50%) of the voting interests of which are held, directly or
indirectly, beneficially or of record by such Shareholder and (ii) in the case
of a Shareholder that is a natural person, such Shareholder's spouse and
children, if any, and any trust substantially all the beneficiaries of which are
such Shareholder, his spouse and/or his children.
5. Specific Performance. Each party hereto acknowledges that it will be
impossible to measure in money the damage to the other party if a party hereto
fails to comply with the obligations imposed by this Agreement and that, in the
event of any such failure, the other party will not have an adequate remedy at
law or in damages. Accordingly, each party hereto agrees that injunctive relief
or other equitable remedy, in addition to remedies at law or damages, is the
appropriate remedy for any such failure and will not oppose the granting of such
relief on the basis that the other party has an adequate remedy at law. Each
party hereto agrees that it will not seek, and agrees to waive any requirement
for, the securing or posting of a bond in connection with any other party's
seeking or obtaining such equitable relief.
6. Time of Agreement; Termination. The term of this Agreement shall
commence on the date hereof, and such term and this Agreement shall terminate
upon the earliest to occur of (i) March 31, 2003; (ii) the date that Mr. Mendik
ceases to own beneficially or control Common Shares and Units (as defined in the
Consolidation Agreement)
-2-
<PAGE> 3
representing at least 80% of the Mendik Initial Investment (for purposes of this
clause (ii), the calculation of the number of Common Shares and Units
beneficially owned by Mr. Mendik shall include those Common Shares and Units
comprising any part of the Mendik Initial Investment which have been
subsequently transferred or conveyed to, and held continuously by, any trust
exclusively for the benefit of Mr. Mendik, his spouse, his lineal descendants
and/or any charitable organizations); (iii) the death, Disability (as defined
below) or criminal indictment of Mr. Mendik or the occurrence of an act by Mr.
Mendik in connection with the business and affairs of the Company or the
Operating Partnership that constitutes fraud, gross negligence or willful
misconduct, or the removal of Mr. Mendik from the Board of Trustees of the
Company pursuant to the Amended and Restated Declaration of Trust of the
Company, as may be amended from time to time (the "Charter"); (provided,
however, that each Shareholder agrees that, in connection with any vote of the
shareholders of the Company to remove Mr. Mendik from the Board of Trustees of
the Company pursuant to the Charter during the term of this Agreement, such
Shareholder will either abstain from such vote or vote (or cause to be voted)
its Shares proportionally in accordance with the votes of the other holders of
Common Shares). As used herein, "Disability" means the illness, physical or
mental disability, or other incapacity, of Mr. Mendik which has continued for at
least 180 consecutive days. As used herein, "Mendik Initial Investment" means
the aggregate number of Common Shares and Units acquired by Mr. Mendik and
certain of his affiliates in the Consolidation as identified on Schedule 2
hereto, as such number may be adjusted from time to time in the event of any
share dividend or split, recapitalization, merger, consolidation, spinoff,
combination or exchange of Common Shares or other corporate change, or any
distributions to holders of Common Shares other than regular cash dividends.
Upon such termination, no party shall have any further obligations or
liabilities hereunder; provided, that such termination shall not relieve any
party from liability for any breach of this Agreement prior to such termination.
7. Entire Agreement. This Agreement supersedes all prior agreements,
written or oral, among the parties hereto with respect to the subject matter
hereof and contains the entire agreement among the parties with respect to the
subject matter hereof. This Agreement may not be amended, supplemented or
modified, and no provisions hereof may be modified or waived, except by an
instrument in writing signed by all parties hereto. No waiver of any provisions
hereto by any party shall be deemed a waiver of any other provisions hereof by
any such party, nor shall any such waiver be deemed a continuing waiver of any
provisions hereof by such party.
8. Notices. All notices, requests, claims, demands or other communications
hereunder shall be in writing, and shall be deemed given when delivered
personally, upon receipt of a transmission confirmation if sent by telecopy or
like transmission and on the next business day when sent by Federal Express,
Express Mail or other reputable overnight courier service to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
-3-
<PAGE> 4
If to the Shareholders, to:
Mr. Steven Roth
c/o Vornado Realty Trust
Park 80 West, Plaza II
Saddle Brook, New Jersey 07663
Telecopy: (201) 291-1093
Mr. Michael Fascitelli
c/o Vornado Realty Trust
Park 80 West, Plaza II
Saddle Brook, New Jersey 07663
Telecopy: (201) 291-1093
Interstate Properties
c/o Vornado Realty Trust
Park 80 West, Plaza II
Saddle Brook, New Jersey 07663
Telecopy: (201) 291-1093
With a copy to:
Sullivan & Cromwell
125 Broad Street
New York, NY 10004
Attention: Arthur S. Adler
Patricia A. Ceruzzi
Telecopy: (212) 558-3588
If to Mr. Bernard H. Mendik to:
Mr. Bernard H. Mendik
c/o The Mendik Company
330 Madison Avenue
New York, New York 10017
Telecopy: (212) 697-2837
With a copy to:
Hogan & Hartson LLP
555 Thirteenth Street, N.W.
Washington, D.C. 20004
Attention: J. Warren Gorrell, Jr.
Telecopy: (202) 637-5600
-4-
<PAGE> 5
9. Miscellaneous.
(a) THIS AGREEMENT SHALL BE DEEMED A CONTRACT MADE UNDER, AND FOR ALL
PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
MARYLAND, WITHOUT REFERENCE TO ITS CONFLICTS OF LAW PRINCIPLES.
(b) If any provision of this Agreement or the application of such provision
to any person or circumstances shall be held invalid or unenforceable by a court
of competent jurisdiction, such provision or application shall be unenforceable
only to the extent of such invalidity or unenforceability, and the remainder of
the provision held invalid or unenforceable and the application of such
provision to persons or circumstances, other than the party as to which it is
held invalid, and the remainder of this Agreement, shall not be affected.
(c) This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
(d) All Section headings herein are for convenience of reference only and
are not part of this Agreement, and no construction or reference shall be
derived therefrom.
(e) Capitalized terms used but not defined in this Agreement shall have the
respective meanings assigned to such terms in the Consolidation Agreement.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first written above.
_____________________________________
MR. STEVEN ROTH
_____________________________________
MR. MICHAEL FASCITELLI
Interstate Properties
By:___________________________________
General Partner
______________________________________
MR. MENDIK
-5-
<PAGE> 6
EXHIBIT A
Definitions
Vornado: Initially Vornado Realty Trust, then Borrower upon closing of the
contemplated acquisition.
EBITDA: Earnings before interest, taxes, depreciation, and amortization
determined in accordance with GAAP and adjusted for non-recurring
items (e.g., out-parcel sales).
Combined EBITDA: 100% of EBITDA from Vornado's wholly-owned properties and
Vornado's pro rata share of EBITDA from joint venture properties.
Combined Interest Expense: The total Interest Expense of Vornado's
wholly-owned properties and Vornado's pro rata share of Interest
Expense from joint venture properties.
Capitalized Value: Include: (i) Vornado's past four quarters combined
EBITDA capitalized at 9%; (ii) Cash and Cash equivalents; and (iii)
projects under development at cost. For the purposes of this
calculation, Vornado combined EBITDA attributable to leasing
commissions, management fees or development fees shall not exceed 5%
of Vornado Combined EBITDA.
Total Adjusted Outstanding Indebtedness: Includes: (i) 100% of all
outstanding unsecured and secured indebtedness (excluding margin debt
on cash and cash equivalent securities) for Vornado and its
wholly-owned properties; (ii) Vornado's pro rata share of debt from
joint venture properties; and (iii) Vornado's recourse contingent
obligations.
Equity Value: Capitalization Value less Total Adjusted Outstanding
Indebtedness.
Unencumbered Combined EBITDA: 100% of EBITDA for Vornado's wholly-owned
unencumbered properties and Vornado's pro rata share of EBITDA from
unencumbered joint venture properties.
Total Adjusted Unsecured Outstanding Indebtedness: Includes: (i) 100% of
all outstanding unsecured indebtedness for Vornado and its
wholly-owned properties; (ii) Vornado's pro rata share of unsecured
debt from joint venture properties; and (iii) Vornado's recourse
contingent obligations.
-6-
<PAGE> 7
Representations and Warranties
- - Valid existence and authority.
- - Binding effect of agreement.
- - Fair presentation of financial information.
- - No material adverse change.
- - No litigation with probability of material loss.
- - Compliance with applicable laws, including relevant environmental laws.
- - Payment of taxes.
- - Full disclosure (no representation will be made with respect to
projections).
- - Existence of insurance.
- - Valid existence of material subsidiaries.
Financial Covenants
At all times, Vornado is to maintain the following covenants and ratios
(quarterly test):
- - Minimum Vornado Equity Value of $600 million.
- - Total Adjusted Outstanding Indebtedness not to exceed 55% of Vornado
Capitalization Value.
- - The ratio of Combined EBITDA to Combined Interest Expense, for the prior
four quarters, shall not be less than 2.25 to 1.00.
- - Secured Indebtedness not to exceed 35% of Vornado Capitalization Value.
- - The ratio of Combined EBITDA, for the prior four quarters, to the current
Total Adjusted Outstanding Indebtedness less all unrestricted Cash and Cash
Equivalents shall not be less than 16%.
-7-
<PAGE> 8
- - The ratio of Unencumbered Combined EBITDA, for the prior four quarters, to
the current Total Adjusted Unsecured Outstanding Indebtedness less all
unrestricted Cash and Cash Equivalents shall not be less than 16%.
Provision of the following information on a quarterly (unaudited) basis:
- - Statement from a qualified representative of Vornado acceptable to Lender
presenting and certifying covenant compliance.
Provision of the following information as necessary:
- - Notice of material default.
- - Copies of any documents filed with the SEC by Vornado or any subsidiaries
thereof.
- - Notification of the bankruptcy or cessation of operations of any tenant to
which greater than 4% of Vornado's consolidated minimum rent is
attributable.
- - Notification of any asset acquisition or asset sale in excess of $25
million.
- - Full information as to Vornado's insurance coverage.
- - Other information as reasonably requested by Lender.
- - Maintenance of existence, maintenance of properties, maintenance of
insurance, payment of taxes and compliance with all applicable laws and
regulations.
- - Inspection of property, books and records at Lender's reasonable request.
Negative Covenants
- - No encumbrance or indebtedness on any unencumbered assets now held or
hereafter acquired by Vornado.
- - No additional encumbrance or indebtedness on any currently encumbered
assets.
Mandatory Prepayment Events
- - Merger, unless Borrower is the surviving entity.
-8-
<PAGE> 9
- - Sale of any asset or assets totaling more than 25% of Borrower's
Capitalization Value.
- - Cumulative total investments in minority interests in shares of other
companies in excess of 15% of Capitalization Value (not to include existing
investments in minority interests in shares of other companies).
- - Proceeds from any capital events (financings, equity offerings or
otherwise) shall be applied to prepayment of the Loan.
Events of Default
- - Failure to pay principal when due.
- - Failure to pay interest within five days after due.
- - Violation of covenants, subject, where appropriate, to cure or grace
periods to be negotiated.
- - Material inaccuracy of any representation or warranty.
- - Cross-default to recourse debt obligations in excess of $10 million.
- - Insolvency or bankruptcy of Borrower, Guarantor or a subsidiary to which
more than $100 million of Total Market Capitalization is attributable.
- - Judgement defaults in excess of $10 million that remain unremedied.
- - Failure of Guarantor to remain a publicly traded, stock exchange listed
company and to qualify as a real estate investment trust.
-9-
<PAGE> 10
March 7, 1997
Vornado Realty Trust
Park 80 West, Plaza II
Saddle Brook, New Jersey 07663
Attention: Mr. Joseph Macnow
-----------------
Re: Facility Fee
------------
Gentlemen:
With respect to our commitment letter issued simultaneously herewith, you
agree pay to UBS (for UBS' own account), the sum of $500,000 as a facility fee
upon the closing of the Loan referred to therein.
In addition, Borrower shall pay to UBS (for UBS' own account) an extension
fee of $500,000 per extension as a condition to the effectiveness of each of the
two extensions provided for in said commitment.
-10-
<PAGE> 11
This letter constitutes your agreement to pay the foregoing and may be
modified, supplemented, amended or terminated except by a writing executed by
you and us.
Very truly yours,
UNION BANK OF SWITZERLAND
(NEW YORK BRANCH)
By _________________________________
Name:
Title:
By _________________________________
Name:
Title:
Accepted and agreed to this
_____ day of March, 1997.
VORNADO REALTY TRUST
By ____________________________
Name:
Title:
-11-
<PAGE> 1
Exhibit 10.1
March 7, 1997
Vornado Realty Trust
Park 80 West, Plaza II
Saddle Brook, New Jersey 07663
Attention: Mr. Joseph Macnow
-----------------
Gentlemen:
We (hereinafter and in the General Conditions attached hereto and made a
part hereof, "Lender") agree to lend $400,000,000 (the "Loan") to a partnership
to be formed by you and approved by Lender (hereinafter and in the General
Conditions, "Borrower").
This letter and the General Conditions are hereinafter and in the General
Conditions sometimes collectively referred to as "this Commitment".
The Loan shall be advanced pursuant to a credit agreement (the "Credit
Agreement") in connection with the acquisition referred to below. The Loan shall
mature 90 days from the date of the Loan closing and shall bear interest
(subject to the following paragraph), payable monthly, at a rate per annum which
shall at all times be equal to the greater of (a) the prime commercial lending
rate as announced by Lender from time to time at its principal office in the
United States or (b) the federal funds rate plus 1/2 of 1%, to be computed on an
actual/360- day basis, each change in said rates to be effective as of the day
of such change. For purposes hereof, "federal funds rate" shall mean, for any
day, the rate per annum equal to the weighted average of the rates on overnight
federal funds transactions as published by the Federal Reserve Bank of New York
for such day or, for any day that is not a banking day in New York City, for the
immediately preceding banking day.
The Credit Agreement shall provide that Borrower shall have the option,
subject to availability and to the limitations hereinafter set forth, to have
portions of the outstanding principal amount of the Loan specified by Borrower
(each such portion a "Libor Amount") bear interest, payable monthly, at a rate
per annum (the "Libor Alternate
-1-
<PAGE> 2
Vornado Realty Trust, p. 2
Rate") which shall at all times be .625% in excess of the rate offered by the
London branch of Lender to prime banks in the London interbank market for
deposits in immediately available funds, in lawful money of the United States,
at approximately 11 A.M. (London time) two business days prior to the first day
of a given Libor Interest Period (as hereinafter defined) selected by Borrower
as hereinafter provided, for amounts comparable to the Libor Amount in question
and having the same term as the applicable Libor Interest Period, as adjusted
for the maximum rate at which reserves (including any marginal, supplemental or
emergency reserves) are required to be maintained by member banks in New York
City with deposits exceeding one billion dollars with respect to "Eurocurrency
liabilities" under Regulation D of the Board of Governors of the Federal Reserve
System. The Libor Alternate Rate as determined by Lender from time to time as
aforesaid shall be computed on an actual/360-day basis. Borrower shall have the
option of choosing the period of time during which a Libor Amount shall bear
interest at the Libor Alternate Rate (each such period a "Libor Interest
Period"), provided, however, that each such period shall, unless otherwise
permitted by Lender, be either one, two or three months, and in no event shall
any such period extend beyond the maturity date, by giving irrevocable
telephonic notice (to be promptly confirmed in writing) to Lender by 12 noon
(New York time) three business days prior to the first day of the desired Libor
Interest Period. If a Libor Alternate Rate is not available in accordance with
the terms of the Credit Agreement or if Borrower fails to select a succeeding
Libor Interest Period with respect to a Libor Amount on the last day of an
existing Libor Interest Period, said Libor Amount shall bear interest at the
prime based rate. The Credit Agreement shall also contain Lender's standard
protective and qualifying provisions regarding Libor Alternate Rate pricing and
shall limit Borrower to a maximum of three Libor Interest Periods at any time.
Lender's obligation to make the Loan shall be subject to (i) its
receipt of a guaranty of payment of the Loan executed by Vornado Realty Trust
("Guarantor"), (ii) the satisfaction of the General Conditions and (iii) the
further conditions that (a) Borrower shall have been created as an operating
partnership in which Guarantor is the managing general partner and the holder
of in excess of 90% of the beneficial interests, (b) Borrower shall have
become the owner of assets which shall include Guarantor's existing portfolio
and Guarantor's interest in Alexander's, Inc. and varying interests in seven
midtown Manhattan office buildings containing approximately 5,500,000 million
square feet of space and an associated management/leasing company acquired from
The Mendik Company and shall have represented that it is the owner of 100% of
such assets, (c) evidence satisfactory to Lender that such acquisition has
occurred in a manner satisfactory to Lender and (d) Lender's existing
$75,000,000 line of credit to Guarantor shall have been cancelled.
The Credit Agreement shall (i) contain the representations and
warranties, financial covenants, mandatory prepayment events and events of
default set forth on Exhibit A hereto, as well as such other representations
and warranties, covenants, defaults, late charges and default interest rates as
are customary in a loan of this nature and size to be mutually agreed upon by
Borrower and Lender and (ii) provide that Borrower shall have two successive
options to extend the maturity date of the Loan, provided no default exists
under the Credit Agreement, the first option for three months and the second
option for six months but in no event shall the maturity date of the Loan
extend beyond the first anniversary of the Loan closing.
If the Loan fails to close for any reason other than a default by
Lender in its obligations under this Commitment, you agree to pay a fee of
$200,000 to Lender for the cancellation of this Commitment if cancelled on or
before sixty (60) days from the date hereof or a fee of $300,000 if cancelled
after sixty (60) days from the date hereof.
If this Commitment is satisfactory, please indicate your acceptance
thereof by executing and returning to Lender a copy of this covering letter
with the General Conditions attached within five (5) days from the date hereof,
together with any sums required above to be paid upon acceptance hereof.
Otherwise this Commitment will, at Lender's option, be of no force or effect.
Very truly yours,
UNION BANK OF SWITZERLAND
(NEW YORK BRANCH)
By /s/ Brent Davis
----------------------------------------
Name: Brant Davis
Title: Assistant Vice-President
By /s/ Albert Rabil
-----------------------------------------
Name: Albert Rabil
Title: Managing Director
Accepted and agreed to this
12 day of March, 1997.
- --
VORNADO REALTY TRUST
by /s/ Joseph Macnow
------------------------------
Name: Joseph Macnow
Title: Vice President and CFO
Vornado Realty Trust
<PAGE> 3
<PAGE> 4
GENERAL CONDITIONS OF LOAN COMMITMENTS
1. The Loan shall be conditioned on Lender's receipt of the following,
(a) Certified financial statements of Guarantor and such other persons
or entities connected with the Loan as Lender may request, together with
evidence that there has occurred no material adverse change in the
respective financial conditions reflected therein between the respective
dates thereof and the date of the Loan closing:
(b) An opinion of counsel to Borrower to the effect, inter alia, that
the Loan documents contemplated hereby will be valid and enforceable in
accordance with their respective terms; and
(c) Such other documents, instruments, opinions and assurances as
Lender shall request, including, without limitation, Borrower's and
Guarantor's organizational documents and evidence of authority.
2. The Loan documents and all other instruments and documents required
hereby, or relating to Borrower's capacity and authority to make the Loan and to
execute the Loan documents and such other documents, instruments, opinions and
assurances as Lender may request and all procedures in connection herewith or
therewith shall be subject to the approval, as to form and substance, of Lender
and Lender's counsel, Messrs. Dewey Ballantine, New York, New York. All persons
or entities responsible for the preparation and/or execution of any required
documents or instruments and all obligors thereunder, shall be satisfactory to
Lender.
3. The Loan shall be made without cost to Lender, and Borrower and
Guarantor shall pay, whether or not the Loan closes, the fees and expenses of
Lender's counsel, and any other out-of-pocket costs or expenses incurred by
Lender. In addition, Borrower and Guarantor shall pay any legal fees or expenses
incurred by Lender in connection with any action or proceeding brought in
respect of this Commitment. The acceptance of this Commitment shall constitute
an undertaking on the part of Borrower and Guarantor to indemnify Lender against
claims of brokers arising in connection with the execution of this Commitment or
the consummation of the Loan.
-1-
<PAGE> 5
4. The Loan closing shall be held on a date within 90 days from the date of
the covering letter at the offices of Lender's counsel in New York City, or such
other place specified by Lender. If the Loan closing is not held within such
90-day period, Lender's obligations hereunder shall terminate unless Lender, at
its option, extends the time for such closing in writing.
5. Borrower and Guarantor recognize that Lender may sell and transfer
interests in the Loan to one or more participants or assignees and that all
documentation, financial statements, appraisals and other data, or copies
thereof, relevant to Borrower, Guarantor or the Loan, may be exhibited to and
retained by any such participant or assignee or prospective participant or
assignee.
6. This Commitment and the rights and obligations of the parties hereunder
shall in all respects be governed by, and construed and enforced in accordance
with, the laws of the State of New York (without giving effect to New York's
principles of conflicts of law). Borrower and Guarantor hereby irrevocably
submit to the non-exclusive jurisdiction of any New York State or Federal court
sitting in The City of New York over any suit, action or proceeding arising out
of or relating to this Commitment, and Borrower and Guarantor hereby agree and
consent that, in addition to any methods of service of process provided for
under applicable law, all service of process in any such suit, action or
proceeding in any New York State or Federal court sitting in The City of New
York may be made by certified or registered mail, return receipt requested,
directed to Borrower or Guarantor at the address indicated above to which this
Commitment was sent, and service so made shall be complete 5 days after the same
shall have been so mailed.
-2-
<PAGE> 6
EXHIBIT A
Definitions
Vornado: Initially Vornado Realty Trust, then Borrower upon closing of
the contemplated acquisition.
EBITDA: Earnings before interest, taxes, depreciation, and amortization
determined in accordance with GAAP and adjusted for non-recurring
items (e.g., out-parcel sales).
Combined EBITDA: 100% of EBITDA from Vornado's wholly-owned properties
and Vornado's pro rata share of EBITDA from joint venture
properties.
Combined Interest Expense: The total Interest Expense of Vornado's
wholly-owned properties and Vornado's pro rata share of Interest
Expense from joint venture properties.
Capitalization Value: Includes: (i) Vornado's past four quarters
combined EBITDA capitalized at 9%; (ii) Cash and Cash equivalents;
and (iii) projects under development at cost. For the purposes of
this calculation, Vornado combined EBITDA attributable to leasing
commissions, management fees or development fees shall not exceed 5%
of Vornado Combined EBITDA.
Total Adjusted Outstanding Indebtedness: Includes: (i) 100% of all
outstanding unsecured and secured indebtedness (excluding margin
debt on cash and cash equivalent securities) for Vornado and its
wholly-owned properties; (ii) Vornado's pro rata shares of debt from
joint venture properties; and (iii) Vornado's recourse contingent
obligations.
Equity Value: Capitalization Value less Total Adjusted Outstanding
Indebtedness.
Unencumbered Combined EBITDA: 100% of EBITDA for Vornado's wholly-owned
unencumbered properties and Vornado's pro rata share of EBITDA from
unencumbered joint venture properties.
Total Adjusted Unsecured Outstanding Indebtedness: Includes: (i) 100% of
all outstanding unsecured indebtedness for Vornado and its
wholly-owned properties; (ii) Vornado's pro rata share of
<PAGE> 7
unsecured debt from joint venture properties; and (iii)
Vornado's recourse contingent obligations.
Representations and Warranties
- - Valid existence and authority.
- - Binding effect of agreement.
- - Fair presentation of financial information.
- - No material adverse change.
- - No litigation with probability of material loss.
- - Compliance with applicable laws, including relevant
environmental laws.
- - Payment of taxes.
- - Full disclosure (no representation will be made with
respect to projections).
- - Existence of insurance.
- - Valid existence of material subsidiaries.
Financial Covenants
At all times, Vornado is to maintain the following covenants and ratios
(quarterly test):
- - Minimum Vornado Equity Value of $600 million.
- - Total Adjusted Outstanding Indebtedness not to exceed
55% of Vornado Capitalization Value.
- - The ratio of Combined EBITDA to Combined Interest
Expense, for the prior four quarters, shall not be less
than 2.25 to 1.00.
- - Secured Indebtedness not to exceed 35% of Vornado
Capitalization Value.
- - The ratio of Combined EBITDA, for the prior four
quarters, to the current Total Adjusted Outstanding
Indebtedness less all unrestricted Cash and Cash
Equivalents shall not be less than 16%.
2
<PAGE> 8
- - The ratio of Unencumbered Combined EBITDA, for the prior four quarters, to
the current Total Adjusted Unsecured Outstanding Indebtedness less all
unrestricted Cash and Cash Equivalents shall not be less than 16%.
Provision of the following information on a quarterly (unaudited) basis:
- - Statement from a qualified representative of Vornado acceptable to Lender
presenting and certifying covenant compliance.
Provision of the following information as necessary:
- - Notice of material default.
- - Copies of any documents filed with the SEC by Vornado or any subsidiaries
thereof.
- - Notification of the bankruptcy or cessation of operations of any tenant to
which greater than 4% of Vornado's consolidated minimum rent is attributable.
- - Notification of any asset acquisition or asset sale in excess of $25 million.
- - Full information as to Vornado's insurance coverage.
- - Other information as reasonably requested by Lender.
- - Maintenance of existence, maintenance of properties, maintenance of
insurance, payment of taxes and compliance with all applicable laws and
regulations.
- - Inspection of property, books and records at Lender's reasonable request.
Negative Covenants
- ------------------
- - No encumbrance or indebtedness on any unencumbered assets now held or
hereafter acquired by Vornado.
- - No additional encumbrance or indebtedness on any currently encumbered assets.
Mandatory Prepayment Events
- ---------------------------
- - Merger, unless Borrower is the surviving entity.
3
<PAGE> 9
- - Sale of any asset or assets totaling more than 25% of Borrower's
Capitalization Value.
- - Cumulative total investments in minority interests in shares of other
companies in excess of 15% of Capitalization Value (not to include existing
investments in minority interests in shares of other companies).
- - Proceeds from any capital events (financings, equity offerings or
otherwise) shall be applied to prepayment of the Loan.
Events of Default
- - Failure to pay principal when due.
- - Failure to pay interest within five days after due.
- - Violation of covenants, subject, where appropriate, to cure or grace
periods to be negotiated.
- - Material inaccuracy of any representation or warranty.
- - Cross-default to recourse debt obligations in excess of $10 million.
- - Insolvency or bankruptcy of Borrower, Guarantor or a subsidiary to which
more than $100 million of Total Market Capitalization is attributable.
- - Judgment defaults in excess of $10 million that remain unremedied.
- - Failure of Guarantor to remain a publicly traded, stock exchange listed
company and to qualify as a real estate investment trust.
4
<PAGE> 10
[UNION BANK OF SWITZERLAND LETTERHEAD]
March 7, 1997
Vornado Realty Trust
Park 80 West, Plaza II
Saddle Brook, New Jersey 07663
Attention: Mr. Joseph Macnow
Re: Facility Fee
Gentlemen:
With respect to our commitment letter issued simultaneously herewith,
you agree to pay to UBS (for UBS' own account), the sum of $500,000 as a
facility fee upon the closing of the Loan referred to therein.
In addition, Borrower shall pay to UBS (for UBS' own account) an
extension fee of $500,000 per extension as a condition to the effectiveness of
each of the two extensions provided for in said commitment.
This letter constitutes your agreement to pay the foregoing and may not
be modified, supplemented, amended or terminated except by a writing executed
by you and us.
Very truly yours,
UNION BANK OF SWITZERLAND
(NEW YORK BRANCH)
By: /s/ Brent Davis
-------------------------
Name: Brent Davis
Title:
By: /s/ Joseph Bassil
------------------------
Name: JOSEPH BASSIL
Title: VICE PRESIDENT
Accepted and agreed to this
12 day of March, 1997.
VORNADO REALTY TRUST
By; /s/ Joseph Macnow
----------------------
Name: Joseph Macnow
Title:
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
THE PARTNERS
TWO PENN PLAZA ASSOCIATES L.P.
We consent to the incorporation by reference in the Prospectus
Supplement dated March 26, 1997, to the Prospectus dated December 26, 1995, of
Vornado Realty Trust of our report dated January 15, 1997, except for Note 2,
as to which the date is March 12, 1997, on the financial statements of Two Penn
Plaza Associates L.P., as of December 31, 1996 and 1995, and the related
statements of operations, changes in Partners' capital and cash flows for each
of the years in the three-year period ended December 31, 1996, which report
appears in the Form 8-K of Vornado Realty Trust dated March 12, 1997, and to
the reference to our firm under the heading "Experts" in the Prospectus
Supplement.
Friedman Alpren & Green LLP
New York, New York
March 26, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
THE PARTNERS
B&B PARK AVENUE L.P.
We consent to the incorporation by reference in the Prospectus
Supplement dated March 26, 1997, to the Prospectus dated December 26, 1995, of
Vornado Realty Trust of our report dated January 15, 1997, except for Note 2, as
to which the date is March 12, 1997, on the financial statements of B&B Park
Avenue L.P., as of December 31, 1996 and 1995, and the related statements of
operations, changes in Partners' capital and cash flows for each of the years in
the three-year period ended December 31, 1996, which report appears in the Form
8-K of Vornado Realty Trust dated March 12, 1997, and to the reference to our
firm under the heading "Experts" in the Prospectus Supplement.
Friedman Alpren & Green LLP
New York, New York
March 26, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
THE PARTNERS
M ELEVEN ASSOCIATES, M 393 ASSOCIATES AND ELEVEN PENN PLAZA COMPANY
We consent to the incorporation by reference in the Prospectus
Supplement dated March 26, 1997, to the Prospectus dated December 26, 1995, of
Vornado Realty Trust of our report dated January 14, 1997, except for Note 2, as
to which the date is March 12, 1997, on the financial statements of M Eleven
Associates, M 393 Associates and Eleven Penn Plaza Company, as of December 31,
1996 and 1995, and the related statements of operations, changes in Partners'
capital and cash flows for each of the years in the three-year period ended
December 31, 1996, which report appears in the Form 8-K of Vornado Realty Trust
dated March 12, 1997, and to the reference to our firm under the heading
"Experts" in the Prospectus Supplement.
Friedman Alpren & Green LLP
New York, New York
March 26, 1997
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
THE PARTNERS
1740 BROADWAY ASSOCIATES, L.P.
We consent to the incorporation by reference in the Prospectus
Supplement dated March 26, 1997, to the Prospectus dated December 26, 1995, of
Vornado Realty Trust of our report dated January 16, 1997, except for Note 2, as
to which the date is March 12, 1997, on the financial statements of 1740
Broadway Associates, L.P., as of December 31, 1996 and 1995, and the related
statements of operations, changes in Partners' capital and cash flows for each
of the years in the three-year period ended December 31, 1996, which report
appears in the Form 8-K of Vornado Realty Trust dated March 12, 1997, and to the
reference to our firm under the heading "Experts" in the Prospectus Supplement.
Friedman Alpren & Green LLP
New York, New York
March 26, 1997
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT AUDITORS
THE MEMBERS
866 U.N. PLAZA ASSOCIATES LLC
We consent to the incorporation by reference in the Prospectus
Supplement dated March 26, 1997, to the Prospectus dated December 26, 1995, of
Vornado Realty Trust of our report dated January 15, 1997, except for Note 2, as
to which the date is March 12, 1997, on the financial statements of 866 U.N.
Plaza Associates LLC (formerly 866 U.N. Plaza Associates), as of December 31,
1996 and 1995, and the related statements of operations, changes in Partners'
capital and cash flows for each of the years in the three-year period ended
December 31, 1996, which report appears in the Form 8-K of Vornado Realty Trust
dated March 12, 1997, and to the reference to our firm under the heading
"Experts" in the Prospectus Supplement.
Friedman Alpren & Green LLP
New York, New York
March 26, 1997
<PAGE> 1
EXHIBIT 23.6
CONSENT OF INDEPENDENT AUDITORS
The Partners
Two Park Company:
We consent to the incorporation by reference in the prospectus supplement dated
March 26, 1997, to the prospectus dated December 26, 1995, of Vornado Realty
Trust of our report dated March 14, 1997, with respect to the balance sheets of
Two Park Company, a New York general partnership, as of December 31, 1996 and
1995, and the related statements of operations, changes in partners' capital and
cash flows for each of the years in the three-year period ended December 31,
1996, which report appears in the Form 8-K of Vornado Realty Trust dated March
12, 1997, and to the reference to our firm under the heading "Experts" in the
prospectus supplement.
/s/ KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
Boston, Massachusetts
March 26, 1997
<PAGE> 1
Exhibit 99.1
Contact: Joseph Macnow Roanne Kulakoff
Vornado Realty Trust Kekst and Company
201-587-1000 212-593-2655
FOR IMMEDIATE RELEASE
VORNADO AND MENDIK COMPANY AGREE TO COMBINE
-- Vornado To Convert to Umbrella Partnership --
New York, NY, March 12, 1997 -- Vornado Realty Trust (NYSE:VNO) and The Mendik
Company today announced that they have entered into a definitive agreement,
pursuant to which the Mendik Company will combine its operations with Vornado.
As part of the transaction, Vornado will convert to an Umbrella Partnership
(UPREIT) structure.
The Mendik Company owns and manages a portfolio of commercial office properties
in Manhattan, and as contemplated by the agreement, Mendik's interests, covering
an aggregate of 4.0 million square feet, in seven midtown buildings, Two Penn
Plaza, 1740 Broadway, 866 U.N. Plaza, 11 Penn Plaza, Two Park Avenue, 330
Madison Avenue and 570 Lexington Avenue, will be contributed to the Umbrella
Partnership.
Bernard Mendik, who has been a leading owner/manager of office properties in the
New York metropolitan area for forty years, will become Co-Chairman of the board
of Trustees of Vornado. Steven Roth continues as Vornado's Chairman and Chief
Executive Officer.
Mr. Mendik said, "I am excited about the exceptional management team created
with Michael Fascitelli, Vornado's president, and David Greenbaum, who is
president of The Mendik Company, joining forces with Steven and me." Mr. Roth
added, "The financial strength of our combined companies will enable us to
capitalize on opportunities, including those in the Manhattan office market.
The estimated consideration in connection with the transaction, which includes
Mendik's management and leasing business and personnel, is approximately $654
million, including $269 million in cash, $168 million in privately placed
Vornado UPREIT limited partnership units and $217 million in indebtedness.
The closing, which is expected in the second quarter, is subject to receipt of
consents from various third parties and other customary conditions; accordingly,
there can be no assurance that the proposed transaction will ultimately be
completed.
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