AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 28, 1997
REGISTRATION NO. 333-29329
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SL GREEN REALTY CORP.
(Exact name of registrant as specified in its governing instrument)
70 WEST 36TH STREET
NEW YORK, NY 10018
(Address of principal executive offices)
------------------------
STEPHEN L. GREEN
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
SL GREEN REALTY CORP.
70 WEST 36TH STREET
NEW YORK, NY 10018
(Name and address of agent for service)
------------------------
Copies to:
DOUGLAS A. SGARRO, ESQ. ALAN L. GOSULE, ESQ.
MICHAEL F. TAYLOR, ESQ. ROBERT E. KING, JR., ESQ.
BROWN & WOOD LLP ROGERS & WELLS
ONE WORLD TRADE CENTER 200 PARK AVENUE
NEW YORK, NEW YORK NEW YORK, NEW YORK 10166
10048-0557 (212) 878-8000
(212) 839-5300
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. /X/
------------------------
CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS AMOUNT BEING OFFERING PRICE AGGREGATE OFFERING REGISTRATION
OF SECURITIES BEING REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE(3)
Common Stock, $.01 par value per
share......................... 11,615,000 shares $20.00 $232,300,000 $70,393.94
(1) Includes 1,515,000 shares that are issuable upon exercise of the
Underwriters' over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) $56,454.55 previously paid at initial filing of registration statement.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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CROSS REFERENCE SHEET
ITEM NUMBER AND CAPTION LOCATION OR HEADING IN PROSPECTUS
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1. Forepart of Registration Statement and Outside Front Forepart of Registration Statement and Outside Front
Cover Page of Prospectus Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of Inside Front and Outside Back Cover Pages of
Prospectus Prospectus
3. Summary Information, Risk Factors and Ratio of Prospectus Summary; The Company; Risk Factors
Earnings to Fixed Charges
4. Determination of Offering Price Outside Front Cover Page; Underwriting
5. Dilution Dilution
6. Selling Security Holders Not applicable
7. Plan of Distribution Outside Front Cover Page; Underwriting
8. Use of Proceeds Use of Proceeds; Structure and Formation of the
Company
9. Selected Financial Data Selected Financial Information
10. Management's Discussion and Analysis of Financial Management's Discussion and Analysis of Financial
Condition and Results of Operations Condition and Results of Operations
11. General Information as to Registrant Outside Front Cover Page; Prospectus Summary; The
Company; Management; Structure and Formation of the
Company; Capital Stock
12. Policy with Respect to Certain Activities Prospectus Summary; The Company; Policies with
Respect to Certain Activities; Partnership Agreement;
Capital Stock; Additional Information
13. Investment Policies of Registrant Prospectus Summary; The Company; Business and Growth
Strategies; Policies with Respect to Certain
Activities
14. Description of Real Estate Prospectus Summary; The Properties
15. Operating Data The Company; The Properties; Financial Statements
16. Tax Treatment of Registrant and its Security Holders Prospectus Summary; Material Federal Income Tax
Consequences
17. Market Price of and Dividends on the Registrant's Risk Factors; Distributions; The Company; Structure
Common Equity and Related Stockholder Matters and Formation of the Company
18. Description of Registrant's Securities Capital Stock
19. Legal Proceedings The Properties
20. Security Ownership of Certain Beneficial Owners and Principal Stockholders
Management
21. Directors and Executive Officers Management
22. Executive Compensation Management
23. Certain Relationships and Related Transactions The Company; Management; Structure and Formation of
the Company; Certain Relationships and Transactions
24. Selection, Management and Custody of Registrant's Outside Front Cover Page; Prospectus Summary; The
Investments Company; The Properties
25. Policies with Respect to Certain Transactions Policies with Respect to Certain Activities
26. Limitations of Liability The Company; Capital Stock; Management
27. Financial Statements and Information Prospectus Summary; Selected Financial Information;
Financial Statements
28. Interests of Named Experts and Counsel Experts; Legal Matters
29. Disclosure of Commission Position on Indemnification Management
for Securities Act Liabilities
SUBJECT TO COMPLETION, DATED JULY 28, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
[LOGO]
PROSPECTUS
10,100,000 SHARES
SL GREEN REALTY CORP.
COMMON STOCK
------------------------
SL Green Realty Corp. (together with its subsidiaries, the "Company") has
been formed for the purpose of continuing the commercial real estate business of
S.L. Green Properties, Inc., and its affiliates ("SL Green"). For more than 17
years, SL Green has acquired and managed Class B office properties in Manhattan.
Upon completion of the Offering, the Company will own or have contracted to
acquire interests in nine Class B office properties encompassing approximately
2.2 million rentable square feet located in midtown Manhattan (the
"Properties"). In addition, the Company will manage 29 office properties
(including the Properties) encompassing approximately 6.4 million rentable
square feet. The Company will operate as a fully integrated, self-administered
and self-managed real estate investment trust (a "REIT"). Management expects
that the Company will be the first publicly-traded real estate company to invest
primarily in Manhattan office properties.
The Company is selling all of the shares of Common Stock, par value $.01 per
share, of the Company ("Common Stock") offered by this Prospectus. Upon
completion of the Offering, approximately 21% of the equity in the Company will
be beneficially owned by officers and directors of the Company and certain other
affiliated parties, on a fully diluted basis.
There is currently no public market for the Common Stock. The Company
anticipates that the initial public offering price per share will be between
$19.00 and $21.00. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price. The Common Stock
has been approved for listing, subject to official notice of issuance, on the
New York Stock Exchange under the symbol "SLG."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR CERTAIN FACTORS RELEVANT TO AN
INVESTMENT IN THE COMMON STOCK, INCLUDING, AMONG OTHERS:
- Concentration of all of the Company's properties in midtown Manhattan, and
the dependence of such properties on the conditions of the New York
metropolitan economy and the midtown Manhattan office market.
- Absence of arm's length negotiations with respect to the Company's
interests in the Properties and other assets to be contributed by SL Green
to the Company in connection with its formation and the fact that SL Green
and certain related persons will receive substantial economic benefits
(including the issuance to officers, directors and affiliates of the
Company of equity interests in the Company valued at approximately $54.7
million, the use of $20 million of Offering proceeds to repay a portion of
a loan made to a company owned by Stephen L. Green and of $6.4 million of
Offering proceeds to purchase the interests of third party partners in the
Properties), resulting in the risk that the consideration to be paid by
the Company for such assets may exceed the fair market value of such
assets and other potential conflicts of interest including those related
to sales and refinancings of Properties.
- The Company's estimated initial annual distributions represent 106% of its
estimated initial cash available for distribution, resulting in the
likelihood that the Company will be required to fund distributions from
working capital or borrowings or reduce such distributions.
- Recent and expected growth requiring the Company to integrate successfully
new acquisitions.
- Limitations on the Company's ability to sell or reduce the amount of
mortgage indebtedness on two of the Properties.
- Lehman Brothers Inc. ("Lehman"), the lead managing underwriter of the
Offering, and certain of its affiliates will receive material benefits
from the Offering and the formation transactions in addition to
underwriting discounts and commissions, including payment to Lehman of a
financial advisory fee equal to 0.75% of the gross proceeds of the
Offering and the repayment to a Lehman affiliate of an approximately $40
million loan made prior to the Offering.
- Limitations on the stockholders' ability to change control of the Company,
including restrictions on ownership of more than 9.0% of the outstanding
shares of Common Stock.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
Per Share...................................................... $ $ $
Total(3)....................................................... $ $ $
(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at approximately
$4,150,000.
(3) The Company has granted the Underwriters an option to purchase up to an
aggregate of 1,515,000 shares of Common Stock to cover over-allotments. If
all of such shares are purchased, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
------------------------
The shares of Common Stock offered by this Prospectus are offered by the
Underwriters subject to prior sale, withdrawal, cancellation or modification of
the offer without notice to, delivery to and acceptance by the Underwriters and
to certain further conditions. It is expected that delivery of the shares of
Common Stock offered hereby will be made at the offices of Lehman Brothers Inc.,
New York, New York, on or about , 1997.
LEHMAN BROTHERS
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
LEGG MASON WOOD WALKER
INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
, 1997
[MAP OF MIDTOWN MANHATTAN SHOWING PROPERTY LOCATIONS
WITH FOOTNOTE IDENTIFYING ACQUISITION PROPERTIES]
[PHOTOGRAPH OF BAR BUILDING LOBBY WITH CAPTION NOTING THE BUILDING]
[PHOTOGRAPH OF 1140 AVENUE OF THE AMERICAS WITH CAPTION NOTING THE ADDRESS
AND FOOTNOTE IDENTIFYING THE PROPERTY AS AN ACQUISITION PROPERTY]
[PHOTOGRAPH OF 470 PARK AVENUE SOUTH WITH CAPTION NOTING THE ADDRESS]
[PHOTOGRAPH OF 673 FIRST AVENUE WITH CAPTION NOTING THE ADDRESS]
[PHOTOGRAPH OF 1372 BROADWAY WITH CAPTION NOTING THE ADDRESS
AND FOOTNOTE IDENTIFYING THE PROPERTY AS AN ACQUISITION PROPERTY]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SUCH
TRANSACTIONS MAY INCLUDE THE PURCHASE OF SHARES OF COMMON STOCK TO COVER A
SYNDICATE SHORT POSITION IN THE COMMON STOCK OR FOR THE PURPOSE OF MAINTAINING
THE PRICE OF THE COMMON STOCK AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
TABLE OF CONTENTS
PROSPECTUS SUMMARY.................... 1
The Company........................... 1
Risk Factors.......................... 2
Conflicts of Interest................. 4
Business and Growth Strategies........ 4
The Properties........................ 6
Structure and Formation of the
Company............................. 7
The Offering.......................... 10
Distributions......................... 10
Tax Status of the Company............. 10
Summary Selected Financial
Information......................... 11
RISK FACTORS.......................... 13
The Company's Dependence on the
Midtown Markets Due to Limited
Geographic Diversification Could
Adversely Affect the Company's
Financial Performance............... 13
There is No Assurance that the Company
is Paying Fair Market Value for the
Properties.......................... 13
Conflicts of Interest in the Formation
Transactions and the Business of the
Company Could Adversely Affect the
Company............................. 13
A sale of, or reduction in mortgage
indebtedness on, any of the
Properties will have different
effects on holders of Units than
on stockholders................... 13
The Company may pursue less vigorous
enforcement of terms of
contribution and other agreements
because of conflicts of interest
with certain officers............. 14
Conflicts of interest will exist in
future dealings with affiliates of
the Company....................... 14
Outside interests of officers and
directors could conflict with the
Company's interests............... 14
Estimated Initial Cash Available for
Distribution Will Not be Sufficient
to Make Distributions at Expected
Levels.............................. 15
The Company May Not Achieve Expected
Returns on Recently Acquired
Properties and Property
Acquisitions........................ 15
Limitations on Ability to Sell or
Reduce the Mortgage Indebtedness on
Certain Properties Could Adversely
Affect the Value of the Common
Stock............................... 15
The Managing Underwriter Will Receive
Material Benefits................... 16
The Ability of Stockholders to Effect
a Change of Control of the Company
is Limited.......................... 17
Stock ownership limit in the Charter
could inhibit changes in
control........................... 17
Potential effects of staggered board
could inhibit changes in
control........................... 17
Future issuances of Common Stock
could dilute existing
stockholders' interests........... 17
Issuances of preferred stock could
inhibit changes in control........ 17
Certain provisions of Maryland law
could inhibit changes in
control........................... 17
Dependence on Smaller and Growth-
Oriented Businesses to Rent Class B
Office Space Could Adversely Affect
the Company......................... 18
The Company's Performance and Value
are Subject to Risks Associated with
the Real Estate Industry............ 18
The Company's ability to make
distributions is dependent upon
the ability of its office
properties to generate income in
excess of operating expenses...... 18
Tenant defaults and bankruptcies
could adversely affect the
Company's cash flow............... 18
Lease expirations could adversely
affect the Company's cash flow.... 19
Illiquidity of real estate
investments could adversely affect
the Company's financial
condition......................... 19
Operating costs could adversely
affect the Company's cash flow.... 19
Investments in mortgage loans could
cause expenses which could
adversely affect the Company's
financial condition............... 19
Joint venture investments could be
adversely affected by the
Company's lack of sole
decision-making authority and
reliance upon a co-venturer's
financial condition............... 19
The expiration of net leases could
adversely affect the Company's
financial condition............... 20
The Company's financial condition
could be adversely affected due to
its reliance on major tenants..... 20
i
The Company's Use of Debt Financing,
Increases in Interest Rates,
Financial Covenants and Absence of
Limitation on Debt Could Adversely
Affect the Company.................. 20
The required repayment of debt or
interest thereon could adversely
affect the Company's financial
condition......................... 20
Rising interest rates could
adversely affect the Company's
cash flow......................... 21
Credit facility requirements could
adversely affect the Company's
ability to make expected
distributions..................... 21
The Company's policy of no
limitation on debt could adversely
affect the Company's cash flow.... 21
Purchasers of Common Stock in the
Offering Will Experience Immediate
and Substantial Book Value
Dilution............................ 22
Failure to Qualify as a REIT Would
Cause the Company to be Taxed as a
Corporation......................... 22
The Company will be taxed as a
corporation if it fails to qualify
as a REIT......................... 22
To qualify as a REIT the Company
must maintain minimum distribution
requirements...................... 22
Other tax liabilities could
adversely affect the Company's
cash flow......................... 23
Lack of Operating History and
Inexperience of Management in
Operating a REIT Could Affect REIT
Qualification....................... 23
Competition in its Marketplace Could
Have an Adverse Impact on the
Company's Results of Operations..... 24
The Financial Condition of Third-Party
Property Management, Leasing and
Construction Businesses Could
Adversely Affect the Company's
Financial Condition................. 24
Liability for Environmental Matters
Could Adversely Affect the Company's
Financial Condition................. 24
Other Risks of Ownership of Common
Stock Could Adversely Affect the
Trading Price of the Common Stock... 25
Absence of prior public market for
Common Stock could adversely
affect the Common Stock price..... 25
Availability of shares for future
sale could adversely affect the
Common Stock price................ 25
Changes in market conditions could
adversely affect the Common Stock
price............................. 25
Growth potential and cash
distributions could adversely
affect the Common Stock price..... 25
Changes in market interest rates
could adversely affect the Common
Stock price....................... 26
Unrelated events could adversely
affect the Common Stock price..... 26
The Company's dependence on external
sources of capital could adversely
affect the Common Stock price..... 26
The officers, directors and
significant stockholders of the
Company will have substantial
influence......................... 26
The Company Relies on Key Personnel
Whose Continued Service is Not
Guaranteed.......................... 26
The SL Green Predecessor Has Had
Historical Accounting Losses and Has
a Deficit in Owners' Equity; The
Company May Experience Future
Losses.............................. 27
Stockholder Approval is Not Required
to Change Policies of the Company... 27
Uninsured Losses Could Adversely
Affect the Company's Cash Flow...... 27
The Costs of Compliance with the
Americans with Disabilities Act and
Similar Laws Could Adversely Affect
the Company's Cash Flow............. 27
Americans with Disabilities Act..... 27
Other Laws.......................... 28
THE COMPANY........................... 29
BUSINESS AND GROWTH STRATEGIES........ 31
The Market Opportunity................ 31
Growth Strategies..................... 32
USE OF PROCEEDS....................... 37
DISTRIBUTIONS......................... 38
CAPITALIZATION........................ 42
DILUTION.............................. 43
SELECTED FINANCIAL INFORMATION........ 45
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 47
Overview.............................. 47
Results of Operations................. 47
Pro Forma Operating Results........... 51
ii
Liquidity and Capital Resources....... 53
Cash Flows............................ 54
Funds from Operations................. 55
Inflation............................. 55
MARKET OVERVIEW....................... 56
New York Economy...................... 56
Manhattan Office Market............... 58
THE PROPERTIES........................ 64
The Portfolio......................... 64
673 First Avenue...................... 70
470 Park Avenue South................. 73
36 West 44th Street (The Bar
Building)........................... 75
70 West 36th Street................... 77
1414 Avenue of the Americas........... 79
29 West 35th Street................... 81
Acquisition Properties................ 83
The Option Property................... 89
General Terms of Leases in the Midtown
Markets............................. 89
Mortgage Indebtedness................. 90
Credit Facility....................... 91
Environmental Matters................. 91
Property Management and Leasing
Services............................ 92
Construction Services................. 92
Employees............................. 93
Transfer of Properties................ 93
Assets Not Being Transferred to the
Company............................. 93
Competition........................... 94
Regulation............................ 94
Insurance............................. 95
Legal Proceedings..................... 95
MANAGEMENT............................ 96
Directors, Director Nominees and
Executive Officers.................. 96
Committees of the Board of
Directors........................... 98
Compensation of Directors............. 99
Executive Compensation................ 99
Employment and Noncompetition
Agreements.......................... 100
Stock Option and Incentive Plan....... 101
Incentive Compensation Plan........... 101
401(k) Plan........................... 102
Limitation of Liability and
Indemnification..................... 102
STRUCTURE AND FORMATION OF THE
COMPANY............................. 104
The Operating Entities of the
Company............................. 104
Formation Transactions................ 105
Consequences of the Offering and the
Formation Transactions.............. 106
Benefits to Related Parties........... 107
POLICIES WITH RESPECT TO CERTAIN
ACTIVITIES.......................... 107
Investment Policies................... 108
Disposition Policies.................. 109
Financing Policies.................... 109
Conflict of Interest Policies......... 110
Interested Director and Officer
Transactions........................ 110
Business Opportunities................ 111
Policies with Respect to Other
Activities.......................... 111
CERTAIN RELATIONSHIPS AND
TRANSACTIONS........................ 112
Formation Transactions................ 112
Cleaning Services..................... 112
Security Services..................... 112
Related Party Transactions............ 112
PARTNERSHIP AGREEMENT................. 112
Operational Matters................... 112
Liability and Indemnification......... 116
Transfers of Interests................ 116
Fiduciary Duty........................ 117
PRINCIPAL STOCKHOLDERS................ 118
CAPITAL STOCK......................... 119
General............................... 119
Common Stock.......................... 119
Preferred Stock....................... 119
Excess Stock.......................... 120
Power to Issue Additional Shares of
Common Stock and Preferred Stock.... 120
Restrictions on Transfer.............. 120
Transfer Agent and Registrar.......... 122
CERTAIN PROVISIONS OF MARYLAND LAW AND
THE COMPANY'S CHARTER AND BYLAWS.... 123
Classification and Removal of Board of
Directors; Other Provisions......... 123
Business Combination Statute.......... 124
Control Share Acquisition Statute..... 124
Amendments to the Charter............. 125
Advance Notice of Director Nominations
and New Business.................... 125
Anti-takeover Effect of Certain
Provisions of Maryland Law and of
the Charter and Bylaws.............. 125
Rights to Purchase Securities and
Other Property...................... 125
SHARES AVAILABLE FOR FUTURE SALE...... 126
General............................... 126
Registration Rights................... 126
MATERIAL FEDERAL INCOME TAX
CONSEQUENCES........................ 127
iii
General............................... 127
Taxation of the Company............... 127
Taxation of Stockholders.............. 132
Other Tax Considerations.............. 135
State and Local Tax................... 137
Proposed Tax Legislation.............. 137
UNDERWRITING.......................... 138
EXPERTS............................... 140
LEGAL MATTERS......................... 141
ADDITIONAL INFORMATION................ 141
GLOSSARY OF SELECTED TERMS............ 142
INDEX TO FINANCIAL STATEMENTS......... F-1
CAUTIONARY STATEMENT
INFORMATION CONTAINED IN THIS PROSPECTUS CONTAINS "FORWARD-LOOKING
STATEMENTS" RELATING TO, WITHOUT LIMITATION, FUTURE ECONOMIC PERFORMANCE, PLANS
AND OBJECTIVES OF MANAGEMENT FOR FUTURE OPERATIONS AND PROJECTIONS OF REVENUE
AND OTHER FINANCIAL ITEMS, WHICH CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING
TERMINOLOGY SUCH AS "MAY," "WILL," "SHOULD," "EXPECT," "ANTICIPATE," "ESTIMATE"
OR "CONTINUE" OR THE NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE
TERMINOLOGY. THE CAUTIONARY STATEMENTS SET FORTH UNDER THE CAPTION "RISK
FACTORS" AND ELSEWHERE IN THE PROSPECTUS IDENTIFY IMPORTANT FACTORS WITH RESPECT
TO SUCH FORWARD- LOOKING STATEMENTS, INCLUDING CERTAIN RISKS AND UNCERTAINTIES
THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN SUCH FORWARD-
LOOKING STATEMENTS.
iv
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION INCLUDED ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED,
THE INFORMATION CONTAINED IN THIS PROSPECTUS ASSUMES THAT (I) THE INITIAL PUBLIC
OFFERING PRICE IS $20.00 PER SHARE (THE MIDPOINT OF THE PRICE RANGE SET FORTH ON
THE COVER PAGE OF THIS PROSPECTUS), (II) THE TRANSACTIONS DESCRIBED UNDER
"STRUCTURE AND FORMATION OF THE COMPANY" ARE CONSUMMATED, AND (III) THE
UNDERWRITERS' OVERALLOTMENT OPTION IS NOT EXERCISED. AS USED HEREIN, (I) THE
"COMPANY" MEANS SL GREEN REALTY CORP., A MARYLAND CORPORATION, AND ONE OR MORE
OF ITS SUBSIDIARIES (INCLUDING SL GREEN OPERATING PARTNERSHIP, L.P.), AND THE
PREDECESSORS THEREOF OR, AS THE CONTEXT MAY REQUIRE, SL GREEN REALTY CORP. ONLY
OR SL GREEN OPERATING PARTNERSHIP, L.P. ONLY AND (II) "SL GREEN" MEANS SL GREEN
PROPERTIES, INC., A NEW YORK CORPORATION, AS WELL AS THE AFFILIATED PARTNERSHIPS
AND OTHER ENTITIES THROUGH WHICH STEPHEN L. GREEN HAS HISTORICALLY CONDUCTED
COMMERCIAL REAL ESTATE ACTIVITIES. SEE "GLOSSARY OF SELECTED TERMS" FOR THE
DEFINITIONS OF CERTAIN TERMS USED IN THIS PROSPECTUS.
THE COMPANY
The Company has been formed for the purpose of continuing the commercial
real estate business of SL Green. For more than 17 years, SL Green has been
engaged in the business of owning, managing, leasing, acquiring and
repositioning Class B office properties in Manhattan. Upon completion of the
Offering, the Company will own or have contracted to acquire interests in nine
Class B office properties encompassing approximately 2.2 million rentable square
feet located in midtown Manhattan (the "Properties") and will manage 29 office
properties (including the Properties) encompassing approximately 6.4 million
rentable square feet. Of these Properties, interests in six office Properties
encompassing approximately 1.2 million rentable square feet are currently owned
and managed by SL Green (the "Core Portfolio") and interests in three office
Properties encompassing approximately 1.0 million rentable square feet will be
acquired upon completion of the Offering (the "Acquisition Properties"). As of
June 30, 1997, the weighted average occupancy rate of the Core Portfolio was 97%
and of the Acquisition Properties was 89%. Also, upon completion of the
Offering, the Company will own an option to acquire an additional Class B office
property in downtown Manhattan containing approximately 800,000 rentable square
feet of office space. See "The Properties--The Option Property." The Company
will operate as a fully integrated, self-administered and self-managed real
estate investment trust (a "REIT"). Management expects that the Company will be
the first publicly-traded real estate company to invest primarily in Manhattan
office properties.
The term "Class B" is generally used in the Manhattan office market to
describe office properties which are more than 25 years old but which are in
good physical condition, enjoy widespread acceptance by high-quality tenants and
are situated in desirable locations in Manhattan. Class B office properties can
be distinguished from Class A properties in that Class A properties are
generally newer properties with higher finishes and obtain the highest rental
rates within their markets.
A variety of tenants who do not require, desire or cannot afford Class A
space are attracted to Class B office properties due to their prime locations,
excellent amenities, distinguished architecture and relatively less expensive
rental rates. Class B office space has historically attracted many smaller
growth oriented firms (many of which have fueled the recent growth in the New
York metropolitan economy) and has played a critical role in satisfying the
space requirements of particular industry groups in Manhattan, such as the
advertising, apparel, business services, engineering, not-for-profit, "new
media" and publishing industries. In addition, several areas of Manhattan,
including many in which particular trades or industries traditionally
congregate, are dominated by Class B office space and contain no or very limited
Class A office space. Examples of such areas include the Garment District (where
three of the Properties are located), the Flatiron District (where one Property
is located), the areas immediately south and north of Houston Street ("Soho" and
"Noho", respectively), Chelsea (where one Property is located), and the area
surrounding the United Nations (where one Property is located). Businesses
significantly concentrated in certain of these areas include those in the
following industries: new media, garment, apparel, toy, jewelry, interior
decoration, antiques, giftware, contract furnishing and UN-related businesses.
The concentration of businesses creates strong demand for the available Class B
office space in those locations. Tenants that
1
currently occupy space in SL Green owned or managed properties include Cowles
Business Media, Kallir, Philips, Ross Inc., MCI, NationsBank, New York Hospital,
Newbridge Communications, Omnicom Group Ltd., Ross Stores, Sara Lee Corp. and
UNICEF.
As described herein, current developments in the New York metropolitan
economy provide an attractive environment for owning, operating and acquiring
Class B office properties in Manhattan. See "Business and Growth Strategies--The
Market Opportunity" and "Risk Factors--The Company's Dependence on the Midtown
Markets Due to Limited Geographic Diversification Could Adversely Affect The
Company's Financial Performance" below. The Company will seek to capitalize on
growth opportunities in its marketplace by acquiring Class B office properties
on a selective basis and, when necessary, enhancing their value after
acquisition through repositioning of the properties in their respective
submarkets. As described more fully below, the Company may have certain
competitive advantages over other potential acquirors of Class B Manhattan
office space due to its local market expertise, long-term relationships with
brokers and property owners attributable to its property management and leasing
businesses, enhanced access to capital as a public company and ability to offer
tax-advantaged acquisition structures. Additionally, the Company will seek to
optimize its properties' cash flow through ongoing intensive management and
leasing. See "Business and Growth Strategies--Growth Strategies."
SL Green was founded in 1980 by Stephen L. Green, its Chairman, President
and Chief Executive Officer. Since that time, SL Green has become a full
service, fully integrated real estate company which, upon completion of the
Offering, will have a portfolio of approximately 6.4 million rentable square
feet of Class B office properties under management. Throughout its history, SL
Green has been involved in the acquisition of 31 Class B office properties in
Manhattan containing approximately four million square feet and the management
of 50 Class B office properties in Manhattan containing approximately 10.5
million square feet.
SL Green has offices in midtown and downtown Manhattan and has established a
staff of more than 50 persons, including 40 professionals with experience in all
aspects of commercial real estate. The Company will be led by, in addition to
Stephen L. Green, six senior executives that average more than seven years with
SL Green and more than 19 years in the commercial real estate business. This
management team has developed a comprehensive knowledge of the Manhattan Class B
office market, an extensive network of tenant and other business relationships
and experience in acquiring underperforming office properties and repositioning
them into profitable Class B properties through intensive full service
management and leasing efforts. Upon completion of the Offering, approximately
21% of the equity of the Company, on a fully diluted basis, will be beneficially
owned by officers and directors of the Company and certain other affiliated
parties.
RISK FACTORS
An investment in the Common Stock involves various risks, and prospective
investors should carefully consider the matters discussed under "Risk Factors"
prior to making an investment in the Company. Such risks include, among others:
- concentration of all of the Properties in midtown Manhattan, and the
dependence of the Properties on the conditions of the New York
metropolitan economy and the Midtown Markets (as defined herein), which
increases the risk of the Company's being adversely affected by a downturn
in the New York metropolitan economy or the Midtown Markets;
- absence of arm's length negotiations with respect to the Company's
interests in the Properties and the other assets to be contributed by SL
Green to the Company in connection with its formation, resulting in the
risks that the consideration to be paid by the Company for such assets may
exceed the fair market value of such assets and that the market value of
the Common Stock may exceed the stockholders' proportionate share of the
aggregate fair market value of such assets;
- conflicts of interest in connection with the Formation Transactions (as
defined below), including the fact that officers, directors and affiliates
of the Company will receive equity interests in the
2
Company and the Operating Partnership (as defined below) with a value of
approximately $54.7 million, based on the assumed initial public offering
price;
- conflicts of interest involving officers and directors of the Company in
business decisions regarding the Company, including conflicts associated
with sales and refinancings of Properties and the prepayment of debt
secured by the Properties and conflicts associated with the provision of
cleaning and security services with respect to the Properties by entities
controlled by related parties;
- the Company's estimated initial annual distributions represent 106% of its
estimated initial cash available for distribution, resulting in the
likelihood that the Company will be required to fund distributions from
working capital or borrowings or reduce such distributions.
- integration of recent or expected acquisitions, including the risk that
certain of these properties may have characteristics or deficiencies
unknown to the Company that affect their valuation or revenue potential;
- limitations on the ability of the Company to sell, or reduce the amount of
mortgage indebtedness on, two of the Properties (673 First Avenue and 470
Park Avenue South) for up to 12 years following the completion of the
Offering (the "Lock-out Period"), except in certain circumstances (the
"Lock-out Provisions"), even if any such sale or reduction in mortgage
indebtedness would be in the best interests of the Company's stockholders,
which could benefit certain participants in the Formation Transactions
(including Stephen L. Green), and the possibility that future property
acquisitions in which the Company uses partnership interests as
consideration will include comparable limitations;
- Lehman and certain affiliates will receive material benefits from the
Offering and the Formation Transactions in addition to underwriting
discounts and commissions, including payment to Lehman of a financial
advisory fee equal to 0.75% of the gross proceeds of the Offering and the
repayment to a Lehman affiliate of an approximately $40 million loan made
to the Company prior to the Offering;
- the anti-takeover effect of limiting actual or constructive ownership of
Common Stock to 9.0% of the number of outstanding shares, subject to
certain exceptions, and of certain other provisions contained in the
organizational documents of the Company and the Operating Partnership,
which could have the effect of delaying, deferring or preventing a
transaction or change in control of the Company that might involve a
premium price for the Common Stock or otherwise would be in the best
interests of the Company's stockholders;
- dependence on smaller and growth-oriented businesses to rent Class B
office space;
- office real estate investment risks, such as the effect of the large
number of competitive office properties in the Midtown Markets, the need
to renew leases or re-lease space upon lease expirations and to pay
renovation and re-leasing costs in connection therewith, the effect of
economic and other conditions on office property cash flows and values,
the ability of tenants to make lease payments, the ability of a property
to generate revenue sufficient to meet operating expenses (including
future debt service), potential environmental liabilities, the illiquidity
of real estate investments and the possibility that acquired properties
fail to perform as expected;
- the inability to refinance outstanding indebtedness upon maturity or to
refinance such indebtedness on favorable terms, the risk of rising
interest rates in connection with variable rate debt and the absence of
limitations in the Company's organizational documents on the incurrence of
debt;
- immediate and substantial dilution of $7.10 in the net tangible book value
per share of the shares of Common Stock purchased in the Offering; and
- taxation of the Company as a corporation if it fails to qualify as a REIT
for Federal income tax purposes, the Company's liability for certain
Federal, state and local income taxes in such event and the resulting
decrease in cash available for distribution.
3
CONFLICTS OF INTEREST
Following the formation of the Operating Partnership and the completion of
the Offering, there will be conflicts of interest, with respect to certain
transactions, between the holders of Units (including Mr. Green) and the
stockholders of the Company. In particular, the consummation of certain business
combinations, the sale of any properties or a reduction of indebtedness could
have adverse tax consequences to holders of Units which would make such
transactions less desirable to such holders. The Company has adopted certain
policies that are designed to eliminate or minimize certain potential conflicts
of interest. Subject to the Lock-out Provisions, the limited partners of the
Operating Partnership have agreed that in the event of a conflict in the
fiduciary duties owed by the Company to its stockholders and by the General
Partner to such limited partners, the General Partner will fulfill its fiduciary
duties to such limited partnership by acting in the best interests of the
Company's stockholders. See "Policies with Respect to Certain
Activities--Conflict of Interest Policies" and "Partnership Agreement."
BUSINESS AND GROWTH STRATEGIES
The Company's primary business objective is to maximize total return to
stockholders through growth in distributable cash flow and appreciation in the
value of its assets. The Company plans to achieve this objective by capitalizing
on the external and internal growth opportunities described below and continuing
the operating strategies historically practiced by SL Green.
Unless indicated otherwise, information contained herein concerning the New
York metropolitan economy and the Manhattan office market is derived from a
report commissioned by the Company and prepared by the Rosen Consulting Group, a
nationally known real estate consulting company, and is included herein (the
"Rosen Market Study"), with the consent of the Rosen Consulting Group.
THE MARKET OPPORTUNITY
- The Company believes that the continuing recovery of the New York
commercial real estate market from the downturn of the late 1980s and
early 1990s creates an attractive environment for owning, operating and
acquiring Class B office properties in Manhattan.
- Recent net private sector job growth (especially in smaller companies), an
improving business environment and "quality of life" enhancements in New
York City have led to growing demand for office space in Manhattan.
- The Midtown Markets in particular have benefited from the growth in
smaller companies that have traditionally been attracted to Class B space
in the Midtown Markets due to its prime locations and relatively less
expensive rental rates (as compared to Class A space) and from the
relocation of larger firms from Class A space to Class B space.
- The Company expects the supply of office space in the Midtown Markets to
remain relatively stable for the foreseeable future because new
construction generally is not economically feasible at current market
rental rates and property values, there are relatively few sites available
for construction and the lead time required for construction typically
exceeds three years.
- As a result of these positive supply and demand fundamentals, the Class B
office vacancy rate in the Midtown Markets declined to 11.3% as of June
30, 1997 from its 1990s high of 17.3% in 1992 and asking rental rates for
Class B office space in the Midtown Markets increased to $24.44 per square
foot as of June 30, 1997 from their 1990s low of $21.89 per square foot as
of year-end 1993. These developments coupled with projected continuing
decreases in vacancy rates and increases in rental rates create attractive
opportunities for owning and acquiring Class B office properties in
Manhattan. However, concentration of the Properties in these markets
increases the risk of the Company being adversely affected by any downturn
in the New York metropolitan economy. See "Risk Factors--The Company's
Dependence on the Midtown Markets Due to Limited Geographic
Diversification Could Adversely Affect the Company's Financial
Performance."
4
GROWTH STRATEGIES
- The Company will seek to capitalize on current opportunities in the Class
B Manhattan office market through (i) property acquisitions--continuing to
acquire Class B office properties at significant discounts to replacement
costs that provide attractive initial yields and the potential for cash
flow growth, (ii) property repositioning--repositioning acquired
properties that are underperforming through renovations, active management
and proactive leasing and (iii) integrated leasing and property
management.
- PROPERTY ACQUISITIONS. In acquiring properties, the Company believes that
it will have the following advantages over its competitors: (i) over 17
years experience as a full service, fully integrated real estate company
focused on the Class B office market in Manhattan, (ii) enhanced access to
capital as a public company, (as compared to the generally fragmented and
far less institutional ownership of competing Manhattan Class B office
properties) and (iii) the ability to offer tax-advantaged structures to
sellers. In addition, the Company may benefit from the recent abolition of
the New York State Real Property Transfer Gains Tax and from recent tax
law developments reducing the transfer tax rates applicable to certain
REIT acquisition transactions.
- PROPERTY REPOSITIONING. The Company believes that there are a significant
number of potential acquisitions that could greatly benefit from
management's experience in enhancing property cash flow and value by
renovating and repositioning properties to be among the best in their
submarkets.
- INTEGRATED LEASING AND PROPERTY MANAGEMENT. The Company will seek to
capitalize on management's extensive knowledge of the Class B Manhattan
marketplace and the needs of the tenants therein by continuing SL Green's
proactive approach to leasing and management, which includes (i) the use
of in-depth market research, (ii) the utilization of an extensive network
of third-party brokers, (iii) comprehensive building management analysis
and planning and (iv) a commitment to tenant satisfaction and providing
"Class A" tenant services. The Company believes that SL Green's proactive
leasing efforts have contributed to average occupancy rates at the
Properties that are above the market average. See "Business and Growth
Strategies--Growth Strategies--Integrated Leasing and Property
Management." In addition, SL Green's commitment to tenant service and
satisfaction is evidenced by the renewal of approximately 80% of the
expiring rentable square footage (78% of the expiring leases determined by
number of leases) at the Properties in the Core Portfolio owned and
managed by SL Green during the period from January 1, 1994 through June
30, 1997.
5
THE PROPERTIES
THE PORTFOLIO
GENERAL. Upon the completion of the Offering, the Company will own or have
contracted to acquire interests in nine Class B office Properties located in
midtown Manhattan which contain approximately 2.2 million rentable square feet.
Of these Properties, six office properties encompassing approximately 1.2
million rentable square feet are currently owned and managed by SL Green and
three office properties encompassing approximately 1.0 million rentable square
feet will be acquired on or after completion of the Offering. See "Structure and
Formation of the Company--Formation Transactions." Upon completion of the
Offering, the Company will effectively own 100% of the economic interest in all
of the Properties. Certain of the Properties include at least a small amount of
retail space on the lower floors, as well as basement/storage space. One
Property (673 First Avenue) includes an underground parking garage. In addition
to the foregoing, upon completion of the Offering, the Company will own an
option to acquire a property containing approximately 800,000 rentable square
feet of office space in downtown Manhattan. See "The Properties--The Option
Property."
The following table sets forth certain information with respect to each of
the Properties as of June 30, 1997:
PERCENTAGE
OF PERCENTAGE
APPROXIMATE PORTFOLIO OF
YEAR RENTABLE RENTABLE PORTFOLIO
BUILT/ SQUARE SQUARE PERCENT ANNUALIZED ANNUALIZED
RENOVATED SUBMARKET FEET FEET LEASED RENT(1) RENT
---------- ---------------- ------------ ------------- ----------- ----------- -------------
CORE PORTFOLIO
- ------------------------------
673 First Avenue.............. 1928/1990 Grand Central 422,000 19.0% 100% $10,837,480 22.1%
South
470 Park Avenue South(4)...... 1912/1994 Park Avenue 260,000(4) 11.7 99 5,853,720 12.0
South/Flatiron
Bar Building (5).............. 1922/1985 Rockefeller 165,000(5) 7.4 89(5) 4,139,704 8.5
Center
70 W. 36th Street............. 1923/1994 Garment 151,000 6.8 98 2,795,986 5.7
1414 Avenue of the Americas... 1923/1990 Rockefeller 111,000 5.0 98 3,370,001 6.9
Center
29 W. 35th Street............. 1911/1985 Garment 78,000 3.5 92 1,393,135 2.8
------------ ----- --- ----------- -----
1,187,000 53.4 97 28,390,028 58.0
ACQUISITION PROPERTIES
- ------------------------------
1372 Broadway................. 1914/1985 Garment 508,000 22.9 84 9,631,140 19.7
1140 Avenue of the Americas... 1926/1951 Rockfeller 191,000 8.6 98 4,917,520 10.0
Center
50 W. 23rd Street............. 1892/1992 Chelsea 333,000 15.0 91 5,995,608 12.3
------------ ----- --- ----------- -----
Total/Weighted 2,219,000(6) 100.0% 94% $48,934,296 100.0%
Average..................... ------------ ----- --- ----------- -----
------------ ----- --- ----------- -----
ANNUAL
NET
ANNUALIZED EFFECTIVE
RENT RENT
PER PER
NUMBER LEASED LEASED
OF SQUARE SQUARE
LEASES FOOT(2) FOOT(3)
----------- ----------- -----------
CORE PORTFOLIO
- ------------------------------
673 First Avenue.............. 15 $ 25.68 $ 21.79
470 Park Avenue South(4)...... 27 22.66 19.43
Bar Building (5).............. 58 28.33 24.74
70 W. 36th Street............. 38 18.90 16.13
1414 Avenue of the Americas... 31 30.85 30.87
29 W. 35th Street............. 8 19.53 16.23
--- ----------- -----------
177 24.65 21.43
ACQUISITION PROPERTIES
- ------------------------------
1372 Broadway................. 32 22.47 21.57
1140 Avenue of the Americas... 39 26.30 24.70
50 W. 23rd Street............. 16 19.68 17.09
--- ----------- -----------
Total/Weighted 264 $ 23.58 $ 21.11
Average..................... --- ----------- -----------
--- ----------- -----------
- ------------------------
(1) As used throughout this Prospectus, Annualized Rent represents the monthly
contractual rent under existing leases as of June 30, 1997 multiplied by 12.
This amount reflects total rent before any rent abatements and includes
expense reimbursements, which may be estimated as of such date. Total rent
abatements for leases in effect as of June 30, 1997 for the 12 months ending
June 30, 1998 are approximately $815,000.
(2) Annualized Rent Per Leased Square Foot, as used throughout this Prospectus,
represents Annualized Rent, as described in footnote (1) above, presented on
a per leased square foot basis.
(3) As used throughout this Prospectus, Annual Net Effective Rent Per Leased
Square Foot represents (a) for leases in effect at the time an interest in
the relevant property was first acquired by SL Green, the remaining lease
payments under the lease divided by the number of months remaining under the
lease multiplied by 12 and (b) for leases entered into after an interest in
the relevant property was first acquired by SL Green and for leases at the
Acquisition Properties, all lease payments under the lease divided by the
number of months in the lease multiplied by 12, and, in the case of both (a)
and (b), adjusted for tenant improvement costs and leasing commissions, if
any, paid or payable by SL Green and presented on a per leased square foot
basis. In certain cases, Annual Net Effective Rent Per Leased Square Foot
may exceed Annualized Rent Per Leased Square Foot as a result of the
provision for future contractual increases in rental payments in the Annual
Net Effective Rent Per Leased Square Foot data.
(4) 470 Park Avenue South is comprised of two buildings, 468 Park Avenue South
(a 17-story office building) and 470 Park Avenue South (a 12-story office
building).
(5) SL Green first acquired an interest in the Bar Building in October 1996. SL
Green has commenced an aggressive leasing program at the Property and as of
July 15, 1997, approximately 93% of the rentable square feet in the Property
was leased. The Bar Building is comprised of two buildings, 36 West 44th
Street (a 14-story building) and 35 West 43rd Street (a four-story
building).
(6) Includes approximately 2,043,000 square feet of rentable office space,
146,000 square feet of rentable retail space and 30,000 square feet of
garage space.
6
STRUCTURE AND FORMATION OF THE COMPANY
STRUCTURE OF THE COMPANY
The Company will issue the Common Stock offered hereby and will be the sole
general partner of SL Green Operating Partnership, L.P., a Delaware limited
partnership (the "Operating Partnership") and issuer of the Units. The Company
will conduct substantially all of its business, and will hold all of its
interests in the Properties, through the Operating Partnership. As the sole
general partner of the Operating Partnership, the Company will have exclusive
power to manage and conduct the business of the Operating Partnership, subject
to certain exceptions (including the Lock-out Provisions). See "Partnership
Agreement." The Units may be exchanged for cash or, at the option of the
Company, shares of Common Stock on a one-for-one basis generally commencing two
years after completion of the Offering. See "Partnership Agreement--Transfers of
Interests--Redemption of Units."
The following diagram depicts the ownership structure of the Company upon
completion of the Offering and the Formation Transactions (as defined below):
[DIAGRAM REGARDING OWNERSHIP STRUCTURE OF COMPANY]
- ------------------------
(1) 100% of the economic interest in all of the Properties will be owned through
the Operating Partnership.
7
FORMATION TRANSACTIONS
Certain transactions have been consummated or will be consummated
concurrently with the completion of the Offering. These transactions (the
"Formation Transactions") include the following:
- The Company was organized as a Maryland corporation and the Operating
Partnership was organized as a Delaware limited partnership in June 1997.
In connection with the formation of the Company, certain members of SL
Green management (including Nancy A. Peck, Steven H. Klein, Benjamin P.
Feldman, Gerard Nocera and Louis A. Olsen) were issued an aggregate of
553,616 shares of Common Stock for total consideration of $3,831 in cash
(the aggregate par value amount of such stock at the time of issuance).
- Lehman Brothers Holdings Inc. ("LBHI"), an affiliate of Lehman Brothers
Inc., entered into a credit agreement with SL Green pursuant to which LBHI
agreed to loan to a company owned by Stephen L. Green up to $46 million
(the "LBHI Loan") to acquire interests in the Core Portfolio and the
Acquisition Properties, to fund property related operating expenses, to
fund organizational expenses of the Company and to purchase short-term
United States Treasury instruments ("Treasury Securities"). The LBHI Loan
is secured by partnership interests in certain Property-owning entities
and the Treasury Securities.
- The Company will sell 10,100,000 shares of Common Stock in the Offering
and will contribute the net proceeds therefrom to the Operating
Partnership in exchange for 10,100,000 Units (representing approximately
an 76.7% economic interest in the Operating Partnership after the
Offering).
- The Operating Partnership will receive a contribution of its interests in
the Core Portfolio as well as 95% of the economic interest in S.L. Green
Management Corp. (the "Management Corporation"), S.L. Green Realty, Inc.
(the "Leasing Corporation") and Emerald City Construction Corp. (the
"Construction Corporation", and together with the Management Corporation
and the Leasing Corporation, the "Service Corporations") from the
Property-owning entities, the partners or members of such entities and the
holders of interests in the Service Corporations. As consideration
therefor, the Operating Partnership will issue to such entities, partners
or members and holders 2,383,284 Units (having an aggregate value of
approximately $47.7 million, based on the assumed initial offering price)
and approximately $6.4 million.
- The management and leasing business of SL Green with respect to the
Properties in which the Company will have a 100% ownership interest and
the tenant representation business with respect to certain properties not
owned by the Company will be transferred to SL Green Management LLC (the
"Management LLC" and, together with the Management Corporation, the
"Management Entities"), a limited liability company which will be a wholly
owned subsidiary of the Company.
- The Operating Partnership will be granted an option from Green 17 Battery
LLC, a newly-formed limited liability company owned by Stephen L. Green
("17 Battery LLC"), to acquire its interest in 17 Battery Place, a
property containing approximately 800,000 rentable square feet of office
space in downtown Manhattan (the "Option Property") for a purchase price
of approximately $59 million in cash. See "The Properties--The Option
Property."
- The Operating Partnership will acquire interests in the Acquisition
Properties for an aggregate purchase price of approximately $113.0 million
(including a $1.6 million escrow account established in connection with
the acquisition of 50 West 23rd Street), to be funded with net proceeds
from the Offering and mortgage financing.
- The Operating Partnership will use approximately $82.3 million of net
proceeds from the Offering to repay mortgage debt encumbering the Core
Portfolio and the LBHI Loan (including approximately $9.4 million in
proceeds drawn under the LBHI Loan to fund purchase of the Acquisition
Properties).
- The Company will issue to Victor Capital Group, L.P. ("Victor Capital")
85,600 shares of restricted Common Stock and the Operating Partnership
will pay $900,000 (funded with borrowings under the LBHI Loan and proceeds
from the Offering) to Victor Capital as consideration for financial
advisory services rendered to the Company in connection with the Formation
Transactions.
8
No independent third-party appraisals, valuations or fairness opinions have
been obtained by the Company in connection with the Formation Transactions.
Accordingly, there can be no assurance that the value of the Units and other
consideration received in the Formation Transactions by persons or entities
contributing interests in the Core Portfolio and the Service Corporations to the
Operating Partnership is equivalent to the fair market value of such interests.
Additional information regarding the Formation Transactions is set forth
under "Structure and Formation of the Company--Formation Transactions."
BENEFITS TO RELATED PARTIES
Certain affiliates of the Company will realize certain material benefits in
connection with the Formation Transactions and the Offering, including the
following:
- Certain continuing investors (including Stephen L. Green) will receive
2,383,284 Units in consideration for their interests in the Properties,
Property-owning entities and the management, leasing and construction
businesses of SL Green with a total value of approximately $47.7 million,
based on the assumed initial public offering price (representing
approximately 18.1% of the equity of the Company on a fully-diluted
basis).
- The Operating Partnership will use $20 million to repay a portion of the
LBHI Loan that was made to Green Realty LLC, a newly-formed limited
liability company indirectly owned by Stephen L. Green and unaffiliated
with the Company ("Green Realty LLC") and invested in Treasury Securities
pledged as collateral therefor (which, upon repayment of the LBHI Loan,
will be released for the benefit of Stephen L. Green).
- Certain members of SL Green management (including Nancy A. Peck, Steven H.
Klein, Benjamin P. Feldman, Gerard Nocera and Louis A. Olsen) own an
aggregate of 553,616 shares of restricted Common Stock that initially will
have a value of $11.1 million, based on the assumed initial public
offering price.
- Certain members of SL Green management (including Stephen L. Green, David
J. Nettina, Nancy A. Peck, Steven H. Klein, Benjamin P. Feldman, Gerard
Nocera and Louis A. Olsen) will become officers and/or directors of the
Company. In addition, each of such persons will enter into employment and
noncompetition agreements with the Company. See "Management--Employment
and Noncompetition Agreements." Also, the Company will grant to directors,
officers and employees of the Company options to purchase an aggregate of
660,000 shares of Common Stock at the initial public offering price under
the Company's stock option and incentive plan, subject to certain vesting
requirements. In addition, pursuant to the terms of their employment
agreements, Messrs. Nettina and Klein will receive loans to purchase
Common Stock to be issued under such plan in the principal amount of
$300,000 and $500,000, respectively. See "Management."
- The structure of the Formation Transactions will provide the Unit
recipients (including the members of management referred to above) the
opportunity for deferral of the tax consequences of their contribution to
the Operating Partnership of their interests in the Properties,
Property-owning entities and Service Corporations.
- A to-be-formed limited liability company owned by Stephen L. Green and his
three sons (the "Service Corporation LLC") will own all of the voting
stock of each of the Service Corporations (representing a 5% equity
interest therein).
- Pursuant to the Lock-out Provisions, the Company will be restricted in its
ability to sell, or reduce the amount of mortgage indebtedness on, two of
the Properties (673 First Avenue and 470 Park Avenue South) for up to 12
years following the completion of the Offering, which could enable certain
participants in the Formation Transactions (including Stephen L. Green) to
defer certain tax consequences associated with the Formation Transactions.
- Persons or entities receiving Units in the Formation Transactions
(including entities owned by Stephen L. Green) will have registration
rights with respect to shares of Common Stock issued in exchange for
Units.
Additional information concerning benefits to related parties is set forth
under "Structure and Formation of the Company--Benefits to Related Parties."
9
THE OFFERING
Common Stock Offered by the Company.......... 10,100,000 shares
Common Stock Outstanding After the 10,779,216 shares(1)
Offering...................................
Common Stock and Units Outstanding After the
Offering................................... 13,162,500 shares and Units (2)
Use of Proceeds.............................. To repay mortgage indebtedness, to acquire
interests in the Properties, to pay Formation
Transaction expenses and to repay $39.6
million outstanding under the LBHI Loan.
NYSE Symbol.................................. "SLG"
- ------------------------
(1) Includes 679,216 shares of restricted Common Stock to be issued in the
Formation Transactions.
(2) Includes 2,383,284 Units expected to be issued in connection with the
Formation Transactions that may be exchanged for cash or, at the option of
the Company, shares of Common Stock on a one-for-one basis generally
commencing two years after completion of the Offering. Excludes 1,515,000
shares that are issuable upon exercise of the Underwriters' over-allotment
option and 660,000 shares reserved for issuance upon the exercise of stock
options to be granted pursuant to the Company's stock option and incentive
plan concurrently with the Offering.
DISTRIBUTIONS
The Company intends to make regular quarterly distributions to holders of
its Common Stock. The initial distribution, covering a partial quarter
commencing on the date of the closing of the Offering and ending on September
30, 1997, is expected to be $ per share, which represents a pro rata
distribution based upon a full quarterly distribution of $.35 per share and an
annual distribution of $1.40 per share (or an annual distribution rate of
approximately 7.00%, based on an assumed initial public offering price of
$20.00). See "Distributions."
The Company intends initially to distribute annually approximately 106% of
estimated cash available for distribution. The Company's estimate of cash
available for distribution for the twelve months ending June 30, 1998 is based
upon pro forma Funds from Operations (as defined below) for the 12 months ended
June 30, 1997, with certain adjustments as described in "Distributions." The
Company anticipates that approximately 30% (or $.42 per share) of the
distributions intended to be paid by the Company for the 12-month period
following the completion of Offering will represent a return of capital for
Federal income tax purposes and in such event will not be subject to Federal
income tax under current law to the extent such distributions do not exceed a
stockholder's basis in his Common Stock. The Company intends to maintain its
initial distribution rate for the 12-month period following the completion of
the Offering unless actual results of operations, economic conditions or other
factors differ materially from the assumptions used in its estimate.
Distributions by the Company will be determined by the Board of Directors and
will be dependent upon a number of factors, including revenue received from the
Company's properties, the operating expenses of the Company, interest expense,
the ability of tenants at the Company's properties to meet their financial
obligations and unanticipated capital expenditures. The Company believes that
its estimate of cash available for distribution is reasonable; however, no
assurance can be given that the estimate will prove accurate, and actual
distributions may therefore be significantly different from expected
distributions. See "Distributions." The Company does not intend to reduce the
expected distribution per share if the Underwriters' over-allotment option is
exercised.
TAX STATUS OF THE COMPANY
The Company intends to elect to be taxed as a REIT under Sections 856
through 860 of the Internal Revenue Code of 1986, as amended (the "Code"),
commencing with its taxable year ending December 31, 1997, and believes its
organization and proposed method of operation will enable it to meet the
10
requirements for qualification as a REIT. Based on various assumptions and
factual representations made by the Company regarding the various requirements
for qualification as a REIT, in the opinion of Brown & Wood LLP, counsel for the
Company, the Company will be organized in conformity with the requirements for
qualification and taxation as a REIT under the Code and the proposed method of
operation of the Company will enable the Company to meet the requirements for
qualification and taxation as a REIT. The opinion of Brown & Wood LLP is not,
however, binding on the Internal Revenue Service (the "IRS") or any court.
To maintain REIT status, an entity must meet a number of organizational and
operational requirements. In addition, in order to maintain its qualification as
a REIT under the Code, the Company generally will be required each year to
distribute at least 95% of its net taxable income (excluding any net capital
gain). See "Material Federal Income Tax Consequences--Taxation of the
Company--Annual Distribution Requirements." As a REIT, the Company generally
will not be subject to Federal income tax on net income it distributes currently
to its stockholders. If the Company fails to qualify as a REIT in any taxable
year, it will be subject to Federal income tax at regular corporate rates. See
"Material Federal Income Tax Consequences--Taxation of the Company--Failure to
Qualify" and "Risk Factors--Failure to Qualify as a REIT Would Cause the Company
to be Taxed as a Corporation." Even if the Company qualifies for taxation as a
REIT, the Company may be subject to certain Federal, state and local taxes on
its income and property.
SUMMARY SELECTED FINANCIAL INFORMATION
The following table sets forth summary selected financial and operating
information on a pro forma basis for the Company, and on a historical combined
basis for the SL Green Predecessor (as defined below), and should be read in
conjunction with all of the financial statements and notes thereto included in
this Prospectus. The combined historical balance sheet information as of
December 31, 1996 and 1995 and statements of income for the years ended December
31, 1996, 1995, and 1994 of the SL Green Predecessor have been derived from the
historical combined financial statements audited by Ernst & Young LLP,
independent auditors, whose report with respect thereto is included elsewhere in
this Prospectus. The operating data for the six months ended June 30, 1997 and
1996 and the years ended December 31, 1993 and 1992 have been derived from the
unaudited combined financial statements of the SL Green Predecessor. In the
opinion of management of the SL Green Predecessor, the operating data for the
six months ended June 30, 1997 and 1996 and the years ended December 31, 1993
and 1992 include all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the information set forth therein. The
results of operations for the interim periods ended June 30, 1997 and 1996 are
not necessarily indicative of the result to be obtained for the full fiscal
year.
The "SL Green Predecessor" consists of 100% of the net assets and results of
operations of two Properties, 1414 Avenue of the Americas and 70 West 36th
Street, equity interests in four other Properties, 673 First Avenue, 470 Park
Avenue South, 29 West 35th Street and the Bar Building (which interests are
accounted for under the equity method) and 100% of the net assets and results of
operations of the Service Corporations.
The unaudited pro forma financial and operating information for the Company
as of and for the six months ended June 30, 1997 and the year ended December 31,
1996 assumes completion of the Offering and the Formation Transactions as of the
beginning of the periods presented for the operating data and as of the stated
date for the balance sheet data. The pro forma financial information is not
necessarily indicative of what the actual financial position and results of
operations of the Company would have been as of and for the period indicated,
nor does it purport to represent the Company's future financial position and
results of operations.
11
THE COMPANY (PRO FORMA) AND THE SL GREEN PREDECESSOR (HISTORICAL)
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
YEAR ENDED DECEMBER 31,
----------------------------------------------
SIX MONTHS ENDED JUNE 30, HISTORICAL
------------------------------------------- ----------------------------------------------
PRO FORMA PRO FORMA
1997 1997 1996 1996 1996 1995 1994
------------- ------------- ------------- ------------- --------- --------- ---------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
OPERATING DATA:
Total revenue................. $ 28,919 $ 7,334 $ 4,098 $ 53,189 $ 10,182 $ 6,564 $ 6,600
------------- ------ ------------- ------------- --------- --------- ---------
Property operating expense.... 7,632 1,625 1,230 16,224 3,197 2,505 2,009
Real estate taxes............. 4,078 482 232 8,248 703 496 543
Interest...................... 2,986 713 442 5,858 1,357 1,212 1,555
Depreciation and
amortization................ 3,630 599 406 6,979 975 775 931
Marketing, general and
administration.............. 1,428 1,835 2,029 2,643 3,250 3,052 2,351
------------- ------ ------------- ------------- --------- --------- ---------
Total expenses................ 19,754 5,254 4,339 39,952 9,482 8,040 7,389
------------- ------ ------------- ------------- --------- --------- ---------
Operating income (loss)....... 9,165 2,080 (241) 13,237 700 (1,476) (789)
Equity in net income (loss) of
uncombined joint ventures... -- (564) (817) 504 (1,408) (1,914) (1,423)
------------- ------ ------------- ------------- --------- --------- ---------
Income (loss) before
extraordinary item and
minority interest........... 9,165 1,516 (1,058) 12,733 (708) (3,390) (2,212)
Minority interest............. (1,668) -- -- (2,317) -- -- --
Income (loss) before
extraordinary item.......... $ 7,497 $ 1,516 $ (1,058) $ 10,416 $ (708) $ (3,390) $ (2,212)
------------- ------ ------------- ------------- --------- --------- ---------
------------- ------ ------------- ------------- --------- --------- ---------
Income before extraordinary
item per share.............. $ 0.70 $ 0.97
------------- -------------
1993 1992
------------- -------------
(UNAUDITED) (UNAUDITED)
OPERATING DATA:
Total revenue................. $ 5,926 $ 5,516
------ -------------
Property operating expense.... 1,741 1,431
Real estate taxes............. 592 676
Interest...................... 1,445 1,440
Depreciation and
amortization................ 850 773
Marketing, general and
administration.............. 1,790 1,531
------ -------------
Total expenses................ 6,418 5,851
------ -------------
Operating income (loss)....... (492) (335)
Equity in net income (loss) of
uncombined joint ventures... 88 (2,227)
------ -------------
Income (loss) before
extraordinary item and
minority interest........... (404) (2,562)
Minority interest............. -- --
Income (loss) before
extraordinary item.......... $ (404) $ $(2,562)
------ -------------
------ -------------
Income before extraordinary
item per share..............
AS OF JUNE 30, 1997
--------------------------
PRO FORMA HISTORICAL
----------- -------------
AS OF DECEMBER 31,
------------------------------------------------
HISTORICAL
------------------------------------------------
1996 1995 1994 1993
----------- --------- --------- -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
BALANCE SHEET DATA:
Commercial real estate, before accumulated
depreciation...................................... $ 246,861 $ 41,112 $ 26,284 $ 15,559 $ 15,761 $ 15,352
Total assets........................................ 259,255 46,745 30,072 16,084 15,098 16,218
Mortgages and notes payable......................... 46,733 26,646 16,610 12,700 12,699 12,699
Accrued interest payable............................ 97 109 90 2,894 12,699 1,576
Minority interest................................... 31,690 0 0 0 0 0
Owners equity (deficit)............................. 142,435 (2,169) (8,405) (18,848) (15,520) (13,486)
OTHER DATA:
Funds from operations............................... 12,702 -- -- -- -- --
Net cash provided by (used in) operating
activities........................................ -- 1,140 272 (234) 939 --
Net cash provided by (used in) financing
activities........................................ -- (425) 11,960 63 178 --
Net cash (used in) investing activities............. -- (145) (12,375) (432) (567) --
1992
-------------
(UNAUDITED)
BALANCE SHEET DATA:
Commercial real estate, before accumulated
depreciation...................................... $ 16,080
Total assets........................................ 15,645
Mortgages and notes payable......................... 9,500
Accrued interest payable............................ 4,757
Minority interest................................... 0
Owners equity (deficit)............................. (8,449)
OTHER DATA:
Funds from operations............................... --
Net cash provided by (used in) operating
activities........................................ --
Net cash provided by (used in) financing
activities........................................ --
Net cash (used in) investing activities............. --
- ------------------------
(1) The White Paper on Funds from Operations approved by the Board of Governors
of the National Association of Real Estate Investment Trusts ('NAREIT') in
March 1995 defines Funds from Operations as net income (loss) (computed in
accordance with GAAP), excluding gains (or losses) from debt restructuring
and sales of properties, plus real estate related depreciation and
amortization and after adjustments for unconsolidated partnerships and joint
ventures. The Company believes that Funds from Operations is helpful to
investors as a measure of the performance of an equity REIT because, along
with cash flow from operating activities, financing activities and investing
activities, it provides investors with an indication of the ability of the
Company to incur and service debt, to make capital expenditures and to fund
other cash needs. The Company computes Funds from Operations in accordance
with standards established by NAREIT which may not be comparable to Funds
from Operations reported by other REITs that do not define the term in
accordance with the current NAREIT definition or that interpret the current
NAREIT definition differently than the Company. Funds from Operations does
not represent cash generated from operating activities in accordance with
GAAP and should not be considered as an alternative to net income
(determined in accordance with GAAP) as an indication of the Company's
financial performance or to cash flow from operating activities (determined
in accordance with GAAP) as a measure of the Company's liquidity, nor is it
indicative of funds available to fund the Company's cash needs, including
its ability to make cash distributions. For a reconciliation of net income
and Funds from Operations, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Funds from Operations."
12
RISK FACTORS
An investment in the Common Stock involves various risks. Prospective
investors should carefully consider the following information before making a
decision to purchase Common Stock in the Offering.
THE COMPANY'S DEPENDENCE ON THE MIDTOWN MARKETS DUE TO LIMITED GEOGRAPHIC
DIVERSIFICATION COULD ADVERSELY AFFECT THE COMPANY'S FINANCIAL PERFORMANCE
All of the Properties are located in midtown Manhattan. Like other office
markets, the Midtown Markets have experienced downturns in the past, including
most recently in the late 1980s and early 1990s, and future declines in the New
York metropolitan economy or the Midtown Markets could adversely affect the
Company's financial performance. The Company's financial performance and its
ability to make distributions to stockholders are therefore dependent on
conditions in the New York metropolitan economy and the Midtown Markets. The
Company's revenue and the value of its properties may be affected by a number of
factors, including the economic climate in metropolitan New York (which may be
adversely affected by business layoffs or downsizing, industry slowdowns,
relocations of businesses, changing demographics, increased telecommuting,
infra-structure quality, New York State and New York City budgetary constraints
and priorities and other factors) and conditions in the Midtown Markets (such as
oversupply of or reduced demand for office space). There can be no assurance as
to the continued growth of the New York metropolitan economy, the continued
strength of the Midtown Markets or the future growth rate of the Company.
THERE IS NO ASSURANCE THAT THE COMPANY IS PAYING FAIR MARKET VALUE FOR THE
PROPERTIES
The amount of consideration in the Company to be received by SL Green and
certain related parties in the Formation Transactions was not determined as a
result of arm's length negotiations with such persons or with purchasers in the
Offering. The amount of consideration to be paid by the Company to acquire
interests in the Properties was determined by SL Green, and SL Green and certain
related persons will receive substantial economic benefits as a result of the
consummation of the Formation Transactions and the Offering. See "Structure and
Formation of the Company--Benefits to Related Parties." No independent
valuations or appraisals of the Properties were obtained by the Company in
connection with the acquisition of property interests in the Formation
Transactions. Accordingly, there can be no assurance that the consideration to
be paid by the Company for these interests represents the fair market value
thereof or that such consideration does not exceed the estimates of value.
The valuation of the Company has not been determined by a valuation of its
assets, but instead has been determined by SL Green and the Underwriters based
upon a capitalization of the Company's pro forma Funds from Operations,
estimated cash available for distribution and potential for growth, and the
other factors discussed under "Underwriting." Prudential Securities Incorporated
will act as "qualified independent underwriter" in connection with the Offering.
See "Underwriting." In determining the estimated initial public offering price,
certain assumptions were made concerning the estimate of revenue to be derived
from the Properties. See "Distributions." This methodology has been used because
management believes that it is appropriate to value the Company as an ongoing
business, rather than with a view to values that could be obtained from a
liquidation of the Company or of individual assets owned by the Company. There
can be no assurance that the price paid by the Company for its interests in the
Properties and for its other assets will not exceed the fair market value of
such assets, and it is possible that the market value of the Common Stock may
exceed stockholders' proportionate share of the aggregate fair market value of
such assets.
CONFLICTS OF INTEREST IN THE FORMATION TRANSACTIONS AND THE BUSINESS OF THE
COMPANY COULD ADVERSELY AFFECT THE COMPANY
A SALE OF, OR REDUCTION IN MORTGAGE INDEBTEDNESS ON, ANY OF THE PROPERTIES
WILL HAVE DIFFERENT EFFECTS ON HOLDERS OF UNITS THAN ON STOCKHOLDERS. Certain
holders of Units, including Stephen L. Green, may experience different and more
adverse tax consequences compared to those experienced by holders of shares of
Common Stock or other holders of Units upon the sale of, or reduction of
mortgage indebtedness on, any
13
of the Properties. Therefore, such holders and the Company, may have different
objectives regarding the appropriate pricing and timing of any sale of, or
reduction of mortgage indebtedness on the Properties, and regarding the
appropriate characteristics of additional properties to be considered for
acquisition. Certain directors and officers of the Company, including Mr. Green,
will be holders of Units, and their status as holders of Units may influence the
Company not to sell particular properties, or not to pay down mortgage
indebtedness on particular properties, even though such sales or debt paydowns
might otherwise be financially advantageous to the Company and its stockholders.
See "--Limitations on Ability to Sell or Reduce the Mortgage Indebtedness on
Certain Properties Could Adversely Affect the Value of the Common Stock" below.
THE COMPANY MAY PURSUE LESS VIGOROUS ENFORCEMENT OF TERMS OF CONTRIBUTION
AND OTHER AGREEMENTS BECAUSE OF CONFLICTS OF INTEREST WITH CERTAIN
OFFICERS. Certain SL Green entities (Hippomenes Associates, LLC, 64-36 Realty
Associates, 673 First Associates, L.P., Green 6th Avenue Asociates, L.P., S.L.
Green Realty, Inc., S.L. Green Properties, Inc. and EBG Midtown South Corp.)
have ownership interests in the Properties and in the other assets to be
acquired by the Company. Following the completion of the Offering and the
Formation Transactions, the Company, under the agreements relating to the
contribution of such interests, will be entitled to indemnification and damages
in the event of breaches of representations or warranties made by such SL Green
entities. In addition, Stephen L. Green, David J. Nettina, Nancy A. Peck, Steven
H. Klein, Benjamin P. Feldman, Gerard Nocera and Louis A. Olsen will enter into
employment and noncompetition agreements with the Company pursuant to which they
will agree, among other things, not to engage in certain business activities in
competition with the Company. See "Management--Employment and Noncompetition
Agreements." To the extent that the Company chooses to enforce its rights under
any of these contribution, employment and noncompetition agreements, it may
determine to pursue available remedies, such as actions for damages or
injunctive relief, less vigorously than it otherwise might because of its desire
to maintain its ongoing relationship with the individual involved.
CONFLICTS OF INTEREST WILL EXIST IN FUTURE DEALINGS WITH AFFILIATES OF THE
COMPANY. After the completion of the Offering and the Formation Transactions,
two SL Green entities owned by a son of Stephen L. Green (First Quality
Maintenance, L.P. and Classic Security LLC) may provide cleaning and security
services to office properties, including the Company's Properties. These
entities currently provide such services at the Properties. See "Certain
Relationships and Transactions--Cleaning Services" and "--Security Services."
Although management believes that the terms and conditions of the contracts
pursuant to which these services would be provided would not be less favorable
to the Company than those which could have been obtained from a third
party-providing comparable services, such contracts will not be the result of
arm's length negotiations and, therefore, there can be no assurance to this
effect. The Company has adopted certain policies relating to conflicts of
interest. These policies include a resolution adopted by the Company's Board of
Directors which requires all transactions in which executive officers or
directors have a material conflicting interest to that of the Company to be
approved by a majority of the disinterested directors or by the holders of a
majority of the shares of Common Stock held by disinterested stockholders. There
can be no assurance, however, that the Company's policies will be successful in
eliminating the influence of such conflicts, and if they are not successful,
decisions could be made that might fail to reflect fully the interests of all
stockholders. See "Policies with Respect to Certain Activities--Conflict of
Interest Policies."
OUTSIDE INTERESTS OF OFFICERS AND DIRECTORS COULD CONFLICT WITH THE
COMPANY'S INTERESTS. Certain officers and directors of the Company will
continue to own direct and indirect interests in office properties and other
real estate assets, which interests may give rise to certain conflicts of
interest concerning the fulfillment of their responsibilities as officers and
directors of the Company. See "The Properties--Assets Not Being Transferred to
the Company." For a discussion of the role of the Company's disinterested
directors and the Company's policies and agreements designed to minimize any
adverse effects from these conflicts of interest, see "Policies with Respect to
Certain Activities--Conflict of Interest Policies."
14
ESTIMATED INITIAL CASH AVAILABLE FOR DISTRIBUTION WILL NOT BE SUFFICIENT TO MAKE
DISTRIBUTIONS AT EXPECTED LEVELS
The Company's estimated initial annual distributions represent 106% of the
Company's estimated initial cash available for distribution for the twelve
months ending June 30, 1998. Accordingly, it is expected that the Company
initially will be unable to pay its estimated initial annual distribution of
$1.40 per share to stockholders out of cash available for distribution as
calculated under "Distributions" below. Under such circumstances, the Company
could be required to fund distributions from working capital (expected to
aggregate approximately $6.2 million upon completion of the Offering), draw down
under the Line of Credit, if available, to provide funds for such distribution,
or to reduce the amount of such distribution. In the event the Underwriters'
over-allotment is exercised, pending investment of the proceeds therefrom, the
Company's ability to pay such distribution out of cash available for
distribution may be further adversely affected.
THE COMPANY MAY NOT ACHIEVE EXPECTED RETURNS ON RECENTLY ACQUIRED PROPERTIES AND
PROPERTY ACQUISITIONS
The Company is experiencing a period of rapid growth. The Company's ability
to manage its growth effectively will require it to integrate successfully its
new acquisitions. Including the Acquisition Properties, three of the Properties
have relatively short or no operating history under management by SL Green. SL
Green has had limited control over the operation of these Properties, and such
Properties may have characteristics or deficiencies unknown to the Company
affecting their valuation or revenue potential. No assurance can be given as to
the future operating performance of these Properties under the Company's
management.
The Company is currently under contract to acquire three Class B office
properties encompassing approximately 1.0 million rentable square feet. See "The
Properties--Acquisition Properties." In addition, the Company will own an option
to purchase an additional Class B office property containing approximately
800,000 rentable square feet of office space. See "The Properties--The Option
Property." In the future, the Company expects to acquire additional office
properties. As noted above, acquisitions entail the risk that investments will
fail to perform in accordance with expectations, including operating and leasing
expectations. The Company anticipates that certain of its acquisitions will be
financed using the proceeds of periodic equity or debt offerings, lines of
credit or other forms of secured or unsecured financing that will result in a
risk that permanent financing for newly acquired projects might not be available
or would be available only on disadvantageous terms. If permanent debt or equity
financing is not available on acceptable terms to refinance acquisitions
undertaken without permanent financing, further acquisitions may be curtailed or
cash available for distribution may be adversely affected. In addition, it is
anticipated that acquisition risks may be heightened for acquisitions of
Manhattan office properties due to the large size of many Manhattan office
properties and the complexity of acquisition transactions in the Manhattan
office market. See "--Other Risks of Ownership of Common Stock Could Adversely
Affect the Trading Price of the Common Stock--The Company's dependence on
external sources of capital could adversely affect the Common Stock price"
below.
To the extent any future growth of the Company is accompanied by the
issuance of additional shares of Common Stock, any such issuance could have the
effect of diluting existing stockholders' interests in the Company.
LIMITATIONS ON ABILITY TO SELL OR REDUCE THE MORTGAGE INDEBTEDNESS ON CERTAIN
PROPERTIES COULD ADVERSELY AFFECT THE VALUE OF THE COMMON STOCK
In connection with the solicitation of approval of partners or members in
the various Property-owning entities to transfer their interests to the Company,
the Company agreed to certain restrictions relating to future capital
transactions involving two of the Properties. Pursuant to the Lock-out
Provisions, the Company may not sell its interest in (except in certain events,
including certain transactions that would not result in the recognition of any
gain for tax purposes) or, earlier than one year prior to its maturity, reduce
the mortgage indebtedness (other than pursuant to scheduled amortization) on 673
First Avenue or 470
15
Park Avenue South during the Lock-out Period without, in the case of each such
Property, the consent of holders of 75% of the Units originally issued to
limited partners in the Operating Partnership (including Stephen L. Green) who
immediately prior to completion of the Formation Transactions owned direct or
indirect interests in such Property that remain outstanding at the time of such
vote (other than Units held by the Company and Units the adjusted tax basis of
which have been increased to reflect fair market value through a taxable
disposition or otherwise). (This vote requirement does not apply to a sale of
all or substantially all of the assets of the Operating Partnership, but such a
transaction during the Lock-out Period generally would require the approval of
the holders, as a group, of 75% of the aggregate Units originally issued with
respect to 673 First Avenue and 470 Park Avenue South that remain outstanding
(excluding Units held by the Company and Units the adjusted tax basis of which
have been increased to reflect fair market value through a taxable disposition
or otherwise) unless the transaction would not result in the recognition of any
gain for tax purposes with respect to such Units and certain other conditions
are satisfied.) In addition, during the Lock-out Period, the Company is
obligated to use commercially reasonable efforts, commencing one year prior to
the stated maturity, to refinance at maturity (on a basis that is nonrecourse to
the Operating Partnership and the Company, with the least amount of principal
amortization as is available on commercially reasonable terms) the mortgage
indebtedness secured by each of these two Properties at not less than the
principal amount outstanding on the maturity date. Finally, during the Lock-out
Period, the Company may not incur debt secured by either of these two Properties
if the amount of the new debt would exceed the greater of 75% of the value of
the Property securing the debt or the amount of existing debt being refinanced
(plus costs associated therewith). Thus, the Lock-out Provisions materially
restrict the Company from selling or otherwise disposing of its interest in, or
refinancing indebtedness encumbering, 673 First Avenue and 470 Park Avenue South
without obtaining such consents. The Lock-out Provisions apply even if it would
otherwise be in the best interest of the stockholders for the Company to sell
its interest in these two Properties, reduce the outstanding indebtedness with
respect to either of these Properties or not refinance such indebtedness on a
nonrecourse basis at maturity, or increase the amount of indebtedness with
respect to these two Properties.
The Lock-out Provisions may impair the ability of the Company to take
actions during the Lock-out Period that would otherwise be in the best interests
of the Company's stockholders and, therefore, may have an adverse impact on the
value of the Common Stock (relative to the value that would result if the
Lock-out Provisions did not exist). In particular, the Lock-out Provisions could
preclude the Operating Partnership (and thus the Company) from participating in
certain major transactions that could result in a disposition of the Operating
Partnership's assets or a change in control of the Company that would result in
the recognition of gain with respect to the holders of Units issued with respect
to 673 First Avenue or 470 Park Avenue South even though such disposition or
change in control might be in the best interests of the stockholders. See
"Partnership Agreement--Operational Matters--Sales of Assets."
The Company anticipates that, in connection with future acquisitions of
interests in properties in which the Company uses Units as consideration, the
Company may agree to limitations on its ability to sell, or reduce the amount of
mortgage indebtedness on, such acquired properties, which may increase the
Company's leverage. Such limitations may impair the Company's ability to take
actions that would otherwise be in the best interests of its stockholders and,
therefore, may have an adverse impact on the value of the Common Stock (relative
to the value that would result if such limitations did not exist). Such possible
future limitations, together with the Lock-out Provisions, may restrict the
ability of the Company to sell substantially all of its assets, even if such a
sale would be in the best interests of its stockholders.
THE MANAGING UNDERWRITER WILL RECEIVE MATERIAL BENEFITS
Lehman Brothers Inc. ("Lehman"), the lead managing underwriter of the
Offering, and certain of its affiliates will receive material benefits from the
Offering and the Formation Transactions in addition to underwriting discounts
and commissions. The Company will pay Lehman an advisory fee equal to 0.75% of
the gross proceeds of the Offering (including any exercise of the Underwriters'
overallotment option) for advisory services in connection with the evaluation,
analysis and structuring of the Company's formation as a REIT. Affiliates of
Lehman will be repaid the LBHI Loan in the aggregate principal amount of
16
approximately $40 million made to certain affiliates of the Company prior to the
Offering. See "Use of Proceeds," "Management's Discussion and Analysis of
Financial Condition and Results of Operations-- Liquidity and Capital Resources"
and "Underwriting." Prudential Securities Incorporated will act as "qualified
independent underwriter" in connection with the Offering. See "Underwriting."
THE ABILITY OF STOCKHOLDERS TO EFFECT A CHANGE OF CONTROL OF THE COMPANY IS
LIMITED
STOCK OWNERSHIP LIMIT IN THE CHARTER COULD INHIBIT CHANGES IN CONTROL. In
order to maintain its qualification as a REIT, not more than 50% in value of the
outstanding capital stock of the Company may be owned, directly or indirectly,
by five or fewer individuals (as defined in the Code to include certain
entities) during the last half of a taxable year (other than the first year)
(the "Five or Fewer Requirement"). In order to protect the Company against the
risk of losing REIT status due to a concentration of ownership among its
stockholders, the Company's Articles of Incorporation (the "Charter") limits
ownership of the issued and outstanding Common Stock by any single stockholder
to 9.0% of the lesser of the number or value of the outstanding shares of Common
Stock from time to time (the "Ownership Limit"). See "Capital Stock--
Restrictions on Transfer." Although the Board of Directors presently has no
intention of doing so, the Board of Directors could waive these restrictions if
evidence satisfactory to the Board of Directors and the Company's tax counsel
was presented that the changes in ownership will not then or in the future
jeopardize the Company's status as a REIT and the Board of Directors otherwise
decided such action would be in the best interests of the Company. Shares
acquired or transferred in breach of the limitation will be automatically
transferred to a trust for the exclusive benefit of one or more charitable
organizations and the purchaser-transferee shall not be entitled to vote or to
participate in dividends or other distributions. In addition, shares of Common
Stock acquired or transferred in breach of the limitation may be purchased from
such trust by the Company for the lesser of the price paid and the average
closing price for the ten trading days immediately preceding redemption. A
transfer of shares to a person who, as a result of the transfer, violates the
Ownership Limit will be void. See "Capital Stock--Restrictions on Transfer" for
additional information regarding the Ownership Limit.
The Ownership Limit may have the effect of delaying, deferring or preventing a
transaction or a change in control of the Company that might involve a premium
price for the Common Stock or otherwise be in the best interests of the
stockholders. See "Capital Stock--Restrictions on Transfer."
POTENTIAL EFFECTS OF STAGGERED BOARD COULD INHIBIT CHANGES IN CONTROL. The
Company's Board of Directors will be divided into three classes. The initial
terms of the first, second and third classes will expire in 1998, 1999 and 2000,
respectively. Beginning in 1998, directors of each class will be chosen for
three-year terms upon the expiration of their current terms and each year one
class of directors will be elected by the stockholders. The staggered terms for
directors may reduce the possibility of a tender offer or an attempt to effect a
change in control of the Company, even if a tender offer or a change in control
would be in the best interests of the stockholders.
FUTURE ISSUANCES OF COMMON STOCK COULD DILUTE EXISTING STOCKHOLDERS'
INTERESTS. The Charter authorizes the Board of Directors to issue additional
shares of Common Stock without stockholder approval. Any such issuance could
have the effect of diluting existing stockholders' interests in the Company.
ISSUANCES OF PREFERRED STOCK COULD INHIBIT CHANGES IN CONTROL. The Charter
authorizes the Board of Directors to issue up to 25 million shares of preferred
stock, $.01 par value per share (the "Preferred Stock" and, together with the
Common Stock, the "Stock"), to reclassify unissued shares of Stock, and to
establish the preferences, conversion and other rights, voting powers,
restrictions, limitations and restrictions on ownership, limitations as to
dividends or other distributions, qualifications, and terms and conditions of
redemption for each such class or series of any Preferred Stock issued. No
shares of Preferred Stock will be issued or outstanding as of the closing of the
Offering.
CERTAIN PROVISIONS OF MARYLAND LAW COULD INHIBIT CHANGES IN CONTROL.
Certain provisions of the Maryland General Corporation Law (the "MGCL") may have
the effect of inhibiting a third party from making an acquisition proposal for
the Company or of impeding a change in control of the Company under
circumstances that otherwise could provide the holders of shares of Common Stock
with the opportunity to
17
realize a premium over the then-prevailing market price of such shares. The
Company has opted out of these provisions of the MGCL, but the Board of
Directors may elect to adopt these provisions in the future. See "Certain
Provisions of Maryland Law and the Company's Charter and ByLaws."
DEPENDENCE ON SMALLER AND GROWTH-ORIENTED BUSINESSES TO RENT CLASS B OFFICE
SPACE COULD ADVERSELY AFFECT THE COMPANY
Many of the tenants in the Properties are smaller and growth-oriented
businesses that may not have the financial strength of larger corporate tenants.
Smaller companies generally experience a higher rate of failure than large
businesses. Growth-oriented firms may seek other office space, including Class A
space, as they develop.
THE COMPANY'S PERFORMANCE AND VALUE ARE SUBJECT TO RISKS ASSOCIATED WITH THE
REAL ESTATE INDUSTRY
THE COMPANY'S ABILITY TO MAKE DISTRIBUTIONS IS DEPENDENT UPON THE ABILITY OF
ITS OFFICE PROPERTIES TO GENERATE INCOME IN EXCESS OF OPERATING EXPENSES. Real
estate investments are subject to varying degrees of risk. The yields available
from equity investments in real estate and the Company's ability to service debt
depend in large part on the amount of income generated, expenses incurred and
capital expenditures required. The Company's income and ability to make
distributions to its stockholders is dependent upon the ability of its office
properties to generate income in excess of its requirements to meet operating
expenses, including debt service and capital expenditures. The Company's income
from office properties and the value of its properties may be significantly
adversely affected by a number of factors, including national, state and local
economic climates and real estate conditions (such as an oversupply of or a
reduction in demand for office space in the area; the perceptions of tenants and
prospective tenants of the safety, convenience and attractiveness of the
Company's properties; the Company's ability to provide adequate management,
maintenance and insurance; the quality, philosophy and performance of the
Company's management; competition from comparable properties; the occupancy rate
of the Company's properties; the ability to collect on a timely basis all rent
from tenants; the effects of any bankruptcies or insolvencies of major tenants;
the expense of periodically renovating, repairing and re-leasing space
(including, without limitation, substantial tenant improvement costs and leasing
costs of re-leasing office space); and increasing operating costs (including
increased real estate taxes) which may not be passed through fully to tenants).
In addition, income from properties and real estate values also are affected by
such factors as the cost of compliance with laws, including zoning and tax laws,
the potential for liability under applicable laws, interest rate levels and the
availability of financing. Certain significant expenditures associated with
equity investments in real estate (such as mortgage payments, real estate taxes,
insurance and maintenance costs) also may not be reduced if circumstances cause
a reduction in income from a property. If any of the above occurred, the
Company's ability to make expected distributions to its stockholders could be
adversely affected.
TENANT DEFAULTS AND BANKRUPTCIES COULD ADVERSELY AFFECT THE COMPANY'S CASH
FLOW. Substantially all of the Company's income will be derived from rental
income from its properties and, consequently, the Company's distributable cash
flow and ability to make expected distributions to stockholders would be
adversely affected if a significant number of tenants at its properties failed
to meet their lease obligations. At any time, a tenant at a property in which
the Company has an interest may seek the protection of the bankruptcy laws,
which could result in delays in rental payments or in the rejection and
termination of such tenant's lease, thereby causing a reduction in the Company's
cash flow and, possibly, the amounts available for distribution to stockholders.
No assurance can be given that tenants will not file for bankruptcy protection
in the future or, if any tenants file, that they will affirm their leases and
continue to make rental payments in a timely manner. In addition, a tenant from
time to time may experience a downturn in its business which may weaken its
financial condition and result in the failure to make rental payments when due.
If tenant leases are not affirmed following bankruptcy or if a tenant's
financial condition weakens, the Company's cash flow and ability to make
expected distributions to its stockholders could be adversely affected. While SL
Green has not experienced any significant interruption of its cash flow due to
tenant defaults in the past five years, no assurance can be given that the
Company will not experience significant tenant defaults in the future.
18
LEASE EXPIRATIONS COULD ADVERSELY AFFECT THE COMPANY'S CASH FLOW. The
Company will be subject to the risk that upon expiration of leases for space
located in the Properties, the leases may not be renewed, the space may not be
re-leased or the terms of renewal or re-leasing (including the cost of required
renovations) may be less favorable than current lease terms. Leases on a total
of 2.3% and 3.4% of the total leased square feet at the Properties expire during
1997 and 1998, respectively.
ILLIQUIDITY OF REAL ESTATE INVESTMENTS COULD ADVERSELY AFFECT THE COMPANY'S
FINANCIAL CONDITION. Real estate investments are relatively illiquid and,
therefore, will tend to limit the ability of the Company to sell and purchase
properties promptly in response to changes in economic or other conditions. In
addition, the Code places limits on the Company's ability to sell properties
held for fewer than four years, and the Lock-out Provisions impose certain
special restrictions with respect to the sale of certain of the Properties
during the Lock-out Period. These considerations could make it difficult for the
Company to sell properties, even if a sale were in the best interests of the
Company's stockholders.
OPERATING COSTS COULD ADVERSELY AFFECT THE COMPANY'S CASH FLOW. The
Properties will be subject to operating risks common to commercial real estate
in general, any and all of which may adversely affect occupancy or rental rates.
The Properties are subject to increases in operating expenses such as cleaning;
electricity; heating, ventilation and air conditioning ("HVAC"); elevator repair
and maintenance; insurance and administrative costs; and other general costs
associated with security, repairs and maintenance. While the Company's tenants
generally are currently obligated to pay a portion of these escalating costs,
there can be no assurance that tenants will agree to pay such costs upon renewal
or that new tenants will agree to pay such costs. If operating expenses
increase, the local rental market may limit the extent to which rents may be
increased to meet increased expenses without decreasing occupancy rates. While
the Company implements cost saving incentive measures at each of its Properties,
if any of the above occurs, the Company's ability to make distributions to
stockholders could be adversely affected.
INVESTMENTS IN MORTGAGE LOANS COULD CAUSE EXPENSES WHICH COULD ADVERSELY
AFFECT THE COMPANY'S FINANCIAL CONDITION. Upon completion of the Formation
Transactions, the Company will acquire a mortgage interest in the Bar Building
and 1372 Broadway, which mortgage interests will provide the Company with
substantially all control over and economic interest derived from such
Properties. See "The Properties--36 West 44th Street (The Bar Building)" and
"--Acquisition Properties--1372 Broadway." To the extent the Company invests in
mortgage loans, such mortgage loans may or may not be recourse obligations of
the borrower and generally will not be insured or guaranteed by governmental
agencies or otherwise. In the event of a default under such obligations, the
Company may have to foreclose its mortgage or protect its investment by
acquiring title to a property and thereafter making substantial improvements or
repairs in order to maximize the property's investment potential. Borrowers may
contest enforcement of foreclosure or other remedies, seek bankruptcy protection
against such enforcement and/or bring claims for lender liability in response to
actions to enforce mortgage obligations. Relatively high "loan-to-value" ratios
and declines in the value of the property may prevent the Company from realizing
an amount equal to its mortgage loan upon foreclosure.
JOINT VENTURE INVESTMENTS COULD BE ADVERSELY AFFECTED BY THE COMPANY'S LACK
OF SOLE DECISION-MAKING AUTHORITY AND RELIANCE UPON A CO-VENTURER'S FINANCIAL
CONDITION. The Company may co-invest with third parties through partnerships,
joint ventures or other entities, acquiring non-controlling interests in or
sharing responsibility for managing the affairs of a property, partnership,
joint venture or other entity and, therefore, will not be in a position to
exercise sole decision-making authority regarding the property, partnership,
joint venture or other entity. Investments in partnerships, joint ventures, or
other entities may, under certain circumstances, involve risks not present were
a third party not involved, including the possibility that the Company's
partners or co-venturers might become bankrupt or otherwise fail to fund their
share of required capital contributions, that such partners or co-venturers
might at any time have economic or other business interests or goals which are
inconsistent with the business interests or goals of the Company, and that such
partners or co-venturers may be in a position to take action contrary to the
instructions or the
19
requests of the Company and contrary to the Company's policies or objectives.
Such investments may also have the potential risk of impasses on decisions, such
as a sale, because neither the Company nor the partner or co-venturer would have
full control over the partnership or joint venture. Consequently, actions by
such partner or co-venturer might result in subjecting properties owned by the
partnership or joint venture to additional risk. In addition, the Company may in
certain circumstances be liable for the actions of its third-party partners or
co-venturers. The Company will seek to maintain sufficient control of such
entities to permit it to achieve its business objectives.
THE EXPIRATION OF NET LEASES COULD ADVERSELY AFFECT THE COMPANY'S FINANCIAL
CONDITION. As described herein, upon completion of the Offering, with respect
to three of the Properties (35 West 43rd Street (a part of the Bar Building),
673 First Avenue and 1140 Avenue of the Americas), the Company will hold a
long-term leasehold interest in the land and the improvements. Accordingly,
unless the Company can purchase the subject real estate or extend the terms of
these leases before their expiration, the Company will lose its interest in the
improvements and land upon expiration of the leases, the remaining terms of
which exceeds 83 years in the case of 35 West 43rd Street, 40 years in the case
of 673 First Avenue and 19 years (with an option to extend for a further 50 year
term) in the case of 1140 Avenue of the Americas. The lease for 35 West 43rd
Street contains a right of first refusal (which will run for the benefit of the
Company), to purchase fee title to the land and building if the owner desires to
sell its interest. The lease for 673 First Avenue contains a right of first
offer (which will run for the benefit of the Company), whereby if the current
fee owner of the Property wishes to create a new underlying lease of the land
and building (the term of which would extend beyond the term of the existing
lease), then the Company will have a right of first offer to enter into the new
underlying lease. See "The Properties."
THE COMPANY'S FINANCIAL CONDITION COULD BE ADVERSELY AFFECTED DUE TO ITS
RELIANCE ON MAJOR TENANTS. On a pro forma basis (giving effect to signed leases
in effect as of June 30, 1997) during the twelve months ended June 30, 1997,
four tenants (Kallir, Philips, Ross Inc., a subsidiary of The Omnicom Group
Ltd., New York Hospital, Gibbs & Cox and Newbridge Communications) each
accounted for more than 3% of the Company's pro forma total annualized rental
revenues and 12 tenants collectively accounted for approximately 34.1% of the
Company's pro forma total annualized rental revenues. In addition, New York
Hospital occupied 65,000 rentable square feet of additional space pursuant to
subleases. See "The Properties--The Portfolio--Tenant Diversification." The
Company would be adversely affected in the event of a bankruptcy or insolvency
of, or a downturn in the business of, any major tenant which resulted in a
failure or delay in such tenant's rent payments.
THE COMPANY'S USE OF DEBT FINANCING, INCREASES IN INTEREST RATES, FINANCIAL
COVENANTS AND ABSENCE OF LIMITATION ON DEBT COULD ADVERSELY AFFECT THE COMPANY
THE REQUIRED REPAYMENT OF DEBT OR INTEREST THEREON COULD ADVERSELY AFFECT
THE COMPANY'S FINANCIAL CONDITION. The Company is subject to the risks normally
associated with debt financing, including the risk that the Company's cash flow
will be insufficient to meet required payments of principal and interest, the
risk of violating loan covenants, the risk of rising interest rates on the
Company's variable rate debt and the risk that the Company will not be able to
repay or refinance existing indebtedness on its properties at maturity (which
generally will not have been fully amortized at maturity) or that the terms of
such refinancing will not be as favorable as the terms of existing indebtedness.
There can be no assurance that the Company will be able to refinance any
indebtedness it may incur or otherwise obtain funds by selling assets or raising
equity to make required payments on indebtedness. In addition, the Company's
ability to sell certain Properties or refinance indebtedness encumbering such
Properties will be restricted by the Lock-Out Provisions.
If one or more properties are mortgaged to secure payment of indebtedness
and the Company is unable to generate funds to cover debt service, the mortgage
securing such properties could be foreclosed upon by, or such properties could
otherwise be transferred to, the mortgagee with a consequent loss of income and
asset value to the Company. Although no Property owned or controlled by SL Green
has been
20
subject to bankruptcy proceedings, during the downturn in the real estate market
in the late 1980s and early 1990s, certain real estate assets (including one
office property in Manhattan and one office property in Hempstead, New York)
owned by partnerships affiliated with SL Green did not generate sufficient cash
flow to service the debt secured by such properties. As a result, the
partnerships which owned these properties have transferred or agreed to transfer
the properties to the lenders in satisfaction of the loans.
RISING INTEREST RATES COULD ADVERSELY AFFECT THE COMPANY'S CASH
FLOW. Advances under the Credit Facility (defined below) will bear interest at
a variable rate. In addition, the Company may incur indebtedness in the future
that also bears interest at a variable rate or may be required to refinance its
debt at higher rates. Accordingly, increases in interest rates could increase
the Company's interest expense, which could adversely affect the Company's
ability to pay expected distributions to stockholders.
CREDIT FACILITY REQUIREMENTS COULD ADVERSELY AFFECT THE COMPANY'S ABILITY TO
MAKE EXPECTED DISTRIBUTIONS. The Company currently is engaged in discussions
with various lenders regarding the establishment of a $75 million revolving
credit facility (the "Credit Facility") that will be used to facilitate
acquisitions and for working capital purposes. Although the Company expects that
the Credit Facility will be established shortly after the completion of the
Offering, there can be no assurance at this time as to whether the Company will
be successful in obtaining the Credit Facility or, if the Credit Facility is
established, the terms thereof. While none of the Company's Properties are
currently subject to cross-default or cross-collateralization provisions, there
can be no assurance that the Credit Facility or other future forms of financing
will not contain such provisions.
It is anticipated that borrowings under the Credit Facility will be secured
by a first mortgage lien on certain Properties in which the Operating
Partnership will acquire interests therein in connection with the Formation
Transactions. If payments required under the Credit Facility cannot be made or
if there should occur other events of default, the lender may seek to foreclose
on those assets securing borrowings under the Credit Facility which could have a
material adverse effect on the ability of the Company to make expected
distributions to stockholders and distributions required by the REIT provisions
of the Code. In addition, upon expiration of the term of the Credit Facility, it
is anticipated that the Operating Partnership will be required to obtain an
extension or renewal of the Credit Facility or refinance borrowings thereunder
through the issuance of debt or equity securities or alternative lending
sources. See "The Properties--Credit Facility."
THE COMPANY'S POLICY OF NO LIMITATION ON DEBT COULD ADVERSELY AFFECT THE
COMPANY'S CASH FLOW. Upon completion of the Offering and the Formation
Transactions, the debt to market capitalization ratio ("Debt Ratio") of the
Company will be approximately 15.0%. The Company currently has a policy of
incurring debt only if upon such incurrence the Company's Debt Ratio would be
50% or less. However, the organizational documents of the Company do not contain
any limitation on the amount of indebtedness the Company may incur. Accordingly,
the Board of Directors could alter or eliminate this policy and would do so, for
example, if it were necessary in order for the Company to continue to qualify as
a REIT. If this policy were changed, the Company could become more highly
leveraged, resulting in an increase in debt service that could adversely affect
the Company's cash available for distribution to stockholders and could increase
the risk of default on the Company's indebtedness. See "Policies with Respect to
Certain Activities--Financing Policies."
The Company has established its debt policy relative to the total market
capitalization of the Company rather than relative to the book value of its
assets. The Company has used total market capitalization because it believes
that the book value of its assets (which to a large extent is the depreciated
original cost of real property, the Company's primary tangible assets) does not
accurately reflect its ability to borrow and to meet debt service requirements.
The market capitalization of the Company, however, is more variable than book
value, and does not necessarily reflect the fair market value of the underlying
assets of the Company at all times. The Company also will consider factors other
than market capitalization in making decisions regarding the incurrence of
indebtedness, such as the purchase price of properties to be acquired with debt
financing, the estimated market value of its properties upon refinancing and the
ability of particular properties and the Company as a whole to generate cash
flow to cover expected debt service.
21
PURCHASERS OF COMMON STOCK IN THE OFFERING WILL EXPERIENCE IMMEDIATE AND
SUBSTANTIAL
BOOK VALUE DILUTION
As set forth more fully under "Dilution," the pro forma net tangible book
value per share of the assets of the Company after the Offering will be
substantially less than the estimated initial public offering price per share in
the Offering. Accordingly, purchasers of the Common Stock offered hereby will
experience immediate and substantial dilution of $7.10 in the net tangible book
value of the Common Stock from the assumed initial public offering price. See
"Dilution."
FAILURE TO QUALIFY AS A REIT WOULD CAUSE THE COMPANY TO BE TAXED AS A
CORPORATION
THE COMPANY WILL BE TAXED AS A CORPORATION IF IT FAILS TO QUALIFY AS A
REIT. The Company intends to operate so as to qualify as a REIT for Federal
income tax purposes. The Company expects to qualify as a REIT, but no assurance
can be given that it will so qualify or be able to remain so qualified. The
Company has received an opinion of its counsel, Brown & Wood LLP, that, based on
certain assumptions and representations, the Company is organized in conformity
with the requirements for qualification as a REIT under the Code and the
Company's proposed method of operation will enable it to meet the requirements
for qualification and taxation as a REIT. Investors should be aware, however,
that opinions of counsel are not binding on the IRS or any court. The REIT
qualification opinion only represents the view of counsel to the Company based
on counsel's review and analysis of existing law, which includes no controlling
precedent. Furthermore, both the validity of the opinion and the qualification
of the Company as a REIT will depend on the Company's continuing ability to meet
various requirements concerning, among other things, the ownership of its
outstanding stock, the nature of its assets, the sources of its income and the
amount of its distributions to its stockholders. Because the Company has no
history of operating so as to qualify as a REIT, there can be no assurance that
the Company will do so successfully. See "Material Federal Income Tax
Consequences--Taxation of the Company--Failure to Qualify."
If the Company were to fail to qualify as a REIT for any taxable year, the
Company would not be allowed a deduction for distributions to its stockholders
in computing its taxable income and would be subject to Federal income tax
(including any applicable minimum tax) on its taxable income at regular
corporate rates. Unless entitled to relief under certain Code provisions, the
Company also would be disqualified from treatment as a REIT for the four taxable
years following the year during which qualification was lost. As a result, cash
available for distribution would be reduced for each of the years involved. In
addition, although the Company intends to operate in a manner designed to
qualify as a REIT, it is possible that future economic, market, legal, tax or
other considerations may cause the Board of Directors, with the consent of
stockholders holding at least a majority of all of the outstanding shares of
Common Stock, to revoke the REIT election. Furthermore, no assurance can be
given that new legislation, Treasury Regulations, administrative interpretations
or court decisions will not significantly change the tax laws with respect to
the Company's qualification as a REIT or the Federal income tax consequences of
such qualification. See "Material Federal Income Tax Consequences."
TO QUALIFY AS A REIT THE COMPANY MUST MAINTAIN MINIMUM DISTRIBUTION
REQUIREMENTS. In order to qualify as a REIT, the Company generally will be
required each year to distribute to its stockholders at least 95% of its net
taxable income (excluding any net capital gain). In addition, the Company may be
subject to income and excise tax if the Company does not meet certain
distribution requirements. See "Material Federal Income Tax
Consequences--Taxation of the Company--Annual Distribution Requirements."
The Company intends to make distributions to its stockholders to comply with
the 95% distribution requirement and to avoid income and excise tax. The
Company's income will consist primarily of its share of the income of the
Operating Partnership, and the cash available for distribution by the Company to
its stockholders will consist of its share of cash distributions from the
Operating Partnership. Differences in timing between (i) the actual receipt of
income and actual payment of deductible expenses, and (ii) the inclusion of such
income and deduction of such expenses in arriving at taxable income of the
Company,
22
could require the Company, through the Operating Partnership, to borrow funds on
a short-term basis to meet the 95% distribution requirement and to avoid income
and excise tax. The requirement to distribute a substantial portion of the
Company's net taxable income could cause the Company to distribute amounts that
otherwise would be spent on future acquisitions, unanticipated capital
expenditures or repayment of debt, which could require the Company to borrow
funds or to sell assets to fund the costs of such items.
OTHER TAX LIABILITIES COULD ADVERSELY AFFECT THE COMPANY'S CASH FLOW. Even
if the Company qualifies as a REIT, it will be subject to certain Federal, state
and local taxes on its income and property. In particular, the Company will
derive a portion of its operating cash flow from the activities of the Service
Corporations, which will be subject to Federal, state and local income tax. See
"Material Federal Income Tax Consequences--Other Tax Considerations--Service
Corporations."
LACK OF OPERATING HISTORY AND INEXPERIENCE OF MANAGEMENT IN OPERATING A REIT
COULD
AFFECT REIT QUALIFICATION
The Company has been recently organized and has no operating history. The
Company's Board of Directors and executive officers will have overall
responsibility for management of the Company. Although certain of the Company's
executive officers and directors have extensive experience in the acquisition,
management and financing of office and other real properties, none of the
executive officers or directors has prior experience in operating a business in
accordance with the Code requirements for maintaining qualification as a REIT.
Failure to maintain REIT status would have an adverse effect on the Company's
ability to make anticipated distributions to stockholders. There can be no
assurance that the past experience of management will be appropriate to the
business of the Company.
COMPETITION IN ITS MARKETPLACE COULD HAVE AN ADVERSE IMPACT ON THE COMPANY'S
RESULTS OF OPERATIONS
All of the Properties are located in highly developed areas of midtown
Manhattan that include a large number of other office properties. Manhattan is
by far the largest office market in the United States and contains more rentable
square feet than the next six largest central business district office markets
in the United States combined. Of the total inventory of 378 million rentable
square feet in Manhattan, approximately 173 million rentable square feet is
comprised of Class B office space and 205 million rentable square feet is
comprised of Class A office space. Class A office properties are generally newer
than Class B office properties, have higher finishes and command higher rental
rates. Many tenants have been attracted to Class B properties in part because of
their relatively less expensive rental rates (as compared to Class A properties)
and the tightening of the Class A office market in midtown Manhattan. See
"Market Overview." Consequently, an increase in vacancy rates and/or a decrease
in rental rates for Class A office space would likely have an adverse effect on
rental rates for Class B office space. Also, the number of competitive Class B
office properties in Manhattan (some of which are newer and better located)
could have a material adverse effect on the Company's ability to lease office
space at its properties, and on the effective rents the Company is able to
charge.
In addition, the Company may compete with other property owners that have
greater resources than the Company. In particular, although currently no other
publicly traded REITs have been formed primarily to own, operate and acquire
Manhattan Class B office properties, the Company may in the future compete with
such other REITs. In addition, the Company may face competition from other real
estate companies (including other REITs that currently invest in markets other
than Manhattan) that have greater financial resources than the Company or that
are willing to acquire properties in transactions which are more highly
leveraged than the Company is willing to undertake. The Company also will face
competition from other real estate companies that provide management, leasing,
construction and other services similar to those to be provided by the Service
Corporations. In addition, certain requirements for REIT qualification may in
the future limit the Company's ability to increase operations conducted by the
Service Corporations
23
without jeopardizing the Company's qualification as a REIT. See "Material
Federal Income Tax Consequences--Other Tax Considerations--Service
Corporations."
THE FINANCIAL CONDITION OF THIRD-PARTY PROPERTY MANAGEMENT, LEASING AND
CONSTRUCTION BUSINESSES COULD ADVERSELY AFFECT THE COMPANY'S FINANCIAL
CONDITION
The Company will be subject to the risks associated with the management,
leasing and construction businesses that will be conducted by the Service
Corporations, in which the Operating Partnership will hold a 95% economic
interest. These risks include the risk that management and leasing contracts
with third party property owners will not be renewed upon expiration (or will be
canceled pursuant to cancellation options) or will not be renewed on terms at
least as favorable to the Company as current terms, that the rental revenues
upon which management, leasing and construction fees are based will decline as a
result of general real estate market conditions or specific market factors
affecting properties serviced by the Company, and that leasing and construction
activity generally will decline. Each of these developments could adversely
affect the revenues of the Management Corporation, the Leasing Corporation and
the Construction Corporation and could adversely affect the ability of the
Company to make expected distributions to its stockholders.
In order to maintain its qualification as a REIT, the Company will not have
voting control over the Service Corporations. The Service Corporation LLC will
own 100% of the voting common stock (representing 5% of the economic interest)
of each of the Service Corporations. As a result, the Company will not have the
ability to elect or remove any members of the board of directors of the
Management Corporation, the Leasing Corporation or the Construction Corporation,
and, therefore, its ability to influence the day-to-day decisions of the Service
Corporations will be limited. As a result, the boards of directors or management
of the Service Corporations may implement business policies or decisions that
might not have been implemented by persons elected by the Company and that are
adverse to the interests of the Company or that lead to adverse financial
results, which could adversely affect the ability of the Company to make
expected distributions to the Company's stockholders.
LIABILITY FOR ENVIRONMENTAL MATTERS COULD ADVERSELY AFFECT THE COMPANY'S
FINANCIAL CONDITION
Under various Federal, state and local laws, ordinances and regulations, a
current or previous owner or operator of real estate may be required to
investigate and clean up certain hazardous substances released at a property,
and may be held liable to a governmental entity or to third parties for property
damage or personal injuries and for investigation and clean-up costs incurred by
the parties in connection with any contamination. In addition, some
environmental laws create a lien on a contaminated site in favor of the
government for damages and costs it incurs in connection with the contamination.
Such laws often impose such liability without regard to whether the owner or
operator knew of, or was responsible for, the release of hazardous substances.
The cost of any required remediation and the owner's liability therefore as to
any property is generally not limited under such enactments and could exceed the
value of the property and/or the aggregate assets of the owner. The presence of
contamination or the failure to remediate contamination may adversely affect the
owner's ability to sell or lease real estate or to borrow using the real estate
as collateral. No assurances can be given that (i) a prior owner, operator or
occupant, such as a tenant, did not create a material environmental condition
not known to the Company or SL Green, (ii) a material environmental condition
with respect to any Property does not exist, or (iii) future uses or conditions
(including, without limitation, changes in applicable environmental laws and
regulations) will not result in the imposition of environmental liability.
The Company engaged independent environmental consulting firms to perform
Phase I environmental site assessments on the Properties in order to assess
existing environmental conditions. All of the Phase I assessments have been
conducted since March 1997, except for the Bar Building, where a Phase I
assessment was conducted in September 1996. All of the Phase I assessments met
the requirements of the American Society for Testing and Materials ("ASTM")
Standard Practice for Phase I Environmental Site
24
Assessments (the "ASTM Standard"). Under the ASTM Standard, a Phase I
environmental site assessment consists of a site visit, a historical record
review, a review of regulatory agency data bases and records, interviews, and a
report, with the purpose of identifying potential environmental concerns
associated with real estate. The Phase I assessments conducted at the Properties
also addressed certain issues that are not covered by the ASTM Standard,
including asbestos, radon, lead-based paint and lead in drinking water. These
environmental site assessments did not reveal any known environmental liability
that the Company believes will have a material adverse effect on the Company's
financial condition or results of operations or would represent a material
environmental cost, nor is the Company aware of any such material environmental
liability. See "The Properties--Environmental Matters."
OTHER RISKS OF OWNERSHIP OF COMMON STOCK COULD ADVERSELY AFFECT THE TRADING
PRICE
OF THE COMMON STOCK
ABSENCE OF PRIOR PUBLIC MARKET FOR COMMON STOCK COULD ADVERSELY AFFECT THE
COMMON STOCK PRICE. Prior to the completion of the Offering, there has been no
public market for the Common Stock and there can be no assurance that an active
trading market will develop or be sustained or that shares of Common Stock will
be resold at or above the assumed initial public offering price. The initial
public offering price of the Common Stock will be determined by agreement among
the Company and the underwriters and may not be indicative of the market price
for the Common Stock after the completion of the Offering. See "Underwriting."
AVAILABILITY OF SHARES FOR FUTURE SALE COULD ADVERSELY AFFECT THE COMMON
STOCK PRICE. Sales of a substantial number of shares of Common Stock, or the
perception that such sales could occur, could adversely affect prevailing market
prices of the Common Stock. Beginning up to two years after the completion of
the Offering (or less in certain circumstances), holders of Units may be able to
sell shares of Common Stock received upon exercise of their redemption right in
the public market pursuant to registration or available exemptions from
registration. Furthermore, a substantial number of shares of Common Stock will,
pursuant to employee benefit plans, be issued or reserved for issuance from time
to time, including shares of Common Stock reserved for issuance pursuant to
options issued concurrently with the completion of the Offering, and these
shares of Common Stock will be available for sale in the public market from time
to time pursuant to exemptions from registration or upon registration. No
prediction can be made about the effect that future sales of shares of Common
Stock will have on the market price of the Common Stock.
CHANGES IN MARKET CONDITIONS COULD ADVERSELY AFFECT THE COMMON STOCK
PRICE. As with other publicly traded equity securities, the value of the Common
Stock will depend upon various market conditions, which may change from time to
time. Among the market conditions that may affect the value of the Common Stock
are the following: the extent to which a secondary market develops for the
Common Stock following the completion of the Offering; the extent of
institutional investor interest in the Company; the general reputation of REITs
and the attractiveness of their equity securities in comparison to other equity
securities (including securities issued by other real estate-based companies);
the Company's financial performance; and general stock and bond market
conditions. Although the offering price of the Common Stock will be determined
by the Company in consultation with the underwriters, there can be no assurance
that the Common Stock will not trade below the offering price following the
completion of the offering.
GROWTH POTENTIAL AND CASH DISTRIBUTIONS COULD ADVERSELY AFFECT THE COMMON
STOCK PRICE. It is generally believed that the market value of the equity
securities of a REIT is based primarily upon the market's perception of the
REIT's growth potential and its current and potential future cash distributions,
whether from operations, sales or refinancings, and is secondarily based upon
the value of the underlying assets. For that reason, shares of Common Stock may
trade at prices that are higher or lower than the net asset value per share of
Common Stock or per Unit. To the extent the Company retains operating cash flow
for investment purposes, working capital reserves or other purposes, these
retained funds, while increasing the value of the Company's underlying assets,
may not correspondingly increase the market price of the
25
Common Stock. The failure of the Company to meet the market's expectation with
regard to future earnings and cash distributions likely would adversely affect
the market price of the Common Stock. If the market price of the Common Stock
declined significantly, the Company might breach certain covenants with respect
to future debt obligations, which breach might adversely affect the Company's
liquidity and the Company's ability to make future acquisitions.
CHANGES IN MARKET INTEREST RATES COULD ADVERSELY AFFECT THE COMMON STOCK
PRICE. One of the factors that will influence the price of the Common Stock
will be the dividend yield on the Common Stock (as a percentage of the price of
the Common Stock) relative to market interest rates. Thus, an increase in market
interest rates may lead prospective purchasers of Common Stock to expect a
higher dividend yield, which would adversely affect the market price of the
Common Stock.
UNRELATED EVENTS COULD ADVERSELY AFFECT THE COMMON STOCK PRICE. As with
other publicly traded equity securities, the value of the Common Stock will
depend upon various market conditions, including conditions unrelated to the New
York metropolitan economy, the Manhattan office market or real estate
investments generally. Thus, events which depress equity market prices may not
have any effect on real estate market values, and shares of Common Stock may
trade at prices below the Company's net asset value.
THE COMPANY'S DEPENDENCE ON EXTERNAL SOURCES OF CAPITAL COULD ADVERSELY
AFFECT THE COMMON STOCK PRICE. In order to qualify as a REIT under the Code,
the Company generally is required each year to distribute at least 95% of its
net taxable income (excluding any net capital gain). See "Material Federal
Income Tax Consequences--Taxation of the Company--Annual Distribution
Requirements." Because of these distribution requirements, it is unlikely that
the Company will be able to fund all future capital needs, including capital
needs in connection with acquisitions, from cash retained from operations. As a
result, to fund future capital needs, the Company likely will have to rely on
third-party sources of capital, which may or may not be available on favorable
terms or at all. The Company's access to third-party sources of capital will
depend upon a number of factors, including the market's perception of the
Company's growth potential and its current and potential future earnings and
cash distributions and the market price of the Common Stock. Moreover,
additional equity offerings may result in substantial dilution of stockholders'
interests in the Company, and additional debt financing may substantially
increase the Company's leverage. See "Policies with Respect to Certain
Activities--Financing Policies."
THE OFFICERS, DIRECTORS AND SIGNIFICANT STOCKHOLDERS OF THE COMPANY WILL
HAVE SUBSTANTIAL INFLUENCE. Upon the completion of the Offering, management of
the Company collectively will beneficially own approximately 21% of the issued
and outstanding shares of Common Stock and Units (which will be exchangeable by
the holders for cash or, at the election of the Company, shares of Common Stock
on a one-for-one basis generally after two years). See "Principal Stockholders."
In addition, Stephen L. Green and Benjamin P. Feldman will serve on the initial
board of directors of the Company. Accordingly, such persons will have
substantial influence on the Company, which influence may not be consistent with
the interests of other stockholders, and may in the future have a substantial
influence on the outcome of any matters submitted to the Company's stockholders
for approval if all or a significant number of their Units are exchanged for
shares of Common Stock. In addition, although there is no current agreement,
understanding or arrangement for these stockholders to act together on any
matter, these stockholders would be in a position to exercise significant
influence over the affairs of the Company if they were to act together in the
future.
THE COMPANY RELIES ON KEY PERSONNEL WHOSE CONTINUED SERVICE IS NOT GUARANTEED
The Company is dependent on the efforts of its executive officers, Stephen
L. Green, Nancy A. Peck, David J. Nettina, Steven H. Klein, Benjamin P. Feldman,
Gerard Nocera and Louis A. Olsen. The loss of their services could have a
material adverse effect on the operations of the Company. As described herein,
the Company will not acquire certain real estate assets in which Mr. Green will
retain an interest. See "The Properties--Assets Not Being Transferred to the
Company." However, prior to the completion of the
26
Offering, each of the executive officers, including Mr. Green, will enter into
an employment and noncompetition agreement with the Company which will provide,
among other items, that each such person will devote substantially all of his or
her business time to the Company. See "Management-- Employment and
Noncompetition Agreements."
THE SL GREEN PREDECESSOR HAS HAD HISTORICAL ACCOUNTING LOSSES AND HAS A DEFICIT
IN OWNERS' EQUITY; THE COMPANY MAY EXPERIENCE FUTURE LOSSES
The SL Green Predecessor had losses before extraordinary items of
approximately $708,000 and $3.4 million in the years ended December 31, 1996 and
1995, respectively, and had a cumulative deficit in owners' equity of
approximately $2.2 million as of June 30, 1997. These net losses reflect certain
non-cash charges such as depreciation and amortization. These historical results
are not indicative of future results. Nonetheless, there can be no assurance
that the Company will not incur net losses in the future.
STOCKHOLDER APPROVAL IS NOT REQUIRED TO CHANGE POLICIES OF THE COMPANY
The investment, financing, borrowing and distribution policies of the
Company and its policies with respect to all other activities, including
qualification as a REIT, growth, debt, capitalization and operations, will be
determined by the Board of Directors. Although it has no present intention to do
so, the Board of Directors may amend or revise these policies at any time and
from time to time at its discretion without a vote of the stockholders of the
Company. A change in these policies could adversely affect the Company's
financial condition, results of operations or the market price of the Common
Stock.
UNINSURED LOSSES COULD ADVERSELY AFFECT THE COMPANY'S CASH FLOW
The Company initially will carry comprehensive liability, fire, flood,
extended coverage and rental loss (for rental losses extending up to 12 months)
with respect to its properties with policy specifications and insured limits
customarily carried for similar properties. Certain types of losses (such as
from wars, environmental hazards and employee discrimination claims), however,
may be either uninsurable or not economically insurable. Should an uninsured
loss or a loss in excess of insured limits occur, the Company could lose both
its capital invested in, and anticipated profits from, one or more of its
properties, and may continue to be obligated on the mortgage indebtedness or
other obligations related to the property. Any such loss may adversely affect
the business of the Company and its financial condition and results of
operations.
It is anticipated that new owner's title insurance policies will not be
obtained for two of the Properties in the Core Portfolio (the Bar Building and
1414 Avenue of the Americas) in connection with the Formation Transactions. Each
of these Properties is covered by existing title insurance policies insuring the
interests of the Property-owning entities. Further, each title insurance policy
covering each such Property is for an amount which is less than the current
value of the Property. In the event of a loss with respect to a Property
relating to a title defect that is in excess of the amount of such title
insurance policy, the Company could lose both its capital invested in and
anticipated profits from such property.
THE COSTS OF COMPLIANCE WITH THE AMERICANS WITH DISABILITIES ACT AND SIMILAR
LAWS COULD ADVERSELY AFFECT THE COMPANY'S CASH FLOW
AMERICANS WITH DISABILITIES ACT. Under the Americans with Disabilities Act
of 1980 (the "ADA"), places of public accommodation and commercial facilities
are required to meet certain Federal requirements related to access and use by
disabled persons. These requirements became effective in 1992. Although
management of the Company believes that the Properties are substantially in
compliance with present requirements of the ADA, the Company may incur
additional costs of compliance in the future. A number of additional Federal,
state and local laws exist which impose further burdens or restrictions on
owners with respect to access by disabled persons and may require modifications
to the Properties, or restrict
27
certain further renovations thereof, with respect to access by disabled persons.
Final regulations under the ADA have not yet been promulgated and the ultimate
amount of the cost compliance with the ADA or other such laws is not currently
ascertainable. While such costs are not expected to have a material effect on
the Company, they could be substantial. If required changes involve greater
expense than the Company currently anticipates, the Company's ability to make
expected distributions could be adversely affected.
OTHER LAWS. The Properties are also subject to various Federal, state and
local regulatory requirements, such as state and local fire and life safety
requirements. Failure to comply with these requirements could result in the
imposition of fines by governmental authorities or awards of damages to private
litigants. The Company believes that the Properties are currently in compliance
with all such regulatory requirements. However, there can be no assurance that
these requirements will not be changed or that new requirements will not be
imposed which would require significant unanticipated expenditures by the
Company and could have an adverse effect on the Company's Funds from Operations
and expected distributions.
28
THE COMPANY
The Company has been formed for the purpose of continuing the commercial
real estate business of SL Green. For more than 17 years, SL Green has been
engaged in the business of owning, managing, leasing, acquiring and
repositioning Class B office properties in Manhattan. Upon completion of the
Offering, the Company will own or have contracted to acquire interests in nine
Class B office properties encompassing approximately 2.2 million rentable square
feet located in midtown Manhattan (the "Properties") and will manage 29 office
properties (including the Properties) encompassing approximately 6.4 million
rentable square feet. Of these Properties, interests in six office Properties
encompassing approximately 1.2 million rentable square feet are currently owned
and managed by SL Green (the "Core Portfolio") and interests in three office
Properties encompassing approximately 1.0 million rentable square feet will be
acquired upon completion of the Offering (the "Acquisition Properties"). As of
June 30, 1997, the weighted average occupancy rate of the Core Portfolio was 97%
and of the Acquisition Properties was 89%. Also, upon completion of the
Offering, the Company will own an option to acquire an additional Class B office
property in downtown Manhattan containing approximately 800,000 rentable square
feet of office space. See "The Properties--The Option Property". The Company
will operate as a fully integrated, self-administered and self-managed REIT.
Management expects that the Company will be the first publicly-traded real
estate company to invest primarily in Manhattan office properties.
The term "Class B" is generally used in the Manhattan office market to
describe office properties which are more than 25 years old but which are in
good physical condition, enjoy widespread acceptance by high-quality tenants and
are situated in desirable locations in Manhattan. Class B office properties can
be distinguished from Class A properties in that Class A properties are
generally newer properties with higher finishes and obtain the highest rental
rates within their markets.
A variety of tenants who do not require, desire or cannot afford Class A
space are attracted to Class B office properties due to their prime locations,
excellent amenities, distinguished architecture and relatively less expensive
rental rates. Class B office space has historically attracted many smaller
growth oriented firms (many of which have fueled the recent growth in the New
York metropolitan economy) and has played a critical role in satisfying the
space requirements of particular industry groups in Manhattan, such as the
advertising, apparel, business services, engineering, not-for-profit, new media
and publishing industries. In addition, several areas of Manhattan, including
many in which particular trades or industries traditionally congregate, are
dominated by Class B office space and contain no or very limited Class A office
space. Examples of such areas include the Garment District (where three of the
Properties are located), the Flatiron District (where one Property is located),
Soho, Noho, Chelsea (where one Property is located), and the area surrounding
the United Nations (where one Property is located). Businesses significantly
concentrated in certain of these areas include those in the following
industries: new media, garment, apparel, toy, jewelry, interior decoration,
antiques, giftware, contract furnishing and UN-related businesses. The
concentration of businesses creates strong demand for the available Class B
office space in those locations. Tenants that currently occupy space in SL Green
owned or managed Properties include Cowles Business Media, Kallir, Philips, Ross
Inc., MCI, NationsBank, New York Hospital, Newbridge Communications, Omnicom
Group Ltd., Ross Stores, Sara Lee Corp. and UNICEF.
As described herein, current developments in the New York economy provide an
attractive environment for owning, operating and acquiring Class B office
properties in Manhattan. See "Business and Growth Strategies--The Market
Opportunity" and "Risk Factors--The Company's Dependence on the Midtown Markets
Due to Limited Geographic Diversification Could Adversely Affect the Company's
Financial Performance." These developments have resulted in growing demand for
midtown Manhattan office space (particularly Class B space), declining vacancy
rates (the Class B vacancy rate in the Midtown Markets declined from 17.3% at
year-end 1992 to 11.3% at June 30, 1997) and appreciation in rental rates and
property values. The Company believes there will be a continued strengthening of
the Class B office market driven by expected job growth in Manhattan,
particularly among smaller companies which are, in many instances, Class B
tenants. Additionally, the Company believes that a number of high quality
tenants
29
will likely seek to relocate from Class A space to Class B space in the Midtown
Markets as a result of the rising cost of Class A space. The Company will seek
to capitalize on growth opportunities in its marketplace by acquiring Class B
office properties on a selective basis and, when necessary, enhancing their
value after acquisition through repositioning of the properties in their
respective submarkets. As described more fully below, the Company may have
certain competitive advantages over other potential acquirors of Class B
Manhattan office space due to its local market expertise, long-term
relationships with brokers and property owners as a result of its property
management and leasing businesses, enhanced access to capital as a public
company and ability to offer tax-advantaged acquisition structures.
Additionally, the Company will seek to optimize its properties' cash flow
through ongoing intensive management and leasing. See "Business and Growth
Strategies--Growth Strategies."
SL Green was founded in 1980 by Stephen L. Green, its Chairman, President
and Chief Executive Officer. Since that time, SL Green has become a full
service, fully integrated real estate company which, upon completion of the
Offering, will have a portfolio of approximately 6.4 million rentable square
feet of Class B office properties under management. Throughout its history, SL
Green has been involved in the acquisition of 31 Class B office properties in
Manhattan containing approximately four million square feet and the management
of 50 Class B office properties in Manhattan containing approximately 10.5
million square feet.
SL Green has offices in midtown and downtown Manhattan and has established a
staff of more than 50 persons, including 40 professionals with experience in all
aspects of commercial real estate. The Company will be led by, in addition to
Stephen L. Green, six senior executives that average more than seven years with
SL Green and more than 19 years in the commercial real estate business. This
management team has developed a comprehensive knowledge of the Manhattan Class B
office market, an extensive network of tenant and other business relationships
and experience in acquiring underperforming office properties and repositioning
them into profitable Class B properties through intensive full service
management and leasing efforts. Upon completion of the Offering, approximately
21% of the equity of the Company, on a fully diluted basis, will be beneficially
owned by officers and directors of the Company and certain other affiliated
parties.
SL Green consists of six operating divisions, each of which is headed by an
executive team comprised of industry experts with substantial experience in
either the leasing, marketing, asset and property management, construction
management, legal or accounting aspects of the real estate business. The
integration of this expertise allows SL Green to provide high quality, cost
effective leasing and management services essential to enhancing the value of
its office properties.
The Company was incorporated in the State of Maryland on June 10, 1997. Its
executive offices are located at 70 West 36th Street, New York, New York
10018-8007 and its telephone number is (212) 594-2700.
30
BUSINESS AND GROWTH STRATEGIES
The Company's primary business objective is to maximize total return to
stockholders through growth in distributable cash flow and appreciation in the
value of its assets. The Company plans to achieve this objective by capitalizing
on the external and internal growth opportunities described below and continuing
the operating strategies historically practiced by SL Green.
Unless indicated otherwise, information contained herein concerning the New
York metropolitan economy and the Manhattan office market is derived from the
Rosen Market Study.
THE MARKET OPPORTUNITY
Management believes that current developments in the New York City economy
provide an attractive environment for owning, operating and acquiring Class B
office properties in Manhattan. The New York commercial real estate market is
currently recovering from the sustained downturn of the late 1980s and early
1990s. Specifically, the New York City metropolitan economy has recently
benefited from consistent net private sector job growth, an improving business
environment and enhancements in the "quality of life" afforded to city
residents. In that regard, private sector employment gained an average of more
than 44,000 jobs per year between 1994 and 1996 for an average annual growth
rate of 1.4%; between May of 1996 and 1997, private sector employment growth was
1.7%, which is the highest growth rate in more than ten years. Much of this
private sector job growth has been concentrated among smaller companies involved
in growth oriented industries. Smaller companies have traditionally been
attracted to Class B office properties in the Midtown Markets due to their prime
locations and relatively less expensive rental rates (as compared to Class A
office properties). These smaller companies conduct business in industries
including: business services, software, advertising, audio recording, trade
sectors (e.g., apparel and other textile products), major media (e.g.,
television, magazines and publishing), new media (e.g., entertainment software,
online/Internet services, CD-ROM title development and web site design) and
engineering, as well as nonprofit endeavors.
The combination of a growing office space demand fueled by a strengthening
New York City economy and limited recent and projected new supply of office
space has resulted in a recovery in the Midtown Markets. The combined vacancy
rate for Class A and Class B office space in the Midtown Markets declined to
10.7% at June 30, 1997 from a 1990s high of 16.8% at year-end 1991. The Class B
segment of the market which tightened to a vacancy rate of 11.3% at June 30,
1997 from its 1990s high of 17.3% at year-end 1992, a 34.7% decline. According
to Rosen Consulting Group, a nationally recognized real estate consulting
company, the outlook in the New York metropolitan area is for healthy private
sector employment growth of approximately 1.4% per annum in 1997 and 1998,
followed by approximately 0.9% growth per annum through 2001, which is expected
to generate significant demand for office space. Specifically, Rosen Consulting
Group projects vacancy rates in the Class B Midtown Markets to further drop to
5.7% by 2001, resulting in projected average asking market rents of $31.30 per
square foot, a 28% increase over average asking rents as of June 30, 1997 of
$24.44 per square foot. See "Market Overview." However, conditions in the New
York City metropolitan economy and the Midtown Markets are subject to change and
there can be no assurance that any such projections will approximate actual
results. See "Risk Factors--The Company's Dependence on the Midtown Markets Due
to Limited Geographic Diversification Could Adversely Affect the Company's
Financial Performance."
The Company believes the pronounced recovery of Class B space is being
driven by the growth of smaller companies, the relocation of large firms from
Class A space to Class B as a result of the dearth of available Class A space,
particularly in large blocks, and the heightened cost consciousness of large
tenants. In that regard, as of September 1995, there were 30 blocks of 150,000
or more rentable square feet of Class A space available for lease in the Midtown
Markets. As of March 31, 1997 the number of such available blocks had declined
to 12. Recent examples of large, traditional Class A tenants relocating into SL
Green owned or managed Class B midtown office space are Newbridge
Communications, a subsidiary
31
of K-III Communications moving to 49,000 square feet of space at 673 First
Avenue, Kallir, Philips, Ross Inc., a subsidiary of The Omnicom Group Ltd.
moving to 80,000 square feet at 673 First Avenue, Revere National Corp. moving
to 2,743 square feet at 70 West 36th Street, The Really Useful Company (a
subsidiary of Andrew Lloyd Weber's enterprises) moving to 3,033 square feet at
the Bar Building and Guidepost Associates, the publishing division of The Norman
Vincent Peale Foundation moving to 17,400 square feet at 16 East 34th Street. As
the supply of Class A space continues to contract, management believes that it
is likely that more high quality tenants will locate in well-located Class B
office properties, many of which offer comparable amenities to Class A buildings
at a significant discount to Class A costs.
Improving supply and demand fundamentals in the Midtown Markets have
generated increasingly favorable rental terms from a property owner's
perspective. According to Rosen Consulting Group, asking rental rates for Class
B space in the Midtown Markets have increased to $24.44 per square foot as of
June 30, 1997 from their 1990s low of $21.89 per square foot as of year-end
1993. See "The Properties-- The Portfolio" for a discussion of Annualized Rent
associated with the Properties.
Management believes that opportunities to acquire Class B office properties
in Manhattan on economically attractive terms will be available to the Company.
The Rosen Consulting Group estimates that the replacement cost of Class A office
space in Manhattan (no Class B space is built in Manhattan) is approximately
$358 per square foot, which is substantially above the estimated current
acquisition price of Class A space of $225 to $300 per square foot and the
estimated current acquisition price for Class B space of $90 to $200 per square
foot. Furthermore, even if rental rates were to approach a level that would
justify new construction, there are few development sites available in Manhattan
and the regulatory approval process is both costly and lengthy. The Company
believes that as the Class A market continues to recover, rental rates and
corresponding property values should increase to a level that may justify new
construction. The Company also believes that property values and rental rates in
the Class B market have historically tracked those of the Class A market and,
consequently, there is potential for rental rate and property value increases in
the Class B marketplace.
Further, the Company believes that the recent abolition of the New York
State Real Property Transfer Gains Tax, which effectively reduced the cost of
sales involving commercial properties that have appreciated in value, may create
an increase in the number of properties available for acquisition. Prior to such
abolition, a seller of commercial property in New York was subject to a
substantial New York State gains tax (in addition to income tax). As described
more fully below, the Company may have certain competitive advantages over other
potential acquirors of Class B office space due to its local market expertise,
historical institutional relationships, enhanced access to capital as a public
company and ability to offer tax-advantaged acquisition structures.
Investors should note that the concentration of the Company's investments in
Class B office properties located in Manhattan entails certain risks. See "Risk
Factors--The Company's Dependence on Midtown Markets Due to Limited Geographic
Diversification Could Adversely Affect the Company's Financial Performance" and
"Risk Factors--Competition in its Marketplace Could Have an Adverse Impact on
the Company's Results of Operations."
GROWTH STRATEGIES
Management will seek to capitalize on current opportunities in the Class B
Manhattan office market through (i) property acquisitions -- continuing to
acquire Class B office properties at significant discounts to replacement costs
that provide attractive initial yields and the potential for cash flow growth,
(ii) property repositioning -- repositioning acquired properties that are
underperforming through renovations, active management and proactive leasing and
(iii) integrated leasing and property management.
32
PROPERTY ACQUISITIONS
The Company will seek to continue SL Green's ability to capitalize on
favorable market conditions for acquiring Manhattan Class B office properties
and management's experience in enhancing the value of its properties. In
assessing acquisition candidates, the Company will evaluate the following
factors: (i) the property's strategic location in its marketplace and its
strategic fit within the Company's portfolio, (ii) current and projected
occupancy and market rental rates and the ability to operate the property
profitably at competitive rental rates, (iii) the purchase price as compared to
the replacement cost of the property, (iv) the potential to modify and/or
upgrade and reposition the property in its market to increase returns and (v)
the quality of the construction and presence of existing and/or potential
deferred maintenance issues.
The Company believes that it will have the following competitive advantages
over its competitors, primarily private companies and individuals, in acquiring
Class B properties in Manhattan:
LOCAL MARKET EXPERTISE. Since its inception in 1980, SL Green has developed
into a full service, fully integrated real estate company which, upon completion
of the Offering, will manage approximately six million square feet of Class B
office space in Manhattan. Consequently, management has accumulated an extensive
working knowledge of the Class B Manhattan office market with a substantial base
of information concerning current and prospective tenants, effective rental
rates, property management and renovation costs, the complicated regulatory
processes characteristic of the Manhattan office market, as well as other
factors relevant to the sourcing and evaluation of potential acquisition
properties. The depth and expertise of SL Green management is unusual in the
Class B marketplace, which has historically attracted far less institutional
interest than the Class A property sector.
ENHANCED ACCESS TO CAPITAL. Management believes that upon completion of the
Offering, the Company should obtain better access to capital than is generally
available to private real estate firms, especially those that compete for
Manhattan Class B properties. In that regard, management believes that ownership
of Class B office space in Manhattan is more fragmented and far less
institutional in nature than ownership of Class A Manhattan office space. As a
public company, the Company will have the potential to raise capital through
subsequent issuances of securities in the public and private marketplace. The
Company also intends to finance property acquisitions through single asset debt
financings and to obtain, upon completion of the Offering, a revolving credit
facility for up to $75 million to finance acquisitions. However, no assurances
can be made as to the availability of any such financing sources.
UNIT ACQUISITIONS. Upon completion of the Offering, management believes
that the Company will be the first publicly-traded real estate company to focus
primarily on the Manhattan Class B office market. As an "UPREIT", the Company
will have the ability to acquire properties for Units and thereby provide
sellers with deferral of income taxes that would otherwise be payable upon a
cash sale. In addition, Units afford property sellers diversification and
liquidity of investment as well as certain estate planning benefits. Management
believes that the Company operates in an established and mature real estate
market in which many property owners have owned their properties for many years
and therefore have a low tax basis in such properties. Consequently, the ability
to offer Units may afford the Company certain competitive advantages over other
potential acquirors who are unable to offer tax-efficient consideration.
HISTORICAL INSTITUTIONAL RELATIONSHIPS. Through its 17 year operating
history, SL Green has established relationships with numerous financial
institutions for which it acts as landlord or as a property manager. In
particular, SL Green's substantial third-party management business affords the
Company access to numerous institutional owners of property that may in the
future seek to divest property holdings. SL Green's retention as a property
manager by such owners has in the past led to opportunities to acquire the
managed property or other properties held by such owner. As an example of the
opportunities such relationships can create, within six weeks of taking over the
management and leasing responsibilities at 36 West 44th Street (The Bar
Building), a 165,000 square foot Class B office property in midtown Manhattan
33
which represented 8.5% of the Annualized Rent at the Properties as of June 30,
1997, SL Green contracted to purchase a mortgage interest encumbering the
property from an insurance company with whom SL Green had prior business
dealings. This mortgage interest is convertible by the Company, at its option,
into fee ownership. The ability of SL Green to assess quickly the current and
potential value and physical condition of this property enabled SL Green to make
a pre-emptive offer to purchase the property. Consequently, the property was
taken off the market, precluding prospective purchasers from engaging in
acquisition discussions with the insurance company.
RECENT TAX LAW DEVELOPMENTS. Recently, the New York State legislature voted
to abolish the New York State Real Property Transfer Gains Tax, which
effectively reduced the cost of sales involving commercial properties that have
appreciated in value. Prior to such abolition, sellers of commercial properties
located in New York State were subject to a special 10% tax (2.5% in the case of
certain transfers to REITs) on their gains. Further, the Company will have a
competitive tax advantage due to recent tax law amendments affecting REITs.
Under recent amendments to the New York State and New York City transfer tax
laws, transfer tax rates applicable to certain REIT acquisition transactions
were reduced 50% through August 1999 (from 3.025% to 1.5125% in the aggregate).
Consequently, the Company may be able to structure acquisitions that qualify for
these reduced rates and thereby enhance its attractiveness to sellers.
Investors should note that acquisitions of office properties entail certain
risks. See "Risk Factors-- The Company May Not Achieve Expected Returns on
Recently Acquired Properties and Property Acquisitions."
PROPERTY REPOSITIONING
The Company believes that, consistent with its core operating philosophy of
maximizing asset value, it can reposition future acquisition properties, where
warranted, in order to enhance property cash flow and value. To achieve these
goals, the Company works to increase occupancy and rental rates by repositioning
buildings to be among the best in their submarkets. The Company considers the
amount of capital required to be invested in a property to achieve the
repositioning. The Company then judges the benefit of a repositioning on a total
return basis, such that for the Company to undertake the project the present
value of the projected future increase in net cash flow and property value must
exceed the cost of the capital expenditure required to achieve the
repositioning.
The repositionings pursued by SL Green in the past have consisted of both
intensive large scale renovations as well as smaller scale repositionings. In
the case of an intensive large scale renovation, either a property's use is
changed (e.g., from light industrial/warehouse to office) or a property is
completely rehabilitated. In the case of a smaller scale repositioning,
generally cosmetic renovations are made to targeted areas of a building,
deferred maintenance is corrected and an intensive leasing program is commenced.
The Company believes there are a significant number of potential acquisitions
for which this strategy can be successfully implemented due to the large number
of Manhattan office properties that have significant deferred maintenance or
have been undermanaged. The Company believes this situation has resulted from
fragmented ownership that is generally non-institutional and has limited access
to capital.
An important component of the Company's repositioning strategy is its
construction management capability. SL Green's construction management division
has renovated approximately two million square feet of office space, including
entire building renovations, at an aggregate cost exceeding $100 million. In the
past, SL Green has implemented successful repositioning programs which have
involved significant capital investments to improve the physical condition with
respect to building facade, entrance and lobby, mechanical systems (including
HVAC, fire/safety and elevators) and tenant space layout, while maintaining cost
control with respect to these activities. Additionally, SL Green has benefited
in its repositioning efforts from its fully-integrated real estate operations.
The Company believes that its in-house leasing, property management and
construction management capabilities provide it with valuable information
34
regarding the cost of accommodating tenant preferences and the potential rental
revenues achievable from various repositioning options.
Substantially all of the Properties in the Core Portfolio have benefitted
from SL Green's repositioning strategy. Examples of successful implementation of
this strategy within the Core Portfolio include 673 First Avenue (which property
accounted for 22.1% of the aggregate Annualized Rent at the Properties as of
June 30, 1997) and the Bar Building (which property accounted for 8.5% of the
aggregate Annualized Rent at the Properties as of June 30, 1997). At 673 First
Avenue, SL Green converted a distribution and warehouse facility into an office
property to take advantage of desirable 40,000 square foot floor plates and a
strategic location near the United Nations complex. To accomplish the
repositioning, SL Green invested approximately $25 million in the Property for
(i) a new building entrance, lobby and storefronts, (ii) complete replacement of
the elevator systems, (iii) the creation of common areas, (iv) entirely
reconfigured HVAC and electrical systems and (v) the build-out of tenant spaces.
The repositioning resulted in the conversion of a 43% occupied
warehouse/distribution facility into a 97% occupied Class B office building
within 24 months. The Property's net operating income (NOI) increased
dramatically from approximately $466,000 per annum upon acquisition to
approximately $7.6 million per annum following repositioning and lease-up
(exclusive of net lease payments and debt service payments). SL Green is
currently pursuing a similar strategy at the Bar Building. This Property also
suffers from deferred maintenance and is underperforming relative to its market
potential. West Forty-Fourth Street, between Fifth Avenue and Avenue of the
Americas, where the Bar Building is located, has many attractive buildings and
prominent clubs which, by association, enhance the value of this Property.
Therefore, in order to capitalize on the location of the building, a distinctive
facade will be created to attract the attention of high quality tenants. Also, a
"pre-built" tenant space program has been undertaken as well as public corridor
renovations, all which have resulted in the execution of 12 leases encompassing
24,500 square feet since acquisition.
INTEGRATED LEASING AND PROPERTY MANAGEMENT
The Company intends to continue SL Green's strategy of seeking to optimize
long-term cash flow from its properties through the implementation and
integration of targeted leasing and management programs.
PROACTIVE LEASING PROGRAM. The Company will seek to capitalize on its
market position and relationships with an extensive network of brokers and
tenants to implement a proactive leasing program. Management believes that its
extensive knowledge of the Class B Manhattan office market enhances its ability
to monitor, understand and anticipate the current and future space needs of
tenants in its submarkets. The leasing process for an acquisition property
begins with extensive market research in order to determine the strengths and
weaknesses of the property. This review includes an analysis of the building's
physical characteristics, aesthetic attributes, floor plate sizes, services,
elevators and mechanical systems, followed by an in-depth market analysis to
determine the property's competitive position in the marketplace and perception
in the brokerage community. The results of these analyses are used to develop
the appropriate marketing strategy and the appropriate program to communicate
the positive attributes and key features of the property or space to the
marketplace and the brokerage community. These strategies may include the
development of marketing tools such as brochures, listing sheets, fliers,
signage and advertising copy.
The utilization of third-party brokerage firms in implementing a successful
leasing program is an integral component of the Company's leasing strategy. By
closing transactions quickly and at market terms and paying commissions
promptly, SL Green has created a network of relationships with leasing
professionals who regularly bring tenants to SL Green owned and managed
properties.
An example of SL Green's successful implementation of its proactive leasing
strategy under uniquely adverse conditions is 16 East 34th Street, a property
managed by SL Green. When SL Green was hired by
35
new ownership in September, 1991 as the leasing and managing agent for 16 East
34th Street, a 330,000 square foot Class B midtown Manhattan office property,
the property was only 50% occupied and suffered from a poor image in its
marketplace. The SL Green team developed a cost effective building redevelopment
program and a related marketing program designed to reposition quickly the
property in its marketplace. The implementation of these programs resulted in
over 150,000 square feet of executed leases to high quality tenants within 18
months, bringing occupancy to 90% during a period of rising and historically
high vacancy rates in Manhattan office properties.
The Company believes that SL Green's proactive leasing efforts have
contributed to average occupancy rates at the Properties that are above the
market average. During the period between 1994 and 1996, properties owned by SL
Green for more than one year averaged occupancy rates of 94.3%, which exceeded
the average of 87.2% for Class B Manhattan office space in the Midtown Markets
by 8.1% over the comparable period.
Another key component of the SL Green leasing strategy that will be
continued by the Company is a commitment to tenant retention. Each leasing
executive regularly conducts in-person interviews with existing tenants in order
to gain insight into each tenant's business objectives, financial position and
strength and future space requirements. This knowledge, in addition to a full
understanding of each tenant's current lease obligation, is utilized to develop
a plan to retain existing tenants in order to maximize long term cash flow. SL
Green's commitment to tenant service and satisfaction is evidenced by the
renewal of approximately 80% of the expiring rentable square footage (78% of the
expiring leases determined by number of leases) at the Properties in the Core
Portfolio owned and managed by SL Green during the period from January 1, 1993
through June 30, 1997.
IMPLEMENTATION OF STRATEGIC MANAGEMENT SYSTEMS. SL Green's proactive
management begins with a comprehensive operational and physical analysis of a
property followed by a preventive maintenance assessment. SL Green professionals
evaluate all service contracts, survey electrical capacity and costs and, after
interviewing all building personnel, appraise personnel resources and payroll
costs on an ongoing basis. Based on the results of the analysis of the
contractual lease obligations, building position in the market and the
capital/aesthetic improvements needed to bring the property to its desired level
relative to its competition, SL Green develops and implements a management
program designed to provide tenants with the highest level of service while
maintaining the lowest cost to ownership.
An example of SL Green successfully implementing its strategic management
systems is the Bar Building. Upon purchasing a mortgage interest in the
Property, SL Green implemented a strategic property management program which
reduced operating expenses by more than $400,000 per annum. Specifically, the
management professionals at SL Green rebid the cleaning and security contracts,
evaluated the staffing at the property, and determined the associated costs that
could be reduced while improving service. The aggregate contractual operating
expense reduction was in excess of $300,000. Meanwhile, SL Green's in-house
counsel vigorously managed the real estate tax certiorari process which resulted
in an approximately $100,000 real estate tax reduction.
MAXIMIZING TENANT SATISFACTION. SL Green seeks to provide tenants with a
level of service more typically found in Class A properties. Characteristics of
SL Green office property redevelopments include upgraded or new entrances,
lobbies, elevator cabs/mechanicals, hallways, bathrooms, windows, telecom
systems and tenant spaces. Additionally, SL Green seeks to provide certain
tenant amenities typically associated only with Class A properties. For example,
SL Green maintains flowers in its buildings' lobbies and also provides uniformed
concierges focused on tenant service as opposed to the security guards found at
many Class B Manhattan office buildings. Within particular submarkets, SL Green
arranges for the provision of cleaning and 24 hour, seven days per week security
services to its tenants. The Company believes that this level of service is
unusual in the Class B market, in large part due to the highly fragmented nature
of Class B ownership and management. RELocate, a real estate market research
firm, estimates that the 630 Class B buildings in the Midtown Markets are owned
by over 500 different entities, many of whom own a single property or a few
properties. The Company believes that the relatively large size of its
operations and focus on the Class B market enables it to provide a level of
service superior to that typically provided by the smaller owner/operators that
permeate the Class B Manhattan marketplace.
36
USE OF PROCEEDS
The net cash proceeds to the Company from the Offering, after deducting the
underwriting discounts and commissions are estimated to be approximately $189.4
million (approximately $217.8 million if the Underwriters' over-allotment option
is exercised in full), based upon the assumed initial public offering price of
$20.00 per share.
The net cash proceeds of the Offering will be used by the Company as
follows: (i) approximately $42.7 million to repay mortgage indebtedness
encumbering the Core Portfolio, including approximately $1.9 million in
prepayment penalties and other financing fees and expenses, (ii) approximately
$6.4 million to purchase the direct or indirect interests of certain
participants in the Formation Transactions in the Properties, (iii)
approximately $99.0 million to acquire the Acquisition Properties (including a
$1.6 million escrow account established in connection with the acquisition of 50
West 23rd Street), (iv) approximately $6.1 million to pay certain expenses
incurred in the Formation Transactions for legal, accounting, and ancillary
expenses, and Offering Expenses, (v) $27.5 million to repay the LBHI Loan
(excluding the following amounts borrowed under the LBHI Loan that will be
repaid with Offering proceeds and are included above: $200,000 to fund
prepayment penalties, $9.4 million to purchase the Acquisition Properties and
$2.5 million to fund Offering expenses), (vi) $1.5 million to fund payment of a
financial advisory fee to Lehman Brothers Inc. and (vii) $6.2 million to fund
capital expenditures and general working capital needs.
If the Underwriters' over-allotment option to purchase 1,515,000 additional
shares of Common Stock is exercised in full, the Company expects to use the
additional net proceeds (which will be approximately $28.2 million) to acquire
additional properties and/or for working capital.
Pending application of the net proceeds of the Offering, the Company will
invest such portion of the net proceeds in interest-bearing accounts and/or
short-term, interest-bearing securities which are consistent with the Company's
intention to qualify for taxation as a REIT.
The LBHI Loan was incurred within the 12 month period preceding the date of
this Prospectus. Borrowings under the LBHI Loan bear interest at a weighted
average interest rate of 6.8% and have an average remaining term to maturity of
approximately 1.2 years as of June 30, 1997. The proceeds of the LBHI Loan were
used to acquire interests in the Core Portfolio and Acquisition Properties, to
fund property related operating expenses, to fund organizational expenses and to
purchase Treasury Securities. See "Structure and Formation of the
Company--Benefits to Related Parties."
The mortgages and other indebtedness to be repaid upon the completion of the
Offering (excluding the LBHI Loan) had a weighted average interest rate of
approximately 9.2% and an average remaining term to maturity of 11 years as of
June 30, 1997. The following table sets forth the amount of existing mortgage
debt (excluding the LBHI Loan) to be repaid upon completion of the Offering.
PROCEEDS USED FOR REPAYMENT
UPON COMPLETION OF THE
OFFERING
PROPERTY (IN THOUSANDS) (1)(2)
- ---------------------------------------------------------------------------------- ------------------------------
673 First Avenue.................................................................. $ 1,000
470 Park Avenue South............................................................. 13,042
Bar Building...................................................................... 10,200
70 West 36th Street............................................................... 6,568
1414 Avenue of the Americas....................................................... 9,878
-------
Total......................................................................... $ 40,688
-------
-------
- ------------------------
(1) Exact repayment amounts may differ due to amortization. The figures are as
of June 30, 1997 and exclude prepayment penalties estimated to aggregate
approximately $1.9 million and approximately $100,000 of accrued interest.
(2) Upon completion of the Offering, the Company will have $32.5 million of
mortgage indebtedness encumbering the Core Portfolio and will incur an
additional $14 million mortgage loan to finance the purchase of 1140 Avenue
of the Americas. See "The Properties--Mortgage Indebtedness."
37
DISTRIBUTIONS
Subsequent to the completion of the Offering, the Company intends to make
regular quarterly distributions to the holders of its Common Stock. The initial
distribution, covering a partial quarter commencing on the date of completion of
the Offering and ending on September 30, 1997, is expected to be $ per share,
which represents a pro rata distribution based on a full quarterly distribution
of $.35 per share and an annual distribution of $1.40 per share (or an annual
distribution rate of approximately 7.00%, based on an assumed initial public
offering price of $20.00). The Company does not intend to reduce the expected
distribution per share if the Underwriters' over-allotment option is exercised.
The following discussion and the information set forth in the table and
footnotes below should be read in conjunction with the financial statements and
notes thereto, the pro forma financial information and notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-- Liquidity and Capital Resources" included elsewhere in this
Prospectus.
The Company intends initially to distribute annually approximately 106% of
estimated Cash Available for Distribution. The estimate of Cash Available for
Distribution for the 12 months ending June 30, 1998 is based upon pro forma
Funds from Operations for the 12 months ended June 30, 1997, adjusted for (i)
certain known events and/or contractual commitments that either have occurred or
will occur subsequent to June 30, 1997 or during the 12 months ended June 30,
1997, but were not effective for the full 12 months, and (ii) for certain
non-GAAP adjustments consisting of (A) revisions to historical rent estimates
from a GAAP basis to amounts currently being paid or due from tenants, (B) pro
forma amortization of financing costs, and (C) an estimate of amounts
anticipated for recurring capitalized tenant improvements, leasing commissions
and capital expenditures. No effect was given to any changes in working capital
resulting from changes in current assets and current liabilities (which changes
are not anticipated to be material) or the amount of cash estimated to be used
for (i) investing activities for acquisition, development, tenant improvement
and leasing costs and (ii) financing activities (other than scheduled mortgage
loan principal payments on existing mortgage indebtedness). The estimate of Cash
Available for Distribution is being made solely for the purpose of setting the
initial distribution and is not intended to be a projection or forecast of the
Company's results of operations or its liquidity, nor is the methodology upon
which such adjustments were made necessarily intended to be a basis for
determining future distributions. Future distributions by the Company will be at
the discretion of the Board of Directors. There can be no assurance that any
distributions will be made or that the estimated level of distributions will be
maintained by the Company.
The Company anticipates that its distributions will exceed earnings and
profits for Federal income tax reporting purposes due to non-cash expenses,
primarily depreciation and amortization, to be incurred by the Company.
Therefore, it is expected that approximately 30% (or $.42 per share) of the
distributions anticipated to be paid by the Company for the 12-month period
following the completion of the Offering will represent a return of capital for
Federal income tax purposes and in such event will not be subject to Federal
income tax under current law to the extent such distributions do not exceed a
stockholder's basis in his Common Stock. The nontaxable distributions will
reduce the stockholder's tax basis in the Common Stock and, therefore, the gain
(or loss) recognized on the sale of such Common Stock or upon liquidation of the
Company will be increased (or decreased) accordingly. The percentage of
stockholder distributions that represents a nontaxable return of capital may
vary substantially from year to year.
The Code generally requires that a REIT distribute annually at least 95% of
its net taxable income (excluding any net capital gain). See "Material Federal
Income Tax Consequences--Taxation of the Company--Annual Distribution
Requirements." The estimated Cash Available for Distribution is anticipated to
be in excess of the annual distribution requirements applicable to REITs under
the Code. Under certain circumstances, the Company may be required to make
distributions in excess of Cash Available for Distribution in order to meet such
distribution requirements. For a discussion of the tax treatment of
distributions to holders of Common Stock, see "Material Federal Income Tax
Consequences--Taxation of Stockholders."
38
The Company believes that its estimate of Cash Available for Distribution
constitutes a reasonable basis for setting the initial distribution, and the
Company intends to maintain its initial distribution rate for the 12-month
period following the completion of the Offering unless actual results of
operations, economic conditions or other factors differ materially from the
assumptions used in its estimate. The Company's actual results of operations
will be affected by a number of factors, including the revenue received from its
properties, the operating expenses of the Company, interest expense, the ability
of tenants of the Company's properties to meet their financial obligations and
unanticipated capital expenditures. Variations in the net proceeds from the
Offering as a result of a change in the initial public offering price or the
exercise of the Underwriters' over-allotment option may affect Cash Available
for Distribution, the payout ratio based on Cash Available for Distribution and
available reserves. No assurance can be given that the Company's estimate will
prove accurate. Actual results may vary substantially from the estimate.
The following table describes the calculation of pro forma Funds from
Operations for the 12 months ended June 30, 1997 and the adjustments to pro
forma Funds from Operations for the 12 months ended June 30, 1997 in estimating
initial Cash Available for Distribution for the 12 months ending June 30, 1998:
(DOLLARS IN
THOUSANDS,
EXCEPT PER
SHARE DATA)
-----------
Pro forma net income before minority interest and extraordinary item for the year ended December 31,
1996............................................................................................... $ 12,733
Plus: Pro forma net income before minority interest and extraordinary item for the six months ended
June 30, 1997.................................................................................... 9,165
Less: Pro forma net income before minority interest and extraordinary item for the six months ended
June 30, 1996.................................................................................... (5,549)
-----------
Pro forma net income before minority interest and extraordinary item for the 12 months ended June 30,
1997(1)............................................................................................ 16,349
Plus: Pro forma real estate depreciation for the 12 months ended June 30, 1997 (2)................. 6,717
Plus: Pro forma amortization (excluding financing costs) for the 12 months ended
June 30, 1997 (3)................................................................................ 424
-----------
Pro forma Funds from Operations for the 12 months ended June 30, 1997 (4)............................ 23,490
Adjustments:
Net increases in rental and management income (5).................................................. 1,795
Provision for lease expirations, assuming no renewals (6).......................................... (492)
Non-recurring lease surrender income and real estate tax refund (7)................................ (2,121)
Interest adjustment (8)............................................................................ 165
-----------
Estimated adjusted pro forma Funds from Operations for the 12 months ending June 30, 1998............ 22,837
Net effect of straight-line rents and non-cash transaction (9)..................................... (1,866)
Pro forma amortization of financing costs for the 12 months ending June 30, 1997 (10).............. 158
Non-real estate depreciation and amortization (11)................................................. 93
-----------
Estimated pro forma Cash Flow from Operating Activities for the 12 months ending
June 30, 1997...................................................................................... 21,222
Estimated recurring capitalized tenant improvements and leasing commissions (12)................... (1,062)
Estimated recurring capital expenditures (13)...................................................... (910)
Scheduled mortgage loan principal payments (14).................................................... (1,872)
-----------
Estimated Cash Available for Distribution for the 12 months ending June 30, 1998..................... 17,378
-----------
The Company's share of estimated Cash Available for Distribution (15).............................. 14,233
Minority interest's share of estimated Cash Available for Distribution............................. 3,145
Total estimated initial annual cash distributions.................................................... 15,091
Estimated initial annual distribution per share (16)............................................... 1.40
Payout ratio based on estimated Cash Available for Distribution (17)............................... 106%
(FOOTNOTES ON FOLLOWING PAGE)
39
(FOOTNOTES FOR PRECEDING PAGE)
(1) Pro forma net income is based on total revenue of $60,314, of which $5,394
is derived from management, leasing, construction and other activities
relating to properties not owned by the Company.
(2) Pro forma real estate depreciation for the year ended December 31, 1996 of
$6,407 minus pro forma real estate depreciation for the six months ended
June 30, 1996 of $3,016 plus pro forma real estate depreciation for the six
months ended June 30, 1997 of $3,326.
(3) Pro forma amortization (excluding financing costs) for the year ended
December 31, 1996 of $425 minus pro forma amortization (excluding financing
costs) for the six months ended June 30, 1996 of $212 plus pro forma
amortization (excluding financing costs) for the six months ended June 30,
1997 of $211.
(4) The White Paper on Funds from Operations approved by the Board of Governors
of NAREIT in March 1995 defines Funds from Operations as net income (loss)
(computed in accordance with GAAP), excluding gains (or losses) from debt
restructuring and sales of properties, plus real estate related depreciation
and amortization and after adjustments for unconsolidated partnerships and
joint ventures. The Company believes that Funds from Operations is helpful
to investors as a measure of the performance of an equity REIT because,
along with cash flow from operating activities, financing activities and
investing activities, it provides investors with an indication of the
ability of the Company to incur and service debt, to make capital
expenditures and to fund other cash needs. The Company computes Funds from
Operations in accordance with standards established by NAREIT which may not
be comparable to Funds from Operations reported by other REITs that do not
define the term in accordance with the current NAREIT definition or that
interpret the current NAREIT definition differently than the Company. Funds
from Operations does not represent cash generated from operating activities
in accordance with GAAP and should not be considered as an alternative to
net income (determined in accordance with GAAP) as an indication of the
Company's financial performance or to cash flow from operating activities
(determined in accordance with GAAP) as a measure of the Company's
liquidity, nor is it indicative of funds available to fund the Company's
cash needs, including its ability to make cash distributions. For a
reconciliation of net income and Funds from Operations, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Funds from Operations."
(5) Represents the (i) net increases in rental income from (a) new leases and
renewals that were not in effect for the entire 12-month period ended June
30, 1997 of $1,537 and (b) new leases and renewals that went into effect
between July 1, 1997 and July 15, 1997 of $146 and (ii) management income
from a new property management contract for a property not owned by SL Green
that was not in effect for the entire 12-month period ended June 30, 1997 of
$111.
(6) Assumes no lease renewals or new leases (other than month-to-month leases)
for leases expiring after June 30, 1997 unless a new or renewal lease has
been entered into by July 15, 1997. The $604 decrease represents the loss in
net rental income assuming all leases of space expiring between July 1, 1997
and June 30, 1998 for which no renewals or new leases have been entered into
by July 15, 1997 expire in accordance with their terms and space covered by
such expiring leases is not re-leased; the decrease is partially offset by a
net increase of $112 of rental income from tenants on month-to-month leases
which are assumed to continue throughout the period.
(7) The non-recurring transactions consist of lease surrender income at 1372
Broadway and a real estate tax refund at 1140 Avenue of the Americas.
(8) The amount represents a reduction in interest expense due to amortization of
the related mortgages over the 12-month period ending June 30, 1998.
(9) Represents (i) the effect of adjusting straight-line rental revenue included
in pro forma net income from the straight-line accrual basis to amounts
currently being paid or due from tenants ($3,518), (ii) the effect of
adjusting straight line rental payments included in pro forma net income
from the straight-line accrual basis to amounts currently being paid or due
from the tenant attributable to the capitalized and operating lease at 673
First Avenue ($1,386) and (iii) the effect of compensation expense relating
to stock loans ($266). See "Management--Employment and Noncompetition
Agreements." Total rent abatements for leases in effect as of June 30, 1997
for the 12 months ending June 30, 1998 are approximately $815.
(10) Pro forma amortization of financing costs for the year ended December 31,
1996 of $149 minus pro forma amortization of financing costs for the six
months ended June 30, 1996 of $83 plus pro forma amortization of financing
costs for the six months ended June 30, 1997 of $93. Financing costs for
periods are based on principal mortgage indebtedness outstanding of $46,700.
See "The Properties--Mortgage Indebtedness."
(11) Pro forma non-real estate depreciation and amortization for the year ended
December 31, 1996 of $92 minus pro forma non-real estate depreciation for
the six months ended June 30, 1996 of $46 plus pro forma non-real estate
depreciation and amortization for the six months ended June 30, 1997 of $47.
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
40
(FOOTNOTES CONTINUED FROM PRECEDING PAGE)
(12) Reflects recurring tenant improvements and leasing commissions anticipated
for the 12 months ending June 30, 1998 which have been calculated by
multiplying (i) the weighted average tenant improvements and leasing
commissions expenditures for renewed and retenanted space at the Properties
incurred during 1994, 1995, 1996 and the six months ended June 30, 1997 of
$9.63 per square foot (assuming a renewal rate of 75% of expiring square
footage as compared to the actual weighted average renewal rate of 80%
during the period from January 1, 1994 through June 30, 1997-- See "The
Properties--The Portfolio--Historical Tenant Improvements and Leasing
Commissions"), by (ii) 110,280 (the average annual square feet of leased
space for which leases expire during the years ending December 31, 1997
through December 31, 2002). The weighted average annual per square foot cost
of tenant improvements and leasing commission expenditures is presented
below:
YEAR ENDED DECEMBER 31, SIX MONTHS WEIGHTED
ENDED AVERAGE
------------------------------- JUNE 30, JANUARY 1, 1994-
1994 1995 1996 1997 JUNE 30, 1997
--------- --------- --------- --------------- -----------------
RENEWALS:
Tenant improvement costs ("TI") per square foot..... $1.96 $ 0.00 $ 2.39 $ 1.84 $ 1.89
Leasing commission costs ("LC") per square foot..... $1.77 $ 1.99 $ 3.36 $ 2.40 $ 2.84
--------- --------- --------- ------ ------
Total Renewal TI and LC per square foot............. $3.73 $ 1.99 $ 5.75 $ 4.24 $ 4.73
RE-TENANTED OR NEWLY TENANTED SPACE:
TI per square foot.................................. $16.41 $ 22.73 $ 13.76 $ 17.99 $ 17.42
LC per square foot.................................. $7.27 $ 4.55 $ 9.41 $ 6.24 $ 6.91
--------- --------- --------- ------ ------
Total Re-tenanted TI and LC per square foot......... $23.69 $ 27.27 $ 23.18 $ 24.33 $ 24.33
--------- --------- --------- ------ ------
--------- --------- --------- ------ ------
3 1/2 YEAR AVERAGE
WEIGHTED ANNUAL
AVERAGE TI AND SQUARE FOOTAGE RATE OF
LC PER SQUARE EXPIRING IN RENEWALS/ TOTAL
FOOT 1997-2002 RE-TENANTED COST
----------------- -------------- ------------- ------------
Renewal........................ $ 4.73 x 110,280 x 75%(i) = $ 391,218
Re-tenanted.................... $ 24.33 x 110,280 x 25% = $ 670,778
------------
$ 1,061,996
------------
------------
--------------------------------------
(i) The historical weighted average renewal rate, based on square
footage, for the Company from January 1, 1994 through June 30, 1997
is 80%.
(13) Estimated recurring capital expenditures have been calculated by
multiplying (i) $0.41 (the weighted average of capital expenditures per
square foot for the Core Portfolio during the period January 1, 1994 through
December 31, 1996) by (ii) 2,219 (the aggregate square footage of the Core
Portfolio and the Acquisition Properties). See "The Properties--The
Portfolio-- Historical Capital Expenditures." For the 12 months ending June
30, 1998, the estimated cost of recurring building improvements and
equipment upgrades and replacements (excluding costs of tenant improvements)
at the Properties is approximately $910. Following completion of the
Formation Transactions and the Offering, the Company expects to have
remaining net proceeds of $6.2 million available for capital expenditures
and working capital purposes.
(14) Scheduled mortgage loan principal payments for the 12 months ending June
30, 1998.
(15) The Company's share of estimated Cash Available for Distribution and
estimated initial annual cash distributions to stockholders of the Company
is based on its approximate 81.9% aggregate partnership interest in the
Operating Partnership.
(16) Based on a total of 10,779,216 shares of Common Stock to be outstanding
after the Offering (10,100,000 shares to be sold in the Offering, assuming
no exercise of the Underwriters' over-allotment option, and 679,216
additional shares to be issued in the Formation Transactions.)
(17) Calculated as estimated initial annual cash distributions to stockholders
of the Company divided by the Company's share of estimated Cash Available
for Distribution for the 12 months ending June 30, 1998. The payout ratio
based on estimated adjusted pro forma Funds from Operations is 80.7%.
41
CAPITALIZATION
The following table sets forth the combined historical capitalization of the
SL Green Predecessors as of June 30, 1997 and on a pro forma basis giving effect
to the Formation Transactions, the Offering, and use of the net proceeds from
the Offering as set forth under "Use of Proceeds." The information set forth in
the table should be read in conjunction with the financial statements and notes
thereto, the pro forma financial information and notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" included elsewhere in this
Prospectus.
JUNE 30, 1997
------------------------
COMBINED
HISTORICAL PRO FORMA
----------- -----------
(IN THOUSANDS)
Mortgage debt............................................................................. $ 26,646 $ 46,733
Minority interests in Operating Partnership............................................... -- 31,690
Stockholders' equity:
Preferred Stock, $.01 par value; 25,000 shares authorized; none issued and
outstanding........................................................................... -- --
Common Stock, $.01 par value; 100,000 shares authorized; 555 issued and outstanding;
10,779 issued and outstanding on a pro forma basis (1)................................ -- 109
Additional paid-in capital.............................................................. -- 142,326
Owners' deficit......................................................................... (2,169) --
----------- -----------
Total owners' (deficit)/stockholders' equity.......................................... (2,169) 142,435
----------- -----------
Total capitalization................................................................ $ 24,477 $ 220,858
----------- -----------
----------- -----------
- ------------------------
(1) Includes 10,779,216 shares of Common Stock to be issued in the Formation
Transactions and the Offering. Does not include (i) 2,383,284 shares of
Common Stock that may be issued upon the exchange of Units issued in
connection with the Formation Transactions beginning two years following the
completion of the Offering (or earlier in certain circumstances), (ii)
660,000 shares of Common Stock subject to options being granted concurrently
with the Offering under the Company's stock option plan or (iii) 1,515,000
shares of Common Stock that are issuable upon exercise of the Underwriters'
over-allotment option.
42
DILUTION
At June 30, 1997, the Company had a deficiency in net tangible book value
attributable to continuing investors of approximately $4.0 million. After giving
effect to (i) the sale of the shares of Common Stock offered hereby (at an
assumed initial public offering price of $20.00 per share) and the receipt by
the Company of approximately $183.7 million in net proceeds from the Offering,
after deducting the Underwriters' discounts and commissions, the financial
advisory fee payable to Lehman and other estimated expenses of the Offering,
(ii) the repayment of approximately $82.3 million of mortgage indebtedness
secured by certain of the Properties and the LBHI Loan, and (iii) the other
Formation Transactions, the pro forma net tangible book value at June 30, 1997
would have been approximately $139 million, or $12.90 per share of Common Stock.
This amount represents an immediate increase in net tangible book value of
$17.38 per share to the continuing investors and an immediate and substantial
dilution in pro forma net tangible book value of $7.10 per share of Common Stock
to new investors. The following table illustrates this dilution:
Assumed initial public offering price per share............ $ 20.00
Deficiency in net tangible book value per share prior to
the Offering attributable to continuing investors (1).... $ (4.48)
Increase in net tangible book value per share attributable
to the
Offering (2)............................................. 17.38
---------
Pro forma net tangible book value after the Offering (3)... 12.90
---------
Dilution in net tangible book value per share of Common
Stock to new investors (4)............................... $ 7.10
---------
---------
- ------------------------
(1) Deficiency in net tangible book value per share prior to the Offering
attributable to continuing investors is determined by dividing net tangible
book value of the Company attributable to continuing investors (based on the
June 30, 1997 net book value of the tangible assets (consisting of total
assets less intangible assets consisting of deferred lease fees and loan
costs and after the Formation Transactions, net of liabilities to be
assumed) by the sum of the number of shares of Common Stock (i) issued and
outstanding and (ii) issuable (upon the exchange of all Units to be issued)
to continuing investors in the Formation Transactions.
(2) Based on an assumed initial public offering price of $20.00 per share and
after deducting Underwriters' discounts and commissions and estimated
expenses of the Offering and the Formation Transactions.
(3) Based on total pro forma net tangible book value of $139 million divided by
the total number of shares of Common Stock outstanding after the completion
of the Offering (10,779,216 shares), and excluding shares that may be
issuable upon exercise of stock options. There is no impact on dilution
attributable to the issuance of Common Stock in exchange for Units to be
issued to the continuing investors in the Formation Transactions because
such Units would be exchanged for Common Stock on a one-for-one basis.
(4) Dilution is determined by subtracting net tangible book value per share of
Common Stock after the Offering from an assumed initial public offering
price of $20.00.
The following table summarizes, on a pro forma basis giving effect to the
Offering and the Formation Transactions, the number of shares of Common Stock to
be sold by the Company in the Offering and the number of shares of Common Stock
and Units to be issued to the continuing investors in the Formation
Transactions, the deficiency in the net tangible book value as of June 30, 1997
of the assets contributed by
43
the continuing investors in the Formation Transactions and the net tangible book
value of the average contribution per share based on total contributions.
PURCHASE
COMMON STOCK/ CASH/ PRICE(1)
UNITS ISSUED BOOK VALUE OF BOOK VALUE OF
---------------------- CONTRIBUTIONS AVERAGE
SHARES/ --------------------- CONTRIBUTION
UNITS PERCENT $ PERCENT PER SHARE/UNIT
--------- ----------- ---------- --------- --------------
(IN THOUSANDS EXCEPT PERCENTAGES)
New investors in the Offering........................... 10,100 77% $ 183,711 108% $ 20.00(1)
Common Stock issued to continuing investors............. 679 5% (3,042) (2)% $ (4.48)
Units issued to continuing investors.................... 2,383 18% (10,673) (6)% $ (4.48)
--------- --- ---------- ---------
Total............................................... 13,162 100% $ 169,998 100%
--------- --- ---------- ---------
--------- --- ---------- ---------
- ------------------------
(1) Before deducting Underwriters' discounts and commissions, the financial
advisory fee payable to Lehman and other estimated expenses of the Offering
and the Formation Transactions.
(2) Based on the June 30, 1997 net book value of the assets, less net book value
of deferred financing and leasing cost to be contributed in connection with
the Formation Transactions, net of liabilities to be assumed.
44
SELECTED FINANCIAL INFORMATION
The following table sets forth summary selected financial and operating
information on a pro forma basis for the Company, and on a historical combined
basis for the SL Green Predecessor (as defined below), and should be read in
conjunction with all of the financial statements and notes thereto included in
this Prospectus. The combined historical balance sheet information as of
December 31, 1996 and 1995 and statements of income for the years ended December
31, 1996, 1995, and 1994 of the SL Green Predecessor have been derived from the
historical combined financial statements audited by Ernst & Young LLP,
independent auditors, whose report with respect thereto is included elsewhere in
this Prospectus. The operating data for the six months ended June 30, 1997 and
1996 and the years ended December 31, 1993 and 1992 have been derived from the
unaudited combined financial statements of the SL Green Predecessor. In the
opinion of management of the SL Green Predecessor, the operating data for the
six months ended June 30, 1997 and 1996 and the years ended December 31, 1993
and 1992 include all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the information set forth therein. The
results of operations for the interim periods ended June 30, 1997 and 1996 are
not necessarily indicative of the results to be obtained for the full fiscal
year.
Historical operating results may not be comparable to future operating
results. In addition, the Company believes that the book value of the
Properties, which reflects historical costs of such real estate assets less
accumulated depreciation, is not indicative of the fair value of the Properties.
The "SL Green Predecessors" consists of 100% of the net assets and results
of operations of two Properties, 1414 Avenue of the Americas and 70 West 36th
Street, equity interests in four other Properties, 673 First Avenue, 470 Park
Avenue South, 29 West 35th Street and the Bar Building (which interests are
accounted for under the equity method) and 100% of the net assets and results of
operations of the Service Corporations.
The unaudited pro forma financial and operating information for the Company
as of and for the six months ended June 30, 1997 and the year ended December 31,
1996 assumes completion of the Offering and the Formation Transactions as of the
beginning of the periods presented for the operating data and as of the stated
date for the balance sheet data. The pro forma financial information is not
necessarily indicative of what the actual financial position and results of
operations of the Company would have been as of and for the period indicated,
nor does it purport to represent the Company's future financial position and
results of operations.
45
THE COMPANY (PRO FORMA) AND THE SL GREEN PREDECESSOR (HISTORICAL)
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------------------------------- ----------------------------------------------
HISTORICAL
----------------------------------------------
PRO FORMA PRO FORMA
1997 1997 1996 1996
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) 1996 1995 1994
------------- ------------- ------------- ------------- --------- --------- ---------
OPERATING DATA:
Total revenue.............. $ 28,919 $ 7,334 $ 4,098 $ 53,189 $ 10,182 $ 6,564 $ 6,600
------------- ------ ------------- ------------- --------- --------- ---------
Property operating
expense.................. 7,632 1,625 1,230 16,224 3,197 2,505 2,009
Real estate taxes.......... 4,078 482 232 8,248 703 496 543
Interest................... 2,986 713 442 5,858 1,357 1,212 1,555
Depreciation and
amortization............. 3,630 599 406 6,979 975 775 931
Marketing, general and
administration........... 1,428 1,835 2,029 2,643 3,250 3,052 2,351
------------- ------ ------------- ------------- --------- --------- ---------
Total expenses............. 19,754 5,254 4,339 39,952 9,482 8,040 7,389
------------- ------ ------------- ------------- --------- --------- ---------
Operating income (loss).... 9,165 2,080 (241) 13,237 700 (1,476) (789)
Equity in net income (loss)
of uncombined joint
ventures................. -- (564) (817) 504 (1,408) (1,914) (1,423)
------------- ------ ------------- ------------- --------- --------- ---------
Income (loss) before
extraordinary item and
minority interest........ 9,165 1,516 (1,058) 12,733 (708) (3,390) (2,212)
Minority interest.......... (1,668) -- -- (2,317) -- -- --
------ ------------- ------------- --------- --------- ---------
Income (loss) before
extraordinary item....... $ 7,497 $ 1,516 $ (1,058) $ 10,416 $ (708) $ (3,390) $ (2,212)
------------- ------ ------------- ------------- --------- --------- ---------
------------- ------ ------------- ------------- --------- --------- ---------
Income before extraordinary
item per share........... $ 0.70 $ 0.97
------------- -------------
1993 1992
(UNAUDITED) (UNAUDITED)
------------- -------------
OPERATING DATA:
Total revenue.............. $ 5,926 $ 5,516
------ -------------
Property operating
expense.................. 1,741 1,431
Real estate taxes.......... 592 676
Interest................... 1,445 1,440
Depreciation and
amortization............. 850 773
Marketing, general and
administration........... 1,790 1,531
------ -------------
Total expenses............. 6,418 5,851
------ -------------
Operating income (loss).... (492) (335)
Equity in net income (loss)
of uncombined joint
ventures................. 88 (2,227)
------ -------------
Income (loss) before
extraordinary item and
minority interest........ (404) (2,562)
Minority interest.......... -- --
------ -------------
Income (loss) before
extraordinary item....... $ (404) $ (2,562)
------ -------------
------ -------------
Income before extraordinary
item per share...........
AS OF JUNE 30, 1997 AS OF DECEMBER 31,
-------------------------- --------------------------------------------
PRO FORMA HISTORICAL HISTORICAL
----------- ------------- --------------------------------------------
1993
(UNAUDITED) (UNAUDITED) 1996 1995 1994 (UNAUDITED)
----------- ------------- --------- --------- --------- -----------
BALANCE SHEET DATA:
Commercial real estate, before accumulated
depreciation................................... $ 246,861 $ 41,112 $ 26,284 $ 15,559 $ 15,761 $ 15,352
Total assets..................................... 259,255 46,745 30,072 16,084 15,098 16,218
Mortgages and notes payable...................... 46,733 26,646 16,610 12,700 12,699 12,699
Accrued interest payable......................... 97 109 90 2,894 12,699 1,576
Minority interest................................ 31,690 0 0 0 0 0
Owners equity (deficit).......................... 142,435 (2,169) (8,405) (18,848) (15,520) (13,486)
OTHER DATA:
Funds from operations............................ 12,702 -- -- -- -- --
Net cash provided by (used in) operating
activities..................................... -- 1,140 272 (234) 939 --
Net cash provided by (used in) financing
activities..................................... -- (425) 11,960 63 178 --
Net cash (used in) investing activities.......... -- (145) (12,375) (432) (567)
1992
(UNAUDITED)
-------------
BALANCE SHEET DATA:
Commercial real estate, before accumulated
depreciation................................... $ 16,080
Total assets..................................... 15,645
Mortgages and notes payable...................... 9,500
Accrued interest payable......................... 4,757
Minority interest................................ 0
Owners equity (deficit).......................... (8,449)
OTHER DATA:
Funds from operations............................ --
Net cash provided by (used in) operating
activities..................................... --
Net cash provided by (used in) financing
activities..................................... --
Net cash (used in) investing activities.......... --
- ------------------------
(1) The White Paper on Funds from Operations approved by the Board of Governors
of NAREIT in March 1995 defines Funds from Operations as net income (loss)
(computed in accordance with GAAP), excluding gains (or losses) from debt
restructuring and sales of properties, plus real estate related depreciation
and amortization and after adjustments for unconsolidated partnerships and
joint ventures. The Company believes that Funds from Operations is helpful
to investors as a measure of the performance of an equity REIT because,
along with cash flow from operating activities, financing activities and
investing activities, it provides investors with an indication of the
ability of the Company to incur and service debt, to make capital
expenditures and to fund other cash needs. The Company computes Funds from
Operations in accordance with standards established by NAREIT which may not
be comparable to Funds from Operations reported by other REITs that do not
define the term in accordance with the current NAREIT definition or that
interpret the current NAREIT definition differently than the Company. Funds
from Operations does not represent cash generated from operating activities
in accordance with GAAP and should not be considered as an alternative to
net income (determined in accordance with GAAP) as an indication of the
Company's financial performance or to cash flow from operating activities
(determined in accordance with GAAP) as a measure of the Company's
liquidity, nor is it indicative of funds available to fund the Company's
cash needs, including its ability to make cash distributions. For a
reconciliation of net income and Funds from Operations, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Funds from Operations."
46
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with the Selected
Financial Information, the Historical Combined Financial Statements and the Pro
Forma Combined Balance Sheet and Pro Forma Combined Statements of Income of the
Company contained in this Prospectus.
The Combined Financial Statements of the SL Green Predecessor include 100%
of the net assets and results of operations of two Properties, 1414 Avenue of
the Americas and 70 West 36th Street, equity interests in four other properties,
673 First Avenue, 470 Park Avenue South, 29 West 35th Street and the Bar
Building (which interests are accounted for under the equity method) and 100% of
the net assets and results of operations of the Service Corporations.
Due to the size of the Company's Core Portfolio (six properties), the
inclusion of additional properties during any period can result in significant
increases in total revenue and other financial data over prior periods. For the
foregoing reason, the Company does not believe its year to year and quarter to
quarter financial data are comparable, and that percentage growth may not be
maintained at the current rate.
RESULTS OF OPERATIONS
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1997 TO SIX MONTHS ENDED JUNE 30,
1996
Rental revenue increased $1,485,000 or 112.9%, to $2,800,000 from $1,315,000
for the six months ended June 30, 1997 compared to the six months ended June 30,
1996. The increase was due primarily to the acquisition of 1414 Avenue of the
Americas during July 1996 which had rental revenue of $1,555,000, partially
offset by a decrease in rental revenue of $70,000 at 70 West 36th Street, due to
a temporary decrease in occupancy and the free rent associated with re-leasing
those spaces.
Escalations and reimbursement revenues increased $171,000, or 60.0%, to
$456,000 from $285,000 for the six months ended June 30, 1997 compared to the
six months ended June 30, 1996. The acquisition of 1414 Avenue of the Americas,
accounted for an increase of $265,000 offset by a decrease of $94,000 at 70 West
36th Street due to reduced porter wage escalations revenue. New leases with more
current base years utilized to calculate the escalations account for the
decreased escalation revenue.
Management revenues decreased $97,000, or 9.1% to $966,000 from $1,063,000
for the six months ended June 30, 1997 compared to the six months ended June 30,
1996. A building managed for a third party was sold at the end of 1996 and the
management was terminated resulting in this decrease.
Leasing commission revenues increased $1,806,000, or 140.9%, to $3,088,000
from $1,282,000 for the six months ended June 30, 1997 compared to the six
months ended June 30, 1996 due to the addition of several buildings under
service contracts and intensified efforts to perform leasing services for
unaffiliated third parties.
Construction revenue decreased by $31,000, or 79.5% to $8,000 for the six
months ended June 30, 1997 compared to the six months ended June 30, 1996.
Overall construction revenue remained constant but a larger amount related to
property-owning partnerships in the six months ended June 30, 1997 and was
eliminated pursuant to the equity method of accounting.
Other income decreased by $98,000 or 86% to $16,000 from $114,000 for the
six months ended June 30, 1997 compared to the six months ended June 30, 1996
primarily due to a one-time consulting engagement in the six months ended June
30, 1996. The remaining other income consisted of interest income.
47
Share of net loss of uncombined joint ventures decreased $253,000, or 31.0%,
to $564,000 from $817,000 for the six months ended June 30, 1997 compared to the
six months ended June 30, 1996 as follows:
INCREASE
PROPERTY (DECREASE)
- --------------------------------------------------------------------------------- -----------
673 First Avenue................................................................. $ (222,000)
470 Park Avenue South............................................................ (32,000)
29 West 35th Street.............................................................. 10,000
Bar Building..................................................................... (9,000)
-----------
$ (253,000)
-----------
-----------
The decrease in net loss for 673 First Avenue was due primarily to increased
rental revenues and escalation and reimbursement revenues resulting from
increased occupancy and contractual rent increases. The loss was also reduced by
lower operating expenses and a reduction in real estate taxes.
The decrease in net loss for 470 Park Avenue South was due primarily to
reduced porter wage escalation revenue as a result of new leases with more
current base years, utilized in the calculation of the escalation, offset by
higher contractual rents and lower operating expenses.
The decrease in net income of uncombined joint ventures for 29 West 35th
Street was due primarily to reduced porter wage escalation revenue as a result
of new leases with more current base years utilized in the calculation of the
escalation, offset by higher operating expenses.
The increase in net loss for the Bar Building was due to the acquisition of
the Property during September 1996.
Operating expenses increased $395,000, or 32.1%, to $1,625,000 for the six
months ended June 30, 1997 compared to the six months ended June 30, 1996. The
increase was comprised primarily of the inclusion of 1414 Avenue of the Americas
which was acquired during July 1996 ($506,000), offset by lower expenses at 70
West 36th Street.
Interest expense increased $271,000 or 61.3%, to $713,000 from $442,000 for
the six months ended June 30, 1997 compared to the six months ended June 30,
1996. The inclusion of 1414 Avenue of the Americas accounted for an increase of
$460,000 offset by a decrease of $189,000 for 70 West 36th Street due to
refinancing at a lower interest rate.
Depreciation and amortization increased $193,000, or 47.5%, to $599,000 from
$406,000 for the six months ended June 30, 1997 compared to the six months ended
June 30, 1996. The increase was due primarily to the inclusion of 1414 Avenue of
the Americas.
Real estate taxes increased $250,000, or 107.8% to $482,000 from $232,000
for the six months ended June 30, 1997 compared to the six months ended June 30,
1996. The increase was due to the inclusion of $290,000 for 1414 Avenue of the
Americas, offset by a decrease of $40,000 for 70 West 36th St.
Marketing, general and administrative expenses decreased $194,000, or 9.6%,
to $1,835,000 from $2,029,000 for the six months ended June 30, 1997 compared to
the six months ended June 30, 1996. The decrease was primarily due to increased
expenses of $332,000 associated with the increase in leasing commission
revenues, offset by reduced expenses at the corporations which provide
management and leasing services.
As a result of the foregoing, net income increased $2,574,000 to $1,516,000
from a loss of $1,058,000 for the six months ended June 30, 1997 compared to the
six months ended June 30, 1996.
48
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31, 1995
Rental revenue increased $1,783,000, or 73.8%, to $4,199,000 from $2,416,000
for the year ended December 31, 1996 compared to the year ended December 31,
1995. The increase was due primarily to the acquisition of 1414 Avenue of the
Americas during July 1996 which had rental revenue of $1,612,000 and increased
occupancy plus contractual rent increases amounting to $152,000 at 70 West 36th
Street.
Escalations and reimbursement revenues increased $293,000, or 38.6%, to
$1,051,000 from $758,000 for the year ended December 31, 1995. The acquisition
of 1414 Avenue of the Americas accounted for an increase of $428,000 which was
offset by a decrease of $166,000 at 70 West 36th Street due to reduced real
estate tax escalations and porter wage escalation revenue. New leases with more
current base years utilized to calculate the escalations and a reduction in real
estate tax expense accounted for the increased escalation revenue.
Management revenues remained substantially unchanged with a slight increase
for the year ended December 31, 1996 compared to the year ended December 31,
1995.
Leasing commission revenues increased $1,475,000, or 164.4%, to $2,372,000
from $897,000 for the year ended December 31, 1996 compared to the year ended
December 31, 1995 due to the addition of several buildings under service
contracts and intensified efforts to perform leasing services for unaffiliated
third parties.
Construction revenue decreased by $132,000, or 56.7%, to $101,000 from
$233,000 for the year ended December 31, 1996 compared to the year ended
December 31, 1995. Overall construction revenue remained constant but a larger
amount related to property-owning partnerships and was eliminated pursuant to
the equity method of accounting.
Other income for the year ended December 31, 1996 was $123,000 which
consisted of miscellaneous consulting fees and interest.
Share of net loss of uncombined joint ventures decreased $506,000 or 26.4%
to $1,408,000 from $1,914,000 for the year ended December 31, 1996 compared to
the year ended December 31, 1995 as follows:
INCREASE
PROPERTY (DECREASE)
- --------------------------------------------------------------------------------- -----------
673 First Avenue................................................................. $ (392,000)
470 Park Avenue South............................................................ (130,000)
29 West 35th Street.............................................................. 22,000
Bar Building..................................................................... (6,000)
-----------
$ (506,000)
-----------
-----------
The decrease in net loss for 673 First Avenue was due primarily to lower
interest expense as a result of mortgage loan principal amortization and lower
amortization expense as a result of deferred leasing commissions written off
during 1995 for a tenant that vacated.
The decrease in net loss for 470 Park Avenue South was due primarily to a
reduction in real estate tax expense as a result of a decrease in assessed
valuation.
The decrease in net income for 29 West 35th Street was due primarily to
reduced rental revenue as a result of a vacancy.
The decrease in net income for the Bar Building was due to the acquisition
of the Property during October 1996.
49
Operating expenses increased $691,000, or 27.6%, to $3,197,000 for the year
ended December 31, 1996 compared to the year ended December 31, 1995 due
substantially to the inclusion of 1414 Avenue of the Americas which was acquired
during July 1996.
Interest expense increased $146,000 or 12.0%, to $1,357,000 from $1,212,000
for the year ended December 31, 1996 compared to the year ended December 31,
1995. The inclusion of 1414 Avenue of the Americas accounted for an increase of
$446,000 which was offset by a decrease of $300,000 for 70 West 36th Street due
to refinancing at a lower interest rate.
Depreciation and amortization increased $200,000, or 25.9%, to $975,000 from
$775,000 for the year ended December 31, 1996 compared to the year ended
December 31, 1995. The increase was due primarily to the inclusion of 1414
Avenue of the Americas.
Real estate taxes increased $207,000 or 41.7%, to $703,461 from $497,000 for
the year ended December 31, 1996 compared to year ended December 31, 1995. The
increase was due to the inclusion of $290,000 for 1414 Avenue of the Americas
offset by a decrease of $83,000 for 70 West 36th Street which resulted from a
reduction in property assessment.
Marketing, general and administrative expenses increased $197,000, or 6.5%,
to $3,250,000 from $3,053,000 for the year ended December 31, 1996 compared to
the year ended December 31, 1995, due primarily to staff increases for the
corporation which provided leasing services.
As a result of the foregoing, net income decreased $2,682,000, or 79.1%, to
$708,000 from $3,390,000 for the year ended December 31, 1996 compared to the
year ended December 31, 1995.
COMPARISON OF YEAR ENDED DECEMBER 31, 1995 TO YEAR ENDED DECEMBER 31, 1994
Rental revenue decreased by $189,000, or 7.2%, to $2,416,000 from $2,605,000
for the year ended December 31, 1995 compared to the year ended December 31,
1994 due to several vacancies at 70 West 36th Street.
Escalation and reimbursed revenues decreased $44,000, or 5.4%, to $758,000
from $802,000 for the year ended December 31, 1995 compared to the year ended
December 31, 1994 due primarily to a decrease in electric and sundry charges at
70 West 36th Street.
Management revenues increased $300,000, or 15.3%, to $2,260,000 from
$1,960,000 for the year ended December 31, 1995 as compared to the year ended
December 31, 1994 due to an increase in unaffiliated third party management
assignments.
Leasing commission revenue remained consistent with a slight increase for
the year ended December 31, 1995 as compared to the year ended December 31,
1994.
Construction revenue decreased $111,000, or 32.2%, to $233,000 from $344,000
for the year ended December 31, 1995 as compared to the year ended December 31,
1994 due to a decrease in tenant installation work at non-affiliated third party
buildings.
Share of in net loss of uncombined joint ventures increased by $491,000, or
34.5%, to $1,914,000 from $1,423,000 for the year ended December 31, 1995 as
compared to the year ended December 31, 1994 as follows:
INCREASE
PROPERTY (DECREASE)
- --------------------------------------------------------------------------------- -----------
673 First Avenue................................................................. $ 399,000
470 Park Avenue South............................................................ 106,000
29 West 35th Street.............................................................. (14,000)
-----------
$ 491,000
-----------
-----------
50
The increase in net loss for 673 First Avenue was due primarily to reduced
revenue as a result of a vacancy during 1995 and the write off of related
deferred leasing commissions.
The increase in net loss for 470 Park Avenue South was due primarily to
increased miscellaneous income in 1994 as result of a tenant buying out of its
lease.
The increase in net income for 29 West 35th Street was due primarily to
reduced operating expenses.
Operating expenses increased $470,000, or 24.7%, to $2,505,000 from
$2,009,000 for the year ended December 31, 1995 compared to the year ended
December 31, 1994 due primarily to staff increases in the corporations which
provide management, construction and leasing services.
Interest expense decreased $344,000 or 22.1%, to $1,212,000 from $1,555,000
for the year ended December 31, 1995 compared to the year ended December 31,
1994. The decrease was due to a loan restructuring at 70 West 36th Street.
Depreciation and amortization decreased $157,000, or 16.8%, to $775,000 from
$931,000 for the year ended December 31, 1995 compared to the year ended
December 31, 1994 due to the write off of deferred leasing commissions and
tenant installation work related to vacated tenants during 1994 at 70 West 36th
Street.
Real estate taxes decreased $46,000, or 8.5%, to $497,000 from $543,000 for
the year ended December 31, 1995 as compared to the year ended December 31, 1994
due to a decrease in assessed valuation for 70 West 36th Street.
Marketing, general and administrative expenses increased $701,000, or 29.8%,
to $3,053,000 from $2,351,000 for the year ended December 31, 1995 compared to
the year ended December 31, 1994. The increase was due to additional staff and
other expense increases, necessitated by increased business, for the
corporations which provide management construction and leasing services.
As a result of the foregoing, net loss increased $1,178,000, or 53.2%, to
$3,390,000 from $2,212,000 for the year ended December 31, 1995 compared to the
year ended December 31, 1994.
PRO FORMA OPERATING RESULTS
SIX MONTHS ENDED JUNE 30, 1997
On a pro forma basis, after giving effect to the Offering, income before
minority interest would have been $9,165,000 for the six months ended June 30,
1997, representing an increase of $7,650,000 over the
51
historical combined income before minority interest for the same period. The
increase is accounted for as follows:
INCREASES TO INCOME:
Decrease in interest expense due to mortgage loans repaid or
forgiven...................................................... $2,618,000
Additional income due to the acquisition of 1372 Broadway....... 3,720,000
Additional income due to the acquisition of 50 West 23rd
Street........................................................ 1,682,000
Additional income due to the inclusion of 1140 Avenue of the
Americas...................................................... 910,000
Straight line rent adjustments related to the acquisition of
other partners' interests..................................... 182,000
Net increase in depreciation and amortization due to acquisition
of other partners' interests acquisition of new debt and
repayment or forgiveness of mortgage loans.................... 7,000
DECREASES TO INCOME:
Interest expense related to new mortgage loans.................. (539,000)
Additional general and administrative expenses associated with a
public company................................................ (828,000)
Other partners share of net losses for properties historically
accounted for under the equity method......................... (108,000)
Elimination of the Service Corporations' income under the equity
method of accounting.......................................... (188,000)
Straight line adjustment to 673 First Avenue net lease due to
acquisition of non-continuing partners' interest.............. 194,000
----------
$7,650,000
----------
----------
52
YEAR ENDED DECEMBER 31, 1996
On a pro forma basis, after giving effect to the Offering, income before
minority interest would have been $12,733,000 for the year ended December 31,
1996, representing an increase of $13,441,000 over the historical combined
income before minority interest and extraordinary income on debt forgiveness for
the same period. The increase is accounted for as follows:
INCREASES TO INCOME:
Decrease in interest expense due to mortgage loans repaid or
forgiven..................................................... $4,699,000
Additional income due to the acquisition of 1372 Broadway...... 5,544,000
Additional income due to the inclusion of 1140 Avenue of the
Americas..................................................... 1,699,000
Additional income due to inclusion of 50 W. 23rd St............ 3,047,000
Additional net income due to the inclusion of the Bar Building
for the full year............................................ 1,132,000
Straight line rent adjustments related to the acquisition of
other partners' interests.................................... 787,000
Net decrease in depreciation and amortization due to
acquisition other partners' interests, acquisition of new
debt and repayment or forgiveness of mortgage loans.......... 68,000
Elimination of the Service Corporations' income under the
equity method of accounting.................................. (333,000)
DECREASES TO INCOME:
Interest expense related to new mortgage loans................. (1,078,000)
Additional general and administrative expenses associated with
a public company............................................. (1,657,000)
Other partners' share of net losses for properties historically
accounted for under the equity method........................ (367,000)
Straight line adjustment to 673 First Avenue net lease due to
acquisition of non-continuing partners' interest............. (100,000)
----------
$13,441,000
----------
----------
As indicated above, inclusion of the Acquisition Properties increased
income, on a pro forma basis, by approximately $10,290,000, with increased
interest expense on a pro forma basis associated with one Property of
approximately $1,078,000. Long term debt increased by $14 million on a pro forma
basis as a result of a mortgage loan on one of the Acquisition Properties.
LIQUIDITY AND CAPITAL RESOURCES
The SL Green Predecessor historically relied on fixed and floating rate
mortgage financing plus the use of its capital for the acquisition,
redevelopment and renovation of the Properties. The proceeds from the Offering
as well as a new mortgage loan in the amount of $14 million, which will
initially be secured by 1140 Avenue of the Americas, will be utilized to repay
existing mortgage loans, acquire properties, pay Offering and Formation
Transaction expenses and provide working capital. See "Use of Proceeds" and "The
Properties--Mortgage Indebtedness." The mortgage loans currently secured by the
Properties, which will be consolidated in the financial statements of the
Company, will be reduced from $91.4 million to $32.5 million as a result of the
repayment and cancellation of certain mortgage loans. Total mortgage loans
including the new mortgage loan will amount to $46.5 million as a result of the
Formation Transactions. All mortgage loans encumbering the Core Portfolio have
fixed interest rates ranging from 8.25% to 9.0% and it is anticipated that the
new mortgage loan will also bear interest at a fixed rate. Subsequent to the
53
Formation Transactions the mortgage loans would represent approximately 15.0% of
the Company's market capitalization based on an estimated total market
capitalization of $309.8 million.
The Company is currently negotiating with several lenders for the Credit
Facility, which the Company expects to be in place by the completion of the
Offering although there is no assurance that this will be the case. The Credit
Facility will be utilized to facilitate acquisitions and fund associated
renovations, tenant improvements and leasing commissions. After paying down
mortgage debt as well as expenses of the Offering and Formation Transactions,
the Company expects to have working capital of approximately $6.2 million, which
will be used to fund anticipated capital improvements on the Bar Building and
general corporate purposes. The Company estimates that for the 12 months ending
June 30, 1998, it will incur approximately $4.46 million of expenses
attributable to non-incremental revenue generating capital expenditures which
includes $2.18 million for the Acquisition Properties, $1.04 million for the Bar
Building and $1.24 million for the balance of the Core Portfolio.
The Company expects to make distributions to its stockholders primarily
based on its distributions received from the Operating Partnership. The
Operating Partnership income will be derived primarily from lease revenue from
the Properties and, to a limited extent, from fees generated by the Service
Corporations.
Future property acquisitions may require substantial capital leasing of a
property. The Company expects that a portion of such costs will be funded from
draws under the Credit Facility, to the extent the Credit Facility is obtained,
from additional borrowings secured by the target property and from future
issuances of equity and debt. The Company believes that it will have sufficient
capital resources to satisfy its obligations during the 12 month period
following completion of the Offering. Thereafter, the Company expects that
capital needs will be met through a combination of net cash provided by
operations, borrowings and additional equity issuances.
CASH FLOWS
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1997 TO SIX MONTHS ENDED JUNE 30,
1996
Net cash provided by operating activities increased $1,085,000 to $1,140,000
from $55,000 for the six months ended June 30, 1997 compared to the six months
ended June 30, 1996. The increase was due primarily to the acquisition of 1414
Avenue of the Americas, an increase in leasing commission income and a decrease
in the share of net losses of uncombined joint ventures. Net cash used in
investing activities increased $503,000 to $(145,000) from $(648,000) for the
six months ended June 30, 1997 compared to the six months ended June 30, 1996.
The increase was due primarily to the acquisition of 1414 Avenue of the Americas
and net cash distributions from the partnerships that own 29 West 35th Street
and 470 Park Avenue South. Net cash used in financing activities decreased
$708,000 to $(425,000) from $283,000 for the six months ended June 30, 1997
compared to the six months ended June 30, 1996. The decrease was due primarily
to the acquisition of 1414 Avenue of the Americas, the refinancing of the
mortgage on 70 West 36th Street, net cash contribution from owners and an
increase in distributions of approximately $100,000 to entities owned by Stephen
L. Green.
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31, 1995.
Net cash provided by operating activities increased $506,000 to $272,000
from a deficit of $234,000 for the year ended December 31, 1996 compared to the
year ended December 31, 1995. The increase was due primarily to the acquisition
of 1414 Avenue of the Americas, an increase in leasing commission income and a
decrease in the share of net losses of uncombined joint ventures. Net cash used
in investing activities increased $11,943,000 to $12,375,000 from $432,000 for
the year ended December 31, 1996 compared to the year ended December 31, 1995.
The increase was due primarily to the acquisition of 1414 Avenue of the Americas
plus contributions to the partnerships that own 470 Park Avenue South and the
Bar Building. Net cash provided by financing activities increased $11,987,000 to
$11,960,000 form $63,000 for the year ended December 31, 1996 compared to the
year ended December 31, 1995. The increase was due primarily
54
to the acquisition of 1414 Avenue of the Americas, the refinancing of the
mortgage on 70 West 36th Street and net cash contribution from owners.
COMPARISON OF YEAR ENDED DECEMBER 31, 1995 TO YEAR ENDED DECEMBER 31, 1994.
Net cash used in operating activities increased by $1,173,000 to a deficit
of $234,000 from a positive cash flow of $939,000 for the year ended December
31, 1995 compared to the year ended December 31, 1994. The increase was due
primarily to an increase in the share of net loss of uncombined joint ventures,
operating expense increases related to the corporations which provide management
leasing and construction services and additional marketing, general and
administrative expenses for the corporations which provide management leasing
and construction services. Net cash used in investing activities decreased
$135,000 to $432,000 from $567,000 for the year ended December 31, 1995 compared
to the year ended December 31, 1994. The decrease was due primarily to reduced
investments in building improvements and reduced contributions to investee
partnerships. Cash provided by financing activities decreased $115,000 to
$63,000 from $178,000 due to reduced contributions from owners.
FUNDS FROM OPERATIONS
The White Paper on Funds from Operations approved by the Board of Governors
of NAREIT in March 1995 defines Funds from Operations as net income (loss)
(computed in accordance with GAAP), excluding gains (or losses) from debt
restructuring and sales of properties, plus real estate related depreciation and
amortization and after adjustments for unconsolidated partnerships and joint
ventures. The Company believes that Funds from Operations is helpful to
investors as a measure of the performance of an equity REIT because, along with
cash flow from operating activities, financing activities and investing
activities, it provides investors with an indication of the ability of the
Company to incur and service debt, to make capital expenditures and to fund
other cash needs. The Company computes Funds from Operations in accordance with
standards established by NAREIT which may not be comparable to Funds from
Operations reported by other REITs that do not define the term in accordance
with the current NAREIT definition or that interpret the current NAREIT
definition differently than the Company. Funds from Operations does not
represent cash generated from operating activities in accordance with GAAP and
should not be considered as an alternative to net income (determined in
accordance with GAAP) as an indication of the Company's financial performance or
to cash flow from operating activities (determined in accordance with GAAP) as a
measure of the Company's liquidity, nor is it indicative of funds available to
fund the Company's cash needs, including its ability to make cash distributions.
On a pro forma basis after giving effect to the Offering, Funds from
Operations for the six months ended June 30, 1997 and for the year ended
December 31, 1996, respectively, are as follows:
PRO FORMA
---------------------------
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1997 1996
------------- ------------
Net income before minority interest and extraordinary item...... $ 9,165 $ 12,733
Add:
Depreciation and amortization................................. 3,630 6,979
Amortization of deferred financing costs and depreciation of
non-rental real estate assets............................... (93) (149)
------------- ------------
Funds from Operations........................................... $ 12,702 $ 19,563
------------- ------------
------------- ------------
INFLATION
Substantially all of the office leases provide for separate real estate tax
and operating expense escalations over a base amount. In addition, many of the
leases provide for fixed base rent increases or indexed escalations. The Company
believes that inflationary increases may be at least partially offset by the
contractual rent increases described above.
55
MARKET OVERVIEW
UNLESS INDICATED OTHERWISE, INFORMATION CONTAINED HEREIN CONCERNING THE NEW
YORK METROPOLITAN ECONOMY AND THE MANHATTAN OFFICE MARKET IS DERIVED FROM THE
ROSEN MARKET STUDY.
The Company believes that the strength of the New York metropolitan economy
and the current supply/demand fundamentals in the Manhattan office market
provide an attractive environment for acquiring, owning and operating Class B
office properties.
NEW YORK ECONOMY
New York City is a leading international city with a large, dynamic and
diverse economy. According to the U.S. Bureau of Economic Analysis, as of July
1994, the economy of the New York consolidated metropolitan statistical area
("CMSA") was larger than the economies of the next two largest U.S. CMSAs
combined (Los Angeles and Chicago), and larger than the economy of any
individual state except California, based on aggregate personal income (which
the Company believes is a good proxy for overall economic output). Strong growth
of the national economy has benefited New York City, causing the New York
metropolitan area (including Bronx, Kings, New York, Putnam, Queens, Richmond,
Rockland and Westchester counties) economy to improve significantly in recent
years. Private sector employment gained an average of approximately 44,000 jobs
per year between 1994 and 1996 for an average annual growth rate of 1.4%;
between May of 1996 and 1997, private sector employment growth was an even
stronger 1.7%, which is the strongest growth rate in more than ten years. In
July of 1996, Inc. magazine named New York City as the "Best Place to Do
Business," stating that urban, compact areas promote interaction among
companies, suppliers and customers.
With its unique appeal, New York City is headquarters to many of the leading
corporations and service firms in the U.S., including:
- more Fortune 500 companies (47) than any other U.S. city;
- three of the four largest U.S. commercial banks (400 international banks
have offices in New York City--more than any other city in the world);
- 23 of the 25 largest U.S. securities firms;
- four of the 10 largest U.S. money managers;
- 27 of the 100 largest U.S. law firms (64 of the 100 largest U.S. law firms
have offices in New York City);
- four of the "Big Six" accounting firms; and
- four of the largest U.S. entertainment/media conglomerates.
New York is also a world leader in the advertising industry and contains a
large base of nonprofit organizations. It also has the largest consulate
community in the world, contributing to its position as an international center
of business and politics.
In addition to its diverse base of large businesses, Manhattan also has a
large base of small companies. The New York City Office of the Comptroller
reports that small businesses (which are defined as businesses with fewer than
500 employees) comprise approximately 99.7% of all businesses in New York City
and employ approximately 70.7% of the private-sector work force. In the three
years between 1994 and 1996, during which period some 132,000 private sector
jobs were added in the New York metropolitan area (an average of approximately
44,000 each year), the percentage of jobs added from small business has grown
increasingly more significant, especially in New York City, where small
businesses added approximately 69,000 jobs during 1994 and 1995 and
approximately 22,000 jobs between the third quarters of 1995 and 1996.
56
The single fastest-growing employment sector in the New York metropolitan
economy is the services sector, which grew at a rate of 3.0% during the year
ended in May of 1997. With more than 1.4 million jobs, the services sector
currently represents 37% of the New York metropolitan area's total employment
base and 44% of its private sector employment base. Important components of the
services sector are business services, legal services, engineering and
management services and membership organizations (including approximately 20,000
nonprofit organizations which are based in New York City). One of the largest
components of the services industry is business services, which supplied
approximately 290,000 jobs as of May 1997, representing 20% of total services
employment. Between 1992 and 1996, growth in business services employment
averaged 4% per year, and between May 1996 and May 1997, business services
employment grew 6.6%. Fueling the growth in the business services sector are the
advertising industry, audio recording, software industries and agencies
providing temporary workers. One very active sector of business services is the
new media industry that is centered south of 41st Street in what is known as
midtown south's "Silicon Alley." The companies that work in this industry
include entertainment software, online/Internet services, CD-ROM title
developers, and web site designers. Roughly 1,250 firms in Manhattan belong to
the new media industry, and employment growth in this sector is estimated to be
30% per year through 1998.
The trade sector is the second largest and fastest growing part of the
metropolitan economy, with an employment gain of 6,300 jobs during the 12 months
ended May 31, 1997, representing a 0.9% annual growth rate. Approximately 68% of
the metropolitan area's trade jobs are in the retail sector, where growth was an
even stronger 1.5% during the same period. The retail industry has benefited
from improved city services, reduced crime and an increase in the number of
visitors and their spending volume.
Part of New York City's appeal to employers is a highly educated work-force.
Over 40% of New York County's residents over the age of 25 have received a
college degree and nearly half of those residents have received a graduate or
professional degree, rates that are well above the national average. In
addition, with a population of approximately 7.4 million, including
approximately 169,000 households that have an annual income in excess of
$150,000, New York City also provides a large base of potential consumers with
significant disposable income, which is of particular appeal to businesses
providing goods and services. Increased spending by local residents combined
with a higher level of visitor spending caused retail sales growth in New York
City to average 3.2% annually during the period January 1, 1994 to December 31,
1996.
New York City is an international financial and cultural capital that, in
addition to housing the United Nations and numerous foreign missions, attracts
tourism, is a center for international investment and a favored North American
base for many multinational corporations headquartered overseas. The lower cost
of office rents when compared internationally with other major cities is a
competitive advantage in attracting such overseas companies to New York City.
Midtown Manhattan ranks 13th among major business centers around the world in
terms of office rental rates, after such cities as Tokyo, London, Paris, Hong
Kong and Singapore, while downtown Manhattan ranked 37th.
New York City is the consummate "24-hour city," featuring a wide variety of
restaurants, entertainment and cultural offerings, such as Broadway theater and
productions at Carnegie Hall and Lincoln Center. In addition, many of the
world's finest museums, including The Metropolitan Museum of Art, The Museum of
Modern Art, The Guggenheim Museum, The Whitney Museum and The Museum of Natural
History, are located in New York City. New York City is also home to major
educational institutions, including Columbia University, Fordham University, New
York University and Rockefeller University.
The quality of life in New York City also has improved with the
implementation of various public/ private ventures and government initiatives.
For example, Business Improvement Districts ("BIDs"), which are public/private
ventures that provide security, sanitation and other services within their
boundaries, operate in the Grand Central Station, Penn Station and Times Square
areas and in thirty-three additional areas within New York City. In addition,
crime in New York City has declined. Preliminary estimates for
57
1996 show that New York City ranked 159th out of the 198 largest U.S. cities in
terms of total crimes, lower than such cities as Atlanta (1), Miami (8), Phoenix
(42), Milwaukee (83) and Philadelphia (114). According to the New York City
Police Department, New York City's crime rate decreased 16% during 1996, and the
seven felony categories have declined a cumulative 39% since 1993 (a greater
decrease than any other large U.S. city during the last three years).
The New York City government is "reinventing" itself in an effort to
streamline its operations and attract and retain businesses. For example, the
New York Economic Development Council has been actively involved in encouraging
businesses to remain in New York City. New York City also has recently reduced
or eliminated numerous taxes, including the real property transfer tax, the
unincorporated businesses tax, the commercial rent tax, the hotel occupancy tax
and the sidewalk vault tax. New York City also was influential in eliminating
the New York State real property gains tax. Even with the reduction or
elimination of numerous taxes, New York City has announced a budget surplus for
its fiscal year ended June 30, 1997 of approximately $856 million, as a result
of savings in operating expenses and improvements in the New York City economy.
With its dynamic and diverse base of businesses, New York City is poised to
continue its course of steady growth and economic improvement. Private sector
job creation in the New York metropolitan area is anticipated to continue at an
average rate of 1.4% per annum, or approximately 33,000 private sector jobs per
annum through 1998, and continue to increase at approximately 0.9% annually
through 2001.
MANHATTAN OFFICE MARKET
OVERVIEW. The Company believes that current supply/demand fundamentals in
the Manhattan office market provide an attractive environment for acquiring,
owning and operating Class B Manhattan office properties. Specifically, the
Midtown Markets have the following favorable characteristics: (i) the Class A
and Class B sectors of the Midtown Markets, collectively, have experienced four
consecutive years of positive net absorption and declining vacancy rates; (ii)
there have been virtually no new additions to supply in the Midtown Markets
since 1992; and (iii) significant new office development is unlikely at the
current time because there are relatively few sites available for construction,
the lead time required for construction typically exceeds three years and new
construction generally is not economically feasible given current market rental
rates.
The Manhattan office market consists primarily of midtown, midtown south and
downtown submarkets. According to Rosen Consulting Group, midtown extends from
the north side of 32nd Street to 62nd Street; midtown south is defined as Canal
Street to the south side of 32nd Street; and downtown is defined as Battery to
Canal Street. In each case the submarkets are defined from the East River on the
east to the Hudson River on the west. As referred to herein, the Midtown Markets
collectively consist of midtown and midtown south.
58
SIZE OF MARKET. The Manhattan office market, with an overall stock of
approximately 378 million square feet, is the largest office market in the U.S
and is larger than the next six largest U.S. central business district office
markets combined (Chicago, Washington, D.C., Boston, San Francisco, Philadelphia
and Los Angeles). The following chart sets forth the size of the Manhattan
office market and the size of certain other U.S. office markets, as of December
31, 1996:
1996 COMPARATIVE OFFICE STOCK
STOCK
SQUARE
FEET
RANK METROPOLITAN STATISTICAL AREA (000S)
- ----------- ------------------------------------------------ ---------
1......... New York, NY (includes all of Manhattan) 378,313
2......... Chicago, IL 118,820
3......... Washington, DC 78,801
4......... Boston, MA 47,390
5......... San Francisco, CA 39,940
6......... Philadelphia, PA-NJ 38,525
7......... Los Angeles-Long Beach, CA 36,563
8......... Houston, TX 36,410
9......... Dallas, TX 30,580
10........ Pittsburgh, PA 29,390
Within Manhattan, 46% of the office space is classified as Class B space;
almost half of the Class B space is located in midtown, and approximately
one-fourth of the Class B space is located in each of midtown south and
downtown. The following table sets forth the relative sizes of the Class A and
Class B office markets and the rents and vacancy rates as of May 31, 1997
existing in such markets:
MANHATTAN OFFICE MARKET OVERVIEW
% OF CLASS A 2ND QUARTER 1997 2ND QUARTER 1997
AND CLASS B STOCK VACANCY RATE RENT/SQUARE FEET
------------------------ ------------------------ --------------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
----------- ----------- ----------- ----------- --------- ---------
Midtown Markets (1)..................... 70.2% 73.9% 10.1% 11.3% $ 37.42 $ 24.44
Midtown................................. 67.9% 48.3% 10.0% 11.4% $ 37.88 $ 26.57
Midtown South........................... 2.4% 25.7% 13.3% 11.2% $ 27.40 $ 20.35
Downtown................................ 29.8% 26.1% 13.5% 18.8% $ 28.19 $ 22.42
Total................................... 54.3%(2) 45.7%(2) 11.1% 13.3% $ 34.08 $ 23.70
- ------------------------
(1) Consists of midtown and midtown south submarkets.
(2) Represents proportion of total Class A stock and Class B stock in the
Manhattan office market.
HISTORICAL PERSPECTIVE. The Midtown Markets experienced rapid growth both
in demand for, and supply of, office space during the 1980s. A wave of new
construction peaked in the late 1980s and, between 1985 and 1992, 39 buildings
containing approximately 20.3 million square feet of space were built. However,
since 1992, there has been very little new construction in the Midtown Markets.
59
NEW CONTRUCTION OF OFFICE SPACE
MIDTOWN MARKETS
[Bar chart showing new construction from 1980
through the projection for 1998]
Source: Real Estate Board of New York (historical); Rosen Consulting Group
(projections).
In the late 1980s and early 1990s, as much of the new supply of office space
was being delivered, the demand for space in the Midtown Markets fell off
abruptly as a result of the general downturn in the economy and subsequent
corporate downsizings. As a result of the increase in inventory and the
significant decrease in employment in Manhattan, Class A vacancy rates in the
Midtown Markets increased into the double digits, reaching 17.8% in 1991 and
Class B vacancy rates in the Midtown Markets increased to 17.3% in 1992.
In the early 1990s, however, conditions began to improve in the Midtown
Markets, as a result of the following factors: new jobs were created as the
national and New York metropolitan economies recovered from their downturns;
existing midtown Manhattan businesses expanded, resulting in an increased need
for office space.
LIMITED SUPPLY OF NEW OFFICE SPACE. The Company expects the supply of
office space in the Midtown Markets to remain relatively stable for the
foreseeable future because there are relatively few sites available for
construction, the lead time required for construction typically exceeds three
years and new construction generally is not economically feasible at current
market rental rates. Virtually no new construction of office space in the
Midtown Markets is anticipated in the near term, except one major Class A
development, containing approximately 1.5 million square feet, scheduled to be
completed in 1999, which has substantial grandfathered tax benefits. (The
Company does not believe that this property will have a material impact on the
market because it represents less than 1% of the total Class A midtown office
space and is already substantially preleased to two tenants.) In the absence of
tax incentives, the Company believes that rents generally would have to increase
significantly to justify the cost of new construction. Assuming development
costs of approximately $358 per square foot (as estimated by Rosen
60
Consulting Group), a market base rent in excess of $55 per square foot would be
needed to make construction economically viable. This suggests that, in order to
justify new construction, market base rents (not taking into account any tax
benefits that may apply) generally would have to increase to at least 47% more
than current asking rents for Class A office space in midtown Manhattan (as
estimated by Rosen Consulting Group).
INCREASING DEMAND FOR OFFICE SPACE IN THE MIDTOWN MARKETS. In addition, net
absorption as calculated by Rosen Consulting Group ("Net Absorption") of Class B
office space in the Midtown Markets has been positive since 1992 and surged in
1994, 1995 and 1996, reaching 3.0 million, 1.5 million and 1.7 million square
feet, respectively. Net Absorption in the Midtown Markets is forecasted to reach
almost 2.3 million square feet for 1997. An average of 30,200 office
space-consuming jobs are projected to be created annually from 1997 until 2001,
leading to an estimated average annual Net Absorption of Class B office space in
the Midtown Markets of 1.5 million square feet in 1998 and 1999.
NET ABSORPTION OF CLASS B OFFICE SPACE
MIDTOWN MARKETS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
SQUARE FEET
(MILLIONS)
1993 1.1
1994 3
1995 1.5
1996 1.7
1997 proj. 2.3
1998 proj. 1.7
1999 proj. 1.3
2000 proj. 1
As a result of sustained positive Net Absorption coupled with virtually no
new construction since 1992, the Class A office vacancy rate in the Midtown
Markets had fallen to 10.1% as of June 30, 1997 from its 1990s high of 17.8% in
1991 and the Class B office vacancy rate in the Midtown Markets had fallen to
11.3% from its 1990s high of 17.3% in 1992. As a result of the projected
economic strength and private sector job growth, combined with a lack of
projected new construction through 1998, Rosen Consulting Group projects that
the Class A vacancy rate in the Midtown Markets will fall to 7.6% in 1998 and
further to 5.9% in 2001; similarly, Rosen Consulting Group projects that the
Class B vacancy rate in the Midtown Markets will fall to 8.4% in 1998 and
further to 5.7% in 2001. The Company believes the demand for Class B space will
increase as a result of the expectation of the following factors: (i) growth in
the office space demands of small businesses, which generally choose to locate
in office space with lower occupancy costs, (ii) the continued desire of larger
corporations to reduce office occupancy costs and (iii) growth in key
office-consuming sectors such as finance, securities, legal services and
accounting which would reduce the availability of Class A office space.
61
The following chart shows the history and projections of vacancy rates and
asking rents for Class B office space in the Midtown Markets. According to Rosen
Consulting Group, rent growth is inversely related to vacancy rates. When market
conditions tighten and the market vacancy rate falls below the optimal vacancy
rate, rent growth accelerates. The optimal vacancy rate is the vacancy rate at
which neither excess supply nor excess demand exists, and it is determined by
examining the historical relationship between vacancy rates and rent growth. As
shown in the chart below, the Class B vacancy rate in the Midtown Markets rose
to its highest level in 1992, at which time average asking rents continued to
decline to their lowest levels in 1993. Since 1992, the Class B vacancy rate has
decreased, and as the actual vacancy rate has approached the optimal vacancy
rate, average asking rents stabilized and began to rise in 1995.
The chart further shows that as vacancy rates decline below the optimal rate
of 10% (as is projected to occur over the next four years), projected asking
rents begin to increase at an accelerated rate over current levels. In light of
the supply and demand fundamentals outlined above and the estimate of Class A
base rental rates required to justify new office construction (in excess of $55
per square foot), the Company believes the estimate in the chart below of Class
B asking rents in the $30 per square foot range at a projected vacancy level of
6% to be reasonable. However, conditions in the Midtown Markets are subject to
change and there can be no assurance that any projections will approximate
actual results. See "Risk Factors--The Company's Dependence on the Midtown
Markets Due to Limited Geographic Diversification Could Adversely Affect the
Company's Financial Performance."
OFFICE VACANCY RATES AND ASKING RENTS
MIDTOWN MARKETS CLASS B
[Bar chart showing vacancy rates and asking rents for 1991
through the projection for 2001]
POSITIVE OUTLOOK FOR EFFECTIVE RENTAL RATES. As discussed above, the
Company anticipates continued growth in the demand for Class A and Class B
office space in the Midtown Markets and relatively little new supply of such
space being delivered over the next several years. Accordingly, the Company
believes that vacancy rates among Class A and Class B properties in the Midtown
Markets should continue to decrease, which the Company believes should result in
increased rental rates and decreased re-leasing costs in well-managed,
well-located Class A and Class B office properties. However, there can be no
assurance that any of these expectations will be met.
DOWNTOWN SUBMARKET. The downtown submarket of the Manhattan office market,
where the Option Property is located, has been the subject of significant
revitalization efforts in recent years. The Downtown Commercial Revitalization
Program offers a mix of commercial rent tax, real estate tax and energy expense
relief to tenants who sign new or renew leases in buildings constructed before
1975. These efforts appear to be yielding results, as the vacancy rate for
downtown Class B office space had declined to 18.8% as of June 30, 1997 from its
1990s high of 21.3% at the end of 1995 (although such rate represents an
increase from the vacancy rate of 17.8% at the end of 1996). In addition,
average asking rents per square foot for Class B office space in the downtown
submarket rose to $22.42 as of June 30, 1997 from its 1990s low of $21.53 at the
end of 1995. Rosen Consulting Group projects the vacancy rate for downtown Class
B office space to decrease to 14.7% by the end of 1998 and to continue to
decline to below 12% by the end of 2001. In addition, Rosen Consulting Group
estimates that average asking rents per square foot for Class B office space in
the downtown submarket will increase to $23.15 by the end of 1998 and continue
rising to $26.56 by the end of 2001.
62
THE PROPERTIES
THE PORTFOLIO
GENERAL. Upon the completion of the Offering, the Company will own or have
contracted to acquire interests in nine Class B office Properties located in
midtown Manhattan which contain approximately 2.2 million rentable square feet.
Of these Properties, six office properties encompassing 1.2 million rentable
square feet are currently owned and managed by SL Green and three office
properties encompassing approximately 1.0 million rentable square feet will be
acquired on or after completion of the Offering. See "Structure and Formation of
the Company--Formation Transactions." Upon completion of the Offering, the
Company will effectively own 100% of the economic interest in each of the
Properties. Certain of the Properties include at least a small amount of retail
space on the lower floors, as well as basement/storage space. One Property (673
First Avenue) includes an underground parking garage. The Company believes that
each of the Properties is adequately covered by property and liability
insurance. In addition, upon completion of the Offering, the Company will own an
option to acquire 17 Battery Place, a property containing approximately 800,000
rentable square feet of office space in downtown Manhattan. See "-- The Option
Property" below.
As noted above under "Market Overview," the Manhattan office market is
predominantly segregated into two distinct categories: Class A and Class B. The
Class B category generally includes office properties that are more than 25
years old, in good physical condition, attract high-quality tenants and are
situated in desirable locations in Manhattan. Class B properties can be
distinguished from Class A properties in that Class A properties are generally
newer properties with higher finishes and obtain the highest rental rates in
their markets.
The following table sets forth certain information with respect to each of
the Properties as of June 30, 1997:
PERCENTAGE
OF PERCENTAGE
APPROXIMATE PORTFOLIO OF
YEAR RENTABLE RENTABLE PORTFOLIO NUMBER
BUILT/ SQUARE SQUARE PERCENT ANNUALIZED ANNUALIZED OF
RENOVATED SUBMARKET FEET FEET LEASED RENT(1) RENT LEASES
---------- ---------------- ------------ ------------- ----------- ----------- ------------- -----------
CORE PORTFOLIO
- -----------------
673 First 1928/1990 Grand Central 422,000 19.0% 100% $10,837,482 22.1% 15
Avenue......... South
470 Park Avenue 1912/1994 Park Avenue 260,000(4) 11.7 99 5,853,720 12.0 27
South(4)....... South/Flatiron
Bar Building 1922/1985 Rockefeller 165,000(5) 7.4 89(5) 4,139,704 8.5 58
(5)............ Center
70 W. 36th 1923/1994 151,000 6.8 98 2,795,986 5.7 38
Street......... Garment
1414 Avenue of 1923/1990 Rockefeller 111,000 5.0 98 3,370,001 6.9 31
the Americas... Center
29 W. 35th 1911/1985 78,000 3.5 92 1,393,135 2.8 8
Street......... Garment
------------ ----- --- ----------- ----- ---
1,187,000 53.4 97 28,390,028 58.0 177
ACQUISITION
PROPERTIES
- -----------------
1372 Broadway.... 1914/1985 Garment 508,000 22.9 84 9,631,140 19.7 32
1140 Avenue of 1926/1951 Rockfeller 191,000 8.6 98 4,917,520 10.0 39
the Americas... Center
50 W. 23rd 1892/1992 333,000 15.0 91 5,995,608 12.3 16
Street......... Chelsea
------------ ----- --- ----------- ----- ---
Total/Weighted 2,219,000(6) 100.0% 94% $48,934,296 100.0% 264
Average........ ------------ ----- --- ----------- ----- ---
------------ ----- --- ----------- ----- ---
ANNUAL
NET
ANNUALIZED EFFECTIVE
RENT RENT
PER PER
LEASED LEASED
SQUARE SQUARE
FOOT(2) FOOT(3)
----------- -----------
CORE PORTFOLIO
- -----------------
673 First $ 25.68 $ 21.79
Avenue.........
470 Park Avenue 22.66 19.43
South(4).......
Bar Building 28.33 24.74
(5)............
70 W. 36th 18.90 16.13
Street.........
1414 Avenue of 30.85 30.87
the Americas...
29 W. 35th 19.53 16.23
Street.........
----------- -----------
24.65 21.43
ACQUISITION
PROPERTIES
- -----------------
1372 Broadway.... 22.47 21.57
1140 Avenue of 26.30 24.70
the Americas...
50 W. 23rd 19.68 17.09
Street.........
----------- -----------
Total/Weighted $ 23.58 $ 21.11
Average........ ----------- -----------
----------- -----------
(FOOTNOTES ON FOLLOWING PAGE)
64
(FOOTNOTES FOR PRECEDING PAGE)
- ----------------------------------
(1) As used throughout this Prospectus, Annualized Rent represents the monthly
contractual rent under existing leases as of June 30, 1997 multiplied by 12.
This amount reflects total rent before any rent abatements and includes
expense reimbursements, which may be estimated as of such date. Total rent
abatements for leases in effect as of June 30, 1997 for the 12 months ending
June 30, 1998 are approximately $815,000.
(2) Annualized Rent Per Leased Square Foot, as used throughout this Prospectus,
represents Annualized Rent, as described in footnote (1) above, presented on
a per leased square foot basis.
(3) As used throughout this Prospectus, Annual Net Effective Rent Per Leased
Square Foot represents (a) for leases in effect at the time an interest in
the relevant property was first acquired by SL Green, the remaining lease
payments under the lease divided by the number of months remaining under the
lease multiplied by 12 and (b) for leases entered into after an interest in
the relevant property was first acquired by SL Green and for leases at the
Acquisition Properties, all lease payments under the lease divided by the
number of months in the lease multiplied by 12, and, in the case of both (a)
and (b), adjusted for tenant improvement costs and leasing commissions, if
any, paid or payable by SL Green and presented on a per leased square foot
basis. In certain cases, Annual Net Effective Rent Per Leased Square Foot
may exceed Annualized Rent Per Leased Square Foot as a result of the
provision for future contractual increases in rental payments in the Annual
Net Effective Rent Per Leased Square Foot data.
(4) 470 Park Avenue South is comprised of two buildings, 468 Park Avenue South
(a 17-story office building) and 470 Park Avenue South (a 12-story office
building).
(5) SL Green first acquired an interest in the Bar Building in October 1996. SL
Green has commenced an aggressive leasing program at the Property and as of
July 15, 1997, approximately 93% of the rentable square feet in the Property
was leased. The Bar Building is comprised of two buildings, 36 West 44th
Street (a 14-story building) and 35 West 43rd Street (a four-story
building).
(6) Includes approximately 2,043,000 square feet of rentable office space,
146,000 square feet of rentable retail space and 30,000 square feet of
garage space.
HISTORICAL OCCUPANCY. The Properties in the Core Portfolio historically
have achieved consistently higher occupancy rates in comparison to the overall
Class B Midtown Markets, as shown in the following table:
OCCUPANCY RATE OF CLASS B
PERCENT OFFICE PROPERTIES
LEASED AT THE IN THE MIDTOWN
PROPERTIES (1) MARKETS (2)
----------------- -----------------------------
June 30, 1997....................................... 97% 89%
December 31, 1996................................... 95 89
December 31, 1995................................... 95 87
December 31, 1994................................... 98 86
December 31, 1993................................... 96 84
December 31, 1992................................... 93 83
- ------------------------
(1) Includes space for leases that were executed as of the relevant date in
Properties owned by SL Green as of that date.
(2) Includes vacant space available for direct lease, but does not include
vacant space available for sublease; including vacant space available for
sublease would reduce the occupancy rate as of each date shown. Sources:
RELocate, Rosen Consulting Group.
LEASE EXPIRATIONS. Leases at the Properties, as at many other Manhattan
office properties, typically extend for a term of ten or more years, compared to
typical lease terms of 5-10 years in other large U.S. office markets. From
January 1, 1994 through June 30, 1997, SL Green renewed approximately 78% of the
leases scheduled to expire at the Properties in the Core Portfolio owned and
managed by SL Green during such period, constituting renewal of approximately
80% of the expiring rentable square footage during such period. As a result of
these re-leasing efforts, through December 31, 2002, the average annual rollover
at the Properties is approximately 110,280 square feet, representing an average
annual expiration of 5.3% of the total leased square feet at the Properties per
year (assuming no tenants exercise renewal or cancellation options and no tenant
bankruptcies or other tenant defaults).
The following table sets out a schedule of the annual lease expirations at
the Properties (including the Acquisition Properties) with respect to leases in
place as of June 30, 1997 for each of the next ten years and
65
thereafter (assuming that no tenants exercise renewal or cancellation options
and that there are no tenant bankruptcies or other tenant defaults):
ANNUALIZED ANNUALIZED
RENT RENT PER
PERCENTAGE PER LEASED
SQUARE OF ANNUALIZED LEASED SQUARE FOOT
NUMBER FOOTAGE TOTAL RENT SQUARE OF EXPIRING
OF OF LEASED OF FOOT OF LEASES WITH
EXPIRING EXPIRING SQUARE EXPIRING EXPIRING FUTURE
YEAR OF LEASE EXPIRATION LEASES LEASES FEET LEASES(1) LEASES (2) STEP-UPS(3)
- --------------------------------------- ----------- ---------- ----------- ------------- --------------- -----------
June 30 through December 31, 1997...... 22 47,979 2.3% $ 1,378,363 $ 28.73 $ 28.81
1998................................... 26 71,514 3.5 2,058,149 28.78 29.31
1999................................... 30 114,207 5.5 3,063,842 26.83 27.24
2000................................... 26 148,161 7.1 3,851,078 25.99 27.32
2001................................... 28 85,417 4.1 2,269,226 26.57 28.50
2002................................... 31 139,260 6.7 2,970,971 21.33 22.81
2003................................... 25 250,439 12.1 5,808,334 23.19 28.83
2004................................... 22 346,424 16.7 8,176,306 23.60 27.67
2005................................... 13 327,111 15.8 7,510,196 22.96 25.09
2006................................... 16 179,893 8.7 4,571,056 25.41 29.75
2007................................... 25 364,855 17.6 7,276,775 19.94 24.92
--- ---------- ----- ------------- ------ -----------
TOTAL/Weighted Average............. 264 2,075,260 100.0% $ 48,934,296 $ 23.58(4) $ 26.84(4)
--- ---------- ----- ------------- ------ -----------
--- ---------- ----- ------------- ------ -----------
- ------------------------
(1) Annualized Rent of Expiring Leases, as used throughout this Prospectus,
represents the monthly contractual rent under existing leases as of June 30,
1997 multiplied by 12. This amount reflects total rent before any rent
abatements and includes expense reimbursements, which may be estimated as of
such date. Total rent abatements for leases in effect as of June 30, 1997
for the 12 months ending June 30, 1998 are approximately $815,000.
(2) Annualized Rent Per Leased Square Foot of Expiring Leases, as used
throughout this Prospectus, represents Annualized Rent of Expiring Leases,
as described in footnote (1) above, presented on a per leased square foot
basis.
(3) Annualized Rent Per Leased Square Foot of Expiring Leases With Future
Step-Ups represents Annualized Rent Per Leased Square Foot of Expiring
Leases, as described in footnote (2) above, adjusted to reflect contractual
increases in monthly base rent that occur after June 30, 1997.
(4) For comparison purposes, the Direct Weighted Average Rental Rate for the
Class B Midtown Markets, according to RELocate (as adjusted by the Company
to weight the representation of the Properties in the Chelsea, Grand Central
South, Garment, Park Avenue South/Flatiron and Rockefeller Center
submarkets), was $24.64 per square foot as of June 30, 1997. The Direct
Weighted Average Rental Rate represents the weighted average of asking
rental rates for direct Class B office space as it relates to the
Properties. Asking rental rates generally are higher than actual rental
rates (which generally are not publicly available). In addition, the Direct
Weighted Average Rental Rate represents a large number of Class B properties
in various locations within the Midtown Markets, and, therefore, may not be
representative of asking or actual rental rates at the Properties.
Additionally, the Annualized Rent Per Leased Square Foot of Expiring Leases
includes the effect of retail rental rates at the Properties, which are
generally higher than office rental rates. Excluding rental payments
attributable to retail space at the Properties, the Weighted Average
Annualized Rent Per Leased Square Foot of Expiring Leases would be $22.72.
TENANT DIVERSIFICATION. The Properties (including the Acquisition
Properties) currently are leased to over 250 tenants which are engaged in a
variety of businesses, including publishing, health services, retailing and
banking. The following table sets forth information regarding the leases with
respect to the 20
66
largest tenants at the Properties, based on the amount of square footage leased
by such tenants as of June 30, 1997:
PERCENTAGE
OF PERCENTAGE
AGGREGATE OF
PORTFOLIO AGGREGATE
REMAINING LEASED PORTFOLIO
LEASE TERM TOTAL LEASED SQUARE ANNUALIZED ANNUALIZED
TENANT PROPERTY IN MONTHS SQUARE FEET FEET RENT RENT
- ------------------------------- ---------------------- ------------- ------------ ------------- ------------- -------------
Kallir, Philips, Ross Inc...... 673 First Avenue 84 80,000 3.9% $ 1,913,449 3.9%
New York Hospital(1)........... 673 First Avenue 110 76,000 3.7 1,906,829 3.9
Gibbs & Cox.................... 50 West 23rd Street 96 66,700 3.2 1,604,402 3.3
Capital-Mercury................ 1372 Broadway 97 64,122 3.1 1,292,732 2.6
Board of Education of the City
of New York.................. 50 West 23rd Street 156 64,000 3.1 722,475 1.5
Ann Taylor..................... 1372 Broadway 157 58,975 2.8 1,169,118 2.4
NationsBank.................... 1372 Broadway 33 55,238 2.7 1,364,343 2.8
Vollmer Associates............. 50 West 23rd Street 96 53,577 2.6 1,252,154 2.6
Newbridge Communications(2).... 673 First Avenue 100 49,000 2.4 1,456,155 3.0
Ross Stores.................... 1372 Broadway 120 48,604 2.3 939,346 1.9
Cygne.......................... 1372 Broadway 156 46,392 2.2 775,808 1.6
UNICEF......................... 673 First Avenue 78 40,300 1.9 1,070,667 2.2
Franklin Strategic............. 673 First Avenue 82 40,000 1.9 1,404,425 2.9
U.S. Committee for UNICEF...... 673 First Avenue 78 40,000 1.9 1,071,161 2.2
Republic of South Africa....... 673 First Avenue 82 40,000 1.9 1,108,913 2.3
Henry Siegel................... 1372 Broadway 98 34,045 1.6 578,765 1.2
Meredith Garage Corp. ......... 673 First Avenue 85 30,000 1.4 372,058 0.8
AJ Contracting................. 470 Park Ave. So. 150 27,870 1.3 635,803 1.3
Cowles Business Media.......... 470 Park Ave. So. 69 24,767 1.2 589,117 1.2
Work Bench..................... 470 Park Ave. So. 66 22,000 1.1 375,000 0.8
----- ------------ --- ------------- ---
TOTAL/Weighted Average(3)...... 100 961,590 46.3% $ 21,602,719 44.1%
----- ------------ --- ------------- ---
----- ------------ --- ------------- ---
- ------------------------
(1) This tenant occupies an additional 65,000 square feet of space at 673 First
Avenue pursuant to two subleases expiring December 31, 2003 and April 29,
2004.
(2) This tenant occupies an additional 13,000 square feet of space at 673 First
Avenue pursuant to a sublease expiring April 29, 2004.
(3) Weighted average calculation based on total rentable square footage leased
by each tenant.
67
LEASE DISTRIBUTION. The following table sets forth information relating to
the distribution of leases at the Properties (including the Acquisition
Properties), based on rentable square feet under lease, as of June 30, 1997:
PERCENTAGE PERCENTAGE
OF AGGREGATE OF
PORTFOLIO AGGREGATE
LEASED PORTFOLIO
SQUARE FEET NUMBER OF PERCENT OF TOTAL LEASED SQUARE ANNUALIZED ANNUALIZED
UNDER LEASE LEASES ALL LEASES SQUARE FEET FEET RENT RENT
------------- ------------- ----------- ------------ ------------- ------------- ---------------
2,500 or less........................... 114 43.0% 162,180 7.8% $ 4,829,621 9.9%
2,501-5,000............................. 59 22.3 205,151 9.9 5,830,629 11.9
5,001-7,500............................. 22 8.3 141,907 6.8 3,255,363 6.7
7,501-10,000............................ 22 8.3 201,681 9.7 4,822,277 9.8
10,001-20,000........................... 21 7.9 290,421 14.0 6,558,268 13.4
20,001-39,999........................... 11 4.1 251,012 12.1 4,845,592 9.9
40,000 +................................ 15 5.7 822,908 39.2 18,792,546 38.4
--- ----- ------------ ----- ------------- -----
TOTAL................................... 264 100.0% 2,075,260 100.0% $ 48,934,296 100.0%
--- ----- ------------ ----- ------------- -----
--- ----- ------------ ----- ------------- -----
TENANT RETENTION AND HISTORICAL LEASE RENEWALS. The Company works closely
with its tenants to provide a high level of tenant services. The Company
continually seeks to improve its tenant roster by attracting high-quality
tenants to the Properties and seeks to stabilize its rent roll through the early
extension of near-term expiring leases. From January 1, 1994 through June 30,
1997, SL Green renewed approximately 78% of the leases scheduled to expire at
the Properties in the Core Portfolio owned and managed by SL Green during such
period, constituting renewal of approximately 80% of the expiring rentable
square footage in the Core Portfolio during such period. The following table
sets forth certain historical information regarding tenants at the Properties in
the Core Portfolio who renewed an existing lease at or prior to the expiration
of such lease:
TOTAL/
WEIGHTED
SIX AVERAGE
MONTHS JANUARY 1,
ENDED 1994-
JUNE 30, JUNE 30,
1994 1995 1996 1997 1997
--------- --------- --------- ----------- -----------
Number of leases expired during calendar year or
period............................................ 5 12 31 15 63
Number of leases renewed............................ 5 7 26 11 49
Percentage of leases renewed........................ 100.0% 58.3% 83.9% 73.3% 77.8%
Aggregate rentable square footage of expiring
leases............................................ 14,223 38,008 137,932 49,514 239,677
Aggregate rentable square footage of lease
renewals.......................................... 14,223 28,055 108,758 39,943 190,979
Percentage of expiring rentable square foot
renewed........................................... 100.0% 73.8% 78.9% 80.7% 79.7%
68
HISTORICAL TENANT IMPROVEMENTS AND LEASING COMMISSIONS. The following table
sets forth certain historical information regarding tenant improvement and
leasing commission costs for tenants at the Properties in the Core Portfolio for
the years 1994 through 1996 and for the first six months of 1997:
TOTAL/
WEIGHTED
SIX AVERAGE
MONTHS JANUARY 1,
ENDED 1994-JUNE
JUNE 30, 30,
1994 1995 1996 1997 1997
--------- --------- ---------- ---------- ------------
RENEWALS
Number of leases.......................................... 5 7 26 11 49
Square feet............................................... 14,223 28,055 108,758 39,943 190,979
Tenant improvement costs per square foot.................. $ 1.96 $ 0.00 $ 2.39 $ 1.84 $ 1.89
Leasing commission costs per square foot.................. $ 1.77 $ 1.99 $ 3.36 $ 2.40 $ 2.84
--------- --------- ---------- ---------- ------------
Total tenant improvement and leasing commission costs
per square foot....................................... $ 3.73 $ 1.99 $ 5.75 $ 4.24 $ 4.73
--------- --------- ---------- ---------- ------------
--------- --------- ---------- ---------- ------------
RE-TENANTED OR NEWLY TENANTED SPACE
Number of leases.......................................... 8 7 11 24 50
Square feet............................................... 42,632 25,787 36,911 70,721 176,051
Tenant improvement costs per square foot.................. $ 16.41 $ 22.73 $ 13.76 $ 17.99 $ 17.42
Leasing commission costs per square foot.................. $ 7.27 $ 4.55 $ 9.41 $ 6.24 $ 6.91
--------- --------- ---------- ---------- ------------
Total tenant improvement and leasing commission costs
per square foot....................................... $ 23.69 $ 27.27 $ 23.18 $ 24.23 $ 24.33
--------- --------- ---------- ---------- ------------
--------- --------- ---------- ---------- ------------
TOTAL
Number of leases.......................................... 13 14 37 35 99
Square feet............................................... 56,855 53,842 145,669 110,664 367,030
Tenant improvement costs per square foot.................. $ 12.80 $ 10.88 $ 5.27 $ 12.16 $ 9.34
Leasing commission costs per square foot.................. $ 5.90 $ 3.21 $ 4.90 $ 4.85 $ 4.79
--------- --------- ---------- ---------- ------------
Total tenant improvement and leasing commission costs
per square foot....................................... $ 18.70 $ 14.10 $ 10.17 $ 17.01 $ 14.13(1)
--------- --------- ---------- ---------- ------------
--------- --------- ---------- ---------- ------------
- ------------------------
(1) The cost of leasing vacant space (i.e., newly-tenating) generally exceeds
the cost of renewing or retenating occupied space. During the period January
1, 1994 through June 30, 1997, certain of the Properties were in a lease-up
phase. In the event the weighted average of total tenant improvement costs
and leasing commission per square foot were calculated assuming a 75%
renewal rate on expiring square footage and an occupancy rate throughout
such period equal to 94% (the occupancy rate at the Properties as of June
30, 1997), such weighted average per square foot amount would be $9.63.
HISTORICAL CAPITAL EXPENDITURES. Each property within the Core Portfolio,
except for the Bar Building, has been substantially renovated. Within the next
18 months the Company anticipates spending $5.3 million in capital improvements
at the Properties, of which approximately $1.1 million is designated for the Bar
Building, an interest in which was first purchased by SL Green in October 1996,
and approximately $3.0 million is designated for the Acquisition Properties. See
"--36 West 44th Street (The Bar Building)" and "--Acquisition Properties" below.
These costs are expected to be paid from remaining net proceeds from the
Offering after completion of the Formation Transactions (estimated to be $6.2
million) and/or from operating cash flows. See "Use of Proceeds."
Prior to acquisition each property under consideration is evaluated to
determine an initial capital budget. The extent of these improvements is
predicated on the physical condition and vacancy at the property, and the
anticipated target market rent. Ongoing capital budgets are determined annually
and are geared toward addressing tenant rollover and changing target market
rent.
69
The following table sets forth information regarding historical capital
expenditures at the Properties in the Core Portfolio (except for the Bar
Building, an interest in which was first acquired by SL Green in October 1996)
for the years 1994 through 1996:
1994 1995 1996 TOTAL
---------- ---------- ---------- ------------
673 First Ave....................................... $ 10,929 $ 52,369 $ 15,636 $ 78,934
470 Park Ave. So. .................................. $ 241,923(1) $ -- $ 130,700(2) $ 372,623
70 W. 36th St. ..................................... $ 129,721(3) $ 24,717 $ 178,521(4) $ 332,959
1414 Ave. of Americas (5)........................... $ -- $ -- $ 132,459(6) $ 132,459
29 W. 35th St. ..................................... $ 68,585 $ 176,123(7) $ 98,786(8) $ 343,494
---------- ---------- ---------- ------------
Total............................................. $ 451,158 $ 253,209 $ 556,102 $ 1,260,469
---------- ---------- ---------- ------------
---------- ---------- ---------- ------------
Total Square Feet................................... 1,021,000 1,021,000 1,021,000 1,021,000
Capital Expenditures Per Square Foot................ $0.44 $0.25 $0.54 $0.41(9)
---------- ---------- ---------- ------------
---------- ---------- ---------- ------------
- ------------------------
(1) Expenditures included asbestos abatement, new boiler and new roof-top
structures.
(2) Expenditures included partial elevator modernization.
(3) Expenditures included elevator modernization.
(4) Expenditures included new boiler, exit signs and fire doors.
(5) SL Green's interest in 1414 Avenue of the Americas was acquired in May,
1996; however, SL Green managed the Property for prior ownership since
December 1989.
(6) Expenditures included floor renovations, ADA bathrooms, new windows and
parapet.
(7) Expenditures included elevator modernization.
(8) Expenditures included new roof.
(9) Weighted average.
673 FIRST AVENUE
673 First Avenue is a 12-story office building that occupies the entire
block front on the west side of First Avenue between East 38th Street and East
39th Street in the Grand Central South submarket of the Manhattan office market.
673 First Avenue contains approximately 422,000 rentable square feet (including
approximately 366,600 square feet of office space, 26,000 square feet of retail
space and a 30,000 square foot garage), with floor plates of approximately
40,000 square feet on all but the top two floors. The building, located three
blocks from the United Nations, was completed in 1928 and converted from a
warehouse/distribution facility to an office building by SL Green in 1989 and
1990. SL Green acquired a net leasehold interest (which expires in 2037) in the
Property and a ground leasehold interest (which expires in 2037) in the land
underlying the Property in 1988. Upon completion of the Formation Transactions,
such leasehold interests will be transferred to the Company. See "Risk
Factors--The Company's Performance and Value are Subject to Risks Associated
with the Real Estate Industry--The expiration of net leases could adversely
affect the Company's financial condition."
At 673 First Avenue, SL Green converted a distribution and warehouse
facility into an office property to take advantage of desirable 40,000 square
foot floor plates and a strategic location near the United Nations complex. To
accomplish the repositioning, SL Green invested approximately $25 million in the
Property for (i) new building entrance, lobby and storefronts, (ii) complete
replacement of the elevator systems, (iii) the creation of common areas, (iv)
entirely reconfigured HVAC and electrical systems and (v) the build-out of
tenant spaces. The repositioning resulted in the conversion of a 43% occupied
warehouse/distribution facility into a 100% occupied Class B office building
within 24 months. The Property's net operating income (NOI) increased
dramatically from approximately $466,000 per annum upon acquisition to
approximately $7.6 million per annum following repositioning and lease-up
(exclusive of net lease payments and debt service payments).
70
As of June 30, 1997, 100% of the rentable square footage in 673 First Avenue
was leased. The following table sets forth certain information with respect to
the Property:
ANNUAL NET
EFFECTIVE
ANNUALIZED RENT
RENT PER LEASED PER LEASED
YEAR-END PERCENT LEASED SQUARE FOOT SQUARE FOOT
- ----------------------------------------------------------------- ----------------- ----------------- -------------
1997(1).......................................................... 100% $ 25.68 $ 21.79
1996............................................................. 100 25.12 21.79
1995............................................................. 97 24.83 21.66
1994............................................................. 100 23.83 21.47
1993............................................................. 100 23.48 21.50
1992............................................................. 100 22.18 21.50
- ------------------------
(1) Information is as of June 30, 1997.
As of June 30, 1997, 673 First Avenue was leased to 15 tenants operating in
various industries, including healthcare, advertising and publishing, three of
whom occupied 10% or more of the rentable square footage at the Property. A
major New York City hospital occupied approximately 76,000 square feet
(approximately 18% of the Property) under two leases expiring on August 31,
2006, that provide for an aggregate annualized base rent as of June 30, 1997 of
approximately $1.9 million (approximately $24.80 per square foot) and renewal
options for five years on the two direct leases. In addition, such tenant
occupies an additional 65,000 square feet under two subleases, one expiring on
December 31, 2003 and the other expiring on December 31, 2004. In addition to
annualized base rent, this tenant pays real estate tax escalations and operating
escalations in excess of a base year amount.
In addition, an advertising firm occupied approximately 80,000 square feet
(approximately 19% of the Property) under a lease expiring on June 30, 2004 that
provides for annualized base rent as of June 30, 1997 of approximately $1.8
million (approximately $22.00 per square foot). In addition to annualized base
rent, this tenant pays real estate tax escalations and operating escalations in
excess of a base year amount.
Also, a publishing company occupied approximately 49,000 square feet
(approximately 11.6% of the Property) under two leases expiring on October 31,
2005 that provide for an aggregate annualized base rent as of June 30, 1997 of
approximately $1.4 million (approximately $28.00 per square foot). In addition,
such tenant occupies an additional 13,000 square feet under a sublease expiring
on April 30, 2004. In addition to annualized base rent, this tenant pays real
estate tax escalations and operating escalations in excess of a base year
payment.
71
The following table sets out a schedule of the annual lease expirations at
673 First Avenue for leases executed as of June 30, 1997 with respect to each of
the next ten years and thereafter (assuming that no tenants exercise renewal or
cancellation options and that there are no tenant bankruptcies or other tenant
defaults):
ANNUALIZED
RENT PER
PERCENTAGE ANNUALIZED LEASED
SQUARE OF ANNUALIZED RENT PER SQUARE FOOT
NUMBER FOOTAGE TOTAL RENT LEASED OF EXPIRING
OF OF LEASED OF SQUARE FOOT LEASES WITH
EXPIRING EXPIRING SQUARE EXPIRING OF EXPIRING FUTURE
YEAR OF LEASE EXPIRATION LEASES LEASES FEET LEASES LEASES (1) STEP-UPS
- ---------------------------------------------- ----------- --------- ----------- ------------- ----------- -----------
June 30 through December 31, 1997............. -- -- -- -- -- --
1998.......................................... -- -- -- -- -- --
1999.......................................... 1 1,018 0.2% $ 10,180 $ 10.00 $ 10.00
2000.......................................... 1 100 0 44,223 442.23(2) 511.94(2)
2001.......................................... -- -- -- -- -- --
2002.......................................... 1 1,046 0.3 23,986 22.93 24.57
2003.......................................... 2 80,300 19.0 2,141,828 26.67 36.16
2004.......................................... 6 203,944 48.0 4,989,147 24.46 28.63
2005.......................................... 1 49,000 11.6 1,456,155 29.72 32.47
2006.......................................... 1 76,000 18.0 1,906,829 25.09 27.35
2007 and thereafter........................... 2 10,659 2.5 265,134 24.87 35.55
--- --------- ----- ------------- ----------- -----------
SUBTOTAL/WEIGHTED AVERAGE..................... 15 422,067 100.0% $ 10,837,482 $ 25.68 $ 30.51(3)
Unleased at 6/30/97........................... 0
--- --------- ----- ------------- ----------- -----------
TOTAL..................................... 422,067 100.0%
--------- -----
--------- -----
- ------------------------
(1) For comparison purposes, according to RELocate, the Direct Weighted Average
Rental Rate for the direct Class B Grand Central South submarket (which,
according to RELocate is the area bounded by 32nd Street to 40th Street,
Fifth Avenue east to the East River) was $26.85 per square foot as of June
30, 1997. Direct Weighted Average Rental Rate represents the weighted
average of asking rental rates for direct Class B space. Asking rental rates
generally are higher than actual rental rates (which generally are not
publicly available). Therefore, the Direct Weighted Average Rental Rate may
not be representative of asking or actual rental rates at 673 First Avenue.
(2) These rental rates reflect the lease of approximately 100 square feet of
roof and office space at the Property for the placement of cellular
telephone antennas and equipment.
(3) The differential between Annualized Rent Per Leased Square Foot of Expiring
Leases and Annualized Rent Per Leased Square Foot of Expiring Leases with
Future Step-Ups is attributable to significant contractual step-ups in base
rental rates that exist in certain leases at this Property.
The aggregate undepreciated tax basis of depreciable real property at 673
First Avenue for Federal income tax purposes was $22,360,268 as of June 30,
1997. Depreciation and amortization are computed for Federal income tax purposes
on the straight-line method over lives which range up to 39 years.
The current real estate tax rate for all Manhattan office properties is
$10.072 per $100 of assessed value. The total annual tax for 673 First Avenue at
this rate for the 1997-98 tax year is $1,225,561 (at a taxable assessed value of
$12,168,000).
72
470 PARK AVENUE SOUTH
470 Park Avenue South is comprised of two buildings, 468 Park Avenue South
(a 17-story building) and 470 Park Avenue South (a 12-story building), that
occupy the entire blockfront on the west side of Park Avenue South between East
31st and East 32nd Streets in the Park Avenue South/Flatiron submarket of the
Manhattan office market. The buildings are joined together by a single lobby and
common base building systems. 468 Park Avenue South was completed in 1912 and
470 Park Avenue South was completed in 1917. Various portions of the common
areas of both buildings were substantially renovated in 1987, 1990 and 1994. SL
Green acquired a 100% fee simple interest in the Property in 1986. Upon
completion of the Formation Transactions, this fee simple interest will be
transferred to the Company. The Property contains an aggregate of approximately
260,000 rentable square feet (including approximately 232,000 square feet of
office space and approximately 28,000 square feet of retail space), with floor
plates of approximately 8,400 square feet in the 468 building and floor plates
of approximately 9,735 square feet in the 470 building.
As of June 30, 1997, 99% of the rentable square footage in 470 Park Avenue
South was leased (including space for leases that were executed as of June 30,
1997). The office space was 99% leased and the retail space was 100% leased. The
following table sets forth certain information with respect to the Property:
ANNUAL NET
EFFECTIVE
ANNUALIZED RENT RENT
PER LEASED PER LEASED
YEAR-END PERCENT LEASED SQUARE FOOT SQUARE FEET
- ------------------------------------------------------------------ ------------------- --------------- -------------
1997(1)........................................................... 99% $ 22.66 $ 19.43
1996.............................................................. 95 21.93 19.57
1995.............................................................. 93 21.79 18.50
1994.............................................................. 99 21.23 17.82
1993.............................................................. 98 21.15 17.62
1992.............................................................. 84 21.28 17.19
- ------------------------
(1) Information is as of June 30, 1997.
As of June 30, 1997, 470 Park Avenue South was leased to 27 tenants
operating in various industries, including financial services, publishing and
general contracting, one of whom leased 10% or more of the Property's rentable
square feet. A general contractor occupied approximately 27,870 square feet
(approximately 11% of the Property) under a lease expiring on December 31, 2009
that provides for annualized base rent as of June 30, 1997 of approximately
$621,000 (approximately $22.28 per square foot). In addition to annualized base
rent, this tenant pays real estate tax escalations and operating escalations in
excess of a base year amount.
73
The following table sets out a schedule of the annual lease expirations at
470 Park Avenue South with respect to leases executed as of June 30, 1997 for
each of the next ten years and thereafter (assuming that no tenants exercise
renewal or cancellation options and that there are no tenant bankruptcies or
other tenant defaults):
ANNUALIZED
RENT PER
ANNUALIZED LEASED
PERCENTAGE RENT PER SQUARE FOOT
SQUARE OF ANNUALIZED LEASED OF EXPIRING
NUMBER FOOTAGE TOTAL RENT SQUARE LEASES
OF OF LEASED OF FOOT OF WITH
EXPIRING EXPIRING SQUARE EXPIRING EXPIRING FUTURE
YEAR OF LEASE EXPIRATION LEASES LEASES FOOT LEASES LEASES(1) STEP-UPS
- --------------------------------------------- ----------- ----------- ---------- ---------- --------- -----------
June 30 through December 31, 1997............ -- -- -- -- -- --
1998......................................... 1 2,400 0.9 $ 54,000 $22.50 $23.23
1999......................................... 3 18,800 7.2 439,760 23.39 24.44
2000......................................... 2 18,135 7.0 417,091 23.00 27.43
2001......................................... 3 19,271 7.4 478,038 24.81 28.53
2002......................................... 6 53,520 20.6 1,182,058 22.09 23.98
2003......................................... 5 61,062 23.5 1,311,933 21.49 26.58
2004......................................... 2 18,364 7.1 316,582 17.24 21.56
2005......................................... 1 9,735 3.8 198,096 20.35 22.40
2006......................................... 2 26,135 10.1 664,359 25.42 31.82
2007 and thereafter.......................... 2 30,870 11.9 791,803 25.65 33.90
--- ----------- ----- ---------- --------- -----------
SUBTOTAL/WEIGHTED AVERAGE.................... 27 258,292 99.4 $5,853,720 $22.66 $26.95(2)
Unleased at 6/30/97.......................... 1,637 0.6%
--- ----------- ----- ---------- --------- -----------
TOTAL.................................... 259,929 100.0%
----------- -----
----------- -----
- ------------------------
(1) For comparison purposes, according to RELocate, the Direct Weighted Average
Rental Rate for the direct Class B Park Avenue South/Flatiron submarket
(which, according to RELocate, is the area bounded by the northside of 32nd
Street, the southside of 20th Street, First Avenue and east to Fifth Avenue
from 20th Street to 23rd Street and Broadway from 24th Street to 32nd
Street) was $22.38 per square foot as of June 30, 1997. Direct Weighted
Average Rental Rate represents the weighted average of asking rental rates
for direct Class B space. Asking rental rates generally are higher than
actual rental rates (which generally are not publicly available). Therefore,
the Direct Weighted Average Rental Rate may not be representative of asking
or actual rental rates at 470 Park Avenue South.
(2) The differential between Annualized Rent Per Leased Square Foot of Expiring
Leases and Annualized Rent Per Leased Square Foot of Expiring Leases with
Future Step-Ups is attributable to significant contractual step-ups in base
rental rates that exist in certain leases at this Property.
In 1987, 1990 and 1994, 470 Park Avenue South was substantially renovated by
SL Green to upgrade the building's amenities and services to accommodate first
class office use. The renovations were completed at a total cost of
approximately $2.6 million and included a significant restoration of the
exterior of the building, a new lobby, a cosmetic upgrade of the elevator cabs,
modernization of the elevator machinery, new plumbing risers, electrical service
upgrades, heating plant replacement, asbestos abatement, installation of a new
roofing system and new windows and replacement of the bathrooms and HVAC systems
on a floor by floor basis. Over the next 18 months, the Company anticipates
replacing the sidewalk in front of the building, upgrading the elevators,
completing a modest facade restoration and scraping and painting the windows, at
an estimated aggregate cost of $337,000.
The aggregate undepreciated tax basis of depreciable real property at 470
Park Avenue South for Federal income tax purposes was $15,006,453 as of June 30,
1997. Depreciation and amortization are computed on the straight-line method
over 39 years.
74
The current real estate tax rate for all Manhattan office properties is
$10.072 per $100 of assessed value. The total annual tax for 470 Park Avenue
South at this rate for the 1997-98 tax year is $648,133 (at an assessed value of
$6,435,000).
36 WEST 44TH STREET (THE BAR BUILDING)
36 West 44th Street (the Bar Building) is comprised of two buildings, 36
West 44th Street (a 14-story building) and 35 West 43rd Street (a four-story
building), located on the south side of West 44th Street through to the north
side of West 43rd Street between Fifth and Avenue of the Americas in the
Rockefeller Center submarket of the Manhattan office market. The buildings were
completed in 1922 and, as discussed below, a renovation is scheduled for
1997/1998. The Property contains approximately 165,000 rentable square feet
(including approximately 148,500 square feet of office space and approximately
16,500 square feet of retail space), with floor plates of approximately 12,000
square feet at the 44th Street building and floor plates of approximately 2,200
square feet at the 43rd Street building. A limited liability company owned by SL
Green and an unaffiliated real estate fund (the "Bar Building Joint Venture")
acquired non-performing mortgage indebtedness encumbering the Property from an
institutional lender in October 1996 with the intent of obtaining a 100%
economic interest in such Property. Pursuant to a subsequent agreement with the
mortgagor, the Bar Building Joint Venture obtained the right to foreclose on the
Bar Building no earlier than September 30, 1998. Upon recording of the
conveyancing instruments, the Bar Building Joint Venture is required to pay to
the mortgagor and/or its affiliates the sum of $350,000, and to pay the New York
City and New York State Real Property Transfer Gains Taxes imposed upon
recording of the conveyancing instruments. Upon completion of the Formation
Transactions, the Company will acquire all of the mortgage indebtedness
encumbering the Property (representing effectively a 100% economic interest
therein) as well as such right of foreclosure. Upon exercising such right of
foreclosure, the Company would obtain a leasehold interest (which expires in
2080) in the land and building at 35 West 43rd Street and fee simple title to
the building at 36 West 44th Street. See "Risk Factors--The Company's
Performance and Value are Subject to Risks Associated with the Real Estate
Industry--The expiration of net leases could adversely affect the Company's
financial condition."
The Bar Building is centrally located on 44th Street between Fifth Avenue
and Avenue of the Americas, in the heart of midtown Manhattan, a block that
includes the headquarters of the Association of the Bar of the City of New York,
the University of Pennsylvania Alumni Club, the Harvard Club, the Algonquin
Hotel, the Royalton Hotel and the Mansfield Hotel. A new Sofitel hotel is
planned for the vacant parcel of land located across the street from the Bar
Building. This location is within two and one half blocks of Grand Central
Terminal, four blocks of Rockefeller Center and five blocks of the Port
Authority Bus Terminal, a major transportation hub for commuters from New
Jersey.
When SL Green first purchased its interest in the Bar Building in October
1996, approximately 35,000 square feet of space was vacant and approximately
70,000 square feet of space was subject to leases expiring within 18 months. The
Property was nearing the end of a consensual foreclosure process during which
little capital was spent on preventive maintenance or leasing incentives. Since
the purchase of its interest, SL Green has implemented an aggressive leasing and
marketing campaign in conjunction with a strategic property-wide renovation
program. The Company is planning to spend $1.1 million over the next 18 months
on this upgrade and renovation program at the Property, which expense will be
funded out of the net proceeds of the Offering. Some of this work includes roof
repair, facade restoration and steam cleaning, window upgrade, entrance and
lobby upgrade, sidewalk replacement and public corridor renovations. As of July
15, 1997, approximately 14,000 square feet of space at the Property was vacant
and approximately 64% of the expiring leases were renewed.
As of June 30, 1997, approximately 89% of the rentable square footage in The
Bar Building was leased. The office space was 89% leased and the retail space
was 89% leased. As noted above, SL Green has commenced an aggressive leasing
program at the Property and as of July 15, 1997, approximately 93%
75
of the rentable square feet in the Property was leased. The following table sets
forth certain information with respect to the Property:
ANNUAL NET
EFFECTIVE
ANNUALIZED RENT
RENT PER LEASED PER LEASED
YEAR-END PERCENT LEASED SQUARE FOOT SQUARE FOOT
- ------------------------------------------------------------------ ------------------- --------------- -------------
1997(1)........................................................... 89% $ 28.33 $ 24.74
1996.............................................................. 78 29.28 25.98
- ------------------------
(1) Information is as of June 30, 1997.
As of June 30, 1997, the Bar Building was leased to 58 tenants operating in
various businesses, including legal, not-for-profit and the theater, one of whom
occupied 10% or more of the rentable square footage at the Property. A
professional organization for lawyers occupied approximately 16,777 square feet
(approximately 10.7% of the Property) under two leases expiring on September 30,
1999 that provide for an aggregate annualized base rent as of June 30, 1997 of
approximately $403,000 (approximately $24.00 per square foot). In addition to
annualized base rent, this tenant pays real estate tax escalations and operating
escalations in excess of a base year amount.
The following table sets out a schedule of the annual lease expirations at
The Bar Building with respect to leases executed as of June 30, 1997 for each of
the next ten years and thereafter (assuming that no tenants exercise renewal or
cancellation options and that there are no tenant bankruptcies or other tenant
defaults):
ANNUALIZED
ANNUALIZED RENT PER
RENT LEASED
PERCENTAGE PER SQUARE FOOT
SQUARE OF ANNUALIZED LEASED OF EXPIRING
NUMBER FOOTAGE TOTAL RENT SQUARE LEASES
OF OF LEASED OF FOOT OF WITH
EXPIRING EXPIRING SQUARE EXPIRING EXPIRING FUTURE
YEAR OF LEASE EXPIRATION LEASES LEASES FEET LEASES LEASES(1) STEP-UPS
- --------------------------------------------- --------------- --------- --------------- ------------ ----------- -----------
June 30 through December 31, 1997............ 10 17,981 10.9 $ 535,370 $ 29.77 $ 29.83
1998......................................... 5 5,136 3.1 145,810 28.39 28.39
1999......................................... 5 22,176 13.5 871,169 39.28 39.59
2000......................................... 12 25,824 15.7 732,869 28.38 29.14
2001......................................... 8 16,906 10.3 479,040 28.34 30.85
2002......................................... 10 31,251 19.0 699,803 22.39 23.10
2003......................................... 3 8,069 4.9 157,210 19.48 21.55
2004......................................... 2 9,982 6.1 277,754 27.83 29.36
2005......................................... -- -- -- -- -- --
2006......................................... 2 8,095 4.9 209,407 25.87 28.74
2007 and thereafter.......................... 1 700 0.4 31,272 44.67 83.30
--
--------- ----- ------------ ----------- -----------
SUBTOTAL/WEIGHTED AVERAGE.................... 58 146,120 88.8% $ 4,139,704 $ 28.33 $ 29.52
--
------------ ----------- -----------
Unleased at 6/30/97.......................... 18,664 11.2%
--------- -----
TOTAL.................................... 164,784 100.0%
--------- -----
--------- -----
- ------------------------
(1) For comparison purposes, according to RELocate, the Direct Weighted Average
Rental Rate for the direct Class B Rockefeller Center submarket (which,
according to RELocate, is the area between 40th Street to 59th Street along
Avenue of the Americas and 40th Street to 52nd Street between 5th Avenue and
Avenue of the Americas) was $27.38 per square foot as of June 30, 1997.
Direct Weighted Average Rental Rate represents the weighted average of
asking rental rates for direct Class B space. Asking rental rates generally
are higher than actual rental rates (which generally are not publicly
available). Therefore, the Direct Weighted Average Rental Rate may not be
representative of asking or actual rental rates at the Bar Building.
Additionally, the
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
76
(FOOTNOTES CONTINUED FROM PRECEDING PAGE)
Annualized Rent Per Leased Square Foot of Expiring Leases includes the
effect of retail rental rates at this Property, which are generally higher
than office rental rates. Excluding rental payments attributable to retail
space at this Property, the weighted average Annualized Rent Per Leased
Square Foot of Expiring Leases would be $27.23.
The aggregate tax basis of the mortgage indebtedness encumbering The Bar
Building for Federal income tax purposes was $11,444,247 as of June 30, 1997.
The current real estate tax rate for all Manhattan office properties is
$10.072 per $100 of assessed value. The total annual tax for The Bar Building at
this rate for the 1997-98 tax year is $729,572 (at an assessed value of
$7,245,000).
70 WEST 36TH STREET
70 West 36th Street is a 16-story office building located on the south side
of West 36th Street between Fifth Avenue and Sixth Avenue in the Garment
submarket of the Manhattan office market. The building, situated between Grand
Central Terminal and Penn Station, was completed in 1923 and various portions of
the common areas were renovated in 1985, 1993 and 1994. SL Green acquired a 100%
fee simple interest in the Property in 1984. Upon completion of the Formation
Transaction, this fee simple interest will be transferred to the Company. The
Property contains approximately 151,000 rentable square feet (including
approximately 130,000 square feet of office space and approximately 21,000
square feet of retail space including the basement), with floor plates ranging
from 6,500 square feet to 10,000 square feet. The Company's headquarters is
located at 70 West 36th Street.
As of June 30, 1997, approximately 98% of the rentable square footage in 70
West 36th Street was leased (including space for leases that were executed as of
June 30, 1997). The office space was 98% leased and the retail space was 100%
leased. The following table sets forth certain information with respect to the
Property:
ANNUAL NET
EFFECTIVE
ANNUALIZED RENT RENT
PER LEASED PER LEASED
YEAR-END PERCENT LEASED SQUARE FOOT SQUARE FOOT
- ---------------------------------------------- ------------------- --------------- -------------
1997(1)....................................... 98% $ 18.90 $ 16.13
1996.......................................... 95 19.50 15.92
1995.......................................... 94 21.13 16.08
1994.......................................... 92 21.31 16.09
1993.......................................... 89 21.99 16.59
1992.......................................... 92 20.55 15.18
- ------------------------
(1) Information is as of June 30, 1997.
As of June 30, 1997, 70 West 36th Street was leased to 38 tenants operating
in various industries, including textiles, not-for-profit and advertising, one
of whom occupied 10% or more of the rentable square footage at the Property. A
textile company occupied approximately 16,222 square feet (approximately 10.7%
of the Property) under one lease expiring on December 31, 2003 that provides for
an aggregate annualized base rent as of June 30, 1997 of approximately $266,000
(approximately $16.40 per square foot). In addition to annualized base rent,
this tenant pays real estate tax escalations and operating escalations in excess
of a base year amount.
77
The following table sets out a schedule of the annual lease expirations at
70 West 36th Street with respect to leases executed as of June 30, 1997 for each
of the next ten years and thereafter (assuming that no tenants exercise renewal
or cancellation options and that there are no tenant bankruptcies or other
tenant defaults):
ANNUALIZED
ANNUALIZED RENT PER
RENT LEASED
PERCENTAGE PER SQUARE FOOT
SQUARE OF ANNUALIZED LEASED OF EXPIRING
NUMBER FOOTAGE TOTAL RENT SQUARE LEASES
OF OF LEASED OF FOOT OF WITH
EXPIRING EXPIRING SQUARE EXPIRING EXPIRING FUTURE
YEAR OF LEASE EXPIRATION LEASES LEASES FEET LEASES LEASES(1) STEP-UPS
- ------------------------------------------------- ------------- --------- ----------- ------------ ----------- -----------
June 30 through December 31, 1997................ 2 2,227 1.5% $ 51,355 $ 23.06 $ 23.06
1998............................................. 7 24,314 16.4 494,338 20.33 20.68
1999............................................. 3 7,078 4.7 120,075 16.96 17.15
2000............................................. 2 7,245 4.9 141,864 19.58 19.95
2001............................................. 7 12,777 8.6 241,689 18.92 20.00
2002............................................. 5 16,011 10.8 298,838 18.66 19.59
2003............................................. 3 29,714 20.1 536,014 18.04 20.01
2004............................................. 1 2,589 1.8 57,585 22.24 22.24
2005............................................. 2 9,047 6.1 178,309 19.71 20.47
2006............................................. 3 18,356 12.4 328,461 17.89 23.42
2007 and thereafter.............................. 3 18,559 12.6 347,458 18.72 19.00
--
--------- ----- ------------ ----------- -----------
SUBTOTAL/WEIGHTED AVERAGE........................ 38 147,917 98.3% $ 2,795,986 $ 18.90 $ 20.34
--
------------ ----------- -----------
Unleased at 6/30/97 2,336 1.7%
--------- -----
TOTAL........................................ 150,523 100.0%
--------- -----
--------- -----
- ------------------------
(1) For comparison purposes, according to RELocate the Direct Weighted Average
Rental Rate for the direct Class B Garment submarket (which, according to
RELocate is the area from 32nd Street to 40th Street, west of Avenue of the
Americas to the Hudson River) was $23.32 per square foot as of June 30,
1997. Direct Weighted Average Rental Rate represents the weighted average of
asking rental rates for direct Class B space. Asking rental rates generally
are higher than actual rental rates (which generally are not publicly
available). Therefore, the Direct Weighted Average Rental Rate may not be
representative of asking or actual rental rates at 70 West 36th Street.
In 1984, a complete renovation of 70 West 36th Street was commenced to
convert the Property from a manufacturing loft building into an office building.
The conversion included the creation of a new lobby and building entrance,
installation of office quality public corridors and lavatories, steam cleaning
and repainting of the Property's facade and upgrading and reconfiguration of the
building's plumbing system and electric service. In addition, a monitored,
state-of-the-art security system was installed for the building's entrance and
all tenant spaces. In 1994, further renovations included a new heating plant,
asbestos abatement and elevator modernization, including new cabs. The aggregate
cost of these renovations was approximately $3 million.
70 West 36th Street is located in the Fashion Center Business Improvement
District (BID). The Fashion Center BID encompasses the area bordered to the
north and south by 41st Street and 35th Street, respectively, and to the east
and west by Avenue of the Americas and Ninth Avenue, respectively. The BID
includes approximately 450 buildings with over 5,000 fashion-related tenants
occupying more than 34 million square feet of office space. The Fashion Center
BID provides a private, uniformed security force for on-street, five-day-per
week surveillance and response and a private, uniformed sanitation force. In
addition, the BID has been responsible for the implementation of various special
projects in the area, including the construction of handicapped access curbs and
the installation of enhanced street lighting.
78
The aggregate undepreciated tax basis of depreciable real property at 70
West 36th Street for Federal income tax purposes was $6,660,097 as of June 30,
1997. Depreciation and amortization are computed on the straight-line method
over 39 years.
The current real estate tax rate for all Manhattan office properties is
$10.072 per $100 of assessed value. The total annual tax for 70 West 36th Street
at this rate for the 1997-98 tax year, including the applicable BID tax, is
$377,394 (at an assessed value of $3,645,000).
1414 AVENUE OF THE AMERICAS
1414 Avenue of the Americas is a 19-story office building located on the
southeast corner of Avenue of the Americas (Sixth Avenue) and West 58th Street
in the Rockefeller Center submarket of the Manhattan office market. The
building, situated one block from Central Park, was completed in 1923 and a
renovation program is scheduled for 1997/1998. The program will include new
windows, lobby and entrance as well as steam cleaning of the facade, at an
estimated aggregate cost of $660,000. SL Green acquired a 100% fee simple
interest in the Property in 1996. Upon completion of the Formation Transactions,
such fee simple interest will be transferred to the Company. The Property
contains approximately 111,000 rentable square feet (including approximately
103,000 square feet of office space and approximately 8,000 square feet of
retail space), with floor plates of approximately 6,400 square feet on all but
the top floor.
Located on the easterly blockfront of Sixth Avenue between 57th and 58th
Streets, the Property is at the heart of the Avenue of the Americas corridor
which is host to many of world's most recognizable corporate names in domestic
and international banking, legal services, manufacturing, securities, printing,
publishing, advertising and communications. The Property also benefits from
being strategically located one block north of 57th Street. 57th Street has
become the focal point of the resurgence of high end and specialty retail
development in New York in recent years. Warner Brothers recently expanded their
successful company store on 57th Street and Fifth Avenue. In addition, the Nike
Town Store recently opened on 57th Street between Fifth and Madison Avenues.
High-profile theme retail restaurants such as the Harley Davidson Cafe, the Hard
Rock Cafe, the Motown Cafe, Planet Hollywood and the Jekyll and Hyde Cafe have
all also opened restaurant/theme stores on 57th Street and Avenue of the
Americas. These developments have made the 57th Street corridor a major shopping
and tourist destination which accommodates clientele generated by the area's
concentration of businesses and tourist attractions.
As of June 30, 1997, approximately 98% of the rentable square footage in
1414 Avenue of the Americas was leased (including space for leases that were
executed as of June 30, 1997). The office space was 98% leased and the retail
space was 100% leased. The following table sets forth certain information with
respect to the Property:
ANNUAL NET
EFFECTIVE
ANNUALIZED RENT RENT
PER LEASED PER LEASED
YEAR-END PERCENT LEASED SQUARE FOOT SQUARE FOOT
- ---------------------------------------------- ------------------- --------------- -------------
1997(1)....................................... 98% $ 30.85 $ 30.87
1996.......................................... 97 30.40 31.14
- ------------------------
(1) Information is as of June 30, 1997.
As of June 30, 1997, 1414 Avenue of the Americas was leased to 31 tenants
operating in various industries including financial services, shoe manufacturing
and travel, two of whom occupied 10% or more of the rentable square footage at
the Property. A shoe manufacturer and retailer occupied approximately 12,200
square feet (approximately 11% of the Property) under a lease expiring on
September 30, 1998 that provides for annualized base rent as of June 30, 1997 of
approximately $420,268 (approximately $34.45 per square foot) and a cancellation
option that has been exercised and takes effect as of September 30, 1998.
79
All of the space subject to the expiration has been released to two tenants. In
addition to annualized base rent, this tenant pays real estate tax escalations
and operating escalations in excess of a base year amount.
In addition, an entertainment product developer occupied approximately
13,975 square feet (approximately 12.5% of the Property) under a lease expiring
on May 31, 2004 that provides for annualized base rent as of June 30, 1997 of
approximately $305,725 (approximately $21.88 per square foot). In addition to
annualized base rent, this tenant pays real estate tax escalations and operating
escalations in excess of a base year amount.
The following table sets out a schedule of the annual lease expirations at
1414 Avenue of the Americas with respect to leases executed as of June 30, 1997
for each of the next ten years and thereafter (assuming that no tenants exercise
renewal or cancellation options and that there are no tenant bankruptcies or
other tenant defaults:
ANNUALIZED
ANNUALIZED RENT PER
RENT LEASED
PERCENTAGE PER SQUARE FOOT
SQUARE OF ANNUALIZED LEASED OF EXPIRING
NUMBER FOOTAGE TOTAL RENT SQUARE LEASES
OF OF LEASED OF FOOT OF WITH
EXPIRING EXPIRING SQUARE EXPIRING EXPIRING FUTURE
YEAR OF LEASE EXPIRATION LEASES LEASES FEET LEASES LEASES(1) STEP-UPS
- ------------------------------------------------- ------------- --------- ----------- ------------ ----------- -----------
June 30 through December 31, 1997................ 1 980 0.9% $ 20,409 $ 20.83 $ 23.83
1998............................................. 6 21,533(2) 19.3 854,107 39.67 40.45
1999............................................. 3 13,700 12.3 458,180 33.44 34.21
2000............................................. 3 5,300 4.8 141,968 26.79 30.30
2001............................................. 5 14,265 12.8 380,134 26.65 28.63
2002............................................. 2 4,400 4.0 98,349 22.35 26.26
2003............................................. 5 21,465 19.3 575,602 26.82 32.88
2004............................................. 1 13,975 12.6 355,950 25.47 30.35
2005............................................. 1 2,187 2.0 60,327 27.58 31.69
2006............................................. 2 3,100 2.8 82,600 26.65 38.73
2007 and thereafter.............................. 2 8,346 7.5 342,375 41.02 58.09
--
--------- ----- ------------ ----------- -----------
SUBTOTAL/WEIGHTED AVERAGE........................ 31 109,251 98.2% $ 3,370,001 $ 30.85 $ 35.26(3)
--
------------ ----------- -----------
Unleased at 6/30/97 2,100 1.8%
--------- -----
TOTAL........................................ 111,351 100.0%
--------- -----
--------- -----
- ------------------------
(1) For comparison purposes, according to RELocate the Direct Weighted Average
Rental Rate for the direct Class B Rockefeller Center submarket (which,
according to RELocate, is the area between 40th Street to 59th Street along
Avenue of the Americas and 40th Street to 52nd Street between Fifth Avenue
and Avenue of the Americas) was $27.38 per square foot as of June 30, 1997.
Direct Weighted Average Rental Rate represents the weighted average of
asking rental rates for direct Class B space. Asking rental rates generally
are higher than actual rental rates (which generally are not publicly
available). Therefore, the Direct Weighted Average Rental Rate may not be
representative of asking or actual rental rates at 1414 Avenue of the
Americas. Additionally, the Annualized Rent Per Leased Square Foot of
Expiring Leases includes the effect of retail rental rates at this Property,
which are generally higher than office rental rates. Excluding rental
payments attributable to retail space at this Property, the weighted average
Annualized Rent Per Leased Square Foot of Expiring Leases would be $27.92.
(2) As noted above, 12,200 square feet of the space expiring during 1998 has
been released to two tenants.
(3) The differential between Annualized Rent Per Leased Square Foot of Expiring
Leases and Annualized Rent Per Leased Square Foot of Expiring Leases with
Future Step-Ups is attributable to significant contractual step-ups in base
rental rates that exist in certain leases at this Property.
The aggregate undepreciated tax basis of depreciable real property at 1414
Avenue of the Americas for Federal income tax purposes was $11,830,680 as of
June 30, 1997. Depreciation and amortization are computed on the straight-line
method over 39 years.
80
The current real estate tax rate for all Manhattan office properties is
$10.072 per $100 of assessed value. The total annual tax for 1414 Avenue of the
Americas at this rate for the 1997-98 tax year is $484,967 (at an assessed value
of $4,815,000).
29 WEST 35TH STREET
29 West 35th Street is a 12-story building located on the north side of West
35th Street between Fifth Avenue and Sixth Avenue in the Garment submarket of
the Manhattan office market. The building, situated between Grand Central
Terminal and Penn Station, was completed in 1911 and substantially renovated in
1985. SL Green acquired a 100% fee simple interest in the Property in 1983. Upon
completion of the Formation Transactions, such fee simple interest will be
transferred to the Company. The Property contains approximately 78,000 rentable
square feet (including approximately 72,000 square feet of office space and
approximately 6,000 square feet of retail space), with floor plates of
approximately 6,500 square feet.
As of June 30, 1997, approximately 92% of the rentable square footage in 29
West 35th Street was leased (including space for leases executed as of June 30,
1997). The office space was 90% leased and the retail space was 100% leased. The
following table sets forth certain information with respect to the Property:
ANNUAL NET
EFFECTIVE
ANNUALIZED RENT
RENT PER LEASED PER LEASED
YEAR-END PERCENT LEASED SQUARE FOOT SQUARE FOOT
- ---------------------------------------------- ----------------- --------------- -------------
1997(1)....................................... 92% $ 19.53 $ 16.23
1996.......................................... 92 21.06 15.60
1995.......................................... 92 21.26 15.77
1994.......................................... 100 19.90 15.77
1993.......................................... 88 19.53 15.94
1992.......................................... 92 19.13 15.75
- ------------------------
(1) Information is as of June 30, 1997.
As of June 30, 1997, 29 West 35th Street was leased to eight tenants
operating in the publishing, executive recruiting and specialty apparel
industries, three of whom occupied 10% or more of the rentable square footage at
the Property. A publishing company occupied approximately 19,500 square feet
(approximately 25% of the Property) under three leases expiring on April 8, 2004
that provide for an aggregate annualized base rent as of June 30, 1997 of
approximately $522,000 (approximately $26.75 per square foot). In addition to
annualized base rent, this tenant pays real estate tax escalations and operating
escalation in excess of a base year amount.
Also, a second publishing company occupied approximately 16,250 square feet
(approximately 20.9% of the Property) under a lease expiring on December 31,
1999 that provides for annualized base rent as of June 30, 1997 of approximately
$260,000 (approximately $16.00 per square foot). In addition to annualized base
rent, this tenant pays real estate tax escalations and operating escalation in
excess of a base year amount.
In addition, an executive recruiting firm occupied approximately 9,750
square feet (approximately 12.5% of the Property) under a lease expiring on
August 14, 1998 that provides for annualized base rent as of June 30, 1997 of
approximately $191,000 (approximately $19.61 per square foot). In addition to
annualized base rent, this tenant pays real estate tax escalations and operating
escalations in excess of a base year amount.
The following table sets out a schedule of the annual lease expirations at
29 West 35th Street with respect to leases executed as of June 30, 1997 for each
of the next ten years and thereafter (assuming that
81
no tenants exercise renewal or cancellation options and that there are no tenant
bankruptcies or other tenant defaults):
ANNUALIZED
ANNUALIZED RENT PER
RENT LEASED
PERCENTAGE PER SQUARE FOOT
SQUARE OF ANNUALIZED LEASED OF EXPIRING
NUMBER FOOTAGE TOTAL RENT SQUARE LEASES
OF OF LEASED OF FOOT OF WITH
EXPIRING EXPIRING SQUARE EXPIRING EXPIRING FUTURE
YEAR OF LEASE EXPIRATION LEASES LEASES FEET LEASES LEASES(1) STEP-UPS
- ------------------------------------------------- ------------- ----------- ----------- ------------ ----------- -----------
June 30 through December 31, 1997................ -- -- -- -- -- --
1998............................................. 1 9,750 12.5% $ 191,475 $ 19.64 $ 20.42
1999............................................. 1 16,250 20.9 260,585 16.04 16.04
2000............................................. -- -- -- -- -- --
2001............................................. -- -- -- -- -- --
2002............................................. 1 3,835 4.9 66,000 17.21 19.57
2003............................................. -- -- -- -- -- --
2004............................................. 3 28,500 36.6 699,575 24.55 33.75
2005............................................. -- -- -- -- -- --
2006............................................. -- -- -- -- -- --
2007 and thereafter.............................. 2 13,000 16.7 175,500 13.50 17.56
--
----------- ----- ------------ ----------- -----------
SUBTOTAL/WEIGHTED AVERAGE........................ 8 71,335 91.6% $ 1,393,135 $ 19.53 $ 24.18(2)
--
--
------------ ----------- -----------
------------ ----------- -----------
Unleased at 6/30/97.............................. 6,500 8.4%
----------- -----
TOTAL........................................ 77,835 100.0%
----------- -----
----------- -----
- ------------------------
(1) For comparison purposes, according to RELocate, the Direct Weighted Average
Rental Rate for the direct Class B Garment submarket (which, according to
RELocate, is the area from 32nd Street to 40th Street west of Avenue of the
Americas to the Hudson River) was $23.32 per square foot as of June 30,
1997. Direct Weighted Average Rental Rate represents the weighted average of
asking rental rates for direct Class B space. Asking rental rates generally
are higher than actual rental rates (which generally are not publicly
available). Therefore, the Direct Weighted Average Rental Rate may not be
representative of asking or actual rental rates at 29 West 35th Street.
(2) The differential between Annualized Rent Per Leased Square Foot of Expiring
Leases and Annualized Rent Per Leased Square Foot of Expiring Leases with
Future Step-Ups is attributable to significant contractual step-ups in base
rental rates that exist in certain leases at this Property.
In 1985, 29 West 35th Street was substantially renovated by SL Green at a
total cost of approximately $1 million. The program included the renovation of
the building's lobby, entrance and storefronts, modernization of the elevator
equipment, including new cabs, new electric service and distribution, code
compliant lavatories and fire protection system and a new roof and sidewalk.
29 West 35th Street is located in the Fashion Center BID, which encompasses
the area bordered to the north and south by 41st Street and 35th Street and to
the east and west by Avenue of the Americas and Ninth Avenue, respectively. The
BID includes approximately 450 buildings with over 5,000 fashion-related tenants
occupying more than 34 million square feet of office space. The Fashion Center
BID provides a private, uniformed security force for on-street, five-day-per
week surveillance and response and a private, uniformed sanitation force. In
addition, the BID has been responsible for the implementation of various special
projects in the area, including the construction of handicapped access curbs and
the installation of enhanced street lighting.
The aggregate undepreciated tax basis of depreciable real property at 29
West 35th Street for Federal income tax purposes was $1,482,682 as of June 30,
1997. Depreciation and amortization are computed on the straight-line method
over 39 years.
82
The current real estate tax rate for all Manhattan office properties is
$10.072 per $100 of assessed value. The total annual tax for 29 West 35th Street
at this rate for the 1997-98 tax year, including the applicable BID tax, is
$176,776 (at an assessed value of $1,705,500).
ACQUISITION PROPERTIES
1372 BROADWAY. The Company has contracted to acquire a 100% fee interest in
1372 Broadway from an unaffiliated seller. Pursuant to a contractual arrangement
with the seller, the closing for the acquisition of such fee interest may not
occur prior to January 1998. However, the Company has also contracted to
acquire, at the time of the closing of the Offering, from an unaffiliated
institutional lender, certain mortgage indebtedness that will effectively
entitle the Company to receive all of the cash flow derived from the Property at
such time. The aggregate purchase price for such fee interest and such mortgage
indebtedness is approximately $54.14 million (including $440,000 in acquisition
costs and $1.2 million in capital improvements). SL Green has been the leasing
agent and asset manager of this Property since June 1, 1997.
1372 Broadway is a 21-story office building located on the northeast corner
of West 37th Street in the Garment submarket of the Manhattan office market. The
building, situated within four blocks of the Port Authority Bus Terminal and
Penn Station, was completed in 1914 and a renovation is anticipated to commence
in the fall of 1997. The Property contains approximately 508,000 rentable square
feet (including approximately 475,000 square feet of office space, approximately
24,000 square feet of retail space and 9,000 square feet of mezzanine space),
with floor plates ranging from 34,000 square feet to 11,000 square feet.
The Property is located within five blocks of Times Square, arguably the
most vibrant development area in New York City. Times Square has undergone
large-scale redevelopment in recent years that has transformed the area into a
popular family entertainment destination.
The Company has targeted the Fall of 1997 for commencement of a $2 million
capital improvement program geared toward enhancing the infrastructure and
marketability of the Property. Included in this renovation is a new lobby,
elevator cab modernization, freight elevator upgrade, facade restoration and
cleaning, sidewalk replacement and asbestos abatement.
As of June 30, 1997, approximately 84% of the rentable square footage in
1372 Broadway was leased (including space for leases that were executed as of
June 30, 1997). The following table sets forth certain information with respect
to the Property:
ANNUAL NET
ANNUALIZED EFFECTIVE
RENT RENT
PER LEASED PER LEASED
YEAR-END PERCENT LEASED SQUARE FOOT SQUARE FOOT
- --------------------------------------------------------------------- ------------------- ----------- -------------
1997(1).............................................................. 84% $ 22.47 $ 21.57
1996................................................................. 89 22.05 21.20
- ------------------------
(1) Information is as of June 30, 1997.
As of June 30, 1997, 1372 Broadway was leased to 32 tenants operating in
various industries including financial services, textiles and retailing, three
of whom occupied 10% or more of the rentable square footage at the Property. A
shirt manufacturer occupied approximately 64,000 square feet (approximately
12.6% of the Property) under a lease expiring on July 31, 2005 that provides for
annualized base rent as of June 30, 1997 of approximately $1.28 million
(approximately $20.00 per square foot). In addition to annualized base rent,
this tenant pays real estate tax escalations and operating escalations in excess
of a base year amount.
83
Also, a women's fashion retailer occupied approximately 58,975 square feet
(approximately 11.6% of the Property) under a lease expiring on July 31, 2010
that provides for annualized base rent as of June 30, 1997 of approximately
$1.17 million (approximately $19.82 per square foot). In addition to annualized
base rent, this tenant pays real estate tax escalations and operating
escalations in excess of a base year amount.
In addition, a commercial bank occupied approximately 55,238 square feet
(approximately 10.9% of the Property) under a lease expiring on March 31, 2000
that provides for annualized base rent as of June 30, 1997 of approximately
$1.24 million (approximately $22.37 per square foot). In addition to annualized
base rent, this tenant pays real estate tax escalations and operating
escalations in excess of a base year amount.
The following table sets out a schedule of the annual lease expirations at
1372 Broadway with respect to leases executed as of June 30, 1997 for each of
the next ten years and thereafter (assuming that no tenants exercise renewal or
cancellation options and that there are no tenant bankruptcies or other tenant
defaults):
ANNUALIZED
RENT PER
PERCENTAGE ANNUALIZED LEASED
SQUARE OF ANNUALIZED RENT PER SQUARE FOOT
NUMBER FOOTAGE TOTAL RENT LEASED OF EXPIRING
OF OF LEASED OF SQUARE FOOT LEASES WITH
EXPIRING EXPIRING SQUARE EXPIRING OF EXPIRING FUTURE
YEAR OF LEASE EXPIRATION LEASES LEASES FEET LEASES LEASES (1) STEP-UPS
- ------------------------------------------------ ----------- --------- ----------- ------------ ----------- -----------
June 30 through December 31, 1997............... 1 506 0.1% $ 11,119 $ 21.97 $ 21.97
1998............................................ 2 2,847 0.6 138,128 48.52 48.67
1999............................................ 5 10,266 2.0 233,683 22.76 23.66
2000............................................ 4 78,157 15.4 1,996,071 25.54 26.14
2001............................................ -- -- -- -- -- --
2002............................................ 5 26,189 5.2 504,857 19.28 20.00
2003............................................ 1 20,500 4.0 429,987 20.97 21.97
2004............................................ -- -- -- -- -- --
2005............................................ 2 98,167 19.3 1,871,498 19.006 21.41
2006............................................ 4 8,177 1.6 595,542 72.83 86.90
2007 and thereafter............................. 8 183,829 36.2 3,850,255 20.94 25.17
----------- --------- ----------- ------------ ----------- -----------
SUBTOTAL/WEIGHTED AVERAGE....................... 32 428,638 84.4% $ 9,631,140 $ 22.47 $ 25.31(2)
----------- ------------ ----------- -----------
Unleased at 6/30/97............................. 79,300 15.6%
--------- -----------
TOTAL....................................... 507,938 100.0%
--------- -----------
--------- -----------
- ------------------------
(1) For comparison purposes, according to RELocate, the Direct Weighted Average
Rental Rate for the direct Class B Garment submarket (which, according to
RELocate is the area from 32nd Street to 40th Street, west of Avenue of the
Americas to the Hudson River) was $23.32 per square foot as of June 30,
1997. Direct Weighted Average Rental Rate represents the weighted average of
asking rental rates for direct Class B space. Asking rental rates generally
are higher than actual rental rates (which generally are not publicly
available). Therefore, the Direct Weighted Average Rental Rate may not be
representative of asking or actual rental rates at 1372 Broadway.
Additionally, the Annualized Rent Per Leased Square Foot of Expiring Leases
includes the effect of retail rental rates at this Property, which are
generally higher than office rental rates. Excluding rental payments
attributable to retail space at this Property, the weighted average
Annualized Rent Per Leased Square Foot of Expiring Leases would be $20.36.
(2) The differential between Annualized Rent Per Leased Square Foot of Expiring
Leases and Annualized Rent Per Leased Square Foot of Expiring Leases with
Future Step-Ups is attributable to significant contractual step-ups in base
rental rates that exist in certain leases at this Property.
1372 Broadway is located in the Fashion Center BID, which encompasses the
area bordered to the north and south by 41st Street and 35th Street,
respectively, and to the east and west by Avenue of the Americas and Ninth
Avenue, respectively. The BID includes approximately 450 buildings with over
5,000
84
fashion-related tenants occupying more than 34 million square feet of office
space. The Fashion Center BID provides a private, uniformed security force for
on-street, five-day-per week surveillance and response and a private, uniformed
sanitation force. In addition, the BID has been responsible for the
implementation of various special projects in the area, including the
construction of handicapped access curbs and the installation of enhanced street
lighting.
The aggregate undepreciated tax basis of depreciable real property at 1372
Broadway for Federal income tax purposes was $52.5 million as of June 30, 1997.
Depreciation and amortization are computed on the straight-line method over 39
years.
The current real estate tax rate for all Manhattan office properties is
$10.072 per $100 of assessed value. The total annual tax for 1372 Broadway at
this rate for the 1997-98 tax year, including the applicable BID tax, is
$2,258,000 (at an assessed value of $21,793,000).
1140 AVENUE OF THE AMERICAS. The Company has contracted to acquire a 100%
interest in the leasehold position in 1140 Avenue of the Americas from an
unaffiliated seller for an aggregate cash purchase price of approximately $21.3
million (including $50,000 of acquisition costs). The remaining term of the
leasehold is in excess of 19 years, with an option to extend for a further 50
year term. See "Risk Factors--The Company's Performance and Value are Subject to
Risks Associated with the Real Estate Industry--The expiration of net leases
could adversely affect the Company's financial condition." The Company initially
intends to encumber the Property with an approximately $14 million first
mortgage loan from LBHI at the time of closing of the Offering. See "The
Properties--Mortgage Indebtedness." 1140 Avenue of the Americas is a 22-story
office building completed in 1926 and renovated in 1951 and located in the
Rockefeller Center submarket of the Manhattan office market. The Property
contains approximately 191,000 rentable square feet (including approximately
175,000 square feet of office space, approximately 7,600 square feet of retail
space and 8,400 square feet of mezzanine space), with floor plates ranging from
3,500 square feet to 9,400 square feet.
1140 Avenue of the Americas is centrally located at the northeast corner of
West 44th Street and Avenue of the Americas, in the heart of midtown Manhattan,
at the end of a block that includes the headquarters of the Association of the
Bar of the City of New York, the University of Pennsylvania Alumni Club, the
Harvard Club, the Algonquin Hotel, the Royalton Hotel and the Mansfield Hotel. A
new Sofitel hotel is planned for a vacant parcel of land located on the block.
The location is within three blocks of Grand Central Terminal, four blocks of
Rockefeller Center and five blocks of the Port Authority Bus Terminal, a major
transportation hub for commuters from New Jersey.
As of June 30, 1997, approximately 98% of the rentable square footage in
1140 Avenue of the Americas was leased (including space for leases that were
executed as of June 30, 1997). The following table sets forth certain
information with respect to the Property:
ANNUAL NET
ANNUALIZED EFFECTIVE
RENT RENT
PER LEASED PER LEASED
YEAR-END PERCENT LEASED SQUARE FOOT SQUARE FOOT
- --------------------------------------------------------------------- ------------------- ----------- -------------
1997(1).............................................................. 98% $ 26.30 $ 24.70
1996................................................................. 99 26.57 24.78
- ------------------------
(1) Information is as of June 30, 1997.
As of June 30, 1997, 1140 Avenue of the Americas was leased to 39 tenants
operating in various industries including executive placement, financial
services and precious stones, one of whom occupied 10% or more of the rentable
square footage at the Property. An executive placement firm occupied
approximately 28,200 square feet (approximately 14.8% of the Property) under two
leases expiring on September 30, 2005 and September 30, 2006, respectively, that
provide for aggregate annualized base rent as of June 30, 1997 of approximately
$714,000 (approximately $25.33 per square foot). In addition to annualized base
rent, this tenant pays real estate tax escalations and operating escalations in
excess of a base year amount.
85
The following table sets out a schedule of the annual lease expirations at
1140 Avenue of the Americas with respect to leases executed as of June 30, 1997
for each of the next ten years and thereafter (assuming that no tenants exercise
renewal or cancellation options and that there are no tenant bankruptcies or
other tenant defaults):
ANNUALIZED
RENT PER
PERCENTAGE ANNUALIZED LEASED
SQUARE OF ANNUALIZED RENT PER SQUARE FOOT
NUMBER FOOTAGE TOTAL RENT LEASED OF EXPIRING
OF OF LEASED OF SQUARE FOOT LEASES WITH
EXPIRING EXPIRING SQUARE EXPIRING OF EXPIRING FUTURE
YEAR OF LEASE EXPIRATION LEASES LEASES FEET LEASES LEASES (1) STEP-UPS
- ------------------------------------------------ ----------- --------- ----------- ------------ ----------- -----------
June 30 through December 31, 1997............... 4 12,676 6.6% $ 319,419 $ 25.20 $ 25.20
1998............................................ 4 5,534 2.9 180,291 32.58 33.04
1999............................................ 8 22,119 11.6 541,252 24.47 24.47
2000............................................ 2 13,400 7.0 376,992 28.13 29.73
2001............................................ 5 22,198 11.6 690,325 31.10 31.50
2002............................................ -- -- -- -- -- --
2003............................................ 5 17,819 9.3 449,036 25.20 29.30
2004............................................ 5 40,370 21.1 972,060 24.08 27.20
2005............................................ 3 17,498 9.2 425,385 24.31 29.08
2006............................................ 1 18,800 9.8 486,638 25.89 32.39
2007 and thereafter............................. 2 16,575 8.7 476,122 28.73 34.16
--- --------- ----------- ------------ ----------- -----------
SUBTOTAL/WEIGHTED AVERAGE....................... 39 186,989 97.8% $ 4,917,520 $ 26.30 $ 29.12(2)
--- ------------ ----------- -----------
Unleased at 6/30/97............................. 3,982 2.2%
--------- -----------
TOTAL....................................... 190,971 100.0%
--------- -----------
--------- -----------
- ------------------------
(1) For comparison purposes, according to RELocate the Direct Weighted Average
Rental Rate for the direct Class B Rockefeller Center submarket (which,
according to RELocate, is the area between 40th Street to 59th Street along
Avenue of the Americas and 40th Street to 52nd Street between Fifth Avenue
and Avenue of the Americas) was $27.38 per square foot as of June 30, 1997.
Direct Weighted Average Rental Rate represents the weighted average of
asking rental rates for direct Class B space. Asking rental rates generally
are higher than actual rental rates (which generally are not publicly
available). Therefore, the Direct Weighted Average Rental Rate may not be
representative of asking or actual rental rates at 1140 Avenue of the
Americas. Additionally, the Annualized Rent Per Leased Square Foot of
Expiring Leases includes the effect of retail rental rates at this Property,
which are generally higher than office rental rates. Excluding rental
payments attributable to retail space at this Property, the weighted average
Annualized Rent Per Leased Square Foot of Expiring Leases would be $24.99.
(2) The differential between Annualized Rent Per Leased Square Foot of Expiring
Leases and Annualized Rent Per Leased Square Foot of Expiring Leases with
Future Step-Ups is attributable to significant contractual step-ups in base
rental rates that exist in certain leases at this Property.
The aggregate undepreciated tax basis of depreciable real property at 1140
Avenue of the Americas for Federal income tax purposes was $21.2 million as of
June 30, 1997. Depreciation and amortization are computed on the straight-line
method over 39 years.
The current real estate tax rate for all Manhattan office properties is
$10.072 per $100 of assessed value. The total annual tax for 1140 Avenue of the
Americas at this rate for the 1997-98 tax year is $974,000 (at an assessed value
of $9,675,000).
50 WEST 23RD STREET. In June 1997, SL Green obtained an option from an
unaffiliated seller to acquire a 100% fee interest in 50 West 23rd Street, a
333,000 rentable square foot 13-story Class B office building located on West
23rd Street between 5th Avenue and Avenue of the Americas in the Chelsea
submarket of Manhattan. The cost of obtaining the option was $500,000 (to be
credited against the purchase price) and the purchase price for the Property is
approximately $36.0 million (including $50,000 of acquisition costs).
86
In connection with the Formation Transactions, the option will be assigned to
the Operating Partnership at cost and will be exercisable through July 31, 1997.
The term of the option is extendable for up to three successive one month
periods (I.E., through October 31, 1997) at a cost of $100,000 per extension.
Under the option terms, the closing must occur within 30 days after exercise of
such option. Management of the Company intends to exercise the option on or
about the closing of the Offering. Consequently, the Company expects to acquire
the Property within 30 days after the Offering is completed.
In addition to the foregoing, the contract of sale will provide that if, by
the date 50 West 23rd Street is acquired by the Company, there has not been
enacted into law a reduction in the federal income tax rate on capital gains in
effect on the contract date, the Company will deposit in an escrow account the
sum of $1.56 million. In the event there is enacted into law by April 16, 1998 a
reduction in such rate applicable to gains recognized on or before January 2,
1998, a portion of such escrowed amount approximately equal to the differential
between (i) the income tax payable by the seller on its capital gains
attributable to the sale of this Property and (ii) the income tax that would
have been payable on such gain in the event such reduction had been in effect at
the time of sale, will be paid to the seller and the balance will be refunded to
the Company.
50 West 23rd Street was completed in 1892 and substantially renovated in
1992. The property contains approximately 333,000 rentable square feet
(including approximately 324,000 square feet of office space and approximately
9,000 square feet of retail space), with floor plates ranging from 32,000 square
feet to 6,500 square feet. The substantial renovation of 50 West 23rd Street in
1992, completed by the prior owner of the building at a cost of approximately
$15.4 million, included (i) construction of a new lobby, (ii) overhaul of
elevator mechanical systems, (iii) enhancement of electrical capacity, (iv)
replacement of HVAC and plumbing systems, (v) installation of new windows, (vi)
facade restoration and (vii) asbestos abatement.
As of June 30, 1997, approximately 91% of the rentable square footage in 50
West 23rd Street was leased (including space for leases that were executed as of
June 30, 1997). The office space was 91% leased and the retail space was 100%
leased. The following table sets forth certain information with respect to the
Property:
ANNUAL NET
ANNUALIZED EFFECTIVE
RENT RENT
PER LEASED PER LEASED
YEAR-END PERCENT LEASED SQUARE FOOT SQUARE FOOT
- --------------------------------------------------------------------- ------------------- ----------- -------------
1997(1).............................................................. 91% $ 19.58 $ 17.09
1996................................................................. 91 19.68 17.09
- ------------------------
(1) Information is as of June 30, 1997.
As of June 30, 1997, 50 West 23rd Street was leased to 16 tenants operating
in various industries including engineering, architecture and aerospace, three
of whom occupied 10% or more of the rentable square footage at the Property. A
naval architecture firm occupied approximately 64,700 square feet (approximately
19.4% of the Property) under a lease expiring on August 31, 2005, that provides
for annualized base rent as of June 30, 1997 of approximately $1.25 million
(approximately $19.61 per square foot). In addition to annualized base rent,
this tenant pays real estate tax escalations and operating escalations in excess
of a base year amount.
In addition, a New York City agency occupied approximately 64,000 square
feet (approximately 19.2% of the Property) under a lease expiring on June 30,
2010, that provides for annualized base rent as of June 30, 1997 of
approximately $700,000 (approximately $11.00 per square foot). In addition to
annualized base rent, this tenant pays real estate tax escalations and operating
escalations in excess of a base year amount.
87
Also, an engineering firm occupied approximately 53,600 square feet
(approximately 16.1% of the Property) under a lease expiring on June 30, 2005,
that provides for annualized base rent as of June 30, 1997 of approximately $1.1
million (approximately $20.02 per square foot). In addition to annualized base
rent, this tenant pays real estate tax escalations and operating escalations in
excess of a base year amount.
The following table sets out a schedule of the annual lease expirations at
50 West 23rd Street with respect to leases executed as of June 30, 1997 for each
of the next ten years and thereafter (assuming that no tenants exercise renewal
or cancellation options and that there are no tenant bankruptcies or other
tenant defaults):
ANNUALIZED
RENT PER
ANNUALIZED LEASED
PERCENTAGE RENT PER SQUARE FOOT
SQUARE OF ANNUALIZED LEASED OF EXPIRING
NUMBER FOOTAGE TOTAL RENT SQUARE LEASES
OF OF LEASED OF FOOT OF WITH
EXPIRING EXPIRING SQUARE EXPIRING EXPIRING FUTURE
YEAR OF LEASE EXPIRATION LEASES LEASES FEET LEASES LEASES(1) STEP-UPS
- --------------------------------------- ------------- --------- ----------- ------------ ----------- ------------
June 30 through December 31, 1997...... 4 13,609 4.1% $ 440,691 $ 32.38 $ 32.39
1998................................... -- -- -- -- -- --
1999................................... 1 2,800 0.8 128,958 46.06 46.06
2000................................... -- -- -- -- -- --
2001................................... -- -- -- -- -- --
2002................................... 1 3,008 0.9 97,080 32.27 39.05
2003................................... 1 11,510 3.4 206,724 17.96 21.31
2004................................... 2 28,700 8.6 507,653 17.69 17.95
2005................................... 3 141,477 42.4 3,320,426 23.47 24.98
2006................................... 1 21,230 6.4 297,220 14.00 16.00
2007 and thereafter.................... 3 82,317 24.7 996,856 12.11 16.41
--
--------- ----- ------------ ----------- ------------
Subtotal/Weighted Average.............. 16 304,651 91.3% $ 5,995,608 $ 19.68 $ 21.90(2)
--
------------ ----------- ------------
Unleased at 6/30/97.................... 28,979 8.7%
--------- -----
TOTAL.................................. 333,630 100.0%
--------- -----
--------- -----
- ------------------------
(1) For comparison purposes, according to RELocate the Direct Weighted Average
Rental Rate for the direct Class B Chelsea submarket (which, according to
RELocate, is the area from 14th Street to 33rd Street between 5th Avenue,
from 14th Street to 23rd Street, and Broadway from 23rd Street to 33rd
Street and the Hudson River), was $20.41 per square foot as of June 30,
1997. Direct Weighted Average Rental Rate represents the weighted average of
asking rental rates for direct Class B space. Asking rental rates generally
are higher than actual rental rates (which generally are not publicly
available). Therefore, the Direct Weighted Average Rental Rate may not be
representative of asking or actual rental rates at 50 West 23rd Street.
(2) The differential between Annualized Rent Per Leased Square Foot of Expiring
Leases and Annualized Rent Per Leased Square Foot of Expiring Leases with
Future Step-Ups is attributable to significant contractual step-ups in base
rental rates that exist in certain leases at this Property.
The aggregate undepreciated tax basis of depreciable real property at 50
West 23rd Street for Federal income tax purposes was $36.0 million as of June
30, 1997. Depreciation and amortization are computed on the straight-line method
over 39 years.
The current real estate tax rate for all Manhattan office properties is
$10.072 per $100 of assessed value. The total annual tax for 50 West 23rd Street
at this rate for the 1997-98 tax year is $969,000 (at an assessed value of
$9,621,000).
88
THE OPTION PROPERTY
In July 1997, 17 Battery LLC, a limited liability company owned by Stephen
L. Green, contracted to acquire from an unaffiliated seller an interest in 17
Battery Place for an aggregate purchase price of $59 million. 17 Battery Place
contains 1.2 million rentable square feet and is comprised of two Class B office
buildings, 17 Battery Place North, a 22-story building encompassing
approximately 423,000 rentable square feet (the "North Building"), and 17
Battery Place South, a 31-story building (the "South Building") encompassing
approximately 799,000 rentable square feet located at the intersection of
Battery Place and West Street in the financial district of downtown Manhattan.
SL Green has been leasing agent and property manager at 17 Battery Place since
January 2, 1996.
During the contract period, the seller of 17 Battery Place, with the
assistance of 17 Battery LLC, will convert the South Building into two
condominium units. One unit will be comprised of portions of the basement and
the ground floor and floors 2 through 13 and will continue to function as office
space (the "Office Unit"). The second unit will be comprised of floors 14
through 31 and will be redeveloped by the seller into a residential/hotel
facility (the "Hotel Unit"). In addition, the North Building will continue to
function as office space. Pursuant to the contract of sale, Green 17 LLC,
subject to the satisfactory completion of the condominium conversion, will
acquire all of the North Building and the Office Unit (an aggregate of
approximately 800,000 rentable square feet) but will have no interest in the
Hotel Unit.
As of June 30, 1997, the North Building and the South Building were 71% and
93% leased, respectively. Tenants include MCI Communications, the City of New
York and New York Association for New Americans. 17 Battery LLC has agreed to
keep vacant until December 31, 1998 an aggregate of 153,000 square feet of
office space in the North Building and the Office Unit in order to accommodate
the relocation of office tenants from the Hotel Unit.
The Operating Partnership has been granted an option, exercisable over a 10
year period commencing on the closing of the Offering, to acquire from 17
Battery LLC its interest in the North Building and the Office Unit at a price
equal to the aggregate of (i) the purchase price paid by 17 Battery LLC for such
interest (I.E., $59 million), (ii) all financing and other costs and expenses
incurred in connection with the acquisition or ownership by 17 Battery LLC of
such interest and (iii) interest on all such sums from the date of incurrence.
In addition to the foregoing, 17 Battery LLC has agreed during the 10 year
option term, not to sell or otherwise transfer its interest in 17 Battery Place
to any third party without providing 30 days prior notice to the Operating
Partnership and offering to the Operating Partnership the right to (i) exercise
its option under the aforementioned terms and sell its interest to such third
party or (ii) retain such option following the sale to such third party. In the
event the Operating Partnership elects not to exercise its option and a third
party sale is consummated, 17 Battery LLC will pay to the Operating Partnership
its net after tax profit from such sale (defined as the excess of the gross
sales price for 17 Battery LLC's interest over the total of any outstanding
mortgage or other encumbrance, the federal income tax payable by the members of
17 Battery LLC as a result of the sale as well as other transaction costs
incurred in connection with such sale, including transfer taxes, closing
adjustments, brokerage commissions, legal fees and accounting fees).
Exercise of the option to acquire 17 Battery Place by the Company is subject
to approval by the independent Directors of the Company. Accordingly, there can
be no assurance that such Property will be acquired by the Company.
GENERAL TERMS OF LEASES IN THE MIDTOWN MARKETS
Leases entered into for space in the Midtown Markets typically contain terms
which may not be contained in leases in other U.S. office markets. The initial
term of leases entered into for space in excess of 10,000 square feet in the
Midtown Markets generally is ten to 15 years. The tenant often will negotiate an
option to extend the term of the lease for one or two renewal periods of five
years each. The base rent
89
during the initial term often will provide for agreed upon increases
periodically over the term of the lease. Base rent for renewal terms, and base
rent for the final years of a long-term year lease (in those leases which do not
provide an agreed upon rent during such final years), often is based upon a
percentage of the fair market rental value of the premises (determined by
binding arbitration in the event the landlord and the tenant are unable to
mutually agree upon the fair market value) but not less than the base rent
payable at the end of the prior period. Leases typically do not provide for
increases in rent based upon increases in the consumer price index.
In addition to base rent, the tenant also generally will pay the tenant's
pro rata share of increases in real estate taxes and operating expenses for the
building over a base year. In some leases, in lieu of paying additional rent
based upon increases in building operating expenses, the tenant will pay
additional rent based upon increases in the wage rate paid to porters over the
porters' wage rate in effect during a base year.
Electricity is most often supplied by the landlord either on a submetered
basis or rent inclusion basis (i.e., a fixed fee is included in the rent for
electricity, which amount may increase based upon increases in electricity rates
or increases in electrical usage by the tenant). Base building services other
than electricity (such as heat, air-conditioning and freight elevator service
during business hours, and base building cleaning) typically are provided at no
additional cost, with the tenant paying additional rent only for services which
exceed base building services or for services which are provided other than
during normal business hours.
In a typical lease for a new tenant, the landlord, at its expense, will
deliver the premises with all existing improvements demolished and any asbestos
abated. The landlord also typically will provide a tenant improvement allowance,
which is a fixed sum which the landlord will make available to the tenant to
reimburse the tenant for all or a portion of the tenant's initial construction
of its premises. Such sum typically is payable as work progresses, upon
submission of invoices for the cost of construction. However, in certain leases
(most often for relatively small amounts of space), the landlord will construct
the premises for the tenant.
MORTGAGE INDEBTEDNESS
Upon completion of the Offering, the Company expects to have outstanding
approximately $46.5 million of indebtedness secured by four of the Properties.
The Company currently is negotiating with each of its lenders (and the
Property-owning entities are negotiating with each of their lenders) regarding
the terms of the indebtedness that will be outstanding after the Offering. The
following table sets forth the mortgage debt of the Company expected to be
outstanding after completion of the Offering and the Formation Transactions and
the Company's best estimate of the expected terms of such indebtedness.
MORTGAGE INDEBTEDNESS TO BE OUTSTANDING AFTER THE COMPLETION OF THE OFFERING
ESTIMATED EXPECTED ESTIMATED ESTIMATED ESTIMATED
INTEREST PRINCIPAL ANNUAL MATURITY BALANCE AT
PROPERTY RATE BALANCE(1) DEBT SERVICE DATE MATURITY
- ---------------------------------------------- ----------- ------------- ------------ --------- -------------
673 First Avenue.............................. 9.00% $ 18,618,630 $ 3,140,964 12/13/03 $ 2,000,000
470 Park Avenue South......................... 8.25 10,934,798 1,206,528 04/14/04 8,284,863
29 West 35th Street........................... 8.46 2,991,454 323,912 02/01/01 2,704,409
1140 Avenue of the Americas (2)............... 7.50(3) 14,000,000 1,050,000 08/30/07 12,842,560
------------- ------------ -------------
Total....................................... $ 46,544,882 $ 5,721,404 $ 25,831,832
------------- ------------ -------------
------------- ------------ -------------
(FOOTNOTES ON FOLLOWING PAGE)
90
(FOOTNOTES FOR PRECEDING PAGE)
- ------------------------
(1) As of August 1, 1997.
(2) The Company expects to encumber this Acquistion Property with a first
mortgage loan from LBHI upon approximately the terms set forth in this
table, with no amortization during the first five years. Upon completion of
the Offering and the Company's acquisition of 50 West 23rd Street, however,
it is intended that 50 West 23rd Street will become the collateral for such
loan and 1140 Avenue of the Americas will be released from the mortgage
lien.
(3) Estimated based upon current market interest rates.
CREDIT FACILITY
The Company currently is engaged in discussions with various lenders
regarding the establishment of a revolving $75 million Credit Facility that will
be used to facilitate acquisitions and for working capital purposes. Although
the Company expects that the Credit Facility will be established shortly after
the completion of the Offering, there can be no assurance at this time as to
whether the Company will be successful in obtaining the Credit Facility, or, if
the Credit Facility is established, the terms governing the Credit Facility.
ENVIRONMENTAL MATTERS
The Company engaged independent environmental consulting firms to perform
Phase I environmental site assessments on the Properties, in order to assess
existing environmental conditions. All of the Phase I assessments have been
conducted since March 1997, except for the Bar Building, where a Phase I
assessment was conducted in September 1996. All of the Phase I assessments met
the ASTM Standard. Under the ASTM Standard, a Phase I environmental site
assessment consists of a site visit, a historical record review, a review of
regulatory agency data bases and records, interviews, and a report, with the
purpose of identifying potential environmental concerns associated with real
estate. The Phase I assessments conducted at the Properties also addressed
certain issues that are not covered by the ASTM Standard, including asbestos,
radon, lead-based paint and lead in drinking water. These environmental site
assessments did not reveal any known environmental liability that the Company
believes will have a material adverse effect on the Company's financial
condition or results of operations or would represent a material environmental
cost.
The following summarizes certain environmental issues described in the Phase
I environmental site assessment reports:
The asbestos surveys conducted as part of the Phase I site assessments
identified immaterial amounts of damaged, friable asbestos-containing material
("ACM") in isolated locations in three of the Core Properties (470 Park Avenue
South, 29 West 35th Street and the Bar Building) and in the Acquisition
Properties (1140 Avenue of the Americas and 1372 Broadway). At each of these
Properties, the environmental consultant recommended abatement of the damaged,
friable ACM. At all of the Properties except 50 West 23rd Street, non-friable
ACM, in good condition, was identified. For each of these Properties, the
consultant recommended preparation and implementation of an asbestos Operations
and Maintenance ("O & M") program, to monitor the condition of ACM and to ensure
that any ACM that becomes friable and damaged is properly addressed. The Company
does not believe that any risks associated with ACM are likely to have a
material adverse effect on the Company's business.
The Phase I environmental site assessments identified minor releases of
petroleum products at the Bar Building and at 70 West 36th Street. The
consultant recommended implementation of certain measures to further
investigate, and to clean up, these releases. The Company does not believe that
any actions that may be required as a result of these releases will have a
material adverse effect on the Company's business.
91
PROPERTY MANAGEMENT AND LEASING SERVICES
The Company (through the Management Entities and the Leasing Corporation)
will conduct its management and leasing business largely in the same manner as
it currently is conducted by SL Green. SL Green currently provides management
and leasing services for 29 properties (including the Properties in the Core
Portfolio) in the New York metropolitan area. Of these properties, SL Green
currently has an ownership interest in the six Properties in the Core Portfolio
to be owned by the Company.
SL Green's management and leasing business is an established office property
management and leasing business with extensive experience. SL Green has been
managing and leasing Manhattan office properties since 1981. SL Green seeks to
provide tenants with a level of service more typically found in Class A
properties. The Company's comprehensive tenant service program and property
amenities have been designed to maximize tenant satisfaction and retention as
well as to establish long-term relationships with its tenant base. See "Business
and Growth Strategies" above.
The Company believes that its fully integrated management structure enhances
its ability to respond to tenant needs and permits the Company to maintain
control over certain costs associated with the management and renovation of its
properties. The Company maintains a staff of 40 professionals experienced in the
management of Manhattan Class B office properties. This management team has
developed a comprehensive knowledge of the Class B Manhattan office market, an
extensive network of local tenant and other business relationships and is
experienced in acquiring office properties and repositioning them into
profitable Class B properties through intensive full service management and
leasing efforts.
In addition, the Company seeks to capitalize on its market position and
relationships with an extensive network of brokers and tenants to implement a
proactive leasing program. Management believes that its extensive knowledge of
the Class B Manhattan office market enhances its ability to monitor, understand
and anticipate the current and future space needs of tenants in its submarkets.
See "Business and Growth Strategies" above.
After the completion of the Offering and the Formation Transactions, the
Company (through the Management LLC) will provide management and leasing
services for the Properties to be owned by the Company as well as tenant
representation services for certain properties in which the Company will own no
interest. In addition, it is anticipated that the Company (through the
Management Corporation and the Leasing Corporation) will provide management and
leasing services for properties in which the Company owns no interest and tenant
representation services for a portion of such properties.
CONSTRUCTION SERVICES
The Company (through the Construction Corporation and the Management
Entities) will conduct the construction business largely in the same manner as
it currently is conducted by SL Green. Construction services will be provided
both as a part of the Company's management business and through the Construction
Corporation as a general contractor.
CONSTRUCTION MANAGEMENT AS PART OF MANAGEMENT SERVICE AGREEMENTS. A fee
from 1.5% to 5% of costs incurred for capital improvements or tenant
installations is paid to the Management Entities for construction management
services. These services are comprised of (i) preconstruction scope of work
development and preliminary cost estimating for the leasing department in
connection with potential leasing transactions, plan review and approval of
proposed tenant installation plans; coordination with property management with
respect to tenant installation construction as it relates to building systems;
and, coordination and supervision of tenant's architects, engineers and
contractors in managed properties from the beginning of lease workletter
negotiations through construction of the tenant's build-out to move-in and (ii)
capital improvement programs, including major building renovations, system
upgrades, local law compliance requirements, and completion of deferred
maintenance items requiring replacement (rather than repair).
92
GENERAL CONTRACTOR SERVICES PROVIDED THROUGH THE CONSTRUCTION
CORPORATION. The Construction Corporation will charge from 5% to 10% over the
costs of construction for the building of tenant installations in properties
managed and leased by the Management Entities and the Leasing Corporation. This
service enables the leasing agent to offer "turn-key" and "prebuilt" spaces to
prospective tenants who want to have space prepared for them to move into
without having to go through the designing/building process, while holding down
the costs of tenant improvements.
EMPLOYEES
The Company initially intends to employ approximately 50 persons. Of such 50
employees, approximately 48 will be "home office" executive and administrative
personnel and approximately two will be on-site management and administrative
personnel. Following the completion of the Offering and the Formation
Transactions, the Company currently expects that none of these employees will be
represented by a labor union.
TRANSFER OF PROPERTIES
Interests in the Properties in the Core Portfolio will be acquired by the
Company (through the Operating Partnership) pursuant to agreements for
contribution of interests (each a "Contribution Agreement"). The acquisitions
are subject to all of the terms and conditions of such agreements. The holders
of interests in the Property-owning entities (which own partial or complete
interests in the individual Properties) will transfer their interests to
entities controlled by the Company for cash or Units. The Company will assume
all the rights, obligations and responsibilities of the contributors of
interests. The transfer of ownership interests in each Property is subject to
the completion of the Offering.
The Contribution Agreements generally contain representations only with
respect to the ownership of the interests by the holders thereof and certain
other limited matters. Pursuant to a Supplemental Representations and Warranties
Agreement (the "Supplemental Agreement"), certain SL Green entities will agree
to indemnify the Company against certain breaches of representations and
warranties made by such SL Green entities with respect to the Properties and the
management, leasing and construction businesses being transferred to the Company
for a period of 12 months following the completion of the Offering. The maximum
aggregate liability of such SL Green entities under the Supplemental Agreement
is limited to $20 million of the Units received by the SL Green entities in the
Formation Transactions, with no liability being assumed until the aggregate
liability exceeds $250,000. Recourse for any liabilities under the Supplemental
Agreement will be limited to Units received by such SL Green entities in the
Formation Transactions. Certain SL Green entities will pledge an aggregate of
$20 million of Units (based on the initial public offering price of shares of
Common Stock) to secure their indemnification obligations under the Supplemental
Agreement.
ASSETS NOT BEING TRANSFERRED TO THE COMPANY
In addition to the interests of SL Green in the Properties which are being
acquired by the Company and the Option Property, SL Green also owns interests in
certain other properties which the Company will not acquire at the time of the
completion of the Offering and the Formation Transactions. These interests are
(i) a portion of a net leasehold interest scheduled to expire in 2000, in a
substantially vacant showroom building located at 305 East 63rd Street in
Manhattan which is slated for conversion to residential space, (ii) a one-third
non-controlling interest in a loft building located at 133 West 21st Street in
Manhattan substantially occupied by one tenant pursuant to leases scheduled to
expire in the near term, (iii) the net leasehold of an office building located
at 215 Park Avenue South in Manhattan, the equity in which is controlled by the
leasehold mortgagee and which the Company believes has no value to SL Green,
(iv) interests in ground floor retail and other non-office commercial space in
various predominantly residential buildings located in Manhattan (830/832
Broadway, 5 East 16th Street, 12 East 12th Street, 8
93
East 12th Street and 30 West 15th Street) and (v) an 89% interest in a
warehouse/distribution center in Bethlehem, Pennsylvania.
The Company also will not acquire at the time of the completion of the
Offering any interest in certain office property service businesses currently
conducted by companies which are owned by a son of Stephen L. Green. These
services include office cleaning (and related) services and security services
with respect to the Company's properties and properties in which the Company
will not own any interest, as well as facilities management services with
respect to third parties. The interests in these service businesses are not
being transferred to the Company at the time of the completion of the Offering
in order to maintain the Company's qualification as a REIT for Federal income
tax purposes or because the Company does not believe such services are directly
related or material to the Company's business strategy.
After the completion of the Offering, the Company may retain two entities
(both of which are owned by a son of Stephen L. Green) to provide cleaning and
security services for the Properties. Such services would be provided to the
Company at competitive rates. The Company expects these services would be
provided under contracts with such SL Green entities with an initial one-year
term, but will be terminable by either party upon 30 days' notice. Any actions
with respect to the contracts to provide these services that may be taken by the
Company in the future would need to be approved by a vote of the disinterested
members of the Board of Directors of the Company. See "Policies With Respect To
Certain Activities-- Conflict of Interest Policies." After the completion of the
Offering, certain employees of the Management LLC will supervise the provision
of cleaning and security services by SL Green entities with respect to the
Company's properties.
COMPETITION
All of the Properties are located in highly developed areas of midtown
Manhattan that include a large number of other office properties. Manhattan is
by far the largest office market in the United States and contains more rentable
square feet than the next six largest central business district office markets
in the United States combined. Of the total inventory of 378 million rentable
square feet in Manhattan approximately 205 million rentable square feet is
comprised of Class A office space and 173 million of Class B office space. Class
A office properties are generally newer than Class B office properties, have
higher finishes and command higher rental rates. Many tenants have been
attracted to Class B properties in part because of their relatively less
expensive rental rates and the tightening of the Class A office market in
midtown Manhattan. See "Market Overview." Consequently, an increase in vacancy
rates and/or a decrease in rental rates for Class A office space would likely
have an adverse effect on rental rates for Class B office space. Also, the
number of competitive Class B office properties in Manhattan (some of which are
newer and better located) could have a material adverse effect on the Company's
ability to lease office space at its properties, and on the effective rents the
Company is able to charge. In addition, the Company may compete with other
property owners that have greater resources than the Company. See "Risk
Factors--Competition in its Marketplace Could Have an Adverse Impact on the
Company's Results of Operations."
REGULATION
GENERAL. Office properties in Manhattan are subject to various laws,
ordinances and regulations, including regulations relating to common areas. The
Company believes that each Property has the necessary permits and approvals to
operate its business.
AMERICANS WITH DISABILITIES ACT. The Company's properties must comply with
Title III of the ADA to the extent that such properties are "public
accommodations" as defined by the ADA. The ADA may require removal of structural
barriers to access by persons with disabilities in certain public areas of the
Company's properties where such removal is readily achievable. The Company
believes that the Properties are in substantial compliance with the ADA and that
it will not be required to make substantial capital
94
expenditures with respect to the Properties to address the requirements of the
ADA. However, noncompliance with the ADA could result in imposition of fines or
an award of damages to private litigants. The obligation to make readily
achievable accommodations is an ongoing one, and the Company will continue to
assess its properties and to make alterations as appropriate in this respect.
ENVIRONMENTAL MATTERS. Under various Federal, state and local laws,
ordinances and regulations, a current or previous owner or operator of real
estate may be required to investigate and clean up certain hazardous substances
released at a property, and may be held liable to a governmental entity or to
third parties for property damage or personal injuries and for investigation and
clean-up costs incurred by the parties in connection with the contamination.
Such laws often impose liability without regard to whether the owner or operator
knew of, or was responsible for, the release of such hazardous substances. The
presence of contamination or the failure to remediate contamination may
adversely affect the owner's ability to sell or lease real estate or to borrow
using the real estate as collateral. See "Risk Factors-- Liability for
Environmental Matters Could Adversely Affect the Company's Financial Condition."
INSURANCE
The Operating Partnership carries comprehensive liability, fire, extended
coverage and rental loss insurance covering all of the Properties, with policy
specifications and insured limits which the Company believes are adequate and
appropriate under the circumstances. There are, however, certain types of losses
that are not generally insured because they are either uninsurable or not
economically feasible to insure. Should an uninsured loss or a loss in excess of
insured limits occur, the Operating Partnership could lose its capital invested
in the property, as well as the anticipated future revenues from the property
and, in the case of debt which is with recourse to the Operating Partnership,
would remain obligated for any mortgage debt or other financial obligations
related to the property. Any such loss would adversely affect the Company.
Moreover, as a general partner of the Operating Partnership, the Company will
generally be liable for any unsatisfied obligations other than non-recourse
obligations. The Company believes that the Properties will be adequately
insured; however no assurance can be given that material losses in excess of
insurance proceeds will not occur in the future.
LEGAL PROCEEDINGS
The Company currently is not a party to any legal proceedings. Certain SL
Green entities are parties to a variety of legal proceedings relating to their
ownership of the Properties in the Core Portfolio and SL Green's activities with
regard to its construction, management and leasing businesses, respectively,
arising in the ordinary course of business. Because the Company may be acquiring
certain of the Properties subject to associated liabilities, it may therefore
become a successor party-in-interest to certain of these proceedings as a result
of the Formation Transactions. The Company believes that substantially all of
this liability is covered by insurance. All of these matters, taken together,
are not expected to have a material adverse impact on the Company.
95
MANAGEMENT
DIRECTORS, DIRECTOR NOMINEES AND EXECUTIVE OFFICERS
The Board of Directors of the Company will be expanded immediately following
the completion of the Offering to include the director nominees named below,
each of whom has been nominated for election and has consented to serve. Upon
election of the director nominees, a majority of directors will not be employees
or affiliates of the Company or SL Green. Pursuant to the Company's Charter, the
Board of Directors is divided into three classes of directors. The initial terms
of the first, second and third classes will expire in 1998, 1999 and 2000,
respectively. Beginning in 1998, directors of each class will be chosen for
three-year terms upon the expiration of their current terms and each year one
class of directors will be elected by the stockholders. The Company believes
that classification of the Board of Directors will help to assure the continuity
and stability of the Company's business strategies and policies as determined by
the Board of Directors. Holders of shares of Common Stock will have no right to
cumulative voting in the election of directors. Consequently, at each annual
meeting of stockholders, the holders of a majority of the shares of Common Stock
will be able to elect all of the successors of the class of directors whose
terms expire at that meeting.
The following table sets forth certain information with respect to the
directors, director nominees and executive officers of the Company immediately
following the completion of the Offering:
NAME AGE POSITION
- --------------------------------------------- --- ------------------------------------------------------------
Stephen L. Green............................. 59 Chairman of the Board, Chief Executive Officer and President
(term will expire in 2000)
David J. Nettina............................. 44 Executive Vice President, Chief Operating Officer and Chief
Financial Officer
Nancy Ann Peck............................... 53 Executive Vice President--Development and Operations
Steven H. Klein.............................. 37 Executive Vice President--Acquisitions
Benjamin P. Feldman.......................... 45 Executive Vice President, General Counsel, Secretary and
Director (term will expire in 1999)
Gerard Nocera................................ 40 Executive Vice President--Leasing
Louis A. Olsen............................... 53 Senior Vice President--Finance
John H. Alschuler, Jr. ...................... 49 Director Nominee (term will expire in 2000)
Edwin Thomas Burton, III..................... 54 Director Nominee (term will expire in 1998)
John S. Levy................................. 61 Director Nominee (term will expire in 1999)
STEPHEN L. GREEN will serve as the Chairman of the Board of Directors, Chief
Executive Officer and President of the Company. Stephen L. Green founded S.L.
Green Real Estate in 1980. Since then he has been involved in the acquisition of
over 30 Manhattan office buildings containing in excess of four million square
feet and the management of 50 Manhattan office buildings containing in excess of
10 million square feet. His clients have included Aldrich Eastman & Waltch, Bank
of New York, CalPERS, Dai-lchi Kangyo Bank, and CS First Boston. Mr. Green is a
Governor of the Real Estate Board of New York and an at-large member of the
Executive Committee of the Board of Governors of the Real Estate Board of New
York. Additionally, Mr. Green is a Co-Chairman of the Real Estate Tax Fairness
Coalition. Mr. Green received a B.A. degree from Hartwick College and a J.D.
degree from Boston College Law School. Mr. Green is the husband of Nancy A.
Peck.
DAVID J. NETTINA will serve as Executive Vice President, Chief Operating
Officer and Chief Financial Officer of the Company. Prior to joining SL Green,
Mr. Nettina worked for The Pyramid Companies ("Pyramid"), based in Syracuse, NY,
in various positions from March 1986 to June, 1997. From 1990 to 1997, Mr.
Nettina was a partner and Chief Financial Officer of Pyramid. From 1989 to 1990,
Mr. Nettina was a development partner at the Boston, MA office of Pyramid. Mr.
Nettina was the Director of Corporate Finance of the Pyramid Development Group
from 1987 to 1989. From 1986 to 1987, Mr.
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Nettina was Chief Operating Officer of the Pyramid Management Group. Mr. Nettina
served as President of Citibank (Maine), N.A. from 1983 to 1986. From 1980 to
1983, Mr. Nettina was Assistant Vice President of Citibank (NYS), N.A. in
Rochester, NY. Mr. Nettina was in the U.S. Army from 1976 until he completed
service as a Captain in 1980. Mr. Nettina received a B.S. degree in 1974 and a
MBA in 1976 from Canisius College.
NANCY ANN PECK will serve as Executive Vice President-Development and
Operations of the Company. Since 1983, Ms. Peck has supervised redevelopment of
the SL Green projects and has overseen the management and construction of all
properties owned and managed by SL Green. Prior to joining SL Green, Ms. Peck
served as project coordinator for projects valued in excess of $500 million, one
of which was the renovation and conversion of the two million square foot
American Furniture Mart in Chicago into a multi-use complex. Ms. Peck worked for
McKeon Construction Corp., Paul Properties and Shelter Rock Holdings Corp. She
recently was appointed to the Board of Directors of the Real Estate Board of New
York, Management Division. Ms. Peck received a B.A. degree from the University
of California at Berkeley and an MBA in finance from New York University
Business School. She is the wife of Stephen L. Green.
STEVEN H. KLEIN will serve as Executive Vice President-Acquisitions of the
Company. Mr. Klein has overseen the Asset Management division of SL Green since
1991 and leads acquisition, sale and investment analysis decisions. Mr. Klein
has played a major role in the redevelopment of SL Green's managed portfolio.
Prior to joining SL Green, Mr. Klein worked at Gallin Realty Company in
marketing and leasing. Mr. Klein received a B.A. degree from the University of
Michigan.
BENJAMIN P. FELDMAN will serve as Executive Vice President and General
Counsel of the Company and as a Director of the Company. He has served as
General Counsel of SL Green since 1987. Mr. Feldman handles the legal aspects of
all leasing, financing and acquisition decisions. Prior to joining the Company,
Mr. Feldman was vice-president and general counsel for Bruce Berger Realty. Mr.
Feldman received a B.A. degree from Columbia University and a J.D. degree from
Columbia University School of Law.
GERARD NOCERA will serve as Executive Vice President-Leasing of the Company.
Since 1991, Mr. Nocera has been responsible for the development and
implementation of marketing and leasing programs at SL Green owned and managed
properties. Prior to joining SL Green, Mr. Nocera worked for The Cohen Brothers
as a landlord representative. Mr. Nocera is a member of the Real Estate Board of
New York. Mr. Nocera received a B.A. degree from Duquesne University.
LOUIS A. OLSEN will serve as Senior Vice President--Finance of the Company.
Since 1988, Mr. Olsen has overseen all financial and accounting functions at SL
Green. Before joining SL Green, Mr. Olsen was vice president and comptroller of
the management division of Edward S. Gordon Company where he was responsible for
the financial accounting of an 8 million square foot commercial office portfolio
managed by Edward S. Gordon. Mr. Olsen also served for four years as vice
president of Chase Manhattan Bank where he was responsible for financial
reporting for the $200 million Real Estate Owned Portfolio. Mr. Olsen also
worked as a manager in the real estate department at Peat, Marwick & Mitchell.
Mr. Olsen received a B.S. degree in accounting from Bloomfield College and an
M.B.A. degree in accounting and taxation from Fairleigh Dickenson University.
Mr. Olsen is a licensed New York State Certified Public Accountant.
JOHN H. ALSCHULER, JR. has served as President and the Partner-in-Charge of
the New York office of Hamilton, Rabinowitz & Alschuler, Inc., ("HRA") a
nationally recognized real estate and management consulting firm since 1996 and
1983, respectively. Mr. Alschuler has also been an Adjunct Assistant Professor
in the Graduate Program in Real Estate at Columbia University since 1987. As
President of HRA, Mr. Alschuler is currently advising the Government of Kuwait
on the redevelopment of the main commercial district of Kuwait City. Mr.
Alschuler is also advising the Governor of Massachusetts and the Board of the
MBTA on the restructuring and privatization of the nation's second largest mass
transit system. Mr. Alschuler also serves as the real estate advisor to the
Guggenheim family and their foundation. Mr. Alschuler has advised a wide range
of development clients, including Olympia & York, Maguire
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Thomas Partners, Queens West Development Corporation and the Empire State
Development Corporation. Mr. Alschuler has also advised many public
organizations and elected officials, including the Mayor of New York City and
the Governor of New York. Mr. Alschuler received a B.A. degree from Wesleyan
University and Ed.D. degree from the University of Massachusetts of Amherst.
EDWIN THOMAS BURTON, III has been Chairman of the Board of Trustees and a
member of the Investment Advisory Committee of the Virginia Retirement System
("VRS") for state and local employees of the Commonwealth of Virginia ($25
billion in assets) since 1994. Mr. Burton also served as the Chairman of the VRS
Special Committee on the sale of RF&P Corporation, a $570 million real estate
company. He is also currently a visiting professor of commerce and economics at
the University of Virginia, where he has received several awards of distinction.
From 1994 until 1995, Mr. Burton served as Senior Vice President, Managing
Director and member of the Board of Directors of Interstate Johnson Lane,
Incorporated, an investment banking firm where he was responsible for the
Corporate Finance and Public Finance Divisions. From 1987 to 1994, Mr. Burton
served as President of Rothschild Financial Services, Incorporated (a subsidiary
of Rothschild, Inc. of North America), an investment banking company
headquartered in New York City that is involved in proprietary trading,
securities lending and other investment activities. From 1985 until 1987, Mr.
Burton was a partner of First Capital Strategists, a partnership that managed
security lending and investment activities for large endowment portfolios. Mr.
Burton also served as a consultant to the American Stock Exchange from 1985
until 1986 and a senior vice president with Smith Barney (or its corporate
predecessor) from 1976 until 1984. Mr. Burton currently serves on the Board of
Directors of Capstar, a publicly traded hotel company and SNL Securities, a
private securities data company. He has held various teaching positions at York
College, Rice University and Cornell University and has written and lectured
extensively in the field of economics. Mr. Burton also serves as a member of the
Children's Medical Center Committee of the University of Virginia Hospital
Advisory Board, a member of the Jefferson Scholar Selection Committee at the
University of Virginia, a board member of Madison House in Charlottesville,
Virginia and a member of the Governor's Commission on Governmental Reform for
the Commonwealth of Virginia. Mr. Burton received a B.A. and an M.A. in
economics from Rice University and a Ph.D in economics from Northwestern
University.
JOHN S. LEVY is a private investor. Mr. Levy was associated with Lehman
Brothers Inc. (or its corporate predecessors) from 1983 until 1995. During this
period, Mr. Levy served as Managing Director and Chief Administrative Officer of
the Financial Services Division, Senior Executive Vice President and Co-Director
of the International Division overseeing the International Branch System and
Managing Partner of the Equity Securities Division, where he managed the
International, Institutional, Retail and Research Departments. Prior to that
period, Mr. Levy was associated with A.G. Becker Incorporated (or its corporate
predecessors) from 1960 until 1983. During this period, Mr. Levy served as
Managing Director of the Execution Services Division, Vice President-Manager of
Institutional and Retail Sales, Manager of the Institutional Sales Division,
Manager of the New York Retail Office and a Registered Representative. Mr. Levy
received a B.A. degree from Dartmouth College.
COMMITTEES OF THE BOARD OF DIRECTORS
EXECUTIVE COMMITTEE. Promptly following the completion of the Offering, the
Board of Directors will establish an Executive Committee. Subject to the
Company's conflict of interest policies, the Executive Committee will be granted
the authority to acquire and dispose of real estate and the power to authorize,
on behalf of the full Board of Directors, the execution of certain contracts and
agreements, including those related to the borrowing of money by the Company
(and, consistent with the Partnership Agreement of the Operating Partnership, to
cause the Operating Partnership to take such actions). The Executive Committee
initially will consist of Stephen L. Green and at least two additional
directors.
AUDIT COMMITTEE. Promptly following the completion of the Offering, the
Board of Directors will establish an Audit Committee. The Audit Committee will
make recommendations concerning the engagement of independent public
accountants, review with the independent public accountants the scope and
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results of the audit engagement, approve professional services provided by the
independent public accountants, review the independence of the independent
public accountants, consider the range of audit and non-audit fees and review
the adequacy of the Company's internal accounting controls. The Audit Committee
initially will consist of two or more independent directors.
COMPENSATION COMMITTEE. Promptly following the completion of the Offering,
the Board of Directors will establish a Compensation Committee consisting of at
least two independent directors to establish remuneration levels for executive
officers of the Company and to implement and administer the Company's stock
option plans and any other incentive programs.
The Board of Directors may from time to time establish certain other
committees to facilitate the management of the Company.
COMPENSATION OF DIRECTORS
The Company intends to pay its non-employee directors annual compensation of
$12,000 for their services. In addition, non-employee directors will receive a
fee of $1,000 for each Board of Directors meeting attended (in person or by
telephone). Non-employee directors will receive an additional fee of $500 for
each committee meeting attended (in person or by telephone), unless the
committee meeting is held on the day of a meeting of the Board of Directors.
Non-employee directors also will be reimbursed for reasonable expenses incurred
to attend director and committee meetings. Compensation and fees may be paid to
non-employee directors in the form of cash or Common Stock, at the election of
each such director. Officers of the Company who are directors will not be paid
any director's compensation or fees. Pursuant to the Company's stock option
plan, non-employee directors will receive, upon initial election to the Board of
Directors, options to purchase 6,000 shares of Common Stock (at the initial
public offering price or, if elected following the completion of the Offering,
at the prevailing market price) which will vest after one year.
EXECUTIVE COMPENSATION
The following table sets forth the annual base salary rates and other
compensation expected to be paid in 1997 to the Company's Chief Executive
Officer and each of the Company's other five most highly compensated executive
officers.
1997 BASE
SALARY RATE OPTIONS
NAME TITLE (1) ALLOCATED (2)
- ----------------------------------------- ----------------------------------------- -------------- -------------
Stephen L. Green......................... Chairman of the Board, President and $ 250,000 --
Chief Executive Officer
David J. Nettina......................... Executive Vice President, Chief Operating $ 200,000 50,000
Officer and Chief Financial Officer
Nancy A. Peck............................ Executive Vice President-- Development $ 150,000 50,000
and Operations
Steven H. Klein.......................... Executive Vice President-- Acquisitions $ 175,000 50,000
Benjamin P. Feldman...................... Executive Vice President and General $ 150,000 50,000
Counsel
Gerard Nocera............................ Executive Vice President--Leasing $ 175,000 50,000
- ------------------------
(1) Does not include bonuses that may be paid to the above individuals. See
"--Incentive Compensation Plan" below.
(2) Upon the effective date of the Offering, options to purchase a total of
660,000 shares of Common Stock will be granted to officers and other
employees of the Company under the Company's stock option plan at a price
equal to the initial public offering price. See "--Stock Option and
Incentive Plan" below."
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OPTION GRANTS IN FISCAL YEAR 1997
POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
TOTAL ANNUAL RATES OF SHARE
OPTIONS TO PRICE APPRECIATION FOR
OPTIONS BE GRANTED EXERCISE OPTION TERM
TO BE TO EMPLOYEES PRICE EXPIRATION --------------------------
NAME GRANTED(1) IN FISCAL YEAR PER SHARE(2) DATE 5% 10%
- ----------------------------------------- ----------- ----------------- ------------- ----------- ------------ ------------
Stephen L. Green......................... -- -- -- -- -- --
David J. Nettina......................... 50,000 7.6% $ 20.00 -/-/07 $ 628,895 $ 1,593,742
Nancy A. Peck............................ 50,000 7.6% $ 20.00 -/-/07 $ 628,895 $ 1,593,742
Benjamin P. Feldman...................... 50,000 7.6% $ 20.00 -/-/07 $ 628,895 $ 1,593,742
Steven H. Klein.......................... 50,000 7.6% $ 20.00 -/-/07 $ 628,895 $ 1,593,742
Gerard Nocera............................ 50,000 7.6% $ 20.00 -/-/07 $ 628,895 $ 1,593,742
- ------------------------
(1) The options for one-third of the covered shares (disregarding fractional
shares, if any) will become exercisable on each of the first, second and
third anniversaries of the date of the grant.
(2) Based on the assumed initial public offering price. The exercise price per
share will be the initial public offering price.
EMPLOYMENT AND NONCOMPETITION AGREEMENTS
Each of Stephen L. Green, Nancy A. Peck, Steven H. Klein, Benjamin P.
Feldman, Gerard Nocera and Louis A. Olsen will enter into an employment and
noncompetition agreement with the Company which will be effective as of the
completion of the Offering. Each agreement will expire on the third anniversary
of the closing of the Offering, unless otherwise extended, except that Mr.
Olsen's agreement will expire on the first anniversary of the closing of the
Offering, unless extended. Employment under the agreements may be terminated for
"cause" by the Company for: (i) engagement in conduct that constitutes a felony,
(ii) breach of fiduciary duty, gross negligence or willful misconduct or other
conduct against the best interests of the Company, (iii) a breach of material
obligations or covenants under the agreement, or (iv) an uncured failure to
substantially perform the duties provided for in such agreement. The employee
may terminate his or her employment for "good reason," which includes (i)
failure to be elected to offices with the same or substantially the same duties
as provided for in the agreement, (ii) an uncured breach by the Company of its
material obligations under the agreement, or (iii) a substantial adverse change
in the nature or scope of the responsibility and authority provided in the
agreement following a change-in-control of the Company. If employment is
terminated by the Company "without cause" or by the employee "with good reason,"
then the employee is entitled to severance benefits for the remaining period of
the agreement including (i) base salary paid on the same periodic payment dates
provided for in the agreement, (ii) continuation of benefits provided for in the
agreement and (iii) continuation of any rights of the employee under the
Company's Stock Option Plan.
The employment and noncompetition agreements will, subject to certain
exceptions, prohibit each of such persons from engaging, directly or indirectly,
during the term of his or her employment, in any business which engages or
attempts to engage in, directly or indirectly, the acquisition, development,
construction, operation, management or leasing of any office real estate
property within the New York City metropolitan area (the "Competitive
Activities"). The exceptions include investments listed under "The
Properties--Assets Not Being Transferred to the Company" and any investments in
publicly traded real-estate entities representing less than 1% of the equity
ownership of such entity. Pursuant to the agreements, each of such persons will
devote substantially all of his or her business time to the Company. The
employment and noncompetition agreement of Stephen L. Green will also, subject
to certain exceptions, prohibit Mr. Green from engaging, directly or indirectly,
during the Noncompetition Period in any Competitive Activities. The
Noncompetition Period is the period beginning on the date of the
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termination of employment and ending on the later of (i) three years from the
closing of the Offering and (ii) one year from the termination of his employment
with the Company.
David J. Nettina has entered into a similar employment and noncompetition
agreement with the Company. Mr. Nettina's agreement also provides for a minimum
yearly bonus of $100,000, the award of options to purchase at least 50,000
shares of Common Stock upon completion of the Offering (exercisable at the
initial public offering price), the award of $200,000 worth of shares of Common
Stock on each of the first, second and third anniversaries of his employment and
customary relocation expenses. The definition of "good reason" in Mr. Nettina's
agreement includes a change-in-control of the Company.
In addition, pursuant to the terms of Mr. Nettina's employment agreement,
Mr. Nettina will receive a loan from the Company to purchase shares of Common
Stock to be issued under the Stock Option and Incentive Plan ("Stock Loan"). The
principal amount of the Stock Loan will be $300,000. The Stock Loan will have a
term of three years, accrue interest at the Federal mid-term "Applicable Federal
Rate" ("AFR") as in effect from time to time, and will be secured by the Common
Stock purchased and will otherwise be non-recourse. One-third of the Stock Loan
(together with accrued interest on the Stock Loan) will be forgiven each year
during the term of the Stock Loan provided that Mr. Nettina is then employed by
the Company. In the event of a change-in-control of the Company, Mr. Nettina's
death or permanent disability or termination of his employment by the Company
without cause, the outstanding principal amounts of the Stock Loan will be
forgiven in full. In the event Mr. Nettina leaves the employ of the Company or
is terminated with cause, the outstanding amount of the Stock Loan will be
immediately due and payable. The outstanding amount shall be equal to the amount
then due and owing, pro rated for the number of months elapsed for the year in
which termination occurs. Mr. Klein will receive a similar Stock Loan from the
Company in the principal amount of $500,000, with a term of five years.
STOCK OPTION AND INCENTIVE PLAN
Prior to the Offering, the Board of Directors will adopt, and the
stockholders will approve, the 1997 Stock Option and Incentive Plan (the "Stock
Option Plan"). On and after the closing of the Offering, the Stock Option Plan
will be administered by the Compensation Committee of the Board of Directors.
Officers and certain other employees of the Company and its subsidiaries
generally will be eligible to participate in the Stock Option Plan. Non-employee
Directors of the Company are eligible to receive stock options under the Stock
Option Plan on a limited basis. See "--Compensation of Directors."
The following summary of the Stock Option Plan is qualified in its entirety
by reference to the full text of the Stock Option Plan, a copy of which has been
filed as an exhibit to the Registration Statement of which this Prospectus is a
part.
The Stock Option Plan authorizes (i) the grant of stock options that qualify
as incentive stock options under Section 422 of the Code ("ISOs"), (ii) the
grant of stock options that do not so qualify ("NQSOs"), (iii) the grant of
stock options in lieu of cash Directors' fees and employee bonuses, (iv) grants
of shares of Common Stock, in lieu of cash compensation and (v) the making of
loans to acquire shares of Common Stock, in lieu of compensation. The exercise
price of stock options will be determined by the Compensation Committee, but may
not be less than 100% of the fair market value of the shares of Common Stock on
the date of grant in the case of ISOs; provided that, in the case of grants of
NQSOs granted in lieu of cash Directors' fees and employee bonuses, the exercise
price may not be less than 50% of the fair market value of the shares of Common
Stock on the date of grant. The Company has reserved 1,100,000 shares of Common
Stock for issuance under the Stock Option Plan.
INCENTIVE COMPENSATION PLAN
Prior to the completion of the Offering, the Company intends to establish an
incentive compensation plan for key officers of the Company and the Company's
subsidiaries and affiliates. This plan will provide for payment of cash bonuses
to participating officers after an evaluation of the officer's performance and
101
the overall performance of the Company has been completed. The Chief Executive
Officer will make recommendations to the Compensation Committee of the Board of
Directors, which will make the final determination for the award of bonuses in
its sole discretion. The Compensation Committee will determine the amount of
such bonuses, if any, for the Chief Executive Officer in its sole discretion.
401(k) PLAN
Effective upon the completion of the Offering, the Company intends to
maintain a 401(k) Savings/ Retirement Plan (the "401(k) Plan") to cover eligible
employees of the Company and any designated affiliate.
The 401(k) Plan will permit eligible employees of the Company to defer up to
15% of their annual compensation, subject to certain limitations imposed by the
Code. The employees' elective deferrals are immediately vested and
non-forfeitable upon contribution to the 401(k) Plan.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The MGCL permits a Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability
resulting from (i) actual receipt of an improper benefit or profit in money,
property or services, or (ii) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. The Charter contains
such a provision which eliminates such liability to the maximum extent permitted
by the MGCL.
The Charter authorizes the Company, to the maximum extent permitted by
Maryland law, to obligate itself to indemnify and to pay or reimburse reasonable
expenses in advance of final disposition of a proceeding to (i) any present or
former director or officer, or (ii) any individual who, while a director of the
Company and at the request of the Company serves or has served another
corporation, limited liability company, partnership, joint venture, trust,
employee benefit plan or any other enterprise as a director, officer, member,
partner or trustee of such corporation, limited liability company, partnership,
joint venture, trust, employee benefit plan or other enterprise from and against
any claim or liability which such persons may incur by reason of his status as a
present or former stockholder, director or officer of the Company. The Bylaws
obligate the Company, to the maximum extent permitted by Maryland law, to
indemnify and to pay or reimburse reasonable expenses in advance of final
disposition of a proceeding to (i) any present or former director or officer who
is made a party to the proceeding by reason of his service in that capacity, or
(ii) any individual who while a director of the Company and at the request of
the Company serves or has served another corporation, limited liability company,
partnership, joint venture, trust, employee benefit plan or any other enterprise
as a director, officer, member, partner or trustee of such corporation, limited
liability company, partnership, joint venture, trust, employee benefit plan or
other enterprise and who is made a party to the proceeding by reason of his
service in that capacity against any claim or liability to which he may become
subject by reason of such service. The Charter and the Bylaws also permit the
Company to indemnify and advance expenses to any person who served a predecessor
of the Company in any of the capacities described above and to any employee or
agent of the Company or a predecessor of the Company.
The MGCL requires a corporation (unless its charter provides otherwise,
which the Company's Charter does not) to indemnify a director or officer who has
been successful, on the merits or otherwise, in the defense of any proceeding to
which he is made a party by reason of his service in that capacity. The MGCL
permits a corporation to indemnify its present and former directors and
officers, among others, against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by them in connection with any proceeding
to which they may be made a party by reason of their service in those or other
capacities unless it is established that (i) the act or omission of the director
or officer was material to the matter giving rise to the proceeding and (A) was
committed in bad faith, or (B) was the result of active
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and deliberate dishonesty, (ii) the director or officer actually received an
improper personal benefit in money, property or services, or (iii) in the case
of any criminal proceeding, the director or officer had reasonable cause to
believe that the act or omission was unlawful. However, a Maryland corporation
may not indemnify for an adverse judgment in a suit by or in the right of the
corporation. In addition, the MGCL requires the Company, as a condition to
advancing expenses, to obtain (i) a written affirmation by the director or
officer of his good faith belief that he has met the standard of conduct
necessary for indemnification by the Company as authorized by the Bylaws, and
(ii) a written statement by or on his behalf to repay the amount paid or
reimbursed by the Company if it shall ultimately be determined that the standard
of conduct was not met.
The Partnership Agreement also provides for indemnification and advance of
expenses of the Company and its officers and directors to the same extent
indemnification and advance of expenses is provided to officers and directors of
the Company in the Charter and Bylaws, and limits the liability of the Company
and its officers and directors to the Operating Partnership and its partners to
the same extent liability of officers and directors of the Company to the
Company and its stockholders is limited under the Charter. See "Partnership
Agreement--Liability and Indemnification."
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STRUCTURE AND FORMATION OF THE COMPANY
THE OPERATING ENTITIES OF THE COMPANY
Following the completion of the Offering and the Formation Transactions, the
operations of the Company will be carried on through the Operating Partnership.
The Formation Transactions were designed to (i) enable the Company to raise the
necessary capital to acquire the Properties, repay certain mortgage indebtedness
secured by certain of the Properties and establish a working capital reserve,
(ii) provide a vehicle for future acquisitions, (iii) enable the Company to
comply with certain requirements under the Code (and the regulations promulgated
by the IRS thereunder (the "Treasury Regulations")) relating to REITs, and (iv)
preserve certain tax advantages for certain participants in the Formation
Transactions.
THE OPERATING PARTNERSHIP. Following the completion of the Offering and the
Formation Transactions, substantially all of the Company's assets will be held
by, and its operations conducted through, the Operating Partnership and its
subsidiaries and affiliates. The Company is the sole general partner of the
Operating Partnership and will have the exclusive power under the Partnership
Agreement to manage and conduct the business of the Operating Partnership.
Except with respect to the Lock-out Provisions, limited partners generally will
have only limited consent rights. See "Partnership Agreement." The Board of
Directors of the Company will manage the affairs of the Company by directing the
affairs of the Operating Partnership. The Operating Partnership will continue
until December 31, 2095, unless sooner dissolved or terminated. The Operating
Partnership cannot be dissolved for a period of 50 years without the consent of
the limited partners, except in connection with a sale of all or substantially
all of its assets, which also requires the consent of the limited partners. See
"Partnership Agreement." The Company's limited and general partner interests in
the Operating Partnership will entitle it to share in cash distributions from,
and in the profits and losses of, the Operating Partnership in proportion to the
Company's percentage interest therein and will entitle the Company to vote on
substantially all matters requiring a vote of the limited partners.
Following the completion of the Offering and the Formation Transactions, the
Company initially will own an approximate 81.9% interest in the Operating
Partnership. Certain participants in the Formation Transactions, including
entities owned by Stephen L. Green, will own the remaining Units. The Operating
Partnership anticipates that it will acquire additional properties in exchange
for Units in the future, in which case partners in the partnerships that own
such properties will become limited partners of the Operating Partnership.
After the completion of the Offering and the Formation Transactions, the
Operating Partnership expects to make regular quarterly cash distributions to
its partners (including the Company) in proportion to their percentage interests
in the Operating Partnership. The Company, in turn, will pay cash dividends to
its stockholders in an amount per share of Common Stock equal to the amount
distributed by the Operating Partnership per Unit. In addition, after a holding
period of up to two years following the completion of the Offering, and at any
time thereafter (for as long as the Operating Partnership is in existence and
subject to compliance with the securities laws and the ownership limits of the
Company's organizational documents), limited partners in the Operating
Partnership will be able to have their Units redeemed by the Operating
Partnership. In the event that the Company elects to acquire Units in exchange
for shares of Common Stock upon the exercise of a redemption right by a limited
partner, each such acquisition will increase the Company's percentage ownership
interest in the Operating Partnership and will decrease the aggregate percentage
ownership interest of the limited partners (other than the Company) in the
Operating Partnership.
THE MANAGEMENT CORPORATION. In order to maintain the Company's
qualification as a REIT while realizing income from management contracts with
third parties, all of the management operations with respect to properties in
which the Company will not own 100% of the interest will be conducted through
the Management Corporation. The Company, through the Operating Partnership, will
own 100% of the non-voting common stock (representing 95% of the total equity)
of the Management Corporation.
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Through dividends on its equity interest, the Operating Partnership expects to
receive substantially all of the cash flow from the Management Corporation's
operations. All of the voting common stock of the Management Corporation
(representing 5% of the total equity) will be held by the Service Corporation
LLC. This controlling interest will give The Service Corporation LLC the power
to elect all directors of the Management Corporation.
THE MANAGEMENT LLC. All of the management and leasing operations with
respect to the Properties and properties to be acquired by the Company as well
as tenant representation services with respect to certain properties not owned
by the Company will be conducted through the Management LLC. The Operating
Partnership will own a 100% interest in the Management LLC.
THE LEASING CORPORATION. In order to maintain the Company's qualification
as a REIT while realizing income from leasing and tenant representation services
performed for third parties, all of the leasing operations with respect to
properties in which the Company will not own 100% of the interest, as well as
tenant representation services for a portion of such properties, will be
conducted through the Leasing Corporation. The Company, through the Operating
Partnership, will own 100% of the non-voting common stock (representing 95% of
the total equity) of the Leasing Corporation. Through dividends on its equity
interest, the Operating Partnership expects to receive substantially all of the
cash flow from the Leasing Corporation's operations. All of the voting common
stock of the Leasing Corporation (representing 5% of the total equity) will be
held by the Service Corporation LLC. This controlling interest will give the
Service Corporation LLC the power to elect all directors of the Leasing
Corporation.
THE CONSTRUCTION CORPORATION. In order to maintain the Company's
qualification as a REIT while realizing income from construction services all of
the Company's construction operations will be conducted through the Construction
Corporation. The Company, through the Operating Partnership, will own 100% of
the non-voting common stock (representing 95% of the total equity) of the
Construction Corporation. Through dividends on its equity interest, the
Operating Partnership expects to receive substantially all of the cash flow from
the Construction Corporation's operations. All of the voting common stock of the
Construction Corporation (representing 5% of the total equity) will be held by
the Service Corporation LLC. This controlling interest will give the Service
Corporation LLC the power to elect all directors of the Construction
Corporation.
FORMATION TRANSACTIONS
The following Formation Transactions have been consummated or will be
consummated concurrently with the completion of the Offering.
- The Company was organized as a Maryland corporation and the Operating
Partnership was organized as a Delaware limited partnership in June 1997.
In connection with the formation of the Company, certain members of SL
Green management (including Nancy A. Peck, Steven H. Klein, Benjamin P.
Feldman, Gerard Nocera and Louis A. Olsen) were issued an aggregate of
553,616 shares of Common Stock for total consideration of $3,831 in cash
(the aggregate par value amount of such stock at the time of issuance).
- LBHI entered into the LBHI Loan with Green Realty LLC pursuant to which
LBHI agreed to loan up to $46 million to acquire interests in the Core
Portfolio and the Acquisition Properties, to fund property related
operating expenses, to fund organizational expenses of the Company and to
purchase Treasury Securities. The LBHI Loan is secured by partnership
interests in certain Property-owning entities and the Treasury Securities.
- The Company will sell 10,100,000 shares of Common Stock in the Offering
and will contribute the net proceeds therefrom to the Operating
Partnership in exchange for 10,100,000 Units (representing approximately
an 76.7% economic interest in the Operating Partnership after the
Offering).
- The Operating Partnership will receive a contribution of its interests in
the Core Portfolio as well as 95% of the economic interest in the Service
Corporations from the Property-owning entities, the
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partners or members of such entities and the holders of interests in the
Service Corporations. As consideration therefor, the Operating Partnership
will issue to such entities, partners or members and holders 2,383,284
Units (having an aggregate value of approximately $47.7 million, based on
the assumed initial offering price) approximately and $6.4 million.
- The management and leasing business of SL Green with respect to the
Properties in which the Company will have a 100% ownership interest and
the tenant representation business with respect to certain properties not
owned by the Company will be transferred to the Management LLC.
- The Operating Partnership will be granted an option from 17 Battery LLC to
acquire its interest in 17 Battery Place, a property containing
approximately 800,000 rentable square feet of office space in downtown
Manhattan from an unaffiliated seller for a purchase price of
approximately $59 million in cash. See "The Properties--The Option
Property."
- The Operating Partnership will acquire interests in the Acquisition
Properties for an aggregate purchase price of approximately $113.0 million
(including a $1.6 million escrow account established in connection with
the acquisition of 50 West 23rd Street), to be funded with net proceeds
from the Offering and mortgage financing.
- The Operating Partnership will use approximately $82.3 million of net
proceeds from the Offering to repay mortgage debt encumbering the Core
Portfolio and the LBHI Loan (including approximately $9.4 million in
proceeds drawn under the LBHI Loan to fund purchase of the Acquisition
Properties).
- The Company will issue to Victor Capital 85,600 shares of restricted
Common Stock and the Operating Partnership will pay $900,000 (funded with
borrowings under the LBHI Loan and proceeds from the Offering) to Victor
Capital as consideration for financial advisory services rendered to the
Company in connection with the Formation Transactions.
No independent third-party appraisals, valuations or fairness opinions have
been obtained by the Company in connection with the Formation Transactions.
Accordingly, there can be no assurance that the value of the Units and other
consideration received in the Formation Transactions by persons or entities
contributing interests in the Core Portfolio and the Service Corporations to the
Operating Partnership is equivalent to the fair market value of such interests.
CONSEQUENCES OF THE OFFERING AND THE FORMATION TRANSACTIONS
The Offering and the Formation Transactions will have the following
consequences:
- The Operating Partnership directly or indirectly will own substantially
all of the interests in the Properties currently owned by SL Green and its
affiliates.
- The purchasers of the Common Stock offered in the Offering will own
approximately 93.7% of the outstanding Common Stock.
- The Company will be the general partner of, and will own approximately
81.9% of the ownership interests in, the Operating Partnership and 95% of
the non-voting stock in the Service Corporations.
If all limited partners in the Operating Partnership were to exchange their
Units for Common Stock immediately after the completion of the Offering
(notwithstanding the provision of the Partnership Agreement which prohibits such
exchange for up to two years following the completion of the Offering), but
subject to the Ownership Limit, then the participants in the Formation
Transactions would beneficially own approximately 18.1% of the outstanding
shares of Common Stock.
See "Risk Factors--Conflicts of Interest in the Formation Transactions and
the Business of the Company Could Adversely Affect the Company" and "Principal
Stockholders."
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BENEFITS TO RELATED PARTIES
Certain affiliates of the Company will realize certain material benefits in
connection with the Formation Transactions and the Offering, including the
following:
- Certain continuing investors (including Stephen L. Green) will receive
2,383,284 Units in consideration for their interests in the Properties,
Property-owning entities and the management, leasing and construction
businesses of SL Green with a total value of approximately $47.7 million,
based on the assumed initial public offering price (representing
approximately 18.1% of the equity of the Company on a fully-diluted
basis).
- The Operating Partnership will use $20 million to repay a portion of the
LBHI Loan that was made to Green Realty LLC and invested in Treasury
Securities pledged as collateral therefor (which, upon repayment of the
LBHI Loan, will be released for the benefit of Stephen L. Green).
- Certain members of SL Green management (including Nancy A. Peck, Steven H.
Klein, Benjamin P. Feldman, Gerard Nocera and Louis A. Olsen) own an
aggregate of 553,616 shares of restricted Common Stock that initially will
have a value of $11.1 million, based on the assumed initial public
offering price.
- Certain members of SL Green management (including Stephen L. Green, David
J. Nettina, Nancy A. Peck, Steven H. Klein, Benjamin P. Feldman, Gerard
Nocera and Louis A. Olsen) will become officers and/or directors of the
Company. In addition, each of such persons will enter into employment and
noncompetition agreements with the Company. See "Management--Employment
and Noncompetition Agreements." Also, the Company will grant to directors,
officers and employees of the Company options to purchase an aggregate of
660,000 shares of Common Stock at the initial public offering price under
the Company's stock option and incentive plan, subject to certain vesting
requirements. In addition, pursuant to the terms of their employment
agreements, Messrs. Nettina and Klein will receive loans to purchase
Common Stock to be issued under such plan in the principal amount of
$300,000 and $500,000, respectively. See "Management."
- The structure of the Formation Transactions will provide the Unit
recipients (including the members of management referred to above) the
opportunity for deferral of the tax consequences of their contribution to
the Operating Partnership of their interest in the Properties,
Property-owning entities and Service Corporations.
- The Service Corporation LLC will own all of the voting stock of each of
the Service Corporations (representing a 5% equity interest therein).
- Pursuant to the Lock-out Provisions, the Company will be restricted in its
ability to sell, or reduce the amount of mortgage indebtedness on, two of
the Properties (673 First Avenue and 470 Park Avenue South) for up to 12
years following the completion of the Offering, which could enable certain
participants in the Formation Transactions (including Stephen L. Green) to
defer certain tax consequences associated with the Formation Transactions.
- Persons or entities receiving Units in the Formation Transactions
(including entities owned by Stephen L. Green) will have registration
rights with respect to shares of Common Stock issued in exchange for
Units.
See "Risk Factors--Conflicts of Interests in the Formation Transactions and
the Business of the Company Could Adversely Affect the Company," "Management"
and "Certain Relationships and Transactions."
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
The following is a discussion of certain investment, financing and other
policies of the Company. These policies have been determined by the Company's
Board of Directors and may be amended or revised from time to time by the Board
of Directors without a vote of the stockholders, except that (i) the Company
cannot change its policy of holding its assets and conducting its business only
through the
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Operating Partnership and its affiliates without the consent of the holders of
Units as provided in the Partnership Agreement, (ii) changes in certain policies
with respect to conflicts of interest must be consistent with legal
requirements, and (iii) the Company cannot take any action intended to terminate
its qualification as a REIT without the approval of the holders of a majority of
the outstanding shares of Common Stock.
INVESTMENT POLICIES
INVESTMENT IN REAL ESTATE OR INTERESTS IN REAL ESTATE. The Company will
conduct all of its investment activities through the Operating Partnership and
its affiliates. The Company's primary business objective is to maximize total
return to stockholders through growth in distributable cash flow and
appreciation in the value of its assets. For a discussion of the Properties and
the Company's corporate and growth strategies, see "The Properties" and
"Business and Growth Strategies." In general, it is the Company's policy to
acquire assets primarily for income.
The Company expects to pursue its investment objectives primarily through
the direct or indirect ownership by the Operating Partnership of the Properties
and other acquired office properties. The Company currently intends to invest
primarily in existing improved properties but may, if market conditions warrant,
invest in development projects as well. Furthermore, the Company currently
intends to invest in or develop commercial office properties, primarily in
midtown Manhattan. However, future investment or development activities will not
be limited to any geographic area or product type or to a specified percentage
of the Company's assets. The Company does not have any limit on the amount or
percentage of its assets that may be invested in any one property or any one
geographic area. The Company intends to engage in such future investment or
development activities in a manner which is consistent with the maintenance of
its status as a REIT for Federal income tax purposes. In addition, the Company
may purchase or lease income-producing commercial properties and other types of
properties for long-term investment, expand and improve the real estate
presently owned or other properties purchased, or sell such real estate or other
properties, in whole or in part, if and when circumstances warrant.
The Company also may participate with third parties in property ownership,
through joint ventures or other types of co-ownership. Such investments may
permit the Company to own interests in larger assets without unduly restricting
diversification and, therefore, may add flexibility in structuring its
portfolio. The Company will not, however, enter into a joint venture or
partnership to make an investment that would not otherwise meet its investment
policies.
Equity investments may be subject to existing mortgage financing and other
indebtedness or such financing or indebtedness as may be incurred in connection
with acquiring or refinancing these investments. Debt service on such financing
or indebtedness will have a priority over any distributions with respect to the
Common Stock. Investments also are subject to the Company's policy not to be
treated as an investment company under the Investment Company Act of 1940, as
amended (the "1940 Act").
INVESTMENTS IN REAL ESTATE MORTGAGES. While the Company's business
objectives emphasize equity investments in commercial real estate, the Company
may, in the discretion of the Board of Directors, invest in mortgages and other
types of equity real estate interests consistent with the Company's
qualification as a REIT. In that regard, upon completion of the Formation
Transactions, the Company will acquire mortgage interests in the Bar Building
and 1372 Broadway which will provide the Company with substantially all control
over, and economic interest derived from, such Properties. Although the Company
does not presently intend to emphasize investments in mortgages or deeds of
trust, it may invest in non-performing mortgages on an opportunistic basis in
order to acquire an equity interest in the underlying property or in
participating or convertible mortgages if the Company concludes that it would be
in the Company's interest to do so. Investments in real estate mortgages are
subject to the risk that one or more borrowers may default under such mortgages
and that the collateral securing such mortgages may not be sufficient to enable
an investor to recoup its full investment.
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SECURITIES OR INTERESTS IN PERSONS PRIMARILY ENGAGED IN REAL ESTATE
ACTIVITIES AND OTHER ISSUERS. Subject to the percentage of ownership limitations
and gross income tests necessary for REIT qualification, the Company also may
invest in securities of other REITs, securities of other entities engaged in
real estate activities or securities of other issuers, including for the purpose
of exercising control over such entities. See "Material Federal Income Tax
Consequences--Taxation of the Company." No such investment will be made,
however, unless the Board of Directors determines that the proposed investment
would not cause the Company or the Operating Partnership to be an "investment
company" within the meaning of the 1940 Act. The Company may acquire all or
substantially all of the securities or assets of other REITs or similar entities
if such investments would be consistent with the Company's investment policies.
DISPOSITION POLICIES
The Company does not currently intend to dispose of any of the Properties,
although it reserves the right to do so, subject to the Lock-out Provisions, if,
based upon management's periodic review of the Company's portfolio, the Board of
Directors determines that such action would be in the best interests of the
Company. The tax consequences of the disposition of the Properties may, however,
influence the decision of certain directors and executive officers of the
Company who hold Units as to the desirability of a proposed disposition. See
"Risk Factors--Conflicts of Interests in the Formation Transactions and the
Business of the Company Could Adversely Affect the Company" and "--Limitations
on Ability to Sell or Reduce the Mortgage Indebtedness on Certain Properties
Could Adverseley Affect the Value of the Common Stock."
Any decision to dispose of a Property must be approved by a majority of the
Board of Directors (and in accordance with the applicable partnership
agreement). In addition, under the Lock-out Provisions contained in the
Partnership Agreement, the Company may not sell (except in certain events,
including certain transactions that would not result in the recognition of any
gain for tax purposes) 673 First Avenue and 470 Park Avenue South during the
Lock-out Period without, in the case of either Property, the consent of holders
of 75% of the Units originally issued to limited partners in the Operating
Partnership who immediately prior to completion of the Formation Transactions
owned direct or indirect interests in such Property that remain outstanding at
the time of such vote (other than Units held by the Company and excluding any
such Units the adjusted tax basis of which has been increased, in the hands of
the holder or any predecessor holder thereof, to reflect fair market value
through a taxable disposition or otherwise). The Lock-out Provisions apply even
if it would otherwise be in the best interest of the stockholders for the
Company to sell one or more of these three Properties.
FINANCING POLICIES
As a general policy, the Company intends to limit its total consolidated
indebtedness, and its pro rata share of unconsolidated indebtedness, so that at
the time any debt is incurred, the Company's Debt Ratio does not exceed 50%.
Upon the completion of the Offering and the Formation Transactions, the Debt
Ratio of the Company will be approximately 15.0%. The Charter and Bylaws do not,
however, limit the amount or percentage of indebtedness that the Company may
incur. In addition, the Company may from time to time modify its debt policy in
light of current economic conditions, relative costs of debt and equity capital,
market values of its Properties, general conditions in the market for debt and
equity securities, fluctuations in the market price of its Common Stock, growth
and acquisition opportunities and other factors. Accordingly, the Company may
increase its Debt Ratio beyond the limits described above. If this policy were
changed, the Company could become more highly leveraged, resulting in an
increased risk of default on its obligations and a related increase in debt
service requirements that could adversely affect the financial condition and
results of operations of the Company and the Company's ability to make
distributions to stockholders.
The Company has established its debt policy relative to the total market
capitalization of the Company computed at the time the debt is incurred, rather
than relative to the book value of its assets, a ratio that is frequently
employed, because it believes the book value of its assets (which to a large
extent is
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the depreciated value of real property, the Company's primary tangible asset)
does not accurately reflect its ability to borrow and to meet debt service
requirements. Total market capitalization, however, is subject to greater
fluctuation than book value, and does not necessarily reflect the fair market
value of the underlying assets of the Company at all times. Moreover, due to
fluctuations in the value of the Company's portfolio of properties over time,
and since any measurement of the Company's total consolidated indebtedness, and
its pro rata share of unconsolidated indebtedness incurred, to total market
capitalization is made only at the time debt is incurred, the Debt Ratio could
exceed the 50% level.
The Company has not established any limit on the number or amount of
mortgages that may be placed on any single property or on its portfolio as a
whole.
Although the Company will consider factors other than total market
capitalization in making decisions regarding the incurrence of debt (such as the
purchase price of properties to be acquired with debt financing, the estimated
market value of properties upon refinancing, and the ability of particular
properties and the Company as a whole to generate sufficient cash flow to cover
expected debt service), there can be no assurance that the Debt Ratio, or any
other measure of asset value, at the time the debt is incurred or at any other
time will be consistent with any particular level of distributions to
stockholders.
CONFLICT OF INTEREST POLICIES
Certain holders of Units, including Stephen L. Green, will incur adverse tax
consequences upon the sale of certain of the Properties to be owned by the
Company at the completion of the Formation Transactions and on the repayment of
indebtedness which are different from the tax consequences to the Company and
persons who purchase shares of Common Stock in the Offering. Consequently, such
holders may have different objectives regarding the appropriate pricing and
timing of any such sale or repayment of indebtedness. In addition, pursuant to
the Lock-out Provisions, the Operating Partnership may not sell or reduce the
mortgage indebtedness on 673 First Avenue and 470 Park Avenue South for up to 12
years following completion of the Offering, even if such sale or reduction in
mortgage indebtedness would be in the best interests of the Company's
stockholders. Subject to the Lock-out Provisions, the limited partners of the
Operating Partnership have agreed that in the event of a conflict in the
fiduciary duties owed by the Company to its stockholders and by the General
Partner to such limited partners, the General Partner will fulfill its fiduciary
duties to such limited partnership by acting in the best interest of the
Company's stockholders. See "Partnership Agreement."
The Company has adopted certain policies and entered into agreements with
its executive officers designed to eliminate or minimize certain potential
conflicts of interest. See "Management--Employment and Noncompetition
Agreements." In that regard, the Company has adopted a policy that, without the
approval of a majority of the disinterested Directors, it will not (i) acquire
from or sell to any director, officer or employee of the Company, or any entity
in which a director, officer or employee of the Company beneficially owns more
than a 1% interest, or acquire from or sell to any affiliate of any of the
foregoing, any of the assets or other property of the Company, (ii) make any
loan to or borrow from any of the foregoing persons or (iii) engage in any other
transaction with any of the foregoing persons.
In addition, the Company's Board of Directors is subject to certain
provisions of Maryland law, which are designed to eliminate or minimize certain
potential conflicts of interest. There can be no assurance, however, that these
policies and provisions or these agreements always will be successful in
eliminating the influence of such conflicts, and if they are not successful,
decisions could be made that may fail to reflect fully the interests of all
stockholders.
See "Risk Factors--Conflicts of Interest in the Formation Transactions and
the Business of the Company Could Adversely Affect the Company."
INTERESTED DIRECTOR AND OFFICER TRANSACTIONS
Under Maryland law, a contract or other transaction between the Company and
a director or between the Company and any other corporation or other entity in
which a director is a director or has a material financial interest is not void
or voidable solely on the grounds of such common directorship or interest, the
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presence of the director at the meeting at which the contract or transaction is
authorized, approved or ratified or the counting of the director's vote in favor
thereof if (i) the transaction or contract is authorized, approved or ratified
by the board of directors or a committee of the board, after disclosure of the
common directorship or interest, by the affirmative vote of a majority of
disinterested directors, even if the disinterested directors constitute less
than a quorum, or by a majority of the votes cast by disinterested stockholders,
or (ii) the transaction or contract is fair and reasonable to the Company.
Under Delaware law (where the Operating Partnership is formed), the Company,
as general partner, has a fiduciary duty to the Operating Partnership and,
consequently, such transactions also are subject to the duties of care and
loyalty that the Company, as general partner, owes to limited partners in the
Operating Partnership (to the extent such duties have not been eliminated
pursuant to the terms of the Partnership Agreement). The Company will adopt a
policy which requires that all contracts and transactions between the Company,
the Operating Partnership or any of its subsidiaries, on the one hand, and a
director or executive officer of the Company or any entity in which such
director or executive officer is a director or has a material financial
interest, on the other hand, must be approved by the affirmative vote of a
majority of the disinterested directors. Where appropriate in the judgment of
the disinterested directors, the Board of Directors may obtain a fairness
opinion or engage independent counsel to represent the interests of
non-affiliated security holders, although the Board of Directors will have no
obligation to do so.
BUSINESS OPPORTUNITIES
Pursuant to Maryland law, each director is obligated to offer to the Company
any business opportunity (with certain limited exceptions) that comes to him and
that the Company reasonably could be expected to have an interest in pursuing.
After the Formation Transactions, SL Green will continue to own interests in
certain other properties as well as entities that will provide cleaning (and
related) services to office properties and security services to office
properties, including the Properties. The Company will not have any interest in
these properties or businesses. See "The Properties--Assets Not Being
Transferred to the Company."
POLICIES WITH RESPECT TO OTHER ACTIVITIES
The Company and the Operating Partnership have authority to offer Common
Stock, Preferred Stock, Units, preferred Units or options to purchase capital
stock or Units in exchange for property and to repurchase or otherwise acquire
its Common Stock or Units or other securities in the open market or otherwise
and may engage in such activities in the future. Except in connection with the
Formation Transactions, the Company has not issued Common Stock, Units or any
other securities in exchange for property or any other purpose, and the Board of
Directors has no present intention of causing the Company to repurchase any
Common Stock. The Company may issue Preferred Stock from time to time, in one or
more series, as authorized by the Board of Directors without the need for
stockholder approval. See "Capital Stock--Preferred Stock." The Company has not
engaged in trading, underwriter or agency distribution or sale of securities of
other issuers other than the Operating Partnership, nor has the Company invested
in the securities of other issuers other than the Operating Partnership for the
purposes of exercising control, and does not intend to do so. At all times, the
Company intends to make investments in such a manner as to qualify as a REIT,
unless because of circumstances or changes in the Code (or the Treasury
Regulations), the Board of Directors determines that it is no longer in the best
interest of the Company to qualify as a REIT and such determination is approved
by a majority vote of the Company's stockholders, as required by the Charter.
The Company has not made any loans to third parties, although it may in the
future make loans to third parties, including, without limitation, to joint
ventures in which it participates. The Company intends to make investments in
such a way that it will not be treated as an investment company under the 1940
Act. The Company's policies with respect to such activities may be reviewed and
modified or amended from time to time by the Company's Board of Directors
without a vote of the stockholders.
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CERTAIN RELATIONSHIPS AND TRANSACTIONS
FORMATION TRANSACTIONS
The terms of the acquisitions of interests in the Properties and the Service
Corporations by the Operating Partnership are described in "Structure and
Formation of the Company--Formation Transactions."
CLEANING SERVICES
First Quality Maintenance, L.P. ("First Quality") provides cleaning and
related services with respect to the Properties. First Quality is owned by Gary
Green, a son of Stephen L. Green. First Quality also provides additional
services directly to tenants on a separately negotiated basis. The aggregate
amount of fees to First Quality for services provided (excluding services
provided directly to tenants) was approximately $188,000 in 1994, $164,000 in
1995 and $296,000 in 1996. After the completion of the Offering, the Company may
retain First Quality to provide cleaning and related services for the Company's
properties at market rates. In addition, the cleaning entity will continue to
have the non-exclusive opportunity to provide cleaning and related services to
individual tenants at the Company's properties on a basis separately negotiated
with any tenant seeking such additional services. The cleaning entity will
provide such services to individual tenants pursuant to agreements on customary
terms (including at market rates). First Quality leases 3,740 square feet of
space at 70 West 36th Street pursuant to a lease that expires on December 31,
2005 and provides for annual rental payments of approximately $68,660.
SECURITY SERVICES
Classic Security LLC ("Classic Security") provides security services with
respect to the Properties. Classic Security is owned by Gary Green, a son of
Stephen L. Green. The aggregate amount of fees for such services was
approximately $24,000 in 1996 (no fees were paid to such entity in 1994 or
1995). After the completion of the Offering, Classic Security may continue to
provide security services for the Company's properties at market rates.
RELATED PARTY TRANSACTIONS
During 1996, HRA, a real estate and management consulting firm of which John
H. Alschuler, Jr., a director nominee of the Company, is the President provided
consulting services for the Leasing Corporation. HRA negotiated certain New York
City benefit programs for Information Builders, Inc., a tenant that was
represented by the Leasing Corporation in connection with its relocation from
1250 Broadway to 2 Penn Plaza. For such services, HRA was paid a total of
$128,962.99 by the Leasing Corporation.
PARTNERSHIP AGREEMENT
THE FOLLOWING SUMMARY OF THE AGREEMENT OF LIMITED PARTNERSHIP OF THE
OPERATING PARTNERSHIP (THE "PARTNERSHIP AGREEMENT"), INCLUDING THE DESCRIPTIONS
OF CERTAIN PROVISIONS SET FORTH ELSEWHERE IN THIS PROSPECTUS, IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE PARTNERSHIP AGREEMENT, WHICH IS FILED AS AN
EXHIBIT TO THE REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A PART.
OPERATIONAL MATTERS
GENERAL. Holders of Units (other than the Company in its capacity as
general partner) will hold a limited partnership interest in the Operating
Partnership, and all holders of Units (including the Company in its capacity as
general partner) will be entitled to share in cash distributions from, and in
the profits and losses of, the Operating Partnership. Each Unit generally will
receive distributions in the same amount paid on each share of Common Stock. See
"Distributions."
Holders of Units will have the rights to which limited partners are entitled
under the Partnership Agreement and, to the extent not limited by the
Partnership Agreement, the Delaware Revised Uniform
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Limited Partnership Act (the "Act"). The Units have not been and are not
expected to be registered pursuant to any Federal or state securities laws or
listed on any exchange or quoted on any national market system. The Partnership
Agreement imposes certain restrictions on the transfer of Units, as described
below.
PURPOSES, BUSINESS AND MANAGEMENT. The purpose of the Operating Partnership
includes the conduct of any business that may be lawfully conducted by a limited
partnership formed under the Act, except that the Partnership Agreement requires
the business of the Operating Partnership to be conducted in such a manner that
will permit the Company to be classified as a REIT under Section 856 of the
Code, unless the Company ceases to qualify as a REIT for reasons other than the
conduct of the business of the Operating Partnership. Subject to the foregoing
limitation, the Operating Partnership may enter into partnerships, joint
ventures or similar arrangements and may own interests directly or indirectly in
any other entity.
The Company, as the general partner of the Operating Partnership, has the
exclusive power and authority to conduct the business of the Operating
Partnership, subject to the consent of the limited partners in certain limited
circumstances discussed below. No limited partner may take part in the
operation, management or control of the business of the Operating Partnership by
virtue of being a holder of Units.
The Company may not conduct any business other than the business of the
Operating Partnership without the consent of the holders of a majority of the
limited partnership interests (not including the limited partnership interests
held by the Company in its capacity as a limited partner in the Operating
Partnership).
DISTRIBUTIONS. The Partnership Agreement provides for the quarterly
distribution of Available Cash (as defined below), as determined in the manner
provided in the Partnership Agreement, to the Company and the limited partners
in proportion to their percentage interests in the Operating Partnership.
"Available Cash" is generally defined as net income plus any reduction in
reserves and minus interest and principal payments on debt, capital
expenditures, any additions to reserves and other adjustments. Neither the
Company nor the limited partners are entitled to any preferential or
disproportionate distributions of Available Cash.
BORROWING BY THE OPERATING PARTNERSHIP. The Company is authorized to cause
the Operating Partnership to borrow money and to issue and guarantee debt as it
deems necessary for the conduct of the activities of the Operating Partnership.
Such debt may be secured by mortgages, deeds of trust, liens or encumbrances on
properties of the Operating Partnership. The Company also may cause the
Operating Partnership to borrow money to enable the Operating Partnership to
make distributions, including distributions in an amount sufficient to permit
the Company, as long as it qualifies as a REIT, to avoid the payment of any
Federal income tax. See "Policies with Respect to Certain Activities--Financing
Policies." Pursuant to the Lock-out Provisions, the Operating Partnership may
not, earlier than one year prior to its maturity, repay the mortgage
indebtedness on 673 First Avenue or 470 Park Avenue South and may not consent to
any such prepayment of mortgage indebtedness on 673 First Avenue or 470 Park
Avenue South (other than pursuant to scheduled amortization) during the Lock-out
Period without, in the case of each such Property, the consent of holders of 75%
of the Units originally issued to limited partners in the Operating Partnership
who immediately prior to completion of the Formation Transactions owned direct
or indirect interests in such Property that remain outstanding at the time of
such vote (whether held by the original recipient of such Units or by a
successor or transferee of the original recipient, but excluding Units held by
the Company and excluding any such Units the adjusted tax basis of which has
been increased, in the hands of the holder or any predecessor holder thereof, to
reflect fair market value through a taxable disposition or otherwise) unless the
repayment is in connection with either a refinancing of the outstanding debt (on
a basis that is nonrecourse to the Operating Partnership and providing for the
least amount of principal amortization that is available on commercially
reasonable terms and permitting certain guarantees by the holders of the Units
originally issued with respect to the affected Property) or an involuntary
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sale pursuant to foreclosure of a mortgage securing the debt (or other similar
event). In addition, during the Lock-out Period, the Company is obligated to use
commercially reasonable efforts, commencing one year prior to the stated
maturity, to refinance at maturity (on a basis that is nonrecourse to the
Operating Partnership and providing for the least amount of principal
amortization that is available on commercially reasonable terms and permitting
certain guarantees by the holders of the Units originally issued with respect to
the affected Property) the mortgage indebtedness secured by each of these two
Properties at not less than the principal amount outstanding on the maturity
date. Finally, during the Lock-out Period, the Company may not incur debt
secured by either of these two Properties if the amount of the new debt would
exceed the greater of 75% of the value of the Property securing the debt or the
amount of existing debt being refinanced (plus the costs associated therewith).
REIMBURSEMENT OF THE COMPANY; TRANSACTIONS WITH THE COMPANY AND ITS
AFFILIATES. The Company will not receive any compensation for its services as
general partner of the Operating Partnership. The Company, however, as a partner
in the Operating Partnership, has the same right to allocations and
distributions as other partners in the Operating Partnership. In addition, the
Operating Partnership will reimburse the Company for substantially all expenses
it incurs relating to the ongoing operation of the Company and offerings of
Units or shares of Common Stock (or rights, options, warrants or convertible or
exchangeable securities).
Except as expressly permitted by the Partnership Agreement, affiliates of
the Company will not engage in any transactions with the Operating Partnership
except on terms that are fair and reasonable and no less favorable to the
Operating Partnership than would be obtained from an unaffiliated third party.
SALES OF ASSETS. Under the Partnership Agreement, the Company generally has
the exclusive authority to determine whether, when and on what terms the assets
of the Operating Partnership (including the Properties) will be sold, subject to
the Lock-out Provisions. A sale of all or substantially all of the assets of the
Operating Partnership (or a merger of the Operating Partnership with another
entity) generally requires an affirmative vote of the holders of a majority of
the outstanding Units (including Units held by the Company), but also is subject
to the Lock-out Provisions.
Under the Lock-out Provisions, the Operating Partnership may not sell or
otherwise dispose of 673 First Avenue or 470 Park Avenue South (or any direct or
indirect interest therein) during the Lock-out Period (except pursuant to a sale
or other disposition of all or substantially all of the Operating Partnership's
assets approved as described below, an involuntary sale pursuant to foreclosure
of a mortgage secured by one of these Properties or a bankruptcy proceeding, and
certain transactions, including a "Section 1031 like-kind exchange," that would
not result in the recognition of any gain for tax purposes by the holders of
Units issued in the Formation Transactions with respect to these Properties)
without, in the case of each such Property, the consent of holders of 75% of the
Units originally issued to limited partners in the Operating Partnership who
immediately prior to the completion of the Formation Transactions owned direct
or indirect interests in such Property that remain outstanding at the time of
such vote (whether held by the original recipient of such Units or by a
successor or transferee of the original recipient, but excluding Units held by
the Company and excluding any such Units the adjusted tax basis of which has
been increased, in the hands of the holder or any predecessor holder thereof, to
reflect fair market value through a taxable disposition or otherwise). Under the
Lock-out Provisions, a sale or other disposition of all or substantially all of
the assets of the Operating Partnership during the Lock-out Period generally
would require the approval of the holders, as a group, of 75% of the aggregate
Units originally issued with respect to 673 First Avenue and 470 Park Avenue
South that remain outstanding (whether held by the original recipient of such
Units or by a successor or transferee of the original recipient, but excluding
Units held by the Company and excluding any such Units the adjusted tax basis of
which has been increased, in the hands of the holder or any predecessor holder
thereof, to reflect fair market value through a taxable disposition or
otherwise). The consent requirement under the Lockout Provisions, however, would
not apply in the event of a merger or consolidation involving the Operating
Partnership and substantially all of its assets if (i) the transaction would not
result in the recognition of any gain with
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respect to the Units originally issued with respect to 673 First Avenue and 470
Park Avenue South, (ii) the Lock-out Provisions would continue to apply with
respect to each of these two Properties, and (iii) the surviving entity agrees
to a number of restrictions and conditions for the benefit of the holders of
such Units designed to preserve the benefit of certain provisions and
restrictions in the Partnership Agreement for the holders of such Units.
NO REMOVAL OF THE GENERAL PARTNER. The Partnership Agreement provides that
the limited partners may not remove the Company as general partner of the
Operating Partnership with or without cause (unless neither the General Partner
nor its parent entity is a "public company," in which case the General Partner
may be removed for cause).
ISSUANCE OF LIMITED PARTNERSHIP INTERESTS. The Company is authorized,
without the consent of the limited partners, to cause the Operating Partnership
to issue Units to the Company, to the limited partners or to other persons for
such consideration and upon such terms and conditions as the Company deems
appropriate. The Operating Partnership also may issue partnership interests in
different series or classes, which may be senior to the Units. If Units are
issued to the Company, then the Company must issue shares of Common Stock and
must contribute to the Operating Partnership the proceeds received by the
Company from such issuance. In addition, the Company may cause the Operating
Partnership to issue to the Company partnership interests in different series or
classes of equity securities, which may be senior to the Units, in connection
with an offering of securities of the Company having substantially similar
rights upon the contribution of the proceeds therefrom to the Operating
Partnership. Consideration for partnership interests may be cash or any property
or other assets permitted by the Act. No limited partner has preemptive,
preferential or similar rights with respect to capital contributions to the
Operating Partnership or the issuance or sale of any partnership interests
therein.
AMENDMENT OF THE PARTNERSHIP AGREEMENT. Generally, the Partnership
Agreement may be amended with the approval of the Company, as general partner,
and limited partners (including the Company) holding a majority of the Units.
Certain provisions regarding, among other things, the rights and duties of the
Company as general partner or the dissolution of the Operating Partnership, may
not be amended without the approval of a majority of the Units not held by the
Company. Notwithstanding the foregoing, the Company, as general partner, has the
power, without the consent of the limited partners, to amend the Partnership
Agreement in certain circumstances. Certain amendments that would affect the
fundamental rights of a limited partner must be approved by the Company and each
limited partner that would be adversely affected by such amendment. In addition,
any amendment that would affect the Lock-out Provisions with respect to 673
First Avenue or 470 Park Avenue South during the Lock-out Period would require,
in the case of each such Property affected by the Amendment, the consent of
holders of 75% of the Units originally issued with respect to such Property that
remain outstanding at the time of such vote (whether held by the original
recipient of such Units or by a successor or transferee of the original
recipient, but excluding Units held by the Company and excluding any such Units
the adjusted tax basis of which has been increased, in the hands of the holder
or any predecessor holder thereof, to reflect fair market value through a
taxable disposition or otherwise).
DISSOLUTION, WINDING UP AND TERMINATION. The Operating Partnership will
continue until December 31, 2095, unless sooner dissolved and terminated. The
Operating Partnership will be dissolved prior to the expiration of its term, and
its affairs wound up upon the occurrence of the earliest of: (i) the withdrawal
of the Company as general partner without the permitted transfer of the
Company's interest to a successor general partner (except in certain limited
circumstances); (ii) the sale of all or substantially all of the Operating
Partnership's assets and properties (subject to the Lock-out Provisions during
the Lockout Period); (iii) the entry of a decree of judicial dissolution of the
Operating Partnership pursuant to the provisions of the Act; (iv) the entry of a
final non-appealable order for relief in a bankruptcy proceeding of the general
partner, or the entry of a final non-appealable judgment ruling that the general
partner is bankrupt or insolvent (except that, in either such case, in certain
circumstances the limited partners (other than the Company) may vote to continue
the Operating Partnership and substitute a new
115
general partner in place of the Company); and (v) on or after January 1, 2046,
at the option of the Company, in its sole and absolute discretion. Upon
dissolution, the Company, as general partner, or any liquidator will proceed to
liquidate the assets of the Operating Partnership and apply the proceeds
therefrom in the order of priority set forth in the Partnership Agreement.
LIABILITY AND INDEMNIFICATION
LIABILITY OF THE COMPANY AND LIMITED PARTNERS. The Company, as general
partner of the Operating Partnership, is liable for all general recourse
obligations of the Operating Partnership to the extent not paid by the Operating
Partnership. The Company is not liable for the nonrecourse obligations of the
Operating Partnership. Assuming that a limited partner does not take part in the
control of the business of the Operating Partnership and otherwise acts in
conformity with the provisions of the Partnership Agreement and the Act, the
liability of a limited partner for obligations of the Operating Partnership
under the Partnership Agreement and the Act will be limited, subject to certain
exceptions, generally to the loss of such limited partner's investment in the
Operating Partnership represented by his Units. The Operating Partnership will
operate in a manner that the Company deems reasonable, necessary or appropriate
to preserve the limited liability of the limited partners.
EXCULPATION AND INDEMNIFICATION OF THE COMPANY. The Partnership Agreement
generally provides that the Company, as general partner of the Operating
Partnership, will incur no liability to the Operating Partnership or any limited
partner for losses sustained, liabilities incurred or benefits not derived as a
result of errors in judgment or mistakes of fact or law or of any act or
omission, if the Company carried out its duties in good faith. In addition, the
Company is not responsible for any misconduct or negligence on the part of its
agents, provided the Company appointed such agents in good faith.
The Partnership Agreement also provides for indemnification (including, in
certain circumstances, the advancement of expenses) of the Company, the
directors and officers of the Company and such other persons as the Company may
from time to time designate against any judgments, penalties, fines, settlements
and reasonable expenses that are actually (or will be) incurred by such person
in connection with a proceeding in which any such person is involved, or is
threatened to be involved, as a party or otherwise, unless it is established
that: (i) the act or omission of the indemnified person was material to the
matter giving rise to the proceeding and either was committed in bad faith or
was the result of active and deliberate dishonesty; (ii) the indemnified person
actually received an improper personal benefit in money, property or services;
or (iii) in the case of any criminal proceeding, the indemnified person had
reasonable cause to believe that the act or omission was unlawful.
TRANSFERS OF INTERESTS
RESTRICTIONS ON TRANSFER OF THE COMPANY'S INTEREST. The Company may not
transfer any of its interests as general or limited partner in the Operating
Partnership, except in connection with a merger or sale of all or substantially
all of its assets, in which (i) the limited partners in the Operating
Partnership either will receive, or will have the right to receive,
substantially the same consideration as holders of shares of Common Stock, and
(ii) such transaction has been approved by the holders of a majority of the
interests in the Operating Partnership (including interests held by the
Company). The Lock-out Provisions do not apply to a sale or other transfer by
the Company of its interests as a partner in the Operating Partnership, but they
would apply to transfers of assets of the Operating Partnership undertaken
during the Lock-out Period in connection with or as part of any such transaction
by the Company. See "--Operational Matters--Sales of Assets" above.
RESTRICTIONS ON TRANSFERS OF UNITS BY LIMITED PARTNERS. For up to two years
after the completion of the Offering, a limited partner may not transfer any of
his rights as a limited partner without the consent of the Company, which
consent the Company may withhold in its sole discretion. Any attempted transfer
in violation of this restriction will be void ab initio and without any force or
effect. Beginning two years after the completion of the Offering, limited
partners (other than the Company) will be permitted to transfer all
116
or any portion of their Units without restriction as long as they satisfy
certain requirements set forth in the Partnership Agreement. In addition,
limited partners will be permitted to dispose of their Units following the
expiration of up to a two-year period following the completion of the Offering
by exercising the redemption right described below. See "--Redemption of Units"
below.
The right of any permitted transferee of Units to become a substituted
limited partner is subject to the consent of the Company, which consent the
Company may withhold in its sole and absolute discretion. If the Company does
not consent to the admission of a transferee of Units as a substituted limited
partner, then the transferee will succeed to all economic rights and benefits
attributable to such Units (including the redemption right described below), but
will not become a limited partner or possess any other rights of limited
partners (including the right to vote).
REDEMPTION OF UNITS. Subject to certain limitations and exceptions, holders
of Units (other than the Company) have the right to have each of their Units
redeemed by the Operating Partnership at any time beginning two years after the
completion of the Formation Transactions. Unless the Company elects to assume
and perform the Operating Partnership's obligation with respect to the
redemption right, as described below, the limited partner will receive cash from
the Operating Partnership in an amount equal to the market value of the Units to
be redeemed. The market value of a Unit for this purpose will be equal to the
average of the closing trading price of a share of Common Stock on the NYSE for
the ten trading days before the day on which the redemption notice was given to
the Operating Partnership of exercise of the redemption right. In lieu of the
Operating Partnership's acquiring the Units for cash, the Company will have the
right (except as described below, if the Common Stock is not publicly traded) to
elect to acquire the Units directly from a limited partner exercising the
redemption right, in exchange for either cash or shares of Common Stock, and,
upon such acquisition, the Company will become the owner of such Units. The
redemption generally will occur on the tenth business day after the notice to
the Operating Partnership, except that no redemption or exchange can occur if
delivery of shares of Common Stock would be prohibited either under the
provisions of the Company's Charter designed primarily to protect the Company's
qualification as a REIT or under applicable Federal or state securities laws as
long as the shares of Common Stock are publicly traded. See "Capital
Stock--Restrictions on Transfer--Ownership Limits."
In the event that the Common Stock is not publicly traded but another entity
whose stock is publicly traded owns more than 50% of the capital stock of the
Company (referred to as the "Parent Entity"), the redemption right will be
determined by reference to the publicly traded stock of the Parent Entity and
the Company will have the right to elect to acquire the Units to be redeemed for
publicly traded stock of the Parent Entity. In the event that the Common Stock
is not publicly traded and there is no Parent Entity with publicly traded stock,
the redemption right will be based upon the fair market value of the Operating
Partnership's assets at the time the redemption right is exercised (as
determined in good faith by the Company based upon a commercially reasonable
estimate of the amount that would be realized by the Operating Partnership if
each asset of the Operating Partnership were sold to an unaffiliated purchaser
in an arm's length transaction where neither the purchaser nor the seller were
under economic compulsion to enter into the transaction), and the Company and
the Operating Partnership will be obligated to satisfy the redemption right in
cash (unless the redeeming partner, in such partner's sole and absolute
discretion, consents to the receipt of Common Stock), payable on the thirtieth
business day after notice was given to the Operating Partnership of exercise of
the redemption right.
FIDUCIARY DUTY
The limited partners have agreed, subject to the Lock-out Provisions, that
in the event of a conflict in the fiduciary duties owed by the Company to its
stockholders and by the General Partner to such limited partners, the General
Partner will fulfill its fiduciary duties to such limited partnership by acting
in the best interests of the Company's stockholders.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock (or Common Stock for which Units are exchangeable) by
(i) each director (and director nominee) of the Company, (ii) each executive
officer of the Company, (iii) all directors (including director nominees) and
executive officers of the Company as a group, and (iv) each person or entity
which is expected to be the beneficial owner of 5% or more of the outstanding
shares of Common Stock immediately following the completion of the Offering.
Except as indicated below, all of such Common Stock is owned directly, and the
indicated person or entity has sole voting and investment power. The extent to
which a person will hold shares of Common Stock as opposed to Units is set forth
in the footnotes below.
NUMBER OF
SHARES AND UNITS PERCENT OF
BENEFICIALLY PERCENT OF ALL SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED ALL SHARES(1) AND UNITS(2)
- ------------------------------------------------------------------ ----------------- ------------- -------------
Stephen L. Green (3).............................................. 2,140,784 16.6% 16.3%
David Nettina (4)................................................. 15,000 0.1% 0.1%
Nancy A. Peck (4)................................................. 197,720 1.8% 1.5%
Steven H. Klein (4)(5)............................................ 104,088 1.0% 0.8%
Benjamin P. Feldman (4)(6)........................................ 118,632 1.1% 0.9%
Gerard Nocera (4)................................................. 79,088 0.7% 0.6%
Louis A. Olsen (4)................................................ 79,088 0.7% 0.6%
Edwin Thomas Burton, III.......................................... 0 N/A N/A
John S. Levy...................................................... 0 N/A N/A
John H. Alschuler, Jr............................................. 0 N/A N/A
All directors, director nominees and executive officers as a group
(10 persons).................................................... 2,734,400 21.2% 20.8%
- ------------------------
(1) Assumes 10,779,216 shares of Common Stock outstanding immediately following
the Offering. Assumes that all Units held by the person (and no other
person) are redeemed for shares of Common Stock. The total number of shares
of Common Stock outstanding used in calculating this percentage assumes that
none of the Units held by other persons are redeemed for shares of Common
Stock.
(2) Assumes a total of 13,162,500 shares of Common Stock and Units outstanding
immediately following the Offering (10,779,216 shares of Common Stock and
2,383,284 Units, which may be redeemed for cash or shares of Common Stock
under certain circumstances). Assumes that all Units held by the person are
redeemed for shares of Common Stock. The total number of shares of Common
Stock outstanding used in calculating this percentage assumes that all of
the Units held by other persons are redeemed for shares of Common Stock.
(3) Represents Units issued in the Formation Transactions.
(4) Represents shares of restricted Common Stock.
(5) All of such shares are held by Mr. Klein through family trusts of which he
is the managing member.
(6) All of such shares are held by Mr. Feldman through a family trust of which
he is the managing member.
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CAPITAL STOCK
GENERAL
The Company's Charter provides that the Company may issue up to 100 million
shares of common stock, $.01 par value per share ("Common Stock"), 25 million
shares of preferred stock, $.01 par value per share ("Preferred Stock"), and 75
million shares of excess stock, $.01 par value per share ("Excess Stock"). Upon
completion of the Offering, 10,779,216 shares of Common Stock will be issued and
outstanding (12,294,216 shares if the Underwriters' over-allotment option is
exercised in full) and no shares of Preferred Stock will be issued and
outstanding. Under Maryland law, stockholders generally are not liable for the
corporation's debts or obligations.
COMMON STOCK
All shares of Common Stock offered hereby will be duly authorized, fully
paid and nonassessable. Subject to the preferential rights of any other shares
or series of stock and to the provisions of the Charter regarding Excess Stock,
holders of shares of Common Stock are entitled to receive dividends on such
stock if, as and when authorized and declared by the Board of Directors of the
Company out of assets legally available therefor and to share ratably in the
assets of the Company legally available for distribution to its stockholders in
the event of its liquidation, dissolution or winding up after payment of or
adequate provision for all known debts and liabilities of the Company.
Subject to the provisions of the Charter regarding Excess Stock, each
outstanding share of Common Stock entitles the holder to one vote on all matters
submitted to a vote of stockholders, including the election of directors, and,
except as provided with respect to any other class or series of stock, the
holders of such shares will possess the exclusive voting power. There is no
cumulative voting in the election of directors, which means that the holders of
a majority of the outstanding shares of Common Stock can elect all of the
directors then standing for election and the holders of the remaining shares
will not be able to elect any directors.
Holders of shares of Common Stock have no preference, conversion, exchange,
sinking fund, redemption or appraisal rights and have no preemptive rights to
subscribe for any securities of the Company. Subject to the provisions of the
Charter regarding Excess Stock, shares of Common Stock will have equal dividend,
liquidation and other rights.
The Charter authorizes the Board of Directors to reclassify any unissued
shares of Common Stock into other classes or series of classes of stock and to
establish the number of shares in each class or series and to set the
preferences, conversion and other rights, voting powers, restrictions,
limitations and restrictions on ownership, limitations as to dividends or other
distributions, qualifications and terms or conditions of redemption for each
such class or series.
PREFERRED STOCK
The Charter authorizes the Board of Directors to classify any unissued
shares of Preferred Stock and to reclassify any previously classified but
unissued shares of Preferred Stock of any series. Prior to issuance of shares of
each series the Board is required by the MGCL and the Charter to set, subject to
the provisions of the Charter regarding Excess Stock, the terms, preferences,
conversion or other rights, voting powers, restrictions, limitations and
restrictions on ownership, limitations as to dividends or other distributions,
qualifications and terms or conditions of redemption for each such series. Thus,
the Board could authorize the issuance of shares of Preferred Stock with terms
and conditions which could have the effect of delaying, deferring or preventing
a transaction or a change in control of the Company that might involve a premium
price for holders of Common Stock or otherwise be in their best interest. As of
the date hereof, no shares of Preferred Stock are outstanding and the Company
has no present plans to issue any Preferred Stock.
119
EXCESS STOCK
For a description of Excess Stock, see "--Restrictions on Transfer."
POWER TO ISSUE ADDITIONAL SHARES OF COMMON STOCK AND PREFERRED STOCK
The Company believes that the power of the Board of Directors to issue
additional authorized but unissued shares of Common Stock or Preferred Stock and
to classify or reclassify unissued shares of Common Stock or Preferred Stock and
thereafter to cause the Company to issue such classified or reclassified shares
of stock will provide the Company with increased flexibility in structuring
possible future financings and acquisitions and in meeting other needs which
might arise. The additional classes or series, as well as the Common Stock, will
be available for issuance without further action by the Company's stockholders,
unless such action is required by applicable law or the rules of any stock
exchange or automated quotation system on which the Company's securities may be
listed or traded. Although the Board of Directors has no intention at the
present time of doing so, it could authorize the Company to issue a class or
series that could, depending upon the terms of such class or series, delay,
defer or prevent a transaction or a change of control of the Company that might
involve a premium price for holders of Common Stock or otherwise be in their
best interest.
The Company intends to furnish its stockholders with annual reports
containing audited consolidated financial statements and an opinion thereon
expressed by an independent public accounting firm and quarterly reports for the
first three quarters of each fiscal year containing unaudited financial
information.
RESTRICTIONS ON TRANSFER
For the Company to qualify as a REIT under the Code, among other things, not
more than 50% in value of its outstanding capital stock may be owned, directly
or indirectly, by five or fewer individuals (defined in the Code to include
certain entities) during the last half of a taxable year (other than the first
taxable year) (the "Five or Fewer Requirement"), and such shares of capital
stock must be beneficially owned by 100 or more persons during at least 335 days
of a taxable year of 12 months (other than the first taxable year) or during a
proportionate part of a shorter taxable year. Pursuant to the Code, Common Stock
held by certain types of entities, such as pension trusts qualifying under
Section 401(a) of the Code, United States investment companies registered under
the Investment Company Act of 1940, partnerships, trusts and corporations, will
be attributed to the beneficial owners of such entities for purposes of the Five
or Fewer Requirement (I.E., the beneficial owners of such entities will be
counted as persons). See "Material Federal Income Tax Consequences." In order to
protect the Company against the risk of losing it status as a REIT due to a
concentration of ownership among its stockholders, the Charter, subject to
certain exceptions, provides that no stockholder may own, or be deemed to own by
virtue of the attribution provisions of the Code, more than 9.0% (the "Ownership
Limit") of the aggregate number or value of the Company's outstanding shares of
Common Stock. In the event the Company issues Preferred Stock, it may, in the
Articles Supplementary creating such Preferred Stock, determine a limit on the
ownership of such stock. Any direct or indirect ownership of shares of stock in
excess of the Ownership Limit or that would result in the disqualification of
the Company as a REIT, including any transfer that results in shares of capital
stock being owned by fewer than 100 persons or results in the Company being
"closely held" within the meaning of Section 856(h) of the Code, shall be null
and void, and the intended transferee will acquire no rights to the shares of
capital stock. The foregoing restrictions on transferability and ownership will
not apply if the Board of Directors determines that it is no longer in the best
interests of the Company to attempt to qualify, or to continue to qualify, as a
REIT. The Board of Directors may, in its sole discretion, waive the Ownership
Limit if evidence satisfactory to the Board of Directors and the Company's tax
counsel is presented that the changes in ownership will not then or in the
future jeopardize the Company's REIT status and the Board of Directors otherwise
decides that such action is in the best interest of the Company.
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Shares of capital stock owned, or deemed to be owned, or transferred to a
stockholder in excess of the Ownership Limit will automatically be converted
into shares of Excess Stock that will be transferred, by operation of law, to
the trustee of a trust for the exclusive benefit of one or more charitable
organizations described in Section 170(b)(1)(A) and 170(c) of the Code (the
"Charitable Beneficiary"). The trustee of the trust will be deemed to own the
Excess Stock for the benefit of the Charitable Beneficiary on the date of the
violative transfer to the original transferee-stockholder. Any dividend or
distribution paid to the original transferee-stockholder of Excess Stock prior
to the discovery by the Company that capital stock has been transferred in
violation of the provisions of the Company's Charter shall be repaid to the
trustee upon demand. Any dividend or distribution authorized and declared but
unpaid shall be rescinded as void ab initio with respect to the original
transferee-stockholder and shall instead be paid to the trustee of the trust for
the benefit of the Charitable Beneficiary. Any vote cast by an original
transferee-stockholder of shares of capital stock constituting Excess Stock
prior to the discovery by the Company that shares of capital stock have been
transferred in violation of the provisions of the Company's Charter shall be
rescinded as void ab initio. While the Excess Stock is held in trust, the
original transferee-stockholder will be deemed to have given an irrevocable
proxy to the trustee to vote the capital stock for the benefit of the Charitable
Beneficiary. The trustee of the trust may transfer the interest in the trust
representing the Excess Stock to any person whose ownership of the shares of
capital stock converted into such Excess Stock would be permitted under the
Ownership Limit. If such transfer is made, the interest of the Charitable
Beneficiary shall terminate and the proceeds of the sale shall be payable to the
original transferee-stockholder and to the Charitable Beneficiary as described
herein. The original transferee-stockholder shall receive the lesser of (i) the
price paid by the original transferee-stockholder for the shares of capital
stock that were converted into Excess Stock or, if the original
transferee-stockholder did not give value for such shares (E.G., the stock was
received through a gift, devise or other transaction), the average closing price
for the class of shares from which such shares of capital stock were converted
for the ten trading days immediately preceding such sale or gift, and (ii) the
price received by the trustee from the sale or other disposition of the Excess
Stock held in trust. The trustee may reduce the amount payable to the original
transferee-stockholder by the amount of dividends and distributions relating to
the shares of Excess Stock which have been paid to the original
transferee-stockholder and are owned by the original transferee-stockholder to
the trustee. Any proceeds in excess of the amount payable to the original
transferee-stockholder shall be paid by the trustee to the Charitable
Beneficiary. Any liquidation distributions relating to Excess Stock shall be
distributed in the same manner as proceeds of a sale of Excess Stock. If the
foregoing transfer restrictions are determined to be void or invalid by virtue
of any legal decision, statue, rule or regulation, then the original
transferee-stockholder of any shares of Excess Stock may be deemed, at the
option of the Company, to have acted as an agent on behalf of the Company in
acquiring the shares of Excess Stock and to hold the shares of Excess Stock on
behalf of the Company.
In addition, the Company will have the right, for a period of 90 days during
the time any shares of Excess Stock are held in trust, to purchase all or any
portion of the shares of Excess Stock at the lesser of (i) the price initially
paid for such shares by the original transferee-stockholder, or if the original
transferee-stockholder did not give value for such shares (E.G., the shares were
received through a gift, devise or other transaction), the average closing price
for the class of stock from which such shares of Excess Stock were converted for
the ten trading days immediately preceding such sale or gift, and (ii) the
average closing price for the class of stock from which such shares of Excess
Stock were converted for the ten trading days immediately preceding the date the
Company elects to purchase such shares. The Company may reduce the amount
payable to the original transferee-stockholder by the amount of dividends and
distributions relating to the shares of Excess Stock which have been paid to the
original transferee-stockholder and are owed by the original
transferee-stockholder to the trustee. The Company may pay the amount of such
reductions to the trustee for the benefit of the Charitable Beneficiary. The
90-day period begins on the later date of which notice is received of the
violative transfer if the original transferee-stockholder gives notice to the
Company of the transfer or, if no such notice is given, the date the Board of
Directors determines that a violative transfer has been made.
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These restrictions will not preclude settlement of transactions through the
New York Stock Exchange.
All certificates representing shares of stock will bear a legend referring
to the restrictions described above.
Each stockholder shall upon demand be required to disclose to the Company in
writing any information with respect to the direct, indirect and constructive
ownership of capital stock of the company as the Board of Directors deems
necessary to comply with the provisions of the Code applicable to REITs, to
comply with the requirements of any taxing authority or governmental agency or
to determine any such compliance.
The Ownership Limit may have the effect of delaying, deferring or preventing
a change in control of the Company unless the Board of Directors determines that
maintenance of REIT status is no longer in the best interest of the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.
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CERTAIN PROVISIONS OF MARYLAND LAW AND THE COMPANY'S CHARTER AND BYLAWS
THE FOLLOWING SUMMARY OF CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE
CHARTER AND BYLAWS OF THE COMPANY DOES NOT PURPORT TO BE COMPLETE AND IS SUBJECT
TO AND QUALIFIED IN ITS ENTIRETY BY REFERENCE TO MARYLAND LAW AND THE CHARTER
AND BYLAWS OF THE COMPANY, COPIES OF WHICH ARE EXHIBITS TO THE REGISTRATION
STATEMENT OF WHICH THIS PROSPECTUS IS A PART.
The Charter and the bylaws of the Company (the "Bylaws") contain certain
provisions that could make more difficult an acquisition or change in control of
the Company by means of a tender offer, a proxy contest or otherwise. These
provisions are expected to discourage certain types of coercive takeover
practices and inadequate takeover bids and to encourage persons seeking to
acquire control of the Company to negotiate first with the Board of Directors.
The Company believes that the benefits of these provisions outweigh the
potential disadvantages of discouraging such proposals because, among other
things, negotiation of such proposals might result in an improvement of their
terms. The description set forth below is intended as a summary only and is
qualified in its entirety by reference to the Charter and the Bylaws, which have
been filed as exhibits to the Registration Statement of which this Prospectus is
a part. See also "Capital Stock--Restrictions on Transfer."
CLASSIFICATION AND REMOVAL OF BOARD OF DIRECTORS; OTHER PROVISIONS
The Company's Charter provides for the Board of Directors to be divided into
three classes of directors, with each class to consist as nearly as possible of
an equal number of directors. The term of office of the first class of directors
will expire at the 1998 annual meeting of stockholders; the term of the second
class of directors will expire at the 1999 annual meeting of stockholders; and
the term of the third class will expire at the 2000 annual meeting of
stockholders. At each annual meeting of stockholders, the class of directors to
be elected at such meeting will be elected for a three-year term, and the
directors in the other two classes will continue in office. Because stockholders
will have no right to cumulative voting for the election of directors, at each
annual meeting of stockholders the holders of a majority of the shares of Common
Stock will be able to elect all of the successors to the class of directors
whose term expires at that meeting.
The Company's Charter also provides that, except for any directors who may
be elected by holders of a class or series of capital stock other than the
Common Stock, directors may be removed only for cause and only by the
affirmative vote of stockholders holding at least two-thirds of all the votes
entitled to be cast for the election of directors. Vacancies on the Board of
Directors may be filled by the affirmative vote of the remaining directors and,
in the case of a vacancy resulting from the removal of a director, by the
stockholders by a majority of the votes entitled to be cast for the election of
directors. A vote of stockholders holding at least two-thirds of all the votes
entitled to be cast thereon is required to amend, alter, change, repeal or adopt
any provisions inconsistent with the foregoing classified board and director
removal provisions. Under the Charter, the power to amend the Bylaws of the
Company is vested exclusively in the Board of Directors, and the stockholders do
not have any power to adopt, alter or repeal the Bylaws absent amendment to the
Charter to confer such power. These provisions may make it more difficult and
time-consuming to change majority control of the Board of Directors of the
Company and, thus, may reduce the vulnerability of the Company to an unsolicited
proposal for the takeover of the Company or the removal of incumbent management.
Because the Board of Directors will have the power to establish the
preferences and rights of additional series of capital stock without stockholder
vote, the Board of Directors may afford the holders of any series of senior
capital stock preferences, powers and rights, voting or otherwise, senior to the
rights of holders of shares of Common Stock. The issuance of any such senior
capital stock could have the effect of delaying or preventing a change in
control of the Company. The Board of Directors, however, currently does not
contemplate the issuance of any series of capital stock other than shares of
Common Stock.
See "Management--Directors, Director Nominees and Executive Officers" for a
description of the limitations on liability of directors of the Company and the
provisions for indemnification of directors and officers provided for under
applicable Maryland law and the Charter.
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BUSINESS COMBINATION STATUTE
The MGCL establishes special requirements with respect to "business
combinations" between Maryland corporations and "interested stockholders" unless
exemptions are applicable. Among other things, the law prohibits for a period of
five years a merger and other specified or similar transactions between a
company and an interested stockholder and requires a super majority vote for
such transactions after the end of the five-year period.
For this purpose, "interested stockholders" are all persons owning
beneficially, directly or indirectly, 10% or more of the outstanding voting
stock of a Maryland corporation, and affiliates and associates of the Maryland
corporation (which are, generally, any entities controlling, controlled by, or
under common control with, the Maryland corporation) which owned beneficially,
directly or indirectly, 10% or more of the outstanding voting stock of such
Maryland corporation. "Business combinations" include any merger or similar
transaction subject to a statutory vote and additional transactions involving
transfers of assets or securities in specified amounts to interested
stockholders or their affiliates. Unless an exemption is available, transactions
of these types may not be consummated between a Maryland corporation and an
interested stockholder or its affiliates for a period of five years after the
date on which the stockholder first became an interested stockholder.
Thereafter, the transaction may not be consummated unless recommended by the
board of directors and approved by the affirmative vote of at least 80% of the
votes entitled to be cast by all holders of outstanding shares of voting stock
and two-thirds of the votes entitled to be cast by all holders of outstanding
shares of voting stock other than the interested stockholder. A business
combination with an interested stockholder that is approved by the board of
directors of a Maryland corporation at any time before an interested stockholder
first becomes an interested stockholder is not subject to the special voting
requirements. An amendment to a Maryland corporation's charter electing not to
be subject to the foregoing requirements must be approved by the affirmative
vote of at least 80% of the votes entitled to be cast by all holders of
outstanding shares of voting stock and two-thirds of the votes entitled to be
cast by holders of outstanding shares of voting stock who are not interested
stockholders. Any such amendment is not effective until 18 months after the vote
of stockholders and does not apply to any business combination of a corporation
with a stockholder who was an interested stockholder on the date of the
stockholder vote. The Company has opted out of the business combination
provisions of the MGCL, but the Board of Directors may elect to adopt these
provisions of the MGCL in the future.
CONTROL SHARE ACQUISITION STATUTE
Maryland law imposes certain limitations on the voting rights in a "control
share acquisition." The MGCL considers a "control share acquisition" to occur at
each of the 20%, 33 1/3% and 50% acquisition levels, and requires the
affirmative vote of at least two-thirds of the votes entitled to be cast by
holders of outstanding shares of voting stock (excluding shares owned by the
acquiring person and certain members of management) to accord voting rights to
capital stock acquired in a control share acquisition. The statute also requires
Maryland corporations to hold a special meeting at the request of an actual or
proposed control share acquirer generally within 50 days after a request is made
by means of the submission of an "acquiring person statement," but only if the
acquiring person (i) posts a bond for the cost of a meeting (not including the
expenses of opposing approval of the voting rights) and (ii) submits a
definitive financing agreement with respect to the proposed control share
acquisition to the extent that financing is not provided by the acquiring
person. In addition, unless its charter or bylaws provide otherwise, the statute
gives a Maryland corporation, within certain time limitations, various
redemption rights if there is a stockholder vote on the issue and the grant of
voting rights is not approved, or if an acquiring person statement is not
delivered to the corporation within 10 days following an actual control share
acquisition. Moreover, unless the charter or bylaws provide otherwise, the
statute provides that if, before a control share acquisition occurs, voting
rights are accorded to control shares that result in the acquiring persons
having majority voting power, then minority stockholders have certain appraisal
rights. An acquisition of shares may be exempted from the control share statute,
provided that a charter or bylaw provision is adopted for such purpose prior to
the control share acquisition. The Company has opted out of the control
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share provisions of the MGCL, but the Board of Directors may elect to adopt
these provisions of the MGCL in the future.
AMENDMENTS TO THE CHARTER
The Charter, including its provisions on classification of the Board of
Directors, restrictions on transferability of shares of Common Stock and removal
of directors, may be amended only by the affirmative vote of the holders of not
less than two-thirds of all of the votes entitled to be cast on the matter.
However, the provisions of the Charter relating to authorized shares of stock
and the classification and reclassification of shares of Common Stock and
Preferred Stock may be amended by the affirmative vote of the holders of not
less than a majority of the votes entitled to be cast on the matter.
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
The Bylaws of the Company provide that (i) with respect to an annual meeting
of stockholders, nominations of persons for election to the Board of Directors
and the proposal of business to be considered by stockholders may be made only
(A) pursuant to the Company's notice of the meeting, (B) by the Board of
Directors or (C) by a stockholder who is entitled to vote at the meeting and has
complied with the advance notice procedures set forth in the Bylaws and (ii)
with respect to special meetings of the stockholders, only the business
specified in the Company's notice of meeting may be brought before the meeting
of stockholders and nominations of persons for election to the Board of
Directors may be made only (A) pursuant to the Company's notice of the meeting,
(B) by the Board of Directors or (C) provided that the Board of Directors has
determined that directors shall be elected at such meeting, by a stockholder who
is entitled to vote at the meeting and has complied with the advance notice
provisions set forth in the Bylaws.
ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE CHARTER
AND BYLAWS
The business combination provisions and the control share acquisition
provisions of the MGCL, the provisions of the Charter on classification of the
Board of Directors and removal of directors and the advance notice provisions of
the Bylaws could delay, defer or prevent a transaction or a change in control of
the Company that might involve a premium price for holders of Common Stock or
otherwise be in their best interests.
RIGHTS TO PURCHASE SECURITIES AND OTHER PROPERTY
The Charter authorizes the Board of Directors to create and issue rights
entitling the holders thereof to purchase from the Company shares of capital
stock or other securities or property. The times at which and terms upon which
such rights are to be issued would be determined by the Board of Directors and
set forth in the contracts or instruments that evidence such rights. This
provision is intended to confirm the Board of Directors' authority to issue
share purchase rights, which might have terms that could impede a merger, tender
offer or other takeover attempt, or other rights to purchase shares or
securities of the Company or any other corporation.
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SHARES AVAILABLE FOR FUTURE SALE
GENERAL
Upon the completion of the Offering, the Company will have outstanding
10,779,216 shares of Common Stock (12,294,216 shares if the Underwriters'
overallotment option is exercised in full). In addition, 2,383,284 shares of
Common Stock are reserved for issuance upon exchange of Units. The shares of
Common Stock issued in the Offering will be freely tradeable by persons other
than "affiliates" of the Company without restriction under the Securities Act,
subject to the limitations on ownership set forth in the Charter. See "Capital
Stock--Restrictions on Transfer." The shares of Common Stock received by the
participants in the Formation Transactions or acquired by any participant in
redemption of Units (the "Restricted Shares") will be "restricted" securities
under the meaning of Rule 144 promulgated under the Securities Act ("Rule 144")
and may not be sold in the absence of registration under the Securities Act
unless an exemption from registration is available, including exemptions
contained in Rule 144. As described below under "--Registration Rights," the
Company has granted certain holders registration rights with respect to their
shares of Common Stock.
In general, under Rule 144, if one year has elapsed since the later of the
date of acquisition of Restricted Shares from the Company or any "affiliate" of
the Company, as that term is defined under the Securities Act, the acquiror or
subsequent holder thereof is entitled to sell within any three-month period a
number of shares that does not exceed the greater of 1% of the then outstanding
shares of Common Stock or the average weekly trading volume of the Common Stock
during the four calendar weeks immediately preceding the date on which notice of
the sale is filed with the Securities and Exchange Commission (the
"Commission"). Sales under Rule 144 also are subject to certain manner of sales
provisions, notice requirements and the availability of current public
information about the Company. If two years have elapsed since the date of
acquisition of Restricted Shares from the Company or from any "affiliate" of the
Company, and the acquiror or subsequent holder thereof is deemed not to have
been an affiliate of the Company at any time during the 90 days immediately
preceding a sale, such person is entitled to sell such shares in the public
market under Rule 144(k) without regard to the volume limitations, manner of
sale provisions, public information requirements or notice requirements.
The Company has established a stock option plan for the purpose of
attracting and retaining highly qualified directors, executive officers and
other key employees. See "Management--Stock Option and Incentive Plan" and
"--Compensation of Directors." The Company intends to issue options to purchase
approximately 660,000 shares of Common Stock to directors, officers and certain
key employees prior to the completion of the Offering and has reserved 440,000
additional shares for future issuance under the plan. On or prior to the
expiration of the initial 12-month period following the completion of the
Offering, the Company expects to file a registration statement with the
Commission with respect to the shares of Common Stock issuable under these
plans, which shares may be resold without restriction, unless held by
affiliates.
Prior to the Offering, there has been no public market for the Common Stock.
Trading of the Common Stock on the New York Stock Exchange is expected to
commence immediately following the completion of the Offering. No prediction can
be made as to the effect, if any, that future sales of shares, or the
availability of shares for future sale, will have on the market price prevailing
from time to time. Sales of substantial amounts of Common Stock (including
shares issued upon the exercise of options), or the perception that such sales
could occur, could adversely affect prevailing market prices of the Common
Stock. See "Risk Factors--Other Risks of Ownership of Common Stock Could
Adversely Affect the Trading Price of the Common Stock" and "Partnership
Agreement--Transfers of Interests."
REGISTRATION RIGHTS
The Company has granted the participants in the Formation Transactions who
received Units in the Formation Transactions certain registration rights with
respect to the shares of Common Stock owned by them or acquired by them in
connection with the exercise of the redemption right under the Partnership
Agreement. These registration rights require the Company to register all such
shares of Common Stock upon request. The Company will bear expenses incident to
its registration requirements under the registration rights, except that such
expenses shall not include any underwriting discounts or commissions or transfer
taxes, if any, relating to such shares.
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MATERIAL FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following discussion summarizes the material Federal income tax
consequences that are generally applicable to all prospective stockholders of
the Company. The specific tax consequences of owning Common Stock will vary for
stockholders because of the different circumstances of stockholders and the
discussion contained herein does not purport to address all aspects of Federal
income taxation that may be relevant to particular holders in light of their
personal investment or tax circumstances. Therefore, it is imperative that a
stockholder review the following discussion and consult with his own tax
advisors to determine the interaction of his individual tax situation with the
anticipated tax consequences of owning Common Stock.
The information in this section and the opinions of Brown & Wood LLP are
based on the Code, existing and proposed Treasury Regulations thereunder,
current administrative interpretations and court decisions. No assurance can be
given that future legislation, Treasury Regulations, administrative
interpretations and court decisions will not significantly change current law or
affect existing interpretations of current law in a manner which is adverse to
stockholders. Any such change could apply retroactively to transactions
preceding the date of change. The Company and the Operating Partnership do not
plan to obtain any rulings from the IRS concerning any tax issue with respect to
the Company. Thus, no assurance can be provided that the opinions and statements
set forth herein (which do not bind the IRS or the courts) will not be
challenged by the IRS or will be sustained by a court if so challenged. The
following description does not constitute tax advice.
This summary does not give a detailed discussion of state, local or foreign
tax considerations. Except where indicated, the discussion below describes
general Federal income tax considerations applicable to individuals who are
citizens or residents of the United States. Accordingly, the following
discussion has limited application to domestic corporations and persons subject
to specialized Federal income tax treatment, such as foreign persons, trusts,
estates, tax-exempt entities, regulated investment companies and insurance
companies.
As used in this section, the term "Company" refers solely to SL Green Realty
Corp. and the term "Operating Partnership" refers solely to SL Green Operating
Partnership, L.P.
PROSPECTIVE STOCKHOLDERS ARE STRONGLY URGED TO CONSULT WITH THEIR OWN TAX
ADVISORS WITH REGARD TO THE APPLICATION OF THE FEDERAL INCOME TAX LAWS TO SUCH
STOCKHOLDERS' RESPECTIVE PERSONAL TAX SITUATIONS, AS WELL AS ANY TAX
CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING
JURISDICTION.
TAXATION OF THE COMPANY
GENERAL. The Company will make an election to be taxed as a REIT under
Sections 856 through 860 of the Code effective for its taxable year ending
December 31, 1997. The Company believes that, commencing with such taxable year,
it will be organized and will operate in such a manner as to qualify for
taxation as a REIT under the Code and the Company intends to continue to operate
in such a manner. Although the Company has been structured so as to qualify to
be treated as a REIT, no assurance can be given that the Company will operate in
a manner so as to qualify or remain qualified as a REIT.
In the opinion of Brown & Wood LLP, commencing with the Company's taxable
year ending December 31, 1997, the Company will be organized in conformity with
the requirements for qualification and taxation as a REIT under the Code and the
proposed method of operation of the Company will enable the Company to meet the
requirements for qualification and taxation as a REIT. This opinion is based on
various assumptions relating to the organization and operation of the Company,
the Operating Partnership, the Management LLC, the Management Corporation
(together with the Management LLC, the "Management Entities"), the Leasing
Corporation and the Construction Corporation and upon certain
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representations made by the Company, the Operating Partnership, the Management
Entities, the Leasing Corporation and the Construction Corporation as to certain
relevant factual matters, including matters related to the organization and
expected manner of operation of the Company, the Operating Partnership, the
Property-owning entities, the Management Entities, the Leasing Corporation and
the Construction Corporation. Moreover, such qualification and taxation as a
REIT will depend upon the Company's ability to meet on a continuing basis,
through actual annual operating results, distribution levels, and diversity of
stock ownership, the various qualification tests imposed under the Code
(discussed below). Brown & Wood LLP will not review compliance with these tests
on a continuing basis. Accordingly, no assurance can be given that the Company
will satisfy such tests on a continuing basis. See "--Failure to Qualify" below.
The following is a general summary of the material Code provisions that
govern the Federal income tax treatment of a REIT and its stockholders. These
provisions of the Code are highly technical and complex.
If the Company qualifies for taxation as a REIT, it generally will not be
subject to Federal corporate income taxes on net income that it distributes
currently to stockholders. This treatment substantially eliminates the "double
taxation" (taxation at both the corporate and stockholder levels) that generally
results from investment in a corporation. However, the Company will be subject
to Federal income and excise tax in certain circumstances, including the
following. First, the Company will be taxed at regular corporate rates on any
undistributed REIT taxable income, including undistributed net capital gains.
Second, under certain circumstances, the Company may be subject to the
"alternative minimum tax" on its items of tax preference. Third, if the Company
has (i) net income from the sale or other disposition of "foreclosure property"
(which is, in general, property acquired by foreclosure or otherwise on default
of a loan secured by the property) held primarily for sale to customers in the
ordinary course of business or (ii) other non-qualifying income from foreclosure
property, the Company will be subject to tax at the highest corporate rate on
such income. Fourth, if the Company has net income from prohibited transactions
(which are, in general, certain sales or other dispositions of property (other
than foreclosure property) held primarily for sale to customers in the ordinary
course of business), such income will be subject to a 100% tax. Fifth, if the
Company fails to satisfy either the 75% gross income test or the 95% gross
income test (both of which are discussed below), but nonetheless maintains its
qualification as a REIT because certain other requirements have been met, it
will be subject to a 100% tax on the greater of the amount by which the Company
fails the 75% or 95% test, multiplied by a fraction intended to reflect the
Company's profitability. Sixth, if the Company fails to distribute during each
calendar year at least the sum of (i) 85% of its REIT ordinary income for such
year, (ii) 95% of its REIT capital gain net income for such year and (iii) any
undistributed taxable income from prior years, the Company will be subject to a
4% excise tax on the excess of such required distribution over the amounts
actually distributed. Seventh, if the Company acquires any asset from a C
corporation (i.e., a corporation generally subject to full corporate level tax)
in a transaction in which the basis of the asset in the Company's hands is
determined by reference to the basis of the asset (or any other property) in the
hands of the C corporation and the Company recognizes gain on the disposition of
such asset during the ten-year period (the "Recognition Period") beginning on
the date on which such asset was acquired by the Company, then, to the extent of
such property's "built-in" gain (the excess of the fair market value of such
property at the time of acquisition by the Company over the adjusted basis in
such property at such time), such gain will be subject to tax at the highest
regular corporate rate applicable (the "Built-In Gain Rule").
REQUIREMENTS FOR QUALIFICATION. The Code defines a REIT as a corporation,
trust, or association (i) that is managed by one or more trustees or directors;
(ii) the beneficial ownership of which is evidenced by transferable shares or by
transferable certificates of beneficial interest; (iii) that would be taxable as
a domestic corporation, but for Section 856 through 859 of the Code; (iv) that
is neither a financial institution nor an insurance company subject to certain
provisions of the Code; (v) the beneficial ownership of which is held by 100 or
more persons; (vi) during the last half of each taxable year not more than 50%
in value of the outstanding stock of which is owned, directly or indirectly, by
five or fewer individuals (as defined in the Code to include certain entities);
and (vii) that meets certain other tests,
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described below, regarding the nature of its income and assets. The Code
provides that conditions (i) through (iv), inclusive, must be met during the
entire taxable year and that condition (v) must be met during at least 335 days
of a taxable year of 12 months, or during a proportionate part of a taxable year
of less than 12 months. Conditions (v) and (vi), however, will not apply until
after the first taxable year for which an election is made to be taxed as a
REIT. The Company anticipates issuing sufficient shares of Common Stock in the
Offering with sufficient diversity of ownership to allow the Company to satisfy
conditions (v) and (vi) immediately following the Offering. In addition, the
Company's Charter will include restrictions regarding the transfer of its shares
of capital stock that are intended to assist the Company in continuing to
satisfy the share ownership requirements described in (v) and (vi) above. See
"Capital Stock--Restrictions on Transfer."
In addition, a corporation may not elect to become a REIT unless its taxable
year is the calendar year. The Company's taxable year will be the calendar year.
If a REIT owns a corporate subsidiary that is a "qualified REIT subsidiary,"
that subsidiary is disregarded for Federal income tax purposes and all assets,
liabilities and items of income, deduction and credit of the subsidiary are
treated as assets, liabilities and items of the REIT itself. (A qualified REIT
subsidiary is a corporation all of the capital stock of which has been owned by
the REIT from the commencement of such corporate existence.) Similarly, a single
member limited liability company owned by the REIT or by the Operating
Partnership is disregarded as a separate entity for Federal income tax purposes.
In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that for purposes of the gross income tests and asset tests
the REIT will be deemed to own its proportionate share (based on its interest in
partnership capital) of the assets of the partnership and will be deemed to be
entitled to the income of the partnership attributable to such share. In
addition, the assets and gross income of the partnership will retain the same
character in the hands of the REIT for purposes of Section 856 of the Code,
including satisfying the gross income tests and asset tests, that they have in
the hands of the Partnership. Thus, the Company's proportionate share of the
assets, liabilities and items of gross income of the Operating Partnership will
be treated as assets, liabilities and items of gross income of the Company for
purposes of applying the requirements described herein.
INCOME TESTS. In order to maintain qualification as a REIT, three gross
income tests must be satisfied annually. First, at least 75% of the REIT's gross
income (excluding gross income from "prohibited transactions") for each taxable
year must be derived directly or indirectly from investments relating to real
property or mortgages on real property (including "rents from real property"
and, in certain circumstances, interest) or from certain types of temporary
investments. Second, at least 95% of the REIT's gross income (excluding gross
income from prohibited transactions) for each taxable year must be derived from
such real property investments described above and from dividends, interest and
gain from the sale or disposition of stock or securities, or from any
combination of the foregoing. Third, gain from the sale or other disposition of
stock or securities held for less than one year, gain from prohibited
transactions and gain on the sale or other disposition of real property held for
less than four years (apart from involuntary conversions and sales of
foreclosure property) must represent less than 30% of the REIT's gross income
(including gross income from prohibited transactions) for each taxable year. For
purposes of applying the 30% gross income test, the holding period of Properties
and other assets acquired in the Formation Transactions will be deemed to have
commenced on the date of the Formation Transactions.
Rents received by a REIT will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in whole
or in part on the income or profits of any person. However, an amount received
or accrued generally will not be excluded from the term "rents from real
property" solely by reason of being based on a fixed percentage or percentages
of receipts or sales. Second, rents received from a tenant will not qualify as
"rents from real property" in satisfying the gross income tests if the REIT, or
a direct or indirect owner of 10% or more of the REIT, directly or
constructively, owns 10% or more of such tenant (a "Related Party Tenant").
Third, if rent attributable to personal property, leased in connection with a
lease
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of real property, is greater than 15% of the total rent received under the
lease, then the portion of rent attributable to such personal property will not
qualify as "rents from real property." Finally, in order for rents received with
respect to a property to qualify as "rents from real property," the REIT
generally must not operate or manage the property or furnish or render services
to tenants, except through an "independent contractor" who is adequately
compensated and from whom the Company derives no income. The "independent
contractor" requirement, however, does not apply to the extent the services
provided by the REIT are "usually or customarily rendered" in connection with
the rental of space for occupancy only and are not otherwise considered
"rendered to the occupant."
The Company does not anticipate charging rent that is based in whole or in
part on the income or profits of any person (except by reason of being based on
a fixed percentage or percentages of receipts of sales consistent with the rule
described above). The Company does not anticipate deriving rent attributable to
personal property leased in connection with real property that exceeds 15% of
the total rents.
The Company will provide certain services with respect to the Properties,
but the Company believes (and has represented to Brown & Wood LLP) that all such
services will be considered "usually or customarily rendered" in connection with
the rental of space for occupancy only, so that the provision of such services
will not jeopardize the qualification of rent from the Properties as "rents from
real property." In rendering its opinion on the Company's ability to qualify as
a REIT, Brown & Wood LLP is relying on such representations. In the case of any
services that are not "usual and customary" under the foregoing rules, the
Company intends to employ "independent contractors" to provide such services.
The Operating Partnership may receive certain types of income, including
rent from Related Party Tenants, with respect to the properties it owns that
will not qualify under the 75% or 95% gross income test. In particular,
dividends on the Operating Partnership's stock in the Service Corporations will
not qualify under the 75% gross income test. The Company believes, however, that
the aggregate amount of such items and other non-qualifying income in any
taxable year will not cause the Company to exceed the limits on non-qualifying
income under the 75% and 95% gross income tests.
The Management LLC will receive managements fees from the Operating
Partnership with respect to properties that are wholly-owned by the Operating
Partnership. In the opinion of Brown & Wood LLP, such fees will not constitute
gross income of the Operating Partnership.
If the Company fails to satisfy one or both of the 75% or the 95% gross
income tests for any taxable year, it nevertheless may qualify as a REIT for
such year if it is entitled to relief under certain provisions of the Code.
These relief provisions generally will be available if the Company's failure to
meet any such tests was due to reasonable cause and not due to willful neglect,
the Company attaches a schedule of the sources of its income to its Federal
corporate income tax return and any incorrect information on the schedule was
not due to fraud with intent to evade tax. It is not possible, however, to state
whether in all circumstances the Company would be entitled to the benefit of
these relief provisions. As discussed in "--General" above, even if these relief
provisions were to apply, a tax would be imposed with respect to the excess net
income. Moreover, these relief provisions are unavailable if the Company fails
the 30% gross income test.
ASSET TESTS. The Company must also satisfy three tests relating to the
nature of its assets at the close of each quarter of its taxable year. First, at
least 75% of the value of the Company's total assets must be represented by real
estate assets (including (i) its allocable share of real estate assets held by
the Operating Partnership or any partnerships in which the Operating Partnership
owns an interest and (ii) stock or debt instruments held for not more than one
year purchased with the proceeds of a stock offering or long-term (i.e., at
least five-year) public debt offering of the Company), cash, cash items and
government securities. Second, of the investments not included in the 75% asset
class, the value of any one issuer's securities owned by the Company may not
exceed 5% of the value of the Company's total assets. Third, of the investments
not included in the 75% asset class, the Company may not own more than 10% of
any one issuer's outstanding voting securities.
After initially meeting the asset tests at the close of any quarter, the
Company will not lose its status as a REIT for failure to satisfy the asset
tests at the end of a later quarter solely by reason of changes in asset
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values. If the failure to satisfy the asset tests results from an acquisition of
securities or other property during a quarter, the failure can be cured by
disposition of sufficient non-qualifying assets within 30 days after the close
of that quarter. The Company intends to maintain adequate records of the value
of its assets to ensure compliance with the asset tests and to take such other
action within 30 days after the close of any quarter as may be required to cure
any noncompliance.
Based on the foregoing, the 5% test must generally be met for any quarter in
which the Company acquires securities of an issuer. Thus, this requirement must
be satisfied not only on the date the Company acquires securities of the Service
Corporations, but also each time the Company increases its ownership of
securities of a Service Corporation (including as a result of increasing its
interest in the Operating Partnership as limited partners exercise their
redemption rights).
The Operating Partnership will own all of the non-voting stock of each of
the Service Corporations, which stock represents 95% of the equity of the
Service Corporations. See "Structure and Formation of the Company--The Operating
Entities of the Company--The Service Corporations." By virtue of its ownership
of Units, the Company will be considered to own its pro rata share of the assets
of the Operating Partnership, including the securities of the Service
Corporations described above. The Operating Partnership will not own more than
10% of the voting securities of the Service Corporations and, therefore, the
Company will not own more than 10% of the voting securities of the Service
Corporations. In addition, the Company and senior management believe that the
Company's pro rata share of the value of the securities of the Service
Corporations will not exceed, for each Service Corporation, as of the completion
of the Offering, 5% of the total value of the Company's assets. The Company's
belief is based in part upon its analysis of the anticipated operating cash
flows of the Service Corporations. There can be no assurance, however, that the
IRS will not contend that the value of the securities of a Service Corporation
exceeds the 5% value limitation. Brown & Wood LLP, in rendering its opinion
regarding the qualification of the Company as a REIT, will rely on the
conclusions of the Company and its senior management as to the value of the
securities of the Service Corporations.
As noted above, the 5% value requirement must be satisfied at or within 30
days after the end of each quarter during which the Company increases its
(direct or indirect) ownership of securities of the Service Corporations
(including as a result of increasing its interest in the Operating Partnership).
Although the Company plans to take steps to ensure that it satisfies the 5%
value test for any quarter with respect to which retesting is to occur, there
can be no assurance that such steps always will be successful or will not
require a reduction in the Operating Partnership's overall interest in a Service
Corporation.
Although currently the IRS will not rule regarding compliance with the 10%
voting securities test, in the opinion of Brown & Wood LLP the Company's
proposed structure will meet the current statutory requirements with respect to
the 10% voting securities test.
ANNUAL DISTRIBUTION REQUIREMENTS. The Company, in order to qualify as a
REIT, is required to distribute dividends (other than capital gain dividends) to
its stockholders in an amount at least equal to (i) the sum of (A) 95% of the
Company's "REIT taxable income" (computed without regard to the dividends paid
deduction and the REIT's net capital gain) and (B) 95% of the net income (after
tax), if any, from foreclosure property, minus (ii) the sum of certain items of
noncash income. Such distributions must be paid during the taxable year to which
they relate (or during the following taxable year, if declared before the
Company timely files its tax return for the preceding year and paid on or before
the first regular dividend payment after such declaration). To the extent that
the Company does not distribute all of its net capital gain or distributes at
least 95%, but less than 100%, of its "REIT taxable income," as adjusted, it
will be subject to tax on the undistributed amount at regular corporate capital
gains rates and ordinary income tax rates. Furthermore, if the Company fails to
distribute during each calendar year at least the sum of (i) 85% of its REIT
ordinary income of such year, (ii) 95% of its REIT capital gain income for such
year and (iii) any undistributed taxable income from prior periods, the Company
will be subject to a 4% excise tax on the excess of such amounts over the
amounts actually distributed. In addition, if the Company disposes of any asset
subject to the Built-In Gain Rule during its Recognition Period, the Company
will be required to distribute at least 95% of the built-in gain (after tax), if
any, recognized on the disposition.
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The Company intends to make timely distributions sufficient to satisfy the
annual distribution requirements. In this regard, it is expected that the
Company's REIT taxable income will be less than its cash flow due to the
allowance of depreciation and other noncash charges in the computing of REIT
taxable income. Moreover, the Partnership Agreement of the Operating Partnership
authorizes the Company, as general partner, to take such steps as may be
necessary to cause the Operating Partnership to make distributions to its
partners of amounts sufficient to permit the Company to meet these distribution
requirements. It is possible, however, that the Company, from time to time, may
not have sufficient cash or other liquid assets to meet the 95% distribution
requirement due to timing differences between the actual receipt of income and
actual payment of deductible expenses and the inclusion of such income and
deduction of such expenses in arriving at REIT taxable income of the Company, or
due to an excess of nondeductible expenses such as principal amortization or
capital expenditures over noncash deductions such as depreciation. In the event
that such circumstances do occur, then in order to meet the 95% distribution
requirement, the Company may cause the Operating Partnership to arrange for
short-term, or possibly long-term, borrowings to permit the payment of required
dividends.
Under certain circumstances, the Company may be able to rectify a failure to
meet the distribution requirement for a year by paying "deficiency dividends" to
stockholders in a later year that may be included in the Company's deduction for
dividends paid for the earlier year. Thus, the Company may be able to avoid
being taxed on amounts distributed as deficiency dividends. However, the Company
would be required to pay to the IRS interest based upon the amount of any
deduction taken for deficiency dividends.
FAILURE TO QUALIFY. If the Company fails to qualify for taxation as a REIT
in any taxable year and certain relief provisions do not apply, the Company will
be subject to tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates. Unless entitled to relief under
specific statutory provisions, the Company also will be disqualified from
taxation as a REIT for the four taxable years following the year during which
qualification was lost. It is not possible to state whether in all circumstances
the Company would be entitled to such statutory relief.
Distributions to stockholders in any year in which the Company fails to
qualify as a REIT will not be deductible by the Company, nor will the Company be
required to make distributions. If the Company makes distributions, such
distributions will be taxable as ordinary income to the extent of the Company's
current and accumulated earnings and profits. Subject to certain limitations in
the Code, corporate distributees may be eligible for the dividends received
deduction.
TAXATION OF STOCKHOLDERS
TAXATION OF DOMESTIC STOCKHOLDERS. As long as the Company qualifies as a
REIT, distributions made to the Company's taxable domestic stockholders out of
current or accumulated earnings and profits (and not designated as capital gain
dividends) will be taken into account by them as ordinary income and corporate
stockholders will not be eligible for the dividends received deduction as to
such amounts. Distributions that are designated as capital gain dividends will
be taxed as long-term capital gains (to the extent they do not exceed the
Company's actual net capital gain for the taxable year) without regard to the
period for which the stockholder has held its stock. However, corporate
stockholders may be required to treat up to 20% of certain capital gain
dividends as ordinary income. Distributions in excess of current and accumulated
earnings and profits will not be taxable to a stockholder to the extent that
they do not exceed the adjusted basis of the stockholder's shares of Common
Stock, but rather will reduce the adjusted basis of a stockholder's shares of
Common Stock. To the extent that such distributions exceed the stockholder's
adjusted basis in his shares of Common Stock, they will be included in income as
long-term capital gain (or short-term capital gain if the shares have been held
for one year or less), assuming the shares of Common Stock are a capital asset
in the hands of the stockholder.
Any dividend declared by the Company in October, November or December of any
year payable to a stockholder of record on a specific date in any such month
shall be treated as both paid by the Company and received by the stockholder on
December 31 of such year, if the dividend is actually paid by the Company during
January of the following calendar year.
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Stockholders may not include in their individual income tax returns net
operating losses or capital losses of the Company. In addition, distributions
from the Company and gain from the disposition of shares of Common Stock will
not be treated as "passive activity" income and, therefore, stockholders will
not be able to use passive losses to offset such income.
In general, any loss upon a sale or exchange of shares of Common Stock by a
stockholder which has held such shares of Common Stock for six months or less
(after applying certain holding period rules) will be treated as a long-term
capital loss to the extent of distributions from the Company required to be
treated by such stockholder as long-term capital gains.
BACKUP WITHHOLDING. The Company will report to its domestic stockholders and
the IRS the amount of dividends paid during each calendar year and the amount of
tax withheld, if any, with respect thereto. Under the backup withholding rules,
a stockholder may be subject to backup withholding at the rate of 31% with
respect to dividends paid unless such holder (i) is a corporation or comes
within certain other exempt categories and, when required, demonstrates this
fact, or (ii) provides a taxpayer identification number and certifies as to no
loss of exemption, and otherwise complies with the applicable requirements of
the backup withholdings rules. Any amount paid as backup withholding will be
creditable against the stockholder's income tax liability. The United States
Treasury has recently issued proposed regulations regarding the withholding and
information reporting rules discussed above. In general, the proposed
regulations do not alter the substantive withholding and information reporting
requirements but unify current certification procedures and forms and clarify
and modify reliance standards. If finalized in their current form, the proposed
regulations would generally be effective for payments made after December 31,
1997, subject to certain transition rules.
In addition, the Company may be required to withhold a portion of capital
gain distributions made to any stockholders which fail to certify their non
foreign status to the Company. See "--Taxation of Foreign Stockholders" below.
TAXATION OF TAX-EXEMPT STOCKHOLDERS. The IRS has ruled that amounts
distributed as dividends by a qualified REIT generally do not constitute
unrelated business taxable income ("UBTI") when received by a tax-exempt entity.
Based on that ruling, the dividend income from the Common Stock will not be UBTI
to a tax-exempt stockholder, provided that the tax-exempt stockholder has not
held its shares of Common Stock as "debt financed property" within the meaning
of the Code and such shares are not otherwise used in a trade or business.
Similarly, income from the sale of Common Stock will not constitute UBTI unless
such tax-exempt stockholder has held such shares as "debt financed property"
within the meaning of the Code or has used the shares in a trade or business.
Notwithstanding the above, however, a portion of the dividends paid by a
"pension held REIT" will be treated as UBTI as to any trust which is described
in Section 401(a) of the Code and is tax-exempt under Section 501(a) of the Code
(a "qualified trust") and which holds more than 10% (by value) of the interests
in the REIT. A REIT is a "pension held REIT" if (i) it would not have qualified
as a REIT but for the application of a "look-through" exception to the "not
closely held" requirement applicable to qualified trusts, and (ii) either (A) at
least one such qualified trust holds more than 25% (by value) of the interests
in the REIT, or (B) one or more such qualified trusts, each of which owns more
than 10% (by value) of the interests in the REIT, hold in the aggregate more
than 50% (by value) of the interests in the REIT. The percentage of any REIT
dividend treated as UBTI is equal to the ratio of (i) the gross income (less
direct expenses related thereto) of the REIT from unrelated trades or businesses
(determined as if the REIT were a qualified trust) to (ii) the total gross
income (less direct expenses related thereto) of the REIT. A de minimis
exception applies where this percentage is less than 5% for any year. The
provisions requiring qualified trusts to treat a portion of REIT distributions
as UBTI will not apply if the REIT is able to satisfy the "not closely held"
requirement without relying upon the "look-through" exception with respect to
qualified trusts. As a result of certain limitations on transfer and ownership
of Common Stock contained in the Charter, the Company does not expect to be
classified as a "pension held REIT."
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TAXATION OF FOREIGN STOCKHOLDERS. The rules governing U.S. Federal income
taxation of nonresident alien individuals, foreign corporations, foreign
partnerships and other foreign stockholders (collectively, "Non-U.S.
Stockholders") are complex and no attempt will be made herein to provide more
than a limited summary of such rules. Prospective Non-U.S. Stockholders should
consult with their own tax advisors to determine the impact of U.S. Federal,
state and local income tax laws with regard to an investment in shares of Common
Stock, including any reporting requirements.
ORDINARY DIVIDENDS. Distributions, other than distributions that are treated
as attributable to gain from sales or exchanges by the Company of U.S. real
property interests (discussed below) and other than distributions designated by
the Company as capital gain dividends, will be treated as ordinary income to the
extent that they are made out of current or accumulated earnings and profits of
the Company. Such distributions to foreign stockholders will ordinarily be
subject to a withholding tax equal to 30% of the gross amount of the
distribution, unless an applicable tax treaty reduces that tax rate. However, if
income from the investment in the shares of Common Stock is treated as
effectively connected with the Non-U.S. Stockholder's conduct of a U.S. trade or
business, the Non-U.S. Stockholder generally will be subject to a tax at
graduated rates in the same manner as U.S. stockholders are taxed with respect
to such dividends (and may also be subject to the 30% branch profits tax if the
stockholder is a foreign corporation). The Company expects to withhold U.S.
income tax at the rate of 30% on the gross amount of any dividends, other than
dividends treated as attributable to gain from sales or exchanges of U.S. real
property interests and capital gain dividends, paid to a Non-U.S. Stockholder,
unless (i) a lower treaty rate applies and the required form evidencing
eligibility for that reduced rate is filed with the Company or (ii) the Non-U.S.
Stockholder files an IRS Form 4224 (or its future equivalent) with the Company
claiming that the distributions are "effectively connected" income.
Pursuant to current Treasury Regulations, dividends paid to an address in a
country outside the United States are generally presumed to be paid to a
resident of such country for purposes of determining the applicability of
withholding discussed above and the applicability of a tax treaty rate. Under
proposed Treasury Regulations, not currently in effect, however, a Non-U.S.
Stockholder who wishes to claim the benefit of an applicable treaty rate would
be required to satisfy certain certification and other requirements.
RETURN OF CAPITAL. Distributions in excess of current and accumulated
earnings and profits of the Company, which are not treated as attributable to
the gain from disposition by the Company of a U.S. real property interest, will
not be taxable to a Non-U.S. Stockholder to the extent that they do not exceed
the adjusted basis of the Non-U.S. Stockholder's shares of Common Stock, but
rather will reduce the adjusted basis of such shares of Common Stock. To the
extent that such distributions exceed the adjusted basis of a Non-U.S.
Stockholder's shares of Common Stock, they will give rise to tax liability if
the Non-U.S. Stockholder otherwise would be subject to tax on any gain from the
sale or disposition of its shares of Common Stock, as described below. If it
cannot be determined at the time a distribution is made whether such
distribution will be in excess of current and accumulated earnings and profits,
the distribution will be subject to withholding at the rate applicable to
dividends. However, the Non-U.S. Stockholder may seek a refund of such amounts
from the IRS if it is subsequently determined that such distribution was, in
fact, in excess of current and accumulated earnings and profits of the Company.
CAPITAL GAIN DIVIDENDS. For any year in which the Company qualifies as a
REIT, distributions that are attributable to gain from sales or exchanges by the
Company of U.S. real property interests will be taxed to a Non-U.S. Stockholder
under the provisions of the Foreign Investment in Real Property Tax Act of 1980,
as amended ("FIRPTA"). Under FIRPTA, these distributions are taxed to a Non-U.S.
Stockholder as if such gain were effectively connected with a U.S. business.
Thus, Non-U.S. Stockholders will be taxed on such distributions at the same
capital gain rates applicable to U.S. stockholders (subject to any applicable
alternative minimum tax and special alternative minimum tax in the case of
nonresident alien individuals), without regard to whether such distributions are
designated by the Company as capital gain dividends. Also, distributions subject
to FIRPTA may be subject to a 30% branch profits tax in the hands of a corporate
Non-U.S. Stockholder not entitled to treaty relief or exemption. The Company is
required by
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applicable Treasury Regulations under FIRPTA to withhold 35% of any distribution
that could be designated by the Company as a capital gain dividend.
COMMON STOCK SALES. Gain recognized by a Non-U.S. Stockholder upon a sale or
exchange of shares of Common Stock generally will not be taxed under FIRPTA if
the Company is a "domestically controlled REIT," defined generally as a REIT in
respect of which at all times during a specified testing period less than 50% in
value of the stock was held directly or indirectly by foreign persons. It is
currently anticipated that the Company will be a "domestically controlled REIT"
and that therefore the sale of shares of Common Stock will not be subject to
taxation under FIRPTA. However, gain not subject to FIRPTA will be taxable to a
Non-U.S. Stockholder if (i) investment in the shares of Common Stock is treated
as "effectively connected" with the Non-U.S. Stockholder's U.S. trade or
business, in which case the Non-U.S. Stockholder will be subject to the same
treatment as U.S. stockholders with respect to such gain, or (ii) the Non U.S.
Stockholder is a nonresident alien individual who was present in the United
States for 183 days or more during the taxable year and has a "tax home" in the
United States, or maintains an office or a fixed place of business in the United
States to which the gain is attributable, in which case the nonresident alien
individual will be subject to a 30% tax on the individual's capital gains. A
similar rule will apply to capital gain dividends not subject to FIRPTA.
Although the Company anticipates that it will qualify as a domestically
controlled REIT, because the Common Stock will be publicly traded, no assurance
can be given that the Company will continue to so qualify. If the Company were
not a domestically controlled REIT, whether or not a Non-U.S. Stockholder's sale
of shares of Common Stock would be subject to tax under FIRPTA would depend on
whether or not the shares of Common Stock were regularly traded on an
established securities market (such as the NYSE, on which the Company has
applied for the listing of the shares of Common Stock) and on the size of the
selling Non-U.S. Stockholder's interest in the Company. If the gain on the sale
of shares of Common Stock were to be subject to tax under FIRPTA, the Non-U.S.
Stockholder would be subject to the same treatment as U.S. stockholders with
respect to such gain (subject to any applicable alternative minimum tax and a
special alternative minimum tax in the case of nonresident alien individuals)
and the purchaser of such shares of Common Stock may be required to withhold 10%
of the gross purchase price.
OTHER TAX CONSIDERATIONS
EFFECT OF TAX STATUS OF OPERATING PARTNERSHIP AND OTHER ENTITIES ON REIT
QUALIFICATION. All of the Company's significant investments are held through the
Operating Partnership. The Operating Partnership may hold interests in certain
Properties through Property-owning entities. The Operating Partnership and the
Property-owning entities, as well as the Management LLC, involve special tax
considerations. These tax considerations include: (i) allocations of income and
expense items of the Operating Partnership and the Property-owning entities,
which could affect the computation of taxable income of the Company, (ii) the
status of the Operating Partnership, the Property-owning entities and the
Management LLC as partnerships or entities that are disregarded as entities
separate from their owners (as opposed to associations taxable as corporations)
for income tax purposes and (iii) the taking of actions by the Operating
Partnership or any of the Property-owning entities that could adversely affect
the Company's qualification as REIT.
In the opinion of Brown & Wood LLP, based on certain representations of the
Company and the Operating Partnership, for Federal income tax purposes, the
Operating Partnership will be treated as a partnership and neither the
Management LLC nor any of the Property-owning entities will be treated as an
association taxable as a corporation. If, however, the Operating Partnership or
any of such other entities were treated as an association taxable as a
corporation, the Company would fail to qualify as a REIT for a number of
reasons.
The Partnership Agreement requires that the Operating Partnership be
operated in a manner that will enable the Company to satisfy the requirements
for classification as a REIT. In this regard, the Company will control the
operation of the Operating Partnership through its rights as the sole general
partner of the Operating Partnership.
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TAX ALLOCATIONS WITH RESPECT TO THE PROPERTIES. When property is contributed
to a partnership in exchange for an interest in the partnership, the partnership
generally takes a carryover basis in that property for tax purposes (i.e., the
partnership's basis is equal to the adjusted basis of the contributing partner
in the property), rather than a basis equal to the fair market value of the
property at the time of contribution. Pursuant to Section 704(c) of the Code,
income, gain, loss and deductions attributable to such contributed property must
be allocated in a manner such that the contributing partner is charged with, or
benefits from, respectively, the unrealized gain or unrealized loss associated
with the property at the time of the contribution. The amount of such unrealized
gain or unrealized loss is generally equal to the difference between the fair
market value of the contributed property at the time of contribution and the
adjusted tax basis of such property at the time of contribution (a "Book-Tax
Difference"). Such allocations are solely for Federal income tax purposes and do
not affect the book capital accounts or other economic or legal arrangements
among the partners. The Operating Partnership will be funded by way of
contributions of appreciated property to the Operating Partnership in the
Formation Transactions. Consequently, the Operating Partnership Agreement will
require such allocations to be made in a manner consistent with Section 704(c)
of the Code and the regulations thereunder (the "Section 704(c) Regulations").
The Section 704(c) Regulations require partnerships to use a "reasonable
method" for allocation of items affected by Section 704(c) of the Code and
outline three methods which may be considered reasonable for these purposes. The
Operating Partnership intends to use the "traditional method" of Section 704(c)
allocations, which is the least favorable method from the Company's perspective
because of certain technical limitations. Under the traditional method,
depreciation with respect to a contributed Property for which there is a
Book-Tax Difference first will be allocated to the Company and other partners
who did not have an interest in such Property until they have been allocated an
amount of depreciation equal to what they would have been allocated if the
Operating Partnership had purchased such property for its fair market value at
the time of contribution. In addition, if such a Property is sold, gain equal to
the Book-Tax Difference at the time of sale will be specially allocated to the
Purchaser who contributed the Property. These allocations will tend to eliminate
the Book-Tax Differences with respect to the contributed Properties over the
life of the Operating Partnership. However, they may not always entirely
eliminate the Book-Tax Difference on an annual basis or with respect to a
specific taxable transaction such as a sale. This could cause the Company (i) to
be allocated lower amounts of depreciation deduction for tax purposes than would
be allocated to the Company if all Properties were to have a tax basis equal to
their fair market value at the time of contribution and (ii) to be allocated
lower amounts of taxable loss in the event of a sale of such contributed
interests in the Properties at a book loss, than the economic or book loss
allocated to the Company as a result of such sale, with a corresponding benefit
to the other partners in the Operating Partnership. These allocations possibly
might adversely affect the Company's ability to comply with REIT distribution
requirements, although the Company does not anticipate that this will occur.
These allocations may also affect the earnings and profits of the Company for
purposes of determining the portion of distributions taxable as a dividend
income. See "--Taxation of U.S. Stockholders". The application of these rules
over time may result in a higher portion of distributions being taxed as
dividends than would have occurred had the Company purchased its interests in
the Properties at their agreed values.
Interests in the Properties purchased by the Operating Partnership for cash
simultaneously with or subsequent to the admission of the Company to the
Operating Partnership initially will have a tax basis equal to their fair market
value. Thus, Section 704(c) of the Code will not apply to such interests.
SERVICE CORPORATIONS. A portion of the amounts to be used by the Operating
Partnership to fund distributions to stockholders is expected to come from the
Service Corporations, through dividends on non-voting stock of the Service
Corporations to be held by the Operating Partnership. The Service Corporations
will not qualify as REITs and thus will pay Federal, state and local income
taxes on their net income at normal corporate rates. To the extent that the
Service Corporations are required to pay Federal, state and local income taxes,
the cash available for distribution to the Company's stockholders will be
reduced accordingly.
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As described above, the value of the securities of any Service Corporation
held by the Operating Partnership cannot exceed 5% of the value of the Operating
Partnership's assets at a time when the Company is considered to acquire
additional securities of the Service Corporation. See "--Taxation of the
Company--Asset Tests." This limitation may restrict the ability of the Service
Corporations to increase the sizes of their businesses unless the value of the
assets of the Operating Partnership is increasing at a commensurate rate.
STATE AND LOCAL TAX
The Company and its stockholders may be subject to state and local tax in
states and localities in which it does business or owns property. The tax
treatment of the Company and the stockholders in such jurisdictions may differ
from the Federal income tax treatment described above.
PROPOSED TAX LEGISLATION
The House Ways and Means and Senate Finance Committees have both passed
versions of a Revenue Reconciliation Bill. Described below are certain
provisions which could affect the federal income tax consequences of an
investment in the Company.
PROVISIONS RELATING TO REITS. Both bills propose modifications of many of
the requirements for qualification as, and taxation of, a REIT effective for
taxable years beginning after the date of enactment. Such modifications
generally relate to the organizational requirements for qualification as a REIT,
the income tests, and the manner in which REITs are taxed. Some of these
modifications are as follows: (i) repeal of the 30% gross income test described
above in "--Taxation of the Company--Income Tests;" (ii) imposition of a
monetary penalty rather than a loss of REIT status if the REIT fails to comply
with the "shareholder demand" recordkeeping requirements; (iii) deemed
compliance with the closely held prohibition requirement for a REIT that does
not know or have reason to know of a "five or fewer" problem; (iv) allowance of
a REIT to perform a de minimis amount of impermissible services to tenants for
fees without disqualifying amounts received from the property as "rents from
real property;" (v) broadening of the REIT hedging rules to allow income from
all types of liability derivatives to be considered qualifying income for
purposes of the 95% gross income test; (vi) a tax credit for REIT shareholders
when a REIT sells a property but retains the proceeds and pays a corporate level
tax; (vii) expansion of the non-cash income items that a REIT does not have to
distribute to distribute to (e.g. cancellation of indebtedness and original
issue discount income); (viii) eliminating certain partnership attribution rules
that can cause certain rents received by a REIT to fail to qualify as "rents
from real property;" (ix) including within the definition of "qualified REIT
subsidiary" any entity of which the REIT owns all of the stock; (x) alteration
of the ordering rules for purposes of the requirement that newly-electing REITs
distribute earnings and profits that were accumulated in non-REIT years; (xi)
exclusion from the prohibited sales rules of property that was involuntarily
converted; and (xii) lengthening of the grace period for foreclosure property.
No assurance can be given that any tax legislation will in fact be enacted
or, if enacted, will contain the foregoing provisions in the form described
above.
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UNDERWRITING
The underwriters of the Offering (the "Underwriters"), for whom Lehman
Brothers Inc., Donaldson, Lufkin & Jenrette Securities Corporation, Legg Mason
Wood Walker, Incorporated and Prudential Securities Incorporated are acting as
representatives (the "Representatives"), have severally agreed, subject to the
terms and conditions contained in the Underwriting Agreement (the form of which
is filed as an exhibit to the Registration Statement of which this Prospectus
forms a part) to purchase from the Company and the Company has agreed to sell to
each Underwriter, the aggregate number of shares of Common Stock set forth below
opposite the name of each such Underwriter.
NUMBER OF
UNDERWRITER SHARES
- -------------------------------------------------------------------------------- ------------
Lehman Brothers Inc.............................................................
Donaldson, Lufkin & Jenrette Securities Corporation.............................
Legg Mason Wood Walker, Incorporated............................................
Prudential Securities Incorporated..............................................
------------
Total....................................................................... 10,100,000
------------
------------
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase shares of Common Stock are subject to certain
conditions, and that if any of the shares of Common Stock are purchased by the
Underwriters pursuant to the Underwriting Agreement, all of the shares agreed to
be purchased by the Underwriters under the Underwriting Agreement must be so
purchased.
The Company has been advised that the Underwriters propose to offer the
shares of Common Stock directly to the public at the initial public offering
price set forth on the cover page of this Prospectus, and to certain selected
dealers who may include the Underwriters at such public offering price less a
selling concession not in excess of $ per share. The selected dealers
may reallow a concession not in excess of $ per share to certain brokers
or dealers. After the Offering, the public offering price, the concession to
selected dealers and the reallowance may be changed by the Representatives.
The Company has granted to the Underwriters an option to purchase up to an
additional 1,515,000 shares of Common Stock at the public offering price less
the aggregate underwriting discounts and commissions shown on the cover page of
this Prospectus, solely to cover overallotments, if any. Such option may be
exercised at any time within 30 days after the date of the Underwriting
Agreement. To the extent that such option is exercised, each Underwriter will be
committed, subject to certain conditions, to purchase a number of additional
shares of Common Stock proportionate to such Underwriter's initial commitment as
indicated in the preceding table.
The Company has agreed that it will not, without the prior written consent
of Lehman Brothers Inc., offer for sale, contract to sell, sell or otherwise
dispose of (or enter into any transaction or device which is designed to, or
could be expected to, result in the disposition by any person at any time in the
future of), directly or indirectly, any shares of Common Stock or securities
convertible into or exercisable or exchangeable for Common Stock (other than
shares offered hereby, shares issued pursuant to the Stock Option Plan and any
Units or shares of Common Stock that may be issued in connection with any
acquisition of a property), or sell or grant options, rights or warrants with
respect to any shares of Common Stock (other than the grant of options pursuant
to the Stock Option Plan), for a period of 180 days after the date of this
Prospectus.
138
In addition, certain SL Green entities and certain officers of the Company
have agreed that they will not, without the prior written consent of the Company
and Lehman Brothers Inc., subject to certain exceptions, offer for sale,
contract to sell, sell or otherwise dispose of (or enter into any transaction or
device which is designed to, or could be expected to, result in the disposition
by any person at any time in the future of), directly or indirectly, any shares
of Common Stock or Units received by them in connection with the Formation
Transactions or the Offering, for an initial period of one year after the date
of this Prospectus, after which time one-third of such Common Stock or Units
held by each such entity or person shall no longer be subject to such
restrictions and an additional one-third thereof shall be released from such
restrictions on each of the second and third anniversaries of the date of this
Prospectus. Also, Victor Capital has agreed to similar restrictions with respect
to the shares of Common Stock received by it in connection with the Formation
Transactions for a period of one year after the date of this Prospectus.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended,
or to contribute to the payments they may be required to make in respect
thereto.
The Underwriters do not intend to confirm sales of Common Stock to any
account over which they exercise discretionary authority.
Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price will be determined through negotiations
between the Company and the Representatives. Among the factors to be considered
in such negotiations, in addition to prevailing market conditions, are
distribution rates and financial characteristics of publicly traded REITs that
the Company and the Representatives believe to be comparable to the Company, the
expected results of operations of the Company (which are based on the results of
operations of the Properties in recent periods), estimates of future business
potential and earnings prospects of the Company as a whole and the current state
of the real estate market in the Midtown Markets and the economy as a whole. The
initial price per share to the public set forth on the cover page of this
Prospectus should not, however, be considered an indication of the actual value
of the Common Stock. Such price is subject to change as a result of market
conditions and other factors.
The shares of Common Stock have been approved for listing on the NYSE,
subject to official notice of issuance, under the symbol "SLG."
Until the distribution of the Common Stock is completed, rules of the
Commission may limit the ability of the Underwriters and certain selling group
members to bid for and purchase the Common Stock. As an exception to these
rules, the Representatives are permitted to engage in certain transactions that
stabilize the price of the Common Stock. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with the offering, I.E., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus, the Representatives may
reduce that short position by purchasing Common Stock in the open market. The
Representatives may also elect to reduce any short position by exercising all or
part of the over-allotment option described herein.
The Representatives may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of Common Stock in the open market to reduce the Underwriters' short
position or to stabilize the price of the Common Stock, they may reclaim the
amount of the selling concession from the Underwriters and selling group members
who sold those shares as part of the Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The
139
imposition of a penalty bid might also have an effect on the price of a security
to the extent that it were to discourage resales of the security by purchasers
in an offering.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor any of the Underwriters makes any representation that the
Representatives will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
Certain of the Underwriters and their affiliates have from time to time
performed, and may continue to perform in the future, various investment banking
and other services for the Company, for which customary compensation has been,
and will be, received. The Company will pay an advisory fee equal to 0.75% of
the gross proceeds of the Offering (including any exercise of the Underwriters'
overallotment option) to Lehman for advisory services in connection with the
evaluation, analysis and structuring of the Company's formation as a REIT. In
connection with the Offering, an affiliate of Lehman Brothers Inc. will receive
$39.6 million of the net proceeds in repayment of amounts outstanding under the
LBHI Loan. In addition, an affiliate of Lehman may provide the Operating
Partnership with a $14 million mortgage loan initially secured by 1140 Avenue of
the Americas. See "Use of Proceeds," "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources"
and "Certain Relationships and Transactions."
Although the Conduct Rules of the National Association of Securities
Dealers, Inc. exempt REITs from the conflict of interest provisions thereof,
because Lehman Brothers Inc. and certain of its affiliates will receive more
than 10% of the net proceeds of the Offering in payment of the financial
advisory fee and in repayment of currently outstanding indebtedness, the
Underwriters have determined to conduct the Offering in accordance with the
applicable provisions of Rule 2720 of the Conduct Rules. In accordance with
these requirements, Prudential Securities Incorporated (the "Independent
Underwriter") is assuming the responsibilities of acting as "qualified
independent underwriter," and will recommend the maximum initial public offering
price for the Common Stock in compliance with the requirements of the Conduct
Rules. In connection with the Offering, the Independent Underwriter is
performing due diligence investigations and is reviewing and participating in
the preparation of this Prospectus and the Registration Statement of which this
Prospectus forms a part. The initial public offering price of the Common Stock
will be no higher than the price recommended by the Independent Underwriter.
The Underwriters have reserved for sale at the public offering price up to
505,000 shares of Common Stock to directors, officers, employees and consultants
of the Company, their business affiliates and related parties who have expressed
an interest in purchasing shares. The number of shares available for sale to the
general public will be reduced to the extent such persons purchase the reserved
shares. Any reserved shares not so purchased will be offered by the Underwriters
to the general public on the same basis as the others have been offered hereby.
EXPERTS
The balance sheet of SL Green Realty Corp. as of June 12, 1997, the combined
financial statements of the SL Green Predecessor as of December 31, 1996 and
1995 and for each of the three years in the period ended December 31, 1996, the
combined financial statements of the uncombined joint ventures of the SL Green
Predecessor as of December 31, 1996 and 1995 and for each of the three years in
the period ended December 31, 1996, the statements of revenues and certain
expenses for each of the Properties at (i) 36 West 44th Street, (ii) 1372
Broadway, (iii) 1140 Avenue of the Americas and (iv) 50 West 23rd Street in the
Borough of Manhattan for the year ended December 31, 1996 and the statement of
revenues and certain expenses for the property at 1414 Avenue of the Americas in
the Borough of Manhattan for the year ended December 31, 1995, all appearing in
this Prospectus and Registration Statement, have been audited by Ernst & Young
LLP, independent auditors, as set forth in these reports thereon appearing
elsewhere
140
herein, and are included in reliance upon such reports given upon the authority
of such firm as experts in accounting and auditing.
The Rosen Market Study was prepared for the Company by Rosen Consulting
Group, which is a real estate consulting firm with significant expertise
relating to the New York metropolitan area economy and the Manhattan office
market and the various submarkets therein. Information relating to the New York
economy and the Manhattan office market set forth on "Market Overview" is
derived from the Rosen Market Study and is included in reliance on the Rosen
Consulting Group's authority as experts on such matters.
LEGAL MATTERS
The validity of the shares of Common Stock and certain tax matters will be
passed upon for the Company by Brown & Wood LLP. In addition, the description of
Federal income tax consequences under the heading "Material Federal Income Tax
Consequences" is based upon the opinion of Brown & Wood LLP. Certain legal
matters will be passed upon for the Underwriters by Rogers & Wells, New York,
New York. Rogers & Wells may rely on the opinion of Brown & Wood LLP as to
certain matters of Maryland law.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form S
- -11 (of which this Prospectus is a part) under the Securities Act with respect
to the securities offered hereby. This Prospectus does not contain all
information set forth in the Registration Statement, certain portions of which
have been omitted as permitted by the rules and regulations of the Commission.
Statements contained in this Prospectus as to the content of any contract or
other document are not necessarily complete, and in each instance reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement is qualified in all respects by such
reference and the exhibits and schedules hereto. For further information
regarding the Company and the Common Stock offered hereby, reference is hereby
made to the Registration Statement and such exhibits and schedules, which may be
obtained from the Commission as its principal office at 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon payment of the fees prescribed by the Commission.
The Commission maintains a website at http:/www.sec.gov containing reports,
proxy and information statements and other information regarding registrants,
including the Company, that file electronically with the Commission. In
addition, the Company intends to file an application to list the Common Stock on
the New York Stock Exchange and, if the Common Stock is listed on the New York
Stock Exchange, similar information concerning the Company can be inspected and
copied at the offices of the New York Stock Exchange, 20 Broad Street, New York,
New York 10005.
The Company intends to furnish its stockholders with annual reports
containing audited combined financial statements and a report thereon by
independent certified public accountants.
141
GLOSSARY OF SELECTED TERMS
Unless the context otherwise requires, the following capitalized terms shall
have the meanings set forth below for the purposes of this Prospectus:
"ACMS" means asbestos containing materials.
"ADA" means the Americans with Disabilities Act, as amended.
"ACQUISITION PROPERTIES" means the three office properties described under
"The Properties--Acquisition Properties" which the Company has contracted to
acquire on or after completion of the Offering.
"BIDS" means Business Improvement Districts (public/private ventures that
provide security, sanitation and other services within their boundaries).
"BOOK-TAX DIFFERENCE" means the difference between the fair market value of
a contributed property at the time of contribution and the adjusted tax basis of
such property at the time of contribution.
"BYLAWS" means the Company's bylaws, as supplemented or amended.
"CHARTER" means the Company's articles of incorporation, as supplemented or
amended.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means shares of the Company's Common Stock, $.01 par value
per share.
"COMPANY" means SL Green Realty Corp., a Maryland corporation, and one or
more of its subsidiaries (including the Operating Partnership), and the
predecessors thereof or, as the context may require, SL Green Realty Corp. only
or the Operating Partnership only.
"CONSTRUCTION CORPORATION" means Emerald City Construction Corp., the
corporation which following completion of the Offering will conduct the
construction business with respect to properties in which the Company has no
ownership interest.
"CORE PORTFOLIO" means the six office properties that will be acquired by
the Company from SL Green upon completion of the Offering.
"CREDIT FACILITY" means the revolving credit facility which the Company
expects to establish in order to facilitate acquisitions of properties and for
working capital purposes.
"EXCESS STOCK" means the separate class of stock of the Company into which
shares of stock of the Company owned, or deemed to be owned, or transferred to a
stockholder in excess of the Ownership Limit will automatically be converted.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FIRPTA" means the Foreign Investment in Real Property Tax Act of 1980, as
amended.
"FORMATION TRANSACTIONS" means the transactions described in "Structure and
Formation of the Company--Formation Transactions."
"401(K) PLAN" means the Company's Section 401(k) Savings/Retirement Plan.
"FUNDS FROM OPERATIONS" means net income (computed in accordance with GAAP)
excluding gains (or losses) from debt restructuring and sales of property, plus
depreciation and amortization on real estate assets, and after adjustments for
unconsolidated partnerships and joint ventures.
"GAAP" means generally accepted accounting principles.
142
"INTERESTED STOCKHOLDER" means, with respect to the business combination
provisions of the MGCL, any person who beneficially owns 10% or more of the
voting power of a corporation's shares.
"IRA" means an individual retirement account or annuity.
"IRS" means the United States Internal Revenue Service.
"LEASING CORPORATION" means S.L. Green Realty, Inc., the corporation which
following completion of the Offering will conduct the leasing business with
respect to properties in which the Company has no interest.
"LOCK-OUT PERIOD" means the period, up to 12 years following the completion
of the Offering, during which the Lock-out Provisions will be in effect.
"LOCK-OUT PROVISIONS" means the limitations on the ability of the Company to
sell, or reduce the amount of mortgage indebtedness on, two of the Properties
(673 First Avenue and 470 Park Avenue South) for up to 12 years following the
completion of the Offering, except in certain circumstances.
"MANAGEMENT CORPORATION" means S.L. Green Management Corp., the corporation
which following completion of the Offering will conduct the management business
with respect to properties in which the Company has no ownership interest.
"MANAGEMENT ENTITIES" means the Management Corporation and the Management
LLC.
"MANAGEMENT LLC" means the limited liability company to which SL Green will
transfer its management and leasing business with respect to the Properties
owned by the Company as well as the tenant representation business with respect
to certain properties not owned by the Company.
"MGCL" means the Maryland General Corporation Law.
"NAREIT" means the National Association of Real Estate Investment Trusts.
"1940 ACT" means the Investment Company Act of 1940, as amended.
"NON-U.S. STOCKHOLDERS" means nonresident alien individuals, foreign
corporations, foreign partnerships and other foreign stockholders.
"OFFERING" means this offering of shares of Common Stock of the Company
pursuant to and as described in this Prospectus.
"OPERATING PARTNERSHIP" means SL Green Operating Partnership, L.P., a
Delaware limited partnership.
"OWNERSHIP LIMIT" means the restriction contained in the Company's Charter
providing that, subject to certain exceptions, no holder may own, or be deemed
to own by virtue of the attribution provision of the Code, more than 9.0% of the
aggregate number or value of shares of Common Stock of the Company.
"PARENT ENTITY" means an entity whose stock is publicly traded and which
owns more than 50% of the capital stock of the Company.
"PARTNERSHIP AGREEMENT" means the Agreement of Limited Partnership of the
Operating Partnership, as amended from time to time.
"PCBS" means polychlorinated biphenyls.
"PREFERRED STOCK" means one or more classes of Preferred Stock of the
Company as designated and issued by the Board of Directors from time to time.
"PROPERTIES" means the eight Class B properties located in midtown Manhattan
in which the Company will own interests upon completion of the Offering.
143
"REIT" means a real estate investment trust as defined by Sections 856
through 860 of the Code and applicable Treasury Regulations.
"RELATED PARTY TENANT" means, for purposes of determining whether rents
received by the Company will qualify as "rents from real property" for
satisfying the gross income requirements for a REIT, a tenant in which the
Company, or an owner of 10% or more of the Company, directly or constructively
has at least a 10% ownership interest.
"RESTRICTED SHARES" means the shares of Common Stock received by the
participants in the Formation Transactions or acquired by any participant in the
Formation Transactions as a result of the redemption of Units.
"SECTION 704(c) REGULATIONS" means the regulations promulgated by the IRS
under Section 704(c) of the Code.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SERVICE CORPORATIONS" means the Management Corporation, the Leasing
Corporation and the Construction Corporation.
"STOCK OPTION PLAN" means the 1997 Stock Option and Incentive Plan.
"TREASURY REGULATIONS" means the regulations promulgated by the IRS under
the Code.
"TRUSTEE" means the trustee appointed by the Company, but not affiliated
with the Company, who will name a charitable trust for the benefit of a
charitable organization to receive any shares of Common Stock purportedly
transferred to a stockholder in violation of the applicable Ownership Limit or
Existing Holder Limit.
"UBTI" means unrelated business taxable income.
"UNDERWRITERS" means the underwriters of the Offering, for whom Lehman
Brothers Inc., Donaldson, Lufkin & Jenrette Securities Corporation, Legg Mason
Wood Walker, Incorported and Prudential Securities Incorporated are acting as
representatives.
"UNITS" means units of partnership interest in the Operating Partnership.
"UPREIT" means a REIT conducting business through a partnership.
144
INDEX TO FINANCIAL STATEMENTS
SL GREEN REALTY CORP.
Pro Forma Combined Financial Statements (unaudited).................................. F-3
Pro Forma Combined Balance Sheet as of June 30, 1997............................. F-4
Pro Forma Combined Statement of Income for the Six Months Ended
June 30, 1997.................................................................. F-5
Pro Forma Combined Statement of Income for the Year Ended December 31, 1996...... F-6
Notes to Pro Forma Combined Financial Information................................ F-7
Historical
Report of Independent Auditors................................................... F-18
Balance Sheet as of June 12, 1997................................................ F-19
Notes to Balance Sheet........................................................... F-20
THE SL GREEN PREDECESSOR
Combined Financial Statements
Report of Independent Auditors................................................... F-23
Combined Balance Sheets as of June 30, 1997 (unaudited) and
December 31, 1996 and 1995..................................................... F-24
Combined Statements of Operations for the Six Months Ended June 30, 1997 and 1996
(unaudited) and the Years Ended December 31, 1996, 1995, and 1994............... F-25
Combined Statements of Owners' Deficit for the Six Months Ended June 30, 1997
(unaudited) and the Years Ended December 31, 1996, 1995, and 1994............... F-26
Combined Statements of Cash Flows for the Six Months Ended June 30, 1997
and 1996 (unaudited) and the Years Ended December 31, 1996, 1995, and 1994..... F-27
Notes to the Combined Financial Statements....................................... F-28
Schedule III
Real Estate and Accumulated Depreciation as of December 31, 1996................. F-38
Uncombined Joint Ventures--Combined Financial Statements
Report of Independent Auditors................................................... F-40
Combined Balance Sheets as of June 30, 1997 (unaudited) and
December 31, 1996 and 1995..................................................... F-41
Combined Statements of Operations for the Six Months Ended June 30, 1997 and 1996
(unaudited) and the Years Ended December 31, 1996, 1995, and 1994............... F-42
Combined Statements of Owners' Deficit for the Six Months Ended June 30, 1997
(unaudited) and Years Ended December 31, 1996, 1995, and 1994................... F-43
Combined Statements of Cash Flows for the Six Months Ended June 30, 1997 and 1996
(unaudited) and the Years Ended December 31, 1996, 1995, and 1994............... F-44
Notes to the Combined Financial Statements....................................... F-45
Schedule III
Real Estate and Accumulated Depreciation as of December 31, 1996................. F-55
F-1
INDEX TO FINANCIAL STATEMENTS (CONTINUED)
1414 AVENUE OF THE AMERICAS
Report of Independent Auditors................................................ F-57
Statement of Revenues and Certain Expenses for the Six Months Ended
June 30, 1996 (unaudited) and the Year Ended December 31, 1995.............. F-58
Notes to Statement of Revenues and Certain Expenses........................... F-59
36 WEST 44TH STREET
Report of Independent Auditors................................................ F-61
Statement of Revenues and Certain Expenses for the Six Months Ended
June 30, 1997 (unaudited) and the Year Ended December 31, 1996.............. F-62
Notes to Statement of Revenues and Certain Expenses........................... F-63
1372 BROADWAY
Report of Independent Auditors................................................ F-65
Statement of Revenues and Certain Expenses for the Six Months Ended
June 30, 1997 (unaudited) and the Year Ended December 31, 1996.............. F-66
Notes to Statement of Revenues and Certain Expenses........................... F-67
1140 AVENUE OF THE AMERICAS
Report of Independent Auditors................................................ F-69
Statement of Revenues and Certain Expenses for Six Months Ended
June 30, 1997 (unaudited) and the Year ended December 31, 1996.............. F-70
Notes to Statement of Revenues and Certain Expenses........................... F-71
50 WEST 23RD STREET
Report of Independent Auditors................................................ F-73
Statement of Revenues and Certain Expenses for Six Months Ended
June 30, 1997 (unaudited) and the year ended December 31, 1996.............. F-74
Notes to Statement of Revenues and Certain Expenses........................... F-75
F-2
SL GREEN REALTY CORP.
PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
The pro forma balance sheet of the Company as of June 30, 1997 has been
prepared as if the Offering and Formation Transactions had been consummated on
June 30, 1997. The pro forma statements of income for the six months ended June
30, 1997 and for the year ended December 31, 1996 are presented as if the
completion of the Offering and the Formation Transactions occurred at January 1,
1996 and the effect thereof was carried foward through the six month period
ended June 30, 1997.
The pro forma financial statements do not purport to represent what the
Company's financial position or results of operations would have been assuming
the completion of the Formation Transactions and the Offering on such date or at
the beginning of the period indicated, nor do they purport to project the
Company's financial position or results of operations at any future date or for
any future period. The pro forma combined financial statements should be read in
conjunction with the combined financial statements of SL Green Predecessor
included elsewhere herein.
F-3
SL GREEN REALTY CORP.
PRO FORMA COMBINED BALANCE SHEET
AS OF JUNE 30, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
ACQUISITION EQUITY
SL GREEN OF CONVERSION OF
PREDECESSOR PARNERSHIPS SERVICE ACQUISITION FINANCING PRO FORMA
HISTORICAL INTERESTS CORPORATIONS THE OFFERING PROPERTIES ADJUSTMENTS ADJUSTMENTS
(A) (B) (C) (D) (E) (F) (G)
------------ ------------- ------------- ------------ ----------- ----------- -----------
ASSETS :
Commercial real estate
property at cost............
Land.......................... $ 7,165 $ 4,633 $ 22,267 $ 60
Buildings and improvements.... 33,947 72,590 89,170 229
Property under capital lease.. 12,208 4,592
------------ ------------- ------------- ------------ ----------- ----------- -----------
41,112 89,431 116,029 289
Less accumulated
depreciation............ (6,399) (14,490)
------------ ------------- ------------- ------------ ----------- ----------- -----------
34,713 74,941 116,029 289
Cash and cash equivalents..... 1,231 (6,444) $ (529) $ 183,711 (103,597) $ (45,678) (21,691)
Restricted cash............... 1,685 2,305
Receivables................... 1,107 12 (944)
Related party receivables..... 1,658 26 (783)
Deferred rents receivable..... 1,596 9,477
Investment in partnerships.... 1,176 (1,176)
Deferred lease fees and loan
costs....................... 1,861 2,587 (214) (107)
Other assets.................. 1,718 3,393 (657) 1,560
------------ ------------- ------------- ------------ ----------- ----------- -----------
Total assets.............. $ 46,745 $ 85,121 $ (3,127) $ 183,711 $ 13,992 $ (45,785) $ (21,402)
------------ ------------- ------------- ------------ ----------- ----------- -----------
------------ ------------- ------------- ------------ ----------- ----------- -----------
LIABILITIES AND EQUITY :
Mortgage loans payable........ $ 26,646 $ 57,725 $ (37,638)
Accrued interest payable...... 109 10,851 (10,863)
LBHI Loan payable............. 7,530 $ 9,400 (16,930)
Capitalized lease
obligations................. 14,374 4,592
Deferred land lease payable... 12,021
Accrued expenses and accounts
payable..................... 1,171 576 $ (768)
Accounts payable to related
parties..................... 1,298 503 (1,298)
Excess of distributions and
share of losses over amounts
invested in:
Partnerships............ 18,007 (18,007)
Service Corporations.... 1,758
Security deposits............. 1,683 2,390
------------ ------------- ------------- ------------ ----------- ----------- -----------
Total liabilities......... 48,914 87,963 (308) 0 13,992 (65,431) 0
------------ ------------- ------------- ------------ ----------- ----------- -----------
Minority interest in Operating
Partnership.................
Common stock.................. 108 1
Additional paid-in capital....
Owner's equity................ (2,169) (2,842) (2,819) 183,603 19,646 $ (21,403)
------------ ------------- ------------- ------------ ----------- ----------- -----------
Total equity.............. (2,169) (2,842) (2,819) 183,711 19,646 (21,402)
------------ ------------- ------------- ------------ ----------- ----------- -----------
Total liabilities and
equity.................. $ 46,745 $ 85,121 $ (3,127) $ 183,711 $ 13,992 $ (45,785) $ (21,402)
------------ ------------- ------------- ------------ ----------- ----------- -----------
------------ ------------- ------------- ------------ ----------- ----------- -----------
MINORITY
INTEREST
IN OPERATING
PARTNERSHIP COMPANY
ADJUSTMENT PRO FORMA
------------ -----------
ASSETS :
Commercial real estate
property at cost............
Land.......................... $ 34,125
Buildings and improvements.... 195,936
Property under capital lease.. 16,800
------------ -----------
246,861
Less accumulated
depreciation............ (20,889)
------------ -----------
225,972
Cash and cash equivalents..... 7,003
Restricted cash............... 3,990
Receivables................... 175
Related party receivables..... 901
Deferred rents receivable..... 11,073
Investment in partnerships.... 0
Deferred lease fees and loan
costs....................... 4,127
Other assets.................. 6,014
------------ -----------
Total assets.............. $ 259,255
------------ -----------
------------ -----------
LIABILITIES AND EQUITY :
Mortgage loans payable........ $ 46,733
Accrued interest payable...... 97
LBHI Loan payable............. 0
Capitalized lease
obligations................. 18,966
Deferred land lease payable... 12,021
Accrued expenses and accounts
payable..................... 979
Accounts payable to related
parties..................... 503
Excess of distributions and
share of losses over amounts
invested in:
Partnerships............
Service Corporations.... 1,758
Security deposits............. 4,073
------------ -----------
Total liabilities......... 85,130
------------ -----------
Minority interest in Operating
Partnership................. 31,690 31,690
Common stock.................. 109
Additional paid-in capital.... 142,326 142,326
Owner's equity................ (174,016)
------------ -----------
Total equity.............. (31,690) 142,435
------------ -----------
Total liabilities and
equity.................. $ 259,255
------------ -----------
------------ -----------
F-4
SL GREEN REALTY CORP.
PRO FORMA COMBINED INCOME STATEMENT
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
EQUITY
SL GREEN ACQUISITION OF CONVERSION
PREDECESSOR PARTNERSHIP SERVICE ACQUISITION FINANCING PRO
HISTORICAL INTEREST CORPORATIONS PROPERTIES ADJUSTMENTS FORMA
(H) (I) (J) (K) (L) ADJUSTMENTS
------------- --------------- --------------- ------------- ------------- -------------
REVENUES:
Rental revenue...................... $ 2,800 $ 10,579 $ 9,639
Escalations and reimbursement
revenues.......................... 455 725 1,294
Management revenues................. 966 $ (966)
Leasing commissions................. 3,088 (1,563)
Construction revenues............... 8 (8)
Investment income...................
Other income........................ 16 (17) (11) 1,532
Equity in Service Corporations
income............................ 382
------ ------- ------ ------ ------------- -------------
Total revenues.................. 7,333 11,287 (2,166) 12,465
------ ------- ------ ------ ------------- -------------
Share of net loss from uncombined
joint ventures.................... 564 (564)
------ ------- ------ ------ ------------- -------------
EXPENSES:
Operating expenses.................. 1,625 1,512 (696) 2,683
Ground rent......................... 2,508
Interest............................ 713 4,163 189 $ (2,079)
Depreciation and amortization....... 599 1,939 (47) 1,146 (10) $ 3(M)
Real estate taxes................... 482 1,461 2,135
Marketing, general and
administrative.................... 1,835 (1,235) 828(N)
------ ------- ------ ------ ------------- -------------
Total expenses.................. 5,254 11,583 (1,978) 6,153 (2,089) 831
------ ------- ------ ------ ------------- -------------
Income (loss) before minority
interest and extraordinary
item............................ 1,515 268 (188) 6,312 2,089 (831)
Minority interest in operating
partnership (K)................... (1,668)(O)
------ ------- ------ ------ ------------- -------------
Income (loss) before extraordinary
item............................ $ 1,515 $ 268 ($188) $ 6,312 $ 2,089 (2,499 )
------ ------- ------ ------ ------------- -------------
------ ------- ------ ------ ------------- -------------
Income per common share (P).......
COMPANY PRO
FORMA
-----------
REVENUES:
Rental revenue...................... $ 23,018
Escalations and reimbursement
revenues.......................... 2,474
Management revenues.................
Leasing commissions................. 1,525
Construction revenues...............
Investment income...................
Other income........................ 1,520
Equity in Service Corporations
income............................ 382
-----------
Total revenues.................. 28,919
-----------
Share of net loss from uncombined
joint ventures....................
-----------
EXPENSES:
Operating expenses.................. 5,124
Ground rent......................... 2,508
Interest............................ 2,986
Depreciation and amortization....... 3,630
Real estate taxes................... 4,078
Marketing, general and
administrative.................... 1,428
-----------
Total expenses.................. 19,754
-----------
Income (loss) before minority
interest and extraordinary
item............................ 9,165
Minority interest in operating
partnership (K)................... (1,668)
-----------
Income (loss) before extraordinary
item............................ $ 7,497
-----------
-----------
Income per common share (P)....... $ 0.70
-----------
-----------
F-5
SL GREEN REALTY CORP.
PRO FORMA COMBINED INCOME STATEMENT
FOR THE YEAR ENDED
DECEMBER 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
ACQUISITION EQUITY
SL GREEN OF CONVERION OF
PREDECESSOR PARTNERSHIPS' SERVICE ACQUISITION FINANCING PRO FORMA
HISTORICAL INTERESTS CORPORATIONS PROPERTIES ADJUSTMENTS ADJUSTMENTS
(A) (B) (C) (D) (E) (F)
------------- --------------- --------------- ----------- ------------- -------------
REVENUES:
Rental revenue........................ $ 4,199 $ 20,985 $ 19,154
Escalations and reimbursement
revenues............................ 1,051 2,304 3,274
Management revenues................... 2,336 $ (2,336)
Leasing commissions................... 2,372 (1,115)
Construction revenues................. 101 (101)
Investment income..................... 15
Other income.......................... 123 13 (92) 906
Equity in Service Corporations
income..............................
------------- ------- ------- ----------- ------------- -------------
Total revenues...................... 10,182 23,317 (3,644) 23,334
------------- ------- ------- ----------- ------------- -------------
Share of net loss from uncombined
joint ventures...................... 1,408 (1,408) 504
------------- ------- ------- ----------- ------------- -------------
EXPENSES:
Operating expenses.................... 3,197 4,608 (1,522) 6,016
Ground rent........................... 3,925
Interest.............................. 1,357 7,743 379 $ (3,621)
Depreciation and amortization......... 975 3,812 (92) 2,292 (13) $ 5
Real estate taxes..................... 703 3,189 4,356
Marketing, general and
administrative...................... 3,250 (2,264) 1,657
------------- ------- ------- ----------- ------------- -------------
Total expenses...................... 9,482 23,277 (3,878) 13,043 (3,634) 1,662
------------- ------- ------- ----------- ------------- -------------
Income (loss) before minority
interest and extraordinary item... (708) 1,448 (270) 10,291 3,634 (1,662)
Minority interest
in Operating Partnership (G)........ (2,317)
------------- ------- ------- ----------- ------------- -------------
Income (loss)
before extraordinary item......... ($ 708) $ 1,448 ($ 270) $ 10,291 $ 3,634 $ (3,979)
------------- ------- ------- ----------- ------------- -------------
------------- ------- ------- ----------- ------------- -------------
Income per common share(H)..........
COMPANY
PRO FORMA
-----------
REVENUES:
Rental revenue........................ $ 44,338
Escalations and reimbursement
revenues............................ 6,629
Management revenues...................
Leasing commissions................... 1,257
Construction revenues.................
Investment income..................... 15
Other income.......................... 950
Equity in Service Corporations
income..............................
-----------
Total revenues...................... 53,189
-----------
Share of net loss from uncombined
joint ventures...................... 504
-----------
EXPENSES:
Operating expenses.................... 12,299
Ground rent........................... 3,925
Interest.............................. 5,858
Depreciation and amortization......... 6,979
Real estate taxes..................... 8,248
Marketing, general and
administrative...................... 2,643
-----------
Total expenses...................... 39,952
-----------
Income (loss) before minority
interest and extraordinary item... 12,733
Minority interest
in Operating Partnership (G)........ (2,317)
-----------
Income (loss)
before extraordinary item......... $ 10,416
-----------
-----------
Income per common share(H).......... $ 0.97
-----------
-----------
F-6
SL GREEN REALTY CORP.
NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION
JUNE 30, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
ADJUSTMENTS TO THE PRO FORMA COMBINED BALANCE SHEET
(A) To reflect the SL Green Predecessor historical combined balance sheet as
of June 30, 1997. The real estate and other assets and the assumption of
liabilities and deficit of the SL Green Predecessor will be transferred at their
historical amounts to the Operating Partnership.
(B) To reflect 673 First Avenue, 470 Park Avenue South, 29 West 35th Street
and 36 West 44th Street (the "Equity Properties") as consolidated entities
rather than as uncombined joint ventures as a result of the acquisition of 100%
of the partnerships' interests and to record payment of transfer costs on the
transfer of the properties to the Operating Partnership. The Company will
account for interests contributed by Mr. Green in accordance with Staff
Accounting Bulletin #48 and will record the assets/liabilities at its carryover
basis which is historical cost. With respect to interests acquired from third
parties (the other partners), these assets/liabilities (the proportionate
amount) will be accounted for at the Company's cost (the aggregate consideration
paid, consisting of debt assumed, cash and/or Units and transfer and closing
costs).
ACQUISITION OF THIRD PARTY PARTNERSHIP INTERESTS
ELIMINATE --------------------------------------------------
HISTORICAL UNCOMBINED RECLASSIFY 673 470 29 36
AMOUNTS TOTAL AND OTHER FIRST AVE PARK AVE WEST 35TH WEST 44TH
----------- ----------- --------------- ----------- ----------- ----------- -----------
ASSETS:
Commercial real estate property at
cost, net....................... $ 57,954 $ 8,859 $ 3,106 $ 2,252 $ 2,770
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents......... 1,663 (5,449) (260) (2,388) (10)
Restricted cash................... 1,305 1,000
Receivables....................... $ 12
Related party receivables......... 26
Deferred rents receivable......... 14,881 (2,880) (1,458) (853) (213)
Investment in partnerships........ $ (1,176)
Deferred lease fees and loan
costs........................... 4,337 (900) (393) (155) (300)
Other assets...................... 2,301 492 600
----------- ----------- --- ----------- ----------- ----------- -----------
Total assets.................... $ (1,176) $ 82,441 $ 530 $ 630 $ 993 $ (1,144) $ 2,847
----------- ----------- --- ----------- ----------- ----------- -----------
----------- ----------- --- ----------- ----------- ----------- -----------
LIABILITIES AND EQUITY:.............
Mortgage loans payable............ $ 63,724 $ (5,649) $ (350)
Accrued interest payable.......... 16,330 (1,835) (3,644)
LBHI Loan payable................. $ 530 $ 7,000
Capitalized lease obligations..... 14,374
Deferred land lease payable....... 11,996 25
Accrued expenses and accounts
payable......................... 576
Accounts payable to related
parties......................... 628 (125)
Excess of distributions and share
of losses over amounts invested
in partnerships................. $ (18,007)
Security deposits................. 2,390
----------- ----------- --- ----------- ----------- ----------- -----------
Total liabilities............... (18,007) 110,018 530 (7,459) (4,119) 7,000
----------- ----------- --- ----------- ----------- ----------- -----------
Total equity (deficit)............ 16,831 (27,577) 8,089 5,112 (1,144) (4,153)
----------- ----------- --- ----------- ----------- ----------- -----------
Total liabilities and equity.... $ (1,176) $ 82,441 $ 530 $ 630 $ 993 $ (1,144) $ 2,847
----------- ----------- --- ----------- ----------- ----------- -----------
----------- ----------- --- ----------- ----------- ----------- -----------
TOTAL
ADJUSTMENTS
-----------
ASSETS:
Commercial real estate property at
cost, net....................... $ 74,941
-----------
Cash and cash equivalents......... (6,444)
Restricted cash................... 2,305
Receivables....................... 12
Related party receivables......... 26
Deferred rents receivable......... 9,477
Investment in partnerships........ (1,176)
Deferred lease fees and loan
costs........................... 2,587
Other assets...................... 3,393
-----------
Total assets.................... $ 85,121
-----------
-----------
LIABILITIES AND EQUITY:.............
Mortgage loans payable............ $ 57,725
Accrued interest payable.......... 10,851
LBHI Loan payable................. 7,530
Capitalized lease obligations..... 14,374
Deferred land lease payable....... 12,021
Accrued expenses and accounts
payable......................... 576
Accounts payable to related
parties......................... 503
Excess of distributions and share
of losses over amounts invested
in partnerships................. (18,007)
Security deposits................. 2,390
-----------
Total liabilities............... 87,963
-----------
Total equity (deficit)............ (2,842)
-----------
Total liabilities and equity.... $ 85,121
-----------
-----------
F-7
SL GREEN REALTY CORP.
NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION
JUNE 30, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
(C) To reflect adjustments required to record the Company's investments in
the Service Corporations pursuant to the equity method of accounting. As a
result of the Formation Transactions the Company will not own the majority of
the voting stock of the Service Corporations but will continue to exercise
significant influence due to the following:
--Substantially all of the economic benefits flow to the Company.
--The Company and the Service Corporations have common officers and
employees.
--The owners of a majority of the voting stock of the Service
Corporations have not contributed substantial equity to the Service
Corporations.
--The views of the Company's management influence the operations of the
Service Corporations.
The adjustment is as follows:
LEASING
COMMISSIONS EXPENSES
HISTORICAL ATTRIBUTABLE ATTRIBUTABLE
SERVICE TO TO EQUITY TOTAL
BALANCE SHEET CORPORATIONS LLC REIT CONVERSION ADJUSTMENT
- ---------------------------------------------- ------------- ------------ ------------- ----------- -----------
ASSETS:
Cash and cash equivalents..................... $ 529 $ (529)
Receivables................................... 944 (944)
Related party receivables..................... 783 (783)
Deferred lease fees and loan costs............ 214 (214)
Other assets.................................. 657 (657)
------ ------------ ----- ----------- -----------
Total Assets................................ $ 3,127 0 0 0 $ (3,127)
------ ------------ ----- ----------- -----------
------ ------------ ----- ----------- -----------
LIABILITIES AND EQUITY:
Accrued expenses and accounts payable......... $ 768 $ (768)
Accounts payable to related parties........... 1,298 (1,298)
Excess share of losses over amounts invested
in Service Corporations..................... $ (1,758) 1,758
------ ------------ ----- ----------- -----------
Total liabilities........................... 2,066 (1,758) (308)
Equity........................................ 1,060 $ (1,525) $ 600 2,683 (2,819)
------ ------------ ----- ----------- -----------
Total liabilities and equity................ $ 3,127 $ (1,525) $ 600 $ 925 $ (3,127)
------ ------------ ----- ----------- -----------
------ ------------ ----- ----------- -----------
STATEMENT OF OPERATIONS:
Management revenue............................ $ 966 $ (966)
Leasing commissions........................... 3,088 $ (1,525) (1,563)
Construction revenues......................... 8 (8)
Equity in net income of investees............. $ (382) 382
Other income.................................. 11 (11)
------ ------------ ----- ----------- -----------
Total revenue............................... (1,525) (382) (2,166)
------ ------------ ----- ----------- -----------
EXPENSES
Operating expenses............................ 696 (696)
Depreciation and amortization................. 47 (47)
Marketing, general and administrative......... 1,835 $ (600) (1,235)
------ ------------ ----- ----------- -----------
Total expenses.............................. 2,578 (600) (1,978)
------ ------------ ----- ----------- -----------
Income (loss)............................... $ 1,495 $ (1,525) $ 600 $ (382) $ (188)
------ ------------ ----- ----------- -----------
------ ------------ ----- ----------- -----------
(2) Expenses are allocated to the Service Corporations and the Limited Liability
Corporation based upon the job functions of the employees.
F-8
SL GREEN REALTY CORP.
NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION
JUNE 30, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
(D) To reflect the issuance of 10,100,000 shares of common stock at an
assumed price of $20 per share. Equity is reduced by the estimated costs of the
common stock Offering of $4,200.
(E) To reflect the acquisition of the respective properties at cost which
represents the purchase price plus related closing costs and estimated closing
costs of 1372 Broadway, 1140 Avenue of the Americas and 50 West 23rd Street as
follows:
1140 50 TOTAL
1372 AVENUE OF WEST ACQUISITION
BROADWAY THE AMERICAS 23RD STREET PROPERTIES
----------- ------------- ----------- -----------
ASSETS ACQUIRED
Land.......................................................... $ 10,828 $ 4,242 $ 7,197 $ 22,267
Building...................................................... 43,312 17,023 28,835 89,170
Property under capital lease.................................. 4,592 4,592
----------- ------------- ----------- -----------
Net Property.............................................. 54,140 25,857 36,032 116,029
Other assets-escrow........................................... 1,560 1,560
----------- ------------- ----------- -----------
$ 54,140 $ 25,857 $ 37,592 $ 117,589
----------- ------------- ----------- -----------
----------- ------------- ----------- -----------
SOURCES OF FUNDS
Cash.......................................................... $ 47,440 $ 19,265 $ 36,842 $ 103,597
Capitalized lease obligations................................. 4,592 4,592
LBHI loan payable............................................. 6,700 2,000 700 9,400
----------- ------------- ----------- -----------
$ 54,140 $ 25,857 $ 37,592 $ 117,589
----------- ------------- ----------- -----------
----------- ------------- ----------- -----------
(F) To reflect the following financing transactions:
- Repayment of certain mortgage loans, payment of prepayment penalties and
write off of deferred financing costs.
- Cancellation of portions of mortgage loans and accrued interest due to
negotiations with the mortgage holders regarding the value of the
collateral and the likelihood of repayment at par of the entire principal
amount together with accrued interest.
- Payment of mortgage fees which are capitalized and amortized over the
remaining lives of the loans transferred from the SL Green Predecessor to
the Company.
- Repayment of portions of the LBHI Loan which were borrowed in connection
with the purchase of additional partnership interests and the Acquisition
Properties.
- Borrowings under the LBHI Loan to pay a portion of the prepayment penalty
on the 1414 Avenue of the Americas mortgage.
F-9
SL GREEN REALTY CORP.
NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION
JUNE 30, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
- Borrowings under a new mortgage loan and the payment of loan fees which
will be capitalized and amortized over the life of the loan is summarized
as follows.
470 29 36 70 1414
673 PARK WEST WEST WEST AVENUE NEW
FIRST AVENUE 35TH 44TH 36TH OF THE MORTGAGE LBHI
AVENUE SOUTH STREET STREET STREET AMERICAS LOAN LOAN
--------- --------- ----------- --------- --------- ----------- ----------- ---------
Cash and cash equivalents..... $ (1,389) $ (13,162) $ (30) $ (10,200) $ (6,568) $ (11,059) $ 13,860 $ (17,130)
--------- --------- --- --------- --------- ----------- ----------- ---------
--------- --------- --- --------- --------- ----------- ----------- ---------
Deferred lease fees and loan
costs:.......................
Financing costs capitalized... $ 389 $ 111 $ 30 $ 140
Amortization of deferred
financing costs.............. (25) (7) (4) (14)
Deferred financing costs
written off.................. $ (260) $ (468)
--------- --------- --- --------- --------- ----------- -----------
Net deferred lease fees
and loan costs.......... $ 364 $ 104 $ 26 $ -- $ (260) $ (468) $ 126
--------- --------- --- --------- --------- ----------- -----------
--------- --------- --- --------- --------- ----------- -----------
Mortgage loans payable:
Loans funded.................. $ 14,000
Loans repaid.................. $ (1,000) $ (13,042) $ (10,200) $ (6,568) $ (9,878)
Loans forgiven................ (10,301) (650)
--------- --------- --------- --------- ----------- -----------
Net mortgage loans
payable................. $ (11,301) $ (13,692) $ (10,200) $ (6,568) $ (9,878) $ 14,000
--------- --------- --------- --------- ----------- -----------
--------- --------- --------- --------- ----------- -----------
Accrued interest payable:
Accrued interest paid....... $ (9) $ (109)
Accrued interest forgiven... $ (3,771) (6,974)
--------- --------- -----------
Net accrued interest
payable................. $ (3,771) $ (6,983) $ (109)
--------- --------- -----------
--------- --------- -----------
LBHI loan payable:
funded...................... $ 200
repaid...................... $ (17,130)
----------- ---------
Net LBHI Loan............. 200 $ (16,600)
----------- ---------
----------- ---------
Equity:
Increase for forgiveness of
buyout of profit
participation............. $ 14,072 $ 7,624
Decrease due to penalties... $ (1,272)
Decrease due to deferred
loan costs................ $ (260) (468)
Decrease due to amortization
of loan costs............. (25) (7) $ (4) $ (14)
--------- --------- --- --------- ----------- -----------
Net equity................ $ 14,047 $ 7,617 $ (4) $ (260) $ (1,740) $ (14)
--------- --------- --- --------- ----------- -----------
--------- --------- --- --------- ----------- -----------
TOTAL
PRO FORMA
ADJUSTMENT
-----------
Cash and cash equivalents..... $ 45,678
-----------
-----------
Deferred lease fees and loan
costs:.......................
Financing costs capitalized... $ 670
Amortization of deferred
financing costs.............. (50)
Deferred financing costs
written off.................. (728)
Net deferred lease fees
and loan costs.......... $ (107)
-----------
-----------
Mortgage loans payable:
Loans funded.................. $ 14,000
Loans repaid.................. (40,688)
Loans forgiven................ (10,951)
-----------
Net mortgage loans
payable................. $ (37,639)
-----------
-----------
Accrued interest payable:
Accrued interest paid....... $ (118)
Accrued interest forgiven... (10,745)
-----------
Net accrued interest
payable................. $ (10,863)
-----------
-----------
LBHI loan payable:
funded...................... $ 200
repaid...................... (17,130)
-----------
Net LBHI Loan............. $ (16,930)
-----------
-----------
Equity:
Increase for forgiveness of
buyout of profit
participation............. $ 21,696
Decrease due to penalties... (1,272)
Decrease due to deferred
loan costs................ (728)
Decrease due to amortization
of loan costs............. (50)
-----------
Net equity................ $ 19,646
-----------
-----------
F-10
SL GREEN REALTY CORP.
NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION
JUNE 30, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
(G) To reflect the following pro forma transaction:
Distribution of excess working capital from the building accounts to
partners
$20 million of the offering proceeds will be used to repay a portion of
a loan made to a company owned by Stephen L. Green which has been accounted
for as a distribution to Stephen L. Green.
--Payment of real property transfer taxes which are capitalized and
amortized over the life of the commercial property.
--Initial capitalization of SL Green Realty Corp.
INITIAL
470 PARK 70 WEST 1414 AVENUE CAPITALIZATION TOTAL PRO
673 FIRST AVENUE 36TH OF THE OF SL GREEN FORMA
AVENUE SOUTH STREET AMERICAS LBHI LOAN REALTY CORP. ADJUSTMENT
----------- --------- --------- ----------- ---------- ------------- -----------
Cash and cash equivalents:
Preformation distributions to
partners...................... $ (400) $ (1,000) $ (1,400)
Repayment of LBHI loan.......... $ (20,000) (20,000)
Payment of real property
transfer costs................ $ (124) $ (165) (289)
Initial Company
capitalization................ $ 1 1
----- --------- --------- ----- ---------- ------------- -----------
Net (decrease) in cash and cash
equivalents...................... $ (400) $ (1,000) $ (124) $ (165) $ (20,000) $ 1 $ (21,688)
----- --------- --------- ----- ---------- ------------- -----------
----- --------- --------- ----- ---------- ------------- -----------
Land.............................. $ 11 $ 49 $ 60
Buildings and improvements........ 113 116 229
----- --------- --------- ----- ---------- ------------- -----------
124 165 $ 289
----- --------- --------- ----- ---------- ------------- -----------
Equity:
Decreases for distributions to
partners......................... $ (400) $ (1,000) $ (1,400)
Decrease for distribution......... $ (20,000) (20,000)
Decreases due to amortization of
loan costs.......................
Capital stock..................... 1 1
(Decrease) increase to equity..... (400) (1,000) (20,000) (21,400)
----- --------- --------- ----- ---------- ------------- -----------
Net adjustment.................... $ (400) $ (1,000) $ (124) $ (165) $ (20,000) 1 $ (21,688)
----- --------- --------- ----- ---------- ------------- -----------
----- --------- --------- ----- ---------- ------------- -----------
(H) To reflect the SL Green Predecessor historical combined statement of
operations for the six months ended June 30, 1997.
F-11
SL GREEN REALTY CORP.
NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION
JUNE 30, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
(I) To reflect the six months ended June 30, 1997 operations of 673 First
Avenue, 470 Park Avenue South, 29 West 35th Street and 36 West 44th Street (the
"Equity Properties") as consolidated entities rather than equity method
investees due to the acquistion 100% of the partnership interests.
ACQUISITION OF PARTNERSHIP INTERESTS AND FAIR
MARKET VALUE ADJUSTMENTS
ELIMINATE --------------------------------------------------
HISTORICAL UNCOMBINED 673 470 29 36 TOTAL
AMOUNTS TOTAL FIRST AVE PARK AVE WEST 35TH WEST 44TH ADJUSTMENTS
----------- ----------- ----------- ----------- ----------- ----------- -----------
REVENUES:
Rental revenue(a)............. $ 10,203 $ 194 $ 120 $ 50 $ 12 $ 10,579
Escalations and reimbursement
revenues..................... 725 725
Other income.................. (17) (17)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total revenues............ 10,911 194 120 50 12 11,287
----------- ----------- ----------- ----------- ----------- ----------- -----------
Equity in net loss of
investees.................... (564) (564)
----------- ----------- ----------- ----------- ----------- ----------- -----------
EXPENSES:
Operating expenses(b)......... 1,861 (162) (98) (27) (62) 1,512
Real estate taxes 1,461 1,461
Ground rent(c)................ 2,483 25 2,508
Interest...................... 4,163 4,163
Depreciation and
amortization(c).............. 1,982 19 (51) (9) (2) 1,939
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total expenses............ 11,950 (118) (149) (36) (64) 11,583
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income before minority
interest................ $ 564 $ (1,039) $ 312 $ 269 $ 86 $ 76 $ 268
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
- ------------------------
(a) Rental income is adjusted to reflect straight line amounts as of the
acquisition date.
(b) Operating expenses are adjusted to eliminate management fees paid to the
Service Corporations (Management fee income received by the Service
Corporations was also eliminated.)
(c) Ground rent and depreciation and amortization were adjusted to reflect the
purchase of the assets.
(J) To reflect the six months operations of the Service Corporations
pursuant to the equity method of accounting (see detail in note (c)).
(K) To reflect the operations of 1372 Broadway, 1140 Avenue of the Americas
and 50 West 23rd Street for the six months ended June 30, 1997. Historical
rental revenue was adjusted for straight line rents as of the acquisition date,
historical operating expenses were reduced for management fees, the capitalized
F-12
SL GREEN REALTY CORP.
NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION
JUNE 30, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
land lease on 1140 Avenue of the Americas was recorded, and depreciation and
amortization based on cost was recorded.
1372 BROADWAY 1140 AVENUE OF THE AMERICAS 50 WEST 23RD STREET
--------------------------------------- --------------------------------------- --------------------------
HISTORICAL ADJUSTMENT PRO FORMA HISTORICAL ADJUSTMENT PRO FORMA HISTORICAL ADJUSTMENT
----------- ------------- ----------- ----------- ------------- ----------- ----------- -------------
Revenues:
Rental revenue.. $ 4,054 $ 455 $ 4,509 $ 2,178 $ 181 $ 2,359 $ 2,597 $ 174
Escalations &
reimbursement
revenue....... 562 562 346 346 386
Other income.... 1,483 1,483 48 48 1
----------- ----- ----------- ----------- ----- ----------- ----------- -----
Total
revenue..... 6,099 455 6,554 2,572 181 2,753 2,984 174
----------- ----- ----------- ----------- ----- ----------- ----------- -----
----------- ----- ----------- ----------- ----- ----------- ----------- -----
Expenses:
Operating
expenses...... 1,337 (142) 1,195 992 (102) 890 689 (91)
Interest on
capital
lease......... 189 189
Depreciation &
amortization.. 541 541 245 245 360
Real estate
taxes......... 1,098 1,098 519 519 518
----------- ----- ----------- ----------- ----- ----------- ----------- -----
Total
expenses.... 2,435 399 2,834 1,511 332 1,843 1,207 269
----------- ----- ----------- ----------- ----- ----------- ----------- -----
Income before
minority
interest...... $ 3,664 $ 56 $ 3,720 $ 1,061 $ (151) $ 910 $ 1,777 $ (95)
----------- ----- ----------- ----------- ----- ----------- ----------- -----
----------- ----- ----------- ----------- ----- ----------- ----------- -----
TOTAL
PRO FORMA PRO FORMA
----------- -----------
Revenues:
Rental revenue.. $ 2,771 $ 9,639
Escalations &
reimbursement
revenue....... 386 1,294
Other income.... 1 1,532
----------- -----------
Total
revenue..... 3,158 12,465
----------- -----------
----------- -----------
Expenses:
Operating
expenses...... 598 2,683
Interest on
capital
lease......... 189
Depreciation &
amortization.. 360 1,146
Real estate
taxes......... 518 2,135
----------- -----------
Total
expenses.... 1,476 6,153
----------- -----------
Income before
minority
interest...... $ 1,682 $ 6,312
----------- -----------
----------- -----------
(L) To reflect the changes in interest expense as the result of financing
transactions and the related adjustments to deferred financing expense (see note
(F)).
NEW
470 29 36 70 1414 MORTGAGE
673 1ST AVE PAS W 35TH W 44TH W 36TH AVE. AMERICAS LOAN
----------- --------- ----------- ----------- ----------- --------------- -----------
Interest....................... $ (799) $ (645) $ $ (461) $ (253) $ (460) $ 539
Depreciation and
amortization................. 25 6 4 (36) (23) 14
--
----- --------- ----- ----- ----- -----
Total expenses............. (774) (639) 4 (461) (289) (483) 553
--
----- --------- ----- ----- ----- -----
Income before minority
interest................. $ 774 $ 639 $ (4) $ 461 $ 289 $ 483 $ (553)
--
--
----- --------- ----- ----- ----- -----
----- --------- ----- ----- ----- -----
TOTAL
---------
Interest....................... $ (2,079)
Depreciation and
amortization................. (10)
---------
Total expenses............. (2,089)
---------
Income before minority
interest................. $ 2,089
---------
---------
(M) To reflect for 70 West 36th Street and 1414 Avenue of the Americas,
depreciation expense adjustments for real property transfer taxes capitalized
which are amortized over the remaining life of the commercial property (see note
(G)).
(N) To reflect the net increase in marketing, general and administrative
expenses related to operations of a public company.
(O) Represents the 18.1% interest of the minority in the Operating
Partnership.
(P) Pro Forma net income per common share is based upon 10,779,216 shares of
common stock expected to be outstanding after the Offering. As each Operating
Partnership Unit is redeemable for cash, or at the company's election, for one
share of common stock, the calculation of earnings per share upon redemption
will be unaffected as unitholders and stockholders share equally on a per unit
and per share basis in the net income of the Company. In February 1997, the
Financial Accounting Standards Board
F-13
SL GREEN REALTY CORP.
NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION
JUNE 30, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
issued Statement No. 128, Earnings per Share, which is required to be adopted on
December 31, 1997. At that time the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per share,
the dilutive effect of stock options will be excluded. Management does not
believe the adoption of Statement No. 128 will have a material impact on
earnings per share.
F-14
SL GREEN REALTY CORP.
NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION
DECEMBER 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
(A) To reflect the SL Green Predecessor historical combined statement of
operations for the year ended December 31, 1996.
(B) To reflect 673 First Avenue, 470 Park Avenue South, 29 West 35th Street
and 36 West 44th Street (the "Equity Properties") as consolidated entities
rather than as uncombined joint ventures due to the acquisition of 100% of the
partnerships' interests.
ELIMINATE
HISTORICAL UNCOMBINED 673 470 29 36
AMOUNTS TOTAL FIRST AVE PARK AVE WEST 35TH WEST 44TH
----------- ----------- ----------- ----------- ----------- -----------
Revenues
Rental revenue................................. $ 17,386 $ 334 $ 183 $ 146 $ 2,936
Escalations and reimbursement revenues......... 1,488 816
Investment income.............................. 15
Other income................................... 13
----------- ----------- ----------- ----- ----- -----------
Total revenues............................. 18,902 334 183 146 3,752
----------- ----------- ----------- ----- ----- -----------
Equity in net loss of uncombined joint
ventures...................................... 0 $ (1,408)
----------- ----------- ----------- ----- ----- -----------
Expenses
Operating expenses............................. 3,964 (316) (206) (68) 1,234
Real estate taxes.............................. 2,316 873
Ground rent.................................... 3,756 100 69
Interest....................................... 7,743
Depreciation and amortization.................. 3,580 40 (99) (22) 313
----------- ----------- ----------- ----- ----- -----------
Total expenses............................. 21,359 (176) (305) (90) 2,489
----------- ----------- ----------- ----- ----- -----------
Income (loss).............................. $ (2,457) $ 1,408 $ 510 $ 488 $ 236 $ 1,263
----------- ----------- ----------- ----- ----- -----------
----------- ----------- ----------- ----- ----- -----------
TOTAL
ADJUSTMENTS
-------------
Revenues
Rental revenue................................. $ 20,985
Escalations and reimbursement revenues......... 2,304
Investment income.............................. 15
Other income................................... 13
-------------
Total revenues............................. 23,317
-------------
Equity in net loss of uncombined joint
ventures...................................... (1,408)
-------------
Expenses
Operating expenses............................. 4,608
Real estate taxes.............................. 3,189
Ground rent.................................... 3,925
Interest....................................... 7,743
Depreciation and amortization.................. 3,812
-------------
Total expenses............................. 23,277
-------------
Income (loss).............................. $ 1,448
-------------
-------------
(C) To reflect adjustments to record the Company's share in the net income
of the Service Corporations pursuant to the equity method of accounting for the
year ended December 31, 1996. As a result of the Formation Transactions the
Company will not own any voting stock of the Service Corporations but will
continue to exercise significant influence due to the following:
- Substantially all of the economic benefits flow to the Company
- The Company and the Service Corporations have common officers and
employees
- The owners of a majority of the voting stock of the Service Corporations
have not contributed substantial equity to the Service Corporations
- The views of the Company's management influence the operations of the
Service Corporations
F-15
SL GREEN REALTY CORP.
NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION (CONTINUED)
DECEMBER 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
The adjustment is as follows:
LEASING
COMMISSIONS EXPENSES
HISTORICAL ATTRIBUTABLE ATTRIBUTABLE
SERVICE TO TO EQUITY TOTAL
CORPORATIONS LLC REIT CONVERSION ADJUSTMENTS
------------- ------------- --------------- ----------- -----------
REVENUE:
Management revenue........................ $ 2,336 $ (2,336)
Leasing commissions....................... 2,372 $ (1,256) (1,115)
Construction revenue...................... 101 (101)
Other income.............................. 92 (92)
------------- ------------- ------ ----------- -----------
Total revenue......................... 4,901 (1,256) (3,644)
Equity in net loss of uncombined joint
ventures................................. $ 504 504
------------- ------------- ------ ----------- -----------
EXPENSES:
Operating expenses........................ 1,522 (1,522)
Depreciation and amortization............. 92 (92)
Marketing, general and administration..... 3,250 $ (985) (2,264)
------------- ------------- ------ ----------- -----------
Total expenses........................ 4,864 (985) (3,878)
------------- ------------- ------ ----------- -----------
Income (loss)......................... $ 37 $ (1,256) $ 985 $ (504) $ (270)
------------- ------------- ------ ----------- -----------
------------- ------------- ------ ----------- -----------
(D) To reflect the operations of 1372 Broadway, 1140 Avenue of the Americas
and 50 West 23rd Street for the year ended December 31, 1996. Historical rental
revenue was adjusted for straight line rents as of the acquisition date,
historical operating expenses were reduced for management fees, the capitalized
land lease on 1140 Avenue of the Americas and depreciation and amortization are
based on cost.
1372 BROADWAY 1140 AVENUE OF THE AMERICAS 50 WEST 23RD STREET
--------------------------------------- --------------------------------------- --------------------------
HISTORICAL ADJUSTMENT PRO FORMA HISTORICAL ADJUSTMENT PRO FORMA HISTORICAL ADJUSTMENT
----------- ------------- ----------- ----------- ------------- ----------- ----------- -------------
Revenues:
Rental revenue..... $ 8,580 $ 656 $ 9,236 $ 4,265 $ 286 $ 4,551 $ 5,357 $ 10
Escalations &
reimbursement
revenue........... 1,842 1,842 716 716 716
Other income....... 690 690 204 204 12
----------- ------ ----------- ----------- ----- ----------- ----------- -----
Total revenue.. 11,112 656 11,768 5,185 286 5,471 6,085 10
----------- ------ ----------- ----------- ----- ----------- ----------- -----
Expenses:
Operating
expenses.......... 3,257 (459) 2,798 2,177 (275) 1,902 1,511 (195)
Interest on capital
lease............. 379 379
Depreciation &
amortization...... 1,082 1,082 490 490 720
Real estate taxes.. 2,343 2,343 1,007 1,007 1,006
----------- ------ ----------- ----------- ----- ----------- ----------- -----
Total
expenses..... 5,600 623 6,223 3,184 594 3,778 2,517 525
----------- ------ ----------- ----------- ----- ----------- ----------- -----
Income before
minority
interest.......... $ 5,512 $ 33 $ 5,545 $ 2,001 $ (308) $ 1,693 $ 3,568 $ (515)
----------- ------ ----------- ----------- ----- ----------- ----------- -----
----------- ------ ----------- ----------- ----- ----------- ----------- -----
TOTAL PRO
PRO FORMA FORMA
----------- -----------
Revenues:
Rental revenue..... $ 5,367 $ 19,154
Escalations &
reimbursement
revenue........... 716 3,274
Other income....... 12 906
----------- -----------
Total revenue.. 6,095 23,334
----------- -----------
Expenses:
Operating
expenses.......... 1,316 6,016
Interest on capital
lease............. 379
Depreciation &
amortization...... 720 2,292
Real estate taxes.. 1,006 4,356
----------- -----------
Total
expenses..... 3,042 13,043
----------- -----------
Income before
minority
interest.......... $ 43,053 $ 10,291
----------- -----------
----------- -----------
(E) To eliminate interest expense and amortization of deferred financing
costs related to mortgage loans paid off or forgiven, to reflect amortization of
deferred financing cost related to the transfer of
F-16
SL GREEN REALTY CORP.
NOTES TO PRO FORMA COMBINED FINANCIAL INFORMATION (CONTINUED)
DECEMBER 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
mortgage debt to the Company and to record interest and amortization of deferred
finance costs related to the new mortgage.
AMORTIZATION OF
INTEREST DEFERRED
EXPENSE FINANCING COSTS
--------- -----------------
673 First Avenue................................................... $ (1,571) $ 49
470 Park Avenue South.............................................. (1,537) 13
29 West 35th Street................................................ 8
36 West 44th Street................................................ (234)
70 West 36th Street................................................ (911) (62)
1414 Avenue of the Americas........................................ (446) (28)
New mortgage interest.............................................. 1,078 7
--------- ---
$ (3,621) $ (13)
--------- ---
--------- ---
(F) To reflect depreciation and amortization expense related to the real
property transfer taxes incurred to transfer title of 70 West 36th Street and
1414 Avenue of the Americas to the Company and to reflect the net increase in
marketing, general and administrative expenses related to operations of a public
company.
(G) Represents the 18.1% interest of the minority in the Operating
Partnership.
(H) Pro Forma net income per common share is based upon 10,779,216 shares of
common stock expected to be outstanding after the Offering. As each Operating
Partnership unit is redeemable for cash, or at the company's election, for one
share of common stock, the calculation of earnings per share upon redemption
will be unaffected as unitholders and stockholders share equally on a per unit
and per share basis in the net income of the Company. In February 1997, the
Financial Accounting Standards Board issued Statement No. 128, Earnings per
Share, which is required to be adopted on December 31, 1997. At that time the
Company will be required to change the method currently used to compute earnings
per share and to restate all prior periods. Under the new requirements for
calculating primary earnings per share, the dilutive effect of stock options
will be excluded. Management does not believe the adoption of Statement No. 128
will have a material impact on earnings per share.
F-17
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
SL Green Realty Corp.
We have audited the accompanying balance sheet of SL Green Realty Corp. as
of June 12, 1997. This balance sheet is the responsibility of SL Green Realty
Corp. Our responsibility is to express an opinion on the balance sheet based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet presents fairly, in all material respects,
the financial position of SL Green Realty Corp. at June 12, 1997 in conformity
with generally accepted accounting principles.
/S/ Ernst & Young LLP
New York, New York
June 12, 1997
F-18
SL GREEN REALTY CORP.
BALANCE SHEET
JUNE 12, 1997
ASSETS
Cash (NOTE 1)....................................................................... $ 1,000
---------
Total assets........................................................................ $ 1,000
---------
---------
LIABILITIES AND STOCKHOLDER'S EQUITY
Commitments and contingencies (NOTE 3)
Common stock, $.01 par value, 100,000,000 shares authorized, 1,000 shares issued and
outstanding (NOTES 1, 2 AND 3).................................................... $ 10
Paid in capital..................................................................... 990
Retained earnings (NOTE 2)
---------
Total liabilities and stockholder's equity.......................................... $ 1,000
---------
---------
See accompanying notes.
F-19
SL GREEN REALTY CORP.
NOTES TO BALANCE SHEET
JUNE 12, 1997
1. ORGANIZATION AND FORMATION TRANSACTIONS
FORMATION AND INITIAL PUBLIC OFFERING
SL Green Realty Corp. (the "Company"), a Maryland corporation, and SL Green
Operating Partnership, L.P., (the "Operating Partnership"), were formed in June
1997 for the purpose of combining the commercial real estate business of S.L.
Green Properties, Inc. and its affiliated partnerships and entities ("SL
Green"). The Operating Partnership will receive a contribution of interests in
the real estate properties as well as 95% of the economic interest in the
management, leasing and construction companies (the "Service Corporations"). The
Company expects to qualify as a real estate investment trust ("REIT") under the
Internal Revenue Code of 1986, as amended; and will operate as a fully
integrated, self-administered, self-managed REIT. A REIT is a legal entity that
holds real estate interests and, through payments of dividends to shareholders,
is permitted to reduce or avoid the payment of federal income taxes at the
corporate level.
The Company has authorized the issuance of up to 100 million shares of
Common Stock, $.01 par value per share, 75 million shares of Excess Stock, at
$.01 par value per share, and 25 million shares of Preferred Stock, par value
$.01 per share. In connection with the formation of the Company, the Company
issued 1,000 shares of Common Stock to Stephen L. Green at $1 per share, for an
aggregate consideration of $1,000 consisting of cash. At the conclusion of the
Offering such shares of stock will be repurchased by the Company at cost. As of
June 12, 1997, no shares of Excess Stock or Preferred Stock are issued and
outstanding. The Company expects to issue 10,100,000 shares of its Common Stock
to the public through a public offering (the "Offering"). In addition, the
Company expects to issue to its executive officers approximately 553,616 shares,
as founders' shares.
Substantially all of the Company's assets will be held by, and its
operations conducted through, the Operating Partnership, a newly formed Delaware
limited partnership. The Company will be the sole managing general partner of
the Operating Partnership. Continuing investors will expect to hold, in the
aggregate, a 18.1% limited partnership interest in the Operating Partnership.
MANAGEMENT
In order to maintain the Company's qualification as a REIT while realizing
income from management leasing and construction contracts from third parties,
all of the management operations with respect to properties in which the Company
will not own 100% of the interest will be conducted through the Service
Corporations. The Company, through the Operating Partnership, will own 100% of
the non-voting common stock (representing 95% of the total equity) of the
Service Corporations. Through dividends on its equity interest, the Operating
Partnership expects to receive substantially all of the cash flow from the
Service Corporations' operations. All of the voting common stock of the Service
Corporations (representing 5% of the total equity) will be held by an SL Green
affiliate. This controlling interest will give the SL Green affiliate the power
to elect all directors of the Service Corporations. All of the management and
leasing with respect to the properties to be contributed and to be acquired by
the Company will be conducted through the Management LLC. The Operating
Partnership will own a 100% interest in the Management LLC. The Company will
account for its investment in the Service Corporations on the equity basis of
accounting on the basis that it will have significant influence with respect to
management and operations. For further description, see the caption "Structure
and Formation of the Company".
F-20
SL GREEN REALTY CORP.
NOTES TO BALANCE SHEET
JUNE 12, 1997
1. ORGANIZATION AND FORMATION TRANSACTIONS (CONTINUED)
PARTNERSHIP AGREEMENT
In accordance with the partnership agreement of the Operating Partnership
(the "Operating Partnership Agreement"), all allocations of distributions and
profits and losses are to be made in proportion to the percentage ownership
interests of their respective partners. As the managing general partner of the
Operating Partnership, the Company will be required to take such reasonable
efforts, as determined by it in its sole discretion, to cause the Operating
Partnership to distribute sufficient amounts to enable the payment of sufficient
distributions by the Company to avoid any federal income or excise tax at the
Company level as a consequence of a sale of a SL Green property.
Under the Operating Partnership agreement each limited partner will have the
right to redeem limited partnership interest for cash, or if the Company so
elects shares of common stock, as described further under the caption
"Partnership Agreement Transfer of Interest--Redemption of Units".
INITIAL PUBLIC OFFERING AND USE OF PROCEEDS
The net cash proceeds to be received by the Company from the Offering (after
deducting underwriting discounts) are estimated to be approximately $189.4
million. Of this amount the Company expects that approximately $42.7 million to
repay mortgage indebtedness encumbering the properties, including $1.9 million
for prepayment penalties and other financing fees and expenses, approximately
$6.4 million to purchase the direct or indirect interests of certain
participants in the Formation Transactions in the properties, approximately
$99.0 million to acquire properties (including a $1.6 million escrow account
established in connection with the acquisition of 50 W. 23rd Street),
approximately $6.1 million to pay certain expenses incurred in the Formation
Transactions, $27.5 million to repay the LBH Inc. Loan (excluding $2.5 million
and $200,000 borrowed under the loan to fund offering expenses and prepayment
penalties, respectively), and $9.4 million to acquire properties), $1.5 million
to fund the advisory fee payment to Lehman Brothers, Inc. and $6.2 million to
fund capital expenditures and general working capital needs.
If the underwriters' over-allotment option to purchase 1.515 million shares
of Common Stock is exercised, the Company will use the additional net proceeds
(estimated to be approximately $28.2 million if the option is exercised in full)
to acquire an additional interest in the Operating Partnership which will be
used to acquire additional properties and/or for working capital.
2. STOCKHOLDER'S EQUITY
COMMON STOCK
The authorized capital stock of the Company will consist of 200,000,000
shares of capital stock, $.01 par value, of which 100 million shares initially
will be designated as shares of Common Stock. Under the Company's Charter, the
Board of Directors will have authority to issue, without any further action by
the stockholders, shares of capital stock in one or more series having such
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption as the Board of Directors may determine.
F-21
SL GREEN REALTY CORP.
NOTES TO BALANCE SHEET
JUNE 12, 1997
2. STOCKHOLDER'S EQUITY (CONTINUED)
RETAINED EARNINGS
The Company has not engaged in any operations from inception in 1997.
3. COMMITMENTS AND CONTINGENCIES
STOCK OPTION AND INCENTIVE PLAN
The Company intends to adopt a stock option plan designed to attract, retain
and motivate executive officers of the Company and other key employees and the
plan will authorize the issuance of shares of common stock pursuant to options
granted under the plan, as described further under the caption "Stock Option and
Incentive Plan."
INCENTIVE COMPENSATION PLAN
The Company intends to establish an incentive compensation plan for key
officers of the Company and its subsidiaries and affiliates. This plan will
provide for payment of cash bonuses to participating officers after an
evaluation of the officer's performance and the overall performance of the
Company. The Compensation Committee of Board of Directors will make the
determination for the award of the bonuses.
EMPLOYMENT AGREEMENTS
The Company will enter into employment and non-competition agreements with
certain executive officers, as described further under the caption "Employment
and Non-Competition Agreements."
CREDIT FACILITY
The Company currently is engaged in discussions with various lenders
regarding the establishment of a revolving $75 million Credit Facility that will
be used to facilitate acquisitions and for working capital purposes. Although
the Company expects that the Credit Facility will be established shortly after
the completion of the Offering, there can be no assurance at this time as to
whether the Company will be successful in obtaining the Credit Facility, or, if
the Credit Facility is established, the terms governing the Credit Facility.
F-22
REPORT OF INDEPENDENT AUDITORS
The Partners, Members and Stockholders
SL Green Predecessor
We have audited the accompanying combined balance sheets of SL Green
Predecessor as of December 31, 1996 and 1995, and the related combined
statements of operations, owners' deficit and cash flows for each of the three
years in the period ended December 31, 1996. We have also audited the financial
statement schedule listed on the Index to Financial Statements included in the
Prospectus. These financial statements and financial statement schedule are the
responsibility of SL Green Predecessor's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of SL Green
Predecessor at December 31, 1996 and 1995, and the combined results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
Also, in our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be set
forth therein.
/S/ Ernst & Young LLP
New York, New York
April 16, 1997, except for
Note 9, as to which date is
May 27, 1997
F-23
SL GREEN PREDECESSOR
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
DECEMBER 31,
--------------------
1996 1995
JUNE 30, --------- ---------
1997
-----------
(UNAUDITED)
ASSETS
Commercial real estate properties, at cost (NOTE 4)
Land........................................................................... $ 7,165 $ 4,465 $ 1,517
Buildings and improvements..................................................... 33,947 21,819 14,042
----------- --------- ---------
41,112 26,284 15,559
Less accumulated depreciation.................................................. (6,399) (5,721) (5,025)
----------- --------- ---------
34,713 20,563 10,534
Cash and cash equivalents...................................................... 1,231 476 619
Restricted cash................................................................ 1,685 1,227 664
Receivables.................................................................... 1,107 914 383
Related party receivables (NOTE 7)............................................. 1,658 1,186 1,016
Deferred rents receivable...................................................... 1,596 1,265 904
Investment in uncombined joint venture (NOTE 2)................................ 1,176 1,730 369
Deferred costs, net (NOTE 3)................................................... 1,861 1,371 449
Other assets................................................................... 1,718 1,340 1,146
----------- --------- ---------
Total assets................................................................... $ 46,745 $ 30,072 $ 16,084
----------- --------- ---------
----------- --------- ---------
LIABILITIES AND OWNERS' DEFICIT
Mortgage notes payable (NOTE 4)................................................ $ 26,646 $ 16,610 $ 12,700
Accrued interest payable (NOTE 4).............................................. 109 90 2,894
Accounts payable and accrued expenses.......................................... 1,171 1,037 756
Accounts payable to related parties (NOTE 7)................................... 1,298 2,213 2,092
Excess of distributions and share of losses over investments in uncombined
joint ventures (NOTE 2)...................................................... 18,007 17,300 15,826
Security deposits.............................................................. 1,683 1,227 664
----------- --------- ---------
Total liabilities.............................................................. 48,914 38,477 34,932
Commitments, contingencies and other matters (NOTES 6, 8, 9 AND 10)
Owners' deficit................................................................ (2,169) (8,405) (18,848)
----------- --------- ---------
Total liabilities and owners' deficit.......................................... $ 46,745 $ 30,072 $ 16,084
----------- --------- ---------
----------- --------- ---------
See accompanying notes.
F-24
SL GREEN PREDECESSOR
COMBINED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
(UNAUDITED)
Revenues
Rental revenue............................... $ 2,800 $ 1,315 $ 4,199 $ 2,416 $ 2,605
Escalation and reimbursement revenues........ 456 285 1,051 758 802
Management revenues, including $299 (June
1997 (unaudited)), $447 (1996), $449
(1995), and $531 (1994) from affiliates
(NOTE 7)................................... 966 1,063 2,336 2,260 1,959
Leasing commissions.......................... 3,088 1,282 2,372 897 890
Construction revenues, net, including $6
(June 1997 (unaudited)), $35 (1996), $82
(1995), and $134 (1994) from affiliates
(NOTE 7)................................... 8 39 101 233 344
Other income................................. 16 114 123 -- --
--------- --------- --------- --------- ---------
Total revenues................................. 7,334 4,098 10,182 6,564 6,600
--------- --------- --------- --------- ---------
Share of net loss from uncombined joint
ventures (NOTE 2)............................ 564 817 1,408 1,914 1,423
--------- --------- --------- --------- ---------
Expenses
Operating expenses........................... 1,625 1,230 3,197 2,505 2,009
Interest (NOTE 4)............................ 713 442 1,357 1,212 1,555
Depreciation and amortization................ 599 406 975 775 931
Real estate taxes............................ 482 232 703 496 543
Marketing, general and administrative........ 1,835 2,029 3,250 3,052 2,351
--------- --------- --------- --------- ---------
Total expenses................................. 5,254 4,339 9,482 8,040 7,389
--------- --------- --------- --------- ---------
Income (loss) before extraordinary item........ 1,516 (1,058) (708) (3,390) (2,212)
Extraordinary income on forgiveness of debt
(NOTE 4)..................................... -- -- 8,961 -- --
--------- --------- --------- --------- ---------
Net income (loss).............................. $ 1,516 $ (1,058) $ 8,253 $ (3,390) $ (2,212)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
See accompanying notes.
F-25
SL GREEN PREDECESSOR
COMBINED STATEMENTS OF OWNERS' DEFICIT
(DOLLARS IN THOUSANDS)
BALANCE AT JANUARY 1, 1994........................................................ $ (13,487)
Distributions................................................................... --
Contributions................................................................... 178
Net loss for the year ended December 31, 1994................................... (2,212)
---------
BALANCE AT DECEMBER 31, 1994...................................................... (15,521)
Distributions................................................................... --
Contributions................................................................... 63
Net loss for the year ended December 31, 1995................................... (3,390)
---------
BALANCE AT DECEMBER 31, 1995...................................................... (18,848)
Distributions................................................................... (552)
Contributions................................................................... 2,742
Net income for the year ended December 31, 1996................................. 8,253
---------
BALANCE AT DECEMBER 31, 1996...................................................... (8,405)
Distributions (Unaudited)....................................................... (286)
Contributions (Unaudited)....................................................... 25
Other--reclassification of investment in joint venture to combined property,
net............................................................................. 4,981
Net income for the six months ended June 30, 1997 (Unaudited)................... 1,516
---------
BALANCE AT JUNE 30, 1997 (UNAUDITED).............................................. $ (2,169)
---------
---------
See accompanying notes.
F-26
SL GREEN PREDECESSOR
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
(UNAUDITED)
OPERATING ACTIVITIES
Net income (loss)................................................... $ 1,516 $ (1,058) $ 8,253 $ (3,390) $ (2,212)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities
Depreciation and amortization..................................... 599 406 975 775 931
Share of net loss from uncombined joint ventures.................. 744 992 1,763 2,249 1,800
Deferred rents receivable......................................... (80) (334) (362) 87 (424)
Extraordinary gain on the forgiveness of debt..................... -- -- (8,961) -- --
Changes in operating assets and liabilities:
Restricted cash................................................... (42) 64 (563) (38) (64)
Receivables....................................................... (112) (96) (531) 47 (117)
Related party receivables......................................... (472) (131) (170) (299) 157
Deferred costs.................................................... (191) (25) (1,108) (465) 171
Other assets...................................................... 12 96 (287) (858) 1,253
Accounts payable and accrued expenses............................. 22 (417) 280 (180) (1,034)
Accounts payable to related parties............................... (915) 629 121 948 (69)
Security deposits payable 40 (64) 564 29 90
Accrued interest payable.......................................... 19 (7) 298 861 457
--------- --------- --------- --------- ---------
Net cash provided by (used in) operating activities................. 1,140 55 272 (234) 939
--------- --------- --------- --------- ---------
INVESTING ACTIVITIES
Additions to land, buildings and improvements....................... (206) (111) (10,725) (369) (389)
Contributions to partnership investments............................ (25) (537) (1,650) (63) (178)
Distributions from partnership investments.......................... 86 -- -- -- --
--------- --------- --------- --------- ---------
Net cash used in investing activities............................... (145) (648) (12,375) (432) (567)
--------- --------- --------- --------- ---------
FINANCING ACTIVITIES
Proceeds from mortgage notes payable................................ -- -- 16,680 -- --
Payments of mortgage notes payable.................................. (164) (80) (6,910) -- --
Cash distributions to owners........................................ (286) (175) (552) -- --
Cash contributions from owners...................................... 25 538 2,742 63 178
--------- --------- --------- --------- ---------
Net cash provided by financing activities........................... (425) 283 11,960 63 178
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents................ 570 (310) (143) (603) 550
Cash transfer related to Praedium Bar Associates, LLC presented as a
combined entity................................................... 185 -- -- -- --
Cash and cash equivalents at beginning of period.................... 476 619 619 1,222 672
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of period.......................... $ 1,231 $ 309 $ 476 $ 619 $ 1,222
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Supplemental cash flow disclosures
Interest paid....................................................... $ 694 $ 449 $ 1,059 $ 351 $ 1,098
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Income taxes paid $ -- $ -- $ -- $ 35 $ 31
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Supplemental schedule of non cash investing and financing activities:
(unaudited)
On June 30, 1997 the remaining interest of Praedium Bar Associates, LLC
("Praedium Bar") was purchased by an affiliate of Stephen L. Green. In
connection with the purchase, as of June 30, 1997, the investment in Praedium
Bar has been presented as a combined entity (see note 1). The assets,
liabilities and owners' equity of Praedium Bar as of June 30, 1997 are as
follows:
Commercial real estate properties, net................................................... $ 14,383
Total assets............................................................................. 16,174
Mortgage notes payable................................................................... 10,200
Total liabilities........................................................................ 10,831
Owners' equity........................................................................... 5,343
Less net investment in Praedium Bar...................................................... 362
---------
Reclassification of investment in joint venture to combined property, net................ $ 4,981
---------
---------
See accompanying notes.
F-27
SL GREEN PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1996
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
SL Green Predecessor is engaged in the business of owning, managing,
leasing, acquiring and repositioning of Class B office properties in Manhattan,
New York.
PROPOSED TRANSACTIONS
Concurrently with the consummation of an initial public offering of SL Green
Realty Corp., (the "REIT") Common Stock (the "Offering"), which is expected to
be completed in 1997, the REIT and a newly formed limited partnership, SL Green
Operating Partnership, L.P. (the "Operating Partnership"), together with the
partners and members of the affiliated partnerships of the SL Green Predecessor
and other parties which hold ownership interests in the properties
(collectively, the "Participants"), will engage in certain formation
transactions (the "Formation Transactions"). The Formation Transactions are
designed to (i) enable the REIT to raise the necessary capital to acquire the
remaining interests in the Properties (see note 2), repay certain mortgage debt
relating thereto and pay other indebtedness, (ii) enable the REIT to acquire
properties, (iii) fund costs, capital expenditures, and working capital, (iv)
provide a vehicle for future acquisitions, (v) enable the REIT to comply with
certain requirements under the Federal income tax laws and regulations relating
to real estate investment trusts, and (vi) preserve certain tax advantages for
certain Participants.
The operations of the REIT will be carried on primarily through the
Operating Partnership in order to assist the REIT and the Participants in
forming the REIT under the Internal Revenue Code of 1986. The REIT will be the
sole general partner in the Operating Partnership. The Operating Partnership
will receive a contribution of interests in the real estate properties sold, as
well as 95% of the economic interest in the management, leasing and construction
companies (the "Service Corporations") for third party properties, in exchange
for units of limited partnership interests in the Operating Partnership and/or
cash. The REIT will be fully integrated, self-administered and self-managed.
PRINCIPLES OF COMBINATION
The SL Green Predecessor is not a legal entity but rather a combination of
real estate properties and affiliated real estate management, construction and
leasing entities under common control and management of Stephen L. Green; and
interests owned and managed by Stephen L. Green in entities accounted for on the
equity method (see note 2) that are organized as partnerships and a limited
liability company. The operations of the properties are included in the
financial statements from the date of acquisition by the SL Green Predecessor.
All significant intercompany transactions and balances have been eliminated in
combination.
Capital contributions, distributions and profits and losses are allocated in
accordance with the terms of the applicable agreements.
F-28
SL GREEN PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1996
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The accompanying combined financial statements include partnerships and
corporations which are under common control as follows:
STEPHEN L. GREEN
ENTITY PROPERTY/SERVICE PERCENTAGE OWNERSHIP OWNERSHIP TYPE
- ---------------------------------- -------------------------- ------------------------- ------------------
Office Property Entities
64-36 Realty Associates 70 West 36th Street 95%(A) General partner
1414 Management Associates, LP 1414 Avenue of the 100%
Americas General partner
Service Corporations
SL Green Management, Corp. Management 100% Sole shareholder
SL Green Leasing, Inc. Management and leasing 100% Sole shareholder
Emerald City Construction Corp. Construction 100% Sole shareholder
(A) The minority interest is not material.
On June 30, 1997, the majority owner of SL Green Predecessor purchased the
remaining interest in Praedium Bar Associates LLC, which as of that date is
included in the combined financial statements (unaudited) (see note 2).
For the entities accounted for on the equity method, the SL Green
Predecessor's records its investments in partnerships and limited liability
company at cost and adjusts the investment accounts for its share of the
entities' income or loss and for cash distributions and contributions.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
REAL ESTATE
Financial Accounting Standards Board Statement of Financial Accounting
Standards ("SFAS") No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. SFAS No. 121 also addresses
the accounting for long-lived assets that are expected to be disposed of. The SL
Green Predecessor, adopted SFAS No. 121 in the first quarter of 1996. Through
March 31, 1997 (unaudited) and December 31,1996 no indicators of impairment were
present and no impairment losses have been recorded in any of the periods
presented.
F-29
SL GREEN PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1996
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEPRECIATION OF REAL ESTATE PROPERTIES
Depreciation and amortization is computed on the straight-line method as
follows.
CATEGORY TERM
- ---------------------------------------------- ----------------------------------------------
Building 40 years
Building improvements remaining life of the building
Furniture and fixtures four to seven years
Tenant improvements remaining life of the lease
Depreciation expense amounted to $788, $579 and $638 in 1996, 1995 and 1994
respectively. For the unaudited three months ended June 30, 1997 depreciation
expense amounted to $488.
CASH AND CASH EQUIVALENTS
The SL Green Predecessor considers highly liquid investments with a maturity
of three months or less when purchased to be cash equivalents.
RESTRICTED CASH
Restricted cash consists of security deposits.
REVENUE RECOGNITION
Rental revenue is recognized on a straight-line basis over the term of the
lease. The excess of rents recognized over amounts contractually due pursuant to
the underlying leases are included in deferred rents receivable on the
accompanying combined balance sheets. Contractually due but unpaid rents are
included in receivables on the accompanying combined balance sheets.
DEFERRED LEASE COSTS
Deferred lease costs consist of fees and direct costs incurred to initiate
and renew operating leases and are amortized on a straight-line basis over the
initial lease term or renewal period as appropriate.
DEFERRED FINANCING COSTS
Deferred financing costs are amortized over the terms of the respective
agreements. Unamortized deferred financing costs are expensed when the
associated debt is refinanced before maturity.
DEFERRED OFFERING COSTS
The SL Green Predecessor have incurred costs related to its proposed
offering. The deferred offering costs will be charged to the equity of the REIT
at the time of the completion of the public offering.
F-30
SL GREEN PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1996
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The partnerships in the SL Green Predecessor are not taxpaying entities for
Federal income tax purposes, and, accordingly, no provision or credit has been
made in the accompanying financial statements for Federal income taxes. Owners'
allocable shares of taxable income or loss are reportable on their income tax
returns. The management, leasing and construction entities are C-Corporations,
which have had minimal income during the three years ended December 31, 1996 and
therefore have paid minimal federal and state income taxes.
CREDIT RISK
Management of the SL Green Predecessor performs on going credit evaluation
of its tenants and requires certain tenants to provide security deposits.
Although the SL Green Predecessors' buildings are all located in Mid-town
Manhattan, the tenants operate in various industries and there is no dependence
upon any single tenant.
CAPITALIZATION
The Service Corporations (three) each have 200 shares of no par value common
stock authorized and issued for $1,000, with no related additional paid in
capital at December 31, 1996 and 1995.
INTERIM UNAUDITED FINANCIAL INFORMATION
The accompanying interim unaudited financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosure normally included in the financial
statements prepared in accordance with generally accepted accounting principles
may have been condensed or omitted pursuant to such rules and regulations,
although management believes that the disclosures are adequate to make the
information presented not misleading. The unaudited financial statements as of
June 30, 1997 and for the six month periods ended June 30, 1997 and 1996
include, in the opinion of management, all adjustments, consisting of normal
recurring adjustments, necessary to present fairly the financial information set
forth herein.
F-31
SL GREEN PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1996
2. INVESTMENT IN UNCOMBINED JOINT VENTURES
The SL Green Predecessor's investments in three partnerships and a limited
liability company, have been accounted for under the equity method since control
is shared with other parties. The investment in partnerships and limited
liability company are as follows:
GREEN GROUP
PARTNERSHIPS/LIMITED PERCENTAGE
LIABILITY COMPANY PROPERTY OWNERSHIP OWNERSHIP TYPE
- ----------------------------------------- --------------------- ------------------------- -----------------
673 First Realty Company................. 673 First Avenue 67% Co-general
partner
470 Park South Associates, LP............ 470 Park Avenue South 65% Co-general
partner
29/35 Realty Associates, LP.............. 29 West 35th Street 21.5% Co-general
partner
Praedium Bar Associates, LLC............. 36 West 44th Street 10%(A) Has veto rights
("Praedium Bar") relating to sale
and financing
- ------------------------
(A) Praedium Bar acquired the first mortgage related to the property in October,
1996 which provides for substantially all the economic interest in the
property and has the sole right to purchase the fee interest, (the property
deed is in escrow), for a nominal cost; accordingly SL Green Predecessor has
accounted for Praedium Bar investment as a ownership interest in the
property. On June 30, 1997, the majority owner of SL Green Predecessor
purchased the remaining 90% interest in Praedium Bar Associates, LLC for
$6.3 million (unaudited).
Condensed combined financial statements of the partnerships and the limited
liability company, are as follows:
DECEMBER 31,
JUNE 30, --------------------
1997 1996 1995
----------- --------- ---------
(UNAUDITED)
CONDENSED BALANCE SHEETS
Commercial real estate property, net......................... $ 57,955 $ 72,958 $ 61,092
Deferred rent receivable..................................... 14,881 14,860 14,337
Cash and cash equivalents, including restricted cash of
$1,305 (June 1997 (unaudited)) $1,588 (1996) and $1,205
(1995)..................................................... 2,968 3,811 3,275
Deferred costs and other assets.............................. 6,637 7,271 6,196
----------- --------- ---------
Total assets................................................. $ 82,441 $ 98,900 $ 84,900
----------- --------- ---------
----------- --------- ---------
Mortgages and accrued interest payable....................... $ 80,053 $ 90,245 $ 80,750
Obligations under capital lease.............................. 14,374 14,265 14,060
Deferred rent payable........................................ 11,996 11,459 10,387
Accounts payable and other liabilities....................... 3,594 4,560 3,475
Owners' deficit
SL Green Predecessor....................................... (16,831) (15,570) (15,457)
Other partners............................................. (10,745) (6,059) (8,315)
----------- --------- ---------
Total owners' deficit........................................ (27,576) (21,629) (23,772)
----------- --------- ---------
Total liabilities and owner's deficit........................ $ 82,441 $ 98,900 $ 84,900
----------- --------- ---------
----------- --------- ---------
F-32
SL GREEN PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1996
2. INVESTMENT IN UNCOMBINED JOINT VENTURES (CONTINUED)
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
(UNAUDITED)
CONDENSED STATEMENTS OF OPERATIONS
Rental revenue and escalations.................. $ 10,928 $ 8,750 $ 18,874 $ 17,934 $ 18,235
Other revenue................................... -- -- 28 18 129
--------- --------- --------- --------- ---------
Total revenues.................................. 10,928 8,750 18,902 17,952 18,364
--------- --------- --------- --------- ---------
Interest........................................ 4,163 3,767 7,743 7,785 7,721
Depreciation and amortization................... 1,982 1,740 3,580 3,768 3,401
Operating and other expenses.................... 5,822 4,659 10,036 9,552 9,750
--------- --------- --------- --------- ---------
Total expenses.................................. 11,967 10,166 21,359 21,105 20,872
--------- --------- --------- --------- ---------
Loss before outside partner's interest.......... (1,039) (1,416) (2,457) (3,153) (2,508)
Elimination of inter-company management fees.... 180 175 355 335 377
Other partner share of the loss................. 295 424 694 904 708
--------- --------- --------- --------- ---------
Loss allocated to the SL Green Predecessor...... $ (564) $ (817) $ (1,408) $ (1,914) $ (1,423)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
There are several business relationships with related parties which involve
management, leasing and construction fee revenues and maintenance expense.
Transactions relative to the aforementioned condensed combined statements of
operations and balance sheets for the equity investees include the following
before elimination of intercompany transactions:
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
(UNAUDITED)
Management fee expenses............. $ 348 $ 293 $ 622 $ 563 $ 624
Leasing commission expenses......... 293 167 218 48 80
Construction fees................... 1,186 180 185 376 809
Maintenance expenses................ 151 122 227 132 164
F-33
SL GREEN PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1996
3. DEFERRED COSTS
Deferred costs consist of the following:
JUNE 30,
1997 1996 1995
----------- --------- ---------
(UNAUDITED)
Deferred financing......................................... $ 1,177 $ 982 $ 206
Deferred lease............................................. 2,000 1,613 1,365
Deferred offering.......................................... 214 87 --
----------- --------- ---------
3,391 2,682 1,571
Less accumulated amortization.............................. (1,530) (1,311) (1,122)
----------- --------- ---------
$ 1,861 $ 1,371 $ 449
----------- --------- ---------
----------- --------- ---------
4. MORTGAGE NOTES PAYABLE
The mortgage notes payable collateralized by the respective properties and
assignment of leases at June 30, 1997 and December 31, 1996 and 1995 are as
follows:
MORTGAGE ACCRUED
PAYABLE INTEREST MORTGAGE ACCRUED MORTGAGE
MORTGAGE NOTES JUNE 30, JUNE 30, PAYABLE INTEREST PAYABLE
PROPERTY WITH FIXED INTEREST 1997 1997 1996 1996 1995
- ------------------ ------------------------------------- ----------- ------------- ----------- ------------- -----------
(UNAUDITED)
1414 Avenue of the First mortgage note with interest
Americas payable at 7.875%, due June 1,
2006(A).............................. $ 9,878 $ 109 $ 9,946 $ 90 $ --
----------- ----- ----------- --- -----------
Total Fixed Rate Notes............... 9,878 109 9,946 90 --
----------- ----- ----------- --- -----------
MORTGAGE NOTES
WITH VARIABLE INTEREST
-------------------------------------
70 W 36th Street First mortgage note with interest
payable at LIBOR plus 2%, due January
29, 2001............................. 6,568 -- 6,664 -- 12,700(B)
----------- ----- ----------- --- -----------
36 W 44th Street First mortgage note with interest
based on LIBOR plus 3.4%, due
September 30, 1998................... 10,200 -- -- -- --
----------- ----- ----------- --- -----------
Total Variable Rate Notes............ 16,768 -- 6,664 -- 12,700
----------- ----- ----------- --- -----------
Total Mortgage Notes Payable......... $ 26,646 $ 109 $ 16,610 $ 90 $ 12,700
----------- ----- ----------- --- -----------
----------- ----- ----------- --- -----------
ACCRUED
INTEREST
PROPERTY 1995
- ------------------ -----------
1414 Avenue of the
Americas
$ --
-----------
--
-----------
70 W 36th Street
2,894(B)
-----------
36 W 44th Street
--
-----------
2,894
-----------
$ 2,894
-----------
-----------
- ------------------------------
(A) SL Green Predecessor does not have the right to prepay the principal balance
of the mortgage, in whole or in part, prior to May 31, 2004. If the mortgage
is prepaid prior to May 31, 2004 a prepayment fee will be required based
upon the greater of 1% of the outstanding principal balance of the mortgage
or yield maintenance as defined by the mortgage agreement.
(B) In January, 1996, the first mortgage was bifurcated into a first and second
mortgage; the second mortgage was acquired by an unrelated entity for no
consideration. In December 1996 the holder of the second mortgage on 70 West
36th Street forgave the indebtedness for no consideration; as a result SL
Green Predecessor recognized extraordinary income of $8,961.
F-34
SL GREEN PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
4. MORTGAGE NOTES PAYABLE (CONTINUED)
PRINCIPAL MATURITIES
Combined aggregate principal maturities of mortgages and notes payable as of
December 31, 1996 are as follows:
1997............................................................... $ 330
1998............................................................... 341
1999............................................................... 353
2000............................................................... 367
2001............................................................... 6,085
Thereafter......................................................... 9,134
---------
$ 16,610
---------
---------
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures of estimated fair value were determined by
management, using available market information and appropriate valuation
methodologies. Considerable judgment is necessary to interpret market data and
develop estimated fair value. Accordingly, the estimates presented herein are
not necessarily indicative of the amounts the SL Green Predecessor could realize
on disposition of the financial instruments. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.
Cash equivalents and variable rate mortgages are carried at amounts which
reasonably approximate their fair values.
Estimated fair value is based on anticipated settlements in connection with
the REIT formation, interest rates and other related factors currently available
to the SL Green Predecessor for issuance of debt with similar terms and
remaining maturities. The fair value for each mortgage approximates its carrying
amount.
Disclosure about fair value of financial instruments is based on pertinent
information available to management as of December 31, 1996. Although management
is not aware of any factors that would significantly affect the reasonable fair
value amounts, such amounts have not been comprehensively revalued for purposes
of these financial statements since that date and current estimates of fair
value may differ significantly from the amounts presented herein.
6. RENTAL INCOME
The Properties are being leased to tenants under operating leases with
expiration dates ranging from 1997 to 2011. The minimum rental amounts due under
the leases are generally either subject to scheduled fixed increases or
adjustments. The leases generally also require that the tenants reimburse the SL
Green Predecessor for increases in certain operating costs and real estate taxes
above their base year costs.
F-35
SL GREEN PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
6. RENTAL INCOME (CONTINUED)
Approximate future minimum rents to be received over the next five years and
thereafter for leases in effect at December 31, 1996 are as follows:
1997............................................................... $ 5,000
1998............................................................... 5,000
1999............................................................... 4,000
2000............................................................... 4,000
2001............................................................... 3,000
Thereafter......................................................... 11,000
---------
$ 32,000
---------
---------
7. RELATED PARTY TRANSACTIONS
There are several business relationships with related parties, entities
owned by Stephen L. Green or relatives of Stephen L. Green exclusive of the
uncombined joint ventures (see note 2) which involve management, leasing, and
construction fee revenues, rental income and maintenance expenses in the
ordinary course of business. Transactions include the following:
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
-------------------------------- -------------------------------
1997 1996 1996 1995 1994
--------------- --------------- --------- --------- ---------
(UNAUDITED)
Management revenues........................ $ 131 $ 65 $ 180 $ 221 $ 284
Leasing commission revenues................ 39 27 37 36 64
Construction fees.......................... 241 244 25 69 107
Rental income.............................. 42 14 33 25 --
Maintenance expense........................ 75 24 93 32 24
Amounts due from related parties consist of:
DECEMBER 31,
JUNE 30 --------------------
1997 1996 1995
----------- --------- ---------
(UNAUDITED)
SL Green Properties Inc...................................... $ 924 $ 507 $ 517
First Quality Maintenance.................................... 180 160 374
250 PAS, Associates, LP...................................... 373 363 --
Officers..................................................... 181 156 125
----------- --------- ---------
$ 1,658 $ 1,186 $ 1,016
----------- --------- ---------
----------- --------- ---------
Due to related parties, represents amounts due to SL Green Properties Inc.
8. BENEFIT PLAN
The building employees of the individual partnerships are covered by
multi-employer defined benefit pension plans and post-retirement health and
welfare plans. Contributions to these plans amounted to $30,
F-36
SL GREEN PREDECESSOR
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
8. BENEFIT PLAN (CONTINUED)
$7 and $7 in 1996, 1995 and 1994, respectively; and $24 for the six months ended
June 30, 1997. Separate actuarial information regarding such plans is not made
available to the contributing employers by the union administrators or trustees,
since the plans do not maintain separate records for each reporting unit.
9. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
On May 23, 1997 SL Green Predecessor entered into an agreement to purchase a
mortgage, which is encumbered by the property located at 1372 Broadway,
Manhattan New York, for approximately $52 million (with the right to acquire the
fee interest for no additional consideration subsequent to December 31, 1997).
On May 27, 1997 SL Green Predecessor entered into an agreement to purchase the
net lease on the property located at 1140 Avenue of the Americas, Manhattan New
York, for approximately $20.9 million. It is anticipated that both transactions
will close at the time of the Offering. In June 1997, SL Green Predecessor
acquired an option to acquire 50 West 23rd Street at a purchase price of
approximately $36.0 million. It is anticipated that SL Green Predecessor will
acquire the Property, within thirty days after the closing.
CONTINGENCIES
SL Green Predecessor is party to a variety of legal proceedings relating to
the ownership of the properties and it's activities with regard to its
construction, management and leasing businesses, arising in the ordinary course
of business. SL Green Predecessor's management believes that substantially all
of these liabilities are covered by insurance. All of these matters, taken
together, are not expected to have a material adverse impact on the SL Green
Predecessor's financial position, results of operations or cash flows .
10. ENVIRONMENTAL MATTERS
The management of SL Green Predecessor believes that the properties are in
compliance in all material respects with applicable federal, state and local
ordinances and regulations regarding environmental issues. Management is not
aware of any environmental liability that management believes would have a
material adverse impact on SL Green Predecessor's financial position, results of
operations or cash flows. Management is unaware of any instances in which it
would incur significant environmental cost if any of the properties were sold.
11. SUBSEQUENT EVENTS
Lehman Brothers Holdings Inc. ("LBHI"), an affiliate of Lehman Brothers
Inc., entered into a credit agreement with Green Realty LLC, an affiliate of SL
Green Predecessor, pursuant to which LBHI agreed to loan to Green Realty LLC up
to $35 million (the "LBHI Loan") which will be used to acquire the remaining
interests in the investment partnerships (see note 2) and certain acquisition
properties, to fund property related operating expenses, to fund organizational
expenses of the REIT and to purchase short-term United States Treasury
Instruments. The LBHI Loan is secured by certain partnerships interest in SL
Green Predecessor, the treasury securities and the stock of SL Green Properties
Inc., an affiliate of SL Green Predecessor, and has been guaranteed by SL Green
Management Corp. and SL Green Properties, Inc. On June 25, 1997 the LBHI Loan
was increased up to $46 million (unaudited).
F-37
SL GREEN PREDECESSOR
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
COLUMN D
-------------------
COLUMN C COST CAPITALIZED
--------------------
SUBSEQUENT TO
INITIAL COST ACQUISITION
COLUMN A COLUMN B -------------------- -------------------
- ---------------------------- ------------- BUILDING AND BUILDING AND
DESCRIPTION ENCUMBRANCE LAND IMPROVEMENTS LAND IMPROVEMENTS
- ---------------------------- ------------- ------ ------------ ---- ------------
70 West 36th St., $ 6,664 $1,517 $ 7,700 $0 $7,063
New York, NY (1 mortgage)
1414 Avenue of the Americas, 10,036 2,948 6,790 0 266
New York, NY (1 mortgage)
------------- ------ ------------ ---- ------
(1) $16,700 $4,465 $14,490 $0 $7,329
------------- ------ ------------ ---- ------
------------- ------ ------------ ---- ------
COLUMN E
------------------------------
GROSS AMOUNT AT WHICH CARRIED
AT CLOSE OF PERIOD
COLUMN A ------------------------------
- ---------------------------- BUILDING AND
DESCRIPTION LAND IMPROVEMENTS TOTAL
- ---------------------------- ------ ------------ -------
70 West 36th St., $1,517 $14,763 $16,280
New York, NY
1414 Avenue of the Americas, 2,948 7,056 10,004
New York, NY
------ ------------ -------
$4,465 $21,819 $26,284
------ ------------ -------
------ ------------ -------
COLUMN F COLUMN G
COLUMN A ----------- ------------
- ---------------------------- ACCUMULATED DATE OF
DESCRIPTION DEPRECIATION CONSTRUCTION
- ---------------------------- ----------- ------------
70 West 36th St., $5,625
New York, NY
1414 Avenue of the Americas, 96
New York, NY
-----------
$5,721
-----------
-----------
COLUMN I
COLUMN H ---------------
COLUMN A -------- LIFE ON WHICH
- ---------------------------- DATE DEPRECIATION IS
DESCRIPTION ACQUIRED COMPUTED
- ---------------------------- -------- ---------------
70 West 36th St., 12/19/84 Various
New York, NY
1414 Avenue of the Americas, 6/18/96 Various
New York, NY
- ------------------------
(1) Encumbrance includes accrued interest of $90
F-38
SL GREEN PREDECESSOR
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
(DOLLARS IN THOUSANDS)
The changes in real estate for the three years ended December 31, 1996 are
as follows:
1996 1995 1994
--------- --------- ---------
Balance at beginning of period............................... $ 15,559 $ 15,190 $ 14,801
Improvements................................................. 10,725 369 389
--------- --------- ---------
Balance at end of period..................................... $ 26,284 $ 15,559 $ 15,190
--------- --------- ---------
--------- --------- ---------
The aggregate cost of land, buildings and improvements for Federal income
tax purposes at December 31, 1996 was approximately $26,284.
The changes in accumulated depreciation, exclusive of amounts relating to
equipment, autos, and furniture and fixtures, for the three years ended December
31, 1996 are as follows:
1996 1995 1994
--------- --------- ---------
Balance at beginning of period................................... $ 5,025 $ 4,508 $ 3,930
Depreciation for period.......................................... 696 517 578
--------- --------- ---------
Balance at end of period......................................... $ 5,721 $ 5,025 $ 4,508
--------- --------- ---------
--------- --------- ---------
F-39
REPORT OF INDEPENDENT AUDITORS
The Partners, Members and Stockholders
SL Green Predecessor
We have audited the accompanying combined balance sheets of the uncombined
joint ventures of SL Green Predecessor as of December 31, 1996 and 1995 and the
related combined statements of operations, owners' deficit and cash flows for
each of the three years in the period ended December 31, 1996. We have also
audited the financial statement schedule listed on the Index to financial
statements included in the Prospectus. These financial statements and financial
statement schedule are the responsibility of SL Green Predecessor's management.
Our responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly in all material respects, the combined financial position of the
uncombined joint ventures of SL Green Predecessor at December 31, 1996 and 1995,
and the combined results of its operations and its cash flows for each of the
three years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles. Also, in our opinion the financial statement
schedule referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects, the
information required to be set forth therein.
/S/ Ernst & Young LLP
New York, New York
April 16, 1997
F-40
UNCOMBINED JOINT VENTURES OF
SL GREEN PREDECESSOR
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
DECEMBER 31,
JUNE 30, --------------------
1997 1996 1995
----------- --------- ---------
(UNAUDITED)
ASSETS
Commercial real estate properties, at cost (NOTES 2 AND 5):
Land..................................................... $ 3,666 $ 6,366 $ 3,666
Buildings and improvements............................... 64,355 75,307 63,224
Property under capital lease............................. 12,208 12,208 12,208
----------- --------- ---------
80,229 93,881 79,098
Less accumulated depreciation............................ (22,274) (20,923) (18,006)
----------- --------- ---------
57,955 72,958 61,092
Cash and cash equivalents.................................... 1,663 2,223 2,070
Restricted cash.............................................. 1,305 1,588 1,205
Deferred rents receivable.................................... 14,881 14,860 14,337
Deferred costs, net (NOTE 3)................................. 4,337 4,812 4,771
Other assets................................................. 2,300 2,459 1,425
----------- --------- ---------
Total assets................................................. $ 82,441 $ 98,900 $ 84,900
----------- --------- ---------
----------- --------- ---------
LIABILITIES AND OWNERS' DEFICIT
Mortgages and note payable (NOTE 2).......................... $ 63,724 $ 74,827 $ 66,301
Accrued interest payable (NOTE 2)............................ 16,329 15,418 14,449
Obligations under capital lease (NOTE 5)..................... 14,374 14,265 14,060
Deferred rent payable........................................ 11,996 11,459 10,387
Accounts payable and accrued expenses........................ 576 1,200 432
Accounts payable to related parties (NOTE 6)................. 628 688 779
Security deposits............................................ 2,390 2,672 2,264
----------- --------- ---------
Total liabilities............................................ 110,017 120,529 108,672
Commitments, contingencies and other comments
(NOTES 5, 7, 8 AND 9)
Owners' deficit:
SL Green Predecessor....................................... (16,831) (15,570) (15,457)
Other partners............................................. (10,745) (6,059) (8,315)
----------- --------- ---------
Total owners' deficit........................................ (27,576) (21,629) (23,772)
----------- --------- ---------
Total liabilities and owners' deficit........................ $ 82,441 $ 98,900 $ 84,900
----------- --------- ---------
----------- --------- ---------
See accompanying notes.
F-41
UNCOMBINED JOINT VENTURES OF
SL GREEN PREDECESSOR
COMBINED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
(UNAUDITED)
Revenues:
Rental revenue (NOTE 5)................ $ 10,203 $ 8,239 $ 17,386 $ 16,519 $ 16,559
Escalation and reimbursement revenues
(NOTE 5)............................. 725 511 1,488 1,415 1,676
Other income........................... -- -- 28 18 129
--------- --------- --------- --------- ---------
Total revenues........................... 10,928 8,750 18,902 17,952 18,364
--------- --------- --------- --------- ---------
Expenses:
Operating expenses:
Other................................ 1,949 1,314 3,115 2,931 3,014
Related parties...................... 499 415 849 695 788
Real estate taxes...................... 1,461 1,064 2,316 2,183 2,215
Rent expense (NOTE 5).................. 1,913 1,866 3,756 3,743 3,733
Interest (NOTE 2)...................... 4,163 3,767 7,743 7,785 7,721
Depreciation and amortization.......... 1,982 1,740 3,580 3,768 3,401
--------- --------- --------- --------- ---------
Total expenses........................... 11,967 10,166 21,359 21,105 20,872
--------- --------- --------- --------- ---------
Net loss................................. $ (1,039) $ (1,416) $ (2,457) $ (3,153) $ (2,508)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
See accompanying notes.
F-42
UNCOMBINED JOINT VENTURES OF
SL GREEN PREDECESSOR
COMBINED STATEMENTS OF OWNERS' DEFICIT
(DOLLARS IN THOUSANDS)
SL GREEN &
RELATED ALL OTHER
ENTITIES PARTNERS
------------ ---------
BALANCE AT JANUARY 1, 1994................................. $(11,649) $ (7,384) $ (19,033)
Distributions............................................ -- -- --
Contributions............................................ 178 619 797
Net loss for the year ended December 31, 1994............ (1,800) (708) (2,508)
------------ --------- ---------
BALANCE AT DECEMBER 31, 1994............................... (13,271) (7,473) (20,744)
Distributions............................................ -- -- --
Contributions............................................ 63 62 125
Net loss for the year ended December 31, 1995............ (2,249) (904) (3,153)
------------ --------- ---------
BALANCE AT DECEMBER 31, 1995............................... (15,457) (8,315) (23,772)
Distributions............................................ -- (1,150) (1,150)
Contributions............................................ 1,650 4,100 5,750
Net loss for the year ended December 31, 1996............ (1,763) (694) (2,457)
------------ --------- ---------
BALANCE AT DECEMBER 31, 1996............................... (15,570) (6,059) (21,629)
Distributions (unaudited)................................ (86) (314) (400)
Other--reclassification of joint venture to combined
property (880) (4,463) (5,343)
Contributions (unaudited)................................ 450 385 835
Net loss for the six months ended June 30, 1997
(unaudited)............................................ (745) (294) (1,039)
------------ --------- ---------
BALANCE AT JUNE 30, 1997 (UNAUDITED)....................... $(16,831) $ (10,745) $ (27,576)
------------ --------- ---------
------------ --------- ---------
See accompanying notes.
F-43
UNCOMBINED JOINT VENTURES OF
SL GREEN PREDECESSOR
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
(UNAUDITED)
OPERATING ACTIVITIES
Net loss $ (1,039) $ (1,416) $ (2,457) $ (3,153) $ (2,508)
Adjustments to reconcile net loss to net cash provided by (used
in) operating activities:
Depreciation and amortization.................................. 1,982 1,740 3,580 3,768 3,401
Deferred rents receivable...................................... (271) (217) (524) (370) (985)
Other.......................................................... 93 -- -- -- --
Changes in operating assets and liabilities:
Restricted cash................................................ (133) 49 (383) 70 90
Deferred costs................................................. (326) (261) (705) (54) (640)
Other assets................................................... (363) 171 (1,033) (75) 432
Accounts payable and accrued expenses.......................... (511) (55) 768 (192) (757)
Accounts payable to related parties............................ (60) (26) (91) (124) (353)
Security deposits.............................................. 133 104 409 (102) (315)
Accrued interest on mortgage notes payable..................... 911 702 969 1,781 1,585
--------- --------- --------- --------- ---------
Net cash provided by (used in) operating activities.............. 416 791 533 1,549 (50)
--------- --------- --------- --------- ---------
INVESTING ACTIVITIES
Additions to land, buildings and improvements.................... (969) (422) (4,583) (690) (1,963)
--------- --------- --------- --------- ---------
Net cash used in investing activities............................ (969) (422) (4,583) (690) (1,963)
--------- --------- --------- --------- ---------
FINANCING ACTIVITIES
Proceeds from mortgage notes payable............................. -- -- -- -- 11,899
Payments of mortgage notes payable............................... (903) (815) (1,674) (1,531) (13,176)
Cash distributions to owners..................................... (400) (1,150) (1,150) -- --
Cash contributions from owners................................... 835 550 5,750 125 797
Capitalized lease obligations.................................... 646 636 1,277 1,532 1,628
--------- --------- --------- --------- ---------
Net cash provided by (used in) financing activities.............. 178 (779) 4,203 126 1,148
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents............. (375) (410) 153 985 (865)
Cash transfer related to Praedium Bar Associates, LLC presented
as a combined entity........................................... (185) -- -- -- --
Cash and cash equivalents at beginning of period................. 2,223 2,070 2,070 1,085 1,950
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of period....................... $ 1,663 $ 1,660 $ 2,223 $ 2,070 $ 1,085
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Supplemental cash flow disclosures
Interest paid.................................................... $ 3,252 $ 3,065 $ 6,774 $ 6,004 $ 6,136
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Supplemental schedule of non cash investing and financing
activities: (unaudited)
Assumption of mortgage in connection with property
acquisition.................................................. -- -- $ 10,200 -- --
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
On June 30, 1997 the remaining interest of Praedium Bar Associates, LLC
("Praedium Bar") was purchased by an affiliate of Stephen L. Green. In
connection with the purchase as of June 30, 1997, the assets and liabilities of
Praedium Bar have been excluded from the financial statements of the uncombined
joint ventures of SL Green Predecessor and have been presented in the combined
financial statements of SL Green Predecessor. The assets, liabilities and
owners' equity of Praedium Bar as of June 30, 1997 are as follows:
Commercial real estate property, net..................................................... $ 14,383
Total assets............................................................................. 16,174
Mortgage notes payable................................................................... 10,200
Total liabilities........................................................................ 10,831
Owners' equity........................................................................... 5,343
See accompanying notes.
F-44
UNCOMBINED JOINT VENTURES OF
SL GREEN PREDECESSOR
NOTES TO COMBINED STATEMENTS
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1996
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
The uncombined joint ventures of SL Green Predecessor are engaged in the
business of owning, managing and leasing, and repositioning Class B office
properties in Manhattan, New York.
PROPOSED TRANSACTIONS
Concurrently with the consummation of an initial public offering of SL Green
Realty Corp. (the "REIT") Common Stock (the "Offering"), which is expected to be
completed in 1997 the REIT and a newly formed limited partnership, SL Green
Operating Partnership, L.P. (the "Operating Partnership"), together with the
partners and members of the affiliated partnerships of the SL Green Predecessor
and other parties which hold ownership interests in the properties
(collectively, the "Participants"), will engage in certain formation
transactions (the "Formation Transactions"). The Formation Transactions are
designed to (i) enable the REIT to raise the necessary capital to acquire the
remaining interests in the properties and repay certain mortgage debt relating
thereto and pay other indebtedness, (ii) enable the REIT to acquire properties,
(iii) fund costs, capital expenditures, and working capital, (iv) provide a
vehicle for future acquisitions, (v) enable the REIT to comply with certain
requirements under the Federal income tax laws and regulations relating to real
estate investment trusts, and (vi) preserve certain tax advantages for certain
Participants.
The operations of the REIT will be carried on primarily through the
Operating Partnership in order to assist the REIT and the Participants in
forming the REIT under the Internal Revenue Code of 1986. The REIT will be the
sole general partner in the Operating Partnership. The Operating Partnership
will receive a contribution of interests in the real estate properties as well
as 95% of the economic interest in the management, leasing and construction
companies (the "Service Corporations") which service third party properties, in
exchange for units of limited partnership interests in the Operating Partnership
and/or cash. The REIT will be fully integrated self-administered and
self-managed.
PRINCIPLES OF COMBINATION
The uncombined joint ventures of the SL Green Predecessor is not a legal
entity but rather a combination of real estate properties (collectively, the
"Properties") and interests in entities that are organized as partnerships and a
limited liability company. The operations of the properties are included in the
financial statements of the SL Green Predecessor from the date of acquisition
and management. All significant intercompany transactions and balances have been
eliminated in combination.
Capital contributions, distributions and profits and losses are allocated to
the owners in accordance with the terms of the applicable agreements.
F-45
UNCOMBINED JOINT VENTURES OF
SL GREEN PREDECESSOR
NOTES TO COMBINED STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1996
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The joint ventures included in the accompanying combined financial
statements include partnerships and a limited liability company which are
managed but not controlled by the SL Green Predecessor, are as follows:
PARTNERSHIPS/LIMITED SL GREEN PREDECESSOR
LIABILITY COMPANY PROPERTY PERCENTAGE OWNERSHIP OWNERSHIP TYPE
- -------------------------------------------- ---------------------- --------------------- ---------------------
673 First Realty Company.................... 673 First Avenue 67.0% Co-general partner
29/35 Realty Associates, LP................. 29 West 35th Street 21.5% Co-general partner
470 Park South Associates, LP............... 470 Park Avenue South 65.0% Co-general partner
Praedium Bar Associates, LLC................ 36 West 44th Street 10.0%(A) Has veto rights
("Praedium Bar") relating to sale and
financing
(A) Praedium Bar acquired the first mortgage related to the property in October,
1996 which provides for substantially all the economic interest in the
property and has the sole right to purchase the fee interest, (the property
deed is in escrow), for a nominal cost; accordingly SL Green Predecessor has
accounted for Praedium Bar investment as an ownership in the property. On
June 30, 1997, the majority owner of SL Green Predecessor purchased the
remaining 90% interest in Praedium Bar Associates, LLC for $6.3 million
(unaudited).
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
REAL ESTATE
Financial Accounting Standards Board Statement of Financial Accounting
Standards ("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of, requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. SFAS No. 121 also addresses
the accounting for long-lived assets that are expected to be disposed of. The SL
Green Predecessor adopted SFAS No. 121 in the first quarter of 1996. Through
June 30, 1997 (unaudited), December 31, 1996 no indicators of impairment were
present and no impairment losses have been recorded in any of the periods
presented.
F-46
UNCOMBINED JOINT VENTURES OF
SL GREEN PREDECESSOR
NOTES TO COMBINED STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1996
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEPRECIATION OF REAL ESTATE PROPERTIES
Depreciation and amortization is computed on the straight-line method as
follows:
CATEGORY TERM
- ---------------------------------------------- ----------------------------------------------
Building...................................... 40 years
Property under capital lease.................. 49 years
Building improvements......................... remaining life of the building
Tenant improvements........................... remaining life of the lease
Depreciation expense including the amortization of the capital lease
amounted to $2,917, $2,999 and $2,869 in 1996, 1995 and 1994 respectively. For
the unaudited six months ended June 30, 1997 depreciation expense amounted to
$1,594.
CASH AND CASH EQUIVALENTS
The SL Green Predecessor considers highly liquid investments with a maturity
of three months or less when purchased to be cash equivalents.
RESTRICTED CASH
Restricted cash consists of security deposits.
REVENUE RECOGNITION
Rental revenue is recognized on a straight-line basis over the term of the
lease. The excess of rents recognized over amounts contractually due pursuant to
the underlying leases are included in deferred rents receivable on the
accompanying combined balance sheets. Contractually due but unpaid rents are
included in other assets on the accompanying combined balance sheets. Certain
lease agreements provide for reimbursement of real estate taxes, insurance and
certain common area maintenance costs and rental increases tied to increases in
certain economic indexes.
DEFERRED LEASE COSTS
Deferred lease costs consist of fees and direct costs incurred to initiate
and renew operating leases, and are amortized on a straight-line basis over the
initial lease term or renewal period as appropriate.
DEFERRED FINANCING COSTS
Deferred financing costs are amortized over the terms of the respective
agreements. Unamortized deferred financing costs are expensed when the
associated debt is retired before maturity.
F-47
UNCOMBINED JOINT VENTURES OF
SL GREEN PREDECESSOR
NOTES TO COMBINED STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1996
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CAPITALIZED INTEREST
Interest for borrowings used to fund development and construction is
capitalized to individual property costs.
RENT EXPENSE--LAND
Rent expense is recognized on a straight-line basis over the initial term of
the lease. The excess of the rent expense recognized over the amounts
contractually due pursuant to the underlining lease is included in the deferred
lease payable in the accompanying combined balance sheets.
INCOME TAXES
The entities in the SL Green Predecessor are not taxpaying entities for
Federal income tax purposes, and, accordingly, no provision or credit has been
made in the accompanying financial statements for Federal income taxes. Owners'
allocable shares of taxable income or loss are reportable on their income tax
returns.
CONCENTRATION OF REVENUE AND CREDIT RISK
Approximately 60% of the SL Green Predecessor's revenue for the three years
ended December 31, 1996 were derived from 673 First Avenue. The loss or a
material decrease in revenues from this building for any reason may have a
material adverse effect on the SL Green Predecessor. In addition approximately
30% of the SL Green Predecessor's revenue for the three years ended December 31,
1996 were derived from three tenants, (Society of NY Hospital, Kallir, Phillips,
Ross, Inc. and UNICEF), which lease space in the 673 First Avenue building.
Management of the SL Green Predecessor performs on going credit evaluations
of its tenants and requires certain tenants to provide security deposits.
INTERIM UNAUDITED FINANCIAL INFORMATION
The accompanying interim unaudited financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosure normally included in the financial
statements prepared in accordance with generally accepted accounting principles
may have been condensed or omitted pursuant to such rules and regulations,
although management believes that the disclosures are adequate to make the
information presented not misleading. The unaudited financial statements as of
June 30, 1997 and for the six months ended June 30, 1997 and 1996 include, in
the opinion of management, all adjustments, consisting of normal recurring
adjustments, necessary to present fairly the financial information set forth
herein.
F-48
UNCOMBINED JOINT VENTURES OF
SL GREEN PREDECESSOR
NOTES TO COMBINED STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
2. MORTGAGE NOTES PAYABLE
The mortgage notes payable collateralized by the respective properties and
assignment of leases at December 31, 1996 and 1995 and June 30, 1997 are as
follows:
MORTGAGE ACCRUED
PAYABLE INTEREST MORTGAGE ACCRUED MORTGAGE ACCRUED
MORTGAGE NOTES WITH FIXED JUNE 30, JUNE 30, PAYABLE INTEREST PAYABLE INTEREST
PROPERTY INTEREST 1997 1997 1996 1996 1995 1995
- -------------------------------------------------- --------- --------- -------- ------- -------- -------
(UNAUDITED)
29 W 35th Street First mortgage note with
interest payable at
8.464%, due February 1,
2001 $ 3,008 $ 21 $ 3,040 $ 21 $ 3,096 $ 28
673 First Avenue First mortgage note with
interest payable at
9.0%, due December 13,
2003 18,740 -- 19,439 -- 20,736 --
470 Park Avenue South First mortgage note with
interest payable at
8.25%, due April 1,
2004 10,985 77 11,132 77 11,407 78
470 Park Avenue South Second mortgage note with
interest payable at
10.0%, due October 31,
1999 1,042 8 1,067 9 1,113 --
(A) 470 Park Avenue South Third mortgage note with
interest payable at
10.98%, due September
30, 2001 13,000 10,618 13,000 10,204 13,000 10,376
--------- --------- -------- ------- -------- -------
Total Fixed Rate Notes 46,775 10,724 47,678 10,311 49,352 10,482
--------- --------- -------- ------- -------- -------
MORTGAGE NOTES WITH
VARIABLE INTEREST
-------------------------
36 W 44th Street First mortgage note with
interest based on LIBOR
+ 3.4%, due September
30, 1998 -- -- 10,200 -- -- --
673 First Avenue Second mortgage note with
interest based on
adjusted LIBOR rate, as
defined by the mortgage
agreement, or Prime +
1.0%, due January 1,
2014 15,180 5,107 15,180 4,574 15,180 --
--------- --------- -------- ------- --------
Total Variable Rate Notes 15,180 5,107 25,380 4,574 15,180 --
--------- --------- -------- ------- --------
UNSECURED NOTE
-------------------------
673 First Avenue Unsecured note with
interest based on Prime
plus1.0%, due January
1, 2014 1,769 498 1,769 533 1,769 3,967
--------- --------- -------- ------- -------- -------
Total Unsecured Note 1,769 498 1,769 533 1,769 3,967
--------- --------- -------- ------- -------- -------
Total Mortgage and Note
Payable $63,724 $16,329 $74,827 $15,418 $66,301 $14,449
--------- --------- -------- ------- -------- -------
--------- --------- -------- ------- -------- -------
F-49
UNCOMBINED JOINT VENTURES OF
SL GREEN PREDECESSOR
NOTES TO COMBINED STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
2. MORTGAGE NOTES PAYABLE (CONTINUED)
An analysis of the mortgages is as follows:
MORTGAGE ACCRUED
PAYABLE INTEREST MORTGAGE ACCRUED MORTGAGE ACCRUED
JUNE 30 JUNE 30 PAYABLE INTEREST PAYABLE INTEREST
MORTGAGE TYPE 1997 1997 1996 1996 1995 1995
- -------------------------------------------------- --------- --------- -------- ------- -------- -------
(UNAUDITED)
First mortgages $32,733 $ 98 $43,811 $ 98 $35,239 $ 106
Second mortgages 16,222 5,115 16,247 4,583 16,293 --
Third mortgage 13,000 10,618 13,000 10,204 13,000 10,376
Unsecured note 1,769 498 1,769 533 1,769 3,967
--------- --------- -------- ------- -------- -------
$63,724 $16,329 $74,827 $15,418 $66,301 $14,449
--------- --------- -------- ------- -------- -------
--------- --------- -------- ------- -------- -------
- ------------------------
(A) 470 PARK AVENUE SOUTH
The third mortgage requires the monthly payment of minimum interest at 6%.
The difference between the minimum interest and the base interest of 10.98%
may be deferred until the maturity of the mortgage. The mortgage requires
additional interest of 50% of adjusted gross revenue, as defined in the
mortgage agreement, of the property for the applicable loan year. If the
total loan balance exceeds 90% of the appraised value in lieu of payments of
additional interest all of the adjusted gross revenue shall be paid and
applied as a reduction of the principal indebtedness until such time as the
loan balance is reduced to 90% of the appraised value. Upon payment of the
outstanding principal balance at maturity or on another date shared
appreciation interest, as defined in the mortgage agreement will be due. The
holder of the mortgage is entitled to an annual rate of return on the
mortgage of 13%. If the annual rate of return is less than 13%, the share
appreciation interest will be increased to the percentage necessary to
provide the mortgage holder with such return. Additional interest of $19 and
$55 were due in 1996 and 1994 respectively. These amounts were unpaid as of
December 31, 1996.
F-50
UNCOMBINED JOINT VENTURES OF
SL GREEN PREDECESSOR
NOTES TO COMBINED STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
2. MORTGAGE NOTES PAYABLE (CONTINUED)
PRINCIPAL MATURITIES
Combined aggregate principal maturities of mortgages and notes payable as of
December 31, 1996 are as follows:
1997............................................................... $ 1,841
1998............................................................... 12,208
1999............................................................... 2,183
2000............................................................... 3,216
2001............................................................... 4,448
Thereafter......................................................... 50,931
---------
$ 74,827
---------
---------
3. DEFERRED COSTS
Deferred costs consist of the following:
JUNE 30,
1997 1996 1995
----------- --------- ---------
(UNAUDITED)
Deferred financing............................. $ 3,135 $ 3,372 $ 3,108
Deferred lease................................. 7,465 7,415 7,001
----------- --------- ---------
10,600 10,787 10,109
Less accumulated amortization.................. (6,263) (5,975) (5,338)
----------- --------- ---------
$ 4,337 $ 4,812 $ 4,771
----------- --------- ---------
----------- --------- ---------
4. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures of estimated fair value were determined by
management, using available market information and appropriate valuation
methodologies. Considerable judgment is necessary to interpret market data and
develop estimated fair value. Accordingly, the estimates presented herein are
not necessarily indicative of the amounts the SL Green Predecessor could realize
on disposition of financial instruments. The use of different market assumptions
and/or estimation methodologies may have a material effect on the estimated fair
value amounts.
Cash equivalents and variable rate mortgages are carried at amounts which
reasonably approximate their fair values.
Estimated fair value is based on anticipated settlement in connection with
the REIT formation, interest rates and other related factors currently available
to the SL Green Predecessor for issuance of debt with similar terms and
remaining maturities. The fair value by mortgage type as of December 31, 1996 is
as follows:
MORTGAGE TYPE CARRYING AMOUNT FAIR VALUE
- ---------------------------------------------------------------- ---------------- -----------
First Mortgages................................................. $ 43,811 $ 44,369
Second Mortgages................................................ 16,247 6,067
Third Mortgages................................................. 13,000 12,000
Unsecured Note.................................................. 1,769 0
F-51
UNCOMBINED JOINT VENTURES OF
SL GREEN PREDECESSOR
NOTES TO COMBINED STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
4. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Disclosure about fair value of financial instruments is based on pertinent
information available to management as of December 31, 1996. Although management
is not aware of any factors that would significantly affect the reasonable fair
value amounts, such amounts have not been comprehensively revalued for purposes
of these financial statements since that date and current estimates of fair
value may differ significantly from the amounts presented herein.
5. LEASE AGREEMENTS
OPERATING LEASE
The SL Green Predecessor is the lessor and sub-lessor of commercial
buildings under operating leases with expiration dates ranging from 1997 to
2031. The minimum rental amounts due under the leases are generally either
subject to scheduled fixed increases or adjustments. The leases generally also
require that the tenants reimburse the SL Green Predecessor for increases in
certain operating costs and real estate taxes above their base year costs.
Approximate future minimum rents to be received over the next five years and
thereafter for leases in effect at December 31, 1996 are as follows:
1997.............................................................. $ 18,466
1998.............................................................. 18,463
1999.............................................................. 18,713
2000.............................................................. 18,468
2001.............................................................. 18,188
Thereafter........................................................ 54,085
---------
$ 146,383
---------
---------
CAPITAL LEASE
In April 1988, the SL Green Predecessor entered into a lease agreement for
property at 673 First Avenue in New York City, which has been capitalized for
financial statement purposes. Land was estimated to be approximately 70% of the
fair market value of the property. The portion of the lease attributed to land
is classified as an operating lease and the remainder as a capital lease. The
initial lease term is 49 years with an option for an additional 26 years.
Beginning in lease year 11 and 25, the lessor is entitled to additional rent as
defined by the lease agreement.
Future minimum rental payments under two land operating leases as of
December 31, 1996 were as follows:
1997.............................................................. $ 2,753
1998.............................................................. 2,753
1999.............................................................. 2,753
2000.............................................................. 2,870
2001.............................................................. 3,103
Thereafter........................................................ 156,820
---------
$ 171,052
---------
---------
F-52
UNCOMBINED JOINT VENTURES OF
SL GREEN PREDECESSOR
NOTES TO COMBINED STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
5. LEASE AGREEMENTS (CONTINUED)
Rent expense amounted to approximately $3.7 million for each year ended
December 31, 1996, 1995 and 1994, respectively. For the unaudited six months
ended June 30, 1997 rent expense amounted to approximately $1,913.
CAPITAL LEASE--BUILDING
Leased property consists of the following:
JUNE 30,
1997 1996 1995
----------- --------- ---------
(UNAUDITED)
Building....................................... $ 12,208 $ 12,208 $ 12,208
Less accumulation amortization................. 2,222 2,035 1,785
Leased property, net........................... $ 9,986 $ 10,173 $ 10,423
Future minimum payments under the capitalized building lease, including the
present value of net minimum lease payments as of December 31, 1996 are as
follows:
1997.............................................................. $ 1,140
1998.............................................................. 1,140
1999.............................................................. 1,140
2000.............................................................. 1,177
2001.............................................................. 1,290
Thereafter........................................................ 64,176
---------
Total minimum lease payments...................................... 70,063
Amount representing interest...................................... (55,798)
---------
Present value of net minimum capital lease payments............... $ 14,265
---------
---------
6. RELATED PARTY TRANSACTIONS
There are several business relationships with related parties which involve
management, leasing, and construction fee revenues and maintenance expenses in
the ordinary course of business. Transactions include the following:
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- ---------------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- ------------- -------------
(UNAUDITED)
Management expenses.............. $ 348 $ 293 $ 622 $ 563 $ 624
Leasing commission's............. 293 167 218 48 80
Construction fees................ 1,186 180 185 376 809
Maintenance expenses............. 151 122 227 132 164
F-53
UNCOMBINED JOINT VENTURES OF
SL GREEN PREDECESSOR
NOTES TO COMBINED STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
6. RELATED PARTY TRANSACTIONS (CONTINUED)
Amounts due to related parties consist of:
DECEMBER 31,
JUNE 30, --------------------
1997 1996 1995
------------- --------- ---------
(UNAUDITED)
SL Green Management, Corp........................... $ 503 $ 512 $ 503
Other partners...................................... 125 176 276
----- --------- ---------
$ 628 $ 688 $ 779
----- --------- ---------
----- --------- ---------
7. BENEFIT PLAN
The building employees of the individual partnerships are covered by
multi-employer defined benefit pension plans and post-retirement health and
welfare plans. Contributions to these plans amounted to $42, $30 and $32 in
1996, 1995 and 1994, respectively; and $27 for the six months ended June 30,
1997. Separate actuarial information regarding such plans is not made available
to the contributing employers by the union administrators or trustees, since the
plans do not maintain separate records for each reporting unit.
8. CONTINGENCIES
SL Green Predecessor is party to a variety of legal proceedings relating to
the ownership of the properties and SL Green Predecessor activities with regard
to its construction, management and leasing businesses respectively, arising in
the ordinary course of business. SL Green Predecessor management believes that
substantially all of these liabilities are covered by insurance. All of these
matters, taken together, are not expected to have a material adverse impact on
the uncombined joint venture of SL Green Predecessor's, financial position,
results of operations or cash flows.
9. ENVIRONMENTAL MATTERS
The management of SL Green Predecessor believes that the properties are in
compliance in all material respects with applicable federal, state and local
ordinances and regulations regarding environmental issues. Management is not
aware of any environmental liability that management believes would have a
material adverse impact on SL Green Predecessor's financial position, results of
operations or cash flows. Management is unaware of any instances in which it
would incur significant environmental cost if any of the properties were sold.
F-54
THE UNCOMBINED JOINT VENTURES OF
SL GREEN PREDECESSOR
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
COLUMN D
--------------------
COLUMN C COST CAPITALIZED
---------------------
SUBSEQUENT TO
INITIAL COST ACQUISITION
COLUMN A COLUMN B --------------------- --------------------
- ---------------------------- ------------- BUILDINGS AND BUILDINGS AND
DESCRIPTION ENCUMBRANCE LAND IMPROVEMENTS LAND IMPROVEMENTS
- ---------------------------- ------------- ------ ------------- ---- -------------
673 First Avenue, $39,193) $ 0 $12,208 $0 $28,509
New York, NY (2 mortgages
29 West 35th Street 3,061) 216 1,945 0 2,539
New York, New York (1 mortgage
470 Park Avenue South 35,489) 3,450 22,184 0 9,015
New York, New York (3 mortgages
36 West 44th Street 10,200) 2,700 11,115 0 0
New York, New York (1 mortgage
------------- ------ ------------- ---- -------------
(1) $87,943 $6,366 $47,452 $0 $40,063
------------- ------ ------------- ---- -------------
------------- ------ ------------- ---- -------------
COLUMN E
-------------------------------
GROSS AMOUNT AT WHICH CARRIED
AT CLOSE OF PERIOD
COLUMN A -------------------------------
- ---------------------------- BUILDINGS AND
DESCRIPTION LAND IMPROVEMENTS TOTAL
- ---------------------------- ------ ------------- -------
673 First Avenue, $ 0 $40,717 $40,717
New York, NY
29 West 35th Street 216 4,484 4,700
New York, New York
470 Park Avenue South 3,450 31,199 34,649
New York, New York
36 West 44th Street 2,700 11,115 13,815
New York, New York
------ ------------- -------
$6,366 $87,515 $93,881
------ ------------- -------
------ ------------- -------
COLUMN F COLUMN G
COLUMN A ----------- ------------
- ---------------------------- ACCUMULATED DATE OF
DESCRIPTION DEPRECIATION CONSTRUCTION
- ---------------------------- ----------- ------------
673 First Avenue, $ 9,723
New York, NY
29 West 35th Street 1,765
New York, New York
470 Park Avenue South 9,369
New York, New York
36 West 44th Street 66
New York, New York
-----------
$20,923
-----------
-----------
COLUMN I
COLUMN H ---------------
COLUMN A -------- LIFE ON WHICH
- ---------------------------- DATE DEPRECIATION IS
DESCRIPTION ACQUIRED COMPUTED
- ---------------------------- -------- ---------------
673 First Avenue, 4/28/88 Various
New York, NY
29 West 35th Street 6/21/83 Various
New York, New York
470 Park Avenue South 9/15/86 Various
New York, New York
36 West 44th Street 10/01/96 Various
New York, New York
- ------------------------
(1) Encumbrance includes accrued interest of $14,885 and excludes principal and
interest of an unsecured note of $2,302.
F-55
THE UNCOMBINED JOINT VENTURES OF
SL GREEN PREDECESSOR
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
(DOLLARS IN THOUSANDS)
The changes in real estate for the three years ended December 31, 1996 are
as follows:
1996 1995 1994
--------- --------- ---------
Balance at beginning of period............................... $ 79,098 $ 78,408 $ 76,445
Improvements................................................. 14,783 690 1,963
--------- --------- ---------
Balance at end of period..................................... $ 93,881 $ 79,098 $ 78,408
--------- --------- ---------
--------- --------- ---------
The aggregate cost of land, buildings and improvements for Federal income
tax purposes at December 31, 1996 was $81,673.
The changes in accumulated depreciation, exclusive of amounts relating to
equipment, autos, and furniture and fixtures, for the three years ended December
31, 1996 are as follows:
1996 1995 1994
--------- --------- ---------
Balance at beginning of period............................... $ 18,006 $ 15,007 $ 12,138
Depreciation for period...................................... 2,917 2,999 2,869
--------- --------- ---------
Balance at end of period..................................... $ 20,923 $ 18,006 $ 15,007
--------- --------- ---------
--------- --------- ---------
F-56
REPORT OF INDEPENDENT AUDITORS
To the Partners, Members, and Shareholders of
SL Green Realty Corp.
We have audited the statement of revenues and certain expenses of the
property at 1414 Avenue of the Americas as described in Note 1, for the year
ended December 31, 1995. The financial statement is the responsibility of
management of 1414 Avenue of the Americas. Our responsibility is to express an
opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared for
the purposes of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in Form S-11 of SL Green Realty Corp. and is
not intended to be a complete presentation of 1414 Avenue of the Americas'
revenues and expenses.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the revenues and certain expenses of 1414 Avenue of
the Americas, as described in Note 1 for the year ended December 31, 1995 in
conformity with generally accepted accounting principles.
/S/ Ernst & Young LLP
New York, New York
May 2, 1997
F-57
1414 AVENUE OF THE AMERICAS
STATEMENT OF REVENUES AND CERTAIN EXPENSES
(DOLLARS IN THOUSANDS)
NOTE 1
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1995 JUNE 30, 1996
----------------- -----------------
(UNAUDITED)
Revenues
Rental revenue.................................................... $ 3,325 $ 1,663
Escalations and reimbursement revenue............................. 212 72
Other income...................................................... -- 299
------ ------
Total revenues...................................................... 3,537 2,034
------ ------
Certain Expenses
Property taxes.................................................... 685 339
Cleaning and security............................................. 351 159
Utilities......................................................... 300 101
Payroll and expenses.............................................. 205 105
Management fees................................................... 161 63
Repairs and maintenance........................................... 84 86
Other operating expenses.......................................... 52 29
------ ------
Total certain expenses.............................................. 1,838 882
------ ------
Revenues in excess of certain expenses.............................. $ 1,699 $ 1,152
------ ------
------ ------
See accompanying notes.
F-58
1414 AVENUE OF THE AMERICAS
NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1995
1. BASIS OF PRESENTATION
Presented herein is the statement of revenues and certain expenses related
to the operations of 1414 Avenue of the Americas, (the "Property"), located in
the borough of Manhattan in New York City.
The accompanying financial statement has been prepared in accordance with
the applicable rules and regulations of the Securities and Exchange Commission
for the acquisition of real estate properties. Accordingly, the financial
statements exclude certain expenses that may not be comparable to those expected
to be incurred by the SL Green Realty Corp. in the proposed future operations of
the aforementioned property. Items excluded consist of interest, ground rent,
amortization and depreciation.
On June 23, 1996, the SL Green Predecessor purchased the Property and the
underlining land lease.
2. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. REVENUE RECOGNITION
The Property is leased to tenants under operating leases. Minimum rental
income is generally recognized on a straight-line basis over the term of the
lease. The excess of amounts so recognized over amounts due pursuant to the
underlying leases amounted to approximately $208 and $58 (unaudited) for the
year ended December 31, 1995 and the six months ended June 30, 1996,
respectively.
4. CONCENTRATION OF REVENUE
Approximately 22% and 23% of 1414 Avenue of the Americas' revenue for the
year ended December 31, 1995 and the six months ended June 30, 1996,
respectively were derived from two tenants.
5. MANAGEMENT AGREEMENTS
During 1995 and the period ended June 23, 1996 the Property was managed by
SL Green Management Corp. as agent. During the period from January 1, 1995 to
April 30, 1995 the management fee was based on four percent (4%) of gross
collections of which 25% percent of the management fee has been accrued and is
payable when the net cash flow of the Property exceeds one million dollars. From
May 1, 1995 to June 23, 1996 the management fee was based on three percent (3%)
of gross collections from the Property.
6. LEASE AGREEMENTS
The Property is being leased to tenants under operating leases with term
expiration dates ranging from 1996 to 2010. The minimum rental amounts due under
the leases are generally subject to scheduled fixed increases. The leases
generally also require that the tenants reimburse the Property for increases in
certain operating costs and real estate taxes above their base year costs.
Approximate future minimum
F-59
1414 AVENUE OF THE AMERICAS
NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES (CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1995
6. LEASE AGREEMENTS (CONTINUED)
rents to be received over the next five years and thereafter for non-cancelable
operating leases as of December 31, 1995 (exclusive of renewal option periods)
are as follows:
1996............................................................... $ 3,165
1997............................................................... 3,189
1998............................................................... 2,923
1999............................................................... 2,167
2000............................................................... 1,932
Thereafter......................................................... 6,972
---------
$ 20,348
---------
---------
Prior to the acquisition, the Property was the lessee of a triple net ground
lease with term expiration date of 2036. The minimum rental amounts due under
the ground lease is subject to scheduled fixed increases. The ground lease
requires that the tenant is responsible for the payment for all expenses. In
connection with the acquisition of the property and underlining land on June 23,
1996, by SL Green Predecessor the ground lease was terminated.
7. INTERIM UNAUDITED FINANCIAL INFORMATION
The financial statement for the six months ended June 30, 1996 is unaudited,
however, in the opinion of management all adjustments, (consisting solely of
normal recurring adjustments), necessary for a fair presentation of the
financial statement for the interim period have been included. The results of
the interim period is not necessarily indicative of the results to be obtained
for a full fiscal year.
F-60
REPORT OF INDEPENDENT AUDITORS
To the Partners, Members, and Shareholders of
SL Green Realty Corp.
We have audited the statement of revenues and certain expenses of the
property at 36 West 44th Street ("Bar Building") as described in Note 1, for the
year ended December 31, 1996. The financial statement is the responsibility of
management of the Bar Building. Our responsibility is to express an opinion on
this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared for
the purposes of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in Form S-11 of SL Green Realty Corp. and is
not intended to be a complete presentation of the Bar Building's revenues and
expenses.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the revenues and certain expenses of the Bar Building,
as described in Note 1 for the year ended December 31, 1996 in conformity with
generally accepted accounting principles.
/S/ Ernst & Young LLP
New York, New York
May 7, 1997
F-61
36 WEST 44TH STREET
STATEMENT OF REVENUES AND CERTAIN EXPENSES
(DOLLARS IN THOUSANDS)
NOTE 1
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- -----------------
(UNAUDITED)
Revenues
Rental revenue............................................................ $ 3,599 $ 1,547
Escalation and reimbursement revenue...................................... 980 471
Other income.............................................................. 53 30
------ ------
Total revenues.............................................................. 4,632 2,048
------ ------
Certain Expenses
Property taxes............................................................ 872 413
Cleaning and security..................................................... 838 250
Utilities................................................................. 358 165
Professional fees......................................................... 133 42
Payroll and expenses...................................................... 74 131
Management fees........................................................... 61 61
Repairs and maintenance................................................... 40 46
Ground rent............................................................... 93 46
Other operating expenses.................................................. 100 69
------ ------
Total certain expenses...................................................... 2,569 1,223
------ ------
Revenues in excess of certain expenses...................................... $ 2,063 $ 825
------ ------
------ ------
See accompanying notes.
F-62
36 WEST 44TH STREET
NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1996
1. BASIS OF PRESENTATION
Presented herein is the statement of revenues and certain expenses related
to the operations of the Bar Building, (the "Property"), located in the borough
of Manhattan in New York City.
The accompanying financial statement has been prepared in accordance with
the applicable rules and regulations of the Securities and Exchange Commission
for the acquisition of real estate properties. Accordingly, the financial
statements exclude certain expenses that may not be comparable to those expected
to be incurred by the SL Green Realty Corp. in the proposed future operations of
the aforementioned Property. Items excluded consist of interest, amortization
and depreciation.
On September 30, 1996 Praedium Bar Associates, LLC ("Praedium") acquired the
mortgage secured by the property and SL Green Predecessor acquired its interest
in Praedium.
2. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. REVENUE RECOGNITION
The Property is leased to tenants under operating leases. Minimum rental
income is generally recognized on a straight-line basis over the term of the
lease. The excess of amounts due over amounts so recognized pursuant to the
underlying leases amounted to approximately $60 and $29 (unaudited) for the year
ended December 31, 1996 and the six months ended June 30, 1997, respectively.
4. CONCENTRATION OF REVENUE
Approximately 11% and 13% of the Bar Building's revenue for the year ended
December 31, 1996 and the six months ended June 30, 1997, respectively, was
derived from one tenant.
5. MANAGEMENT AGREEMENTS
There was no management fee incurred for the period January 1, through June
28, 1996. The compensation for management services incurred from June 28,
through September 30, 1996 included an initial one time start-up fee of $7,500
and thereafter, a monthly fixed fee of $7,500. For the period of October 1,
through December 31, 1996 the management fee was based on three percent (3%) of
gross receipts from the Property.
6. LEASE AGREEMENTS
The Property is being leased to tenants under operating leases with term
expiration dates ranging from 1997 to 2006. The minimum rental amounts due under
the leases are generally subject to scheduled fixed increases. The leases
generally also require that the tenants reimburse the Property for increases in
certain operating costs and real estate taxes above their base year costs.
Approximate future minimum
F-63
36 WEST 44TH STREET
NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES (CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1996
6. LEASE AGREEMENTS (CONTINUED)
rents to be received over the next five years and thereafter for non-cancelable
operating leases as of December 31, 1996 (exclusive of renewal option periods)
are as follows:
1997............................................................... $ 2,886
1998............................................................... 2,335
1999............................................................... 2,110
2000............................................................... 1,434
2001............................................................... 859
Thereafter......................................................... 1,163
---------
$ 10,787
---------
---------
The Property is the lessee of a triple net ground lease with term expiration
date of 2080. The minimum rental amounts due under the ground lease is subject
to scheduled increases, based on 33% of the percentage increase in the Consumer
Price Index. The ground lease requires that the tenant is responsible for the
payment for all expenses. Approximate future minimum rents to be paid over the
next five years and thereafter for the ground lease as of December 31, 1996 are
as follows:
1997................................................................ $ 93
1998................................................................ 93
1999................................................................ 93
2000................................................................ 93
2001................................................................ 93
Thereafter.......................................................... 7,347
---------
$ 7,812
---------
---------
7. RELATED PARTY TRANSACTIONS
There are several business relationships with related parties which involve
management, leasing and maintenance expenses. Transactions include the
following:
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
--------------------- ---------------------
(UNAUDITED)
Leasing commission's................................... $ 40 $ 98
Management fees........................................ 31 61
Cleaning and security.................................. 6 42
8. INTERIM UNAUDITED FINANCIAL INFORMATION
The financial statement for the six months ended June 30, 1997 is unaudited,
however, in the opinion of management all adjustments, (consisting solely of
normal recurring adjustments), necessary for a fair presentation of the
financial statement for the interim period have been included. The results of
the interim period is not necessarily indicative of the results to be obtained
for a full fiscal year.
F-64
REPORT OF INDEPENDENT AUDITORS
To the Partners, Members, and Shareholders of
SL Green Realty Corp.
We have audited the statement of revenues and certain expenses of the
property at 1372 Broadway, as described in Note 1, for the year ended December
31, 1996. The financial statement is the responsibility of management of 1372
Broadway. Our responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared for
the purposes of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in Form S-11 of SL Green Realty Corp. and is
not intended to be a complete presentation of 1372 Broadways' revenues and
expenses.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the revenues and certain expenses of 1372 Broadway, as
described in Note 1 for the year ended December 31, 1996 in conformity with
generally accepted accounting principles.
/S/ Ernst & Young LLP
New York, New York
May 2, 1997
F-65
1372 BROADWAY
STATEMENT OF REVENUES AND CERTAIN EXPENSES
(DOLLARS IN THOUSANDS)
NOTE 1
SIX MONTHS ENDED
JUNE 30, 1997
YEAR ENDED -----------------
DECEMBER 31, 1996
----------------- (UNAUDITED)
Revenues
Rental revenue (net)...................................................... $ 8,580 $ 4,054
Escalations and reimbursement revenue..................................... 1,842 562
Other income.............................................................. 690 1,483
------ ------
Total revenues.............................................................. 11,112 6,099
------ ------
Certain Expenses
Property taxes............................................................ 2,343 1,098
Utilities................................................................. 1,287 491
Management fees........................................................... 459 142
Marketing, general, and administrative.................................... 335 144
Repairs and maintenance................................................... 950 462
Insurance................................................................. 77 32
Security.................................................................. 149 66
------ ------
Total certain expenses...................................................... 5,600 2,435
------ ------
Revenues in excess of certain expenses...................................... $ 5,512 $ 3,664
------ ------
------ ------
See accompanying notes.
F-66
1372 BROADWAY
NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1996
1. BASIS OF PRESENTATION
Presented herein is the statement of revenues and certain expenses related
to the operations of 1372 Broadway (the "Property"), located in the New York
City garment district, which is principally leased by garment, banking, and
retail tenants.
The accompanying financial statements have been prepared in accordance with
the applicable rules and regulations of the Securities and Exchange Commission
for the acquisition of real estate properties. Accordingly, the financial
statements exclude certain expenses that may not be comparable to those expected
to be incurred by the SL Green Realty Corp. in the proposed future operations of
the aforementioned property. Items excluded consist of interest, amortization
and depreciation.
2. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. REVENUE RECOGNITION
The Property is being leased to tenants under operating leases. Minimum
rental income is generally recognized on a straight-line basis over the term of
the lease. The excess of amounts so recognized over amounts due pursuant to the
underlying leases amounted to approximately $22 and $(117) (unaudited) for the
year ended December 31, 1996 and the six months ended June 30, 1997
respectively.
4. MANAGEMENT AGREEMENTS
The Property, as of July 1, 1997, is managed by Axiom Real Estate Management
("Axiom"), Inc. for a fixed annual amount of $37 plus an allocation of overhead
costs which were approximately $354 in 1996. Prior to May 1, 1997, the Property
was managed by Winthrop Management for a fee of 5% of gross rental receipts.
5. INSURANCE COSTS
Insurance costs represent 1372 Broadway's portion of an umbrella policy held
by Winthrop Management.
F-67
1372 BROADWAY
NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES (CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1996
6. LEASE AGREEMENTS
The Property is being leased to tenants under operating leases with
expiration dates ranging from 1997 to 2010. Most leases contain renewal options
at the election of the lessee. The lease agreements generally contain provisions
for reimbursements of real estate taxes and operating expenses over base year
amounts. Future minimum lease receipts under non-cancelable operating leases as
of December 31, 1996 (exclusive of renewal option periods) were as follows:
1997............................................... $ 8,253
1998............................................... 8,389
1999............................................... 8,421
2000............................................... 7,505
2001............................................... 7,084
Thereafter......................................... 36,787
---------
$ 76,439
---------
---------
7. CONCENTRATION OF REVENUE
Approximately 42% and 40% of 1372 Broadway's revenue for the year ended
December 31, 1996 and for the six months ended June 30, 1997 were derived from
three tenants.
8. CONTINGENCY
As of March 12, 1996, 1372 Broadway has been in legal proceedings related to
grievances filed by the Service Employees International Union for allegedly
violating the terms of their agreement for cleaning services. At this time
management can not estimate the loss, if any, associated with this litigation.
9. INTERIM UNAUDITED FINANCIAL INFORMATION
The financial statement for the six months ended June 30, 1997 is unaudited,
however, in the opinion of management all adjustments, (consisting solely of
normal recurring adjustments), necessary for a fair presentation of the
financial statement for the interim period have been included. The results of
the interim period is not necessarily indicative of the results to be obtained
for a full fiscal year.
10. SUBSEQUENT EVENT
On January 31, 1997, a tenant entered into an agreement whereby certain
space leased by the tenant was terminated for a fee of $1,350.
F-68
REPORT OF INDEPENDENT AUDITORS
To the Partners, Members, and Shareholders of
SL Green Realty Corp.
We have audited the statement of revenues and certain expenses of the
property at 1140 Avenue of the Americas, as described in Note 1, for the year
ended December 31, 1996. The financial statement is the responsibility of
management of 1140 Avenue of the Americas. Our responsibility is to express an
opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared for
the purposes of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in Form S-11 of S.L. Green Realty Corp. and is
not intended to be a complete presentation of 1140 Avenue of the Americas'
revenues and expenses.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the revenues and certain expenses of 1140 Avenue of
the Americas, as described in Note 1 for the year ended December 31, 1996 in
conformity with generally accepted accounting principles.
/S/ Ernst & Young LLP
New York, New York
May 23, 1997
F-69
1140 AVENUE OF THE AMERICAS
STATEMENT OF REVENUES AND CERTAIN EXPENSES
(DOLLARS IN THOUSANDS)
NOTE 1
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- -----------------
(UNAUDITED)
Revenues
Rental revenue............................................................ $ 4,265 $ 2,178
Escalations and reimbursement revenue..................................... 716 346
Other income.............................................................. 204 48
------- -------
Total revenues.............................................................. 5,185 2,572
------- -------
Certain Expenses
Property taxes............................................................ 1,007 519
Utilities................................................................. 720 259
Cleaning and security..................................................... 551 281
Payroll and expenses...................................................... 241 137
Management fees........................................................... 205 102
Repairs and maintenance................................................... 180 69
Professional fees......................................................... 107 61
Interest--capital lease................................................... 56 28
Lease expense............................................................. 14 7
Insurance................................................................. 53 21
Other operating expenses.................................................. 50 27
------- -------
Total certain expenses...................................................... 3,184 1,511
------- -------
Revenues in excess of certain expenses...................................... $ 2,001 $ 1,061
------- -------
------- -------
See accompanying notes.
F-70
1140 AVENUE OF THE AMERICAS
NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1996
1. BASIS OF PRESENTATION
Presented herein is the statement of revenues and certain expenses related
to the operations of 1140 Avenue of the Americas, (the "Property"), located in
the borough of Manhattan in New York City.
The accompanying financial statement has been prepared in accordance with
the applicable rules and regulations of the Securities and Exchange Commission
for the acquisition of real estate properties. Accordingly, the financial
statements exclude certain expenses that may not be comparable to those expected
to be incurred by the SL Green Realty Corp. in the proposed future operations of
the aforementioned property. Items excluded consist of non-capital lease
interest, amortization and depreciation.
2. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. REVENUE RECOGNITION
The Property is leased to tenants under operating leases. Minimum rental
income is generally recognized on a straight-line basis over the term of the
lease. The excess of amounts due pursuant to the underlying leases over amounts
so recognized amounted to approximately $59 and $54 (unaudited) for the year
ended December 31, 1996 and the six months ended June 30, 1997, respectively.
4. CONCENTRATION OF REVENUE
Approximately 10% of 1140 Avenue of the Americas' revenue for the year ended
December 31, 1996 and the six months ended June 30, 1997, respectively was
derived from one tenant.
5. MANAGEMENT AGREEMENTS
During 1996 and the period ended June 30, 1997 the Property was managed by
Murray Hill Property Management, Inc. During the period from January 1, 1996 to
June 30, 1997 the management and asset management fees were based on three
percent (3%) and one percent (1%) of gross collections from the Property,
respectively.
6. LEASE AGREEMENTS
The Property is being leased to tenants under operating leases with term
expiration dates ranging from 1997 to 2007. The minimum rental amounts due under
the leases are generally subject to scheduled fixed increases. The leases
generally also require that the tenants reimburse the Property for increases in
certain operating costs and real estate taxes above their base year costs.
Approximate future minimum
F-71
1140 AVENUE OF THE AMERICAS
NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES (CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1996
6. LEASE AGREEMENTS (CONTINUED)
rents to be received over the next five years and thereafter for non-cancelable
operating leases as of December 31, 1996 (exclusive of renewal option periods)
are as follows:
1997............................................................... $ 4,439
1998............................................................... 4,210
1999............................................................... 3,813
2000............................................................... 3,327
2001............................................................... 2,826
Thereafter......................................................... 7,638
---------
$ 26,253
---------
---------
The Property operates under a net ground lease with a term expiration date
of 2016, with an option to renew for an additional 50 years. The minimum rental
amounts due under the ground lease is subject to increases every 21 years based
on four and a half percent (4 1/2%) of the fair and reasonable market value of
the unencumbered land. The ground lease requires that the tenant is responsible
for the payment for all expenses. The current annual rent for the period
commencing January 1, 1997 through December 31, 2016 was in arbitration due to a
disagreement relating to the market value of the land and has been recently
resolved in the amount of approximately $380 (unaudited).
7. INTERIM UNAUDITED FINANCIAL INFORMATION
The financial statement for the six months ended June 30, 1997 is unaudited,
however, in the opinion of management all adjustments, (consisting solely of
normal recurring adjustments), necessary for a fair presentation of the
financial statement for the interim period have been included. The results of
the interim period is not necessarily indicative of the results to be obtained
for a full fiscal year.
F-72
REPORT OF INDEPENDENT AUDITORS
To the Partners, Members, and Shareholders of
SL Green Realty Corp.
We have audited the statement of revenues and certain expenses of the
property at 50 West 23rd Street, as described in Note 1, for the year ended
December 31, 1996. The financial statement is the responsibility of management
of 50 West 23rd Street. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared for
the purposes of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in Form S-11 of SL Green Realty Corp. and is
not intended to be a complete presentation of 50 West 23rd Street's revenues and
expenses.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the revenues and certain expenses of 50 West 23rd
Street, as described in Note 1 for the year ended December 31, 1996 in
conformity with generally accepted accounting principles.
/S/ ERNST & YOUNG LLP
New York, New York
May 29, 1997
F-73
50 WEST 23RD STREET
STATEMENTS OF REVENUES AND CERTAIN EXPENSES
(IN THOUSANDS)
(NOTE 1)
SIX MONTHS
YEAR ENDED ENDED JUNE 30,
DECEMBER 31, 1996 1997
----------------- ---------------
(UNAUDITED)
REVENUES
Rental revenue............................................................. $ 5,357 $ 2,597
Escalations and reimbursement revenue...................................... 716 386
Other income............................................................... 12 1
------ ------
Total revenues............................................................... 6,085 2,984
------ ------
CERTAIN EXPENSES
Property taxes............................................................. 1,006 518
Utilities.................................................................. 241 115
Management fees............................................................ 195 91
Marketing, general, and administrative..................................... 129 53
Repairs and maintenance.................................................... 808 362
Insurance.................................................................. 37 19
Security................................................................... 101 49
------ ------
Total certain expenses....................................................... 2,517 1,207
------ ------
Revenues in excess of certain expenses....................................... $ 3,568 $ 1,777
------ ------
------ ------
See accompanying notes.
F-74
50 WEST 23RD STREET
NOTES TO STATEMENTS OF REVENUES AND CERTAIN EXPENSES
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1996
1. BASIS OF PRESENTATION
Presented herein is the statement of revenues and certain expenses related
to the operations of 50 West 23rd Street (the "Property"), located in the
borough of Manhattan in New York City, which is principally leased by
government, professional, and retail tenants.
The accompanying financial statements have been prepared in accordance with
the applicable rules and regulations of the Securities and Exchange Commission
for the acquisition of real estate properties. Accordingly, the financial
statements exclude certain expenses that may not be comparable to those expected
to be incurred by the SL Green Realty Corp. in the proposed future operations of
the aforementioned property. Items excluded consist of interest, amortization
and depreciation.
2. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. REVENUE RECOGNITION
The Property is being leased to tenants under operating leases. Minimum
rental income is recognized on a straight-line basis over the term of the lease.
The excess of amounts so recognized over amounts due pursuant to the underlying
leases amounted to approximately $50 and $127 (unaudited) for the year ended
December 31, 1996 and the six months ended June 30, 1997 respectively.
4. MANAGEMENT AGREEMENTS
The Property has been managed by Montrose Realty Corp., a related party to
the seller, since May 1, 1989 for a fee of 3% of all rent, escalation rent and
additional rent, and any other proceeds received from the Property.
5. LEASE AGREEMENTS
The Property is being leased to tenants under operating leases with term
expiration dates ranging from 1997 to 2010. Most leases contain renewal options
at the election of the lessee. The lease agreements generally contain provisions
for reimbursements of real estate taxes and operating expenses over base year
amounts. Future minimum lease receipts under non-cancelable operating leases as
of December 31, 1996 (exclusive of renewal option periods) were as follows (in
thousands):
1997............................................... $ 5,097
1998............................................... 5,387
1999............................................... 4,735
2000............................................... 4,719
2001............................................... 3,986
Thereafter......................................... 13,845
---------
$ 37,769
---------
---------
F-75
50 WEST 23RD STREET
NOTES TO STATEMENTS OF REVENUES AND CERTAIN EXPENSES (CONTINUED)
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1996
6. CONCENTRATION OF REVENUE
Approximately 53% and 55% of 50 West 23rd Street's revenue for the year
ended December 31, 1996 and the six months ended June 30, 1997 was derived from
three tenants.
7. RELATED PARTY TRANSACTIONS
Legal fees of $120 were paid to a firm, certain partners of which are
affiliated with the general partner of the seller. Of such amount, $76 was
included in professional fees for the year ended December 31, 1996.
8. INTERIM UNAUDITED FINANCIAL INFORMATION
The statement of revenues and certain expenses for the six months ended June
30, 1996 is unaudited, however, in the opinion of management all adjustments,
(consisting solely of normal recurring adjustments), necessary for a fair
presentation of this financial statement for the interim period have been
included. The results of interim periods are not necessarily indicative of the
results to be obtained for a full fiscal year.
F-76
[PHOTOGRAPH OF 70 WEST 36TH STREET WITH
CAPTION NOTING THE ADDRESS]
[PHOTOGRAPH OF OFFICE SPACE LOBBY AT 470
PARK AVENUE SOUTH WITH CAPTION NOTING
THE ADDRESS]
[PHOTOGRAPH OF 50 WEST 23RD STREET WITH
CAPTION NOTING THE ADDRESS AND FOOTNOTE
IDENTIFYING THE PROPERTY AS AN ACQUISITION
PROPERTY]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO
WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO
ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
SUMMARY TABLE OF CONTENTS
PAGE
-----
Prospectus Summary............................. 1
Risk Factors................................... 13
The Company.................................... 29
Business and Growth Strategies................. 31
Use of Proceeds................................ 37
Distributions.................................. 38
Capitalization................................. 42
Dilution....................................... 43
Selected Financial Information................. 45
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 47
Market Overview................................ 56
The Properties................................. 64
Management..................................... 96
Structure and Formation of the Company......... 104
Policies with Respect to Certain Activities.... 107
Certain Relationships and Transactions......... 112
Partnership Agreement.......................... 112
Principal Stockholders......................... 118
Capital Stock.................................. 119
Certain Provisions of Maryland Law and the
Company's Charter and Bylaws................. 123
Shares Available for Future Sale............... 126
Material Federal Income Tax Consequences....... 127
Underwriting................................... 138
Experts........................................ 140
Legal Matters.................................. 141
Additional Information......................... 141
Glossary of Selected Terms..................... 142
Index to Financial Statements.................. F-1
------------------------
UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE SECURITIES OFFERED
HEREBY, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION
OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT
TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
10,100,000 SHARES
[LOGO]
SL GREEN REALTY CORP.
COMMON STOCK
---------------------
PROSPECTUS
, 1997
---------------------
LEHMAN BROTHERS
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
LEGG MASON WOOD WALKER
INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 30. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table itemizes the expenses incurred by the Company in
connection with the Offering. All amounts are estimated except for the
Registration Fee and the NASD Fee.
Registration Fee................................................ $ 70,394
NASD Fee........................................................ 23,730
New York Stock Exchange Listing Fee............................. 123,100
Printing and Engraving Expenses................................. 350,000
Legal Fees and Expenses......................................... 800,000
Accounting Fees and Expenses.................................... 650,000
Blue Sky Fees and Expenses...................................... 10,000
Financial Advisory Fee.......................................... 2,045,000
Environmental and Engineering Expenses.......................... 35,000
Miscellaneous................................................... 42,776
---------
Total................................................... $4,150,000
---------
---------
ITEM 31. SALES TO SPECIAL PARTIES
See Item 32.
ITEM 32. RECENT SALES OF UNREGISTERED SECURITIES
Upon Formation of the Registrant, Stephen L. Green was issued 1,000 shares
of Common Stock for total consideration of $1,000 in cash in order to provide
the initial capitalization of the Registrant. These shares will be repurchased
by the Registrant at cost upon completion of the Offering. In connection with
the Formation Transactions, certain officers of the Registrant were issued an
aggregate of 553,616 shares of Common Stock for total consideration of $3,831 in
cash. The issuance of securities described in this Item 32 were made in reliance
upon the exemption from registration provided by Section 4(2) under the
Securities Act of 1933.
ITEM 33. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's officers and directors are and will be indemnified under
Maryland and Delaware law, the Charter and Bylaws of the Company and the
Partnership Agreement of the Operating Partnership against certain liabilities.
The Company's Charter requires the Company to indemnify its directors and
officers to the fullest extent permitted from time to time under Maryland law.
The Company's Bylaws require it to indemnify (a) any present or former
director or officer who has been successful, on the merits or otherwise, in the
defense of a proceeding to which he was made a party by reason of his service in
that capacity, against reasonable expenses incurred by him in connection with
the proceeding and (b) any present or former director or officer against any
claim or liability unless it is established that (i) his act or omission was
committed in bad faith or was the result of active or deliberate dishonesty,
(ii) he actually received an improper personal benefit in money, property or
services or (iii) in the case of a criminal proceeding, he had reasonable cause
to believe that his act or omission was unlawful.
In addition, the Company's Bylaws require the Company to pay or reimburse,
in advance of final disposition of a proceeding, reasonable expenses incurred by
a present or former director or officer made a party to a proceeding by reason
of his service as a director or officer provided that the Company shall have
II-1
received (i) a written affirmation by the director or officer of his good faith
belief that he has met the standard of conduct necessary for indemnification by
the Company as authorized by the Bylaws and (ii) a written understanding by or
on his behalf to repay the amount paid or reimbursed by the Company if it shall
ultimately be determined that the standard of conduct was not met. The Bylaws
also (i) permit the Company to provide indemnification and advance expenses to a
present or former director or officer who served a predecessor of the Company in
such capacity, and to any employee or agent of the Company or a predecessor of
the Company, (ii) provide that any indemnification or payment or reimbursement
of the expenses permitted or reimbursement of expenses under Section 2-418 of
the MGCL for directors of Maryland corporations and (iii) permit the Company to
provide such other and further indemnification or payment or reimbursement of
expenses as may be permitted by Section 2-418 of the MGCL for directors of
Maryland corporations.
Under Maryland law, a corporation formed in Maryland is permitted to limit,
by provision in its charter, the liability of directors and officers so that no
director of officer of the Company shall be liable to the Company or to any
stockholder for money damages except to the extent that (i) the director or
officer actually received an improper benefit in money, property or services,
for the amount of the benefit or profit in money, property or services actually
received, or (ii) a judgment or other final adjudication adverse to the director
or officer is entered in a proceeding based on a finding in a proceeding that
the director's or officer's action was the result of active and deliberate
dishonesty and was material to the cause of action adjudicated in the
proceeding. The Charter has incorporated the provisions of such law limiting the
liability of directors and officers.
The Partnership Agreement also provides for indemnification of the Company
and its officers and directors to the same extent indemnification is provided to
officers and directors of the Company in its organizational documents, and
limits the liability of the Company and its officers and directors to the
Operating Partnership and its partners to the same extent liability of officers
and directors of the Company to the Company and its stockholders is limited
under their organizational documents.
ITEM 34. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED
Not Applicable.
ITEM 35. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements, all of which are included in the Prospectus:
SL GREEN REALTY CORP.
Pro Forma Combined Financial Statements (unaudited)
Pro Forma Combined Balance Sheet as of June 30, 1997
Pro Forma Combined Statement of Income for the Six Months Ended
June 30, 1997
Pro Forma Combined Statement of Income for the Year Ended December 31, 1996
Notes to Pro Forma Combined Financial Information
Historical
Report of Independent Auditors
Balance Sheet as of June 12, 1997
Notes to Balance Sheet
THE SL GREEN PREDECESSOR
Combined Financial Statements
Report of Independent Auditors
Combined Balance Sheets as of June 30, 1997 (unaudited) and
II-2
December 31, 1996 and 1995
Combined Statements of Operations for the Six Months Ended June 30, 1997 and
1996 (unaudited) and the Years Ended December 31, 1996, 1995, and 1994
Combined Statements of Owners' Deficit for the Six Months Ended June 30,
1997
(unaudited) and the Years Ended December 31, 1996, 1995, and 1994
Combined Statements of Cash Flows for the Six Months Ended June 30, 1997 and
1996 (unaudited) and the Years Ended December 31, 1996, 1995, and 1994
Notes to the Combined Financial Statements
Schedule III
Real Estate and Accumulated Depreciation as of December 31, 1996
Uncombined Joint Ventures--Combined Financial Statements
Report of Independent Auditors
Combined Balance Sheets as of June 30, 1997 (unaudited) and December 31,
1996
and 1995
Combined Statements of Operations for the Six Months Ended June 30, 1997 and
1996 (unaudited) and the Years Ended December 31, 1996, 1995, and 1994
Combined Statements of Owners' Deficit for the Six Months Ended June 30,
1997
(unaudited) and Years Ended December 31, 1996, 1995, and 1994
Combined Statements of Cash Flows for the Six Months Ended June 30, 1997 and
1996 (unaudited) and the Years Ended December 31, 1996, 1995, and 1994
Notes to the Combined Financial Statements
Schedule III
Real Estate and Accumulated Depreciation as of December 31, 1996
1414 AVENUE OF THE AMERICAS
Report of Independent Auditors
Statement of Revenues and Certain Expenses for the Six Months Ended
June 30, 1996 (unaudited) and the Year Ended December 31, 1995
Notes to Statement of Revenues and Certain Expenses
36 WEST 44TH STREET
Report of Independent Auditors
Statement of Revenues and Certain Expenses for the Six Months Ended
June 30, 1997 (unaudited) and the Year Ended December 31, 1996
Notes to Statement of Revenues and Certain Expenses
1372 BROADWAY
Report of Independent Auditors
Statement of Revenues and Certain Expenses for the Six Months Ended
June 30, 1997 (unaudited) and the Year Ended December 31, 1996
Notes to Statement of Revenues and Certain Expenses
1140 AVENUE OF THE AMERICAS
Report of Independent Auditors
Statement of Revenues and Certain Expenses for the Six Months Ended June 30,
1997 (unaudited) and the Year Ended December 31, 1996
Notes to Statement of Revenues and Certain Expenses
II-3
50 WEST 23RD STREET
Report of Independent Auditors
Statement of Revenues and Certain Expenses for the Six Months Ended June 30,
1997
(unaudited) and the Year Ended December 31, 1996
Notes to Statement of Revenues and Certain Expenses
(b) Exhibits
1.1 Form of Underwriting Agreement among Lehman Brothers Inc., Donaldson, Lufkin &
Jenrette Securities Corporation, Legg Mason Wood Walker, Incorporated and Prudential
Securities Incorporated, as representatives of the several Underwriters, the Company
and the Operating Partnership
3.1 Articles of Incorporation of the Company*
3.2 Bylaws of the Company*
4.1 Specimen Share Certificate
5.1 Opinion of Brown & Wood LLP regarding the validity of the securities being
registered**
8.1 Opinion of Brown & Wood LLP regarding tax matters**
10.1 Form of Agreement of Limited Partnership of the Operating Partnership
10.2 Form of Articles of Incorporation and Bylaws of the Management Corporation
10.3 Form of Articles of Incorporation and Bylaws of the Leasing Corporation
10.4 Form of Articles of Incorporation and Bylaws of the Construction Corporation
10.5 Form of Employment and Noncompetition Agreement among the Executive Officers and the
Company
10.6 Employment and Noncompetition Agreement between David J. Nettina and the Company
10.7 Form of Registration Rights Agreement between the Company and the persons named
therein*
10.8 1997 Stock Option and Incentive Plan
10.9 Supplemental Representations and Warranties Agreement among the Company, the Operating
Partnership, and certain SL Green entities
10.10 Omnibus Contribution Agreement*
10.11 Contract of Sale for 29 West 35th Street
10.12 Contract of Sale for 470 Park Avenue South
10.13 Option Agreement relating to 17 Battery Place
10.14 LBHI Loan Agreement
21.1 List of Subsidiaries*
23.1 Consent of Brown & Wood LLP (included as part of Exhibit 5.1)**
23.2 Consent of Ernst & Young LLP
23.3 Consent of Rosen Consulting Group
24.1 Power of Attorney (included on the signature page at page II-6 hereof)
27.1 Financial Data Schedule*
99.1 Consent of Edwin T. Burton, III to be named as a proposed director*
99.2 Consent of John S. Levy to be named as a proposed director*
99.3 Consent of John H. Alschuler, Jr. to be named as a proposed director
99.4 Rosen Market Study
- ------------------------
* Previously filed.
** To be filed by amendment.
II-4
ITEM 36. UNDERTAKINGS
The Registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act
the information omitted from the form of Prospectus filed as part of the
Registration Statement in reliance upon Rule 430A and contained in the form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements
certificates in such denominations and registered in such names as required
by the underwriter to permit prompt delivery of each purchaser.
(4) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable ground to believe that it meets all of the
requirements for filing on Form S-11 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in New York, New York on this 25th day of July, 1997.
SL GREEN REALTY CORP.
*
BY: __________________________________
Stephen L. Green
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated as of the day of July, 1997.
Each person whose signature appears below hereby constitutes and appoints
each of Stephen L. Green, Benjamin P. Feldman and Steven H. Klein as his or her
attorney-in-fact and agent, with full power of substitution and resubstitution
for him or her in any and all capacities, to sign any or all amendments or
post-effective amendments to this Registration Statement, or any Registration
Statement for the same offering that is to be effective upon filing pursuant to
Rule 462(b) under the Securities Act of 1933, and to file the same, with
exhibits thereto and other documents in connection therewith or in connection
with the registration of the Common Stock under the Securities Act of 1934, as
amended, with the Securities and Exchange Commission, granting unto such
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary in connection with such matters and
hereby ratifying and confirming all that such attorney-in-fact and agent or his
substitutes may do or cause to be done by virtue hereof.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
* Chief Executive Officer,
- ------------------------------ President and Chairman of
Stephen L. Green the Board of Directors
(principal executive
officer)
/s/ DAVID J. NETTINA Executive Vice President, July 25, 1997
- ------------------------------ Chief Financial Officer
David J. Nettina and Chief Operating
Officer (principal
financial officer and
principal accounting
officer)
/s/ BENJAMIN P. FELDMAN Director July 25, 1997
- ------------------------------
Benjamin P. Feldman
* Director
- ------------------------------
Steven H. Klein
*By: /s/ BENJAMIN P. FELDMAN July 25, 1997
-------------------------
Benjamin P. Feldman
ATTORNEY-IN-FACT
II-6
Exhibit 1.1
R&W DRAFT
July 24, 1997
10,100,000 SHARES
SL GREEN REALTY CORP.
Common Shares of Beneficial Interest
UNDERWRITING AGREEMENT
August __, 1997
LEHMAN BROTHERS INC.
PRUDENTIAL SECURITIES INCORPORATED
As Representatives of the several
Underwriters named in Schedule 1,
c/o Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285
Dear Sirs:
SL Green Realty Corp. a Maryland corporation (the "Company"),
intending to qualify for federal income tax purposes as a real estate investment
trust pursuant to Sections 856 through 860 of the Internal Revenue Code of 1986,
as amended, including the regulations and published interpretations thereunder
(the "Code"), SL Green Operating Partnership, L.P., a Delaware limited
partnership and the sole general partner of which is the Company (the "Operating
Partnership"), SL Green Management LLC, a Delaware limited liability company and
a wholly owned subsidiary of the Operating Partnership (the "Management LLC"),
S.L. Green Management Corp., a New York corporation and in which the Operating
Partnership will own, upon completion of the Formation Transactions (as defined
below), 100% of the non-voting common stock (which represents 95% of the
economic interest therein) (the "Management Corporation"), S.L. Green Realty,
Inc., a New York corporation and in which the Operating Partnership will own,
upon completion of the Formation Transactions, 100% of the non-voting common
stock (which represents 95% of the economic interest therein) (the "Leasing
Corporation") and Emerald City Construction Corp., a New York corporation and in
which the Operating Partnership will own, upon completion of the Formation
Transactions, 100% of the non-voting common stock (which represents 95% of the
economic interest therein) (the "Construction Corporation," and together with
the Management Corporation and the Leasing Corporation, the "Service
Corporations", and the Service Corporations collectively with the
Company, Operating Partnership and the Management LLC, the "Transaction
Entities") each wish to confirm as follows its agreement with the Underwriters
named in Schedule 1 hereto (the "Underwriters," which term shall also include
any underwriter substituted as hereinafter provided in Section 9 of this
Agreement) for whom Lehman Brothers Inc. and Prudential Securities Incorporated
are acting as representatives (the "Representatives"), with respect to the sale
by the Company and the purchase by the Underwriters, acting severally and not
jointly (the "Offering"), of an aggregate of 10,100,000 shares (the "Firm
Shares") of the Company's common stock, par value $.01 per share (the "Common
Shares"). In addition, the Company proposes to grant to the Underwriters an
option to purchase up to an additional 1,515,000 Common Shares on the terms and
for the purposes set forth in Section 2 (the "Option Shares"). The Firm Shares
and the Option Shares, if purchased, are hereinafter collectively called the
"Shares."
Capitalized terms used but not otherwise defined herein shall have the
meanings given to those terms in the Prospectus (as herein defined).
The Transaction Entities understand that the Underwriters propose to
make a public offering of the Shares as soon as the Representatives deem
advisable after the Registration Statement becomes effective and this Agreement
has been executed and delivered.
At or prior to the First Delivery Date (as hereinafter defined), the
Company will have completed the Formation Transactions, described in the
Prospectus under the heading "Structure and Formation of the Company --
Formation Transactions." As part of these transactions, (i) the Underwriters
will purchase the Shares and offer them in a public offering as contemplated
hereunder, (ii) Green Realty LLC one of the Company's predecessor entities
entered into a loan with Lehman Brothers Holdings Inc., an affiliate of Lehman
Brothers Inc., for the amount of up to $40 million (the "LBHI Loan"), (iii) the
Company will contribute a portion of the net proceeds of the Offering to the
Operating Partnership in exchange for equity interests in the Operating
Partnership ("Units"), which are exchangeable for cash or, at the option of the
Company, Common Shares, (iv) certain executive officers and directors of the
Company were issued 383,110 shares of restricted Common Shares, (v) the
Operating Partnership will receive a contribution of its interests in the Core
Portfolio, the option to acquire the Option Property as well as all of the
non-voting common stock (representing 95% of the economic interest) in each of
the Service Corporations from the Property-owning entities, the partners or
members of such entities and the holders of the remaining interest in the
Service Corporations (the "S.L. Green Group") in exchange for Units, (vi) the
management and leasing business previously conducted by the Management
Corporation, with respect to the Properties, will be transferred to the
Management LLC, (vii) the Operating Partnership will acquire interests in the
Acquisition Properties to be funded with mortgage financing and a portion of the
net proceeds from the Offering, (viii) the Operating Partnership will use the
net proceeds of the sale of Shares hereunder as described in the Prospectus
under the heading "Use of Proceeds," and (ix) the Company will issue to Victor
Capital 45,495 shares of restricted Common Shares and the Operating Partnership
will pay $900,000 to Victor Capital (the foregoing transactions, as more
particularly described in the Prospectus, are referred to herein as the
"Formation Transactions").
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1. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE TRANSACTION
ENTITIES. Each of the Transaction Entities, jointly and severally, represents,
warrants and agrees that, as of the date hereof:
(a) A registration statement on Form S-11 (No. 333-29329), and
any amendments thereto, with respect to the Shares has (i) been
prepared by the Company in conformity with the requirements of the
United States Securities Act of 1933, as amended (the "Securities
Act") and the rules and regulations (the "Rules and Regulations") of
the United States Securities and Exchange Commission (the
"Commission") thereunder, (ii) been filed with the Commission under
the Securities Act and (iii) become effective under the Securities
Act. Copies of such registration statement and any amendments thereto
have been delivered by the Company to you as the Representatives of
the Underwriters. As used in this Agreement, "Effective Time" means
the date and the time as of which such registration statement, or the
most recent post-effective amendment thereto, if any, was declared
effective by the Commission; "Effective Date" means the date of the
Effective Time; "Preliminary Prospectus" means each prospectus
included in such registration statement, or amendments thereto, before
it became effective under the Securities Act and any prospectus filed
with the Commission by the Company with the consent of the
Representatives pursuant to Rule 424(a) of the Rules and Regulations;
"Registration Statement" means such registration statement, as amended
at the Effective Time, including all information contained in the
final prospectus filed with the Commission pursuant to Rule 424(b) of
the Rules and Regulations and deemed to be a part of the registration
statement as of the Effective Time pursuant to paragraph (b) of
Rule 430A of the Rules and Regulations; and "Prospectus" means such
final prospectus, as first filed with the Commission pursuant to
paragraph (1) or (4) of Rule 424(b) of the Rules and Regulations.
Any registration statement (including any amendment or supplement
thereto or information which is deemed to be a part thereof) filed by
the Company to register additional Common Shares under Rule 462(b) of
the Rules and Regulations ("Rule 462(b) Registration Statement") shall
be deemed a part of the Registration Statement. Any prospectus
(including any amendment or supplement thereto or information which is
deemed to be a part thereof) included in a Rule 462(b) Registration
Statement shall be deemed to be part of the Prospectus. If a Rule
462(b) Registration Statement is filed in connection with the offering
and sale of the Shares, the Company will have complied or will comply
with the requirements of Rule 111 under the Securities Act relating to
the payment of filing fees therefor. The Company has not distributed,
and prior to the later of the Closing Date and the completion of the
distribution of the Shares, will not distribute, any offering material
in connection with the offering or sale of the Shares other than the
Registration Statement, the Preliminary Prospectus (as hereinafter
defined), the Prospectus or any other materials, if any, permitted by
the Act (which were disclosed to the Underwriters and Underwriters'
counsel).
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(b) Each Preliminary Prospectus included as part of the
Registration Statement as originally filed or as part of any amendment
or supplement thereto, or filed pursuant to Rule 424 under the
Securities Act and the Rules and Regulations, complied when so filed
in all material respects with the provisions of the Securities Act.
The Commission has not issued any order preventing or suspending the
use of any Preliminary Prospectus.
(c) The Registration Statement conforms, and the Prospectus and
any further amendments or supplements to the Registration Statement or
the Prospectus will, when they become effective or are filed with the
Commission, as the case may be, conform in all material respects to
the requirements of the Securities Act and the Rules and Regulations
and do not and will not, as of the applicable Effective Date (as to
the Registration Statement and any amendment thereto) and as of the
applicable filing date and at the First Delivery Date (as to the
Prospectus and any amendment or supplement thereto) contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading (with respect to the Prospectus, in light of the
circumstances under which they were made); PROVIDED that no
representation or warranty is made as to information contained in or
omitted from the Registration Statement or the Prospectus in reliance
upon and in conformity with written information furnished to the
Company through the Representatives by or on behalf of any Underwriter
specifically for inclusion therein. The Prospectus delivered to the
Underwriters for use in connection with the offering of Shares will,
at the time of such delivery, be identical to the electronically
transmitted copies thereof filed with the Commission pursuant to
EDGAR, except to the extent permitted by Regulation S-T.
(d) No stop order suspending the effectiveness of the
Registration Statement or any part thereof has been issued and no
proceeding for that purpose has been instituted or, to the knowledge
of any of the Transaction Entities, threatened by the Commission or by
the state securities authority of any jurisdiction. No order
preventing or suspending the use of any Preliminary Prospectus or the
Prospectus has been issued and no proceeding for that purpose has been
instituted or, to the knowledge of any of the Transaction Entities,
threatened by the Commission or by the state securities authority of
any jurisdiction.
(e) The Company has been duly formed and is validly existing as
a corporation in good standing under the laws of the State of
Maryland, is duly qualified to do business and is in good standing as
a foreign corporation in each jurisdiction in which its ownership or
lease of property and other assets or the conduct of its business
requires such qualification, except where the failure to so qualify
will not have a material adverse effect on the business, prospects,
operations, management, consolidated financial position, net worth,
stockholders'
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equity or results of operations of the Transaction Entities considered
as one enterprise or on the use or value of the Properties,
collectively (a "Material Adverse Effect"), and has all power and
authority necessary to own or hold its properties and other assets, to
conduct the business in which it is engaged and to enter into and
perform its obligations under this Agreement and the other Operative
Documents (as herein defined) to which it is a party and in connection
with the Formation Transactions. None of the subsidiaries of the
Company (other than the Operating Partnership, the Management
Corporation, the Management LLC, the Leasing Corporation and
Construction Corporation) is a "significant subsidiary," as such term
is defined in Rule 405 of the Rules and Regulations. Except as
described in the Prospectus, the Company owns no direct or indirect
equity interest in any entity other than the Transaction Entities.
(f) The Company has an authorized capitalization as set forth in
the Prospectus, and all of the issued Common Shares (other than the
Shares) have been duly and validly authorized and issued, are fully
paid and non-assessable, have been offered and sold in compliance with
all applicable laws (including, without limitation, federal or state
securities laws), and conform to the description thereof contained in
the Prospectus. Except as disclosed in the Prospectus, (i) no Common
Shares are reserved for any purpose, (ii) except for the Units, there
are no outstanding securities convertible into or exchangeable for any
Common Shares, and (iii) there are no outstanding options, rights
(preemptive or otherwise) or warrants to purchase or subscribe for
Common Shares or any other securities of the Company.
(g) The Operating Partnership has been duly formed and is
validly existing as a limited partnership in good standing under the
laws of the State of Delaware, is duly qualified to do business and is
in good standing as a foreign limited partnership in each jurisdiction
in which its ownership or lease of property and other assets or the
conduct of its business requires such qualification, except where the
failure to so qualify will not have a Material Adverse Effect, and has
all power and authority necessary to own or hold its properties and
other assets, to conduct the business in which it is engaged and to
enter into and perform its obligations under this Agreement and the
other Operative Documents to which it is a party and in connection
with the Formation Transactions. The Company is the sole general
partner of the Operating Partnership. At the First Delivery Date, the
Agreement of Limited Partnership of the Operating Partnership, as
amended (the "Operating Partnership Agreement") will be in full force
and effect, and the aggregate percentage interests of the Company and
the limited partners in the Operating Partnership will be as set forth
in the Prospectus; PROVIDED that to the extent any portion of the
over-allotment option described in Section 2 hereof is exercised at
the First Delivery Date, the percentage interest of such partners in
the Operating Partnership will be adjusted accordingly. Additionally,
to the extent any portion of such over-allotment option is exercised
subsequent to the First Delivery
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Date, the Company will contribute the proceeds from the sale of the
Option Shares to the Operating Partnership in exchange for a number of
Units equal to the number of Option Shares issued.
(h) Each of the Service Corporations has been duly formed and is
validly existing as a corporation in good standing under the laws of
the State of New York, is duly qualified to do business and is in good
standing as a foreign corporation in each jurisdiction in which its
ownership or lease of property and other assets or the conduct of its
business requires such qualification, except where the failure to so
qualify would not have a Material Adverse Effect, and has all power
and authority necessary to own or hold its properties and other
assets, to conduct the business in which it is engaged and to enter
into and perform its obligations under this Agreement and the other
Operative Documents to which it is a party and in connection with the
Formation Transactions. All of the issued and outstanding capital
stock of each Service Corporation has been duly authorized and validly
issued, is fully paid and non-assessable, has been offered and sold in
compliance with all applicable laws (including, without limitation,
federal or state securities laws) and, all of such capital stock owned
by the Operating Partnership (100% of the nonvoting common stock) is
owned free and clear of any security interest, mortgage, pledge, lien,
encumbrance, claim, restriction or equities. No shares of capital
stock of any Service Corporation are reserved for any purpose, and
there are no outstanding securities convertible into or exchangeable
for any capital stock of any Service Corporation and no outstanding
options, rights (preemptive or otherwise) or warrants to purchase or
to subscribe for shares of such capital stock or any other securities
of any Service Corporation.
(i) The Management LLC has been duly formed and is validly
existing as a limited liability company in good standing under the
laws of the State of Delaware, is duly qualified to do business and is
in good standing as a foreign limited liability company in each
jurisdiction in which its ownership or lease of property and other
assets or the conduct of its business requires such qualification,
except where the failure to so qualify would not have a Material
Adverse Effect, and has all power and authority necessary to own or
hold its properties and other assets, to conduct the business in which
it is engaged and to enter into and perform its obligations under this
Agreement and the other Operative Documents to which it is a party.
All of the issued and outstanding membership interests of the
Management LLC has been duly authorized and validly issued, are fully
paid and non-assessable, has been offered and sold in compliance with
all applicable laws (including, without limitation, federal or state
securities laws) and, 100% of the membership interests are owned by
the Operating Partnership free and clear of any security interest,
mortgage, pledge, lien, encumbrance, claim, restriction or equities.
No membership interests of the Management LLC are reserved for any
purpose, and there are no outstanding securities convertible into or
exchangeable for any membership interests of the Management LLC and no
outstanding options,
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rights (preemptive or otherwise) or warrants to purchase or to
subscribe for membership interests or any other securities of the
Management LLC.
(j) The Shares have been duly and validly authorized and, when
issued and delivered against payment therefor as provided herein, will
be duly and validly issued, fully paid and non-assessable. The
issuance and sale by the Company of the Common Shares (other than the
Shares) in connection with the Formation Transactions at or prior to
the First Delivery Date are exempt from the registration requirements
of the Securities Act and applicable state securities, real estate
syndication and blue sky laws. The terms of the Common Shares conform
in substance to all statements and descriptions related thereto
contained in the Prospectus. The form of the certificates to be used
to evidence the Common Shares will, at the First Delivery Date, be in
due and proper form and will comply with all applicable legal
requirements. The issuance of the Shares is not subject to any
preemptive or other similar rights.
(k) The [887,895] Units have been duly authorized for issuance
by the Operating Partnership to the continuing investors and, assuming
that the continuing investors, as limited partners of the Operating
Partnership, do not participate in the control of the business of the
Operating Partnership, upon issuance of and payment for the Units as
contemplated by the Operating Partnership Agreement, the Units will
represent valid and, subject to the qualifications set forth herein,
will be fully paid and nonassessable limited partner interests in the
Operating Partnership as to which the continuing investors, in their
capacity as limited partners of the Operating Partnership, will have
no liability in excess of their obligations to make contributions to
the Operating Partnership, their obligations to make other payments
provided for in the Operating Partnership Agreement and their share of
the Operating Partnership's assets and undistributed profits (subject
to the obligation of a limited partner of the Operating Partnership to
repay any funds wrongfully distributed to it). The terms of the Units
conform in all material respects to statements and descriptions
related thereto contained in the Prospectus.
(l) (A) This Agreement has been duly and validly authorized,
executed and delivered by each of the Transaction Entities, and
assuming due authorization, execution and delivery by the
Representatives, is a valid and binding agreement of each of the
Transaction Entities, enforceable against the Transaction Entities in
accordance with its terms, except to the extent that such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws relating to or affecting
creditors' rights and general principles of equity and except as
rights to indemnity and contribution thereunder may be limited by
applicable law or policies underlying such law; (B) at the First
Delivery Date, the Operating Partnership Agreement and the members
agreement of the Management LLC will have been duly and validly
authorized, executed and delivered by the parties thereto and will be
a valid and binding agreement of the parties thereto,
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enforceable against such parties in accordance with its terms, except
to the extent that such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization or other similar laws relating
to or affecting creditors' rights and general principles of equity and
except as rights to indemnity and contribution thereunder may be
limited by applicable law or policies underlying such law; (C) (i) the
omnibus contribution agreement by and among the Operating Partnership
and the SL Green Group members named therein, and (ii) the
supplemental representations and warranties agreement by and among the
Company, the Operating Partnership and the Indemnitors named therein
(collectively the "Contribution Agreements"), have been duly and
validly authorized, executed and delivered by each Transaction Entity
that is a party thereto, and is a valid and binding agreement,
enforceable against such Transaction Entity, in accordance with their
terms, except to the extent that such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization or other similar
laws relating to or affecting creditors' rights and general principles
of equity and except as rights to indemnity and contribution
thereunder may be limited by applicable law or policies underlying
such law and, at the First Delivery Date, none of the Transaction
Entities has any reason to believe that the Contribution Agreements
have not been duly and validly authorized by all other parties
thereto; (D) at the First Delivery Date, any agreement by and between
the Service Corporations and/or the Management LLC and the Company
(the "Management Agreements") will have been duly and validly
authorized, executed and delivered by the parties thereto and will be
a valid and binding agreement, enforceable against the parties thereto
in accordance with its terms, except to the extent that such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws relating to or affecting
creditors' rights and general principles of equity and except as
rights to indemnity and contribution thereunder may be limited by
applicable law or policies underlying such law; (E) the employment and
noncompetition agreements between the Company and each of Stephen L.
Green, Nancy A. Peck, Steven H. Klein, Benjamin P. Feldman, Gerard
Nocera and Louis A. Olsen (the "Employment Agreements") will have been
duly and validly authorized, executed and delivered by the parties
thereto and will each be a valid and binding agreement, enforceable
against the parties thereto in accordance with its terms, except to
the extent that such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization or other similar laws relating
to or affecting creditors' rights and general principles of equity and
except as rights to indemnity and contribution thereunder may be
limited by applicable law or policies underlying such law; (F) the
agreements pursuant to which the Company will acquire the Acquisition
Properties (the "Acquisition Agreements") will have been duly and
validly authorized, executed and delivered by each Transaction Entity
that is a party thereto, and are valid and binding agreements,
enforceable against such Transaction Entity in accordance with its
terms, except to the extent that such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization
8
or other similar laws relating to or affecting creditors' rights and
general principles of equity and except as rights to indemnity and
contribution thereunder may be limited by applicable law or policies
underlying such law; (G) the agreement pursuant to which the Company
has the option to acquire the Option Property (the "Option Agreement")
has been duly and validly authorized, executed and delivered by each
Transaction Entity that is a party thereto, and is a valid and binding
agreement, enforceable against such Transaction Entity in accordance
with its terms, except to the extent that such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization or other
similar laws relating to or affecting creditors' rights and general
principles of equity and except as rights to indemnity and
contribution thereunder may be limited by applicable law or policies
underlying such law; and (H) at the First Delivery Date, the lockup
agreements by each of the Company, the Operating Partnership and
certain executive officers and directors of the Company (the "Lock-up
Agreements") will have been duly and validly authorized, executed and
delivered by such parties and will be a valid and binding agreement of
such parties, enforceable against such parties in accordance with
their terms except to the extent that such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization or other
similar laws relating to or affecting creditors' rights and general
principles of equity and except as rights to indemnity and
contribution thereunder may be limited by applicable law or policies
underlying such law. This Agreement, the Operating Partnership
Agreement, the Contribution Agreements, the Employment Agreements, the
Option Agreement, the Acquisition Agreements and the Lock-Up
Agreements are sometimes hereinafter collectively called the
"Operative Documents."
(m) The execution, delivery and performance of each Operative
Document by each of the Transaction Entities and the consummation of
the transactions contemplated hereby and thereby will not conflict
with or result in a breach or violation of any of the terms or
provisions of, or constitute (with or without the giving of notice or
the passage of time, or both) a default (or give rise to any right of
termination, cancellation or acceleration) under any of the terms,
conditions or provisions of any note, bond, indenture, mortgage, deed
of trust, lease, license, contract, loan agreement or other agreement
or instrument to which any of the Transaction Entities is a party or
by which any of the Transaction Entities is bound or to which any of
the Properties or other assets of any of the Transaction Entities is
subject, nor will such actions result in any violation of any of the
provisions of the charter, by-laws, certificate of limited
partnership, agreement of limited partnership or other organizational
document of any of the Transaction Entities, or any statute or any
order, writ, injunction, decree, rule or regulation of any court or
governmental agency or body having jurisdiction over any of the
Transaction Entities or any of their properties or assets, except for
any such breach or violation that would not have a Material Adverse
Effect; and except for the registration of the Shares under the
Securities Act and such consents, approvals, authorizations,
registrations or qualifications as may be required under
9
the Exchange Act by the New York Stock Exchange, Inc. ("NYSE"), or the
National Association of Securities Dealers, Inc. ("NASD"), and
applicable state securities laws in connection with the purchase and
distribution of the Shares by the Underwriters, issuance of Common
Shares to certain executive officers and directors of the Company and
the issuance of Units in connection with the Formation Transactions,
no consent, approval, authorization or order of, or filing or
registration with, any such court or governmental agency or body is
required for the execution, delivery and performance of the Operative
Documents by the Transaction Entities and the consummation of the
transactions contemplated hereby and thereby.
(n) Except as described or referred to in the Registration
Statement, there are no contracts, agreements or understandings
between the Company and any person granting such person the right to
require the Company to file a registration statement under the
Securities Act with respect to any securities of the Company owned or
to be owned by such person or to require the Company to include such
securities in the securities registered pursuant to the Registration
Statement or in any securities being registered pursuant to any other
registration statement filed by the Company under the Securities Act.
(o) Except as described in the Registration Statement, no
Transaction Entity has sold or issued any securities during the
six-month period preceding the date of the Prospectus, including any
sales pursuant to Rule 144A under, or Regulations D or S of, the
Securities Act.
(p) None of the Transaction Entities nor any of the Properties
has sustained, since the date of the latest audited financial
statements included in the Prospectus, any material loss or
interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, other than
as set forth or contemplated in the Prospectus; and, since such date,
there has not been any change in the capital stock or long-term debt
of any of the Transaction Entities or any material adverse change, or
any development involving a prospective material adverse change, in or
affecting any of the Properties or the business, prospects,
operations, management, financial position, net worth, stockholders'
equity or results of operations of any of the Transaction Entities or
use or value of the Properties, other than as set forth or
contemplated in the Formation Transactions.
(q) The financial statements (including the related notes and
supporting schedules) filed as part of the Registration Statement or
included in the Prospectus present fairly the financial condition, the
results of operations, the statements of cash flows and the statements
of stockholders' equity and other information purported to be shown
thereby of the Company and its consolidated subsidiaries, at the dates
and for the periods indicated, have been prepared in conformity with
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generally accepted accounting principles applied on a consistent basis
throughout the periods involved and are correct and complete and are
in accordance with the books and records of the Company and its
consolidated subsidiaries. The summary and selected financial data
included in the Prospectus present fairly the information shown
therein as at the respective dates and for the respective periods
specified, and the summary and selected financial data have been
presented on a basis consistent with the financial statements so set
forth in the Prospectus and other financial information. Pro forma
financial information included in the Prospectus has been prepared in
accordance with the applicable requirements of the Securities Act and
the Regulations with respect to pro forma financial information and
includes all adjustments necessary to present fairly the pro forma
financial position of the Company at the respective dates indicated
and the results of operations for the respective periods specified.
No other financial statements (or schedules) of the Company, or any
predecessor of the Company are required by the Securities Act to be
included in the Registration Statement or the Prospectus.
(r) Ernst & Young LLP, who have certified certain financial
statements of the Company, whose reports appear in the Prospectus and
who have delivered the initial letter referred to in Section 7(f)
hereof, are, and during the periods covered by such reports were,
independent public accountants as required by the Securities Act and
the Rules and Regulations.
(s) (A) At the First Delivery Date, the Operating Partnership or
a subsidiary thereof will have good and marketable title to each of
the interests in the Properties and the other assets being contributed
as part of the Formation Transactions, in each case free and clear of
all liens, encumbrances, claims, security interests and defects, other
than those referred to in the Prospectus or those which would not have
a Material Adverse Effect and all material consents or approvals with
respect to any such transfer shall have been received; (B) all liens,
charges, encumbrances, claims or restrictions on or affecting any of
the Properties and the assets of any Transaction Entity which are
required to be disclosed in the Prospectus are disclosed therein;
(C) except as otherwise described in the Prospectus, neither any
Transaction Entity nor any tenant of any of the Properties is in
default under (i) any space leases (as lessor or lessee, as the case
may be) relating to the Properties, or (ii) any of the mortgages or
other security documents or other agreements encumbering or otherwise
recorded against the Properties, and no Transaction Entity knows of
any event which, but for the passage of time or the giving of notice,
or both, would constitute a default under any of such documents or
agreements except with respect to (i) and (ii) immediately above any
such default that would not have a Material Adverse Effect; (D) no
tenant under any of the leases at the Properties has a right of first
refusal to purchase the premises demised under such lease which has
not been waived with respect to the Formation Transactions; (E) to the
best knowledge of the Company, each of the Properties complies with
all applicable codes, laws and regulations (including, without
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limitation, building and zoning codes, laws and regulations and laws
relating to access to the Properties), except for such failures to
comply that would not have a Material Adverse Effect; and (F) no
Transaction Entity has knowledge of any pending or threatened
condemnation proceedings, zoning change or other proceeding or action
that will in any material manner affect the size of, use of,
improvements on, construction on or access to the Properties.
(t) Immediately following the application of the net proceeds of
the sale of the Firm Shares to repay mortgage debt encumbering the
Core Portfolio and the LBHI Loan in the manner set forth in the
Prospectus, the mortgages which will encumber the Properties will not
be convertible into equity securities of the entity owning such
Property and said mortgages and deeds of trust will not be
cross-defaulted or cross-collateralized with any property other than
other Properties.
(u) Except as described or referred to in the Prospectus, at the
First Delivery Date, the Operating Partnership or a subsidiary thereof
will have obtained title insurance on the fee interests in each of the
Properties, in an amount at least equal to the greater of (a) the
mortgage indebtedness of each such Property or (b) the purchase price
of each such Property.
(v) Except as disclosed in the Prospectus; (A) to the knowledge
of the Transaction Entities, after due inquiry, the operations of the
Transaction Entities and the Properties are in compliance with all
Environmental Laws (as defined below) and all requirements of
applicable permits, licenses, approvals and other authorizations
issued pursuant to Environmental Laws; (B) to the knowledge of the
Transaction Entities, after due inquiry, none of the Transaction
Entities or any Property has caused or suffered to occur any Release
(as defined below) of any Hazardous Substance (as defined below) into
the Environment (as defined below) on, in, under or from any Property,
and no condition exists on, in, under or adjacent to any Property that
could result in the incurrence of liabilities under, or any violations
of, any Environmental Law or give rise to the imposition of any Lien
(as defined below), under any Environmental Law; (C) none of the
Transaction Entities has received any written notice of a claim under
or pursuant to any Environmental Law or under common law pertaining to
Hazardous Substances on, in, under or originating from any Property;
(D) none of the Transaction Entities has actual knowledge of, or
received any written notice from any Governmental Authority (as
defined below) claiming any violation of any Environmental Law or a
determination to undertake and/or request the investigation,
remediation, clean-up or removal of any Hazardous Substance released
into the Environment on, in, under or from any Property; and (E) no
Property is included or, to the knowledge of the Transaction Entities,
after due inquiry, proposed for inclusion on the National Priorities
List issued pursuant to CERCLA (as defined below) by the United States
Environmental Protection Agency (the "EPA") or on the Comprehensive
Environmental Response,
12
Compensation, and Liability Information System database maintained by
the EPA, and none of the Transaction Entities has actual knowledge
that any Property has otherwise been identified in a published writing
by the EPA as a potential CERCLA removal, remedial or response site
or, to the knowledge of the Transaction Entities, is included on any
similar list of potentially contaminated sites pursuant to any other
Environmental Law.
As used herein, "Hazardous Substance" shall include any hazardous
substance, hazardous waste, toxic substance, pollutant or hazardous
material, including, without limitation, oil, petroleum or any
petroleum-derived substance or waste, asbestos or asbestos-containing
materials, PCBs, pesticides, explosives, radioactive materials,
dioxins, urea formaldehyde insulation or any constituent of any such
substance, pollutant or waste which is subject to regulation under any
Environmental Law (including, without limitation, materials listed in
the United States Department of Transportation Optional Hazardous
Material Table, 49 C.F.R. Section 172.101, or in the EPA's List of
Hazardous Substances and Reportable Quantities, 40 C.F.R. Part 302);
"Environment" shall mean any surface water, drinking water, ground
water, land surface, subsurface strata, river sediment, buildings,
structures, and ambient, workplace and indoor and outdoor air;
"Environmental Law" shall mean the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended (42
U.S.C. Section 9601 et seq.) ("CERCLA"), the Resource Conservation
and Recovery Act of 1976, as amended (42 U.S.C. Section 6901, et
seq.), the Clean Air Act, as amended (42 U.S.C. Section 7401, et
seq.), the Clean Water Act, as amended (33 U.S.C. Section 1251, et
seq.), the Toxic Substances Control Act, as amended (15 U.S.C. Section
2601, et seq.), the Occupational Safety and Health Act of 1970, as
amended (29 U.S.C. Section 651, et seq.), the Hazardous Materials
Transportation Act, as amended (49 U.S.C. Section 1801, et seq.), and
all other federal, state and local laws, ordinances, regulations,
rules and orders relating to the protection of the environments or of
human health from environmental effects; "Governmental Authority"
shall mean any federal, state or local governmental office, agency or
authority having the duty or authority to promulgate, implement or
enforce any Environmental Law; "Lien" shall mean, with respect to any
Property, any mortgage, deed of trust, pledge, security interest,
lien, encumbrance, penalty, fine, charge, assessment, judgment or
other liability in, on or affecting such Property; and "Release" shall
mean any spilling, leaking, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, leaching, dumping, emanating or
disposing of any Hazardous Substance into the Environment, including,
without limitation, the abandonment or discard of barrels, containers,
tanks (including, without limitation, underground storage tanks) or
other receptacles containing or previously containing any Hazardous
Substance.
None of the environmental consultants which prepared environmental and
asbestos inspection reports with respect to any of the Properties was
employed for such purpose on a contingent basis or has any substantial
interest in the Company or any
13
of its Subsidiaries, and none of them nor any of their directors,
officers or employees is connected with the Company or any of its
subsidiaries as a promoter, selling agent, voting trustee, director,
officer or employee.
(w) Except as described or referred to in the Registration
Statement, the Transaction Entities are insured by insurers of
recognized financial responsibility against such losses and risks and
in such amounts and covering such risks as are customary in the
businesses in which they are engaged or propose to engage after giving
effect to the transactions described in the Prospectus; and neither
the Company nor any other Transaction Entity has any reason to believe
that it will not be able to renew its existing insurance coverage as
and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue their business at a
cost that would not have a Material Adverse Effect.
(x) Each Transaction Entity owns or possesses adequate rights to
use all material patents, patent applications, trademarks, service
marks, trade names, trademark registrations, service mark
registrations, copyrights and licenses necessary for the conduct of
its business and has no reason to believe that the conduct of its
business will conflict with, and has not received any notice of any
claim of conflict with, any such rights of others.
(y) Except as described in the Prospectus, there are no legal or
governmental proceedings pending to which any Transaction Entity or
S.L. Green Group member is a party or of which any property or assets
of any Transaction Entity is the subject which, if determined
adversely to such Transaction Entity or S.L. Green Group member, might
have a Material Adverse Effect; and to the best knowledge of the
Transaction Entities, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others.
(z) There are no contracts or other documents which are required
to be described in the Prospectus or filed as exhibits to the
Registration Statement by the Securities Act or by the Rules and
Regulations which have not been described in the Prospectus or filed
as exhibits to the Registration Statement or incorporated therein by
reference as permitted by the Rules and Regulations. Neither the
Company, nor to the Company's knowledge, any other party is in default
in the observance or performance of any term or obligation to be
performed by it under any agreement listed in the exhibits to the
Registration Statement, and no event has occurred which with notice or
lapse of time or both would constitute such a default, in any such
case which default or event would have a Material Adverse Effect. No
default exists, and no event has occurred which with notice or lapse
of time or both would constitute a default, in the due performance and
observance of any term, covenant or condition, by the Company or any
of its subsidiaries of any other agreement or instrument to which the
Company or any of its subsidiaries is
14
a party or by which any of them or their respective properties or
businesses may be bound or affected which default or event would have
a Material Adverse Effect.
(aa) No relationship, direct or indirect, exists between or among
any of the Transaction Entities on the one hand, and the directors,
officers, stockholders, customers or suppliers of the Transaction
Entities on the other hand, which is required to be described in the
Prospectus which is not so described.
(bb) No labor disturbance by the employees of any Transaction
Entity exists or, to the knowledge of the Transaction Entities, is
imminent which might be expected to have a Material Adverse Effect.
(cc) Each Transaction Entity is in compliance in all material
respects with all presently applicable provisions of the Employee
Retirement Income Security Act of 1974, as amended, including the
regulations and published interpretations thereunder ("ERISA"); no
"reportable event" (as defined in ERISA) has occurred with respect to
any "pension plan" (as defined in ERISA) for which any Transaction
Entity would have any liability; no Transaction Entity has incurred or
expects to incur liability under (i) Title IV of ERISA with respect to
termination of, or withdrawal from, any "pension plan" or (ii)
Sections 412 or 4971 of the Code; and each "pension plan" for which
any Transaction Entity would have any liability that is intended to be
qualified under Section 401(a) of the Code is so qualified in all
material respects and nothing has occurred, whether by action or by
failure to act, which would cause the loss of such qualification,
except where the failure to be so qualified would not have a Material
Adverse Effect.
(dd) Each Transaction Entity has filed all federal, state and
local income and franchise tax returns required to be filed through
the date hereof and has paid all taxes due thereon, and no tax
deficiency has been determined adversely to any Transaction Entity
which has had (nor does any Transaction Entity have any knowledge of
any tax deficiency which, if determined adversely to it might have) a
Material Adverse Effect.
(ee) Upon completion of the transactions described in the
Prospectus and the sale of the Shares hereunder, the Company, the
Operating Partnership, the Management LLC and the Service Corporations
will be organized and operated in conformity with the requirements for
qualification of the Company as a real estate investment trust
("REIT") under the Code commencing with the Company's taxable year
ending December 31, 1997, and the proposed method of operation of the
Company, the Operating Partnership, the Management LLC and the Service
Corporations will enable the Company to meet the requirements for
qualification and taxation as a REIT under the Code.
15
(ff) Since the date as of which information is given in the
Prospectus through the date hereof, and except in connection with the
Formation Transactions and as may otherwise be disclosed in the
Prospectus, (i) no Transaction Entity has (a) issued or granted any
securities, (b) incurred any liability or obligation, direct or
contingent, other than liabilities and obligations which were incurred
in the ordinary course of business, (c) entered into any transaction
not in the ordinary course of business or (d) declared or paid any
dividend on its capital stock; and (ii) there has been no Material
Adverse Effect.
(gg) Each Transaction Entity (i) makes and keeps accurate books
and records and (ii) maintains internal accounting controls which
provide reasonable assurance that (A) transactions are executed in
accordance with management's authorization, (B) transactions are
recorded as necessary to permit preparation of its financial
statements and to maintain accountability for its assets, (C) access
to its assets is permitted only in accordance with management's
authorization and (D) the reported accountability for its assets is
compared with existing assets at reasonable intervals.
(hh) No Transaction Entity (i) is in violation of its charter,
by-laws, certificate of limited partnership, agreement of limited
partnership or other similar organizational document except for any
such violation which would not have a Material Adverse Effect, (ii) is
in default, and no event has occurred which, with notice or lapse of
time or both, would constitute a default, in the due performance or
observance of any term, covenant or condition contained in any
material indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which it is a party or by which it is bound
or to which any of the Properties or any of its other properties or
assets is subject, except for any such default which would not have a
Material Adverse Effect or (iii) is in violation of any law,
ordinance, governmental rule, regulation or court decree to which it
or the Properties or any of its other properties or assets may be
subject or has failed to obtain any material license, permit,
certificate, franchise or other governmental authorization or permit
necessary to the ownership of the Properties or any of its other
properties or assets or to the conduct of its business except for any
such violation which would not have a Material Adverse Effect.
(ii) No Transaction Entity, nor any director, officer, agent,
employee or other person associated with or acting on behalf of any
Transaction Entity, has used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expense relating
to political activity; made any direct or indirect unlawful payment to
any foreign or domestic government official or employee from corporate
funds; violated or is in violation of any provision of the Foreign
Corrupt Practices Act of 1977; or made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment.
16
(jj) No Transaction Entity is an "investment company" within the
meaning of such term under the Investment Company Act of 1940, as
amended, and the rules and regulations of the Commission thereunder.
(kk) The Common Shares have been approved for listing on the NYSE
upon official notice of issuance.
(ll) At or prior to the Closing Time, each of the Formation
Transactions will have occurred in the manner described in the
Prospectus.
(mm) Other than this Agreement and as set forth in the Prospectus
under the heading "Underwriting," there are no contracts, agreements
or understandings between any Transaction Entity and any person that
would give rise to a valid claim against any Transaction Entity or any
Underwriter for a brokerage commission, finder's fee or other like
payment with respect to the consummation of the transactions
contemplated by this Agreement.
(nn) To apply the net proceeds from the sale of the Shares being
sold by the Company in accordance with the description set forth in
the Prospectus under the caption "Use of Proceeds."
(oo) Except as stated in this Agreement and in the Prospectus, no
Transaction Entity has taken, nor will it take, directly or
indirectly, any action designed to or that might reasonably be
expected to cause or result in stabilization or manipulation of the
price of the Common Shares to facilitate the sale or resale of the
Shares.
2. PURCHASE OF THE SHARES BY THE UNDERWRITERS. On the basis of
the representations and warranties contained in, and subject to the terms and
conditions of, this Agreement, the Company agrees to sell 10,100,000 Firm
Shares, severally and not jointly, to the several Underwriters and each of
the Underwriters, severally and not jointly, agrees to purchase the number of
Firm Shares set forth opposite that Underwriter's name in Schedule 1 hereto.
The respective purchase obligations of the Underwriters with respect to the
Firm Shares shall be rounded among the Underwriters to avoid fractional
shares, as the Representatives may determine.
In addition, the Company grants to the Underwriters an option to
purchase up to 1,515,000 Option Shares. Such option is granted solely for the
purpose of covering over-allotments in the sale of Firm Shares and is
exercisable as provided in Section 4 hereof. Option Shares shall be purchased
severally for the account of the Underwriters in proportion to the number of
Firm Shares set forth opposite the name of such Underwriters in Schedule 1
hereto. The respective purchase obligations of each Underwriter with respect to
the Option Shares shall be adjusted by the Representatives so that no
Underwriter shall be obligated to purchase Option Shares other than in 100-share
amounts. The price of both the Firm Shares and any Option Shares shall be
$_____ per share.
17
The Company shall not be obligated to deliver any of the Shares to be
delivered on the First Delivery Date or the Second Delivery Date (as hereinafter
defined), as the case may be, except upon payment for all the Shares to be
purchased on such Delivery Date as provided herein.
3. OFFERING OF SHARES BY THE UNDERWRITERS.
Upon authorization by the Representatives of the release of the Firm
Shares, the several Underwriters propose to offer the Firm Shares for sale upon
the terms and conditions set forth in the Prospectus.
It is understood that _______ shares of the Firm Shares will initially
be reserved by the several Underwriters for offer and sale upon the terms and
conditions set forth in the Prospectus and in accordance with the rules and
regulations of the NASD to employees and persons having business relationships
with the Company and its subsidiaries who have heretofore delivered to the
Representatives offers to purchase shares of Firm Shares in form satisfactory to
the Representatives, and that any allocation of such Firm Shares among such
persons will be made in accordance with timely directions received by the
Representatives from the Company; PROVIDED, that under no circumstances will the
Representatives or any Underwriter be liable to the Company or to any such
person for any action taken or omitted in good faith in connection with such
offering to employees and persons having business relationships with the Company
and its subsidiaries. It is further understood that any shares of such Firm
Shares which are not purchased by such persons will be offered by the
Underwriters to the public upon the terms and conditions set forth in the
Prospectus.
4. DELIVERY OF AND PAYMENT FOR THE SHARES. Delivery of and payment
for the Firm Shares shall be made at the office of Rogers & Wells, 200 Park
Avenue, New York, New York 10166, or at such other date or place as shall be
determined by agreement between the Representatives and the Company, at 10:00
A.M., New York City time, on the third full business day following the date of
this Agreement or on the fourth full business day if the Agreement is executed
after the daily closing time of the New York Stock Exchange (unless postponed in
accordance with the provisions of Section 9 hereof). This date and time are
sometimes referred to as the "First Delivery Date." On the First Delivery Date,
the Company shall deliver or cause to be delivered certificates representing the
Firm Shares to the Representatives for the account of each Underwriter against
payment to or upon the order of the Company of the purchase price by wire
transfer of same-day funds. Time shall be of the essence, and delivery at the
time and place specified pursuant to this Agreement is a further condition of
the obligation of each Underwriter hereunder. Upon delivery, the Firm Shares
shall be registered in such names and in such denominations as the
Representatives shall request in writing not less than two full business days
prior to the First Delivery Date. For the purpose of expediting the checking
and packaging of the certificates for the Firm Shares, the Company shall make
the certificates representing the Firm Shares available for inspection by the
Representatives in New York, New York, not later than 2:00 P.M., New York City
time, on the business day prior to the First Delivery Date.
18
At any time on or before the thirtieth day after the date of this
Agreement, the option granted in Section 2 may be exercised, in whole or in
part, from time to time, by written notice being given to the Company by the
Representatives. Such notice shall set forth the aggregate number of Option
Shares as to which the option is being exercised, the names in which the Option
Shares are to be registered, the denominations in which the Option Shares are to
be issued and the date and time, as determined by the Representatives, when the
Option Shares are to be delivered; PROVIDED, HOWEVER, that this date and time
shall not be earlier than the First Delivery Date nor earlier than the second
business day after the date on which the option shall have been exercised nor
later than the fifth business day after the date on which the option shall have
been exercised. The date and time the Option Shares are delivered are sometimes
referred to as the "Second Delivery Date" and the First Delivery Date and the
Second Delivery Date are sometimes each referred to as a "Delivery Date."
Delivery of and payment for the Option Shares shall be made at the
place specified in the first sentence of the first paragraph of this Section 4
(or at such other place as shall be determined by agreement between the
Representatives and the Company) at 10:00 A.M., New York City time, on the
Second Delivery Date. On the Second Delivery Date, the Company shall deliver or
cause to be delivered the certificates representing the Option Shares to the
Representative for the account of each Underwriter against payment to or upon
the order of the Company of the purchase price by wire transfer of same-day
funds. Time shall be of the essence, and delivery at the time and place
specified pursuant to this Agreement is a further condition of the obligation of
each Underwriter hereunder. Upon delivery, the Option Shares shall be
registered in such names and in such denominations as the Representatives shall
request in the aforesaid written notice. For the purpose of expediting the
checking and packaging of the certificates for the Option Shares, the Company
shall make the certificates representing the Option Shares available for
inspection by the Representatives in New York, New York, not later than 2:00
P.M., New York City time, on the business day prior to the Second Delivery Date.
5. FURTHER AGREEMENTS OF THE COMPANY. The Company agrees:
(a) To prepare the Prospectus in a form approved by the
Representatives and to file such Prospectus pursuant to
Rule 424(b) under the Securities Act not later than the Commission's
close of business on the second business day following the execution
and delivery of this Agreement or, if applicable, such earlier time as
may be required by Rule 430A(a)(3) under the Securities Act; to make
no further amendment or any supplement to the Registration Statement
or to the Prospectus except as permitted herein; to advise the
Representatives, promptly after it receives notice thereof, of the
time when any amendment to the Registration Statement has been filed
or becomes effective or any supplement to the Prospectus or any
amended Prospectus has been filed and to furnish the Representatives
with copies thereof; to advise the Representatives, promptly after it
receives notice thereof, of the issuance by the Commission of any stop
order or of any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus, of the suspension of the
qualification of the Shares for offering or sale in any jurisdiction,
19
of the initiation or threatening of any proceeding for any such
purpose, or of any request by the Commission for the amending or
supplementing of the Registration Statement or the Prospectus or for
additional information; and, in the event of the issuance of any stop
order or of any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus or suspending any such
qualification, to use promptly its best efforts to obtain its
withdrawal;
(b) To furnish promptly to each of the Representatives and to
counsel for the Underwriters a signed copy of the Registration
Statement as originally filed with the Commission, and each amendment
thereto filed with the Commission, including all consents and exhibits
filed therewith;
(c) To deliver promptly to the Representatives such number of
the following documents as the Representatives shall reasonably
request: (i) conformed copies of the Registration Statement as
originally filed with the Commission and each amendment thereto (in
each case including consents and exhibits other than this Agreement
and the computation of per share earnings) and (ii) each Preliminary
Prospectus, the Prospectus and any amended or supplemented Prospectus;
and, if the delivery of a prospectus is required at any time after the
Effective Time in connection with the offering or sale of the Shares
or any other securities relating thereto and if at such time any
events shall have occurred as a result of which the Preliminary
Prospectus or the Prospectus as then amended or supplemented would
include an untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made when such
Preliminary Prospectus or the Prospectus is delivered, not misleading,
or, if for any other reason it shall be necessary to amend or
supplement the Preliminary Prospectus or the Prospectus in order to
comply with the Securities Act or the Exchange Act, to notify the
Representatives and, upon its request, to file such document and to
prepare and furnish without charge to each Underwriter and to any
dealer in securities as many copies as the Representatives may from
time to time reasonably request of an amended or supplemented
Preliminary Prospectus or the Prospectus which will correct such
statement or omission or effect such compliance;
(d) To file promptly with the Commission any amendment to the
Registration Statement or the Prospectus or any supplement to the
Prospectus that may, in the judgment of the Representatives or Counsel
to the Underwriters, be required by the Securities Act or requested by
the Commission;
(e) Prior to filing with the Commission any amendment to the
Registration Statement or supplement to the Prospectus or any
Prospectus pursuant to Rule 424 of the Rules and Regulations, to
furnish a copy thereof to the Representatives and counsel for the
Underwriters and obtain the consent of the Representatives to the
filing;
20
(f) The Company will make generally available to its security
holders as soon as practicable but no later than 60 days after the
close of the period covered thereby an earnings statement (in form
complying with the provisions of Section 11(a) of the Securities Act
and Rule 158 of the Rules and Regulations), which need not be
certified by independent certified public accountants unless required
by the Securities Act or the Rules and Regulations, covering a
twelve-month period commencing after the "effective date" (as defined
in said Rule 158) of the Registration Statement;
(g) The Company will furnish to each Underwriter, from time to
time during the period when the Prospectus is required to be delivered
under the Securities Act or the Exchange Act of such number of copies
of the Prospectus (as amended or supplemented) as such Underwriter may
reasonably request for the purposes contemplated by the Securities Act
or the Exchange Act or the respective applicable rules and regulations
of the Commission thereunder;
(h) For a period of five years following the Effective Date, to
furnish to the Representatives copies of all materials furnished by
the Company to its stockholders and all public reports and all reports
and financial statements furnished by the Company to the principal
national securities exchange upon which the Common Shares may be
listed pursuant to requirements of or agreements with such exchange or
to the Commission pursuant to the Exchange Act or any rule or
regulation of the Commission thereunder;
(i) Promptly from time to time to take such action as the
Representatives may reasonably request to qualify the Shares for
offering and sale under the securities, real estate syndication or
Blue Sky laws of such jurisdictions as the Representatives may request
and to comply with such laws so as to permit the continuance of sales
and dealings therein in such jurisdictions for as long as may be
necessary to complete the distribution of the Shares;
(j) For a period of 180 days from the date of the Prospectus,
the Company (i) will not, directly or indirectly, offer for sale,
sell, contract to sell, pledge or otherwise dispose of (or enter into
any transaction or device which is designed to, or could be expected
to, result in the disposition by any person at any time in the future
of) any Common Shares or securities convertible into or exercisable or
exchangeable for Common Shares (other than the Shares, shares issued
pursuant to employee benefit plans, qualified stock option plans or
other employee compensation plans existing on the date hereof), or
sell or grant options, rights or warrants with respect to any Common
Shares (other than the grant of options pursuant to option plans
existing on the date hereof), without the prior written consent of
Lehman Brothers Inc.; (ii) will cause each officer, director and
affiliate of the Company who will acquire Units or restricted Common
Shares in the Formation Transactions to furnish to the
Representatives, prior to the First
21
Delivery Date, a letter or letters, in form and substance satisfactory
to counsel for the Underwriters, pursuant to which each such person
shall agree not to, directly or indirectly, offer for sale, sell,
contract to sell, pledge or otherwise dispose of (or enter into any
transaction or device which is designed to, or could be expected to,
result in the disposition by any person at any time in the future of)
any such Units or restricted Common Shares for a period of one year
from the date of the Prospectus, after which time one-third of such
Common Shares or Units held by each such entity or person shall no
longer be subject to such restrictions and an additional one-third
thereof shall be released from such restrictions on each of the second
and third anniversaries of the date of the Prospectus without the
prior written consent of Lehman Brothers Inc. and the Company; and
(iii) will cause Victor Capital to enter into a similar letter for a
period one year after the date of the Prospectus, with respect to the
restricted Common Shares it will receive in connection with the
Formation Transactions without the prior written consent of Lehman
Brothers Inc. and the Company;
(k) Prior to the Effective Date, to apply for the listing of the
Shares on the NYSE, and to use its best efforts to complete that
listing, subject only to official notice of issuance, prior to the
First Delivery Date;
(l) To file with the Commission a report on Form SR pursuant to
Rule 463 of the Rules and Regulations and to deliver promptly to the
Representatives a copy of the report on Form SR filed by it with the
Commission;
(m) To take such steps as shall be necessary to ensure that none
of the Transaction Entities shall become an "investment company"
within the meaning of such term under the Investment Company Act of
1940, as amended, and the rules and regulations of the Commission
thereunder;
(n) The Company will use its best efforts to meet the
requirements to qualify, commencing with its taxable year ending
December 31, 1997, as a REIT under the Code; and
(o) If at any time during the 25-day period after the
Registration Statement becomes effective, any rumor, publication or
event relating to or affecting the Company shall occur as a result of
which in your and the Company's opinion the market price of the Common
Shares has been or is likely to be materially affected (regardless of
whether such rumor, publication or event necessitates a supplement to
or amendment of the Prospectus), the Company will consult with you
concerning the substance of and the advisability of disseminating a
press release or other public statement responding to or commenting on
such rumor, publication or event.
22
6. EXPENSES. The Transaction Entities jointly and severally agree
to pay (a) the costs incident to the authorization, issuance, sale and delivery
of the Shares and any taxes payable in that connection; (b) the costs incident
to the preparation, printing, filing and distribution under the Securities Act
of the Registration Statement and any amendments and exhibits thereto; (c) the
costs of distributing the Registration Statement as originally filed and each
amendment thereto and any post-effective amendments thereof (including, in each
case, exhibits), any Preliminary Prospectus, the Prospectus and any amendment or
supplement to the Prospectus, all as provided in this Agreement; (d) the costs
of producing and distributing this Agreement and any other related documents in
connection with the offering, purchase, sale and delivery of the Shares; (f) the
filing fees incident to securing any required review by the NASD of the terms of
sale of the Shares; (g) any applicable listing or other fees; (h) the fees and
expenses of qualifying the Shares under the securities laws of the several
jurisdictions as provided in Section 5(i) and of preparing, printing and
distributing a Blue Sky Memorandum (including related reasonable fees and
expenses of counsel to the Underwriters); (j) all costs and expenses of the
Underwriters, including the reasonable fees and disbursements of counsel for the
Underwriters, incident to the offer and sale of the Common Shares by the
Underwriters to employees and persons having business relationships with the
Company and its subsidiaries, as described in Section 4; (k) all other costs and
expenses incident to the performance of the obligations of the Transaction
Entities under this Agreement; (l) the costs and charges of any transfer agent
and registrar; (m) any expenses incurred by the Company in connection with a
"road show" presentation to potential investors; and (n) the fees and
disbursements of the Company's counsel and accountants; PROVIDED that, except as
provided in this Section 6 and in Section 12 the Underwriters shall pay their
own costs and expenses, including the costs and expenses of their counsel, any
transfer taxes on the Shares which they may sell and the expenses of advertising
any offering of the Shares made by the Underwriters.
7. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The respective
obligations of the Underwriters hereunder are subject to the accuracy, when made
and on each Delivery Date, of the representations and warranties of the
Transaction Entities contained herein, to the performance by each Transaction
Entity and of its obligations hereunder, and to each of the following additional
terms and conditions:
(a) If, at the time this Agreement is executed and delivered, it
is necessary for the Registration Statement or a post-effective
amendment thereto to be declared effective before the offering of the
Shares may commence, the Registration Statement or such post-effective
amendment shall have become effective not later than 5:30 P.M.,
New York City time, on the date hereof, or at such later date and time
as shall be consented to in writing by you, and all filings, if any,
required by Rules 424 and 430A under the Rules and Regulations shall
have been timely made; no stop order suspending the effectiveness of
the Registration Statement shall have been issued and no proceeding
for that purpose shall have been instituted or, to the knowledge of
the Transaction Entities, or any Underwriter, threatened by the
Commission, and any request of the Commission for additional
information (to be included in the Registration Statement or the
23
Prospectus or otherwise) shall have been complied with to the
satisfaction of the Representatives.
(b) Subsequent to the effective date of this Agreement, there
shall not have occurred (i) any Material Adverse Effect, or (ii) any
event or development relating to or involving any Transaction Entity,
or any partner, officer, director or trustee of any Transaction
Entity, which makes any statement of a material fact made in the
Prospectus untrue or which, in the opinion of the Company and its
counsel or the Underwriters and their counsel, requires the making of
any addition to or change in the Prospectus in order to state a
material fact required by the Securities Act or any other law to be
stated therein or necessary in order to make the statements therein
not misleading, if amending or supplementing the Prospectus to reflect
such event or development would, in your opinion, adversely affect the
market for the Shares.
(c) All corporate proceedings and other legal matters incident
to the authorization, form and validity of this Agreement, the Shares,
the Registration Statement and the Prospectus, and all other legal
matters relating to this Agreement and the transactions contemplated
hereby shall be reasonably satisfactory in all material respects to
counsel for the Underwriters, and the Company shall have furnished to
such counsel all documents and information that they may reasonably
request to enable them to pass upon such matters.
(d) Brown & Wood LLP shall have furnished to the Representatives
its written opinion, as counsel to the Company, addressed to the
Underwriters and dated such Delivery Date, in form and substance
reasonably satisfactory to the Representatives and counsel to the
Underwriters, to the effect that:
(i) The Company has been duly formed and is validly
existing as a corporation in good standing under the laws of the
State of Maryland, is duly qualified to do business and is in
good standing as a foreign corporation in each jurisdiction in
which its ownership or lease of property or other assets or the
conduct of its business requires such qualification, except where
the failure to so qualify would not have a Material Adverse
Effect, and has all power and authority necessary to own or hold
its properties or other assets, to conduct the business in which
it is engaged as described in the Registration Statement and the
Prospectus, and to enter into and perform its obligations under
this Agreement and the other Operative Documents to which it is a
party and in connection with the Formation Transactions.
(ii) The Company has an authorized capitalization as
set forth in the Prospectus, and all of the issued Common Shares
(other than the Shares) have been duly and validly authorized and
issued, are fully paid
24
and non-assessable, have been offered and sold in compliance with
all applicable laws (including, without limitation, federal and
state securities laws) and conform to the description thereof
contained in the Prospectus. Except as disclosed in the
Prospectus, no Common Shares are reserved for any purpose and
except for the Units, there are no outstanding securities
convertible into or exchangeable for any Common Shares, and no
outstanding options, rights (preemptive or otherwise) or warrants
to purchase or subscribe for Common Shares or any other
securities of the Company.
(iii) The Operating Partnership has been duly formed and
is validly existing as a limited partnership in good standing
under the laws of the State of Delaware, is duly qualified to do
business and is in good standing as a foreign limited partnership
in each jurisdiction in which its ownership or lease of property
and other assets or the conduct of its business requires such
qualification, except where the failure to so qualify would not
have a Material Adverse Effect, and has all power and authority
necessary to own or hold its properties and other assets, to
conduct the business in which it is engaged as described in the
Registration Statement and the Prospectus, and to enter into and
perform its obligations under this Agreement and the other
Operative Documents to which it is a party and in connection with
the Formation Transactions. The Company is the sole general
partner of the Operating Partnership. The Operating Partnership
Agreement is in full force and effect, and the aggregate
percentage interests of the Company and the limited partners in
the Operating Partnership are as set forth in the Prospectus.
(iv) The Management LLC has been duly formed and is
validly existing as a limited liability company in good standing
under the laws of the State of Delaware, is duly qualified to do
business and is in good standing as a foreign limited liability
company in each jurisdiction in which its ownership or lease of
property and other assets or the conduct of its business requires
such qualification, except where the failure to so qualify would
not have a Material Adverse Effect, and has all power and
authority necessary to own or hold its properties and other
assets, to conduct the business in which it is engaged as
described in the Registration Statement and the Prospectus and to
enter into and perform its obligations under this Agreement and
the other Operative Documents to which it is a party. All of the
issued and outstanding membership interests of the Management LLC
have been duly authorized and validly issued, and 100% of the
membership interest is owned by the Operating Partnership. No
membership interests of the Management LLC are reserved for any
purpose, and there are no outstanding securities convertible into
or exchangeable for any membership interests of the Management
LLC and
25
no outstanding options, rights (preemptive or otherwise) or
warrants to purchase or to subscribe for membership interests or
any other securities of the Management LLC.
(v) Each of the Service Corporations has been duly
formed and is validly existing as a corporation in good standing
under the laws of the State of New York, is duly qualified to do
business and is in good standing as a foreign corporation in each
jurisdiction in which its ownership or lease of property and
other assets or the conduct of its business requires such
qualification, and has all power and authority necessary to own
or hold its properties and other assets, to conduct the business
in which it is engaged as described in the Registration Statement
and the Prospectus, and to enter into and perform its obligations
under this Agreement and the other Operative Documents to which
it is a party and in connection with the Formation Transactions.
All of the issued and outstanding capital stock of each Service
Corporation has been duly authorized and validly issued and is
fully paid and non-assessable, has been offered and sold in
compliance with all applicable laws (including, without
limitation, federal or state securities laws) and, all of such
capital stock is owned by the Operating Partnership (100% of the
nonvoting common stock). No shares of capital stock of any
Service Corporation are reserved for any purpose, and there are
no outstanding securities convertible into or exchangeable for
any capital stock of any Service Corporation and no outstanding
options, rights (preemptive or otherwise) or warrants to purchase
or to subscribe for shares of such capital stock or any other
securities of any Service Corporation.
(vi) The Shares have been duly and validly authorized
and, when issued and delivered against payment therefor as
provided herein, will be duly and validly issued, fully paid and
non-assessable. The issuance and sale by the Company of the
[383,110] Common Shares to certain executive officers of the
Company in connection with the Formation Transactions prior to
the First Delivery Date was exempt from the registration
requirements of the Securities Act and applicable state
securities, real estate syndication and blue sky laws. The terms
of the Common Shares conform in substance to all statements and
descriptions related thereto contained in the Prospectus. The
form of the certificate to be used to evidence the Common Shares
is in due and proper form and comply with all applicable legal
requirements. The issuance of the Shares is not subject to any
preemptive or other similar rights arising under the Articles of
Incorporation or by-laws of the Company, Title 8 of the
Corporations and Associations Article of the Annotated Code of
Maryland, as amended, or any agreement or other instrument to
which the Company is a party known to such counsel.
26
(vii) The [887,895] Units have been duly authorized for
issuance by the Operating Partnership to the continuing investors
and, assuming that the continuing investors, as limited partners
of the Operating Partnership, do not participate in the control
of the business of the Operating Partnership, upon issuance of
and payment for the Units as contemplated by the Operating
Partnership Agreement, the Units will represent valid and,
subject to the qualifications set forth herein, will be fully
paid and nonassessable limited partner interests in the Operating
Partnership, as to which the continuing investors, in their
capacity as limited partners of the Operating Partnership, will
have no liability in excess of their obligations to make
contributions to the Operating Partnership, their obligations to
make other payments provided for in the Operating Partnership
Agreement and their share of the Operating Partnership's assets
and undistributed profits (subject to the obligation of a limited
partner of the Operating Partnership to repay any funds
wrongfully distributed to it). The terms of the Units conform in
all material respects to the statements and descriptions related
thereto contained in the Prospectus.
(viii) (A) This Agreement has been duly and validly
authorized, executed and delivered by the each of the Transaction
Entities and, and assuming due authorization, execution and
delivery by the Representatives, is a valid and binding agreement
of each of the Transaction Entities, enforceable against such
parties in accordance with its terms, except to the extent that
such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization or other similar laws relating to or
affecting creditors' rights and general principles of equity and
except as rights to indemnity and contribution thereunder may be
limited by applicable law or policies underlying such law;
(B) the Operating Partnership Agreement has been duly and validly
authorized, executed and delivered by each Transaction Entity
which is a party thereto and is a valid and binding agreement of
such parties, enforceable against such parties in accordance with
their respective terms, except to the extent that such
enforceability may be limited by applicable bankruptcy,
insolvency, reorganization or other similar laws relating to or
affecting creditors' rights and general principles of equity and
except as rights to indemnity and contribution thereunder may be
limited by applicable law or policies underlying such law;
(C) each Contribution Agreement has been duly and validly
authorized, executed and delivered by each Transaction Entity
that is a party thereto, and is a valid and binding agreement,
enforceable against such Transaction Entity in accordance with
its terms, except to the extent that such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization or
other similar laws relating to or affecting creditors' rights and
general principles of equity and except as rights to
27
indemnity and contribution thereunder may be limited by
applicable law or policies underlying such law; (D) the
Employment Agreements have been duly and validly authorized,
executed and delivered by the Company and are valid and binding
agreements, enforceable against the Company, in accordance with
their respective terms, except to the extent that such
enforceability may be limited by applicable bankruptcy,
insolvency, reorganization or other similar laws relating to or
affecting creditors' rights and general principles of equity and
except as rights to indemnity and contribution thereunder may be
limited by applicable law or policies underlying such law; (E)
the Acquisition Agreements have been duly and validly authorized,
executed and delivered by each Transaction Entity that is a party
thereto and are valid and binding agreements, enforceable against
such parties, in accordance with their respective terms, except
to the extent that such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization or other
similar laws relating to or affecting creditors' rights and
general principles of equity and except as rights to indemnity
and contribution thereunder may be limited by applicable law or
policies underlying such law; (F) the Option Agreement has been
duly and validly authorized, executed and delivered by each
Transaction Entity that is a party thereto and is a valid and
binding agreement, enforceable against such parties, in
accordance with its terms, except to the extent that such
enforceability may be limited by applicable bankruptcy,
insolvency, reorganization or other similar laws relating to or
affecting creditors' rights and general principles of equity and
except as rights to indemnity and contribution thereunder may be
limited by applicable law or policies underlying such law; and
(G) the Lock-up Agreements of the Company and the Operating
Partnership have been duly and validly authorized, executed and
delivered by the Company or the Operating Partnership, as
applicable, and are valid and binding agreements, enforceable
against such parties in accordance with their terms, except to
the extent that such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization or other similar laws
relating to or affecting creditors' rights and general principles
of equity and except as rights to indemnity and contribution
thereunder may be limited by applicable law or policies
underlying such law.
(ix) The execution, delivery and performance of each
Operative Document by each of the Transaction Entities and the
consummation of the transactions contemplated hereby and thereby
will not conflict with or result in a breach or violation of any
of the terms or provisions of, or constitute a default under any
of the terms, conditions or provisions of, any note, bond,
indenture, mortgage, deed of trust, lease, license, contract,
loan agreement or other agreement or instrument to which any of
the Transaction Entities is a party or by which any of the
28
Transaction Entities is bound or to which any of the Properties
or other assets of any of the Transaction Entities is subject,
nor will such actions result in any violation of the provisions
of the charter, by-laws, certificate of limited partnership,
agreement of limited partnership, or other organizational
documents of any of the Transaction Entities, or any statute or
any order, writ, injunction, decree, rule or regulation of any
court or governmental agency or body having jurisdiction over any
of the Transaction Entities or any of their properties or assets,
except for any such breach or violation that would not have a
Material Adverse Effect; and except for the registration of the
Shares under the Securities Act and such consents, approvals,
authorizations, registrations or qualifications as may be
required under the Exchange Act, by the NYSE or the NASD and
applicable state securities or real estate syndication laws in
connection with the purchase and distribution of the Shares by
the Underwriters, no consent, approval, authorization or order
of, or filing or registration with, any such court or
governmental agency or body is required for the execution,
delivery and performance of the Operative Documents by the
Transaction Entities and the consummation of the transactions
contemplated hereby and thereby.
(x) To such counsel's knowledge, other than as set
forth or referred to in the Registration Statement, there are no
contracts, agreements or understandings between the Company and
any person granting such person the right to require the Company
to file a registration statement under the Securities Act with
respect to any securities of the Company owned or to be owned by
such person or to require the Company to include such securities
in the securities registered pursuant to the Registration
Statement or in any securities being registered pursuant to any
other registration statement filed by the Company under the
Securities Act.
(xi) To such counsel's knowledge, other than as set
forth in the Prospectus, there are no legal or governmental
proceedings pending to which any Transaction Entity is a party or
of which any property or assets of any Transaction Entity is the
subject which, if determined adversely to such Transaction
Entity, might reasonably be expected to have a Material Adverse
Effect; and to the best knowledge of such counsel no such
proceedings are threatened or contemplated by governmental
authorities or threatened by others.
(xii) To the best knowledge of such counsel, there are
no contracts or other documents which are required to be
described in the Prospectus or filed as exhibits to the
Registration Statement by the Securities Act or by the Rules and
Regulations which have not been described in the Prospectus or
filed as exhibits to the Registration Statement
29
or incorporated therein by reference as permitted by the Rules
and Regulations.
(xiii) To the best knowledge of such counsel, no
relationship, direct or indirect, exists between or among any of
the Transaction Entities on the one hand, and the directors,
officers, stockholders, customers or suppliers of the Transaction
Entities on the other hand, which is required to be described in
the Prospectus which is not so described.
(xiv) To the best knowledge of such counsel and other
than as described in the Prospectus, no Transaction Entity (i) is
in violation of its charter, by-laws, certificate of limited
partnership, agreement of limited partnership or other similar
organizational document, (ii) is in default, and no event has
occurred which, with notice or lapse of time or both, would
constitute a default, in the due performance or observance of any
term, covenant or condition contained in any material indenture,
mortgage, deed of trust, loan agreement or other agreement or
instrument to which it is a party or by which it is bound or to
which any of the Properties or any of its other properties or
assets is subject or (iii) is in violation of any law, ordinance,
governmental rule, regulation or court decree to which it or the
Properties or any of its other properties or assets may be
subject or has failed to obtain any material license, permit,
certificate, franchise or other governmental authorization or
permit necessary to the ownership of the Properties or any of its
other properties or assets or to the conduct of its business,
except, in the case of each of (i), (ii) and (iii) immediately
above, any such violation or default that would not have a
Material Adverse Effect.
(xv) The Company is organized in conformity with the
requirements for qualification and taxation as a REIT under the
Code and the Operating Partnership, as constituted after the
Formation Transactions, will be classified as a partnership and
not as (a) an association taxable as a corporation or (b) a
"publicly traded partnership" taxable as a corporation under
Section 7704(a) of the Code.
(xvi) No Transaction Entity is an "investment company"
within the meaning of such term under the Investment Company Act
of 1940, as amended and the rules and regulations of the
Commission thereunder. The Common Shares have been approved for
listing on the New York Stock Exchange upon notice of issuance.
(xvii) The Registration Statement was declared effective
under the Securities Act as of the date and time specified in
such opinion,
30
the Prospectus was filed with the Commission pursuant to the
subparagraph of Rule 424(b) of the Rules and Regulations
specified in such opinion on the date specified therein and, to
the best knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement has been issued and,
to the best knowledge of such counsel, no proceeding for that
purpose is pending or threatened by the Commission.
(xviii) The Registration Statement and the Prospectus and
any further amendments or supplements thereto made by the Company
prior to such Delivery Date (other than the financial statements
and related schedules and other financial and statistical data
included therein, as to which such counsel need express no
opinion) comply as to form in all material respects with the
requirements of the Securities Act and the Rules and Regulations.
(xix) The statements contained in the Prospectus under
the captions "Capital Stock," "Certain Provisions of Maryland Law
and of the Company's Charter and Bylaws," "Shares Available for
Future Sale," "Partnership Agreement," and "Federal Income Tax
Consequences," insofar as those statements are descriptions of
contracts, agreements or other legal documents, or they describe
federal statutes, rules and regulations or legal conclusions,
constitute a fair summary thereof, and the opinion of such
counsel filed as Exhibit 8 to the Registration Statement is
confirmed and the Underwriters may rely upon such opinion as if
it were addressed to them.
In rendering such opinion, such counsel may (i) state that its opinion
is limited to matters governed by the Federal laws of the United
States of America and the States of Delaware, Maryland and New York;
(ii) rely (to the extent such counsel deems proper and specifies in
their opinion), as to matters involving the application of the laws of
the States of Maryland and Delaware upon the opinion of other counsel
of good standing, PROVIDED that such other counsel is reasonably
satisfactory to counsel for the Underwriters and furnishes a copy of
its opinion to the Representatives; (iii) in respect of matters of
fact, upon certificates of officers of the Company or its
subsidiaries, PROVIDED that such counsel shall state that it believes
that both the Underwriters and it are justified in relying upon such
opinions, of local counsel. Such counsel shall also have furnished to
the Representatives a written statement, addressed to the Underwriters
and dated such Delivery Date, in form and substance satisfactory to
the Representatives and counsel to the Underwriters, to the effect
that (x) such counsel has acted as counsel to the Company in
connection with the preparation of the Registration Statement and the
Prospectus, and (y) based on the foregoing, no facts have come to the
attention of such counsel which lead it to believe that the
Registration Statement, as of the Effective Date, contained any untrue
statement of a material
31
fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein not misleading,
or that the Prospectus contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they
were made, not misleading. The foregoing opinion and statement may be
qualified by a statement to the effect that such counsel does not
assume any responsibility for the accuracy, completeness or fairness
of the statements contained in the Registration Statement or the
Prospectus and may state that such counsel expresses no belief with
respect to the financial statements and notes thereto and other
financial and statistical data included in the Registration Statement
or the Prospectus.
(e) The Representatives shall have received from Rogers & Wells,
counsel for the Underwriters, such opinion or opinions, dated such
Delivery Date, with respect to the issuance and sale of the Shares,
the Registration Statement, the Prospectus and other related matters
as the Representatives may reasonably require, and the Company shall
have furnished to such counsel such documents as they reasonably
request for the purpose of enabling them to pass upon such matters.
(f) At the time of execution of this Agreement, the
Representatives shall have received from Ernst & Young LLP a letter,
in form and substance satisfactory to the Representatives, addressed
to the Underwriters and dated the date hereof (i) confirming that they
are independent public accountants within the meaning of the
Securities Act and are in compliance with the applicable requirements
relating to the qualification of accountants under Rule 2-01 of
Regulation S-X of the Commission, and (ii) stating, as of the date
hereof (or, with respect to matters involving changes or developments
since the respective dates as of which specified financial information
is given in the Prospectus, as of a date not more than five days prior
to the date hereof), the conclusions and findings of such firm with
respect to the financial information and other matters ordinarily
covered by accountants' "comfort letters" to underwriters in
connection with registered public offerings as contemplated in the
Statement on Auditing Standards No. 72.
(g) With respect to the letter of Ernst & Young LLP referred to
in the preceding paragraph and delivered to the Representatives
concurrently with the execution of this Agreement (the "initial
letter"), the Company shall have furnished to the Representatives a
letter (the "bring-down letter") of such accountants, addressed to the
Underwriters and dated such Delivery Date (i) confirming that they are
independent public accountants within the meaning of the Securities
Act and are in compliance with the applicable requirements relating to
the qualification of accountants under Rule 2-01 of Regulation S-X of
the Commission, (ii) stating, as of the date of the bring-down letter
(or, with respect to matters involving changes or developments since
the respective dates as of which specified financial
32
information is given in the Prospectus, as of a date not more than
five days prior to the date of the bring-down letter), the conclusions
and findings of such firm with respect to the financial information
and other matters covered by the initial letter and (iii) confirming
in all material respects the conclusions and findings set forth in the
initial letter.
(h) Each Transaction Entity shall have furnished to the
Representatives a certificate, dated such Delivery Date, of its, or
its general partner's or managing member's Chairman of the Board, its
President or a Vice President and its chief financial officer stating
that:
(i) The representations, warranties and agreements of
the Transaction Entities in Section 1 are true and correct as of
such Delivery Date; the Company has complied with all its
agreements contained herein; and the conditions set forth in
Sections 7(a) and (b) have been fulfilled; and
(ii) They have carefully examined the Registration
Statement and the Prospectus and, in their opinion (A) as of the
Effective Date, the Registration Statement and Prospectus did not
include any untrue statement of a material fact and did not omit
to state a material fact required to be stated therein or
necessary to make the statements therein not misleading (with
respect to the Prospectus, in light of the circumstances under
which they were made), and (B) since the Effective Date no event
has occurred which should have been set forth in a supplement or
amendment to the Registration Statement or the Prospectus.
(i) The NYSE shall have approved the Shares for listing, subject
only to official notice of issuance.
(j) All of the transactions which are to occur in order to
consummate the Formation Transactions shall have been consummated on
terms satisfactory to the Representatives.
(k) On the First Delivery Date, counsel for the Underwriters
shall have been furnished with such documents and opinions as they may
require for the purpose of enabling them to pass upon the issuance and
sale of the Shares as herein contemplated and related proceedings, or
in order to evidence the accuracy of any of the representations or
warranties, or the fulfillment of any of the conditions, herein
contained; and all proceedings taken by the Transaction Entities in
connection with the issuance and sale of the Shares as herein
contemplated shall be satisfactory in form and substance to the
Representatives and counsel for the Underwriters.
33
(l) You shall have been furnished with the written agreements
referred to in Section 5(j) hereof.
(m) The Company shall have furnished or caused to be furnished
to you such further certificates and documents as the Representatives
or counsel to the Underwriters shall have reasonably requested.
(n) In the event that the Underwriters exercise their option
provided in Section 2(b) hereof to purchase all or any portion of the
Option Shares, the representations and warranties of the Transaction
Entities contained herein and the statements in any certificates
furnished by the Transaction Entities hereunder shall be true and
correct as of each Date of Delivery and, at the relevant Date of
Delivery, the Representatives shall have received:
(i) A certificate, dated such Date of Delivery, of the
President or a Vice President of each Transaction Entity or of
its general partner or managing member and of the chief financial
or chief accounting officer of each Transaction Entity or of its
general partner or managing member, and confirming that the
certificate delivered on the First Delivery Date pursuant to
Section 7(h) hereof remains true and correct as of such Date of
Delivery.
(ii) The favorable opinion of Brown & Wood LLP, counsel for
the Transaction Entities, in form and substance satisfactory to
counsel for the Underwriters, dated such Date of Delivery,
relating to the Option Shares to be purchased on such Date of
Delivery and otherwise to the same effect as the opinions
required by Section 7(d) hereof.
(iii) The favorable opinion of Rogers & Wells, counsel
for the Underwriters, dated such Date of Delivery, relating to
the Option Shares to be purchased on such Date of Delivery and
otherwise to the same effect as the opinion required by
Section 7(e) hereof.
(iv) A letter from Ernst & Young LLP, in form and substance
satisfactory to the Representatives and dated such Date of
Delivery, substantially the same in form and substance as the
letters furnished to the Representatives pursuant to
Sections 7(f) and (g) hereof.
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to counsel for the Underwriters.
34
Any certificate or document signed by any officer of the Transaction
Entities and delivered to the Underwriters, or to counsel for the Underwriters,
shall be deemed a representation and warranty by the Transaction Entities to
each Underwriter as to the statements made therein.
The several obligations of the Underwriters to purchase Option Shares
hereunder are subject to the satisfaction on and as of any Date of Delivery of
the conditions set forth in this Section 7, except that, if any Date of Delivery
is other than the First Delivery Date, the certificates, opinions and letters
referred to in Sections 7(d) through 7(i) hereof shall be dated the Date of
Delivery in question and the opinions called for by Sections 7(d) and
7(e) hereof shall be revised to reflect the sale of Option Shares.
8. EFFECTIVE DATE OF AGREEMENT.
This Agreement shall become effective: (i) upon the execution hereof
by the parties hereto; or (ii) if, at the time this Agreement is executed and
delivered, it is necessary for the Registration Statement or a post-effective
amendment thereto to be declared effective before the offering of the Shares may
commence, when notification of the effectiveness of the Registration Statement
or such post-effective amendment has been released by the Commission.
9. DEFAULT BY ONE OR MORE OF THE UNDERWRITERS.
If, on either Delivery Date, any Underwriter defaults in the
performance of its obligations under this Agreement, the remaining
non-defaulting Underwriters shall be obligated to purchase the Shares which the
defaulting Underwriter agreed but failed to purchase on such Delivery Date in
the respective proportions which the number of Firm Shares set forth opposite
the name of each remaining non-defaulting Underwriter in Schedule 1 hereto bears
to the total number of Firm Shares set forth opposite the names of all the
remaining non-defaulting Underwriters in Schedule 1 hereto; PROVIDED, HOWEVER,
that the remaining non-defaulting Underwriters shall not be obligated to
purchase any of the Shares on such Delivery Date if the total number of Shares
which the defaulting Underwriter or Underwriters agreed but failed to purchase
on such date exceeds 9.09% of the total number of Shares to be purchased on such
Delivery Date, and any remaining non-defaulting Underwriter shall not be
obligated to purchase more than 110% of the number of Shares which it agreed to
purchase on such Delivery Date pursuant to the terms of Section 2. If the
foregoing maximums are exceeded, the remaining non-defaulting Underwriters, or
those other underwriters satisfactory to the Representatives who so agree, shall
have the right, but shall not be obligated, to purchase, in such proportion as
may be agreed upon among them, all the Shares to be purchased on such Delivery
Date. If the remaining Underwriters or other underwriters satisfactory to the
Representatives do not elect to purchase the Shares which the defaulting
Underwriter or Underwriters agreed but failed to purchase on such Delivery Date,
this Agreement (or, with respect to the Second Delivery Date, the obligation of
the Underwriters to purchase, and of the Company to sell, the Option Shares)
shall terminate without liability on the part of any non-defaulting Underwriter
or the Transaction Entities, except that the Transaction Entities will continue
to be liable for the payment of expenses to the extent
35
set forth in Sections 6 and 12. As used in this Agreement, the term
"Underwriter" includes, for all purposes of this Agreement unless the context
requires otherwise, any party not listed in Schedule 1 hereto who, pursuant to
this Section 9, purchases Initial Shares which a defaulting Underwriter agreed
but failed to purchase.
Nothing contained herein shall relieve a defaulting Underwriter of any
liability it may have to the Transaction Entities for damages caused by its
default. If other underwriters are obligated or agree to purchase the Shares of
a defaulting or withdrawing Underwriter, either the Representatives or the
Company may postpone the Delivery Date for up to seven full business days in
order to effect any changes that in the opinion of counsel for the Company or
counsel for the Underwriters may be necessary in the Registration Statement, the
Prospectus or in any other document or arrangement.
10. INDEMNIFICATION AND CONTRIBUTION.
(a) The Transaction Entities jointly and severally, shall indemnify
and hold harmless each Underwriter, its officers and employees and each person,
if any, who controls any Underwriter within the meaning of the Securities Act,
from and against any loss, claim, damage or liability, joint or several, or any
action in respect thereof (including, but not limited to, any loss, claim,
damage, liability or action relating to purchases and sales of Shares), to which
that Underwriter, officer, employee or controlling person may become subject,
under the Securities Act or otherwise, insofar as such loss, claim, damage,
liability or action arises out of, or is based upon, (i) any untrue statement or
alleged untrue statement of a material fact contained (a) in any Preliminary
Prospectus, the Registration Statement or the Prospectus or in any amendment or
supplement thereto or (b) in any blue sky application or other document prepared
or executed by the Company (or based upon any written information furnished by
the Company) specifically for the purpose of qualifying any or all of the Shares
under the securities laws of any state or other jurisdiction (any such
application, document or information being hereinafter called a "Blue Sky
Application"), (ii) the omission or alleged omission to state in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or in any amendment or
supplement thereto, or in any Blue Sky Application any material fact required to
be stated therein or necessary to make the statements therein not misleading
(with respect to the Prospectus, in light of the circumstances under which they
were made) or (iii) any act or failure to act or any alleged act or failure to
act by any Underwriter in connection with, or relating in any manner to, the
Shares or the offering contemplated hereby, and which is included as part of or
referred to in any loss, claim, damage, liability or action arising out of or
based upon matters covered by clause (i) or (ii) above (PROVIDED that the
Transaction Entities shall not be liable under this clause (iii) to the extent
that it is determined in a final judgment by a court of competent jurisdiction
that such loss, claim, damage, liability or action resulted directly from any
such acts or failures to act undertaken or omitted to be taken by such
Underwriter through its gross negligence or willful misconduct), and shall
reimburse each Underwriter and each such officer, employee or controlling person
promptly upon demand for any legal or other expenses reasonably incurred by that
Underwriter, officer, employee or controlling person in connection with
investigating or defending or preparing to defend against any such loss, claim,
damage, liability or action as such expenses are incurred;
36
PROVIDED, HOWEVER, that the Transaction Entities shall not be liable in any such
case to the extent that any such loss, claim, damage, liability or action arises
out of, or is based upon, any untrue statement or alleged untrue statement or
omission or alleged omission made in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or in any such amendment or
supplement, or in any Blue Sky Application, in reliance upon and in conformity
with written information concerning such Underwriter furnished to the Company
through the Representatives by or on behalf of any Underwriter specifically for
inclusion therein. The foregoing indemnity agreement is in addition to any
liability which the Transaction Entities may otherwise have to any Underwriter
or to any officer, employee or controlling person of that Underwriter.
(b) Each Underwriter, severally and not jointly, shall indemnify and
hold harmless each Transaction Entity, its officers and employees, each of its
directors (including any person who, with his consent, is named in the
Registration Statement as about to become a director of the Company), and each
person, if any, who controls each Transaction Entity within the meaning of the
Securities Act, from and against any loss, claim, damage or liability, joint or
several, or any action in respect thereof, to which each Transaction Entity or
any such director, officer or controlling person may become subject, under the
Securities Act or otherwise, insofar as such loss, claim, damage, liability or
action arises out of, or is based upon, (i) any untrue statement or alleged
untrue statement of a material fact contained (A) in any Preliminary Prospectus,
the Registration Statement or the Prospectus or in any amendment or supplement
thereto, or (B) in any Blue Sky Application or (ii) the omission or alleged
omission to state in any Preliminary Prospectus, the Registration Statement or
the Prospectus, or in any amendment or supplement thereto, or in any Blue Sky
Application any material fact required to be stated therein or necessary to make
the statements therein not misleading, but in each case only to the extent that
the untrue statement or alleged untrue statement or omission or alleged omission
was made in reliance upon and in conformity with written information concerning
such Underwriter furnished to the Company through the Representatives by or on
behalf of that Underwriter specifically for inclusion therein, and shall
reimburse each Transaction Entity and any such director, officer or controlling
person for any legal or other expenses reasonably incurred by each Transaction
Entity or any such director, officer or controlling person in connection with
investigating or defending or preparing to defend against any such loss, claim,
damage, liability or action as such expenses are incurred. The foregoing
indemnity agreement is in addition to any liability which any Underwriter may
otherwise have to each Transaction Entity or any such director, officer,
employee or controlling person.
(c) Promptly after receipt by an indemnified party under this
Section 10 of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under this Section 10, notify the indemnifying party in
writing of the claim or the commencement of that action; PROVIDED, HOWEVER, that
the failure to notify the indemnifying party shall not relieve it from any
liability which it may have under this Section 10 except to the extent it has
been materially prejudiced by such failure and, PROVIDED FURTHER, that the
failure to notify the indemnifying party shall not relieve it from any liability
which it may have to an indemnified party otherwise than under this Section 10.
If any such claim or action shall be brought against an indemnified party, and
it shall
37
notify the indemnifying party thereof, the indemnifying party shall be entitled
to participate therein and, to the extent that it wishes, jointly with any other
similarly notified indemnifying party, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section 10 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; PROVIDED, HOWEVER, that
the Representatives shall have the right to employ counsel to represent jointly
the Representatives and those other Underwriters and their respective officers,
employees and controlling persons who may be subject to liability arising out of
any claim in respect of which indemnity may be sought by the Underwriters
against the Transaction Entities under this Section 10 if, in the reasonable
judgment of the Representatives, it is advisable for the Representatives and
those Underwriters, officers, employees and controlling persons to be jointly
represented by separate counsel, and in that event the fees and expenses of such
separate counsel shall be paid by the indemnifying party. No indemnifying party
shall (i) without the prior written consent of the indemnified parties (which
consent shall not be unreasonably withheld), settle or compromise or consent to
the entry of any judgment with respect to any pending or threatened claim,
action, suit or proceeding in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified parties are actual or
potential parties to such claim or action) unless such settlement, compromise or
consent includes an unconditional release of each indemnified party from all
liability arising out of such claim, action, suit or proceeding, or (ii) be
liable for any settlement of any such action effected without its written
consent (which consent shall not be unreasonably withheld), but if settled with
the consent of the indemnifying party or if there be a final judgment of the
plaintiff in any such action, the indemnifying party agrees to indemnify and
hold harmless any indemnified party from and against any loss or liability by
reason of such settlement or judgment.
(d) If the indemnification provided for in this Section 10 shall for
any reason be unavailable to or insufficient to hold harmless an indemnified
party under Section 10(a) or 10(c) in respect of any loss, claim, damage or
liability, or any action in respect thereof, referred to therein, then each
indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability, or action in respect thereof, (i) in
such proportion as shall be appropriate to reflect the relative benefits
received by the Transaction Entities on the one hand and the Underwriters on the
other from the offering of the Shares or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Transaction Entities on the one hand
and the Underwriters on the other with respect to the statements or omissions
which resulted in such loss, claim, damage or liability, or action in respect
thereof, as well as any other relevant equitable considerations. The relative
benefits received by the Transaction Entities on the one hand and the
Underwriters on the other with respect to such offering shall be deemed to be in
the same proportion as the total net proceeds from the offering of the Shares
purchased under this Agreement (before deducting expenses) received by the
Transaction Entities, on the one hand, and the total underwriting discounts and
38
commissions received by the Underwriters with respect to the Shares purchased
under this Agreement, on the other hand, bear to the total gross proceeds from
the offering of the Shares under this Agreement, in each case as set forth in
the table on the cover page of the Prospectus. The relative fault shall be
determined by reference to whether the untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by the Transaction Entities or the Underwriters, the
intent of the parties and their relative knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Transaction
Entities and the Underwriters agree that it would not be just and equitable if
contributions pursuant to this Section were to be determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take into account
the equitable considerations referred to herein. The amount paid or payable by
an indemnified party as a result of the loss, claim, damage or liability, or
action in respect thereof, referred to above in this Section shall be deemed to
include, for purposes of this Section 10(d), any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 10(d), no Underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the Shares underwritten
by it and distributed to the public was offered to the public exceeds the amount
of any damages which such Underwriter has otherwise paid or become liable to pay
by reason of any untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations to contribute as provided in this Section 10(d) are
several in proportion to their respective underwriting obligations and not
joint.
(e) The Underwriters severally confirm and each Transaction Entity
acknowledges that (i) the statements with respect to the public offering of the
Shares by the Underwriters set forth on the cover page of, (ii) the legend
concerning over-allotments on the inside front cover page of and (iii) the names
of the Underwriters and the number of Shares which they are each purchasing, the
concession and reallowance figures and the information contained in the third,
eighth, eleventh, twelfth, thirteenth, fourteenth, fifteenth, sixteenth and the
seventeenth paragraphs, in each case appearing under the caption "Underwriting"
in, the Prospectus are correct and constitute the only information concerning
such Underwriters furnished in writing to the Company by or on behalf of the
Underwriters specifically for inclusion in the Registration Statement and the
Prospectus.
11. TERMINATION. The obligations of the Underwriters hereunder may
be terminated by the Representatives by notice given to and received by the
Company prior to delivery of and payment for the Firm Shares if, prior to that
time, any of the following events shall have occurred or if the Underwriters
shall decline to purchase the Shares for any reason permitted under this
Agreement:
(a)(i) Any of the Transaction Entities or any Property shall have
sustained since the date of the latest audited financial statements
included in the Prospectus
39
any loss or interference with its business from fire, explosion, flood
or other calamity, whether or not covered by insurance, or from any
labor dispute or court or governmental action, order or decree,
otherwise than as set forth or contemplated in the Prospectus or (ii)
since such date there shall have been any change in the capital stock
or long-term debt of any Transaction Entity or any change, or any
development involving a prospective change, in or affecting any
Property or the general affairs, management, financial position,
stockholders' equity or results of operations of any Transaction
Entity, otherwise than as set forth or contemplated in the Prospectus,
the effect of which, in any such case described in clause (i) or (ii),
is, in the judgment of the Representatives, so material and adverse as
to make it impracticable or inadvisable to proceed with the public
offering or the delivery of the Shares being delivered on such
Delivery Date on the terms and in the manner contemplated in the
Prospectus;
(b) Subsequent to the execution and delivery of this Agreement
there shall have occurred any of the following: (i) trading in
securities generally on the New York Stock Exchange or the American
Stock Exchange or in the over-the-counter market, or trading in any
securities of the Company on any exchange or in the over-the-counter
market, shall have been suspended or minimum prices shall have been
established on any such exchange or such market by the Commission, by
such exchange or by any other regulatory body or governmental
authority having jurisdiction, (ii) a banking moratorium shall have
been declared by Federal or state authorities, (iii) the United States
shall have become engaged in hostilities, there shall have been an
escalation in hostilities involving the United States or there shall
have been a declaration of a national emergency or war by the United
States or (iv) there shall have occurred such a material adverse
change in general economic, political or financial conditions (or the
effect of international conditions on the financial markets in the
United States shall be such) as to make it, in the judgment of a
majority in interest of the several Underwriters, impracticable or
inadvisable to proceed with the public offering or delivery of the
Shares being delivered on such Delivery Date on the terms and in the
manner contemplated in the Prospectus; or
(c) The Transaction Entities shall have failed at or prior to
such Delivery Date to have performed or complied with any of their
agreements herein contained and required to be performed or complied
with by them hereunder at or prior to such Delivery Date.
12. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If (a) the Company
shall fail to tender the Shares for delivery to the Underwriters by reason of
any failure, refusal or inability on the part of the Transaction Entities to
perform any agreement on their part to be performed, or because any condition
specified in Sections 11(a) and (c) hereof required to be fulfilled by the
Transaction Entities is not fulfilled, the Transaction Entities will reimburse
the Underwriters for all reasonable out-of-pocket expenses (including fees and
disbursements of counsel) incurred by
40
the Underwriters in connection with this Agreement and the proposed purchase of
the Shares, and upon demand the Transaction Entities shall pay the full amount
thereof to the Representatives. If this Agreement is terminated pursuant to
Section 11(b) or pursuant to Section 9 by reason of the default of one or more
Underwriters, the Transaction Entities shall not be obligated to reimburse any
defaulting Underwriter on account of those expenses.
13. NOTICES, ETC. All statements, requests, notices and agreements
hereunder shall be in writing, and:
(a) if to the Underwriters, shall be delivered or sent by mail,
telex or facsimile transmission to Lehman Brothers Inc., Three World
Financial Center, New York, New York 10285, Attention: Syndicate
Department (Fax: 212-526-6588), with a copy, in the case of any notice
pursuant to Section 8(c), to the Director of Litigation, Office of the
General Counsel, Lehman Brothers Inc., 3 World Financial Center, 10th
Floor, New York, NY 10285;
(b) if to the Transaction Entities shall be delivered or sent by
mail, telex or facsimile transmission to the Company, 70 West 36th
Street, New York, New York 10018, Attention: Stephen L. Green (Fax:
(212) 594-2262);
PROVIDED, HOWEVER, that any notice to an Underwriter pursuant to
Section 10(c) shall be delivered or sent by mail, telex or facsimile
transmission to such Underwriter at its address set forth in its acceptance
telex to the Representatives, which address will be supplied to any other party
hereto by the Representatives upon request. Any such statements, requests,
notices or agreements shall take effect at the time of receipt thereof. The
Transaction Entities shall be entitled to act and rely upon any request,
consent, notice or agreement given or made on behalf of the Underwriters by
Lehman Brothers Inc.
14. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement shall
inure to the benefit of and be binding upon the Underwriters, the Transaction
Entities, and their respective personal representatives and successors. This
Agreement and the terms and provisions hereof are for the sole benefit of only
those persons, except that (a) the representations, warranties, indemnities and
agreements of the Transaction Entities contained in this Agreement shall also be
deemed to be for the benefit of the person or persons, if any, who control any
Underwriter within the meaning of Section 15 of the Securities Act and (b) the
indemnity agreement of the Underwriters contained in Section 10(b) of this
Agreement shall be deemed to be for the benefit of directors of the Transaction
Entities, officers of the Company who have signed the Registration Statement and
any person controlling the Transaction Entities within the meaning of Section 15
of the Securities Act. Nothing in this Agreement is intended or shall be
construed to give any person, other than the persons referred to in this
Section 14, any legal or equitable right, remedy or claim under or in respect of
this Agreement or any provision contained herein.
15. SURVIVAL. The respective indemnities, representations,
warranties and agreements of the Transaction Entities, and the Underwriters
contained in this Agreement or made
41
by or on behalf on them, respectively, pursuant to this Agreement, shall survive
the delivery of and payment for the Shares and shall remain in full force and
effect, regardless of any investigation made by or on behalf of any of them or
any person controlling any of them.
16. DEFINITION OF THE TERMS "BUSINESS DAY" AND "SUBSIDIARY". For
purposes of this Agreement, (a) "business day" means any day on which the
New York Stock Exchange, Inc. is open for trading and (b) "subsidiary" has the
meaning set forth in Rule 405 of the Rules and Regulations.
17. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of New York.
18. COUNTERPARTS. This Agreement may be executed in one or more
counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
19. HEADINGS. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
42
If the foregoing correctly sets forth the agreement between the
Company and the Underwriters, please indicate your acceptance in the space
provided for that purpose below.
Very truly yours,
SL GREEN REALTY CORP.
By: _________________________________________
Name:
Title:
SL GREEN OPERATING PARTNERSHIP, L.P.
By: SL Green Realty Corp.,
its general partner
By:_____________________________________
Name:
Title:
SL GREEN MANAGEMENT LLC
By: SL Green Operating Partnership, L.P.,
its managing member
By: _________________________________________
Name:
Title:
S.L. GREEN MANAGEMENT CORP.
43
By:_____________________________________
Name:
Title:
S.L. GREEN REALTY, INC.
By:_____________________________________
Name:
Title:
EMERALD CITY CONSTRUCTION CORP.
By:_____________________________________
Name:
Title:
Accepted:
LEHMAN BROTHERS INC.
PRUDENTIAL SECURITIES INCORPORATED
BY: LEHMAN BROTHERS INC.
By:_____________________________________
Name:
Title:
For itself and as Representatives
of the several Underwriters named
in Schedule 1 hereto
44
Schedule 1
Number of
Underwriters Shares
- ------------ ---------
Lehman Brothers Inc. . . . . . . . . . . . . . .
Prudential Securities Incorporated . . . . . . .
----------
Total 10,100,000
===========
S-1
EXHIBIT 4.1
COMMON STOCK TEMPORARY CERTIFICATE COMMON STOCK
Exchangeable for Definitive Engraved
Certificate When Ready for Delivery
SL GREEN REALTY CORP.
INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND
$.01 PAR VALUE CUSIP 78440X 10 1
THIS CERTIFIES THAT SEE REVERSE FOR CERTIFICATE DEFINITIONS
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
SL GREEN REALTY CORP. (hereinafter called the "Corporation"), transferable on
the books of the Corporation by the registered holder hereof in person or by
duly authorized attorney upon surrender of this Certificate properly endorsed.
This Certificate and the shares represented hereby are issued and shall be held
subject to all of the provisions of the charter of the Corporation (the
"Charter") and the Bylaws of the Corporation and any amendments thereto. This
Certificate is not valid until countersigned and registered by the Transfer
Agent and Registrar.
IN WITNESS WHEREOF, the Corporation has caused the facsimile signatures of
its duly authorized officers and its facsimile seal to be affixed hereto.
DATED:
Countersigned and Registered:
AMERICAN STOCK TRANSFER & TRUST COMPANY
BY (New York) Transfer Agent and Registrar
Authorized Signature
/s/ David J. Nettina /s/ Stephen L. Green
Executive Vice President, Chief Chairman of the Board President
Operating Officer, Chief Financial Officer and Chief Executive Officer
SL GREEN REALTY CORP.
CORPORATE SEAL
1997
MARYLAND
SL GREEN REALTY CORP.
The Corporation will furnish to any stockholder on request and without
charge a full statement of the information required by Section 2-211(b) of the
Corporations and Associations Article of the Annotated Code of Maryland with
respect to the designations and any preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends and other
distributions, qualifications, and terms and conditions of redemption of the
stock of each class which the Corporation is authorized to issue, of the
differences in the relative rights and preferences between the shares of each
series of a preferred or special class in series which the Corporation is
authorized to issue, to the extent they have been set, and of the authority of
the Board of Directors to set the relative rights and preferences of subsequent
series of a preferred or special class of stock. The foregoing Summary does not
purport to be complete and is subject to and qualified in its entirety by
reference to the charter of the Corporation (the "Charter"), a copy of which
will be sent without charge to each stockholder who so requests. Such request
may be made to the secretary of the Corporation at its principal office or to
its transfer agent.
The securities represented by this Certificate are subject to restrictions
on transfer for the purpose of the Corporation's maintenance of its status as a
real estate investment trust (a "REIT") under the Internal Revenue Code of 1986,
as amended. Except as otherwise provided, pursuant to the Charter of the
Corporation, no Person may Beneficially Own shares of Common Stock in excess of
9.0% (or such greater percentage as may be determined by the Board of Directors
of the Corporation) of the aggregate number or value of the outstanding shares
of Common Stock of the Corporation. Any Person who acquires or attempts to
acquire shares of Common Stock in excess of the aforementioned limitation, or
any Person who is or attempts to become a transferee such that Excess Stock
results under the provisions of the Charter, shall immediately give written
notice or, in the event of a proposed or attempted Transfer, give at least 15
days prior written notice to the Corporation of such event and shall provide to
the Corporation such other information as it may request in order to determine
the effect of any such Transfer on the Corporation's status as a REIT. All
capitalized terms in this legend have the meanings defined in the Charter of the
Corporation, a copy of which, including the restrictions on transfer, will be
sent to any stockholder on request and without charge. If the restrictions on
transfer are violated, the securities represented hereby will be converted into
and treated as shares of Excess Stock that will be transferred, by operation of
law, to the trustee of a trust for the exclusive benefit of one or more
charitable organizations. The foregoing summary does not purport to be
completed and is subject to and qualified in its entirety by reference to the
Charter, a copy of which, including the restrictions on transfer, will be sent
without charge to each stockholder who so requests. Such request must be made
to the Secretary of the Corporation at its principal office or to the Transfer
Agent.
--------------------------------
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN
OR DESTROYED, THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A
CONDITION TO THE ISSUANCE OF A REPLACEMENT CERTIFICATE.
--------------------------------
The following abbreviations, when used in the inscription of the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common UNIF GIFT MIN ACT --....... Custodian ........
(Cust) (Minor)
TEN ENT -- as tenants by the entireties under Uniform Gifts to Minors Act
JT TEN -- as joint tenants with right of.................................
of survivorship and not as (State)
tenants in common
Additional abbreviations may also be used though not in the above list.
For value received,____________________hereby sell, assign and transfer
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL
ZIP CODE OF ASSIGNEE)
_____________________________________________________________________ Shares
represented by the within Certificate, and do hereby irrevocably constitute and
appoint
_____________________________________________________________________ Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated: ________________________
Signature(s)_____________________________________
NOTICE: The signature(s) to this assignment
must correspond with the name as written upon
the face of the Certificate, in every
particular, without alteration or enlargement
of any change whatever.
Signature Guaranteed By:
______________________________
Exhibit 10.1
________________________________
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
SL GREEN OPERATING PARTNERSHIP, L.P.
________________________________
Dated as of________, 1997
TABLE OF CONTENTS
ARTICLE I DEFINED TERMS...................................................... 1
ARTICLE II ORGANIZATIONAL MATTERS............................................ 15
Section 2.1 Organization........................................ 15
Section 2.2 Name................................................ 15
Section 2.3 Registered Office and Agent; Principal Office....... 16
Section 2.4 Term................................................ 16
ARTICLE III PURPOSE.......................................................... 16
Section 3.1 Purpose and Business................................ 16
Section 3.2 Powers.............................................. 17
Section 3.3 Partnership Only for Purposes Specified............. 17
ARTICLE IV CAPITAL CONTRIBUTIONS AND ISSUANCES
OF PARTNERSHIP INTERESTS........................... 17
Section 4.1 Capital Contributions of the Partners............... 17
Section 4.2 Issuances of Partnership Interests.................. 18
Section 4.3 No Preemptive Rights................................ 20
Section 4.4 Other Contribution Provisions....................... 20
Section 4.5 No Interest on Capital.............................. 20
ARTICLE V DISTRIBUTIONS...................................................... 20
Section 5.1 Requirement and Characterization of Distributions... 20
Section 5.2 Amounts Withheld.................................... 23
Section 5.3 Distributions Upon Liquidation...................... 23
Section 5.4 Revisions to Reflect Issuance of Additional
Partnership Interests............................... 23
ARTICLE VI ALLOCATIONS....................................................... 23
Section 6.1 Allocations For Capital Account Purposes............ 23
Section 6.2 Revisions to Allocations to Reflect Issuance of
Additional Partnership Interests.................... 25
ARTICLE VII MANAGEMENT AND OPERATIONS OF BUSINESS............................ 25
Section 7.1 Management.......................................... 25
Section 7.2 Certificate of Limited Partnership.................. 30
Section 7.3 Title to Partnership Assets......................... 30
Section 7.4 Reimbursement of the General Partner................ 30
Section 7.5 Outside Activities of the General Partner........... 32
Section 7.6 Transactions with Affiliates........................ 34
Section 7.7 Indemnification..................................... 34
-i-
Section 7.8 Liability of the General Partner.................... 37
Section 7.9 Other Matters Concerning the General Partner........ 38
Section 7.10 Reliance by Third Parties........................... 38
Section 7.11 Restrictions on General Partner's Authority......... 39
Section 7.12 Loans by Third Parties.............................. 46
ARTICLE VIII RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS...................... 46
Section 8.1 Limitation of Liability............................. 46
Section 8.2 Management of Business.............................. 46
Section 8.3 Outside Activities of Limited Partners.............. 46
Section 8.4 Return of Capital................................... 47
Section 8.5 Rights of Limited Partners Relating to the
Partnership......................................... 47
Section 8.6 Redemption Right.................................... 49
ARTICLE IX BOOKS, RECORDS, ACCOUNTING AND REPORTS............................ 51
Section 9.1 Records and Accounting.............................. 51
Section 9.2 Fiscal Year......................................... 51
Section 9.3 Reports............................................. 52
ARTICLE X TAX MATTERS........................................................ 52
Section 10.1 Preparation of Tax Returns.......................... 52
Section 10.2 Tax Elections....................................... 52
Section 10.3 Tax Matters Partner................................. 53
Section 10.4 Organizational Expenses............................. 54
Section 10.5 Withholding......................................... 54
ARTICLE XI TRANSFERS AND WITHDRAWALS......................................... 55
Section 11.1 Transfer............................................ 55
Section 11.2 Transfers of Partnership Interests of General
Partner............................................. 56
Section 11.3 Limited Partners' Rights to Transfer................ 56
Section 11.4 Substituted Limited Partners........................ 58
Section 11.5 Assignees........................................... 58
Section 11.6 General Provisions.................................. 59
ARTICLE XII ADMISSION OF PARTNERS............................................ 61
Section 12.1 Admission of Successor General Partner.............. 61
Section 12.2 Admission of Additional Limited Partners............ 61
Section 12.3 Amendment of Agreement and Certificate of
Limited Partnership................................. 62
ARTICLE XIII DISSOLUTION AND LIQUIDATION..................................... 62
Section 13.1 Dissolution......................................... 62
Section 13.2 Winding Up.......................................... 63
Section 13.3 Compliance with Timing Requirements of
Regulations......................................... 64
-ii-
Section 13.4 Deemed Distribution and Recontribution.............. 65
Section 13.5 Rights of Limited Partners.......................... 65
Section 13.6 Notice of Dissolution............................... 65
Section 13.7 Cancellation of Certificate of Limited
Partnership......................................... 66
Section 13.8 Reasonable Time for Winding Up...................... 66
Section 13.9 Waiver of Partition................................. 66
Section 13.10 Liability of Liquidator............................. 66
ARTICLE XIV AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS..................... 66
Section 14.1 Amendments.......................................... 66
Section 14.2 Meetings of the Partners............................ 68
ARTICLE XV GENERAL PROVISIONS................................................ 69
Section 15.1 Addresses and Notice................................ 69
Section 15.2 Titles and Captions................................. 69
Section 15.3 Pronouns and Plurals................................ 69
Section 15.4 Further Action...................................... 70
Section 15.5 Binding Effect...................................... 70
Section 15.6 Creditors........................................... 70
Section 15.7 Waiver.............................................. 70
Section 15.8 Counterparts........................................ 70
Section 15.9 Applicable Law...................................... 70
Section 15.10 Invalidity of Provisions............................ 71
Section 15.11 Power of Attorney................................... 71
Section 15.12 Entire Agreement.................................... 72
Section 15.13 No Rights as Stockholders........................... 72
Section 15.14 Limitation to Preserve REIT Status.................. 72
-iii-
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
-iv-
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
SL GREEN OPERATING PARTNERSHIP, L.P.
THIS FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP, dated as
of ___________, 1997, is entered into by and among SL Green Realty Corp., a
Maryland corporation, as the General Partner of and a Limited Partner in the
Partnership, and the Persons (as defined below) whose names are set forth on
Exhibit A, as attached hereto (as it may be amended from time to time).
WHEREAS, the Partnership was formed on _____________, 1997, and, on
___________, 1997, the Partnership adopted an Agreement of Limited Partnership
(the "Prior Agreement"); and
WHEREAS, the parties hereto will make certain capital contributions to the
Partnership;
NOW, THEREFORE, in consideration of the mutual covenants set forth herein,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto hereby amend and restate the
Prior Agreement in its entirety and agree to continue the Partnership as a
limited partnership under the Delaware Revised Uniform Limited Partnership Act,
as amended from time to time, as follows:
ARTICLE I
DEFINED TERMS
The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this Agreement.
"ACT" means the Delaware Revised Uniform Limited Partnership Act, 6
DEL. C. Section 17-101, ET SEQ., as it may be amended from time to time, and any
successor to such statute.
"ADDITIONAL LIMITED PARTNER" means a Person admitted to the
Partnership as a Limited Partner pursuant to Section 12.2 hereof and who is
shown as such on the books and records of the Partnership.
"ADJUSTED CAPITAL ACCOUNT" means the Capital Account maintained for
each Partner as of the end of each Partnership Year (i) increased by any amounts
which such Partner is obligated to restore pursuant to any provision of this
Agreement or is deemed to be obligated to restore pursuant to the penultimate
sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5) and (ii)
decreased by the items described in Regulations Sections
1.704-l(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and 1.704-l(b)(2)(ii)(d)(6).
The foregoing definition of Adjusted Capital Account is intended to comply with
the provisions of Regulations Section 1.704-l(b)(2)(ii)(d) and shall be
interpreted consistently therewith.
"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.
"AGREED VALUE" means (i) in the case of any Contributed Property
contributed to the Partnership as part of or in connection with the
Consolidation, the amount set forth on Exhibit E attached hereto as the Agreed
Value of such Property; (ii) in the case of any other Contributed Property, the
704(c) Value of such property as of the time of its contribution to the
Partnership, reduced by any liabilities either assumed by the Partnership upon
such contribution or to which such property is subject when contributed; and
(iii) in the case of any property distributed to a Partner by the Partnership,
the Partnership's Carrying Value of such property at the time such property is
distributed, reduced by any indebtedness either assumed by such Partner upon
such distribution or to which such property is subject at the time of
distribution as determined under Section 752 of the Code and the Regulations
thereunder.
"AGREEMENT" means this First Amended and Restated Agreement of Limited
Partnership, as it may be amended, supplemented or restated from time to time.
"ARTICLES OF INCORPORATION" means the Articles of Incorporation or
other organizational document governing the General Partner, as amended or
restated from time to time.
"ASSIGNEE" means a Person to whom one or more Partnership Units have
been transferred in a manner permitted under this Agreement, but who has not
become a Substituted Limited Partner, and who has the rights set forth in
Section 11.5 hereof.
"AVAILABLE CASH" means, with respect to any period for which such
calculation is being made:
2
(a) all cash revenues and funds received by the Partnership from
whatever source (excluding the proceeds of any Capital Contribution) plus the
amount of any reduction (including, without limitation, a reduction resulting
because the General Partner determines such amounts are no longer necessary) in
reserves of the Partnership, which reserves are referred to in clause (b)(iv)
below;
(b) less the sum of the following (except to the extent made with the
proceeds of any Capital Contribution):
(i) all interest, principal and other debt payments made during
such period by the Partnership,
(ii) all cash expenditures (including capital expenditures) made
by the Partnership during such period,
(iii) investments in any entity (including loans made
thereto) to the extent that such investments are permitted under this Agreement
and are not otherwise described in clauses (b)(i) or (ii), and
(iv) the amount of any increase in reserves established during
such period which the General Partner determines is necessary or appropriate in
its sole and absolute discretion.
Notwithstanding the foregoing, Available Cash shall not include any cash
received or reductions in reserves, or take into account any disbursements made
or reserves established, after commencement of the dissolution and liquidation
of the Partnership.
"BOOK-TAX DISPARITIES" means, with respect to any item of Contributed
Property or Adjusted Property, as of the date of any determination, the
difference between the Carrying Value of such Contributed Property or Adjusted
Property and the adjusted basis thereof for federal income tax purposes as of
such date. A Partner's share of the Partnership's Book-Tax Disparities in all
of its Contributed Property and Adjusted Property will be reflected by the
difference between such Partner's Capital Account balance as maintained pursuant
to EXHIBIT B hereto and the hypothetical balance of such Partner's Capital
Account computed as if it had been maintained, with respect to each such
Contributed Property or Adjusted Property, strictly in accordance with federal
income tax accounting principles.
"BUSINESS DAY" means any day except a Saturday, Sunday or other day on
which commercial banks in New York, New York are authorized or required by law
to close.
"CAPITAL ACCOUNT" means the Capital Account maintained for a Partner
pursuant to EXHIBIT B hereto.
3
"CAPITAL CONTRIBUTION" means, with respect to any Partner, any cash,
cash equivalents or the Agreed Value of Contributed Property which such Partner
contributes or is deemed to contribute to the Partnership pursuant to Section
4.1 or 4.2 hereof.
"CARRYING VALUE" means (i) with respect to a Contributed Property or
Adjusted Property, the 704(c) Value of such property reduced (but not below
zero) by all Depreciation with respect to such Contributed Property or Adjusted
Property, as the case may be, charged to the Partners' Capital Accounts and (ii)
with respect to any other Partnership property, the adjusted basis of such
property for federal income tax purposes, all as of the time of determination.
The Carrying Value of any property shall be adjusted from time to time in
accordance with EXHIBIT B hereto, and to reflect changes, additions or other
adjustments to the Carrying Value for dispositions and acquisitions of
Partnership properties, as deemed appropriate by the General Partner.
"CASH AMOUNT" means an amount of cash equal to the Value on the
Valuation Date of the Shares Amount.
"CERTIFICATE" means the Certificate of Limited Partnership relating to
the Partnership filed in the office of the Delaware Secretary of State on June
12, 1997, as amended from time to time in accordance with the terms hereof and
the Act.
"CHARTER DOCUMENTS" has the meaning set forth in Section 7.11.D
hereof.
"CLASS A" has the meaning set forth in Section 5.1.C hereof.
"CLASS A SHARE" has the meaning set forth in Section 5.1.C hereof.
"CLASS A UNIT" means any Partnership Unit that is not specifically
designated by the General Partner as being of another specified class of
Partnership Units.
"CLASS B" has the meaning set forth in Section 5.1.C hereof.
"CLASS B SHARE" has the meaning set forth in Section 5.1.C hereof.
"CLASS B UNIT" means a Partnership Unit that is specifically
designated by the General Partner as being a Class B Unit.
"CODE" means the Internal Revenue Code of 1986, as amended and in
effect from time to time, as interpreted by the applicable Regulations
thereunder. Any reference herein to a specific section or sections of the Code
shall be deemed to include a reference to any corresponding provision of future
law.
"CONSENT" means the consent or approval of a proposed action by a
Partner given in accordance with Section 14.2 hereof.
4
"CONSENT OF CERTAIN LIMITED PARTNERS" means Consent of the holders of
75% in the aggregate of the 673 First Avenue Units and the 470 Park Avenue South
Units, collectively considered as one group.
"CONSENT OF THE OUTSIDE LIMITED PARTNERS" means the Consent of Limited
Partners (excluding for this purpose any Limited Partnership Interests held by
the General Partner, any Person of which the General Partner owns or controls
more than fifty percent (50%) of the voting interests and any Person owning or
controlling, directly or indirectly, more than fifty percent (50%) of the
outstanding voting interests of the General Partner) holding Percentage
Interests that are greater than fifty percent (50%) of the aggregate Percentage
Interest of all Limited Partners who are not excluded for the purposes hereof.
"CONSOLIDATION" means the transactions whereby the Partnership will
acquire interests in certain office properties located in midtown Manhattan and
certain property management and construction businesses, which provide services
to those properties and to other properties in the New York metropolitan area,
in exchange for Partnership Units upon completion of an initial public offering
by S.L. Green Realty Corporation.
"CONSOLIDATION TRANSACTION" has the meaning set forth in Section
7.11.C.(5) hereof.
"CONTRIBUTED PROPERTY" means each property or other asset contributed
to the Partnership, in such form as may be permitted by the Act, but excluding
cash contributed or deemed contributed to the Partnership. Once the Carrying
Value of a Contributed Property is adjusted pursuant to EXHIBIT B hereto, such
property shall no longer constitute a Contributed Property for purposes of
EXHIBIT B hereto, but shall be deemed an Adjusted Property for such purposes.
"CONVERSION FACTOR" means 1.0; provided that in the event that the
General Partner Entity (i) declares or pays a dividend on its outstanding Shares
in Shares or makes a distribution to all holders of its outstanding Shares in
Shares, (ii) subdivides its outstanding Shares or (iii) combines its outstanding
Shares into a smaller number of Shares, the Conversion Factor shall be adjusted
by multiplying the Conversion Factor by a fraction, the numerator of which shall
be the number of Shares issued and outstanding on the record date for such
dividend, distribution, subdivision or combination (assuming for such purposes
that such dividend, distribution, subdivision or combination has occurred as of
such time) and the denominator of which shall be the actual number of Shares
(determined without the above assumption) issued and outstanding on the record
date for such dividend, distribution, subdivision or combination; and PROVIDED,
FURTHER that in the event that an entity shall cease to be the General Partner
Entity (the "Predecessor Entity") and another entity shall become the General
Partner Entity (the "Successor Entity"), the Conversion Factor shall be adjusted
by multiplying the Conversion Factor by a fraction, the numerator of which is
the Value of one share of the Predecessor Entity, determined as of the time
immediately prior to when the Successor Entity becomes the General Partner
Entity, and the denominator of which is the Value of one Share of the Successor
Entity
5
determined as of that same date. (For purposes of the second proviso in the
preceding sentence, in the event that any stockholders 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.
"DEBT" means, as to any Person, as of any date of determination, (i)
all indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services, (ii) all amounts owed by such Person to banks or
other Persons in respect of reimbursement obligations under letters of credit,
surety bonds and other similar instruments guaranteeing payment or other
performance of obligations by such Person, (iii) all indebtedness for borrowed
money or for the deferred purchase price of property or services secured by any
lien on any property owned by such Person, to the extent attributable to such
Person's interest in such property, even though such Person has not assumed or
become liable for the payment thereof, and (iv) obligations of such Person
incurred in connection with entering into a lease which, in accordance with
generally accepted accounting principles, should be capitalized.
"DEEMED PARTNERSHIP INTEREST VALUE" means, as of any date with respect
to any class of Partnership Interests, the Deemed Value of the Partnership
Interest of such class multiplied by the applicable Partner's Percentage
Interest of such class.
"DEEMED VALUE OF THE PARTNERSHIP INTEREST" means, as of any date with
respect to any class of Partnership Interests, (a) if the shares of common stock
(or other comparable equity interests) of the General Partner are Publicly
Traded (i) the total number of shares of capital stock (or other comparable
equity interest) of the General Partner corresponding to such class of
Partnership Interest (as provided for in Section 4.2.B hereof) issued and
outstanding as of the close of business on such date (excluding any treasury
shares) multiplied by the Value of a share of such capital stock (or other
comparable equity interest) on such date DIVIDED BY (ii) the Percentage Interest
of the General Partner in such class of Partnership Interests on such date, and
(b) otherwise, the aggregate Value of such class of Partnership Interests
determined as set forth in the fourth and fifth sentences of the definition of
Value.
6
"DEPRECIATION" means, for each fiscal year, an amount equal to the
federal income tax depreciation, amortization, or other cost recovery deduction
allowable with respect to an asset for such year, except that if the Carrying
Value of an asset differs from its adjusted basis for federal income tax
purposes at the beginning of such year or other period, Depreciation shall be an
amount which bears the same ratio to such beginning Carrying Value as the
federal income tax depreciation, amortization, or other cost recovery deduction
for such year bears to such beginning adjusted tax basis; PROVIDED, HOWEVER,
that if the federal income tax depreciation, amortization, or other cost
recovery deduction for such year is zero, Depreciation shall be determined with
reference to such beginning Carrying Value using any reasonable method selected
by the General Partner.
"DISTRIBUTION PERIOD" has the meaning set forth in Section 5.1.C
hereof.
"EFFECTIVE DATE" means the date of the closing of the Consolidation.
"EQUITY MERGER" has the meaning set forth in Section 7.11.D hereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCHANGED PROPERTY" has the meaning set forth in Section 7.11.C
hereof.
"470 PARK SOUTH, L.P." means 470 Park Avenue South, L.P., a New York
limited partnership.
"470 PARK AVENUE SOUTH PROPERTY" has the meaning set forth in Section
7.11.C hereof.
"470 PARK AVENUE SOUTH UNITS" has the meaning set forth in Section
7.11.C hereof.
"FUNDING DEBT" means the incurrence of any Debt by or on behalf of the
General Partner for the purpose of providing funds to the Partnership.
"GENERAL PARTNER" means S.L. Green Realty Corporation, a Maryland
corporation, or its successors as general partner of the Partnership.
"GENERAL PARTNER ENTITY" means the General Partner; provided, however,
that if (i) the shares of common stock (or other comparable equity interests) of
the General Partner are at any time not Publicly Traded and (ii) the shares of
common stock (or other comparable equity interests) of an entity that owns,
directly or indirectly, fifty percent (50%) or more of the shares of common
stock (or other comparable equity interests) of the General Partner are Publicly
7
Traded, the term "General Partner Entity" shall refer to such entity whose
shares of common stock (or other comparable equity securities) are Publicly
Traded. If both requirements set forth in clauses (i) and (ii) above are not
satisfied, then the term "General Partner Entity" shall mean the General
Partner.
"GENERAL PARTNER PAYMENT" has the meaning set forth in Section 15.14
hereof.
"GENERAL PARTNERSHIP INTEREST" means a Partnership Interest held by
the General Partner that is a general partnership interest. A General
Partnership Interest may be expressed as a number of Partnership Units.
"IRS" means the Internal Revenue Service, which administers the
internal revenue laws of the United States.
"IMMEDIATE FAMILY" means, with respect to any natural Person, such
natural Person's spouse, parents, descendants, nephews, nieces, brothers, and
sisters.
"INCAPACITY" or "INCAPACITATED" means, (i) as to any individual
Partner, death, total physical disability or entry by a court of competent
jurisdiction adjudicating such Partner incompetent to manage his or her Person
or estate, (ii) as to any corporation which is a Partner, the filing of a
certificate of dissolution, or its equivalent, for the corporation or the
revocation of its charter, (iii) as to any partnership which is a Partner, the
dissolution and commencement of winding up of the partnership, (iv) as to any
estate which is a Partner, the distribution by the fiduciary of the estate's
entire interest in the Partnership, (v) as to any trustee of a trust which is a
Partner, the termination of the trust (but not the substitution of a new
trustee) or (vi) as to any Partner, the bankruptcy of such Partner. For
purposes of this definition, bankruptcy of a Partner shall be deemed to have
occurred when (a) the Partner commences a voluntary proceeding seeking
liquidation, reorganization or other relief under any bankruptcy, insolvency or
other similar law now or hereafter in effect, (b) the Partner is adjudged as
bankrupt or insolvent, or a final and nonappealable order for relief under any
bankruptcy, insolvency or similar law now or hereafter in effect has been
entered against the Partner, (c) the Partner executes and delivers a general
assignment for the benefit of the Partner's creditors, (d) the Partner files an
answer or other pleading admitting or failing to contest the material
allegations of a petition filed against the Partner in any proceeding of the
nature described in clause (b) above, (e) the Partner seeks, consents to or
acquiesces in the appointment of a trustee, receiver or liquidator for the
Partner or for all or any substantial part of the Partner's properties, (f) any
proceeding seeking liquidation, reorganization or other relief under any
bankruptcy, insolvency or other similar law now or hereafter in effect has not
been dismissed within one hundred twenty (120) days after the commencement
thereof, (g) the appointment without the Partner's consent or acquiescence of a
trustee, receiver or liquidator has not been vacated or stayed within ninety
(90) days of such appointment or (h) an appointment referred to in clause (g) is
not vacated within ninety (90) days after the expiration of any such stay.
8
"INDEMNITEE" means (i) any Person made a party to a proceeding or
threatened with being made a party to a proceeding by reason of its status as
(A) the General Partner, (B) a Limited Partner or (C) a director or officer of
the Partnership or the General Partner and (ii) such other Persons (including
Affiliates of the General Partner, a Limited Partner or the Partnership) as the
General Partner may designate from time to time (whether before or after the
event giving rise to potential liability), in its sole and absolute discretion.
"LIMITED PARTNER" means any Person named as a Limited Partner in
Exhibit A attached hereto, as such Exhibit may be amended and restated from time
to time, or any Substituted Limited Partner or Additional Limited Partner, in
such Person's capacity as a Limited Partner in the Partnership.
"LIMITED PARTNERSHIP INTEREST" means a Partnership Interest of a
Limited Partner in the Partnership representing a fractional part of the
Partnership Interests of all Limited Partners and includes any and all benefits
to which the holder of such a Partnership Interest may be entitled as provided
in this Agreement, together with all obligations of such Person to comply with
the terms and provisions of this Agreement. A Limited Partnership Interest may
be expressed as a number of Partnership Units.
"LIQUIDATING EVENT" has the meaning set forth in Section 13.1 hereof.
"LIQUIDATING TRANSACTION" has the meaning set forth in Section 7.11.C
hereof.
"LIQUIDATOR" has the meaning set forth in Section 13.2.A hereof.
"NET INCOME" means, for any taxable period, the excess, if any, of the
Partnership's items of income and gain for such taxable period over the
Partnership's items of loss and deduction for such taxable period. The items
included in the calculation of Net Income shall be determined in accordance with
EXHIBIT B hereto. If an item of income, gain, loss or deduction that has been
included in the initial computation of Net Income is subjected to the special
allocation rules in EXHIBIT C hereto, Net Income or the resulting Net Loss,
whichever the case may be, shall be recomputed without regard to such item.
"NET LOSS" means, for any taxable period, the excess, if any, of the
Partnership's items of loss and deduction for such taxable period over the
Partnership's items of income and gain for such taxable period. The items
included in the calculation of Net Loss shall be determined in accordance with
EXHIBIT B. If an item of income, gain, loss or deduction that has been included
in the initial computation of Net Loss is subjected to the special allocation
rules in EXHIBIT C hereto, Net Loss or the resulting Net Income, whichever the
case may be, shall be recomputed without regard to such item.
"NEW SECURITIES" means (i) any rights, options, warrants or
convertible or exchangeable securities having the right to subscribe for or
purchase shares of capital stock (or other comparable equity interest) of the
General Partner, excluding grants under any Stock
9
Option Plan, or (ii) any Debt issued by the General Partner that provides any of
the rights described in clause (i).
"NONRECOURSE BUILT-IN GAIN" means, with respect to any Contributed
Properties or Adjusted Properties that are subject to a mortgage or negative
pledge securing a Nonrecourse Liability, the amount of any taxable gain that
would be allocated to the Partners pursuant to Section 2.B of EXHIBIT C hereto
if such properties were disposed of in a taxable transaction in full
satisfaction of such liabilities and for no other consideration.
"NONRECOURSE DEDUCTIONS" has the meaning set forth in Regulations
Section 1.704-2(b)(1), and the amount of Nonrecourse Deductions for a
Partnership Year shall be determined in accordance with the rules of Regulations
Section 1.704-2(c).
"NONRECOURSE LIABILITY" has the meaning set forth in Regulations
Section 1.752-1(a)(2).
"NOTICE OF REDEMPTION" means a Notice of Redemption substantially in
the form of EXHIBIT D attached hereto.
"PARTNER" means the General Partner or a Limited Partner, and
"Partners" means the General Partner and the Limited Partners.
"PARTNER MINIMUM GAIN" means an amount, with respect to each Partner
Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if
such Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Regulations Section 1.704-2(i)(3).
"PARTNER NONRECOURSE DEBT" has the meaning set forth in Regulations
Section 1.704-2(b)(4).
"PARTNER NONRECOURSE DEDUCTIONS" has the meaning set forth in
Regulations Section 1.704-2(i)(2), and the amount of Partner Nonrecourse
Deductions with respect to a Partner Nonrecourse Debt for a Partnership Year
shall be determined in accordance with the rules of Regulations Section
1.704-2(i)(2).
"PARTNERSHIP" means the limited partnership formed under the Act and
continued upon the terms and conditions set forth in this Agreement, and any
successor thereto.
"PARTNERSHIP INTEREST" means a Limited Partnership Interest or the
General Partnership Interest and includes any and all benefits to which the
holder of such a Partnership Interest may be entitled as provided in this
Agreement, together with all obligations of such Person to comply with the terms
and provisions of this Agreement. A Partnership Interest may be expressed as a
number of Partnership Units.
10
"PARTNERSHIP MINIMUM GAIN" has the meaning set forth in Regulations
Section 1.704-2(b)(2), and the amount of Partnership Minimum Gain, as well as
any net increase or decrease in Partnership Minimum Gain, for a Partnership Year
shall be determined in accordance with the rules of Regulations Section
1.704-2(d).
"PARTNERSHIP RECORD DATE" means the record date established by the
General Partner either (i) for the distribution of Available Cash pursuant to
Section 5.1 hereof, which record date shall be the same as the record date
established by the General Partner Entity for a distribution to its stockholders
of some or all of its portion of such distribution received by the General
Partner if the shares of common stock (or comparable equity interests) of the
General Partner Entity are Publicly Traded, or (ii) if applicable, for
determining the Partners entitled to vote on or consent to any proposed action
for which the consent or approval of the Partners is sought pursuant to Section
14.2 hereof.
"PARTNERSHIP UNIT" means a fractional, undivided share of the
Partnership Interests of all Partners issued pursuant to, Sections 4.1 and 4.2
hereof, and includes Class A Units, Class B Units and any other classes or
series of Partnership Units established after the date hereof. The number of
Partnership Units outstanding and the Percentage Interests in the Partnership
represented by such Partnership Units are set forth in EXHIBIT A hereto, as such
Exhibit may be amended and restated from time to time. The ownership of
Partnership Units may be evidenced by a certificate in a form approved by the
General Partner.
"PARTNERSHIP YEAR" means the fiscal year of the Partnership, which
shall be the calendar year.
"PERCENTAGE INTEREST" means, as to a Partner holding a class of
Partnership Interests, its interest in such class, determined by dividing the
Partnership Units of such class owned by such Partner by the total number of
Partnership Units of such class then outstanding as specified in EXHIBIT A
attached hereto, as such exhibit may be amended and restated from time to time,
multiplied by the aggregate Percentage Interest allocable to such class of
Partnership Interests. In the event that the Partnership shall at any time have
outstanding more than one class of Partnership Interests, the Percentage
Interest attributable to each class of Partnership Interests shall be determined
as set forth in Section 4.2.B hereof.
"PERSON" means a natural person, partnership (whether general or
limited), trust, estate, association, corporation, limited liability company,
unincorporated organization, custodian, nominee or any other individual or
entity in its own or any representative capacity.
"PREDECESSOR ENTITY" has the meaning set forth in the definition of
"Conversion Factors herein.
"PUBLICLY TRADED" means listed or admitted to trading on the New York
Stock Exchange, the American Stock Exchange or another national securities
exchange or designated for quotation on the NASDAQ National Market, or any
successor to any of the foregoing.
11
"QUALIFIED REIT SUBSIDIARY" means any Subsidiary of the General
Partner that is a "qualified REIT subsidiary" within the meaning Section 856(i)
of the Code.
"RECAPTURE INCOME" means any gain recognized by the Partnership
(computed without regard to any adjustment required by Section 743 of the Code)
upon the disposition of any property or asset of the Partnership, which gain is
characterized as ordinary income because it represents the recapture of
deductions previously taken with respect to such property or asset.
"REDEEMING PARTNER" has the meaning set forth in Section 8.6.A hereof.
"REDEMPTION AMOUNT" means either the Cash Amount or the Shares Amount,
as determined by the General Partner in its sole and absolute discretion;
provided that in the event that the Shares are not Publicly Traded at the time a
Redeeming Partner exercises its Redemption Right the Redemption Amount shall be
paid only in the form of the Cash Amount unless the Redeeming Partner, in its
sole and absolute discretion, consents to payment of the Redemption Amount in
the form of the Shares Amount. A Redeeming Partner shall have no right, without
the General Partner's consent, in its sole and absolute discretion, to receive
the Redemption Amount in the form of the Shares Amount.
"REDEMPTION RIGHT" has the meaning set forth in Section 8.6.A hereof.
"REGULATIONS" means the Income Tax Regulations promulgated under the
Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"REIT" means a real estate investment trust under Section 856 of the
Code.
"REIT REQUIREMENTS" has the meaning set forth in Section 5.1.A hereof.
"REPLACEMENT PROPERTY" has the meaning set forth in Section 7.11.C
hereof.
"RESIDUAL GAIN" or "RESIDUAL LOSS" means any item of gain or loss, as
the case may be, of the Partnership recognized for federal income tax purposes
resulting from a sale, exchange or other disposition of Contributed Property or
Adjusted Property, to the extent such item of gain or loss is not allocated
pursuant to Section 2.B.1(a) or 2.B.2(a) of EXHIBIT C hereto to eliminate
Book-Tax Disparities.
"SAFE HARBOR" has the meaning set forth in Section 11.6.F hereof.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"704(C) VALUE" of any Contributed Property means the fair market value
of such property at the time of contribution as determined by the General
Partner using such reasonable method of valuation as it may adopt. Subject to
EXHIBIT B hereto, the General Partner shall, in
12
its sole and absolute discretion, use such method as it deems reasonable and
appropriate to allocate the aggregate of the 704(c) Values of Contributed
Properties in a single or integrated transaction among each separate property on
a basis proportional to their fair market values. The 704(c) Values of the
Contributed Properties contributed to the Partnership as part of or in
connection with the Consolidation are set forth on EXHIBIT E attached hereto.
"SHARE" means a share of capital stock (or other comparable equity
interest) of the General Partner Entity. Shares may be issued in one or more
classes or series in accordance with the terms of the Articles of Incorporation
(or, if the General Partner is not the General Partner Entity, the
organizational documents of the General Partner Entity). In the event that
there is more than one class or series of Shares, the term "Shares" shall, as
the context requires, be deemed to refer to the class or series of Shares that
correspond to the class or series of Partnership Interests for which the
reference to Shares is made. When used with reference to Class A Units, the
term "Shares" refers to shares of common stock (or other comparable equity
interest) of the General Partner Entity.
"SHARES AMOUNT" means a number of Shares equal to the product of the
number of Partnership Units offered for redemption by a Redeeming Partner times
the Conversion Factor; PROVIDED THAT, in the event the General Partner Entity
issues to all holders of Shares rights, options, warrants or convertible or
exchangeable securities entitling such holders to subscribe for or purchase
Shares or any other securities or property (collectively, the "rights"), then
the Shares Amount for any Partnership Units outstanding prior to the issuance of
such rights shall also include such rights that a holder of that number of
Shares would be entitled to receive; and PROVIDED, FURTHER that, the Shares
Amount shall be adjusted pursuant to Section 7.5 hereof in the event that the
General Partner acquires material assets other than on behalf of the
Partnership.
"673 FIRST AVENUE PROPERTY" has the meaning set forth in Section
7.11.C hereof.
"673 FIRST AVENUE REALTY COMPANY" means 673 First Realty Company, a
New York general partnership.
"673 FIRST AVENUE UNITS" has the meaning set forth in Section 7.11.C
hereof.
"SPECIFIED REDEMPTION DATE" means the tenth Business Day after receipt
by the General Partner of a Notice of Redemption; PROVIDED THAT, if the Shares
are not Publicly Traded, the Specified Redemption Date means the thirtieth
Business Day after receipt by the General Partner of a Notice of Redemption.
"STOCK OPTION PLAN" means any stock incentive plan of the General
Partner, the Partnership or any Affiliate of the Partnership or the General
Partner.
"SUBSIDIARY" means, with respect to any Person, any corporation,
limited liability company, partnership or joint venture, or other entity of
which a majority of (i) the voting
13
power of the voting equity securities or (ii) the outstanding equity interests
is owned, directly or indirectly, by such Person.
"SUBSTITUTED LIMITED PARTNER" means a Person who is admitted as a
Limited Partner to the Partnership pursuant to Section 11.4 hereof.
"SUCCESSOR ENTITY" has the meaning set forth in the definition of
"Conversion Factor" herein.
"SUCCESSOR PARTNERSHIP" has the meaning set forth in Section 7.11.C
hereof.
"TENANT" means any tenant from which the General Partner derives rent,
either directly or indirectly through partnerships, including the Partnership,
or through any Qualified REIT Subsidiary.
"TERMINATING CAPITAL TRANSACTION" means any sale or other disposition
of all or substantially all of the assets of the Partnership for cash or a
related series of transactions that, taken together, result in the sale or other
disposition of all or substantially all of the assets of the Partnership for
cash.
"TERMINATION TRANSACTION" has the meaning set forth in Section 11.2.B
hereof.
"TRANSFERRED PROPERTY" has the meaning set forth in Section 7.11.C
hereof.
"UNREALIZED GAIN" attributable to any item of Partnership property
means, as of any date of determination, the excess, if any, of (i) the fair
market value of such property (as determined under EXHIBIT B hereto) as of such
date, over (ii) the Carrying Value of such property (prior to any adjustment to
be made pursuant to EXHIBIT B hereto) as of such date.
"UNREALIZED LOSS" attributable to any item of Partnership property
means, as of any date of determination, the excess, if any, of (i) the Carrying
Value of such property (prior to any adjustment to be made pursuant to EXHIBIT B
hereto) as of such date, over (ii) the fair market value of such property (as
determined under EXHIBIT B hereto) as of such date.
"VALUATION DATE" means the date of receipt by the General Partner of a
Notice of Redemption or, if such date is not a Business Day, the first Business
Day thereafter.
"VALUE" means, with respect to any outstanding Shares of the General
Partner Entity that are Publicly Traded, the average of the daily market price
for the ten (10) consecutive trading days immediately preceding the date with
respect to which value must be determined or, if such date is not a Business
Day, the immediately preceding Business Day. The market price for each such
trading day shall be the closing price, regular way, on such day, or if no such
sale takes place on such day, the average of the closing bid and asked prices on
such day. In the event that the outstanding Shares of the General Partner
Entity are Publicly Traded
14
and the Shares Amount includes rights that a holder of Shares would be entitled
to receive, then the Value of such rights shall be determined by the General
Partner acting in good faith on the basis of such quotations and other
information as it considers, in its reasonable judgment, appropriate. In the
event that the Shares of the General Partner Entity are not Publicly Traded, the
Value of the Shares Amount per Partnership Unit offered for redemption (which
will be the Cash Amount per Partnership Unit offered for redemption payable
pursuant to Section 8.6.A hereof) means the amount that a holder of one
Partnership Unit would receive if each of the assets of the Partnership were to
be sold for its fair market value on the Specified Redemption Date, the
Partnership were to pay all of its outstanding liabilities, and the remaining
proceeds were to be distributed to the Partners in accordance with the terms of
this Agreement. Such Value shall be determined by the General Partner, acting
in good faith and based upon a commercially reasonable estimate of the amount
that would be realized by the Partnership if each asset of the Partnership (and
each asset of each Partnership, limited liability company, joint venture or
other entity in which the Partnership owns a direct or indirect interest) were
sold to an unrelated purchaser in an arms' length transaction where neither the
purchaser nor the seller were under economic compulsion to enter into the
transaction (without regard to any discount in value as a result of the
Partnership's minority interest in any property or any illiquidity of the
Partnership's interest in any property). In connection with determining the
Deemed Value of the Partnership Interest for purposes of determining the number
of additional Partnership Units issuable upon a Capital Contribution funded by
an underwritten public offering of shares of capital stock (or other comparable
equity interest) of the General Partner, the Value of such shares shall be the
public offering price per share of such class of the capital stock (or other
comparable equity interest) sold.
ARTICLE II
ORGANIZATIONAL MATTERS
SECTION 2.1 ORGANIZATION
The Partnership is a limited partnership organized pursuant to the
provisions of the Act and upon the terms and conditions set forth in the Prior
Agreement. The Partners hereby continue the Partnership and amend and restate
the Prior Agreement in its entirety. Except as expressly provided herein to the
contrary, the rights and obligations of the Partners and the administration and
termination of the Partnership shall be governed by the Act. The Partnership
Interest of each Partner shall be personal property for all purposes.
SECTION 2.2 NAME
The name of the Partnership is SL Green Operating Partnership, L.P.
The Partnership's business may be conducted under any other name or names deemed
advisable by the General Partner, including the name of the General Partner or
any Affiliate thereof. The words "Limited Partnership," "L.P.," "Ltd." or
similar words or letters shall be included in the Partnership's name where
necessary for the purposes of complying with the laws of any
15
jurisdiction that so requires. The General Partner in its sole and absolute
discretion may change the name of the Partnership at any time and from time to
time and shall notify the Limited Partners of such change in the next regular
communication to the Limited Partners.
SECTION 2.3 REGISTERED OFFICE AND AGENT; PRINCIPAL OFFICE
The address of the registered office of the Partnership in the State
of Delaware shall be located at Corporation Trust Center, 1209 Orange Street,
Wilmington, County of New Castle, Delaware 19801, and the registered agent for
service of process on the Partnership in the State of Delaware at such
registered office shall be Corporation Trust Company. The principal office of
the Partnership shall be 70 West 36th Street, New York, New York 10018, or such
other place as the General Partner may from time to time designate by notice to
the Limited Partners. The Partnership may maintain offices at such other place
or places within or outside the State of Delaware as the General Partner deems
advisable.
SECTION 2.4 TERM
The term of the Partnership commenced on June 12, 1997, the date on
which the Certificate was filed in the office of the Secretary of State of the
State of Delaware in accordance with the Act, and shall continue until December
31, 209 , unless it is dissolved sooner pursuant to the provisions of Article
XIII hereof or as otherwise provided by law.
ARTICLE III
PURPOSE
SECTION 3.1 PURPOSE AND BUSINESS
The purpose and nature of the business to be conducted by the
Partnership is (i) to conduct any business that may be lawfully conducted by a
limited partnership organized pursuant to the Act; PROVIDED, HOWEVER, that such
business shall be limited to and conducted in such a manner as to permit the
General Partner Entity at all times to be classified as a REIT, unless the
General Partner ceases to qualify or is not qualified as a REIT for any reason
or reasons not related to the business conducted by the Partnership; (ii) to
enter into any partnership, joint venture, limited liability company or other
similar arrangement to engage in any of the foregoing or the ownership of
interests in any entity engaged, directly or indirectly, in any of the
foregoing; and (iii) to do anything necessary or incidental to the foregoing.
In connection with the foregoing, the Partners acknowledge that the status of
the General Partner Entity as a REIT inures to the benefit of all the Partners
and not solely the General Partner or its Affiliates.
16
SECTION 3.2 POWERS
The Partnership is empowered to do any and all acts and things
necessary, appropriate, proper, advisable, incidental to or convenient for the
furtherance and accomplishment of the purposes and business described herein and
for the protection and benefit of the Partnership, including, without
limitation, full power and authority, directly or through its ownership interest
in other entities, to enter into, perform and carry out contracts of any kind,
borrow money and issue evidences of indebtedness whether or not secured by
mortgage, deed of trust, pledge or other lien, acquire, own, manage, improve and
develop real property, and lease, sell, transfer and dispose of real property;
PROVIDED, HOWEVER, that the Partnership shall not take, or refrain from taking,
any action which, in the judgment of the General Partner, in its sole and
absolute discretion, (i) could adversely affect the ability of the General
Partner Entity to continue to qualify as a REIT, (ii) could subject the General
Partner Entity to any additional taxes under Section 857 or Section 4981 of the
Code or (iii) could violate any law or regulation of any governmental body or
agency having jurisdiction over the General Partner Entity or its securities,
unless such action (or inaction) shall have been specifically consented to by
the General Partner in writing.
SECTION 3.3 PARTNERSHIP ONLY FOR PURPOSES SPECIFIED
The Partnership shall be a partnership only for the purposes specified
in Section 3.1 above, and this Agreement shall not be deemed to create a
partnership among the Partners with respect to any activities whatsoever other
than the activities within the purposes of the Partnership as specified in
Section 3.1 above.
ARTICLE IV
CAPITAL CONTRIBUTIONS AND ISSUANCES
OF PARTNERSHIP INTERESTS
SECTION 4.1 CAPITAL CONTRIBUTIONS OF THE PARTNERS
A. INITIAL CAPITAL CONTRIBUTIONS AND RECAPITALIZATION OF THE
PARTNERSHIP ON THE EFFECTIVE DATE. On the Effective Date, the Partners will
make Capital Contributions to the Partnership in connection with the
Consolidation. On the Effective Date, the General Partner will complete EXHIBIT
A hereto to reflect the Capital Contributions made by each Partner, the
Partnership Units assigned to each Partner and the Percentage Interest in the
Partnership represented by such Partnership Units. The Capital Accounts of the
Partners and the Carrying Values of the Partnership's Assets shall be determined
as of the Effective Date pursuant to Section I.D of EXHIBIT B hereto to reflect
the Capital Contributions made on the Effective Date.
B. GENERAL PARTNERSHIP INTEREST. A number of Partnership Units held
by the General Partner equal to one percent (1%) of all outstanding Partnership
Units shall be deemed to be the General Partner Partnership Units and shall be
the General Partnership Interest. All
17
other Partnership Units held by the General Partner shall be deemed to be
Limited Partnership Interests and shall be held by the General Partner in its
capacity as a Limited Partner in the Partnership.
C. CAPITAL CONTRIBUTIONS BY MERGER. To the extent the Partnership
acquires any property by the merger of any other Person into the Partnership,
Persons who receive Partnership Interests in exchange for their interests in the
Person merging into the Partnership shall become Partners and shall be deemed to
have made Capital Contributions as provided in the applicable merger agreement
and as set forth in EXHIBIT A hereto.
D. NO OBLIGATION TO MAKE ADDITIONAL CAPITAL CONTRIBUTIONS. Except
as provided in Sections 7.5 and 10.5 hereof, the Partners shall have no
obligation to make any additional Capital Contributions or provide any
additional funding to the Partnership (whether in the form of loans, repayments
of loans or otherwise). No Partner shall have any obligation to restore any
deficit that may exist in its Capital Account, either upon a liquidation of the
Partnership or otherwise.
SECTION 4.2 ISSUANCES OF PARTNERSHIP INTERESTS
A. GENERAL. The General Partner is hereby authorized to cause the
Partnership from time to time to issue to Partners (including the General
Partner and its Affiliates) or other Persons (including, without limitation, in
connection with the contribution of property to the Partnership) Partnership
Units or other Partnership Interests in one or more classes, or in one or more
series of any of such classes, with such designations, preferences and relative,
participating, optional or other special rights, powers and duties, including
rights, powers and duties senior to Limited Partnership Interests, all as shall
be determined, subject to applicable Delaware law, by the General Partner in its
sole and absolute discretion, including, without limitation, (i) the allocations
of items of Partnership income, gain, loss, deduction and credit to each such
class or series of Partnership Interests, (ii) the right of each such class or
series of Partnership Interests to share in Partnership distributions and (iii)
the rights of each such class or series of Partnership Interests upon
dissolution and liquidation of the Partnership; PROVIDED, that no such
Partnership Units or other Partnership Interests shall be issued to the General
Partner unless either (a) the Partnership Interests are issued in connection
with the grant, award or issuance of Shares or other equity interests in the
General Partner having designations, preferences and other rights such that the
economic interests attributable to such Shares or other equity interests are
substantially similar to the designations, preferences and other rights (except
voting rights) of the additional Partnership Interests issued to the General
Partner in accordance with this Section 4.2.A or (b) the Partnership Interests
are issued to all Partners holding Partnership Interests in the same class in
proportion to their respective Percentage Interests in such class. In the event
that the Partnership issues Partnership Interests pursuant to this Section
4.2.A, the General Partner shall make such revisions to this Agreement
(including but not limited to the revisions described in Section 5.4, Section
6.2 and Section 8.6 hereof) as it deems necessary to reflect the issuance of
such additional Partnership Interests.
18
B. PERCENTAGE INTEREST ADJUSTMENTS IN THE CASE OF CAPITAL
CONTRIBUTIONS FOR PARTNERSHIP UNITS. Upon the acceptance of additional Capital
Contributions in exchange for Partnership Units, the Percentage Interest related
thereto shall be equal to a fraction, the numerator of which is equal to the
amount of cash, if any, plus the Agreed Value of Contributed Property, if any,
contributed with respect to such additional Partnership Units and the
denominator of which is equal to the sum of (i) the Deemed Value of the
Partnership Interests for all outstanding classes (computed as of the Business
Day immediately preceding the date on which the additional Capital Contributions
are made (an "Adjustment Date")) plus (ii) the aggregate amount of additional
Capital Contributions contributed to the Partnership on such Adjustment Date in
respect of such additional Partnership Units. The Percentage Interest of each
other Partner holding Partnership Interests not making a full pro rata Capital
Contribution shall be adjusted to a fraction the numerator of which is equal to
the sum of (i) the Deemed Partnership Interest Value of such Limited Partner
(computed as of the Business Day immediately preceding the Adjustment Date) plus
(ii) the amount of additional Capital Contributions (such amount being equal to
the amount of cash, if any, plus the Agreed Value of Contributed Property, if
any, so contributed), if any, made by such Partner to the Partnership in respect
of such Partnership Interest as of such Adjustment Date and the denominator of
which is equal to the sum of (i) the Deemed Value of the Partnership Interests
of all outstanding classes (computed as of the Business Day immediately
preceding such Adjustment Date) plus (ii) the aggregate amount of the additional
Capital Contributions contributed to the Partnership on such Adjustment Date in
respect of such additional Partnership Interests. For purposes of calculating a
Partner's Percentage Interest pursuant to this Section 4.2.B, cash Capital
Contributions by the General Partner will be deemed to equal the cash
contributed by the General Partner plus (a) in the case of cash contributions
funded by an offering of any equity interests in or other securities of the
General Partner, the offering costs attributable to the cash contributed to the
Partnership, and (b) in the case of Partnership Units issued pursuant to Section
7.5.E hereof, an amount equal to the difference between the Value of the Shares
sold pursuant to any Stock Option Plan and the net proceeds of such sale.
C. CLASSES OF PARTNERSHIP UNITS. From and after the Effective Date,
subject to Section 4.2.A above, the Partnership shall have two classes of
Partnership Units, entitled "Class A Units" and "Class B Units." Either Class A
Units or Class B Units, at the election of the General Partner, in its sole and
absolute discretion, may be issued to newly admitted Partners in exchange for
the contribution by such Partners of cash, real estate partnership interests,
stock, notes or other assets or consideration; PROVIDED, that all Partnership
Units issued to Partners in connection with the Consolidation shall be Class A
Units; and, PROVIDED, FURTHER, that any Partnership Unit that is not
specifically designated by the General Partner as being of a particular class
shall be deemed to be a Class A Unit. Each Class B Unit shall be converted
automatically into a Class A Unit on the day immediately following the
Partnership Record Date for the Distribution Period (as defined in Section 5.1.C
hereof) in which such Class B Unit was issued, without the requirement for any
action by either the Partnership or the Partner holding the Class B Unit.
19
SECTION 4.3 NO PREEMPTIVE RIGHTS
Except to the extent expressly granted by the Partnership pursuant to
another agreement, no Person shall have any preemptive, preferential or other
similar right with respect to (i) additional Capital Contributions or loans to
the Partnership or (ii) issuance or sale of any Partnership Units or other
Partnership Interests.
SECTION 4.4 OTHER CONTRIBUTION PROVISIONS
In the event that any Partner is admitted to the Partnership and is
given a Capital Account in exchange for services rendered to the Partnership,
such transaction shall be treated by the Partnership and the affected Partner as
if the Partnership had compensated such Partner in cash, and the Partner had
contributed such cash to the capital of the Partnership.
SECTION 4.5 NO INTEREST ON CAPITAL
No Partner shall be entitled to interest on its Capital Contributions
or its Capital Account.
ARTICLE V
DISTRIBUTIONS
SECTION 5.1 REQUIREMENT AND CHARACTERIZATION OF DISTRIBUTIONS
A. GENERAL. The General Partner shall distribute at least quarterly
an amount equal to one hundred percent (100%) of Available Cash generated by the
Partnership during such quarter or shorter period to the Partners who are
Partners on the Partnership Record Date with respect to such quarter or shorter
period as provided in Sections 5.1.B, 5.1.D and 6.1.C below. Notwithstanding
anything to the contrary contained herein, in no event may a Partner receive a
distribution of Available Cash with respect to a Partnership Unit for a quarter
or shorter period if such Partner is entitled to receive a distribution out of
such Available Cash with respect to a Share for which such Partnership Unit has
been redeemed or exchanged. Unless otherwise expressly provided for herein or
in an agreement at the time a new class of Partnership Interests is created in
accordance with Article IV hereof, no Partnership Interest shall be entitled to
a distribution in preference to any other Partnership Interest. The General
Partner shall make such reasonable efforts, as determined by it in its sole and
absolute discretion and consistent with the qualification of the General Partner
Entity as a REIT, to distribute Available Cash (a) to Limited Partners so as to
preclude any such distribution or portion thereof from being treated as part of
a sale of property by a Limited Partner under Section 707 Code or the
Regulations thereunder; PROVIDED THAT, the General Partner and the Partnership
shall not have liability to a Limited Partner under any circumstances as a
result of any distribution to a Limited Partner being so treated, and (b) to the
General Partner in an amount sufficient to enable the General Partner Entity to
pay stockholder dividends that will (1) satisfy the requirements for
qualification as a
20
REIT under the Code and the Regulations (the "REIT Requirements") and (2) avoid
any federal income or excise tax liability for the General Partner Entity.
B. METHOD. (i) Each holder of Partnership Interests that are
entitled to any preference in distribution shall be entitled to a distribution
in accordance with the rights of any such class of Partnership Interests (and,
within such class, pro rata in proportion to the respective Percentage Interests
on such Partnership Record Date); and
(ii) To the extent there is Available Cash remaining after the payment
of any preference in distribution in accordance with the foregoing clause (i),
with respect to Partnership Interests that are not entitled to any preference in
distribution, pro rata to each such class in accordance with the terms of such
class (and, within each such class, pro rata in proportion to the respective
Percentage Interests on such Partnership Record Date).
C. DISTRIBUTIONS WHEN CLASS B UNITS ARE OUTSTANDING. If for any
quarter or shorter period with respect to which a distribution is to be made (a
"Distribution Period") Class B Units are outstanding on the Partnership Record
Date for such Distribution Period, the General Partner shall allocate the
Available Cash with respect to such Distribution Period available for
distribution with respect to the Class A Units and Class B Units collectively
between the Partners who are holders of Class A Units ("Class A") and the
Partners who are holders of Class B Units ("Class B") as follows:
(1) Class A shall receive that portion of the Available Cash
(the "Class A Share") determined by multiplying the amount of
Available Cash by the following fraction:
A X Y
---------------
(A x Y)+(B x X)
(2) Class B shall receive that portion of the Available Cash
(the "Class B Share") determined by multiplying the amount of
Available Cash by the following fraction:
B X X
---------------
(A x Y)+(B x X)
(3) For purposes of the foregoing formulas, (i) "A" equals the
number of Class A Units outstanding on the Partnership Record Date for
such Distribution Period; (ii) "B" equals the number of Class B Units
outstanding on the Partnership Record Date for such Distribution
Period; (iii) "Y" equals the number of days in the Distribution
Period; and (iv) "X" equals the number of days in the Distribution
Period for which the Class B Units were issued and outstanding.
21
The Class A Share shall be distributed among Partners holding Class A
Units on the Partnership Record Date for the Distribution Period in accordance
with the number of Class A Units held by each Partner on such Partnership Record
Date; PROVIDED THAT, in no event may a Partner receive a distribution of
Available Cash with respect to a Class A Unit if the Partner is entitled to
receive a distribution out of such Available Cash with respect to a Share for
which such Class A Unit has been redeemed or exchanged. The Class B Share shall
be distributed among the Partners holding Class B Units on the Partnership
Record Date for the Distribution Period in accordance with the number of Class B
Units held by each Partner on such Partnership Record Date. In no event shall
any Partner holding Class B Units be entitled to receive any distribution of
Available Cash with respect to such Units for any Distribution Period ending
prior to the date on which such Class B Units are issued.
D. DISTRIBUTIONS WHEN CLASS B UNITS HAVE BEEN ISSUED ON DIFFERENT
DATES. In the event that Class B Units which have been issued on different
dates are outstanding on the Partnership Record Date for any Distribution
Period, then the Class B Units issued on each particular date shall be treated
as a separate series of Partnership Units for purposes of making the allocation
of Available Cash for such Distribution Period among the holders of Partnership
Units (and the formula for making such allocation, and the definitions of
variables used therein, shall be modified accordingly). Thus, for example, if
two series of Class B Units are outstanding on the Partnership Record Date for
any Distribution Period, the allocation formula for each series, "Series B1" and
"Series B2" would be as follows:
(1) Series B1 shall receive that portion of the Available Cash
determined by multiplying the amount of Available Cash by the
following fraction:
BL X X1
--------------------------
(A x Y)+(Bl x X1)+(B2 x X2)
(2) Series B2 shall receive that portion of the Available Cash
determined by multiplying the amount of Available Cash by the
following fraction:
B2 X X2
--------------------------
(A x Y)+(Bl x Xl)+(B2 x X2)
(3) For purposes of the foregoing formulas the definitions set
forth in Section 5.1.C.3 above remain the same except that (i) "Bl"
equals the number of Partnership Units in Series B1 outstanding on the
Partnership Record Date for such Distribution Period; (ii) "B2" equals
the number of Partnership Units in Series B2 outstanding on the
Partnership Record Date for such Distribution Period; (iii) "Xl"
equals the number of days in the Distribution Period for which the
Partnership Units in Series B1 were issued and outstanding; and (iv)
"X2"
22
equals the number of days in the Distribution Period for which the
Partnership Units in Series B2 were issued and outstanding.
E. MINIMUM DISTRIBUTIONS IF GENERAL PARTNER NOT PUBLICLY TRADED. In
addition (and without regard to the amount of Available Cash), if the shares of
common stock (or other comparable equity interests) of the General Partner are
not Publicly Traded, the General Partner shall make cash distributions with
respect to the Class A Units at least annually for each taxable year of the
Partnership beginning prior to the fifteenth (15th) anniversary of the Effective
Date in an aggregate amount with respect to each such taxable year at least
equal to 95% of the Partnership's taxable income for such year allocable to the
Class A Units, with such distributions to be made not later than 60 days after
the end of such year.
SECTION 5.2 AMOUNTS WITHHELD
All amounts withheld pursuant to the Code or any provisions of any
state or local tax law and Section 10.5 hereof with respect to any allocation,
payment or distribution to the General Partner, the Limited Partners or
Assignees shall be treated as amounts distributed to the General Partner,
Limited Partners or Assignees pursuant to Section 5.1 above for all purposes
under this Agreement.
SECTION 5.3 DISTRIBUTIONS UPON LIQUIDATION
Proceeds from a Terminating Capital Transaction shall be distributed
to the Partners in accordance with Section 13.2 hereof.
SECTION 5.4 REVISIONS TO REFLECT ISSUANCE OF ADDITIONAL PARTNERSHIP
INTERESTS
In the event that the Partnership issues additional Partnership
Interests to the General Partner or any Additional Limited Partner pursuant to
Article IV hereof, the General Partner shall make such revisions to this Article
V as it deems necessary to reflect the issuance of such additional Partnership
Interests. Such revisions shall not require the consent or approval of any
other Partner.
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.
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A. NET INCOME. After giving effect to the special allocations set
forth in Section 1 of EXHIBIT C hereto, Net Income shall be allocated (i) first,
to the General Partner to the extent that Net Losses previously allocated to the
General Partner, on a cumulative basis, pursuant to the last sentence of Section
6.1.B below exceed Net Income previously allocated to the General Partner, on a
cumulative basis, pursuant to this clause (i) of Section 6.1.A, (ii) second, to
the holders of any Partnership Interests that are entitled to any preference in
distribution in accordance with the rights of any such class of Partnership
Interests until each such Partnership Interest has been allocated, on a
cumulative basis pursuant to this clause (ii), Net Income equal to the sum of
the amount of distributions received with respect to such Partnership Interests
pursuant to clause (i) of Section 5.1.B hereof and the amount of any prior
allocations of Net Losses to such class of Partnership Interests pursuant to
Section 6.1.B(i) below (and, within such class, pro rata in proportion to the
respective interests in such class as of the last day of the period for which
such allocation is being made) and (iii) third, with respect to Partnership
Interests that are not entitled to any preference in the allocation of Net
Income, pro rata to each such class in accordance with the terms of such class
(and, within such class, pro rata in proportion to the respective interests in
such class as of the last day of the period for which such allocation is being
made).
B. NET LOSSES. After giving effect to the special allocations set
forth in Section 1 of EXHIBIT C hereto, Net Losses shall be allocated (i) first,
to the holders of any Partnership Interests that are entitled to any preference
in distribution in accordance with the rights of any such class of Partnership
Interests to the extent that any prior allocations of Net Income to such class
of Partnership Interests pursuant to Section 6.1.A(ii) above exceed, on a
cumulative basis, distributions with respect to such Partnership Interests
pursuant to clause (i) of Section 5.1.B hereof (and, within such class, pro rata
in proportion to the respective interests in such class as of the last day of
the period for which such allocation is being made) and (ii) second, with
respect to classes of Partnership Interests that are not entitled to any
preference in distribution, pro rata to each such class in accordance with the
terms of such class (and, within such class, pro rata in proportion to the
respective interests in such class as of the last day of the period for which
such allocation is being made); PROVIDED THAT, Net Losses shall not be allocated
to any Limited Partner pursuant to this Section 6.1.B to the extent that such
allocation would cause such Limited Partner to have an Adjusted Capital Account
Deficit (or increase any existing Adjusted Capital Account Deficit) at the end
of such taxable year (or portion thereof). All Net Losses in excess of the
limitations set forth in this Section 6.1.B shall be allocated to the General
Partner.
C. ALLOCATION OF NONRECOURSE DEBT. For purposes of Regulations
Section 1.752-3(a), the Partners agree that Nonrecourse Liabilities of the
Partnership in excess of the sum of (i) the amount of Partnership Minimum Gain
and (ii) the total amount of Nonrecourse Built-in Gain shall be allocated among
the Partners in accordance with their respective Percentage Interests.
D. RECAPTURE INCOME. Any gain allocated to the Partners upon the
sale or other taxable disposition of any Partnership asset shall, to the extent
possible after taking into
24
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.
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 and Exhibit A as it deems necessary to reflect the terms of the issuance of
such additional Partnership Interests, including making preferential allocations
to classes of Partnership Interests that are entitled thereto. Such revisions
shall not require the consent or approval of any other Partner.
ARTICLE VII
MANAGEMENT AND OPERATIONS OF BUSINESS
SECTION 7.1 MANAGEMENT
A. POWERS OF GENERAL PARTNER. Except as otherwise expressly
provided in this Agreement, all management powers over the business and affairs
of the Partnership are and shall be exclusively vested in the General Partner,
and no Limited Partner shall have any right to participate in or exercise
control or management power over the business and affairs of the Partnership.
The General Partner may not be removed by the Limited Partners with or without
cause; PROVIDED, HOWEVER, that if the Shares (or comparable equity securities)
of the General Partner Entity are not Publicly Traded, the General Partner may
be removed with cause with the Consent of the Outside Limited Partners. In
addition to the powers now or hereafter granted a general partner of a limited
partnership under applicable law or which are granted to the General Partner
under any other provision of this Agreement, the General Partner, subject to
Sections 7.6 and 7.11 below, shall have full power and authority to do all
things deemed necessary or desirable by it to conduct the business of the
Partnership, to exercise all powers set forth in Section 3.2 hereof and to
effectuate the purposes set forth in Section 3.1 hereof, including, without
limitation:
(1) the making of any expenditures, the lending or borrowing of
money (including, without limitation, making prepayments on
loans and borrowing money to permit the Partnership to make
distributions to its Partners in such amounts as are
required under Section 5.1.E hereof or will permit the
General Partner Entity (as long as the General Partner
Entity qualifies as a REIT) to avoid the payment of any
federal income tax (including, for this purpose, any excise
tax pursuant to Section 4981 of the Code) and to make
25
distributions to its stockholders sufficient to permit the
General Partner Entity to maintain REIT status, the
assumption or guarantee of, or other contracting for,
indebtedness and other liabilities, the issuance of
evidences of indebtedness (including the securing of same by
mortgage, deed of trust or other lien or encumbrance on the
Partnership's assets) and the incurring of any obligations
the General Partner deems necessary for the conduct of the
activities of the Partnership;
(2) the making of tax, regulatory and other filings, or
rendering of periodic or other reports to governmental or
other agencies having jurisdiction over the business or
assets of the Partnership;
(3) the acquisition, disposition, mortgage, pledge, encumbrance,
hypothecation or exchange of any or all of the assets of the
Partnership (including the exercise or grant of any
conversion, option, privilege or subscription right or other
right available in connection with any assets at any time
held by the Partnership) or the merger or other combination
of the Partnership with or into another entity, on such
terms as the General Partner deems proper;
(4) the use of the assets of the Partnership (including, without
limitation, cash on hand) for any purpose consistent with
the terms of this Agreement and on any terms it sees fit,
including, without limitation, the financing of the conduct
of the operations of the Partnership or any of the
Partnership's Subsidiaries, the lending of funds to other
Persons (including, without limitation, the Partnership's
Subsidiaries) and the repayment of obligations of the
Partnership and its Subsidiaries and any other Person in
which the Partnership has an equity investment and the
making of capital contributions to its Subsidiaries;
(5) the management, operation, leasing, landscaping, repair,
alteration, demolition or improvement of any real property
or improvements owned by the Partnership or any Subsidiary
of the Partnership or any Person in which the Partnership
has made a direct or indirect equity investment;
(6) the negotiation, execution, delivery 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,
26
other professional advisors, and other agents and the
payment of their expenses and compensation out of the
Partnership's assets;
(7) the mortgage, pledge, encumbrance or hypothecation of any
assets of the Partnership, and the use of the assets of the
Partnership (including, without limitation, cash on hand)
for any purpose consistent with the terms of this Agreement
and on any terms it sees fit, including, without limitation,
the financing of the conduct or the operations of the
General Partners or the Partnership, the lending of funds to
other Persons (including, without limitation, any
Subsidiaries of the Partnership) and the repayment of
obligations of the Partnership, any of its Subsidiaries and
any other Person in which it has an equity investment;
(8) the distribution of Partnership cash or other Partnership
assets in accordance with this Agreement;
(9) the holding, managing, investing and reinvesting of cash and
other assets of the Partnership;
(10) the collection and receipt of revenues and income of the
Partnership;
(11) the selection, designation of powers, authority and duties
and dismissal of employees of the Partnership (including,
without limitation, employees having titles such as
"president," "vice president," "secretary" and "treasurer")
and agents, outside attorneys, accountants, consultants and
contractors of the Partnership, and the determination of
their compensation and other terms of employment or hiring;
(12) the maintenance of such insurance for the benefit of the
Partnership and the Partners as it deems necessary or
appropriate;
(13) the formation of, or acquisition of an interest (including
non-voting interests in entities controlled by Affiliates of
the Partnership or third parties) in, and the contribution
of property to, any further limited or general partnerships,
joint ventures, limited liability companies or other
relationships that it deems desirable (including, without
limitation, the acquisition of interests in, and the
contributions of funds or property, or the making of loans,
to its Subsidiaries and any other Person in which it has an
equity investment from time to time or the incurrence of
indebtedness on behalf of such Persons or the guarantee of
obligations of such
27
Persons); provided that, as long as the General Partner has
determined to qualify as a REIT, the Partnership may not
engage in any such formation, acquisition or contribution
that would cause the General Partner to fail to qualify as a
REIT);
(14) the control of any matters affecting the rights and
obligations of the Partnership, including the settlement,
compromise, submission to arbitration or any other form of
dispute resolution or abandonment of any claim, cause of
action, liability, debt or damages due or owing to or from
the Partnership, the commencement or defense of suits, legal
proceedings, administrative proceedings, arbitrations or
other forms of dispute resolution, the representation of the
Partnership in all suits or legal proceedings,
administrative proceedings, arbitrations or other forms of
dispute resolution, the incurring of legal expense and the
indemnification of any Person against liabilities and
contingencies to the extent permitted by law;
(15) the determination of the fair market value of any
Partnership property distributed in kind, using such
reasonable method of valuation as the General Partner may
adopt;
(16) the exercise, directly or indirectly, through any
attorney-in-fact acting under a general or limited power of
attorney, of any right, including the right to vote,
appurtenant to any assets or investment held by the
Partnership;
(17) the exercise of any of the powers of the General Partner
enumerated in this Agreement on behalf of or in connection
with any Subsidiary of the Partnership or any other Person
in which the Partnership has a direct or indirect interest,
individually or jointly with any such Subsidiary or other
Person;
(18) the exercise of any of the powers of the General Partner
enumerated in this Agreement on behalf of any Person in
which the Partnership does not have any interest pursuant to
contractual or other arrangements with such Person;
(19) the making, executing and delivering of any and all deeds,
leases, notes, deeds to secure debt, mortgages, deeds of
trust, security agreements, conveyances, contracts,
guarantees, warranties, indemnities, waivers, releases or
other legal instruments or agreements in writing necessary
or appropriate in the judgment of
28
the General Partner for the accomplishment of any of the
powers of the General Partner under this Agreement;
(20) the distribution of cash to acquire Partnership Units held
by a Limited Partner in connection with a Limited Partner's
exercise of its Redemption Right under Section 8.6 hereof;
and
(21) the amendment and restatement of EXHIBIT A hereto to reflect
accurately at all times the Capital Contributions and
Percentage Interests of the Partners as the same are
adjusted from time to time to the extent necessary to
reflect redemptions, Capital Contributions, the issuance of
Partnership Units, the admission of any Additional Limited
Partner or any Substituted Limited Partner or otherwise,
which amendment and restatement, notwithstanding anything in
this Agreement to the contrary, shall not be deemed an
amendment of this Agreement, as long as the matter or event
being reflected in EXHIBIT A hereto otherwise is authorized
by this Agreement.
B. NO APPROVAL BY LIMITED PARTNERS. Except as provided in Section
7.11 below, each of the Limited Partners agrees that the General Partner is
authorized to execute, deliver and perform the above-mentioned agreements and
transactions on behalf of the Partnership without any further act, approval or
vote of the Partners, notwithstanding any other provision of this Agreement, the
Act or any applicable law, rule or regulation, to the full extent permitted
under the Act or other applicable law. The execution, delivery or performance
by the General Partner or the Partnership of any agreement authorized or
permitted under this Agreement shall not constitute a breach by the General
Partner of any duty that the General Partner may owe the Partnership or the
Limited Partners or any other Persons under this Agreement or of any duty stated
or implied by law or equity.
C. INSURANCE. At all times from and after the date hereof, the
General Partner may cause the Partnership to obtain and maintain (i) casualty,
liability and other insurance on the properties of the Partnership, (ii)
liability insurance for the Indemnitees hereunder and (iii) such other insurance
as the General Partner, in its sole and absolute discretion, determines to be
necessary.
D. WORKING CAPITAL AND OTHER RESERVES. At all times from and after
the date hereof, the General Partner may cause the Partnership to establish and
maintain working capital reserves in such amounts as the General Partner, in its
sole and absolute discretion, deems appropriate and reasonable from time to
time, including upon liquidation of the Partnership pursuant to Section 13.2
hereof.
E. NO OBLIGATIONS TO CONSIDER TAX CONSEQUENCES OF LIMITED PARTNERS.
In exercising its authority under this Agreement, the General Partner may, but
shall be under no
29
obligation to, take into account the tax consequences to any Partner (including
the General Partner) of any action taken (or not taken) by it. The General
Partner and the Partnership shall not have liability to a Limited Partner for
monetary damages or otherwise for losses sustained, liabilities incurred or
benefits not derived by such Limited Partner in connection with such decisions,
provided that the General Partner has acted in good faith and pursuant to its
authority under this Agreement.
SECTION 7.2 CERTIFICATE OF LIMITED PARTNERSHIP
The General Partner has previously filed the Certificate with the
Secretary of State of Delaware. To the extent that such action is determined by
the General Partner to be reasonable and necessary or appropriate, the General
Partner shall file amendments to and restatements of the Certificate and do all
the things to maintain the Partnership as a limited partnership (or a
partnership in which the limited partners have limited liability) under the laws
of the State of Delaware and each other state, the District of Columbia or other
jurisdiction in which the Partnership may elect to do business or own property.
Subject to the terms of Section 8.5.A(4) hereof, the General Partner shall not
be required, before or after filing, to deliver or mail a copy of the
Certificate or any amendment thereto to any Limited Partner. The General
Partner shall use all reasonable efforts to cause to be filed such other
certificates or documents as may be reasonable and necessary or appropriate for
the formation, continuation, qualification and operation of a limited
partnership (or a partnership in which the limited partners have limited
liability) in the State of Delaware and any other state, the District of
Columbia or other jurisdiction in which the Partnership may elect to do business
or own property.
SECTION 7.3 TITLE TO PARTNERSHIP ASSETS
Title to Partnership assets, whether real, personal or mixed and
whether tangible or intangible, shall be deemed to be owned by the Partnership
as an entity, and no Partners, individually or collectively, shall have any
ownership interest in such Partnership assets or any portion thereof. Title to
any or all of the Partnership assets may be held in the name of the Partnership,
the General Partner or one or more nominees, as the General Partner may
determine, including Affiliates of the General Partner. The General Partner
hereby declares and warrants that any Partnership assets for which legal title
is held in the name of the General Partner or any nominee or Affiliate of the
General Partner shall be held by the General Partner for the use and benefit of
the Partnership in accordance with the provisions of this Agreement; PROVIDED,
HOWEVER, that the General Partner shall use its best efforts to cause beneficial
and record title to such assets to be vested in the Partnership as soon as
reasonably practicable. All Partnership assets shall be recorded as the
property of the Partnership in its books and records, irrespective of the name
in which legal title to such Partnership assets is held.
SECTION 7.4 REIMBURSEMENT OF THE GENERAL PARTNER
A. NO COMPENSATION. Except as provided in this Section 7.4 and
elsewhere in this Agreement (including the provisions of Articles V and VI
hereof regarding distributions,
30
payments and allocations to which it may be entitled), the General Partner shall
not be compensated for its services as general partner of the Partnership.
B. RESPONSIBILITY FOR PARTNERSHIP EXPENSES. The Partnership shall
be responsible for and shall pay all expenses relating to the Partnership's
organization, the ownership of its assets and its operations. The General
Partner shall be reimbursed on a monthly basis, or such other basis as the
General Partner may determine in its sole and absolute discretion, for all
expenses it incurs relating to the ownership and operation of, or for the
benefit of, the Partnership (including, without limitation, expenses related to
the management and administration of any Subsidiaries of the General Partner or
the Partnership or Affiliates of the Partnership such as auditing expenses and
filing fees); PROVIDED THAT, the amount of any such reimbursement shall be
reduced by (i) any interest earned by the General Partner with respect to bank
accounts or other instruments or accounts held by it as permitted in Section
7.5.A below and (ii) any amount derived by the General Partner from any
investments permitted in Section 7.5.A below; and, PROVIDED FURTHER, that the
General Partner shall not be reimbursed for (i) income tax liabilities or (ii)
filing or similar fees in connection with maintaining the General Partner's
continued corporate existence that are incurred by the General Partner. The
General Partner shall determine in good faith the amount of expenses incurred by
it related to the ownership and operation of, or for the benefit of, the
Partnership. In the event that certain expenses are incurred for the benefit of
the Partnership and other entities (including the General Partner), such
expenses will be allocated to the Partnership and such other entities in such a
manner as the General Partner in its sole and absolute discretion deems fair and
reasonable. Such reimbursements shall be in addition to any reimbursement to
the General Partner pursuant to Section 10.3.C hereof and as a result of
indemnification pursuant to Section 7.7 below. All payments and reimbursements
hereunder shall be characterized for federal income tax purposes as expenses of
the Partnership incurred on its behalf, and not as expenses of the General
Partner.
C. PARTNERSHIP INTEREST ISSUANCE EXPENSES. The General Partner
shall also be reimbursed for all expenses it incurs relating to any issuance of
additional Partnership Interests, Shares, Debt of the Partnership or the General
Partner or rights, options, warrants or convertible or exchangeable securities
pursuant to Article IV hereof (including, without limitation, all costs,
expenses, damages and other payments resulting from or arising in connection
with litigation related to any of the foregoing), all of which expenses are
considered by the Partners to constitute expenses of, and for the benefit of,
the Partnership.
D. PURCHASES OF SHARES BY THE GENERAL PARTNER. In the event that
the General Partner exercises its rights under the Articles of Incorporation to
purchase Shares or otherwise elects to purchase from its stockholders Shares in
connection with a stock repurchase or similar program or for the purpose of
delivering such Shares to satisfy an obligation under any dividend reinvestment
or stock purchase program adopted by the General Partner, any employee stock
purchase plan adopted by the General Partner or any similar obligation or
arrangement undertaken by the General Partner in the future, the purchase price
paid by the General Partner for such Shares and any other expenses incurred by
the General Partner in connection with such purchase shall be considered
expenses of the Partnership and shall be reimbursable to the
31
General Partner, subject to the conditions that: (i) if such Shares subsequently
are to be sold by the General Partner, the General Partner pays to the
Partnership any proceeds received by the General Partner for such Shares
(provided that a transfer of Shares for Partnership Units pursuant to Section
8.6 hereof would not be considered a sale for such purposes); and (ii) if such
Shares are not retransferred by the General Partner within thirty (30) days
after the purchase thereof, the General Partner shall cause the Partnership to
cancel a number of Partnership Units of the appropriate class (rounded to the
nearest whole Partnership Unit) held by the General Partner equal to the product
attained by multiplying the number of such Shares by a fraction, the numerator
of which is one and the denominator of which is the Conversion Factor.
E. REIMBURSEMENT NOT A DISTRIBUTION. If and to the extent any
reimbursement made pursuant to this Section 7.4 is determined for federal income
tax purposes not to constitute a payment of expenses of the Partnership, the
amount so determined shall be treated as a distribution to the General Partner
and there shall be a corresponding special allocation of gross income to the
General Partner, for purposes of computing the Partners' Capital Accounts.
SECTION 7.5 OUTSIDE ACTIVITIES OF THE GENERAL PARTNER
A. GENERAL. Without the Consent of the Outside Limited Partners,
the General Partner shall not, directly or indirectly, enter into or conduct any
business other than in connection with the ownership, acquisition and
disposition of Partnership Interests as a General Partner or Limited Partner and
the management of the business of the Partnership and such activities as are
incidental thereto. Without the Consent of the Outside Limited Partners, the
assets of the General Partner shall be limited to Partnership Interests and
permitted debt obligations of the Partnership (as contemplated by Section 7.5.F
below), so that Shares and Partnership Units are completely fungible except as
otherwise specifically provided herein; PROVIDED, that the General Partner shall
be permitted to hold such bank accounts or similar instruments or account in its
own name as it deems necessary to carry out its responsibilities and purposes as
contemplated under this Agreement and its organizational documents; and,
PROVIDED, FURTHER, that the General Partner shall be permitted to acquire,
directly or through a Qualified REIT Subsidiary, up to a one percent (1%)
interest in any partnership or limited liability company at least ninety-nine
percent (99%) of the equity of which is owned by the Partnership. The General
Partner and any of its Affiliates may acquire Limited Partnership Interests and
shall be entitled to exercise all rights of a Limited Partner relating to such
Limited Partnership Interests. If, at any time, the General Partner acquires
material assets (other than on behalf of the Partnership), the definition of
"Shares Amount" shall be adjusted, as agreed to by the General Partner and the
Limited Partners (which agreement shall be evidenced by Consent of the Outside
Limited Partners), to reflect the value of a share of capital stock (or other
comparable equity interest) of the General Partner relative to the Deemed
Partnership Interest Value of the related Partnership Unit.
B. REPURCHASE OF SHARES. In the event the General Partner exercises
its rights under the Articles of Incorporation to purchase Shares or otherwise
elects to purchase from its stockholders Shares in connection with a stock
repurchase or similar program or for the purpose
32
of delivering such shares to satisfy an obligation under any dividend
reinvestment or stock purchase program adopted by the General Partner, any
employee stock purchase plan adopted by the General Partner or any similar
obligation or arrangement undertaken by the General Partner in the future, then
the General Partner shall cause the Partnership to purchase from the General
Partner that number of Partnership Units of the appropriate class equal to the
product obtained by multiplying the number of Shares purchased by the General
Partner times a fraction, the numerator of which is one and the denominator of
which is the Conversion Factor, on the same terms and for the same aggregate
price that the General Partner purchased such Shares.
C. FORFEITURE OF SHARES. In the event the Partnership or the
General Partner acquires Shares as a result of the forfeiture of such Shares
under a restricted or similar share plan, then the General Partner shall cause
the Partnership to cancel that number of Partnership Units of the appropriate
class equal to the number of Shares so acquired times one divided by the
Conversion Factor, and, if the Partnership acquired such Shares, it shall
transfer such Shares to the General Partner for cancellation.
D. ISSUANCES OF SHARES. After the Effective Date, the General
Partner shall not grant, award, or issue any additional Shares (other than
Shares issued pursuant to Section 8.6 hereof or pursuant to a dividend or
distribution (including any stock split) of Shares to all of its stockholders),
other equity securities of the General Partner or New Securities unless (i) the
General Partner shall cause, pursuant to Section 4.2.A hereof, the Partnership
to issue to the General Partner Partnership Interests or rights, options,
warrants or securities of the Partnership having designations, preferences and
other rights, all such that the economic interests are substantially the same as
those of such additional Shares, other equity securities or New Securities, as
the case may be, and (ii) the General Partner transfers to the Partnership, as
an additional Capital Contribution, the proceeds from the grant, award, or
issuance of such additional Shares, other equity securities or New Securities,
as the case may be, or from the exercise of rights contained in such additional
Shares, other equity securities or New Securities, as the case may be. Without
limiting the foregoing, the General Partner is expressly authorized to issue
additional Shares, other equity securities or New Securities, as the case may
be, for less than fair market value, and the General Partner is expressly
authorized, pursuant to Section 4.2.A hereof, to cause the Partnership to issue
to the General Partner corresponding Partnership Interests, as long as (a) the
General Partner concludes in good faith that such issuance is in the interests
of the General Partner and the Partnership (for example, and not by way of
limitation, the issuance of Shares and corresponding Partnership Units pursuant
to a stock purchase plan providing for purchases of Shares, either by employees
or stockholders, at a discount from fair market value or pursuant to employee
stock options that have an exercise price that is less than the fair market
value of the Shares, either at the time of issuance or at the time of exercise)
and (b) the General Partner transfers all proceeds from any such issuance or
exercise to the Partnership as an additional Capital Contribution.
E. STOCK OPTION PLAN. If at any time or from time to time, the
General Partner sells Shares pursuant to any Stock Option Plan, the General
Partner shall transfer the net proceeds of the sale of such Shares to the
Partnership as an additional Capital Contribution
33
in exchange for an amount of additional Partnership Units equal to the number of
Shares so sold divided by the Conversion Factor.
F. FUNDING DEBT. The General Partner may incur a Funding Debt,
including, without limitation, a Funding Debt that is convertible into Shares or
otherwise constitutes a class of New Securities, subject to the condition that
the General Partner lends to the Partnership the net proceeds of such Funding
Debt; PROVIDED, that the General Partner shall not be obligated to lend the net
proceeds of any Funding Debt to the Partnership in a manner that would be
inconsistent with the General Partner's ability to remain qualified as a REIT.
If the General Partner enters into any Funding Debt, the loan to the Partnership
shall be on comparable terms and conditions, including interest rate, repayment
schedule and costs and expenses, as are applicable with respect to or incurred
in connection with such Funding Debt.
SECTION 7.6 TRANSACTIONS WITH AFFILIATES
A. TRANSACTIONS WITH CERTAIN AFFILIATES. Except as expressly
permitted by this Agreement (other than Section 7.1.A hereof which shall not be
considered authority for a transaction that otherwise would be prohibited by
this Section 7.6.A), the Partnership shall not, directly or indirectly, sell,
transfer or convey any property to, or purchase any property from, or borrow
funds from, or lend funds to, any Partner or any Affiliate of the Partnership or
the General Partner or the General Partner Entity that is not also a Subsidiary
of the Partnership, except pursuant to transactions that are on terms that are
fair and reasonable and no less favorable to the Partnership than would be
obtained from an unaffiliated third party.
B. BENEFIT PLANS. The General Partner, in its sole and absolute
discretion and without the approval of the Limited Partners, may propose and
adopt on behalf of the Partnership employee benefit plans funded by the
Partnership for the benefit of employees of the General Partner, the
Partnership, Subsidiaries of the Partnership or any Affiliate of any of them in
respect of services performed, directly or indirectly, for the benefit of the
Partnership, the General Partner, or any of the Partnership's Subsidiaries.
C. CONFLICT AVOIDANCE. The General Partner is expressly authorized
to enter into, in the name and on behalf of the Partnership, a right of first
opportunity arrangement and other conflict avoidance agreements with various
Affiliates of the Partnership and General Partner on such terms as the General
Partner, in its sole and absolute discretion, believes are advisable.
SECTION 7.7 INDEMNIFICATION
A. GENERAL. The Partnership shall indemnify each Indemnitee from
and against any and all losses, claims, damages, liabilities, joint or several,
expenses (including, without limitation, attorneys fees and other legal fees and
expenses), judgments, fines, settlements and other amounts arising from or in
connection with any and all claims, demands, actions, suits or proceedings,
civil, criminal, administrative or investigative incurred by the
34
Indemnitee and relating to the Partnership or the General Partner or the
formation or operations of, or the ownership of property by, either of them as
set forth in this Agreement in which any such Indemnitee may be involved, or is
threatened to be involved, as a party or otherwise, unless it is established by
a final determination of a court of competent jurisdiction that: (i) the act or
omission of the Indemnitee was material to the matter giving rise to the
proceeding and either was committed in bad faith or was the result of active and
deliberate dishonesty, (ii) the Indemnitee actually received an improper
personal benefit in money, property or services or (iii) in the case of any
criminal proceeding, the Indemnitee had reasonable cause to believe that the act
or omission was unlawful. Without limitation, the foregoing indemnity shall
extend to any liability of any Indemnitee, pursuant to a loan guarantee,
contractual obligations for any indebtedness or other obligations or otherwise,
for any indebtedness of the Partnership or any Subsidiary of the Partnership
(including, without limitation, any indebtedness which the Partnership or any
Subsidiary of the Partnership has assumed or taken subject to), and the General
Partner is hereby authorized and empowered, on behalf of the Partnership, to
enter into one or more indemnity agreements consistent with the provisions of
this Section 7.7 in favor of any Indemnitee having or potentially having
liability for any such indebtedness. The termination of any proceeding by
judgment, order or settlement does not create a presumption that the Indemnitee
did not meet the requisite standard of conduct set forth in this Section 7.7.A.
The termination of any proceeding by conviction or upon a plea of NOLO
CONTENDERE or its equivalent, or an entry of an order of probation prior to
judgment, creates a rebuttable presumption that the Indemnitee acted in a manner
contrary to that specified in this Section 7.7.A with respect to the subject
matter of such proceeding. Any indemnification pursuant to this Section 7.7
shall be made only out of the assets of the Partnership, and any insurance
proceeds from the liability policy covering the General Partner and any
Indemnitees, and neither the General Partner nor any Limited Partner shall have
any obligation to contribute to the capital of the Partnership or otherwise
provide funds to enable the Partnership to fund its obligations under this
Section 7.7.
B. ADVANCEMENT OF EXPENSES. Reasonable expenses expected to be
incurred by an Indemnitee shall be paid or reimbursed by the Partnership in
advance of the final disposition of any and all claims, demands, actions, suits
or proceedings, civil, criminal, administrative or investigative made or
threatened against an Indemnitee upon receipt by the Partnership of (i) a
written affirmation by the Indemnitee of the Indemnitee's good faith belief that
the standard of conduct necessary for indemnification by the Partnership as
authorized in this Section 7.7 A has been met and (ii) a written undertaking by
or on behalf of the Indemnitee to repay the amount if it shall ultimately be
determined that the standard of conduct has not been met.
C. NO LIMITATION OF RIGHTS. The indemnification provided by this
Section 7.7 shall be in addition to any other rights to which an Indemnitee or
any other Person may be entitled under any agreement, pursuant to any vote of
the Partners, as a matter of law or otherwise, and shall continue as to an
Indemnitee who has ceased to serve in such capacity unless otherwise provided in
a written agreement pursuant to which such Indemnitee is indemnified.
35
D. INSURANCE. The Partnership may purchase and maintain insurance
on behalf of the Indemnitees and such other Persons as the General Partner shall
determine against any liability that may be asserted against or expenses that
may be incurred by such Person in connection with the Partnership's activities,
regardless of whether the Partnership would have the power to indemnify such
Person against such liability under the provisions of this Agreement.
E. BENEFIT PLAN FIDUCIARY. For purposes of this Section 7.7, (i)
the Partnership shall be deemed to have requested an Indemnitee to serve as
fiduciary of an employee benefit plan whenever the performance by it of its
duties to the Partnership also imposes duties on, or otherwise involves services
by, it to the plan or participants or beneficiaries of the plan, (ii) excise
taxes assessed on an Indemnitee with respect to an employee benefit plan
pursuant to applicable law shall constitute fines within the meaning of this
Section 7.7 and (iii) actions taken or omitted by the Indemnitee with respect to
an employee benefit plan in the performance of its duties for a purpose
reasonably believed by it to be in the interest of the participants and
beneficiaries of the plan shall be deemed to be for a purpose which is not
opposed to the best interests of the Partnership.
F. NO PERSONAL LIABILITY FOR LIMITED PARTNERS. In no event may an
Indemnitee subject any of the Partners to personal liability by reason of the
indemnification provisions set forth in this Agreement.
G. INTERESTED TRANSACTIONS. An Indemnitee shall not be denied
indemnification in whole or in part under this Section 7.7 because the
Indemnitee had an interest in the transaction with respect to which the
indemnification applies if the transaction was otherwise permitted by the terms
of this Agreement.
H. BENEFIT. The provisions of this Section 7.7 are for the benefit
of the Indemnitees, their heirs, successors, assigns and administrators and
shall not be deemed to create any rights for the benefit of any other Persons.
Any amendment, modification or repeal of this Section 7.7, or any provision
hereof, shall be prospective only and shall not in any way affect the limitation
on the Partnership's liability to any Indemnitee under this Section 7.7 as in
effect immediately prior to such amendment, modification or repeal with respect
to claims arising from or related to matters occurring, in whole or in part,
prior to such amendment, modification or repeal, regardless of when such claims
may arise or be asserted.
I. INDEMNIFICATION PAYMENTS NOT DISTRIBUTIONS. If and to the extent
any payments to the General Partner pursuant to this Section 7.7 constitute
gross income to the General Partner (as opposed to the repayment of advances
made on behalf of the Partnership), such amounts shall constitute guaranteed
payments within the meaning of Section 707(c) of the Code, shall be treated
consistently therewith by the Partnership and all Partners, and shall not be
treated as distributions for purposes of computing the Partners' Capital
Accounts.
36
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 or its directors and officers acted in good faith.
B. NO OBLIGATION TO CONSIDER SEPARATE INTERESTS OF LIMITED PARTNERS
OR STOCKHOLDERS. The Limited Partners expressly acknowledge that the General
Partner is acting on behalf of the Partnership and the General Partner's
stockholders 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
stockholders) in deciding whether to cause the Partnership to take (or decline
to take) any actions. In the event of a conflict between the interests of the
stockholders of the General Partner Entity on one hand and the Limited Partners
on the other, the General Partner shall endeavor in good faith to resolve the
conflict in manner not adverse to either the stockholders of the General Partner
Entity or the Limited Partners; provided, however, that for so long as the
General Partner Entity, directly, or the General Partner, owns a controlling
interest in the Partnership, any such conflict that cannot be resolved in a
manner not adverse to either the stockholders of the General Partner Entity or
the Limited Partners shall be resolved in favor of the stockholders. 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
employees or agents. The General Partner shall not be responsible for any
misconduct or negligence on the part of any such employee or 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.
E. CERTAIN DEFINITIONS. Whenever in this Agreement the General
Partner is permitted or required to make a decision (i) in its "sole discretion"
or "discretion," or under a similar grant of authority or latitude, the General
Partner shall be entitled to consider such interests and factors as it desires
and may consider its own interests, and shall have no duty or obligation to give
any consideration to any interest of or factors affecting the Partnership or the
37
Limited Partners, or (ii) in its "good faith" or under another express standard,
the General Partner shall act under such express standard and shall not be
subject to any other or different standards imposed by this Agreement or by law
or any other agreement contemplated herein.
SECTION 7.9 OTHER MATTERS CONCERNING THE GENERAL PARTNER
A. RELIANCE ON DOCUMENTS. The General Partner may rely and shall be
protected in acting or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, consent, order, bond,
debenture or other paper or document believed by it in good faith to be genuine
and to have been signed or presented by the proper party or parties.
B. RELIANCE ON ADVISORS. The General Partner may consult with legal
counsel, accountants, appraisers, management consultants, investment bankers and
other consultants and advisors selected by it, and any act taken or omitted to
be taken in reliance upon the opinion of such Persons as to matters which the
General Partner reasonably believes to be within such Person's professional or
expert competence shall be conclusively presumed to have been done or omitted in
good faith and in accordance with such opinion.
C. ACTION THROUGH AGENTS. The General Partner shall have the right,
in respect of any of its powers or obligations hereunder, to act through any of
its duly authorized officers and a duly appointed attorney or attorneys-in-fact.
Each such attorney shall, to the extent provided by the General Partner in the
power of attorney, have full power and authority to do and perform all and every
act and duty which is permitted or required to be done by the General Partner
hereunder.
D. ACTIONS TO MAINTAIN REIT STATUS OR AVOID TAXATION OF THE GENERAL
PARTNER ENTITY. Notwithstanding any other provisions of this Agreement or the
Act, any action of the General Partner on behalf of the Partnership or any
decision of the General Partner to refrain from acting on behalf of the
Partnership undertaken in the good faith belief that such action or omission is
necessary or advisable in order (i) to protect the ability of the General
Partner Entity to continue to qualify as a REIT or (ii) to allow the General
Partner Entity to avoid incurring any liability for taxes under Section 857 or
4981 of the Code, is expressly authorized under this Agreement and is deemed
approved by all of the Limited Partners.
SECTION 7.10 RELIANCE BY THIRD PARTIES
Notwithstanding anything to the contrary in this Agreement, any Person
dealing with the Partnership shall be entitled to assume that the General
Partner has full power and authority, without consent or approval of any other
Partner or Person, to encumber, sell or otherwise use in any manner any and all
assets of the Partnership, to enter into any contracts on behalf of the
Partnership and to take any and all actions on behalf of the Partnership, and
such Person shall be entitled to deal with the General Partner as if the General
Partner were the Partnership's sole party in interest, both legally and
beneficially. Each Limited Partner hereby
38
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. SALE OF ALL ASSETS OF THE PARTNERSHIP. Except as provided in
Article XIII hereof and subject to Section 7.11.C and Section 7.11.D below, the
General Partner may not, directly or indirectly, cause the Partnership to sell,
exchange, transfer or otherwise dispose of all or substantially all of the
Partnership's assets in a single transaction or a series of related transactions
(including by way of merger (including a triangular merger), consolidation or
other combination with any other Persons) (i) if such merger, sale or other
transaction is in connection with a Termination Transaction permitted under
Section 11.2.B hereof, without the Consent of the Partners holding a majority of
Percentage Interests (including the effect of any Partnership Units held by the
General Partner) or (ii) otherwise, without the Consent of the Outside Limited
Partners.
C. REQUIRED CONSENT OF CERTAIN PARTNERS. (i) The General Partner
may not, directly or indirectly, cause the Partnership to take any action
prohibited by this Section 7.11.C without the requisite approval as provided in
this Section 7.11.C.
(1) For a period of twelve (12) years following the Effective Date,
the General Partner may not, directly or indirectly, cause the
Partnership to sell, exchange or otherwise dispose of the
property located at 673 First Avenue, New York, New York or any
indirect interest therein (collectively, the "673 First Avenue
Property") (other than an involuntary sale pursuant to
foreclosure of the mortgage secured by the 673 First Avenue
Property or otherwise, including pursuant to a deed in lieu of
39
foreclosure (provided that the General Partner may not execute
any deed in lieu of foreclosure unless the maturity of the
indebtedness secured by the 673 First Avenue Property has been
accelerated) or a proceeding in connection with a bankruptcy)
without the consent of the Partners who at the time of the
proposed sale, exchange or other disposition (other than the
General Partner or the General Partner Entity or any Subsidiary
of either the General Partner or the General Partner Entity) hold
seventy-five percent (75%) of the Partnership Units which were
issued to or with respect to 673 First Realty Company in the
Consolidation and which remain outstanding (whether held by the
original recipient of such Partnership Units or by a successor or
transferee of the original recipient, but not including the
General Partner or the General Partner Entity or any Subsidiary
of either the General Partner or the General Partner Entity)
excluding any such Partnership Units the adjusted tax basis of
which has been increased, in the hands of the holder or any
predecessor holder thereof, to reflect fair market value through
a taxable disposition or otherwise (referred to as "673 First
Avenue Units"). In addition, during such twelve-year period, the
General Partner may not, directly or indirectly, cause the
Partnership to repay, earlier than one year prior to its stated
maturity, any indebtedness secured by the 673 First Avenue
Property without the consent of Partners holding seventy-five
percent (75%) of the 673 First Avenue Units, unless such
repayment (a) is made in connection with the refinancing (on a
basis such that the new debt would be considered a Nonrecourse
Liability, or, as contemplated by clause (2) below, a Partner
Nonrecourse Debt) of such indebtedness for an amount not less
than the principal amount of such indebtedness on the date of
such refinancing, with such refinancing indebtedness (1)
providing for the least amount of principal amortization as is
available on commercially reasonable terms and (2) permitting
(but not requiring) a guarantee of such indebtedness by the
holders of the 673 First Avenue Units (or the direct or indirect
partners or members thereof) who elect to join in such guarantee
in a form and on terms consistent with any guarantees by the
holders of the 673 First Avenue Units (or the direct or indirect
partners or members thereof) that may be in effect immediately
prior to such refinancing, provided that the opportunity to
provide such guarantee may be obtained on commercially reasonable
terms, or (b) is made in connection with an involuntary sale
pursuant to foreclosure of the mortgage secured by the 673 First
Avenue Property or otherwise, including pursuant to a deed in
lieu of foreclosure (provided that the General Partner may not
execute any deed in lieu of foreclosure unless the maturity of
the indebtedness secured by the 673 First Avenue Property has
been accelerated) or a proceeding in connection with a
bankruptcy. During such twelve-year period, the General Partner
shall use commercially reasonable efforts during the one-year
period prior to the
40
stated maturity of such indebtedness to cause the Operating
Partnership to refinance (on a basis such that the new debt would
be considered a Nonrecourse Liability, or, as contemplated by
clause (2) below, a Partner Nonrecourse Debt) the indebtedness
for an amount not less than the principal amount of such
indebtedness on the date of such refinancing, provided such
refinancing can be obtained on commercially reasonable terms,
with such refinancing indebtedness (1) providing for the least
amount of principal amortization as is available on commercially
reasonable terms and (2) permitting (but not requiring) a
guarantee of such indebtedness by the holders of the 673 First
Avenue Units (or the direct or indirect partners or members
thereof) who elect to join in such guarantee in a form and on
terms consistent with any guarantees by the holders of the 673
First Avenue Units (or the direct or indirect partners or members
thereof) that may be in effect immediately prior to such
refinancing, provided that the opportunity to provide such
guarantee may be obtained on commercially reasonable terms.
Finally, during such twelve-year period, the General Partner
shall not, without the consent of Partners holding seventy-five
percent (75%) of the 673 First Avenue Units, incur indebtedness
secured by the 673 First Avenue Property if, at the time such
indebtedness is incurred, the aggregate amount of the
indebtedness secured by the 673 First Avenue Property would
exceed the greater of (i) seventy-five percent (75%) of the fair
market value of the 673 First Avenue Property (or the interest
therein) securing such indebtedness or (ii) the then outstanding
indebtedness being refinanced plus all costs (including
prepayment fees, "breakage" payments and similar costs) incurred
in connection with such refinancing.
(2) For a period of twelve (12) years following the Effective Date,
the General Partner may not, directly or indirectly, cause the
Partnership to sell, exchange or otherwise dispose of the
property located at 470 Park Avenue South, New York, New York or
any indirect interest therein (collectively, the "470 Park Avenue
South Property") (other than an involuntary sale pursuant to
foreclosure of the mortgage secured by the 470 Park Avenue South
Property or otherwise, including pursuant to a deed in lieu of
foreclosure (provided that the General Partner may not execute
any deed in lieu of foreclosure unless maturity of the
indebtedness secured by the 470 Park Avenue South Property has
been accelerated) or a proceeding in connection with a
bankruptcy) without the consent of the Partners who at the time
of the proposed sale, exchange or other disposition (other than
the General Partner or the General Partner Entity or any
Subsidiary of either the General Partner or the General Partner
Entity) hold seventy-five percent (75%) of the Partnership Units
which were issued to or with respect to the 470 Park Avenue
South, L.P. in the Consolidation and which remain outstanding
(whether held by the original
41
recipient of such Partnership Units or by a successor or
transferee of the original recipient, but not including the
General Partner or the General Partner Entity or any Subsidiary
of either the General Partner or the General Partner Entity)
excluding any such Partnership Units the adjusted tax basis of
which has been increased, in the hands of the holder or any
predecessor holder thereof, to reflect fair market value through
a taxable disposition or otherwise (referred to as "470 Park
Avenue South Units"). In addition, during such twelve-year
period, the General Partner may not, directly or indirectly,
cause the Partnership to repay, earlier than one year prior to
its stated maturity, any indebtedness secured by the 470 Park
Avenue South Property without the consent of Partners who hold
seventy-five percent (75%) of the 470 Park Avenue South Units,
unless such repayment (a) is made in connection with the
refinancing (on a basis such that the new debt would he
considered a Nonrecourse Liability, or, as contemplated by clause
(2) below, a Partner Nonrecourse Debt) of such indebtedness for
an amount not less than the principal amount of such indebtedness
on the date of such refinancing, with such refinancing
indebtedness (1) providing for the least amount of principal
amortization as is available on commercially reasonable terms and
(2) permitting (but not requiring) a guarantee of such
indebtedness by the holders of the 470 Park Avenue South Units
(or the direct or indirect partners or members thereof) who elect
to join in such guarantee in a form and on terms consistent with
any guarantees by the holders of the 470 Park Avenue South Units
(or the direct or indirect partners or members thereof) that may
be in effect immediately prior to such refinancing, provided that
the opportunity to provide such guarantee may be obtained on
commercially reasonable terms, or (b) is made in connection with
an involuntary sale pursuant to foreclosure of the mortgage
secured by the 470 Park Avenue South Property or otherwise,
including pursuant to a deed in lieu of foreclosure (provided
that the General Partner may not execute any deed in lieu of
foreclosure unless the maturity of the indebtedness secured by
the 470 Park Avenue South Property has been accelerated) or a
proceeding in connection with a bankruptcy. During such
twelve-year period, the General Partner shall use commercially
reasonable efforts during the one-year period prior to the stated
maturity of such indebtedness to cause the Operating Partnership
to refinance (on a basis such that the new debt would be
considered a Nonrecourse Liability, or, as contemplated by clause
(2) below, a Partner Nonrecourse Debt) the indebtedness for an
amount not less than the principal amount of such indebtedness on
the date of such refinancing, provided such refinancing can be
obtained on commercially reasonable terms, with such refinancing
indebtedness (1) providing for the least amount of principal
amortization as is available on commercially reasonable terms
and (2) permitting (but not requiring) a guarantee of such
indebtedness by the holders of the 470 Park Avenue
42
South Units (or the direct or indirect partners or members
thereof) who elect to join in such guarantee in a form and on
terms consistent with any guarantees by the holders of the 470
Park Avenue South Units (or the direct or indirect partners or
members thereof) that may be in effect immediately prior to such
refinancing, provided that the opportunity to provide such
guarantee may be obtained on commercially reasonable terms.
Finally, during such twelve-year period, the General Partner
shall not, without the consent of Partners holding seventy-five
percent (75%) of the 470 Park Avenue South Units, incur
indebtedness secured by the 470 Park Avenue South Property if, at
the time such indebtedness is incurred, the aggregate amount of
the indebtedness secured by the 470 Park Avenue South Property
would exceed the greater of (i) seventy-five percent (75%) of the
fair market value of the 470 Park Avenue South Property (or the
interest therein) securing such indebtedness or (ii) the then
outstanding indebtedness being refinanced plus all costs
(including prepayment fees, "breakage" payments and similar
costs) incurred in connection with such refinancing.
(3) Subparagraphs (1) and (2) shall not apply to any transaction that
involves the 673 First Avenue Property or the 470 Park Avenue
South Property, as the case may be (which Property is referred to
as the "Exchanged Property"), if such transaction qualifies as a
like-kind exchange under Section 1031 of the Code in which no
gain is recognized by the Partnership as long as the following
conditions are satisfied: (x) such exchange is not with a
"related party" within the meaning of Section 1031(f)(3) of the
Code; (y) the property received in exchange for the Exchanged
Property (referred to as the "Replacement Property") is secured
by nonrecourse indebtedness in an amount not less than the
outstanding principal amount of the nonrecourse indebtedness
secured by the Exchanged Property at the time of the exchange,
nor greater than the amount that would be permitted under
Sections 7.11.C(1) or (2), as the case may be, with a maturity
not earlier than, and a principal amortization rate not more
rapid than, the maturity and principal amortization rate of such
indebtedness secured by the Exchanged Property, which
indebtedness permits (but does not require) a guarantee of such
indebtedness by the holders of the 673 First Avenue Units or the
470 Park Avenue South Units (or the direct or indirect partners
or members thereof), as the case may be, who elect to join in
such guarantee in a form on terms consistent with any guarantees
by the holders of the 673 First Avenue Units or the 470 Park
Avenue South Units (or the direct or indirect partners or members
thereof), as the case may be, that may be in effect immediately
prior to the time of the exchange, and (z) the Replacement
Property is thereafter treated for all purposes of the
restrictions in this Section 7.11.C as the Exchanged Property and
the indebtedness secured by such
43
Replacement Property is subject to the same restrictions and
agreements as apply with respect to the indebtedness secured by
the Exchanged Property.
(4) Subparagraphs (1) and (2) shall not apply to any transaction that
involves the 673 First Avenue Property or the 470 Park Avenue
South Property, as the case may be (which Property is referred to
as the "Transferred Property"), if (x) such transaction does not
result in, and is not otherwise in connection with, a dissolution
of the Partnership, (y) such transaction qualifies as a
contribution to a partnership under Section 721 of the Code in
which no gain is recognized with respect to the 673 First Avenue
Property or the 470 Park Avenue South Property by the Partnership
or the holders of the 673 First Avenue Units or the 470 Park
Avenue South Units, as the case may be (other than gain, if any,
resulting solely because the share, if any, of indebtedness
allocable to the holder of a Partnership Unit under Regulations
Section 1.752-3(a)(3) (or any successor thereto) is reduced or
eliminated), and (z) the entity to which such Transferred
Property is transferred agrees, for the benefit of the holders of
the 470 Park Avenue South Units or the 673 First Avenue Units, as
the case may be, that all of the restrictions of this Section
7.11.C shall apply to the Transferred Property and the
indebtedness outstanding with respect thereto in the same manner
and to the extent set forth in this Section 7.11.C and such
agreement is reflected in the partnership agreement (or other
comparable governing instrument) of the entity to which the
Transferred Property is transferred.
(5) Subparagraphs (1) and (2) shall not apply to any transaction that
involves either a merger or consolidation of the Partnership with
or into another entity that qualifies as a "partnership" for
federal income tax purposes (the "Successor Partnership") or a
transfer of all or substantially all of the assets of the
Partnership to a Successor Partnership and dissolution of the
Partnership in connection therewith (in either case, a
"Consolidation Transaction") so long as (y) no gain is recognized
with respect to the 673 First Avenue Property or the 470 Park
Avenue South Property by the Partnership or the holders of the
673 First Avenue Units or the 470 Park Avenue South Units, as the
case may be, in connection with such Consolidation Transaction
(other than gain, if any, resulting solely because the share, if
any, of indebtedness allocable to the holder of a Partnership
Unit under Regulations Section 1.752-3(a)(3) (or any successor
thereto) is reduced or eliminated) and (y) the Successor
Partnership agrees in writing, for the benefit of the holders of
the 673 First Avenue Units or the 470 Park Avenue South Units, as
the case may be, that all of the restrictions of this Section
7.11.C shall apply to the 673 First Avenue Property and the 470
Park Avenue South Property and the indebtedness
44
outstanding with respect thereto in the same manner and to the
extent set forth in this Section 7.11.C.
(6) Subparagraphs (1) and (2) shall not apply to any sale or other
disposition transaction not otherwise described in Subparagraph
(3), (4) or (5) (including a merger or consolidation) involving
the 673 First Avenue Property and/or the 470 Park Avenue South
Property that is undertaken in connection with and as an integral
part of a sale or other disposition of all or substantially all
of the assets of the Partnership (referred to as a "Liquidating
Transaction") so long as the Liquidating Transaction is
undertaken with the Consent of Certain Limited Partners.
(ii) Nothing herein shall be deemed to require that the Partnership or
the General Partner take any action to avoid or prevent an involuntary
disposition of any property, whether pursuant to foreclosure of a mortgage
secured by such property or otherwise, including pursuant to a deed in lieu of
foreclosure where the maturity of the related indebtedness has been accelerated
or a proceeding in connection with a bankruptcy.
(iii) Nothing herein shall prevent the sale, exchange, transfer or
other disposition of any property pursuant to the dissolution and liquidation of
the Partnership in accordance with Article XIII hereof (other than Section
13.1(v), which shall be subject to this Section 7.11.C).
D. MERGER OR CONSOLIDATION IN WHICH THE PARTNERSHIP IS NOT THE
SURVIVING ENTITY. In the event that the Partnership is to merge or consolidate
with or into any other entity in a transaction in which holders of Partnership
Units will receive consideration other than cash or equity securities that are
Publicly Traded (an "Equity Merger") and such Equity Merger would be prohibited
by Section 7.11.C but for the application of Section 7.11.C(5), then (in
addition to any Consent requirements under Section 7.11.B and Section 7.11.C)
the Equity Merger shall require the Consent of Certain Limited Partners unless:
(i) the partnership agreement, limited liability agreement or
other operative governing documents (the "Charter Documents") of the
entity that is the surviving entity in such Equity Merger contain
provisions that are comparable in all material respects to, or the
entity that is the surviving entity in such Equity Merger otherwise
agrees in writing, for the benefit of the holders of the 673 First
Avenue Units and the 470 Park Avenue South Units, to restrictions that
are comparable in all material respects to the provisions of Section
4.2.A, Article V and Article VI (except for differences that would be
permitted pursuant to Sections 4.2, 5.1.E, 5.4, 6.2 and 14.1.B(3) if
such changes were to be made to this Agreement), Section 7.1.A (second
sentence only), Section 7.6.A, Section 7.11.A, Section 7.11.B, this
Section 7.11.D, Section 8.6 (and all defined terms set forth in
Article I that relate to the Redemption Right), Section 11.2, Section
13.1, Section 13.2.A(3) (except as permitted pursuant to Sections 4.2,
5.4, 6.2
45
and 14.1 B(3)), Section 14.1.C, Section 14.1.D, and Section 14.2, all
as in effect immediately prior to the Equity Merger; and
(ii) the Equity Merger would not either cause a holder of a
Partnership Unit to be a general partner or to have liability
equivalent to that of a general partner in a partnership or otherwise
modify the limited liability of a Limited Partner under this
Agreement.
SECTION 7.12 LOANS BY THIRD PARTIES
The Partnership may incur Debt, or enter into similar credit,
guarantee, financing or refinancing arrangements for any purpose (including,
without limitation, in connection with any acquisition of property) with any
Person that is not the General Partner upon such terms as the General Partner
determines appropriate; PROVIDED THAT, the Partnership shall not incur any Debt
that is recourse to the General Partner, except to the extent otherwise agreed
to by the General Partner in its sole discretion.
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
46
Partner) and any officer, director, employee, agent, trustee, Affiliate or
stockholder 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), 6.1.A(ii) and 6.1.B(i)
hereof or otherwise expressly provided in this Agreement, as to profits, losses,
distributions or credits.
SECTION 8.5 RIGHTS OF LIMITED PARTNERS RELATING TO THE PARTNERSHIP
A. GENERAL. In addition to other rights provided by this Agreement or
by the Act, and except as limited by Section 8.5.D below, each Limited Partner
shall have the right, for a purpose reasonably related to such Limited Partner's
interest as a limited partner in the Partnership, upon written demand with a
statement of the purpose of such demand and at such Limited Partner's own
expense:
(1) to obtain a copy of the most recent annual and quarterly reports
filed with the Securities and Exchange Commission by the General
Partner Entity pursuant to the Exchange Act;
(2) to obtain a copy of the Partnership's federal, state and local
income tax returns for each Partnership Year;
(3) to obtain a current list of the name and last known business,
residence or mailing address of each Partner;
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(4) to obtain a copy of this Agreement and the Certificate and all
amendments thereto, together with executed copies of all powers
of attorney pursuant to which this Agreement, the Certificate and
all amendments thereto have been executed; and
(5) to obtain true and full information regarding the amount of cash
and a description and statement of any other property or services
contributed by each Partner and which each Partner has agreed to
contribute in the future, and the date on which each became a
Partner.
B. NOTICE OF CONVERSION FACTOR. The Partnership shall notify each
Limited Partner upon request of the then current Conversion Factor and any
changes that have been made thereto.
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 stockholders or effect a merger
(including without limitation, a triangular merger), a sale of all or
substantially all of its assets or any other similar extraordinary transaction
without notifying the Limited Partners of its intention to make such
distribution or effect such merger, sale or other extraordinary transaction at
least twenty (20) Business Days prior to the record date to determine
stockholders eligible to receive such distribution or to vote upon the approval
of such merger, sale or other extraordinary transaction (or, if no such record
date is applicable, at least twenty (20) Business Days before consummation of
such merger, sale or other extraordinary transaction). This provision for such
notice shall not be deemed (i) to permit any transaction that otherwise is
prohibited by this Agreement or requires a Consent of the Partners or (ii) to
require a Consent of the Limited Partners to a transaction that does not
otherwise require Consent under this Agreement. Each Limited Partner agrees, as
a condition to the receipt of the notice pursuant hereto, to keep confidential
the information set forth therein until such time as the General Partner Entity
has made public disclosure thereof and to use such information during such
period of confidentiality solely for purposes of determining whether or not to
exercise the Redemption Right; PROVIDED, HOWEVER, that a Limited Partner may
disclose such information to its attorney, accountant and/or financial advisor
for purposes of obtaining advice with respect to such exercise so long as such
attorney, accountant and/or financial advisor agrees to receive and hold such
information subject to this confidentiality requirement.
D. CONFIDENTIALITY. Notwithstanding any other provision of this
Section 8.5, the General Partner may keep confidential from the Limited
Partners, for such period of time as the General Partner determines in its sole
and absolute discretion to be reasonable, any information that (i) the General
Partner reasonably believes to be in the nature of trade secrets or other
information the disclosure of which the General Partner in good faith believes
is not in the best interests of the Partnership or could damage the Partnership
or its business or (ii) the Partnership is required by law or by agreements with
unaffiliated third parties to keep confidential.
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SECTION 8.6 REDEMPTION RIGHT
A. GENERAL. (i) Subject to Section 8.6.C below, on or after the date
two (2) years after the issuance of a Partnership Unit to a Limited Partner
pursuant to Article IV hereof (which two-year period shall commence upon the
issuance of such Partnership Unit regardless of whether such Partnership Unit is
designated upon issuance as a Class A Unit, a Class B Unit or otherwise and
shall include the period of time from the date such Partnership Unit is issued
to such Limited Partner as other than a Class A Unit until the date such
Partnership Unit is converted automatically to a Class A Unit pursuant to
Section 4.2.C hereof), or on or after such date prior to the expiration of such
two-year period as the General Partner, in its sole and absolute discretion,
designates with respect to any or all Class A Units then outstanding, the holder
of a Partnership Unit (if other than the General Partner or the General Partner
Entity) shall have the right (the "Redemption Right") to require the Partnership
to redeem such Partnership Unit on a Specified Redemption Date and at a
redemption price equal to and in the form of the Cash Amount to be paid by the
Partnership. Any such Redemption Right shall be exercised pursuant to a Notice
of Redemption delivered to the Partnership (with a copy to the General Partner)
by the Limited Partner who is exercising the Redemption Right (the "Redeeming
Partner"). A Limited Partner may not exercise the Redemption Right for less
than one thousand (1,000) Partnership Units or, if such Redeeming Partner holds
less than one thousand (1,000) Partnership Units, for less than all of the
Partnership Units held by such Redeeming Partner.
(ii) The Redeeming Partner shall have no right with respect to
any Partnership Units so redeemed to receive any distributions paid after the
Specified Redemption Date.
(iii) The Assignee of any Limited Partner may exercise the rights
of such Limited Partner pursuant to this Section 8.6 and such Limited Partner
shall be deemed to have assigned such rights to such Assignee and shall be bound
by the exercise of such rights by such Limited Partner's Assignee. In
connection with any exercise of the such rights by such Assignee on behalf of
such Limited Partner, the Cash Amount shall be paid by the Partnership directly
to such Assignee and not to such Limited Partner.
(iv) In the event that the General Partner provides notice to the
Limited Partners pursuant to Section 8.5.C hereof, the Redemption Right shall be
exercisable, without regard to whether the Partnership Units have been
outstanding for any specified period, during the period commencing on the date
on which the General Partner provides such notice and ending on the record date
to determine stockholders eligible to receive such distribution or to vote upon
the approval of such merger, sale or other extraordinary transaction (or, if no
record date is applicable, at least twenty (20) business days before the
consummation of such merger, sale or other extraordinary transaction). In the
event that this subparagraph (iv) applies, the Specified Redemption Date is the
date on which the Partnership and the General Partner receive notice of exercise
of the Redemption Right, rather than ten (10) Business Days after receipt of the
notice of redemption.
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B. GENERAL PARTNER ASSUMPTION OF RIGHT. (i) If a Limited Partner has
delivered a Notice of Redemption, the General Partner may, in its sole and
absolute discretion (subject to any limitations on ownership and transfer of
Shares set forth in the Articles of Incorporation), elect to assume directly and
satisfy a Redemption Right by paying to the Redeeming Partner either the Cash
Amount or the Shares Amount, as the General Partner determines in its sole and
absolute discretion (provided that payment of the Redemption Amount in the form
of Shares shall be in Shares registered under Section 12 of the Exchange Act and
listed for trading on the exchange or national market on which the Shares are
Publicly Traded, and PROVIDED, FURTHER that, in the event that the Shares are
not Publicly Traded at the time a Redeeming Partner exercises its Redemption
Right, the Redemption Amount shall be paid only in the form of the Cash Amount
unless the Redeeming Partner, in its sole and absolute discretion, consents to
payment of the Redemption Amount in the form of the Shares Amount), on the
Specified Redemption Date, whereupon the General Partner shall acquire the
Partnership Units offered for redemption by the Redeeming Partner and shall be
treated for all purposes of this Agreement as the owner of such Partnership
Units. Unless the General Partner, in its sole and absolute discretion, shall
exercise its right to assume directly and satisfy the Redemption Right, the
General Partner shall not have any obligation to the Redeeming Partner or to the
Partnership with respect to the Redeeming Partner's exercise of the Redemption
Right. In the event the General Partner shall exercise its right to satisfy the
Redemption Right in the manner described in the first sentence of this Section
8.6.B and shall fully perform its obligations in connection therewith, the
Partnership shall have no right or obligation to pay any amount to the Redeeming
Partner with respect to such Redeeming Partner's exercise of the Redemption
Right, and each of the Redeeming Partner, the Partnership and the General
Partner shall, for federal income tax purposes, treat the transaction between
the General Partner and the Redeeming Partner as a sale of the Redeeming
Partner's Partnership Units to the General Partner. Nothing contained in this
Section 8.6.B shall imply any right of the General Partner to require any
Limited Partner to exercise the Redemption Right afforded to such Limited
Partner pursuant to Section 8.6.A above.
(ii) In the event that the General Partner determines to pay the
Redeeming Partner the Redemption Amount in the form of Shares, the total number
of Shares to be paid to the Redeeming Partner in exchange for the Redeeming
Partner's Partnership Units shall be the applicable Shares Amount . In the
event this amount is not a whole number of Shares, the Redeeming Partner shall
be paid (i) that number of Shares which equals the nearest whole number less
than such amount plus (ii) an amount of cash which the General Partner
determines, in its reasonable discretion, to represent the fair value of the
remaining fractional Share which would otherwise be payable to the Redeeming
Partner.
(iii) Each Redeeming Partner agrees to execute such documents as
the General Partner may reasonably require in connection with the issuance of
Shares upon exercise of the Redemption Right.
C. EXCEPTIONS TO EXERCISE OF REDEMPTION RIGHT. Notwithstanding the
provisions of Sections 8.6.A and 8.6.B above, a Partner shall not be entitled to
exercise the
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Redemption Right pursuant to Section 8.6.A above if (but only as long as) the
delivery of Shares to such Partner on the Specified Redemption Date (i) would be
prohibited under the Articles of Incorporation or (ii) as long as the Shares are
Publicly Traded, would be prohibited under applicable federal or state
securities laws or regulations (in each case regardless of whether the General
Partner would in fact assume and satisfy the Redemption Right).
D. NO LIENS ON PARTNERSHIP UNITS DELIVERED FOR REDEMPTION. Each
Limited Partner covenants and agrees with the General Partner that all
Partnership Units delivered for redemption shall be delivered to the Partnership
or the General Partner, as the case may be, free and clear of all liens, and,
notwithstanding anything contained herein to the contrary, neither the General
Partner nor the Partnership shall be under any obligation to acquire Partnership
Units which are or may be subject to any liens. Each Limited Partner further
agrees that, in the event any state or local property transfer tax is payable as
a result of the transfer of its Partnership Units to the Partnership or the
General Partner, such Limited Partner shall assume and pay such transfer tax.
E. ADDITIONAL PARTNERSHIP INTERESTS. In the event that the
Partnership issues Partnership Interests to any Additional Limited Partner
pursuant to Article IV hereof, the General Partner shall make such amendments to
this Section 8.6 as it determines are necessary to reflect the issuance of such
Partnership Interests (including setting forth any restrictions on the exercise
of the Redemption Right with respect to such Partnership Interests).
ARTICLE IX
BOOKS, RECORDS, ACCOUNTING AND REPORTS
SECTION 9.1 RECORDS AND ACCOUNTING
The General Partner shall keep or cause to be kept at the principal
office of the Partnership appropriate books and records with respect to the
Partnership's business, including, without limitation, all books and records
necessary to provide to the Limited Partners any information, lists and copies
of documents required to be provided pursuant to Section 9.3 below. Any records
maintained by or on behalf of the Partnership in the regular course of its
business may be kept on, or be in the form of, punch cards, magnetic tape,
photographs, micrographics or any other information storage device, provided
that the records so maintained are convertible into clearly legible written form
within a reasonable period of time. The books of the Partnership shall be
maintained, for financial and tax reporting purposes, on an accrual basis in
accordance with generally accepted accounting principles.
SECTION 9.2 FISCAL YEAR
The fiscal year of the Partnership shall be the calendar year.
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SECTION 9.3 REPORTS
A. ANNUAL REPORTS. As soon as practicable, but in no event later than
the date on which the General Partner Entity mails its annual report to its
stockholders, the General Partner shall cause to be mailed to each Limited
Partner an annual report, as of the close of the most recently ended Partnership
Year, containing financial statements of the Partnership, or of the General
Partner Entity if such statements are prepared solely on a consolidated basis
with the Partnership, for such Partnership Year, presented in accordance with
generally accepted accounting principles, such statements to be audited by a
nationally recognized firm of independent public accountants selected by the
General Partner Entity.
B. QUARTERLY REPORTS. If and to the extent that the General Partner
Entity mails quarterly reports to its stockholders, as soon as practicable, but
in no event later than the date on which such reports are mailed, the General
Partner shall cause to be mailed to each Limited Partner a report containing
unaudited financial statements, as of the last day of such calendar quarter, of
the Partnership, or of the General Partner Entity if such statements are
prepared solely on a consolidated basis with the Partnership, and such other
information as may be required by applicable law or regulation, or as the
General Partner determines to be appropriate.
ARTICLE X
TAX MATTERS
SECTION 10.1 PREPARATION OF TAX RETURNS
The General Partner shall arrange for the preparation and timely
filing of all returns of Partnership income, gains, deductions, losses and other
items required of the Partnership for federal and state income tax purposes and
shall use all reasonable efforts to furnish, within ninety (90) days of the
close of each taxable year, the tax information reasonably required by Limited
Partners for federal and state income tax reporting purposes.
SECTION 10.2 TAX ELECTIONS
Except as otherwise provided herein, the General Partner shall, in its
sole and absolute discretion, determine whether to make any available election
pursuant to the Code; PROVIDED, HOWEVER, that the General Partner shall make the
election under Section 754 of the Code in accordance with applicable Regulations
thereunder. The General Partner shall have the right to seek to revoke any such
election (including, without limitation, the election under Section 754 of the
Code) upon the General Partner's determination in its sole and absolute
discretion that such revocation is in the best interests of the Partners.
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SECTION 10.3 TAX MATTERS PARTNER
A. GENERAL. The General Partner shall be the "tax matters partner" of
the Partnership for federal income tax purposes. Pursuant to Section 6223(c)(3)
of the Code, upon receipt of notice from the IRS of the beginning of an
administrative proceeding with respect to the Partnership, the tax matters
partner shall furnish the IRS with the name, address, taxpayer identification
number and profit interest of each of the Limited Partners and any Assignees;
PROVIDED, HOWEVER, that such information is provided to the Partnership by the
Limited Partners.
B. POWERS. The tax matters partner is authorized, but not required:
(1) to enter into any settlement with the IRS with respect to
any administrative or judicial proceedings for the
adjustment of Partnership items required to be taken into
account by a Partner for income tax purposes (such
administrative proceedings being referred to as a "tax
audit" and such judicial proceedings being referred to as
"judicial review"), and in the settlement agreement the tax
matters partner may expressly state that such agreement
shall bind all Partners, except that such settlement
agreement shall not bind any Partner (i) who (within the
time prescribed pursuant to the Code and Regulations) files
a statement with the IRS providing that the tax matters
partner shall not have the authority to enter into a
settlement agreement on behalf of such Partner or (ii) who
is a "notice partner" (as defined in Section 6231(a)(8) of
the Code) or a member of a "notice group" (as defined in
Section 6223(b)(2) of the Code);
(2) in the event that a notice of a final administrative
adjustment at the Partnership level of any item required to
be taken into account by a Partner for tax purposes (a
"final adjustment") is mailed to the tax matters partner, to
seek judicial review of such final adjustment, including the
filing of a petition for readjustment with the Tax Court or
the filing of a complaint for refund with the United States
Claims Court or the District Court of the United States for
the district in which the Partnership's principal place of
business is located;
(3) to intervene in any action brought by any other Partner for
judicial review of a final adjustment;
(4) to file a request for an administrative adjustment with the
IRS at any time and, if any part of such request is not
allowed by the IRS, to file an appropriate pleading
(petition or complaint) for judicial review with respect to
such request;
53
(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.
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Each Limited Partner hereby unconditionally and irrevocably grants to the
Partnership a security interest in such Limited Partner's Partnership Interest
to secure such Limited Partner's obligation to pay to the Partnership any
amounts required to be paid pursuant to this Section 10.5. In the event that a
Limited Partner fails to pay any amounts owed to the Partnership pursuant to
this Section 10.5 when due, the General Partner may, in its sole and absolute
discretion, elect to make the payment to the Partnership on behalf of such
defaulting Limited Partner, and in such event shall be deemed to have loaned
such amount to such defaulting Limited Partner and shall succeed to all rights
and remedies of the Partnership as against such defaulting Limited Partner
(including, without limitation, the right to receive distributions). Any
amounts payable by a Limited Partner hereunder shall bear interest at the base
rate on corporate loans at large United States money center commercial banks, as
published from time to time in the WALL STREET JOURNAL, plus four (4) percentage
points (but not higher than the maximum lawful rate) from the date such amount
is due (i.e., fifteen (15) days after demand) until such amount is paid in full.
Each Limited Partner shall take such actions as the Partnership or the General
Partner shall request in order to perfect or enforce the security interest
created hereunder.
ARTICLE XI
TRANSFERS AND WITHDRAWALS
SECTION 11.1 TRANSFER
A. DEFINITION. The term "transfer," when used in this Article XI
with respect to a Partnership Interest or a Partnership Unit, shall be deemed to
refer to a transaction by which the General Partner purports to assign all or
any part of its General Partnership Interest to another Person or by which a
Limited Partner purports to assign all or any part of its Limited Partnership
Interest to another Person, and includes a sale, assignment, gift, pledge,
encumbrance, hypothecation, mortgage, exchange or any other disposition by law
or otherwise. The term "transfer" when used in this Article XI does not include
any redemption or repurchase of Partnership Units by the Partnership from a
Partner (including the General Partner) or acquisition of Partnership Units from
a Limited Partner by the General Partner pursuant to Section 8.6 hereof or
otherwise. No part of the interest of a Limited Partner shall be subject to the
claims of any creditor, any spouse for alimony or support, or to legal process,
and may not be voluntarily or involuntarily alienated or encumbered except as
may be specifically provided for in this Agreement.
B. GENERAL. No Partnership Interest shall be transferred, in whole
or in part, except in accordance with the terms and conditions set forth in this
Article XI. Any transfer or purported transfer of a Partnership Interest not
made in accordance with this Article XI shall be null and void.
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SECTION 11.2 TRANSFERS OF PARTNERSHIP INTERESTS OF GENERAL PARTNER
A. Except for transfers of Partnership Units to the Partnership as
provided in Section 7.5 or Section 8.6 hereof, the General Partner may not
transfer any of its Partnership Interest (including both its General Partnership
Interest and its Limited Partnership Interest) except in connection with a
transaction described in Section 11.2.B below or as otherwise expressly
permitted under this Agreement), nor shall the General Partner withdraw as
General Partner except in connection with a transaction described in Section
11.2.B below.
B. The General Partner shall not engage in any merger (including a
triangular merger), consolidation or other combination with or into another
person, sale of all or substantially all of its assets or any reclassification,
recapitalization or change of outstanding Shares (other than a change in par
value, or from par value to no par value, or as a result of a subdivision or
combination as described in the definition of "Conversion Factor") ("Termination
Transaction"), unless the Termination Transaction has been approved by the
Consent of the Partners holding a majority or more of the then outstanding
Percentage Interests (including the effect of any Partnership Units held by the
General Partner) and in connection with which all Limited Partners either will
receive, or will have the right to elect to receive, for each Partnership Unit
an amount of cash, securities, or other property equal to the product of the
Conversion Factor and the greatest amount of cash, securities or other property
paid to a holder of Shares, if any, corresponding to such Partnership Unit that
was issued pursuant to Section 4.2.A hereof in consideration of one such Share
at any time during the period from and after the date on which the Termination
Transaction is consummated; PROVIDED THAT, if, in connection with the
Termination Transaction, a purchase, tender or exchange offer shall have been
made to and accepted by the holders of more than fifty percent (50%) of the
outstanding Shares, each holder of Partnership Units shall receive, or shall
have the right to elect to receive, the greatest amount of cash, securities, or
other property which such holder would have received had it exercised the
Redemption Right and received Shares in exchange for its Partnership Units
immediately prior to the expiration of such purchase, tender or exchange offer
and had thereupon accepted such purchase, tender or exchange offer.
SECTION 11.3 LIMITED PARTNERS' RIGHTS TO TRANSFER
A. GENERAL. Subject to the provisions of Sections 11.3.C, 11.3.D,
11.3.E, 11.4 and 11.6 below, prior to the second anniversary of the Effective
Date, a Limited Partner may not transfer any of such Limited Partner's rights as
a Limited Partner without the consent of the General Partner, which consent the
General Partner may withhold in its sole discretion if it determines that such a
transfer would cause any or all of the Limited Partners other than the Limited
Partner seeking to transfer its rights as a Limited Partner to be subject to tax
liability as a result of such transfer. Any purported transfer attempted in
violation of the foregoing sentence shall be deemed void AB INITIO and shall
have no force or effect. Subject to the provisions of Sections 11.3.C, 11.3.D,
11.3.E, 11.4 and 11.6 below, on or after the second anniversary of the Effective
Date, a Limited Partner (other than the General Partner) may transfer, with or
without the consent of the General Partner, all or any portion of its
Partnership
56
Interest, or any of such Limited Partner's rights as a Limited Partner, provided
that prior written notice of such proposed transfer is delivered to the General
Partner.
B. INCAPACITATED LIMITED PARTNERS. If a Limited Partner is subject
to Incapacity, the executor, administrator, trustee, committee, guardian,
conservator or receiver of such Limited Partner's estate shall have all the
rights of a Limited Partner, but not more rights than those enjoyed by other
Limited Partners for the purpose of settling or managing the estate and such
power as the Incapacitated Limited Partner possessed to transfer all or any part
of its interest in the Partnership. The Incapacity of a Limited Partner, in and
of itself, shall not dissolve or terminate the Partnership.
C. NO TRANSFERS VIOLATING SECURITIES LAWS. The General Partner may
prohibit any transfer of Partnership Units by a Limited Partner if, in the
opinion of legal counsel to the Partnership, such transfer would require filing
of a registration statement under the Securities Act or would otherwise violate
any federal, or state securities laws or regulations applicable to the
Partnership or the Partnership Unit.
D. NO TRANSFERS AFFECTING TAX STATUS OF PARTNERSHIP. No transfer of
Partnership Units by a Limited Partner (including a redemption or exchange
pursuant to Section 8.6 hereof) may be made to any Person if (i) in the opinion
of legal counsel for the Partnership, it would result in the Partnership being
treated as an association taxable as a corporation for federal income tax
purposes or would result in a termination of the Partnership for federal income
tax purposes (except as a result of the redemption or exchange for Shares of all
Partnership Units held by all Limited Partners other than the General Partner or
the General Partner Entity or any Subsidiary of either the General Partner or
the General Partner Entity or pursuant to a transaction expressly permitted
under Section 7 11.B or Section 11.2 hereof), (ii) in the opinion of legal
counsel for the Partnership, it would adversely affect the ability of the
General Partner Entity to continue to qualify as a REIT or would subject the
General Partner Entity to any additional taxes under Section 857 or Section 4981
of the Code or (iii) such transfer is effectuated through an "established
securities market" or a "secondary market (or the substantial equivalent
thereof)" within the meaning of Section 7704 of the Code.
E. NO TRANSFERS TO HOLDERS OF NONRECOURSE LIABILITIES. No pledge or
transfer of any Partnership Units may be made to a lender to the Partnership, or
to any Person who is related (within the meaning of Section 1.752-4(b) of the
Regulations) to any lender to the Partnership, whose loan constitutes a
Nonrecourse Liability without the consent of the General Partner, in its sole
and absolute discretion; provided that, as a condition to such consent the
lender will be required to enter into an arrangement with the Partnership and
the General Partner to exchange or redeem for the Redemption Amount any
Partnership Units transferred or in which a security interest is held
simultaneously with the time at which such lender would be deemed to be a
partner in the Partnership for purposes of allocating liabilities to such lender
under Section 752 of the Code.
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F. TRANSFER REGISTER. The General Partner shall keep a register for
the Partnership on which the transfer, pledge or release of Partnership Units
shall be shown and pursuant to which entries shall be made to effect all
transfers, pledges or releases as required by Sections 8-207, 8-313(1) and 8-321
of the Uniform Commercial Code, as amended, in effect in the States of New York
and Delaware; PROVIDED, HOWEVER, that if there is any conflict between such
requirements, the provisions of the Delaware Uniform Commercial Code shall
govern. The General Partner shall (i) place proper entries in such register
clearly showing each transfer and each pledge and grant of security interest and
the transfer and assignment pursuant thereto, such entries to be endorsed by the
General Partner and (ii) maintain the register and make the register available
for inspection by all of the Partners and their pledgees at all times during the
term of this Agreement. Nothing herein shall be deemed a consent to any pledge
or transfer otherwise prohibited under this Agreement.
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. An
Assignee shall be entitled to all the rights of an assignee of a limited
58
partnership interest under the Act, including the right to receive distributions
from the Partnership and the share of Net Income, Net Losses, gain, loss and
Recapture Income attributable to the Partnership Units assigned to such
transferee, and shall have the rights granted to the Limited Partners under
Section 8.6 hereof but shall not be deemed to be a holder of Partnership Units
for any other purpose under this Agreement, and shall not be entitled to vote
such Partnership Units in any matter presented to the Limited Partners for a
vote (such Partnership Units being deemed to have been voted on such matter in
the same proportion as all other Partnership Units held by Limited Partners are
voted). In the event any such transferee desires to make a further assignment
of any such Partnership Units, such transferee shall be subject to all the
provisions of this Article XI to the same extent and in the same manner as any
Limited Partner desiring to make an assignment of Partnership Units.
SECTION 11.6 GENERAL PROVISIONS
A. WITHDRAWAL OF LIMITED PARTNER. No Limited Partner may withdraw
from the Partnership other than as a result of a permitted transfer of all of
such Limited Partner's Partnership Units in accordance with this Article XI or
pursuant to redemption of all of its Partnership Units under Section 8.6 hereof.
B. TERMINATION OF STATUS AS LIMITED PARTNER. Any Limited Partner
who shall transfer all of its Partnership Units in a transfer permitted pursuant
to this Article XI or pursuant to redemption of all of its Partnership Units
under Section 8.6 hereof shall cease to be a Limited Partner.
C. TIMING OF TRANSFERS. Transfers pursuant to this Article XI may
only be made on the first day of a fiscal quarter of the Partnership, unless the
General Partner otherwise agrees.
D. ALLOCATIONS. If any Partnership Interest is transferred during
any quarterly segment of the Partnership's fiscal year in compliance with the
provisions of this Article XI or redeemed or transferred pursuant to Section 8.6
hereof, Net Income, Net Losses, each item thereof and all other items
attributable to such interest for such fiscal year shall be divided and
allocated between the transferor Partner and the transferee Partner by taking
into account their varying interests during the fiscal year in accordance with
Section 706(d) of the Code, using the interim closing of the books method
(unless the General Partner, in its sole and absolute discretion, elects to
adopt a daily, weekly, or a monthly proration period, in which event Net Income,
Net Losses, each item thereof and all other items attributable to such interest
for such fiscal year shall be prorated based upon the applicable method selected
by the General Partner). Solely for purposes of making such allocations, each
of such items for the calendar month in which the transfer or redemption occurs
shall be allocated to the Person who is a Partner as of midnight on the last day
of said month. All distributions of Available Cash attributable to any
Partnership Unit with respect to which the Partnership Record Date is before the
date of such transfer, assignment or redemption shall be made to the transferor
Partner or the Redeeming Partner, as the case may be, and, in the case of a
transfer or assignment other than a
59
redemption, all distributions of Available Cash thereafter attributable to such
Partnership Unit shall be made to the transferee Partner.
E. ADDITIONAL RESTRICTIONS. In addition to any other restrictions
on transfer herein contained, including without limitation the provisions of
this Article XI, in no event may any transfer or assignment of a Partnership
Interest by any Partner (including pursuant to Section 8.6 hereof) be made
without the express consent of the General Partner, in its sole and absolute
discretion, (i) to any person or entity who lacks the legal right, power or
capacity to own a Partnership Interest; (ii) in violation of applicable law;
(iii) of any component portion of a Partnership Interest, such as the Capital
Account, or rights to distributions, separate and apart from all other
components of a Partnership Interest; (iv) if in the opinion of legal counsel to
the Partnership such transfer would cause a termination of the Partnership for
federal or state income tax purposes (except as a result of the redemption or
exchange for Shares of all Partnership Units held by all Limited Partners or
pursuant to a transaction expressly permitted under Section 7.11.B or Section
11.2 hereof); (v) if in the opinion of counsel to the Partnership, such transfer
would cause the Partnership to cease to be classified as a partnership for
federal income tax purposes (except as a result of the redemption or exchange
for Shares of all Partnership Units held by all Limited Partners or pursuant to
a transaction expressly permitted under Section 7.11.B or Section 11.2 hereof);
(vi) if such transfer would cause the Partnership to become, with respect to any
employee benefit plan subject to Title I of ERISA, a "party-in-interest" (as
defined in Section 3(14) of ERISA) or a "disqualified person" (as defined in
Section 4975(c) of the Code); (vii) if such transfer would, in the opinion of
counsel to the Partnership, cause any portion of the assets of the Partnership
to constitute assets of any employee benefit plan pursuant to Department of
Labor Regulations Section 2510.1101; (viii) if such transfer requires the
registration of such Partnership Interest pursuant to any applicable federal or
state securities laws; (ix) if such transfer is effectuated through an
"established securities market" or a "secondary market" (or the substantial
equivalent thereof) within the meaning of Section 7704 of the Code or such
transfer causes the Partnership to become a "publicly traded partnership," as
such term is defined in Section 469(k)(2) or Section 7704(b) of the Code; (x) if
such transfer subjects the Partnership to regulation under the Investment
Company Act of 1940, the Investment Advisors Act of 1940 or the Employee
Retirement Income Security Act of 1974, each as amended; (xi) if the transferee
or assignee of such Partnership Interest is unable to make the representations
set forth in Section 15.15 hereof or such transfer could otherwise adversely
affect the ability of the General Partner Entity to remain qualified as a REIT;
or (xii) if in the opinion of legal counsel for the Partnership, such transfer
would adversely affect the ability of the General Partner Entity to continue to
qualify as a REIT or subject the General Partner Entity to any additional taxes
under Section 857 or Section 4981 of the Code.
F. AVOIDANCE OF "PUBLICLY TRADED PARTNERSHIP" STATUS. The General
Partner shall monitor the transfers of interests in the Partnership to determine
(i) if such interests are being traded on an "established securities market" or
a "secondary market (or the substantial equivalent thereof)" within the meaning
of Section 7704 of the Code and (ii) whether additional transfers of interests
would result in the Partnership being unable to qualify for at least one of
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the "safe harbors" set forth in Regulations Section 1.7704-1 (or such other
guidance subsequently published by the IRS setting forth safe harbors under
which interests will not be treated as "readily tradable on a secondary market
(or the substantial equivalent thereof") within the meaning of Section 7704 of
the Code (the "Safe Harbors"). The General Partner shall take all steps
reasonably necessary or appropriate to prevent any trading of interests or any
recognition by the Partnership of transfers made on such markets and, except as
otherwise provided herein, to insure that at least one of the Safe Harbors is
met.
ARTICLE XII
ADMISSION OF PARTNERS
SECTION 12.1 ADMISSION OF SUCCESSOR GENERAL PARTNER
A successor to all of the General Partner's General Partnership
Interest pursuant to Section 11.2 hereof who is proposed to be admitted as a
successor General Partner shall be admitted to the Partnership as the General
Partner, effective upon such transfer. Any such transferee shall carry on the
business of the Partnership without dissolution. In each case, the admission
shall be subject to the successor General Partner's executing and delivering to
the Partnership an acceptance of all of the terms and conditions of this
Agreement and such other documents or instruments as may be required to effect
the admission.
SECTION 12.2 ADMISSION OF ADDITIONAL LIMITED PARTNERS
A. GENERAL. No Person shall be admitted as an Additional Limited
Partner without the consent of the General Partner, which consent shall be given
or withheld in the General Partner's sole and absolute discretion. A Person who
makes a Capital Contribution to the Partnership in accordance with this
Agreement, including, without limitation, pursuant to Section 4.1.C hereof, or
who exercises an option to receive Partnership Units shall be admitted to the
Partnership as an Additional Limited Partner only with the consent of the
General Partner and only upon furnishing to the General Partner (i) evidence of
acceptance in form satisfactory to the General Partner of all of the terms and
conditions of this Agreement, including, without limitation, the power of
attorney granted in Section 15.11 hereof and (ii) such other documents or
instruments as may be required in the discretion of the General Partner in order
to effect such 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
61
the Partnership Year in accordance with Section 706(d) of the Code, using the
interim closing of the books method (unless the General Partner, in its sole and
absolute discretion, elects to adopt a daily, weekly or monthly proration
method, in which event Net Income, Net Losses, and each item thereof would be
prorated based upon the applicable period selected by the General Partner).
Solely for purposes of making such allocations, each of such items for the
calendar month in which an admission of any Additional Limited Partner occurs
shall be allocated among all the Partners and Assignees including such
Additional Limited Partner. All distributions of Available Cash with respect to
which the Partnership Record Date is before the date of such admission shall be
made solely to Partners and Assignees other than the Additional Limited Partner,
and all distributions of Available Cash thereafter shall be made to all the
Partners and Assignees including such Additional Limited Partner.
SECTION 12.3 AMENDMENT OF AGREEMENT AND CERTIFICATE OF LIMITED
PARTNERSHIP
For the admission to the Partnership of any Partner, the General
Partner shall take all steps necessary and appropriate under the Act to amend
the records of the Partnership (including an amendment and restatement of
EXHIBIT A hereto) and, if necessary, to prepare as soon as practical an
amendment of this Agreement and, if required by law, shall prepare and file an
amendment to the Certificate and may for this purpose exercise the power of
attorney granted pursuant to Section 15.11 hereof.
ARTICLE XIII
DISSOLUTION AND LIQUIDATION
SECTION 13.1 DISSOLUTION
The Partnership shall not be dissolved by the admission of Substituted
Limited Partners or Additional Limited Partners or by the admission of a
successor General Partner in accordance with the terms of this Agreement. Upon
the withdrawal of the General Partner, any successor General Partner shall
continue the business of the Partnership. The Partnership shall dissolve, and
its affairs shall be wound up, upon the first to occur of any of the following
("Liquidating Events"):
(i) the expiration of its term as provided in Section 2.4
hereof;
(ii) an event of withdrawal of the General Partner, as
defined in the Act (other than an event of bankruptcy), unless, within
ninety (90) days after the withdrawal a "majority in interest" (as
defined below) of the remaining Partners Consent in writing to
continue the business of the Partnership and to the appointment,
effective as of the date of withdrawal, of a substitute General
Partner;
62
(iii) an election to dissolve the Partnership made by the
General Partner, in its sole and absolute discretion, after December
31, [204__];
(iv) entry of a decree of judicial dissolution of the
Partnership pursuant to the provisions of the Act;
(v) the sale of all or substantially all of the assets and
properties of the Partnership for cash or for marketable securities
(subject to Section 7.11.C); or
(vi) a final and nonappealable judgment is entered by a
court of competent jurisdiction ruling that the General Partner is
bankrupt or insolvent, or a final and nonappealable order for relief
is entered by a court with appropriate jurisdiction against the
General Partner, in each case under any federal or state bankruptcy or
insolvency laws as now or hereafter in effect, unless prior to or
within ninety days after of the entry of such order or judgment a
"majority in interest" (as defined below) of the remaining Partners
Consent in writing to continue the business of the Partnership and to
the appointment, effective as of a date prior to the date of such
order or judgment, of a substitute General Partner.
As used herein, a "majority in interest" shall refer to Partners
(excluding the General Partner) who hold more than fifty percent (50%) of the
outstanding Percentage Interests not held by the General Partner.
SECTION 13.2 WINDING UP
A. GENERAL. Upon the occurrence of a Liquidating Event, the
Partnership shall continue solely for the purposes of winding up its affairs in
an orderly manner, liquidating its assets, and satisfying the claims of its
creditors and Partners. No Partner shall take any action that is inconsistent
with, or not necessary to or appropriate for, the winding up of the
Partnership's business and affairs. The General Partner (or, in the event there
is no remaining General Partner, any Person elected by a majority in interest of
the Limited Partners (the "Liquidator")) shall be responsible for overseeing the
winding up and dissolution of the Partnership and shall take full account of the
Partnership's liabilities and property and the 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;
63
(2) Second, to the payment and discharge of all of the Partnership's
debts and liabilities to the Partners; and
(3) The balance, if any, to the Partners in accordance with their
Capital Accounts, after giving effect to all contributions,
distributions, and allocations for all periods.
The General Partner shall not receive any additional compensation for any
services performed pursuant to this Article XIII.
B. DEFERRED LIQUIDATION. Notwithstanding the provisions of Section
13.2.A above which require liquidation of the assets of the Partnership, but
subject to the order of priorities set forth therein, if prior to or upon
dissolution of the Partnership the Liquidator determines that an immediate sale
of part or all of the Partnership's assets would be impractical or would cause
undue loss to the Partners, the Liquidator may, in its sole and absolute
discretion, defer for a reasonable time the liquidation of any assets except
those necessary to satisfy liabilities of the Partnership (including to those
Partners as creditors) or distribute to the Partners, in lieu of cash, as
tenants in common and in accordance with the provisions of Section 13.2.A above,
undivided interests in such Partnership assets as the Liquidator deems not
suitable for liquidation. Any such distributions in kind shall be made only if,
in the good faith judgment of the Liquidator, such distributions in kind are in
the best interest of the Partners, and shall be subject to such conditions
relating to the disposition and management of such properties as the Liquidator
deems reasonable and equitable and to any agreements governing the operation of
such properties at such time. The Liquidator shall determine the fair market
value of any property distributed in kind using such reasonable method of
valuation as it may adopt.
SECTION 13.3 COMPLIANCE WITH TIMING REQUIREMENTS OF REGULATIONS
Subject to Section 13.4 below, in the event the Partnership is
"liquidated" within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g),
distributions shall be made pursuant to this Article XIII to the General Partner
and Limited Partners who have positive Capital Accounts in compliance with
Regulations Section 1.704-1(b)(2)(ii)(b)(2). If any Partner has a deficit
balance in its Capital Account (after giving effect to all contributions,
distributions and allocations for all taxable years, including the year during
which such liquidation occurs), such Partner shall have no obligation to make
any contribution to the capital of the Partnership with respect to such deficit,
and such deficit shall not be considered a debt owed to the Partnership 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
64
discretion of the General Partner, in the same proportions as the amount
distributed to such trust by the Partnership would otherwise have been
distributed to the General Partner and Limited Partners pursuant to this
Agreement); or (B) withheld to provide a reasonable reserve for Partnership
liabilities (contingent or otherwise) and to reflect the unrealized portion of
any installment obligations owed to the Partnership, provided that such withheld
amounts shall be distributed to the General Partner and Limited Partners as soon
as practicable.
SECTION 13.4 DEEMED DISTRIBUTION AND RECONTRIBUTION
Notwithstanding any other provision of this Article XIII, in the event
the Partnership is deemed liquidated within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g) but no Liquidating Event has occurred, the Partnership's
property shall not be liquidated, the Partnership's liabilities shall not be
paid or discharged and the Partnership's affairs shall not be wound up.
Instead, for federal income tax purposes and for purposes of maintaining Capital
Accounts pursuant to EXHIBIT B hereto, the Partnership shall be deemed to have
distributed its assets in kind to the General Partner and Limited Partners, who
shall be deemed to have assumed and taken such assets subject to all Partnership
liabilities, all in accordance with their respective Capital Accounts.
Immediately thereafter, the General Partner and Limited Partners shall be deemed
to have recontributed the Partnership assets in kind to the Partnership, which
shall be deemed to have assumed and taken such assets subject to all such
liabilities.
SECTION 13.5 RIGHTS OF LIMITED PARTNERS
Except as otherwise provided in this Agreement, each Limited Partner
shall look solely to the assets of the Partnership for the return of its Capital
Contributions and shall have no right or power to demand or receive property
other than cash from the Partnership. Except as otherwise expressly provided in
this Agreement, no Limited Partner shall have priority over any other Limited
Partner as to the return of its Capital Contributions, distributions, or
allocations.
SECTION 13.6 NOTICE OF DISSOLUTION
In the event a Liquidating Event occurs or an event occurs that would,
but for provisions of an election or objection by one or more Partners pursuant
to Section 13.1 above, result in a dissolution of the Partnership, the General
Partner shall, within thirty (30) days thereafter, provide written notice
thereof to each of the Partners and to all other parties with 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).
65
SECTION 13.7 CANCELLATION OF CERTIFICATE OF LIMITED PARTNERSHIP
Upon the completion of the liquidation of the Partnership cash and
property as provided in Section 13.2 above, the Partnership shall be terminated
and the Certificate and all qualifications of the Partnership as a foreign
limited partnership in jurisdictions other than the State of Delaware shall be
canceled and such other actions as may be necessary to terminate the Partnership
shall be taken.
SECTION 13.8 REASONABLE TIME FOR WINDING UP
A reasonable time shall be allowed for the orderly winding up of the
business and affairs of the Partnership and the liquidation of its assets
pursuant to Section 13.2 above, in order to minimize any losses otherwise
attendant upon such winding-up, and the provisions of this Agreement shall
remain in effect among the Partners during the period of liquidation.
SECTION 13.9 WAIVER OF PARTITION
Each Partner hereby waives any right to partition of the Partnership
property.
SECTION 13.10 LIABILITY OF LIQUIDATOR
The Liquidator shall be indemnified and held harmless by the
Partnership in the same manner and to the same degree as an Indemnitee may be
indemnified pursuant to Section 7.11 hereof.
ARTICLE XIV
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS
SECTION 14.1 AMENDMENTS.
A. GENERAL. Amendments to this Agreement may be proposed by the
General Partner or by any Limited Partners holding twenty-five percent (25%) or
more of the Partnership Interests. Following such proposal (except an amendment
pursuant to Section 14.1.B below), the General Partner shall submit any proposed
amendment to the Limited Partners. The General Partner shall seek the written
vote of the Partners on the proposed amendment or shall call a meeting to vote
thereon and to transact any other business that it may deem appropriate. For
purposes of obtaining a written vote, the General Partner may require a response
within a reasonable specified time, but not less than fifteen (15) days, and
failure to respond in such time period shall constitute a vote which is
consistent with the General Partner's recommendation with respect to the
proposal. Except as provided in Section 14.1.B, 14.1.C or 14.1.D below, a
proposed amendment shall be adopted and be effective as an amendment hereto if
it is approved by the General Partner and it receives the Consent of Partners
holding a majority of the
66
Percentage Interests of the Limited Partners (including Limited Partnership
Interests held by the General Partner).
B. AMENDMENTS NOT REQUIRING LIMITED PARTNER APPROVAL.
Notwithstanding Section 14.1.A or Section 14.1.C hereof, the General Partner
shall have the power, without the Consent of the Limited Partners, to amend this
Agreement as may be required to facilitate or implement any of the following
purposes:
(1) to add to the obligations of the General Partner or surrender any
right or power granted to the General Partner or any Affiliate of
the General Partner for the benefit of the Limited Partners;
(2) to reflect the admission, substitution, termination or withdrawal
of any Partner in accordance with this Agreement;
(3) to set forth the designations, rights, powers, duties, and
preferences of the holders of any additional Partnership
Interests issued pursuant to Article IV hereof;
(4) to reflect a change that does not adversely affect any of the
Limited Partners in any material respect, or to cure any
ambiguity, correct or supplement any provision in this Agreement
not inconsistent with law or with other provisions, or make other
changes with respect to matters arising under this Agreement that
will not be inconsistent with law or with the provisions of this
Agreement or as may be expressly provided by any other provisions
of this Agreement; and
(5) to satisfy any requirements, conditions, or guidelines contained
in any order, directive, opinion, ruling or regulation of a
federal, state or local agency or contained in federal, state or
local law.
The General Partner shall notify the Limited Partners when any action under this
Section 14.1.B is taken in the next regular communication to the Limited
Partners.
C. AMENDMENTS REQUIRING LIMITED PARTNER APPROVAL (EXCLUDING GENERAL
PARTNER). Notwithstanding Section 14 1.A above, without the Consent of the
Outside Limited Partners, the General Partner shall not amend Section 4.2.A,
Section 5.1.E, Section 7.1.A (second sentence only), Section 7.5, Section 7.6,
Section 7.8, Section 7.11.B, Section 11.2, Section 13.1, this Section 14.1.C or
Section 14.2.
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
67
Partnership into a general partner's interest, (ii) modify the limited liability
of a Limited Partner, (iii) amend Section 7.11.A, (iv) amend Article V, Article
VI, or Section 13.2.A(3) (except as permitted pursuant to Sections 4.2, 5.1.E,
5.4, 6.2 and 14.1(B)(3)), (v) amend Section 8.6 or any defined terms set forth
in Article I that relate to the Redemption Right (except as permitted in Section
8.6.E), or (vi) amend this Section 14.1.D. In addition, any amendment to
Section 7.11.C of this Agreement shall require the following consent:
(i) In the event that the amendment to Section 7.11.C affects
the 673 First Avenue Property or the rights of holders of 673 First
Avenue Units, such amendment shall require the Consent of Partners
(other than the General Partner or the General Partner Entity or any
Subsidiary of either the General Partner or the General Partner
Entity) who hold seventy-five percent (75%) of the 673 First Avenue
Units;
(ii) In the event that the amendment to Section 7.11.C affects
the 470 Park Avenue South Property or the rights of holders of 470
Park Avenue South Units, such amendment shall require the Consent of
Partners (other than the General Partner or the General Partner Entity
or any Subsidiary of either the General Partner or the General Partner
Entity) who hold seventy-five percent (75%) of the 470 Park Avenue
South Units.
E. AMENDMENT AND RESTATEMENT OF EXHIBIT A NOT AN AMENDMENT.
Notwithstanding anything in this Article XIV or elsewhere in this Agreement to
the contrary, any amendment and restatement of EXHIBIT A hereto by the General
Partner to reflect events or changes otherwise authorized or permitted by this
Agreement, whether pursuant to Section 7.1.A(20) hereof or otherwise, shall not
be deemed an amendment of this Agreement and may be done at any time and from
time to time, as necessary by the General Partner without the Consent of the
Limited Partners.
SECTION 14.2 MEETINGS OF THE PARTNERS
A. GENERAL. Meetings of the Partners may be called by the General
Partner and shall be called upon the receipt by the General Partner of a written
request by Limited Partners holding twenty-five percent (25%) or more of the
Partnership Interests. The call shall state the nature of the business to be
transacted. Notice of any such meeting shall be given to all Partners not less
than seven (7) days nor more than thirty (30) days prior to the date of such
meeting. Partners may vote in person or by proxy at such meeting. Whenever the
vote or Consent of Partners is permitted or required under this Agreement, such
vote or Consent may be given at a meeting of Partners or may be given in
accordance with the procedure prescribed in Section 14.1.A above. Except as
otherwise expressly provided in this Agreement, the 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.
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B. ACTIONS WITHOUT A MEETING. Any action required or permitted to
be taken at a meeting of the Partners may be taken without a meeting if a
written consent setting forth the action so taken is signed by a majority of the
Percentage Interests of the Partners (or such other percentage as is expressly
required by this Agreement). Such consent may be in one instrument or in
several instruments, and shall have the same force and effect as a vote of a
majority of the Percentage Interests of the Partners (or such other percentage
as is expressly required by this Agreement). Such consent shall be filed with
the General Partner. An action so taken shall be deemed to have been taken at a
meeting held on the effective date so certified.
C. PROXY. Each Limited Partner may authorize any Person or Persons
to act for him by proxy on all matters in which a Limited Partner is entitled to
participate, including waiving notice of any meeting, or voting or participating
at a meeting. Every proxy must be signed by the Limited Partner or its
attorney-in-fact. No proxy shall be valid after the expiration of eleven (11)
months from the date thereof unless otherwise provided in the proxy. Every
proxy shall be revocable at the pleasure of the Limited Partner executing it.
Such revocation to be effective upon the Partnership's receipt of notice thereof
in writing.
D. CONDUCT OF MEETING. Each meeting of Partners shall be conducted
by the General Partner or such other Person as the General Partner may appoint
pursuant to such rules for the conduct of the meeting as the General Partner or
such other Person deems appropriate.
ARTICLE XV
GENERAL PROVISIONS
SECTION 15.1 ADDRESSES AND NOTICE
Any notice, demand, request or report required or permitted to be
given or made to a Partner or Assignee under this Agreement shall be in writing
and shall be deemed given or made when delivered in person or when sent by first
class United States mail or by other means of written communication to the
Partner or Assignee at the address set forth in Exhibit A hereto or such other
address as the Partners shall notify the General Partner in writing.
SECTION 15.2 TITLES AND CAPTIONS
All article or section titles or captions in this Agreement are for
convenience only. They shall not be deemed part of this Agreement and in no way
define, limit, extend or describe the scope or intent of any provisions hereof.
Except as specifically provided otherwise, references to "Articles" and
"Sections" are to Articles and Sections of this Agreement.
69
SECTION 15.3 PRONOUNS AND PLURALS
Whenever the context may require, any pronoun used in this Agreement
shall include the corresponding masculine, feminine or neuter forms, and the
singular form of nouns, pronouns and verbs shall include the plural and vice
versa.
SECTION 15.4 FURTHER ACTION
The parties shall execute and deliver all documents, provide all
information and take or refrain from taking action as may be necessary or
appropriate to achieve the purposes of this Agreement.
SECTION 15.5 BINDING EFFECT
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their heirs, executors, administrators, successors, legal
representatives and permitted assigns.
SECTION 15.6 CREDITORS
Other than as expressly set forth herein with regard to any
Indemnitee, none of the provisions of this Agreement shall be for the benefit
of, or shall be enforceable by, any creditor of the Partnership.
SECTION 15.7 WAIVER
No failure by any party to insist upon the strict performance of any
covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon a breach thereof shall constitute waiver of any
such breach or any other covenant, duty, agreement or condition.
SECTION 15.8 COUNTERPARTS
This Agreement may be executed in counterparts, all of which together
shall constitute one agreement binding on all the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart. Each party shall become bound by this Agreement immediately
upon affixing its signature hereto.
SECTION 15.9 APPLICABLE LAW
This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Delaware, without regard to the principles
of conflicts of law.
70
SECTION 15.10 INVALIDITY OF PROVISIONS
If any provision of this Agreement is or becomes invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not be affected thereby.
SECTION 15.11 POWER OF ATTORNEY
A. GENERAL. Each Limited Partner and each Assignee who accepts
Partnership Units (or any rights, benefits or privileges associated therewith)
is deemed to irrevocably constitute and appoint the General Partner, any
Liquidator and authorized officers and attorneys-in-fact of each, and each of
those acting singly, in each case with full power of substitution, as its true
and lawful agent and attorney-in-fact, with full power and authority in its
name, place and stead to:
(1) execute, swear to, acknowledge, deliver, file and record in the
appropriate public offices (a) all certificates, documents and
other instruments (including, without limitation, this Agreement
and the Certificate and all amendments or restatements thereof)
that the General Partner or any Liquidator deems appropriate or
necessary to form, qualify or continue the existence or
qualification of the Partnership as a limited partnership (or a
partnership in which the limited partners have limited liability)
in the State of Delaware and in all other jurisdictions in which
the Partnership may conduct business or own property, (b) all
instruments that the General Partner or any Liquidator deems
appropriate or necessary to reflect any amendment, change,
modification or restatement of this Agreement in accordance with
its terms, (c) all conveyances and other instruments or documents
that the General Partner or any Liquidator deems appropriate or
necessary to reflect the dissolution and liquidation of the
Partnership pursuant to the terms of this Agreement, including,
without limitation, a certificate of cancellation, (d) all
instruments relating to the admission, withdrawal, removal or
substitution of any Partner pursuant to, or other events
described in, Article XI, XII or XIII hereof or the Capital
Contribution of any Partner and (e) all certificates, documents
and other instruments relating to the determination of the
rights, preferences and privileges of Partnership Interests; and
(2) execute, swear to, acknowledge and file all ballots, consents,
approvals, waivers, certificates and other instruments
appropriate or necessary, in the sole and absolute discretion of
the General Partner or any Liquidator, to make, evidence, give,
confirm or ratify any vote, consent, approval, agreement or other
action which is made or given by the Partners hereunder or is
consistent with the terms of this Agreement or appropriate
71
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 STOCKHOLDERS
Nothing contained in this Agreement shall be construed as conferring
upon the holders of the Partnership Units any rights whatsoever as stockholders
of the General Partner Entity, including, without limitation, any right to
receive dividends or other distributions made to stockholders of the General
Partner Entity or to vote or to consent or receive notice as stockholders in
respect to any meeting of stockholders for the election of directors of the
General Partner Entity or any other matter.
SECTION 15.14 LIMITATION TO PRESERVE REIT STATUS
To the extent that any amount paid or credited to the General Partner
or its officers, directors, employees or agents pursuant to Section 7.4 or
Section 7.7 hereof would
72
constitute gross income to the General Partner Entity for purposes of Section
856(c)(2) or 856(c)(3) of the Code (a "General Partner Payment") then,
notwithstanding any other provision of this Agreement, the amount of such
General Partner Payments for any fiscal year shall not exceed the lesser of:
(i) an amount equal to the excess, if any, of (a) 4.20% of the
General Partner Entity's total gross income (but not including the amount of any
General Partner Payments) for the fiscal year which is described in subsections
(A) though (H) of Section 856(c)(2) of the Code over (b) the amount of gross
income (within the meaning of Section 856(c)(2) of the Code) derived by the
General Partner Entity from sources other than those described in subsections
(A) through (H) of Section 856(c)(2) of the Code (but not including the amount
of any General Partner Payments); or
(ii) an amount equal to the excess, if any of (a) 25% of the
General Partner Entity's total gross income (but not including the amount of any
General Partner Payments) for the fiscal year which is described in subsections
(A) through (I) of Section 856(c)(3) of the Code over (b) the amount of gross
income (within the meaning of Section 856(c)(3) of the Code) derived by the
General Partner Entity from sources other than those described in subsections
(A) through (I) of Section 856(c)(3) of the Code (but not including the amount
of any General Partner Payments);
PROVIDED, HOWEVER, that General Partner Payments in excess of the amounts set
forth in subparagraphs (i) and (ii) above may be made if the General Partner
Entity, as a condition precedent, obtains an opinion of tax counsel that the
receipt of such excess amounts would not adversely affect the General Partner
Entity's ability to qualify as a REIT. To the extent General Partner Payments
may not be made in a year due to the foregoing limitations, such General Partner
Payments shall carry over and be treated as arising in the following year,
PROVIDED, HOWEVER, that such amounts shall not carry over for more than five
years, and if not paid within such five year period, shall expire; PROVIDED,
FURTHER, that (i) as General Partner Payments are made, such payments shall be
applied first to carryover amounts outstanding, if any, and (ii) with respect to
carryover amounts for more than one Partnership Year, such payments shall be
applied to the earliest Partnership Year first.
73
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
GENERAL PARTNER:
SL GREEN REALTY CORP.
By:_______________________________________________
Name:_____________________________________________
Title:____________________________________________
LIMITED PARTNERS:
SL GREEN REALTY CORP.
By:_______________________________________________
Name:_____________________________________________
Title:____________________________________________
[ADD OTHER LIMITED PARTNERS]
74
EXHIBIT A
PARTNERS AND PARTNERSHIP INTERESTS
Name and Address of Partner Class A
Partnership
Units Class B
Partnership
Units Agreed Initial
Capital
Account Percentage
Interest
GENERAL PARTNER:
SL Green Realty Corp.
70 West 36th Street
New York, New York 10018
LIMITED PARTNERS:
SL Green Realty Corp.
70 West 36th Street
New York, New York 10018
[List other Partners]
TOTAL
A-1
EXHIBIT B
CAPITAL ACCOUNT MAINTENANCE
1. CAPITAL ACCOUNTS OF THE PARTNERS
A. The Partnership shall maintain for each Partner a separate Capital
Account in accordance with the rules of Regulations Section 1.704-l(b)(2)(iv).
Such Capital Account shall be increased by (i) the amount of all Capital
Contributions and any other deemed contributions made by such Partner to the
Partnership pursuant to this Agreement and (ii) all items of Partnership income
and gain (including income and gain exempt from tax) computed in accordance with
Section 1.B hereof and allocated to such Partner pursuant to Section 6.1 of the
Agreement and EXHIBIT C hereof, and decreased by (x) the amount of cash or
Agreed Value of all actual and deemed distributions of cash or property made to
such Partner pursuant to this Agreement and (y) all items of Partnership
deduction and loss computed in accordance with Section 1.B hereof and allocated
to such Partner pursuant to Section 6.1 of the Agreement and EXHIBIT C hereof.
B. For purposes of computing the amount of any item of income, gain,
deduction or loss to be reflected in the Partners' Capital Accounts, unless
otherwise specified in this Agreement, the determination, recognition and
classification of any such item shall be the same as its determination,
recognition and classification for federal income tax purposes determined in
accordance with Section 703(a) of the Code (for this purpose all items of
income, gain, loss or deduction required to be stated separately pursuant to
Section 703(a)(1) of the Code shall be included in taxable income or loss), with
the following adjustments:
(1) Except as otherwise provided in Regulations Section
1.704-l(b)(2)(iv)(m), the computation of all items of income,
gain, loss and deduction shall be made without regard to any
election under Section 754 of the Code which may be made by the
Partnership, provided that the amounts of any adjustments to the
adjusted bases of the assets of the Partnership made pursuant to
Section 734 of the Code as a result of the distribution of
property by the Partnership to a Partner (to the extent that such
adjustments have not previously been reflected in the Partners'
Capital Accounts) shall be reflected in the Capital Accounts of
the Partners in the manner and subject to the limitations
prescribed in Regulations Section 1.704-l(b)(2)(iv) (m)(4).
(2) The computation of all items of income, gain, and deduction shall
be made without regard to the fact that items described in
Sections 705(a)(1)(B) or 705(a)(2)(B) of the Code are not
includable in gross income or are neither currently deductible
nor capitalized for federal income tax purposes.
B-1
(3) Any income, gain or loss attributable to the taxable disposition
of any Partnership property shall be determined as if the
adjusted basis of such property as of such date of disposition
were equal in amount to the Partnership's Carrying Value with
respect to such property as of such date.
(4) In lieu of the depreciation, amortization, and other cost
recovery deductions taken into account in computing such taxable
income or loss, there shall be taken into account Depreciation
for such fiscal year.
(5) In the event the Carrying Value of any Partnership Asset is
adjusted pursuant to Section 1.D hereof, the amount of any such
adjustment shall be taken into account as gain or loss from the
disposition of such asset.
(6) Any items specially allocated under Section 2 of EXHIBIT C hereof
shall not be taken into account.
C. Generally, a transferee (including any Assignee) of a Partnership
Unit shall succeed to a pro rata portion of the Capital Account of the
transferor, including where the transfer causes a termination of the Partnership
under Section 708(b)(1)(B) of the Code, in which case the Capital Account of the
transferee and the Capital Accounts of the other holders of Partnership Units in
the terminated Partnership shall carry over to the new Partnership that is
formed, for federal income tax purposes, as a result of the termination. In
such event, the Carrying Values of the Partnership properties in the
reconstituted Partnership shall remain the same as they were in the terminated
Partnership and the Capital Accounts of such reconstituted Partnership shall be
maintained in accordance with the principles of this EXHIBIT B.
D. (1) Consistent with the provisions of Regulations Section
1.704-1(b)(2)(iv)(f), and as provided in Section 1.D(2), the
Carrying Values of all Partnership assets shall be adjusted
upward or downward to reflect any Unrealized Gain or Unrealized
Loss attributable to such Partnership property, as of the times
of the adjustments provided in Section 1.D(2) hereof, as if such
Unrealized Gain or Unrealized Loss had been recognized on an
actual sale of each such property and allocated pursuant to
Section 6.1 of the Agreement.
(2) Such adjustments shall be made as of the following times: (a)
immediately prior to the acquisition of an additional interest in
the Partnership by any new or existing Partner in exchange for
more than a de minimis Capital Contribution; (b) immediately
prior to the distribution by the Partnership to a Partner of more
than a de minimis amount of property as consideration for an
interest in the Partnership; and (c) immediately prior to the
liquidation of the Partnership within the meaning of Regulations
Section 1.704-l(b)(2)(ii)(g) (except for a liquidation resulting
from the
B-2
termination of the Partnership under Section 708(b)(1)(B) of the
Code), 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- l(b)(2)(iv)(e), the
Carrying Value of Partnership assets distributed in kind (other
than in connection with the termination of the Partnership under
Section 708(b)(1)(B) of the Code) shall be adjusted upward or
downward to reflect any Unrealized Gain or Unrealized Loss
attributable to such Partnership property, as of the time any
such asset is distributed.
(4) In determining Unrealized Gain or Unrealized Loss for purposes of
this EXHIBIT B, the aggregate cash amount and fair market value
of all Partnership assets (including cash or cash equivalents)
shall be determined by the General Partner using such reasonable
method of valuation as it may adopt, or in the case of a
liquidating distribution pursuant to Article XIII of the
Agreement, shall be determined and allocated by the Liquidator
using such reasonable methods of valuation as it may adopt. The
General Partner, or the Liquidator, as the case may be, shall
allocate such aggregate fair market value among the assets of the
Partnership in such manner as it determines in its sole and
absolute discretion to arrive at a fair market value for
individual properties.
E. The provisions of the Agreement (including this EXHIBIT B and the
other Exhibits to the Agreement) relating to the maintenance of Capital Accounts
are intended to comply with Regulations Section 1.704-l(b), and shall be
interpreted and applied in a manner consistent with such Regulations. In the
event the General Partner shall determine that it is prudent to modify the
manner in which the Capital Accounts, or any debits or credits thereto
(including, without limitation, debits or credits relating to liabilities which
are secured by contributed or distributed property or which are assumed by the
Partnership, the General Partner, or the Limited Partners) are computed in order
to comply with such Regulations, the General Partner may make such modification
without regard to Article XIV of the Agreement, provided that it is not likely
to have a material effect on the amounts distributable to any Person pursuant to
Article XIII of the Agreement upon the dissolution of the Partnership. The
General Partner also shall (i) make any adjustments that are necessary or
appropriate to maintain equality between the Capital Accounts of the Partners
and the amount of Partnership capital reflected on the Partnership's balance
sheet, as computed for book purposes, in accordance with Regulations Section
1.704-1(b)(2)(iv)(q), and (ii) make any appropriate modifications in the event
unanticipated events might otherwise cause this Agreement not to comply with
Regulations Section 1.704-1(b).
B-3
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-4
EXHIBIT C
SPECIAL ALLOCATION RULES
1. SPECIAL ALLOCATION RULES.
Notwithstanding any other provision of the Agreement or this EXHIBIT C, the
following special allocations shall be made in the following order:
A. MINIMUM GAIN CHARGEBACK. Notwithstanding the provisions of Section 6.1
of the Agreement or any other provisions of this EXHIBIT C, if there is a net
decrease in Partnership Minimum Gain during any Partnership Year, each Partner
shall be specially allocated items of Partnership income and gain for such year
(and, if necessary, subsequent years) in an amount equal to such Partner's share
of the net decrease in Partnership Minimum Gain, as determined under Regulations
Section 1.704-2(g). Allocations pursuant to the previous sentence shall be made
in proportion to the respective amounts required to be allocated to each Partner
pursuant thereto. The items to be so allocated shall be determined in
accordance with Regulations Section 1.704-2(f)(6). This Section 1.A is intended
to comply with the minimum gain chargeback requirements in Regulations Section
1.704-2(f) and, for purposes of this Section 1.A only, each Partner's Adjusted
Capital Account Deficit shall be determined prior to any other allocations
pursuant to Section 6.1 of this Agreement with respect to such Partnership Year
and without regard to any decrease in Partner Minimum Gain during such
Partnership Year.
B. PARTNER MINIMUM GAIN CHARGEBACK. Notwithstanding any other provision
of Section 6.1 of this Agreement or any other provisions of this EXHIBIT C
(except Section 1.A hereof), if there is a net decrease in Partner Minimum Gain
attributable to a Partner Nonrecourse Debt during any Partnership Year, each
Partner who has a share of the Partner Minimum Gain attributable to such Partner
Nonrecourse Debt, determined in accordance with Regulations Section 1.704-2(i)
(5), shall be specially allocated items of Partnership income and gain for such
year (and, if necessary, subsequent years) in an amount equal to such Partner's
share of the net decrease in Partner Minimum Gain attributable to such Partner
Nonrecourse Debt, determined in accordance with Regulations Section 1.704-2(i)
(5). Allocations pursuant to the previous sentence shall be made in proportion
to the respective amounts required to be allocated to each Partner pursuant
thereto. The items to be so allocated shall be determined in accordance with
Regulations Section 1.704-2(i) (4). This Section 1.B is intended to comply with
the minimum gain chargeback requirement in such Section of the Regulations and
shall be interpreted consistently therewith. Solely for purposes of this
Section 1.B, each Partner's Adjusted Capital Account Deficit shall be determined
prior to any other allocations pursuant to Section 6.1 of the Agreement or this
Exhibit with respect to such Partnership Year, other than allocations pursuant
to Section 1.A hereof.
C. QUALIFIED INCOME OFFSET. In the event any Partner unexpectedly
receives any adjustments, allocations or distributions described in Regulations
Sections 1.704-l(b)(2)(ii)(d)(4), 1.704-l(b)(2)(ii)(d)(5), or
1.704-l(b)(2)(ii)(d)(6), and after giving effect to the allocations required
under Sections 1.A and 1.B hereof with respect to such Partnership Year, such
Partner
C-1
has an Adjusted Capital Account Deficit, items of Partnership income and gain
(consisting of a pro rata portion of each item of Partnership income, including
gross income and gain for the Partnership Year) shall be specially allocated to
such Partner in an amount and manner sufficient to eliminate, to the extent
required by the Regulations, its Adjusted Capital Account Deficit created by
such adjustments, allocations or distributions as quickly as possible. This
Section 1.C is intended to constitute a "qualified income offset" under
Regulations Section 1.704-l(b)(2)(ii)(d) and shall be interpreted consistently
therewith.
D. GROSS INCOME ALLOCATION. In the event that any Partner has an Adjusted
Capital Account Deficit at the end of any Partnership Year (after taking into
account allocations to be made under the preceding paragraphs hereof with
respect to such Partnership Year), each such Partner shall be specially
allocated items of Partnership income and gain (consisting of a pro rata portion
of each item of Partnership income, including gross income and gain for the
Partnership Year) in an amount and manner sufficient to eliminate, to the extent
required by the Regulations, its Adjusted Capital Account Deficit.
E. NONRECOURSE DEDUCTIONS. Nonrecourse Deductions for any Partnership
Year shall be allocated to the Partners in accordance with their respective
Percentage Interests. If the General Partner determines in its good faith
discretion that the Partnership's Nonrecourse Deductions must be allocated in a
different ratio to satisfy the safe harbor requirements of the Regulations
promulgated under Section 704(b) of the Code, the General Partner is authorized,
upon notice to the Limited Partners, to revise the prescribed ratio for such
Partnership Year to the numerically closest ratio which would satisfy such
requirements.
F. PARTNER NONRECOURSE DEDUCTIONS. Any Partner Nonrecourse Deductions for
any Partnership Year shall be specially allocated to the Partner who bears the
economic risk of loss with respect to the Partner Nonrecourse Debt to which such
Partner Nonrecourse Deductions are attributable in accordance with Regulations
Sections 1.704-2(b)(4) and 1.704-2(i).
G. CODE SECTION 754 ADJUSTMENTS. To the extent an adjustment to the
adjusted tax basis of any Partnership asset pursuant to Section 734(b) or 743(b)
of the Code is required, pursuant to Regulations Section 1.704-l(b)(2)(iv)(m),
to be taken into account in determining Capital Accounts, the amount of such
adjustment to the Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis), and such item of gain or loss shall be specially
allocated to the Partners in a manner consistent with the manner in which their
Capital Accounts are required to be adjusted pursuant to such Section of the
Regulations.
2. ALLOCATIONS FOR TAX PURPOSES
A. Except as otherwise provided in this Section 2, for federal income tax
purposes, each item of income, gain, loss and deduction shall be allocated among
the Partners in the same manner as its correlative item of "book" income, gain,
loss or deduction is allocated pursuant to Section 6.1 of the Agreement and
Section 1 of this EXHIBIT C.
C-2
B. In an attempt to eliminate Book-Tax Disparities attributable to a
Contributed Property or Adjusted Property, items of income, gain, loss, and
deduction shall be allocated for federal income tax purposes among the Partners
as follows:
(1) (a) In the case of a Contributed Property, such items attributable
thereto shall be allocated among the Partners consistent with the
principles of Section 704(c) of the Code to take into account the
variation between the 704(c) Value of such property and its
adjusted basis at the time of contribution (taking into account
Section 2.C of this EXHIBIT C); and
(b) any item of Residual Gain or Residual Loss attributable to a
Contributed Property shall be allocated among the Partners in the
same manner as its correlative item of "book" gain or loss is
allocated pursuant to Section 6.1 of the Agreement and Section 1
of this EXHIBIT C.
(2) (a) In the case of an Adjusted Property, such items shall
(i) first, be allocated among the Partners in a manner
consistent with the principles of Section 704(c) of the Code to
take into account the Unrealized Gain or Unrealized Loss
attributable to such property and the allocations thereof
pursuant to EXHIBIT B;
(ii) second, in the event such property was originally a
Contributed Property, be allocated among the Partners in a manner
consistent with Section 2.B(1) of this EXHIBIT C; and
(b) any item of Residual Gain or Residual Loss attributable to an
Adjusted Property shall be allocated among the Partners in the
same manner its correlative item of "book" gain or loss is
allocated pursuant to Section 6.1 of the Agreement and Section 1
of this EXHIBIT C.
C. To the extent Regulations promulgated pursuant to Section 704(c) of
the Code permit a Partnership to utilize alternative methods to eliminate the
disparities between the Carrying Value of property and its adjusted basis, the
General Partner shall, subject to the following, have the authority to elect the
method to be used by the Partnership and such election shall be binding on all
Partners. With respect to the Contributed Properties transferred to the
Partnership in connection with the Consolidation, the Partnership shall elect to
use the "traditional method" set forth in Regulations Section 1.704-3(b).
C-3
EXHIBIT D
NOTICE OF REDEMPTION
The undersigned hereby irrevocably (i) tenders for redemption ________
Partnership Units in SL Green Operating Partnership, L.P. in accordance with the
terms of the First Amended and Restated Agreement of Limited Partnership of SL
Green Operating Partnership, L.P., as amended, and the Redemption Right referred
to therein, (ii) surrenders such Partnership Units and all right, title and
interest therein and (iii) directs that the Cash Amount or Shares Amount (as
determined by the General Partner) deliverable upon exercise of the Redemption
Right be delivered to the address specified below, and if Shares are to be
delivered, such Shares be registered or placed in the name(s) and at the
address(es) specified below. The undersigned hereby represents, warrants, and
certifies that the undersigned (a) has marketable and unencumbered title to such
Partnership Units, free and clear of the rights of or interests of any other
person or entity, (b) has the full right, power and authority to redeem and
surrender such Partnership Units as provided herein and (c) has obtained the
consent or approval of all persons or entities, if any, having the right to
consult or approve such redemption and surrender.
Dated:________________ Name of Limited Partner:_____________________
________________________________________
(Signature of Limited Partner)
________________________________________
(Street Address)
________________________________________
(City) (State) (Zip Code)
Signature Guaranteed by:__________________________
IF SHARES ARE TO BE ISSUED, ISSUE TO:
Name:
Please insert social security or identifying number:
D-1
EXHIBIT E
VALUE OF CONTRIBUTED PROPERTY
Underlying Property 704(c) Value Agreed Value
- ------------------- ------------ ------------
E-1
Exhibit 10.2
RESTATED CERTIFICATE OF INCORPORATION
of
S.L. GREEN MANAGEMENT CORP.
Under Section 807 of the Business Corporation Law
-----------------------------
THE UNDERSIGNED, being the President of S.L. GREEN MANAGEMENT CORP.,
pursuant to Section 807 of the Business Corporation Law of the State of New
York, does hereby restate, certify and set forth:
(1) The name of the Corporation is S.L. Green Management Corp.
(2) The date of filing of the original Certificate of Incorporation with
the Department of State was October 21, 1985.
(3) This Restated Certificate of Incorporation amends the original
Certificate of Incorporation to effect changes authorized by Article 8 of the
Business Corporation Law. This Restated Certificate of Incorporation amends
specifically paragraphs Second, relating to the purpose of the Corporation,
Third, relating to the aggregate number of shares which the Corporation shall
have the authority to issue, the classes of shares issued by the Corporation,
and the par value of the shares issued by the Corporation, Fifth, relating to
the address of the designated agent, Sixth, relating to the designation of the
registered agent, and Seventh, relating to the personal liability of directors
to the Corporation and its shareholders, of the original Certificate of
Incorporation.
The amendment to paragraph Third of the original Certificate of
Incorporation provides for a change to the number of issued shares and the kind
of shares issued. The total number of shares of stock that the Corporation had
authority to issue under the original Certificate of Incorporation was two
hundred (200) shares, without par value, all of one class. All two hundred
(200) shares have been issued. The total number of shares of stock which the
Corporation has authority to issue pursuant to the foregoing Restated
Certificate of Incorporation is two thousand (2,000) shares, consisting of one
thousand (1,000)
shares of Class A Voting Common Stock, par value $0.01 per share ("Voting Common
Stock"), and one thousand (1,000) shares of Class B Non-Voting Common Stock, par
value $0.01 per share ("Non-Voting Common Stock"). Each of the two hundred
(200) shares, without par value, previously issued are being exchanged at a rate
of five shares of Voting Common Stock, par value $0.01 per share, and five
shares of Non-Voting Common Stock, par value $0.01 per share, for each share of
outstanding Common Stock, without par value.
(4) The text of the original Certificate of Incorporation is hereby
restated as amended to read as herein set forth in full.
FIRST: The name of the Corporation is S.L. Green Management Corp.
SECOND: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the Business Corporation
Law of the State of New York. The Corporation is not formed to engage in any
act or activity requiring the consent or approval of any state official,
department, board, agency or other body without such consent or approval first
being obtained.
THIRD: The principal office of the Corporation is to be located in the
County of New York, State of New York.
FOURTH: The total number of shares of capital stock of all classes which
the Corporation shall have authority to issue is two thousand (2,000) shares
consisting of the following: (i) one thousand (1,000) shares of Voting Common
Stock, par value $0.01 per share ("Voting Common Stock"); and (ii) one thousand
(1,000) shares of Non-Voting Common Stock, par value $0.01 per share
("Non-Voting Common Stock").
VOTING COMMON STOCK AND NON-VOTING COMMON STOCK. The powers,
preferences and rights of, and the qualifications of, and limitations and
restrictions upon, the Voting Common Stock and Non-Voting Common Stock
shall be identical except (unless and to the extent otherwise made
mandatory by law) as provided herein.
DIVIDEND RIGHTS. Holders of Non-Voting Common Stock shall be entitled
to share ratably in 95% of all funds legally available for distribution by
dividends declared by the Board of Directors out of funds legally available
therefor ("Funds for Distribution"). Holders of the Voting Common Stock
shall be entitled to share ratably in the remaining 5% of Funds for
Distribution. All Funds
2
for Distribution remaining after payment of operating expenses that in the
opinion of the Board of Directors of the Corporation are not required for
working capital purposes shall be distributed to Stockholders on an annual
basis.
RIGHTS UPON LIQUIDATION. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of, or any distribution of the
assets of, the Corporation, each holder of shares of Voting Common Stock
and Non-Voting Common Stock (together with the holders of any other class
of stock hereafter classified or reclassified having a preference on
distributions in the liquidation, dissolution or winding up of the
Corporation) shall be entitled (after payment or provision for payment of
the debts and other liabilities of the Corporation and to the holders of
any class of stock hereafter classified or reclassified having a preference
on distributions in the liquidation, dissolution or winding up of the
Corporation) to share ratably of the remaining net assets of the
corporation in the following proportion: 95% to the holders of the
Non-Voting Common Stock and 5% to the holders of Voting Common Stock.
VOTING RIGHTS.
(a) VOTING COMMON STOCK. Except as set forth herein or as otherwise
required by law, each outstanding share of Voting Common Stock shall be
entitled to vote on each matter on which the stockholders of the
corporation shall be entitled to vote, and each holder of Voting Common
Stock shall be entitled to one vote for each share of such stock held by
such holder.
(b) NON-VOTING COMMON STOCK. Except as set forth herein or as
otherwise required by law, each outstanding share of Non-Voting Common
Stock shall not be entitled to vote on any matter on which the stockholders
of the Corporation shall be entitled to vote and shares of Non-Voting
Common Stock shall not be included in determining the number of shares
voting or entitled to vote on any such matters.
PREEMPTIVE RIGHTS. No holder of any stock or any other securities of
the Corporation, whether now or hereafter authorized, shall have any
preemptive rights to subscribe for or purchase any stock or any other
securities of the corporation other than such rights, if any, as the Board
of Directors, in its sole discretion, may fix; and any stock or other
securities which the Board of Directors may determine to offer for
subscription may, within the Board of Directors' sole discretion, be
offered to the holders of any
3
class, series or type of stock or other securities at the time outstanding
to the exclusion of holders of any or all other classes, series or types of
stock or other securities at the time outstanding.
FIFTH: The Secretary of State of the State of New York is designated as
the agent of the Corporation upon whom process against the Corporation may be
served. The post office address to which the Department of State of the State
of New York shall mail a copy of any process against the Corporation served upon
him is: C/O CT Corporation System, 1633 Broadway, New York, New York 10019.
SIXTH: The name and address of the registered agent which is to be the
agent of the Corporation upon whom process against it may be served are CT
Corporation System, 1633 Broadway, New York, New York 10019.
SEVENTH: No director of the Corporation shall be personally liable to the
Corporation or its shareholders for damages for any breach of fiduciary duty in
such capacity; PROVIDED, HOWEVER, that this provision shall not eliminate or
limit the liability of any director if a judgment or other final adjudication
adverse to such director establishes that such director's acts or omissions were
in bad faith or involved intentional misconduct or a knowing violation of law or
that such director personally gained in fact a financial profit or other
advantage to which such director was not legally entitled or that such
director's acts violated Section 719 of the Business Corporation Law of the
State of New York. If the Business Corporation Law of the State of New York is
hereafter amended to authorize corporate action further limiting or eliminating
the personal liability of directors, then the liability of each director of the
Corporation shall be limited or eliminated to the full extent permitted by the
Business Corporation Law of the State of New York as so amended from time to
time.
Neither the amendment nor repeal of this Section, nor the adoption of any
provision of the Certificate of Incorporation inconsistent with this Section,
shall eliminate or reduce the effect of this Section in respect of any matter
occurring, or any cause of action, suit or claim that, but for this Section,
would accrue or arise, prior to such amendment, repeal or adoption of any
inconsistent provision.
EIGHTH: INDEMNIFICATION. The Corporation shall indemnify any person who
is or was a director or officer of the Corporation with respect to actions taken
or omitted by such person in any capacity in which such person serves the
Corporation, to the full extent authorized or permitted by law, as now or
hereafter in
4
effect, and such right to indemnification shall continue as to a person who has
ceased to be a director or officer, as the case may be, and shall inure to the
benefit of such person's heirs, executors and personal and legal
representatives; PROVIDED, HOWEVER, that, except for proceedings to enforce
rights to indemnification, the Corporation shall not be obligated to indemnify
any person in connection with a proceeding (or part thereof) initiated by such
person unless such proceeding (or part thereof) was authorized in advance, or
unanimously consented to, by the Board of Directors of the Corporation.
Directors and officers of the Corporation shall have the right to be paid
by the Corporation expenses incurred in defending or otherwise participating in
any proceedings in advance of its final disposition.
INSURANCE. By action of the Board of Directors, notwithstanding any
interest of the directors in the action, the Corporation may purchase and
maintain insurance, in such amounts as the Board of Directors deems appropriate,
on behalf of any person who is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent (including trustee) of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Corporation shall have the power to
indemnify him against such liability under the provisions of this Section.
NINTH: The Corporation reserves the right to amend, alter, change or
repeal any provisions contained in this Restated Certificate of Incorporation in
the manner now or hereafter prescribed by law, and all the provisions of the
Restated Certificate of Incorporation and all rights and powers conferred in
this Restated Certificate of Incorporation on shareholders, directors and
officers are subject to this reserved power.
TENTH: The restatement of the Certificate of Incorporation as hereinabove
set forth has been duly authorized by the Board of Directors and approved by the
stockholders of the Corporation by unanimous written consent as required by law.
5
(5) This restatement of the certificate of incorporation of S.L. GREEN
MANAGEMENT CORP. was authorized by the Consent of the Sole Director, dated
________ ____, 1997.
IN WITNESS WHEREOF, the undersigned have executed, signed and verified this
certificate this ____ day of __________, 1997.
S.L. GREEN MANAGEMENT CORP.
By:
--------------------------------
Stephen L. Green
President
6
VERIFICATION
STATE OF NEW YORK )
)ss.:
COUNTY OF NEW YORK )
Stephen L. Green, being duly sworn, deposes and says that he is the person
who signed the foregoing certificate; that he signed said restated certificate
in the capacity set opposite or beneath his signature thereon; that he has read
the foregoing certificate and knows the contents thereof; and that the
statements contained therein are true to his own knowledge.
By:
-------------------------------
Stephen L. Green
President
Sworn to before me
a Notary Public this ____ day
of ___________ 1997
- -------------------------
Notary Public
BY-LAWS
OF
S.L. GREEN MANAGEMENT CORP.
ARTICLE I
OFFICES
Section 1. The office of the corporation shall be located in the County of
New York and State of New York.
Section 2. The corporation may also have offices at such other places both
within and without the State of New York as the Board of Directors may from time
to time determine or the business of the corporation may require.
ARTICLE II
ANNUAL MEETINGS OF SHAREHOLDERS
Section 1. An annual meeting of the shareholders shall be held on such
date and at such time and place, either within or without the State of New York,
as the Board of Directors shall designate by resolution, within thirteen months
subsequent to the later of the date of incorporation or the last annual meeting
of shareholders, for the purpose of electing directors and for the transaction
of such other business as may come before the meeting. If the election of
directors is not held on the day designated in the manner provided herein for
any annual meeting of the shareholders or at any adjournment thereof, the Board
of Directors shall cause the election to be held at a special meeting of the
shareholders as soon thereafter as convenient. If designation of the place of
meeting is not made, the place of meeting shall be the registered office of the
corporation in the State of New York.
Section 2. Written or printed notice of the annual meeting stating the
place, date and hour of the meeting shall be delivered not less than ten nor
more than fifty days before the date of the meeting, either personally or by
mail, by or at the direction of the President, the Secretary, or the officer
calling the meeting, to each shareholder of record entitled to vote at such
meeting.
ARTICLE III
SPECIAL MEETING OF SHAREHOLDERS
Section 1. Special meetings of shareholders may be held at such time and
place within or without the State of New York as shall be stated in the notice
of the meeting or in a duly executed waiver of notice thereof.
Section 2. Special meetings of the shareholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the Restated Certificate
of Incorporation, may be called by the President, the Board of Directors, or the
holders of more than 50% of all the shares entitled to vote at the meeting.
Section 3. Written or printed notice of a special meeting stating the
place, date and hour of the meeting and purpose or purposes for which the
meeting is called, shall be delivered not less than ten nor more than fifty days
before the date of the meeting, either personally or by first class mail, by, or
at the direction of, the President, the Secretary, or the officer or persons
calling the meeting, to each shareholder of record entitled to vote at such
meeting. The notice should also indicate that it is being issued by, or at the
direction of, the person calling the meeting.
Section 4. The business transacted at any special meeting of shareholders
shall be limited to the purposes stated in the notice.
ARTICLE IV
QUORUM AND VOTING OF STOCK
Section 1. The holders of one-third of the shares of stock issued and
outstanding and entitled to vote, represented in person or by proxy, shall
constitute a quorum at all meetings of the shareholders for the transaction of
business except as otherwise provided by statute or by the Certificate of
Incorporation. If, however, such quorum shall not be present or represented at
any meeting of the shareholders, the shareholders present in person or
represented by proxy shall have power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present or represented. At such adjourned meeting at which a quorum shall be
present or represented any business may be transacted which might have been
transacted at the meeting as originally notified.
Section 2. If a quorum is present, the affirmative vote of a majority of
the shares of stock represented at the meeting
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shall be the act of the shareholders, unless the vote of a greater or lesser
number of shares of stock is required by law or the Restated Certificate of
Incorporation.
Section 3. Each outstanding share of stock having voting power shall be
entitled to one vote on each matter submitted to a vote at a meeting of
shareholders. A shareholder may vote either in person or by proxy executed in
writing by the shareholder or by his duly authorized attorney-in-fact.
Section 4. The Board of Directors in advance of any shareholders' meeting
may appoint one or more inspectors to act at the meeting or any adjournment
thereof. If inspectors are not so appointed, the person presiding at a
shareholders' meeting may, and, on the request of any shareholder entitled to
vote thereat, shall appoint one or more inspectors. In case any person
appointed as inspector fails to appear or act, the vacancy may be filled by the
Board in advance of the meeting or at the meeting by the person presiding
thereat. Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath faithfully to execute the duties of inspector at
such meeting with strict impartiality and according to the best of his ability.
Section 5. Whenever shareholders are required or permitted to take any
action by vote, such action may be taken without a meeting on written consent,
setting forth the action so taken, signed by the holders of all outstanding
shares entitled to vote thereon.
ARTICLE V
DIRECTORS
Section 1. The number of directors shall be not less than three nor more
than nine. The first Board shall consist of four directors and thereafter the
number of directors shall be determined within the foregoing limitations by a
resolution adopted by a majority of the entire Board as then constituted,
provided no decrease in the number of directors shall shorten the term of an
incumbent director.
Directors shall be at least eighteen years of age and need not be residents
of the State of New York nor shareholders of the corporation. The directors,
other than the first Board of Directors, shall be elected at the annual meeting
of the shareholders, except as hereinafter provided, and each director elected
shall serve until the next succeeding annual meeting or until his successor
shall have been elected and qualified. The first Board of Directors shall hold
office until the first annual meeting of shareholders.
-3-
Section 2. Any or all of the directors may be removed, with or without
cause, at any time by the vote of the shareholders at a special meeting called
for that purpose.
Any director may be removed for cause by the action of the directors at a
special meeting called for that purpose.
Section 3. Newly created directorships resulting from an increase in the
Board of Directors and all vacancies occurring in the Board of Directors,
including vacancies caused by removal without cause, may be filled by the
affirmative vote of the remaining directors, though less than a quorum of the
Board of Directors. A director elected to fill a vacancy shall be elected for
the unexpired portion of the term of his predecessor in office. A director
elected to fill a newly created directorship shall serve until the next
succeeding annual meeting of shareholders or until his successor shall have been
elected and qualified.
Section 4. The business affairs of the corporation shall be managed by its
Board of Directors which may exercise all such powers of the corporation and do
all such lawful acts and things as are not by statute or by the Restated
Certificate of Incorporation or by these By-Laws directed or required to be
exercised or done by the shareholders.
Section 5. The directors may keep the books of the corporation, except
such as are required by law to be kept within the state, outside the State of
New York, at such place or places as they may from time to time determine.
Section 6. The Board of Directors, by the affirmative vote of a majority
of the directors then in office, and irrespective of any personal interest of
any of its members, shall have authority to establish reasonable compensation of
all directors for services to the corporation as directors, officers or
otherwise.
ARTICLE VI
MEETINGS OF THE BOARD OF DIRECTORS
Section 1. Meetings of the Board of Directors, regular or special, may be
held either within or without the State of New York.
Section 2. The first meeting of each newly elected Board of Directors
shall be held at such time and place as shall be fixed by the vote of the
shareholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a
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quorum shall be present, or it may convene at such place and time as shall be
fixed by the consent in writing of all the directors.
Section 3. Regular meetings of the Board of Directors may be held upon
such notice, or without notice, and at such time and at such place as shall from
time to time be determined by the Board.
Section 4. Special meetings of the Board of Directors may be called by the
President on two days' notice to each director, either personally or by mail or
by telegram; special meetings shall be called by the President or Secretary in
like manner and on like notice on the written request of two directors.
Section 5. Notice of a meeting need not be given to any director who
submits a signed waiver of notice whether before or after the meeting, or who
attends the meeting without protesting, prior thereto or at its commencement,
the lack of notice. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the Board of Directors need be specified
in the notice or waiver of notice at such meeting.
Section 6. One-third of the directors shall constitute a quorum for the
transaction of business unless a greater number is required by law or by the
Certificate of Incorporation. The vote of a majority of the directors present
at any meeting at which a quorum is present shall be the act of the Board of
Directors, unless the vote of a greater number is required by law or by the
Certificate of Incorporation. If a quorum shall not be present at any meeting
of directors, the directors present may adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present.
Section 7. Unless the Certificate of Incorporation provides otherwise, any
action required or permitted to be taken at a meeting of the directors or a
committee thereof may be taken without a meeting, if a consent in writing to the
adoption of a resolution authorizing the action so taken shall be signed by all
of the directors entitled to vote with respect to the subject matter thereof.
Section 8. Unless otherwise restricted by the Certificate of Incorporation
or these By-Laws, members of the Board of Directors, or any committee designated
by the Board of Directors, may participate in a meeting of the Board of
Directors, or any committee, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
-5-
ARTICLE VII
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors, by resolution adopted by a majority of the entire
Board, may designate, from among its members, an Executive Committee and other
committees, each consisting of three or more directors, and each of which, to
the extent provided in the resolution, shall have all the authority of the
Board, except as otherwise required by law. Vacancies in the membership of the
committee shall be filled by the Board of Directors at a regular or special
meeting of the Board of Directors.
ARTICLE VIII
NOTICES
Section 1. Whenever, under the provisions of the statutes or of the
Certificate of Incorporation or of these By-Laws, notice is required to be given
to any director or shareholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or shareholder at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telegram or facsimile transmission.
Section 2. Whenever any notice of a meeting is required to be given under
the provisions of the statutes or under the provisions of the Certificate of
Incorporation or these By-Laws, a waiver thereof in writing signed by the person
or persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice.
ARTICLE IX
OFFICERS
Section 1. The officers of the corporation shall be chosen by the Board of
Directors and shall be a President, a Secretary and a Treasurer. The Board of
Directors may also choose one or more Executive Vice Presidents, Vice
Presidents, Assistant Secretaries and Assistant Treasurers.
Section 2. The Board of Directors at its first meeting after each annual
meeting of shareholders shall choose a President from among the directors, and
shall choose a Secretary and a Treasurer, neither of whom need be a member of
the Board.
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Any two or more offices may be held by the same person, except the offices
of President and Secretary.
Section 3. The Board of Directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the Board of Directors.
Section 4. The salaries of all officers and agents of the corporation
shall be fixed by the Board of Directors.
Section 5. The officers of the corporation shall hold office until their
successors are chosen and qualify. Any officer elected or appointed by the
Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors. Any vacancy occurring in any office of the
corporation shall be filled by the Board of Directors.
Section 6. The officers of the corporation shall have such powers and
duties in the management of the corporation as may be prescribed by the Board of
Directors and, to the extent not so provided, as generally pertain to their
respective offices, subject to the control of the Board of Directors. The Board
of Directors may require any officer, agent or employee to give security for the
faithful performance of his duties.
ARTICLE X
CERTIFICATES FOR SHARES; UNCERTIFICATED SHARES
Section 1. The shares of the corporation shall be represented by
certificates signed by the President, an Executive Vice President, or a Vice
President and the Secretary or an Assistant Secretary or the Treasurer or an
Assistant Treasurer of the corporation and may be sealed with the seal of the
corporation or a facsimile thereof or such shares may be represented solely by
appropriate entry in the stock ledger of the corporation.
Section 2. The signatures of the officers of the corporation upon a
certificate may be facsimiles if the certificate is countersigned by a transfer
agent or registered by a registrar other than the corporation itself or an
employee of the corporation. In case any officer who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer at the date of
issue.
-7-
LOST CERTIFICATES
Section 3. The Board of Directors may direct a new certificate to be
issued in place of any certificate theretofore issued by the corporation alleged
to have been lost or destroyed. When authorizing such issue of a new
certificate, the Board of Directors, in its discretion and as a condition
precedent to the issuance thereof, may prescribe such terms and conditions as it
deems expedient, and may require such indemnities as it deems adequate, to
protect the corporation from any claim that may be made against it with respect
to any such certificate alleged to have been lost or destroyed.
TRANSFER OF SHARES
Section 4. Upon surrender to the corporation of the corporation of a
certificate representing shares duly endorsed or accompanied by proper evidence
of succession, assignment or authority to transfer, a new certificate shall be
issued to the person entitled thereto, and the old certificate cancelled and the
transaction recorded upon the books of the corporation.
FIXING RECORD DATE
Section 5. For the purpose of determining shareholders entitled to notice
of or to vote at any meeting of shareholders or any adjournment thereof, or to
express consent to or dissent from any proposal without a meeting, or for the
purpose of determining shareholders entitled to receive payment of any dividend
or the allotment of any rights, or for the purpose of any other action, the
Board of Directors may fix, in advance, a date as the record date for any such
determination of shareholders. Such date shall not be more than fifty nor less
than ten days before the date of any meeting nor more than fifty days prior to
any other action. When a determination of shareholders of record entitled to
notice of or to vote at any meeting of shareholders has been made as provided in
this section such determination shall apply to any adjournment thereof, unless
the Board fixes a new record date for the adjourned meeting.
REGISTERED SHAREHOLDERS
Section 6. The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of the
State of New York.
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LIST OF SHAREHOLDERS
Section 7. A list of shareholders as of the record date, certified by the
corporate officer responsible for its preparation or by a transfer agent, shall
be produced at any meeting upon the request thereat or prior thereto of any
shareholder. If the right to vote at any meeting is challenged, the inspectors
of election, or person presiding thereat, shall require such list of
shareholders to be produced as evidence of the right of the persons challenged
to vote at such meeting and all persons who appear from such list to be
shareholders entitled to vote thereat may vote at such meeting.
ARTICLE XI
GENERAL PROVISIONS
DIVIDENDS
Section 1. Subject to the provisions of the Restated Certificate of
Incorporation relating thereto, if any, dividends may be declared by the Board
of Directors at any regular or special meeting, pursuant to law. Dividends may
be paid in cash, in shares of the capital stock or in the corporation's bonds or
its property, including the shares or bonds of other corporations subject to any
provisions of law and of the Certificate of Incorporation.
Section 2. Before payment of any dividend, there may be set aside out of
any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve fund to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
CHECKS
Section 3. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other person or persons as
the Board of Directors may from time to time designate.
FISCAL YEAR
Section 4. The fiscal year of the corporation shall be fixed by resolution
of the Board of Directors.
SEAL
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Section 5. The corporate seal shall have inscribed thereon the name of the
corporation, the year of its organization and the words "Corporate Seal, New
York". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or in any manner reproduced.
ARTICLE XII
INDEMNIFICATION
Any person made or threatened to be made a party to any action or
proceeding, whether civil or criminal, by reason of the fact that he, his
testator or intestate is or was a director, officer or employee of the
corporation or serves or served any other corporation in any capacity at the
request of the corporation shall be indemnified by the corporation, and the
corporation may advance his related expenses, to the full extent permitted by
law.
ARTICLE XIII
AMENDMENTS
These By-Laws may be amended or repealed or new By-Laws may be adopted by
the affirmative vote of a majority of the Board of Directors at any regular or
special meeting of the Board. If any By-Law regulating an impending election of
directors is adopted, amended or repealed by the Board, there shall be set forth
in the notice of the next meeting of shareholders for the election of directors
the By-Law so adopted, amended or repealed, together with a precise statement of
the changes made. By-Laws adopted by the Board of Directors may be amended or
repealed by the shareholders.
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Exhibit 10.3
RESTATED CERTIFICATE OF INCORPORATION
of
S.L. GREEN LEASING, INC.
Under Section 807 of the Business Corporation Law
----------------------------------
THE UNDERSIGNED, being the President of S.L. GREEN LEASING, INC., pursuant
to Section 807 of the Business Corporation Law of the State of New York, does
hereby restate, certify and set forth:
(1) The name of the Corporation is S.L. Green Leasing, Inc. The name
under which the corporation was formed is S.L. Green Realty, Inc.
(2) The date of filing of the original Certificate of Incorporation with
the Department of State was April 10, 1987.
(3) This Restated Certificate of Incorporation amends the original
Certificate of Incorporation to effect changes authorized by Article 8 of the
Business Corporation Law. This Restated Certificate of Incorporation amends
specifically paragraphs Second, relating to the purpose of the Corporation,
Third, relating to the aggregate number of shares which the Corporation shall
have the authority to issue, the classes of shares issued by the Corporation,
and the par value of the shares issued by the Corporation, Fifth, relating to
the address of the designated agent, Sixth, relating to the designation of the
registered agent, and Seventh, relating to the personal liability of directors
to the Corporation and its shareholders, of the original Certificate of
Incorporation.
The amendment to paragraph Third of the original Certificate of
Incorporation provides for a change to the number of issued shares and the kind
of shares issued. The total number of shares of stock that the Corporation had
authority to issue under the original Certificate of Incorporation was two
hundred (200) shares, without par value, all of one class. All two hundred
(200) shares have been issued. The total number of shares of stock which the
Corporation has authority to issue pursuant to the foregoing Restated
Certificate of Incorporation is two
thousand (2,000) shares, consisting of one thousand (1,000) shares of Class A
Voting Common Stock, par value $0.01 per share ("Voting Common Stock"), and one
thousand (1,000) shares of Class B Non-Voting Common Stock, par value $0.01 per
share ("Non-Voting Common Stock"). Each of the two hundred (200) shares,
without par value, previously issued are being exchanged at a rate of five
shares of Voting Common Stock, par value $0.01 per share, and five shares of
Non-Voting Common Stock, par value $0.01 per share, for each share of
outstanding Common Stock, without par value.
(4) The text of the original Certificate of Incorporation is hereby
restated as amended to read as herein set forth in full.
FIRST: The name of the Corporation is S.L. Green Leasing, Inc. The name
under which the corporation was formed is S.L. Green Realty, Inc.
SECOND: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the Business Corporation
Law of the State of New York. The Corporation is not formed to engage in any
act or activity requiring the consent or approval of any state official,
department, board, agency or other body without such consent or approval first
being obtained.
THIRD: The principal office of the Corporation is to be located in the
County of New York, State of New York.
FOURTH: The total number of shares of capital stock of all classes which
the Corporation shall have authority to issue is two thousand (2,000) shares
consisting of the following: (i) one thousand (1,000) shares of Voting Common
Stock, par value $0.01 per share ("Voting Common Stock"); and (ii) one thousand
(1,000) shares of Non-Voting Common Stock, par value $0.01 per share
("Non-Voting Common Stock").
VOTING COMMON STOCK AND NON-VOTING COMMON STOCK. The powers,
preferences and rights of, and the qualifications of, and limitations and
restrictions upon, the Voting Common Stock and Non-Voting Common Stock
shall be identical except (unless and to the extent otherwise made
mandatory by law) as provided herein.
DIVIDEND RIGHTS. Holders of Non-Voting Common Stock shall be entitled
to share ratably in 95% of all funds legally available for distribution by
dividends declared by the Board of Directors out of funds legally available
therefor ("Funds for Distribution"). Holders of the Voting
2
Common Stock shall be entitled to share ratably in the remaining 5% of
Funds for Distribution. All Funds for Distribution remaining after payment
of operating expenses that in the opinion of the Board of Directors of the
Corporation are not required for working capital purposes shall be
distributed to Stockholders on an annual basis.
RIGHTS UPON LIQUIDATION. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of, or any distribution of the
assets of, the Corporation, each holder of shares of Voting Common Stock
and Non-Voting Common Stock (together with the holders of any other class
of stock hereafter classified or reclassified having a preference on
distributions in the liquidation, dissolution or winding up of the
Corporation) shall be entitled (after payment or provision for payment of
the debts and other liabilities of the Corporation and to the holders of
any class of stock hereafter classified or reclassified having a preference
on distributions in the liquidation, dissolution or winding up of the
Corporation) to share ratably of the remaining net assets of the
corporation in the following proportion: 95% to the holders of the
Non-Voting Common Stock and 5% to the holders of Voting Common Stock.
VOTING RIGHTS.
(a) VOTING COMMON STOCK. Except as set forth herein or as otherwise
required by law, each outstanding share of Voting Common Stock shall be
entitled to vote on each matter on which the stockholders of the
corporation shall be entitled to vote, and each holder of Voting Common
Stock shall be entitled to one vote for each share of such stock held by
such holder.
(b) NON-VOTING COMMON STOCK. Except as set forth herein or as
otherwise required by law, each outstanding share of Non-Voting Common
Stock shall not be entitled to vote on any matter on which the stockholders
of the Corporation shall be entitled to vote and shares of Non-Voting
Common Stock shall not be included in determining the number of shares
voting or entitled to vote on any such matters.
PREEMPTIVE RIGHTS. No holder of any stock or any other securities of
the Corporation, whether now or hereafter authorized, shall have any
preemptive rights to subscribe for or purchase any stock or any other
securities of the corporation other than such rights, if any, as the Board
of Directors, in its sole discretion, may fix; and any stock or other
securities which the Board of Directors may determine
3
to offer for subscription may, within the Board of Directors' sole
discretion, be offered to the holders of any class, series or type of stock
or other securities at the time outstanding to the exclusion of holders of
any or all other classes, series or types of stock or other securities at
the time outstanding.
FIFTH: The Secretary of State of the State of New York is designated as
the agent of the Corporation upon whom process against the Corporation may be
served. The post office address to which the Department of State of the State
of New York shall mail a copy of any process against the Corporation served upon
him is: C/O CT Corporation System, 1633 Broadway, New York, New York 10019.
SIXTH: The name and address of the registered agent which is to be the
agent of the Corporation upon whom process against it may be served are CT
Corporation System, 1633 Broadway, New York, New York 10019.
SEVENTH: No director of the Corporation shall be personally liable to the
Corporation or its shareholders for damages for any breach of fiduciary duty in
such capacity; PROVIDED, HOWEVER, that this provision shall not eliminate or
limit the liability of any director if a judgment or other final adjudication
adverse to such director establishes that such director's acts or omissions were
in bad faith or involved intentional misconduct or a knowing violation of law or
that such director personally gained in fact a financial profit or other
advantage to which such director was not legally entitled or that such
director's acts violated Section 719 of the Business Corporation Law of the
State of New York. If the Business Corporation Law of the State of New York is
hereafter amended to authorize corporate action further limiting or eliminating
the personal liability of directors, then the liability of each director of the
Corporation shall be limited or eliminated to the full extent permitted by the
Business Corporation Law of the State of New York as so amended from time to
time.
Neither the amendment nor repeal of this Section, nor the adoption of any
provision of the Certificate of Incorporation inconsistent with this Section,
shall eliminate or reduce the effect of this Section in respect of any matter
occurring, or any cause of action, suit or claim that, but for this Section,
would accrue or arise, prior to such amendment, repeal or adoption of any
inconsistent provision.
EIGHTH: INDEMNIFICATION. The Corporation shall indemnify any person who
is or was a director or officer of the Corporation with respect to actions taken
or omitted by such person in any
4
capacity in which such person serves the Corporation, to the full extent
authorized or permitted by law, as now or hereafter in effect, and such right to
indemnification shall continue as to a person who has ceased to be a director or
officer, as the case may be, and shall inure to the benefit of such person's
heirs, executors and personal and legal representatives; PROVIDED, HOWEVER,
that, except for proceedings to enforce rights to indemnification, the
Corporation shall not be obligated to indemnify any person in connection with a
proceeding (or part thereof) initiated by such person unless such proceeding (or
part thereof) was authorized in advance, or unanimously consented to, by the
Board of Directors of the Corporation.
Directors and officers of the Corporation shall have the right to be paid
by the Corporation expenses incurred in defending or otherwise participating in
any proceedings in advance of its final disposition.
INSURANCE. By action of the Board of Directors, notwithstanding any
interest of the directors in the action, the Corporation may purchase and
maintain insurance, in such amounts as the Board of Directors deems appropriate,
on behalf of any person who is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent (including trustee) of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Corporation shall have the power to
indemnify him against such liability under the provisions of this Section.
NINTH: The Corporation reserves the right to amend, alter, change or
repeal any provisions contained in this Restated Certificate of Incorporation in
the manner now or hereafter prescribed by law, and all the provisions of the
Restated Certificate of Incorporation and all rights and powers conferred in
this Restated Certificate of Incorporation on shareholders, directors and
officers are subject to this reserved power.
TENTH: The restatement of the Certificate of Incorporation as hereinabove
set forth has been duly authorized by the Board of Directors and approved by the
stockholders of the Corporation by unanimous written consent as required by law.
5
(5) This restatement of the certificate of incorporation of S.L. GREEN
LEASING, INC. was authorized by the Consent of the Sole Director, dated
__________ ___ , 1997.
IN WITNESS WHEREOF, the undersigned have executed, signed and verified this
certificate this ____ day of __________, 1997.
S.L. GREEN LEASING, INC.
By:
-------------------------------
Stephen L. Green
President
6
VERIFICATION
STATE OF NEW YORK )
)ss.:
COUNTY OF NEW YORK )
Stephen L. Green, being duly sworn, deposes and says that he is the person
who signed the foregoing certificate; that he signed said restated certificate
in the capacity set opposite or beneath his signature thereon; that he has read
the foregoing certificate and knows the contents thereof; and that the
statements contained therein are true to his own knowledge.
By:
-----------------------------
Stephen L. Green
President
Sworn to before me
a Notary Public this ____ day
of __________ 1997
- ---------------------
Notary Public
BY-LAWS
OF
S.L. GREEN REALTY, INC.
ARTICLE I
OFFICES
Section 1. The office of the corporation shall be located in the County of
New York and State of New York.
Section 2. The corporation may also have offices at such other places both
within and without the State of New York as the Board of Directors may from time
to time determine or the business of the corporation may require.
ARTICLE II
ANNUAL MEETINGS OF SHAREHOLDERS
Section 1. An annual meeting of the shareholders shall be held on such date
and at such time and place, either within or without the State of New York, as
the Board of Directors shall designate by resolution, within thirteen months
subsequent to the later of the date of incorporation or the last annual meeting
of shareholders, for the purpose of electing directors and for the transaction
of such other business as may come before the meeting. If the election of
directors is not held on the day designated in the manner provided herein for
any annual meeting of the shareholders or at any adjournment thereof, the Board
of Directors shall cause the election to be held at a special meeting of the
shareholders as soon thereafter as convenient. If designation of the place of
meeting is not made, the place of meeting shall be the registered office of the
corporation in the State of New York.
Section 2. Written or printed notice of the annual meeting stating the
place, date and hour of the meeting shall be delivered not less than ten nor
more than fifty days before the date of the meeting, either personally or by
mail, by or at the direction of the President, the Secretary, or the officer
calling
the meeting, to each shareholder of record entitled to vote at such meeting.
ARTICLE III
SPECIAL MEETING OF SHAREHOLDERS
Section 1. Special meetings of shareholders may be held at such time and
place within or without the State of New York as shall be stated in the notice
of the meeting or in a duly executed waiver of notice thereof.
Section 2. Special meetings of the shareholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the Restated Certificate
of Incorporation, may be called by the President, the Board of Directors, or the
holders of more than 50% of all the shares entitled to vote at the meeting.
Section 3. Written or printed notice of a special meeting stating the
place, date and hour of the meeting and purpose or purposes for which the
meeting is called, shall be delivered not less than ten nor more than fifty days
before the date of the meeting, either personally or by first class mail, by, or
at the direction of, the President, the Secretary, or the officer or persons
calling the meeting, to each shareholder of record entitled to vote at such
meeting. The notice should also indicate that it is being issued by, or at the
direction of, the person calling the meeting.
Section 4. The business transacted at any special meeting of shareholders
shall be limited to the purposes stated in the notice.
ARTICLE IV
QUORUM AND VOTING OF STOCK
Section 1. The holders of one-third of the shares of stock issued and
outstanding and entitled to vote, represented in person or by proxy, shall
constitute a quorum at all meetings of the shareholders for the transaction of
business except as otherwise provided by statute or by the Restated Certificate
of Incorporation. If, however, such quorum shall not be present or represented
at any meeting of the shareholders, the shareholders present in person or
represented by proxy shall have power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present or represented. At such adjourned meeting at which a quorum shall be
present or represented any business may be transacted which might have been
transacted at the meeting as originally notified.
-2-
Section 2. If a quorum is present, the affirmative vote of a majority of
the shares of stock represented at the meeting shall be the act of the
shareholders, unless the vote of a greater or lesser number of shares of stock
is required by law or the Restated Certificate of Incorporation.
Section 3. Each outstanding share of stock having voting power shall be
entitled to one vote on each matter submitted to a vote at a meeting of
shareholders. A shareholder may vote either in person or by proxy executed in
writing by the shareholder or by his duly authorized attorney-in-fact.
Section 4. The Board of Directors in advance of any shareholders' meeting
may appoint one or more inspectors to act at the meeting or any adjournment
thereof. If inspectors are not so appointed, the person presiding at a
shareholders' meeting may, and, on the request of any shareholder entitled to
vote thereat, shall appoint one or more inspectors. In case any person
appointed as inspector fails to appear or act, the vacancy may be filled by the
Board in advance of the meeting or at the meeting by the person presiding
thereat. Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath faithfully to execute the duties of inspector at
such meeting with strict impartiality and according to the best of his ability.
Section 5. Whenever shareholders are required or permitted to take any
action by vote, such action may be taken without a meeting on written consent,
setting forth the action so taken, signed by the holders of all outstanding
shares entitled to vote thereon.
ARTICLE V
DIRECTORS
Section 1. The number of directors shall be not less than three nor more
than nine. The first Board shall consist of four directors and thereafter the
number of directors shall be determined within the foregoing limitations by a
resolution adopted by a majority of the entire Board as then constituted,
provided no decrease in the number of directors shall shorten the term of an
incumbent director.
Directors shall be at least eighteen years of age and need not be residents
of the State of New York nor shareholders of the corporation. The directors,
other than the first Board of Directors, shall be elected at the annual meeting
of the shareholders, except as hereinafter provided, and each director elected
shall serve until the next succeeding annual meeting or until his successor
shall have been elected and qualified. The
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first Board of Directors shall hold office until the first annual meeting of
shareholders.
Section 2. Any or all of the directors may be removed, with or without
cause, at any time by the vote of the shareholders at a special meeting called
for that purpose.
Any director may be removed for cause by the action of the directors at a
special meeting called for that purpose.
Section 3. Newly created directorships resulting from an increase in the
Board of Directors and all vacancies occurring in the Board of Directors,
including vacancies caused by removal without cause, may be filled by the
affirmative vote of the remaining directors, though less than a quorum of the
Board of Directors. A director elected to fill a vacancy shall be elected for
the unexpired portion of the term of his predecessor in office. A director
elected to fill a newly created directorship shall serve until the next
succeeding annual meeting of shareholders or until his successor shall have been
elected and qualified.
Section 4. The business affairs of the corporation shall be managed by its
Board of Directors which may exercise all such powers of the corporation and do
all such lawful acts and things as are not by statute or by the Restated
Certificate of Incorporation or by these By-Laws directed or required to be
exercised or done by the shareholders.
Section 5. The directors may keep the books of the corporation, except
such as are required by law to be kept within the state, outside the State of
New York, at such place or places as they may from time to time determine.
Section 6. The Board of Directors, by the affirmative vote of a majority
of the directors then in office, and irrespective of any personal interest of
any of its members, shall have authority to establish reasonable compensation of
all directors for services to the corporation as directors, officers or
otherwise.
ARTICLE VI
MEETINGS OF THE BOARD OF DIRECTORS
Section 1. Meetings of the Board of Directors, regular or special, may be
held either within or without the State of New York.
Section 2. The first meeting of each newly elected Board of Directors
shall be held at such time and place as shall be fixed
-4-
by the vote of the shareholders at the annual meeting and no notice of such
meeting shall be necessary to the newly elected directors in order legally to
constitute the meeting, provided a quorum shall be present, or it may convene at
such place and time as shall be fixed by the consent in writing of all the
directors.
Section 3. Regular meetings of the Board of Directors may be held upon
such notice, or without notice, and at such time and at such place as shall from
time to time be determined by the Board.
Section 4. Special meetings of the Board of Directors may be called by the
President on two days' notice to each director, either personally or by mail or
by telegram; special meetings shall be called by the President or Secretary in
like manner and on like notice on the written request of two directors.
Section 5. Notice of a meeting need not be given to any director who
submits a signed waiver of notice whether before or after the meeting, or who
attends the meeting without protesting, prior thereto or at its commencement,
the lack of notice. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the Board of Directors need be specified
in the notice or waiver of notice at such meeting.
Section 6. One-third of the directors shall constitute a quorum for the
transaction of business unless a greater number is required by law or by the
Restated Certificate of Incorporation. The vote of a majority of the directors
present at any meeting at which a quorum is present shall be the act of the
Board of Directors, unless the vote of a greater number is required by law or by
the Restated Certificate of Incorporation. If a quorum shall not be present at
any meeting of directors, the directors present may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present.
Section 7. Unless the Restated Certificate of Incorporation provides
otherwise, any action required or permitted to be taken at a meeting of the
directors or a committee thereof may be taken without a meeting, if a consent in
writing to the adoption of a resolution authorizing the action so taken shall be
signed by all of the directors entitled to vote with respect to the subject
matter thereof.
Section 8. Unless otherwise restricted by the Restated Certificate of
Incorporation or these By-Laws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such
-5-
participation in a meeting shall constitute presence in person at the meeting.
ARTICLE VII
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors, by resolution adopted by a majority of the entire
Board, may designate, from among its members, an Executive Committee and other
committees, each consisting of three or more directors, and each of which, to
the extent provided in the resolution, shall have all the authority of the
Board, except as otherwise required by law. Vacancies in the membership of the
committee shall be filled by the Board of Directors at a regular or special
meeting of the Board of Directors.
ARTICLE VIII
NOTICES
Section 1. Whenever, under the provisions of the statutes or of the
Restated Certificate of Incorporation or of these By-Laws, notice is required to
be given to any director or shareholder, it shall not be construed to mean
personal notice, but such notice may be given in writing, by mail, addressed to
such director or shareholder at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telegram or facsimile transmission.
Section 2. Whenever any notice of a meeting is required to be given under
the provisions of the statutes or under the provisions of the Restated
Certificate of Incorporation or these By-Laws, a waiver thereof in writing
signed by the person or persons entitled to such notice, whether before or after
the time stated therein, shall be deemed equivalent to the giving of such
notice.
ARTICLE IX
OFFICERS
Section 1. The officers of the corporation shall be chosen by the Board of
Directors and shall be a President, a Secretary and a Treasurer. The Board of
Directors may also choose one or
-6-
more Executive Vice Presidents, Vice Presidents, Assistant Secretaries and
Assistant Treasurers.
Section 2. The Board of Directors at its first meeting after each annual
meeting of shareholders shall choose a President from among the directors, and
shall choose a Secretary and a Treasurer, neither of whom need be a member of
the Board.
Any two or more offices may be held by the same person, except the offices
of President and Secretary.
Section 3. The Board of Directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the Board of Directors.
Section 4. The salaries of all officers and agents of the corporation
shall be fixed by the Board of Directors.
Section 5. The officers of the corporation shall hold office until their
successors are chosen and qualify. Any officer elected or appointed by the
Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors. Any vacancy occurring in any office of the
corporation shall be filled by the Board of Directors.
Section 6. The officers of the corporation shall have such powers and
duties in the management of the corporation as may be prescribed by the Board of
Directors and, to the extent not so provided, as generally pertain to their
respective offices, subject to the control of the Board of Directors. The Board
of Directors may require any officer, agent or employee to give security for the
faithful performance of his duties.
ARTICLE X
CERTIFICATES FOR SHARES; UNCERTIFICATED SHARES
Section 1. The shares of the corporation may be represented by certificates
signed by the President, an Executive Vice President, or a Vice President and
the Secretary or an Assistant Secretary or the Treasurer or an Assistant
Treasurer of the corporation and may be sealed with the seal of the corporation
or a facsimile thereof or such shares may be represented solely by appropriate
entry in the stock ledger of the corporation.
Section 2. If the shares of the corporation are represented by
certificates, the signatures of the officers of the corporation upon a
certificate may be facsimiles if the certificate is countersigned by a transfer
agent or registered by
-7-
a registrar other than the corporation itself or an employee of the
corporation. In case any officer who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer
before such certificate is issued, it may be issued by the corporation with
the same effect as if he were such officer at the date of issue.
LOST CERTIFICATES
Section 3. If the shares of the corporation are represented by
certificates, the Board of Directors may direct a new certificate to be issued
in place of any certificate theretofore issued by the corporation alleged to
have been lost or destroyed. When authorizing such issue of a new certificate,
the Board of Directors, in its discretion and as a condition precedent to the
issuance thereof, may prescribe such terms and conditions as it deems expedient,
and may require such indemnities as it deems adequate, to protect the
corporation from any claim that may be made against it with respect to any such
certificate alleged to have been lost or destroyed.
TRANSFER OF SHARES
Section 4. If the shares of the corporation are represented by
certificates, upon surrender to the corporation of the corporation of a
certificate representing shares duly endorsed or accompanied by proper evidence
of succession, assignment or authority to transfer, a new certificate shall be
issued to the person entitled thereto, and the old certificate cancelled and the
transaction recorded upon the books of the corporation. If the shares of the
corporation are represented solely by appropriate entry in the stock ledger of
the corporation, upon proper evidence of successor, assignment or authority to
transfer, the transaction shall be recorded by appropriate entry in the stock
ledger of the corporation.
FIXING RECORD DATE
Section 5. For the purpose of determining shareholders entitled to notice
of or to vote at any meeting of shareholders or any adjournment thereof, or to
express consent to or dissent from any proposal without a meeting, or for the
purpose of determining shareholders entitled to receive payment of any dividend
or the allotment of any rights, or for the purpose of any other action, the
Board of Directors may fix, in advance, a date as the record date for any such
determination of shareholders. Such date shall not be more than fifty nor less
than ten days before the date of any meeting nor more than fifty days prior to
any other action. When a determination of shareholders of record entitled to
notice of or to vote at any meeting of shareholders has been made as provided in
this section
-8-
such determination shall apply to any adjournment thereof, unless the Board
fixes a new record date for the adjourned meeting.
REGISTERED SHAREHOLDERS
Section 6. The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of the
State of New York.
LIST OF SHAREHOLDERS
Section 7. A list of shareholders as of the record date, certified by the
corporate officer responsible for its preparation or by a transfer agent, shall
be produced at any meeting upon the request thereat or prior thereto of any
shareholder. If the right to vote at any meeting is challenged, the inspectors
of election, or person presiding thereat, shall require such list of
shareholders to be produced as evidence of the right of the persons challenged
to vote at such meeting and all persons who appear from such list to be
shareholders entitled to vote thereat may vote at such meeting.
ARTICLE XI
GENERAL PROVISIONS
DIVIDENDS
Section 1. Subject to the provisions of the Restated Certificate of
Incorporation relating thereto, if any, dividends may be declared by the Board
of Directors at any regular or special meeting, pursuant to law. Dividends may
be paid in cash, in shares of the capital stock or in the corporation's bonds or
its property, including the shares or bonds of other corporations subject to any
provisions of law and of the Restated Certificate of Incorporation.
Section 2. Before payment of any dividend, there may be set aside out of
any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve fund to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
-9-
CHECKS
Section 3. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other person or persons as
the Board of Directors may from time to time designate.
FISCAL YEAR
Section 4. The fiscal year of the corporation shall be fixed by resolution
of the Board of Directors.
SEAL
Section 5. The officers of the corporation are authorized to obtain a
corporate seal of the corporation. If the officers of the corporation determine
to obtain a corporation seal for the corporation the corporate seal shall have
inscribed thereon the name of the corporation, the year of its organization and
the words "Corporate Seal, New York". The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or in any manner reproduced.
ARTICLE XII
INDEMNIFICATION
Any person made or threatened to be made a party to any action or
proceeding, whether civil or criminal, by reason of the fact that he, his
testator or intestate is or was a director, officer or employee of the
corporation or serves or served any other corporation in any capacity at the
request of the corporation shall be indemnified by the corporation, and the
corporation may advance his related expenses, to the full extent permitted by
law.
ARTICLE XIII
AMENDMENTS
These By-Laws may be amended or repealed or new By-Laws may be adopted by
the affirmative vote of a majority of the Board of Directors at any regular or
special meeting of the Board. If any By-Law regulating an impending election of
directors is adopted, amended or repealed by the Board, there shall be set forth
in the notice of the next meeting of shareholders for the election of directors
the By-Law so adopted, amended or repealed, together with a precise statement of
the changes made. By-Laws adopted by the Board of Directors may be amended or
repealed by the shareholders.
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Exhibit 10.4
RESTATED CERTIFICATE OF INCORPORATION
of
EMERALD CITY CONSTRUCTION CORP.
Under Section 807 of the Business Corporation Law
-------------------------------
THE UNDERSIGNED, being the President of EMERALD CITY CONSTRUCTION CORP.,
pursuant to Section 807 of the Business Corporation Law of the State of New
York, does hereby restate, certify and set forth:
(1) The name of the Corporation is Emerald City Construction Corp.
(2) The date of filing of the original Certificate of Incorporation with
the Department of State was June 16, 1986.
(3) This Restated Certificate of Incorporation amends the original
Certificate of Incorporation to effect changes authorized by Article 8 of the
Business Corporation Law. This Restated Certificate of Incorporation amends
specifically paragraphs Second, relating to the purpose of the Corporation,
Third, relating to the aggregate number of shares which the Corporation shall
have the authority to issue, the classes of shares issued by the Corporation,
and the par value of the shares issued by the Corporation, Fifth, relating to
the address of the designated agent, Sixth, relating to the designation of the
registered agent, and Seventh, relating to the personal liability of directors
to the Corporation and its shareholders, of the original Certificate of
Incorporation.
The amendment to paragraph Third of the original Certificate of
Incorporation provides for a change to the number of issued shares and the kind
of shares issued. The total number of shares of stock that the Corporation had
authority to issue under the original Certificate of Incorporation was two
hundred (200) shares, without par value, all of one class. All two hundred
(200) shares have been issued. The total number of shares of stock which the
Corporation has authority to issue pursuant to the foregoing Restated
Certificate of Incorporation is two thousand (2,000) shares, consisting of one
thousand (1,000)
shares of Class A Voting Common Stock, par value $0.01 per share ("Voting Common
Stock"), and one thousand (1,000) shares of Class B Non-Voting Common Stock, par
value $0.01 per share ("Non-Voting Common Stock"). Each of the two hundred
(200) shares, without par value, previously issued are being exchanged at a rate
of five shares of Voting Common Stock, par value $0.01 per share, and five
shares of Non-Voting Common Stock, par value $0.01 per share, for each share of
outstanding Common Stock, without par value.
(4) The text of the original Certificate of Incorporation is hereby
restated as amended to read as herein set forth in full.
FIRST: The name of the Corporation is Emerald City Construction Corp.
SECOND: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the Business Corporation
Law of the State of New York. The Corporation is not formed to engage in any
act or activity requiring the consent or approval of any state official,
department, board, agency or other body without such consent or approval first
being obtained.
THIRD: The principal office of the Corporation is to be located in the
County of New York, State of New York.
FOURTH: The total number of shares of capital stock of all classes which
the Corporation shall have authority to issue is two thousand (2,000) shares
consisting of the following: (i) one thousand (1,000) shares of Voting Common
Stock, par value $0.01 per share ("Voting Common Stock"); and (ii) one thousand
(1,000) shares of Non-Voting Common Stock, par value $0.01 per share
("Non-Voting Common Stock").
VOTING COMMON STOCK AND NON-VOTING COMMON STOCK. The powers,
preferences and rights of, and the qualifications of, and limitations and
restrictions upon, the Voting Common Stock and Non-Voting Common Stock
shall be identical except (unless and to the extent otherwise made
mandatory by law) as provided herein.
DIVIDEND RIGHTS. Holders of Non-Voting Common Stock shall be entitled
to share ratably in 95% of all funds legally available for distribution by
dividends declared by the Board of Directors out of funds legally available
therefor ("Funds for Distribution"). Holders of the Voting Common Stock
shall be entitled to share ratably in the remaining 5% of Funds for
Distribution. All Funds for
2
Distribution remaining after payment of operating expenses that in the
opinion of the Board of Directors of the Corporation are not required for
working capital purposes shall be distributed to Stockholders on an annual
basis.
RIGHTS UPON LIQUIDATION. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of, or any distribution of the
assets of, the Corporation, each holder of shares of Voting Common Stock
and Non-Voting Common Stock (together with the holders of any other class
of stock hereafter classified or reclassified having a preference on
distributions in the liquidation, dissolution or winding up of the
Corporation) shall be entitled (after payment or provision for payment of
the debts and other liabilities of the Corporation and to the holders of
any class of stock hereafter classified or reclassified having a preference
on distributions in the liquidation, dissolution or winding up of the
Corporation) to share ratably of the remaining net assets of the
corporation in the following proportion: 95% to the holders of the
Non-Voting Common Stock and 5% to the holders of Voting Common Stock.
VOTING RIGHTS.
(a) VOTING COMMON STOCK. Except as set forth herein or as otherwise
required by law, each outstanding share of Voting Common Stock shall be
entitled to vote on each matter on which the stockholders of the
corporation shall be entitled to vote, and each holder of Voting Common
Stock shall be entitled to one vote for each share of such stock held by
such holder.
(b) NON-VOTING COMMON STOCK. Except as set forth herein or as
otherwise required by law, each outstanding share of Non-Voting Common
Stock shall not be entitled to vote on any matter on which the stockholders
of the Corporation shall be entitled to vote and shares of Non-Voting
Common Stock shall not be included in determining the number of shares
voting or entitled to vote on any such matters.
PREEMPTIVE RIGHTS. No holder of any stock or any other securities of
the Corporation, whether now or hereafter authorized, shall have any
preemptive rights to subscribe for or purchase any stock or any other
securities of the corporation other than such rights, if any, as the Board
of Directors, in its sole discretion, may fix; and any stock or other
securities which the Board of Directors may determine to offer for
subscription may, within the Board of Directors' sole discretion, be
offered to the holders of any
3
class, series or type of stock or other securities at the time outstanding
to the exclusion of holders of any or all other classes, series or types of
stock or other securities at the time outstanding.
FIFTH: The Secretary of State of the State of New York is designated as
the agent of the Corporation upon whom process against the Corporation may be
served. The post office address to which the Department of State of the State
of New York shall mail a copy of any process against the Corporation served upon
him is: C/O CT Corporation System, 1633 Broadway, New York, New York 10019.
SIXTH: The name and address of the registered agent which is to be the
agent of the Corporation upon whom process against it may be served are CT
Corporation System, 1633 Broadway, New York, New York 10019.
SEVENTH: No director of the Corporation shall be personally liable to the
Corporation or its shareholders for damages for any breach of fiduciary duty in
such capacity; PROVIDED, HOWEVER, that this provision shall not eliminate or
limit the liability of any director if a judgment or other final adjudication
adverse to such director establishes that such director's acts or omissions were
in bad faith or involved intentional misconduct or a knowing violation of law or
that such director personally gained in fact a financial profit or other
advantage to which such director was not legally entitled or that such
director's acts violated Section 719 of the Business Corporation Law of the
State of New York. If the Business Corporation Law of the State of New York is
hereafter amended to authorize corporate action further limiting or eliminating
the personal liability of directors, then the liability of each director of the
Corporation shall be limited or eliminated to the full extent permitted by the
Business Corporation Law of the State of New York as so amended from time to
time.
Neither the amendment nor repeal of this Section, nor the adoption of any
provision of the Certificate of Incorporation inconsistent with this Section,
shall eliminate or reduce the effect of this Section in respect of any matter
occurring, or any cause of action, suit or claim that, but for this Section,
would accrue or arise, prior to such amendment, repeal or adoption of any
inconsistent provision.
EIGHTH: INDEMNIFICATION. The Corporation shall indemnify any person who
is or was a director or officer of the Corporation with respect to actions taken
or omitted by such person in any capacity in which such person serves the
Corporation, to the full extent authorized or permitted by law, as now or
hereafter in
4
effect, and such right to indemnification shall continue as to a person who has
ceased to be a director or officer, as the case may be, and shall inure to the
benefit of such person's heirs, executors and personal and legal
representatives; PROVIDED, HOWEVER, that, except for proceedings to enforce
rights to indemnification, the Corporation shall not be obligated to indemnify
any person in connection with a proceeding (or part thereof) initiated by such
person unless such proceeding (or part thereof) was authorized in advance, or
unanimously consented to, by the Board of Directors of the Corporation.
Directors and officers of the Corporation shall have the right to be paid
by the Corporation expenses incurred in defending or otherwise participating in
any proceedings in advance of its final disposition.
INSURANCE. By action of the Board of Directors, notwithstanding any
interest of the directors in the action, the Corporation may purchase and
maintain insurance, in such amounts as the Board of Directors deems appropriate,
on behalf of any person who is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent (including trustee) of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Corporation shall have the power to
indemnify him against such liability under the provisions of this Section.
NINTH: The Corporation reserves the right to amend, alter, change or
repeal any provisions contained in this Restated Certificate of Incorporation in
the manner now or hereafter prescribed by law, and all the provisions of the
Restated Certificate of Incorporation and all rights and powers conferred in
this Restated Certificate of Incorporation on shareholders, directors and
officers are subject to this reserved power.
TENTH: The restatement of the Certificate of Incorporation as hereinabove
set forth has been duly authorized by the Board of Directors and approved by the
stockholders of the Corporation by unanimous written consent as required by law.
5
(5) This restatement of the certificate of incorporation of EMERALD CITY
CONSTRUCTION CORP. was authorized by the Consent of the Sole Director, dated
__________ ___ , 1997.
IN WITNESS WHEREOF, the undersigned have executed, signed and verified this
certificate this ____ day of __________, 1997.
EMERALD CITY CONSTRUCTION CORP.
By:
--------------------------------
Stephen L. Green
President
6
VERIFICATION
STATE OF NEW YORK )
)ss.:
COUNTY OF NEW YORK )
Stephen L. Green, being duly sworn, deposes and says that he is the person
who signed the foregoing certificate; that he signed said restated certificate
in the capacity set opposite or beneath his signature thereon; that he has read
the foregoing certificate and knows the contents thereof; and that the
statements contained therein are true to his own knowledge.
By:
-------------------------------
Stephen L. Green
President
Sworn to before me
a Notary Public this ____ day
of __________ 1997
- ---------------------------
Notary Public
BY-LAWS
OF
EMERALD CITY CONSTRUCION CORP.
ARTICLE I
OFFICES
Section 1. The office of the corporation shall be located in the County of
New York and State of New York.
Section 2. The corporation may also have offices at such other places both
within and without the State of New York as the Board of Directors may from time
to time determine or the business of the corporation may require.
ARTICLE II
ANNUAL MEETINGS OF SHAREHOLDERS
Section 1. An annual meeting of the shareholders shall be held on such date
and at such time and place, either within or without the State of New York, as
the Board of Directors shall designate by resolution, within thirteen months
subsequent to the later of the date of incorporation or the last annual meeting
of shareholders, for the purpose of electing directors and for the transaction
of such other business as may come before the meeting. If the election of
directors is not held on the day designated in the manner provided herein for
any annual meeting of the shareholders or at any adjournment thereof, the Board
of Directors shall cause the election to be held at a special meeting of the
shareholders as soon thereafter as convenient. If designation of the place of
meeting is not made, the place of meeting shall be the registered office of the
corporation in the State of New York.
Section 2. Written or printed notice of the annual meeting stating the
place, date and hour of the meeting shall be delivered not less than ten nor
more than fifty days before the date of the meeting, either personally or by
mail, by or at the direction of the President, the Secretary, or the officer
calling
the meeting, to each shareholder of record entitled to vote at such meeting.
ARTICLE III
SPECIAL MEETING OF SHAREHOLDERS
Section 1. Special meetings of shareholders may be held at such time and
place within or without the State of New York as shall be stated in the notice
of the meeting or in a duly executed waiver of notice thereof.
Section 2. Special meetings of the shareholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the Restated Certificate
of Incorporation, may be called by the President, the Board of Directors, or the
holders of more than 50% of all the shares entitled to vote at the meeting.
Section 3. Written or printed notice of a special meeting stating the
place, date and hour of the meeting and purpose or purposes for which the
meeting is called, shall be delivered not less than ten nor more than fifty days
before the date of the meeting, either personally or by first class mail, by, or
at the direction of, the President, the Secretary, or the officer or persons
calling the meeting, to each shareholder of record entitled to vote at such
meeting. The notice should also indicate that it is being issued by, or at the
direction of, the person calling the meeting.
Section 4. The business transacted at any special meeting of shareholders
shall be limited to the purposes stated in the notice.
ARTICLE IV
QUORUM AND VOTING OF STOCK
Section 1. The holders of one-third of the shares of stock issued and
outstanding and entitled to vote, represented in person or by proxy, shall
constitute a quorum at all meetings of the shareholders for the transaction of
business except as otherwise provided by statute or by the Restated Certificate
of Incorporation. If, however, such quorum shall not be present or represented
at any meeting of the shareholders, the shareholders present in person or
represented by proxy shall have power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present or represented. At such adjourned meeting at which a quorum shall be
present or represented any business may be transacted which might have been
transacted at the meeting as originally notified.
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Section 2. If a quorum is present, the affirmative vote of a majority of
the shares of stock represented at the meeting shall be the act of the
shareholders, unless the vote of a greater or lesser number of shares of stock
is required by law or the Restated Certificate of Incorporation.
Section 3. Each outstanding share of stock having voting power shall be
entitled to one vote on each matter submitted to a vote at a meeting of
shareholders. A shareholder may vote either in person or by proxy executed in
writing by the shareholder or by his duly authorized attorney-in-fact.
Section 4. The Board of Directors in advance of any shareholders' meeting
may appoint one or more inspectors to act at the meeting or any adjournment
thereof. If inspectors are not so appointed, the person presiding at a
shareholders' meeting may, and, on the request of any shareholder entitled to
vote thereat, shall appoint one or more inspectors. In case any person
appointed as inspector fails to appear or act, the vacancy may be filled by the
Board in advance of the meeting or at the meeting by the person presiding
thereat. Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath faithfully to execute the duties of inspector at
such meeting with strict impartiality and according to the best of his ability.
Section 5. Whenever shareholders are required or permitted to take any
action by vote, such action may be taken without a meeting on written consent,
setting forth the action so taken, signed by the holders of all outstanding
shares entitled to vote thereon.
ARTICLE V
DIRECTORS
Section 1. The number of directors shall be not less than three nor more
than nine. The first Board shall consist of four directors and thereafter the
number of directors shall be determined within the foregoing limitations by a
resolution adopted by a majority of the entire Board as then constituted,
provided no decrease in the number of directors shall shorten the term of an
incumbent director.
Directors shall be at least eighteen years of age and need not be residents
of the State of New York nor shareholders of the corporation. The directors,
other than the first Board of Directors, shall be elected at the annual meeting
of the shareholders, except as hereinafter provided, and each director elected
shall serve until the next succeeding annual meeting or until his successor
shall have been elected and qualified. The
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first Board of Directors shall hold office until the first annual meeting of
shareholders.
Section 2. Any or all of the directors may be removed, with or without
cause, at any time by the vote of the shareholders at a special meeting called
for that purpose.
Any director may be removed for cause by the action of the directors at a
special meeting called for that purpose.
Section 3. Newly created directorships resulting from an increase in the
Board of Directors and all vacancies occurring in the Board of Directors,
including vacancies caused by removal without cause, may be filled by the
affirmative vote of the remaining directors, though less than a quorum of the
Board of Directors. A director elected to fill a vacancy shall be elected for
the unexpired portion of the term of his predecessor in office. A director
elected to fill a newly created directorship shall serve until the next
succeeding annual meeting of shareholders or until his successor shall have been
elected and qualified.
Section 4. The business affairs of the corporation shall be managed by its
Board of Directors which may exercise all such powers of the corporation and do
all such lawful acts and things as are not by statute or by the Restated
Certificate of Incorporation or by these By-Laws directed or required to be
exercised or done by the shareholders.
Section 5. The directors may keep the books of the corporation, except
such as are required by law to be kept within the state, outside the State of
New York, at such place or places as they may from time to time determine.
Section 6. The Board of Directors, by the affirmative vote of a majority
of the directors then in office, and irrespective of any personal interest of
any of its members, shall have authority to establish reasonable compensation of
all directors for services to the corporation as directors, officers or
otherwise.
ARTICLE VI
MEETINGS OF THE BOARD OF DIRECTORS
Section 1. Meetings of the Board of Directors, regular or special, may be
held either within or without the State of New York.
Section 2. The first meeting of each newly elected Board of Directors
shall be held at such time and place as shall be fixed
-4-
by the vote of the shareholders at the annual meeting and no notice of such
meeting shall be necessary to the newly elected directors in order legally to
constitute the meeting, provided a quorum shall be present, or it may convene at
such place and time as shall be fixed by the consent in writing of all the
directors.
Section 3. Regular meetings of the Board of Directors may be held upon
such notice, or without notice, and at such time and at such place as shall from
time to time be determined by the Board.
Section 4. Special meetings of the Board of Directors may be called by the
President on two days' notice to each director, either personally or by mail or
by telegram; special meetings shall be called by the President or Secretary in
like manner and on like notice on the written request of two directors.
Section 5. Notice of a meeting need not be given to any director who
submits a signed waiver of notice whether before or after the meeting, or who
attends the meeting without protesting, prior thereto or at its commencement,
the lack of notice. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the Board of Directors need be specified
in the notice or waiver of notice at such meeting.
Section 6. One-third of the directors shall constitute a quorum for the
transaction of business unless a greater number is required by law or by the
Restated Certificate of Incorporation. The vote of a majority of the directors
present at any meeting at which a quorum is present shall be the act of the
Board of Directors, unless the vote of a greater number is required by law or by
the Restated Certificate of Incorporation. If a quorum shall not be present at
any meeting of directors, the directors present may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present.
Section 7. Unless the Restated Certificate of Incorporation provides
otherwise, any action required or permitted to be taken at a meeting of the
directors or a committee thereof may be taken without a meeting, if a consent in
writing to the adoption of a resolution authorizing the action so taken shall be
signed by all of the directors entitled to vote with respect to the subject
matter thereof.
Section 8. Unless otherwise restricted by the Restated Certificate of
Incorporation or these By-Laws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such
-5-
participation in a meeting shall constitute presence in person at the meeting.
ARTICLE VII
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors, by resolution adopted by a majority of the entire
Board, may designate, from among its members, an Executive Committee and other
committees, each consisting of three or more directors, and each of which, to
the extent provided in the resolution, shall have all the authority of the
Board, except as otherwise required by law. Vacancies in the membership of the
committee shall be filled by the Board of Directors at a regular or special
meeting of the Board of Directors.
ARTICLE VIII
NOTICES
Section 1. Whenever, under the provisions of the statutes or of the
Restated Certificate of Incorporation or of these By-Laws, notice is required to
be given to any director or shareholder, it shall not be construed to mean
personal notice, but such notice may be given in writing, by mail, addressed to
such director or shareholder at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telegram or facsimile transmission.
Section 2. Whenever any notice of a meeting is required to be given under
the provisions of the statutes or under the provisions of the Restated
Certificate of Incorporation or these By-Laws, a waiver thereof in writing
signed by the person or persons entitled to such notice, whether before or after
the time stated therein, shall be deemed equivalent to the giving of such
notice.
ARTICLE IX
OFFICERS
Section 1. The officers of the corporation shall be chosen by the Board of
Directors and shall be a President, a Secretary and a Treasurer. The Board of
Directors may also choose one or
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more Executive Vice Presidents, Vice Presidents, Assistant Secretaries and
Assistant Treasurers.
Section 2. The Board of Directors at its first meeting after each annual
meeting of shareholders shall choose a President from among the directors, and
shall choose a Secretary and a Treasurer, neither of whom need be a member of
the Board.
Any two or more offices may be held by the same person, except the offices
of President and Secretary.
Section 3. The Board of Directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the Board of Directors.
Section 4. The salaries of all officers and agents of the corporation
shall be fixed by the Board of Directors.
Section 5. The officers of the corporation shall hold office until their
successors are chosen and qualify. Any officer elected or appointed by the
Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors. Any vacancy occurring in any office of the
corporation shall be filled by the Board of Directors.
Section 6. The officers of the corporation shall have such powers and
duties in the management of the corporation as may be prescribed by the Board of
Directors and, to the extent not so provided, as generally pertain to their
respective offices, subject to the control of the Board of Directors. The Board
of Directors may require any officer, agent or employee to give security for the
faithful performance of his duties.
ARTICLE X
CERTIFICATES FOR SHARES; UNCERTIFICATED SHARES
Section 1. The shares of the corporation may be represented by certificates
signed by the President, an Executive Vice President, or a Vice President and
the Secretary or an Assistant Secretary or the Treasurer or an Assistant
Treasurer of the corporation and may be sealed with the seal of the corporation
or a facsimile thereof or such shares may be represented solely by appropriate
entry in the stock ledger of the corporation.
Section 2. If the shares of the corporation are represented by
certificates, the signatures of the officers of the corporation upon a
certificate may be facsimiles if the certificate is countersigned by a transfer
agent or registered by
-7-
a registrar other than the corporation itself or an employee of the corporation.
In case any officer who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer before such certificate
is issued, it may be issued by the corporation with the same effect as if he
were such officer at the date of issue.
LOST CERTIFICATES
Section 3. If the shares of the corporation are represented by
certificates, the Board of Directors may direct a new certificate to be issued
in place of any certificate theretofore issued by the corporation alleged to
have been lost or destroyed. When authorizing such issue of a new certificate,
the Board of Directors, in its discretion and as a condition precedent to the
issuance thereof, may prescribe such terms and conditions as it deems expedient,
and may require such indemnities as it deems adequate, to protect the
corporation from any claim that may be made against it with respect to any such
certificate alleged to have been lost or destroyed.
TRANSFER OF SHARES
Section 4. If the shares of the corporation are represented by
certificates, upon surrender to the corporation of the corporation of a
certificate representing shares duly endorsed or accompanied by proper evidence
of succession, assignment or authority to transfer, a new certificate shall be
issued to the person entitled thereto, and the old certificate cancelled and the
transaction recorded upon the books of the corporation. If the shares of the
corporation are represented solely by appropriate entry in the stock ledger of
the corporation, upon proper evidence of successor, assignment or authority to
transfer, the transaction shall be recorded by appropriate entry in the stock
ledger of the corporation.
FIXING RECORD DATE
Section 5. For the purpose of determining shareholders entitled to notice
of or to vote at any meeting of shareholders or any adjournment thereof, or to
express consent to or dissent from any proposal without a meeting, or for the
purpose of determining shareholders entitled to receive payment of any dividend
or the allotment of any rights, or for the purpose of any other action, the
Board of Directors may fix, in advance, a date as the record date for any such
determination of shareholders. Such date shall not be more than fifty nor less
than ten days before the date of any meeting nor more than fifty days prior to
any other action. When a determination of shareholders of record entitled to
notice of or to vote at any meeting of shareholders has been made as provided in
this section
-8-
such determination shall apply to any adjournment thereof, unless the Board
fixes a new record date for the adjourned meeting.
REGISTERED SHAREHOLDERS
Section 6. The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of the
State of New York.
LIST OF SHAREHOLDERS
Section 7. A list of shareholders as of the record date, certified by the
corporate officer responsible for its preparation or by a transfer agent, shall
be produced at any meeting upon the request thereat or prior thereto of any
shareholder. If the right to vote at any meeting is challenged, the inspectors
of election, or person presiding thereat, shall require such list of
shareholders to be produced as evidence of the right of the persons challenged
to vote at such meeting and all persons who appear from such list to be
shareholders entitled to vote thereat may vote at such meeting.
ARTICLE XI
GENERAL PROVISIONS
DIVIDENDS
Section 1. Subject to the provisions of the Restated Certificate of
Incorporation relating thereto, if any, dividends may be declared by the Board
of Directors at any regular or special meeting, pursuant to law. Dividends may
be paid in cash, in shares of the capital stock or in the corporation's bonds or
its property, including the shares or bonds of other corporations subject to any
provisions of law and of the Restated Certificate of Incorporation.
Section 2. Before payment of any dividend, there may be set aside out of
any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve fund to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interest of
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the corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
CHECKS
Section 3. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other person or persons as
the Board of Directors may from time to time designate.
FISCAL YEAR
Section 4. The fiscal year of the corporation shall be fixed by resolution
of the Board of Directors.
SEAL
Section 5. The officers of the corporation are authorized to obtain a
corporate seal of the corporation. If the officers of the corporation determine
to obtain a corporation seal for the corporation the corporate seal shall have
inscribed thereon the name of the corporation, the year of its organization and
the words "Corporate Seal, New York". The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or in any manner reproduced.
ARTICLE XII
INDEMNIFICATION
Any person made or threatened to be made a party to any action or
proceeding, whether civil or criminal, by reason of the fact that he, his
testator or intestate is or was a director, officer or employee of the
corporation or serves or served any other corporation in any capacity at the
request of the corporation shall be indemnified by the corporation, and the
corporation may advance his related expenses, to the full extent permitted by
law.
ARTICLE XIII
AMENDMENTS
These By-Laws may be amended or repealed or new By-Laws may be adopted by
the affirmative vote of a majority of the Board of Directors at any regular or
special meeting of the Board. If any By-Law regulating an impending election of
directors is adopted, amended or repealed by the Board, there shall be set forth
in the notice of the next meeting of shareholders for the election of directors
the By-Law so adopted, amended or repealed, together with a precise statement of
the changes made. By-Laws adopted by the Board of Directors may be amended or
repealed by the shareholders.
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Exhibit 10.5
EMPLOYMENT AND NONCOMPETITION AGREEMENT
This EMPLOYMENT AND NONCOMPETITION AGREEMENT ("Agreement") is made as of
the ____ day of ________, 1997 between ________________ ("Executive") and SL
Green Realty Corp., a Maryland corporation with its principal place of business
at 70 West 36th Street, New York, New York 10018 (the "Employer").
1. TERM. The term of this Agreement shall commence on the date first
above written and, unless earlier terminated as provided in Section 6 below,
shall terminate on the third anniversary of the closing of the initial public
offering (the "IPO") of the Employer's Common Stock, $.01 par value per share
(the "Original Term"); PROVIDED, HOWEVER, that Section 8 hereof shall survive
the termination of this Agreement as provided therein. The Original Term may be
extended for such period or periods, if any, as may be mutually agreed to by
Executive and the Employer (each a "Renewal Term"). The period of Executive's
employment hereunder consisting of the Original Term and all Renewal Terms, if
any, is herein referred to as the "Employment Period".
2. EMPLOYMENT AND DUTIES.
(a) DUTIES. During the Employment Period, Executive shall be
employed in the business of the Employer and its affiliates. Executive
shall serve the Employer as a senior corporate executive with the
title_____________________________________ of the Employer. Executive's
duties and authority shall be as set forth in the By-laws of the Employer
and as otherwise established from time to time by the Board of Directors of
the Employer, and shall be commensurate with his titles and positions with
the Employer.
(b) BEST EFFORTS. Executive agrees to his employment as described in
this Section 2 and agrees to devote substantially all of his business time
and efforts to the performance of his duties under this Agreement, except
as otherwise approved by the Board of Directors of the Employer; PROVIDED,
HOWEVER, that nothing herein shall be interpreted to preclude Executive
from (i) participating as an officer or director of, or advisor to, any
charitable or other tax exempt organization or otherwise engaging in
charitable, fraternal or trade group activities, [(ii) acting as
_________________], or (iii) investing his assets as a passive investor in
other entities or business ventures, provided that he performs no
management or similar role with respect to such entities or ventures and
such investment does not violate Section 8 hereof.
(c) TRAVEL. In performing his duties hereunder, Executive shall be
available for all reasonable travel as the needs of the Employer's business
may require. Executive shall be based in the metropolitan area of New York
City (the "New York City metropolitan area").
3. COMPENSATION AND BENEFITS. In consideration of Executive's services
hereunder, the Employer shall compensate Executive as provided in this Section
3.
(a) BASE SALARY. The Employer shall pay Executive an aggregate
annual salary at the rate of $_______ per annum during the Employment
Period ("Base Salary"), subject to applicable withholding. Base Salary
shall be payable in accordance with the Employer's normal business
practices, but in no event less frequently than monthly. Executive's Base
Salary shall be reviewed no less frequently than annually by the Employer
and may be increased, but not decreased, by the Employer during the
Employment Period.
(b) INCENTIVE COMPENSATION. In addition to the Base Salary payable
to Executive pursuant to Section 3(a), during the Employment Period,
Executive shall be eligible to participate in any incentive compensation
plans in effect with respect to senior executive officers of the Employer,
subject to Executive's compliance with such criteria as the Employer's
Board of Directors, in its sole discretion, may establish for Executive's
participation in such plans from time to time. Any awards to Executive
under such plans will be established by the Employer's Board of Directors,
or a committee thereof, in its sole discretion.
(c) STOCK OPTIONS. During the Employment Period, Executive shall be
eligible to participate in employee stock option plans established from
time to time for the benefit of senior executive officers and other
employees of the Employer in accordance with the terms and conditions of
such plans. All decisions regarding awards to Executive under the
Employer's stock option plans shall be made in the sole discretion of the
Employer's Board of Directors, or a committee thereof.
(d) EXPENSES. Executive shall be reimbursed for all reasonable
business related expenses incurred by Executive at the request of or on
behalf of the Employer, provided that such expenses are incurred and
accounted for in accordance with the policies and procedures established by
the Employer.
(e) MEDICAL INSURANCE. During the Employment Period, Executive and
Executive's immediate family shall be entitled to participate in such
medical benefit plan as the Employer shall maintain from time to time for
the benefit of senior executive officers of the Employer and their
families, on the terms and subject to the conditions set forth in such
plan. Nothing in this section shall limit the Employer's right to change,
modify or terminate any benefit plan or program as it sees fit from time to
time in the normal course of business.
(f) VACATIONS. Executive shall be entitled to reasonable paid
vacations in accordance with the then regular procedures of the Employer
governing senior executive officers.
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(g) OTHER BENEFITS. During the Employment Period, the Employer shall
provide to Executive such other benefits, including sick leave and the
right to participate in such retirement or pension plans, as are made
generally available to senior executive officers and employees of the
Employer from time to time.
4. INDEMNIFICATION AND LIABILITY INSURANCE. The Employer agrees to
indemnify Executive to the extent permitted by applicable law with respect to
any actions commenced against Executive in his capacity as an officer or
director, or former officer or director, of the Employer or any affiliate
thereof for which he may serve in such capacity. The Employer also agrees to
use its best efforts to secure and maintain officers and directors liability
insurance providing coverage for Executive.
5. EMPLOYER'S POLICIES. Executive agrees to observe and comply with the
rules and regulations of the Employer as adopted by its Board of Directors from
time to time regarding the performance of his duties and to carry out and
perform orders, directions and policies communicated to him from time to time by
the Employer's Board of Directors.
6. TERMINATION. The Executive's employment hereunder may be terminated
under the following circumstances:
(a) TERMINATION BY THE EMPLOYER.
(i) DEATH. The Executive's employment hereunder shall
terminate upon his death.
(ii) DISABILITY. If, in the reasonable good faith
determination of the Board of Directors, as a result of the
Executive's incapacity due to physical or mental illness or
disability, the Executive shall have been incapable of performing his
duties hereunder even with a reasonable accommodation on a full-time
basis for the entire period of three consecutive months or any 90 days
in a 180-day period, and within 30 days after written Notice of
Termination (as defined in Section 6(c)) is given he shall not have
returned to the performance of his duties hereunder on a full-time
basis, the Employer may terminate the Executive's employment
hereunder.
(iii) CAUSE. The Employer may terminate the Executive's
employment hereunder for Cause. For purposes of the Agreement,
"Cause" shall mean that the Board of Directors of the Employer
concludes, in good faith and after reasonable investigation, that: (i)
the Executive engaged in conduct which is a felony under the laws of
the United States or any state or political subdivision thereof; (ii)
the Executive engaged in conduct constituting breach of fiduciary
duty, gross negligence or willful misconduct relating to the Employer,
fraud or dishonesty or willful or material misrepresentation relating
to the business of the Employer; (iii) the Executive breached his
obligations or covenants under Section
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8 of this Agreement in any material respect; or (iv) the Executive
failed to substantially perform his duties hereunder more than 15 days
after receiving notice of such failure from the Employer, which notice
specifically identifies the manner in which he has failed so to
perform.
(iv) WITHOUT CAUSE. Executive's employment hereunder may be
terminated by the Employer at any time with or without Cause (as
defined in Section 6(a)(iii) above), by a majority vote of all of the
members of the Board of Directors of the Employer upon written notice
to Executive, subject only to the severance provisions specifically
set forth Section 7.
(b) TERMINATION BY THE EXECUTIVE.
(i) DISABILITY. The Executive may terminate his employment
hereunder for Disability within the meaning of Section 6(a)(ii) above.
(ii) WITH GOOD REASON. Executive's employment hereunder may
be terminated by Executive With Good Reason effective immediately by
written notice to the Board of Directors of the Employer. For
purposes of this Agreement, "With Good Reason" shall mean: (i) a
failure of the Board of Directors of the Employer to elect Executive
to offices with the same or substantially the same duties and
responsibilities as set forth in Section 2; (ii) a material failure by
the Employer to comply with the provisions of Section 3 or a material
breach by the Employer of any other provision of this Agreement which
has not been cured within thirty (30) days after notice of
noncompliance, (specifying the nature of the noncompliance) has been
given by the Executive to the Employer; or (iii) a Force Out (as such
term is defined in Section 6(d) below).
(c) NOTICE OF TERMINATION. Any termination of the Executive's
employment by the Employer or by the Executive (other than termination
pursuant to subsection (a)(1) hereof) shall be communicated by written
Notice of Termination to the other party hereto in accordance with Section
11 of this Agreement. For purposes of this Agreement, a "Notice of
Termination" shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon and, as applicable,
shall set forth in reasonable detail the fact and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated.
(d) DEFINITIONS. The following terms shall be defined as set forth
below.
(i) A "Change-in-Control" shall be deemed to have occurred
after the effective date of the IPO if:
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(A) any Person, together with all "affiliates" and
"associates" (as such terms are defined in Rule 12b-2 under the
Securities Exchange Act of 1934 (the "Exchange Act")) of such
Person, shall become the "beneficial owner" (as such term is
defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Employer representing 40% or
more of either (A) the combined voting power of the Employer's
then outstanding securities having the right to vote in an
election of the Employer's Board of Directors ("Voting
Securities") or (B) the then outstanding shares of all classes of
stock of the Employer (in either such case other than as a result
of the acquisition of securities directly from the Employer); or
(B) individuals who, as of the date of the closing of
the IPO, constitute the Employer's Board of Directors (the
"Incumbent Directors") cease for any reason, including, without
limitation, as a result of a tender offer, proxy contest, merger
or similar transaction, to constitute at least a majority of the
Employer's Board of Directors, provided that any person becoming
a director of the Employer subsequent to the closing of the IPO
whose election or nomination for election was approved by a vote
of at least a majority of the Incumbent Directors shall, for
purposes of this Agreement, be considered an Incumbent Director;
or
(C) the stockholders of the Employer shall approve (1)
any consolidation or merger of the Employer or any subsidiary
where the stockholders of the Employer, immediately prior to the
consolidation or merger, would not, immediately after the
consolidation or merger, beneficially own (as such term is
defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, shares representing in the aggregate at least 50% of
the voting shares of the corporation issuing cash or securities
in the consolidation or merger (or of its ultimate parent
corporation, if any), (2) any sale, lease, exchange or other
transfer (in one transaction or a series of transactions
contemplated or arranged by any party as a single plan) of all or
substantially all of the assets of the Employer or (3) any plan
or proposal for the liquidation or dissolution of the Employer;
Notwithstanding the foregoing, a "Change-in-Control" shall not be deemed to
have occurred for purposes of the foregoing clause (A) solely as the result of
an acquisition of securities by the Employer which, by reducing the number of
shares of stock or other Voting Securities outstanding, increases (x) the
proportionate number of shares of stock of the Employer beneficially owned by
any Person to 40% or more of the shares of stock then outstanding or (y) the
proportionate voting power represented by the Voting Securities beneficially
owned by any Person to 40% or more of the combined voting power of all then
outstanding Voting Securities; PROVIDED, HOWEVER, that if any Person referred to
in clause (x) or (y) of this sentence shall
5
thereafter become the beneficial owner of any additional stock of the Employer
or other Voting Securities (other than pursuant to a share split, stock
dividend, or similar transaction), then a "Change-in-Control" shall be deemed to
have occurred for purposes of the foregoing clause (A).
(ii) A "Force Out" shall be deemed to have occurred in the
event of a Change-In-Control followed by:
(A) a change in duties, responsibilities, status or
positions with the Employer, which, in Executive's reasonable
judgment, does not represent a promotion from or maintaining of
Executive's duties, responsibilities, status or positions as in
effect immediately prior to the Change-In-Control, or any removal
of Executive from or any failure to reappoint or reelect
Executive to such positions, except in connection with the
termination of Executive's employment for Cause, disability,
retirement or death;
(B) a reduction by the Employer in Executive's Base
Salary as in effect immediately prior to the Change-In-Control;
(C) the failure by the Employer to continue in effect
any of the benefit plans in which Executive is participating at
the time of the Change-In-Control of the Employer (unless
Executive is permitted to participate in any substitute benefit
plan with substantially the same terms and to the same extent and
with the same rights as Executive had with respect to the benefit
plan that is discontinued) other than as a result of the normal
expiration of any such benefit plan in accordance with its terms
as in effect at the time of the Change-In-Control, or the taking
of any action, or the failure to act, by the Employer which would
adversely affect Executive's continued participation in any of
such benefit plans on at least as favorable a basis to Executive
as was the case on the date of the Change-In-Control or which
would materially reduce Executive's benefits in the future under
any of such benefit plans or deprive Executive of any material
benefits enjoyed by Executive at the time of the
Change-In-Control; PROVIDED, HOWEVER, that any such action or
inaction on the part of the Employer, including any modification,
cancellation or termination of any benefits plan, undertaken in
order to maintain such plan in compliance with any federal, state
or local law or regulation governing benefits plans, including,
but not limited to, the Employment Retirement Income Security Act
of 1974, shall not constitute a Force Out for the purposes of
this Agreement.
(D) the Employer's requiring Executive to be based in
an office located beyond a reasonable commuting distance from
Executive's residence immediately prior to the Change-In-Control,
except for required
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travel relating to the Employer's business to an extent
substantially consistent with the business travel obligations
which Executive undertook on behalf of the Employer prior to the
Change-In-Control;
(E) the failure by the Employer to obtain from any
successor to the Employer an agreement to be bound by this
Agreement pursuant to Section 14 hereof; or
(iii) "Person" shall have the meaning used in Sections 13(d)
and 14(d) of the Exchange Act; provided however, that the term
"Person" shall not include (A) any current partner of SL Green
Operating Partnership, L.P., any stockholder or employee of the
Employer on the date hereof or any estate or member of the immediate
family of such a partner, stockholder or employee, or (B) the
Employer, any of its subsidiaries, or any trustee, fiduciary or other
person or entity holding securities under any employee benefit plan of
the Employer or any of its subsidiaries.
7. COMPENSATION UPON TERMINATION OR DURING DISABILITY.
(a) TERMINATION WITHOUT CAUSE OR WITH GOOD REASON. If (i) Executive
is terminated without Cause pursuant to Section 6(a)(iv) above, or (ii)
Executive shall terminate his employment hereunder with Good Reason
pursuant to Section (6)(b)(ii) above, then the Employment Period shall
terminate as of the effective date set forth in the written notice of such
termination (the "Termination Date") and Executive shall be entitled to the
following benefits:
(i) The Employer shall continue to pay Executive's Base
Salary for the remaining term of the Employment Period after the date
of Executive's termination, at the rate in effect on the date of his
termination and on the same periodic payment dates as payment would
have been made to Executive had the Employment Period not been
terminated;
(ii) For the remaining term of the Employment Period,
Executive shall continue to receive all benefits described in Section
3 existing on the date of termination, subject to the terms and
conditions upon which such benefits may be offered. For purposes of
the application of such benefits, Executive shall be treated as if he
had remained in the employ of the Employer with a Base Salary at the
rate in effect on the date of termination;
(iii) For purposes of any stock option plan of the Employer,
Executive shall be treated as if he had remained in the employ of the
Employer for the remaining term of the Employment Period after the
date of Executive's termination so that Executive may exercise any
exercisable options and Executive's other rights shall continue to
vest during the remaining term of the
7
Employment Period with respect to any options previously granted under
such plans except as otherwise provided in such plan;
(iv) Nothing herein shall be deemed to obligate Executive to
seek other employment in the event of any such termination and any
amounts earned or benefits received from such other employment will
not serve to reduce in any way the amounts and benefits payable in
accordance herewith.
(b) TERMINATION FOR CAUSE OR WITHOUT GOOD REASON. If (i) Executive
is terminated for Cause pursuant to Section 6(a)(iii) above, or (ii)
Executive shall voluntarily terminate his employment hereunder without Good
Reason pursuant to Section 6(b)(iii) above, then the Employment Period
shall terminate as of the effective date set forth in the written notice of
such termination (the "Termination Date") and Executive shall be entitled
to receive only his Base Salary at the rate then in effect until the
Termination Date and any outstanding stock options held by Executive shall
expire in accordance with the terms of the stock option plan or option
agreement under which the stock options were granted.
(c) TERMINATION BY REASON OF DEATH. If Executive's employment
terminates due to his death, the Employer shall pay Executive's Base Salary
for a period of six months from the date of his death, or such longer
period as the Employer's Board of Directors may determine, to Executive's
estate or to a beneficiary designated by Executive in writing prior to his
death. Any unexercised or unvested stock options shall remain exercisable
or vest upon Executive's death only to the extent provided in the
applicable option plan and option agreements.
(d) TERMINATION BY REASON OF DISABILITY. In the event that
Executive's employment terminates due to his disability as defined in
Section 6(a)(ii) above, Executive shall be entitled to be paid his Base
Salary until the later of such time when (i) the period of disability or
illness (whether or not the same disability or illness) shall exceed 180
consecutive days during the Employment Period and (ii) Executive becomes
eligible to receive benefits under a comprehensive disability insurance
policy obtained by the Employer (the "Disability Period"). Following the
expiration of the Disability Period, the Employer may terminate this
Agreement upon written notice of such termination. Any unexercised or
unvested stock options shall remain exercisable or vest upon such
termination only to the extent provided in the applicable option plan and
option agreements.
(e) ARBITRATION IN THE EVENT OF A DISPUTE REGARDING THE NATURE OF
TERMINATION. In the event that the Executive's employment is terminated by
the Employer for Cause or by Executive for Good Reason, and either party
contends that such Cause or Good Reason did not exist, the parties agree to
submit such claim to arbitration before the American Arbitration
Association ("AAA"), and Executive hereby agrees to submit to any such
dispute to arbitration pursuant to the terms of this Section 7(e). In such
a
8
proceeding, the only issue before the arbitrator will be whether
Executive's employment was in fact terminated for Cause or for Good Reason,
as the case may be. If the arbitrator determines that Executive's
employment was terminated by the Employer without Cause or was terminated
by Executive for Good Reason, the only remedy that the arbitrator may award
is an amount equal to the severance payments specified in Section 7, the
costs of arbitration, and Executive's attorneys' fees. If the arbitrator
finds that Executive's employment was terminated by the Employer for Cause
or by the Executive without Good Reason, the arbitrator will be without
authority to award Executive anything, and the parties will each be
responsible for their own attorneys' fees, and the costs of arbitration
will be paid 50% by Executive and 50% by the Employer.
8. CONFIDENTIALITY; PROHIBITED ACTIVITIES. The Executive and the
Employer recognize that due to the nature of his employment and relationship
with the Employer, the Executive has access to and develops confidential
business information, proprietary information, and trade secrets relating to the
business and operations of the Employer. The Executive acknowledges that such
information is valuable to the business of the Employer, and that disclosure to,
or use for the benefit of, any person or entity other than the Employer, would
cause irreparable damage to the Employer. The Executive further acknowledges
that his duties for the Employer include the duty to develop and maintain
client, customer, employee, and other business relationships on behalf of the
Employer; and that access to and development of those close business
relationships for the Employer render his services special, unique and
extraordinary. In recognition that the good will and business relationships
described herein are valuable to the Employer, and that loss of or damage to
those relationships would destroy or diminish the value of the Employer, the
Executive agrees as follows:
(a) CONFIDENTIALITY. During the term of this Agreement (including
any renewals), and at all times thereafter, the Executive shall maintain
the confidentiality of all confidential or proprietary information of the
Employer ("Confidential Information"), and, except in furtherance of the
business of the Employer, he shall not directly or indirectly disclose any
such information to any person or entity; nor shall he use Confidential
Information for any purpose except for the benefit of the Employer. For
purposes of the Agreement, "Confidential Information" includes, without
limitation: client or customer lists, identities, contacts, business and
financial information; investment strategies; pricing information or
policies, fees or commission arrangements of the Employer; marketing plans,
projections, presentations or strategies of the Employer; financial and
budget information of the Employer; new personnel acquisition plans; and
all other business related information which has not been publicly
disclosed by the Employer. This restriction shall apply regardless of
whether such Confidential Information is in written, graphic, recorded,
photographic, data or any machine readable form or is orally conveyed to,
or memorized by, the Executive. The Executive further agrees that, during
the Employment Period and at all times thereafter, he shall keep
confidential and shall not release, use or disclose without prior written
permission of the Employer, all Confidential Information developed by him
on behalf of the Employer or provided to him by the Employer, excepting
only such information as was already known
9
to him prior to the commencement of his employment by the Employer or such
information as is already known to the public.
(b) PROHIBITED ACTIVITIES. Because Executive's services to the
Employer are essential and because Executive has access to the Employer's
Confidential Information, Executive covenants and agrees that (i) during
the Employment Period and (ii) in the event that this Agreement is
terminated by the Employer for Cause or by Executive other than for Good
Reason, during the Noncompetition Period, Executive will not, without the
prior written consent of the Board of Directors of the Employer which shall
include the unanimous consent of the Directors who are not officers of the
Employer, directly or indirectly (individually, or through or on behalf of
another entity as owner, partner, agent, employee, consultant, or in any
other capacity):
(i) engage, participate or assist, as an owner, partner,
employee, consultant, director, officer, trustee or agent, in any
business that engages or attempts to engage in, directly or
indirectly, the acquisition, development, construction, operation,
management or leasing of any office real estate property anywhere in
the New York City metropolitan area;
(ii) seek, solicit, or engage in any attempt to establish for
himself or for any other person or entity, a business relationship
with any person or entity who was a client or customer of the
Employer, or who was solicited to become a client or customer of the
Employer, during the Employment Period ("Employer Clients");
(iii) engage in any activity to interfere with, disrupt or
damage the business of the Employer, or its relationships with any
Employer Client, employee, supplier or other business relationship;
(iv) engage in business with, or provide advice or services
to, any Employer Client solicited by the Executive in breach of
Section 8 of this Agreement (whether or not such services are
compensated);
(v) receive, or cause any other person or entity to receive,
any compensation, consideration, or income, in any form, from any
Employer Client solicited by him in breach of Section 8 of this
Agreement; or
(vi) solicit, encourage, or engage in any activity to induce
any Employee of the Employer to terminate employment with the
Employer, or to become employed by, or to enter into a business
relationship with, any other person or entity. For purposes of this
subsection, the term Employee means any individual who is an employee
of or consultant to the Employer (or any affiliate) during the
six-month period prior to Executive's last day of employment.
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(c) NONCOMPETITION PERIOD. For purposes of this Section 8, the
Noncompetition Period shall mean the period commencing on the date of
termination of Executive's employment under this Agreement and ending on
the later of (i) the third anniversary of the IPO closing date or (ii) the
first anniversary of the date of termination of Executive's employment
under this Agreement.
(d) OPTION PROPERTY. Notwithstanding anything contained herein to
the contrary, Executive is not prohibited by this Section 8 from [(i)
maintaining his investment in any Option Property (as such term is defined
in the Employer's final prospectus relating to the IPO) or in any asset
listed in the Employer's final prospectus relating to the IPO under the
caption "The Properties - Assets Not Being Transferred to the Company" or]
(ii) from making investments in any entity that engages, directly or
indirectly, in the acquisition, development, construction, operation,
management or leasing of office real estate properties, regardless of where
they are located, if the shares or other ownership interests of such entity
are publicly traded and Executive's aggregate investment in such entity
constitutes less than one percent (1%) of the equity ownership of such
entity.
(e) EMPLOYER PROPERTY. The Executive acknowledges that all originals
and copies of materials, records and documents generated by him or coming
into his possession during his employment by the Employer are the sole
property of the Employer ("Employer Property"). During his employment, and
at all times thereafter, the Executive shall not remove, or cause to be
removed, from the premises of the Employer, copies of any record, file,
memorandum, document, computer related information or equipment, or any
other item relating to the business of the Employer, except in furtherance
of his duties under the Agreement. When the Executive terminates his
employment with the Employer, or upon request of the Employer at any time,
the Executive shall promptly deliver to the Employer all originals and
copies of Employer Property in his possession or control and shall not
retain any originals or copies in any form.
(f) NO DISPARAGEMENT. Following termination of the Executive's
employment for any reason, the Executive shall not disclose or cause to be
disclosed any negative, adverse or derogatory comments or information about
(i) the Employer and its parent, affiliates or subsidiaries, if any; (ii)
any product or service provided by the Employer and its parent, affiliates
or subsidiaries, if any; or (iii) the Employer's and its parent's,
affiliates' or subsidiaries' prospects for the future.
(g) REMEDIES. The Executive declares that the foregoing limitations
in Sections 8(a) through 8(f) above are reasonable and necessary for the
adequate protection of the business and the goodwill of the Employer. If
any restriction contained in this Section 8 shall be deemed to be invalid,
illegal or unenforceable by reason of the extent, duration or scope
thereof, or otherwise, then the court making such determination shall have
the right to reduce such extent, duration, scope, or other provisions
hereof to make
11
the restriction consistent with applicable law, and in its reduced form
such restriction shall then be enforceable in the manner contemplated
hereby. In the event that the Executive breaches any of the promises
contained in this Section 8, the Executive acknowledges that the Employer's
remedy at law for damages will be inadequate and that the Employer will be
entitled to specific performance, a temporary restraining order or
preliminary injunction to prevent the Executive's prospective or continuing
breach and to maintain the status quo. The existence of this right to
injunctive relief, or other equitable relief, or the Employer's exercise of
any of these rights, shall not limit any other rights or remedies the
Employer may have in law or in equity including, without limitation, the
right to arbitration contained in Section 7(e) hereof and the right to
compensatory, punitive and monetary damages. In the event that a final
non-appealable judgment is entered in favor of one of the parties, that
party shall be reimbursed by the other party for all costs and attorneys'
fees incurred by such party in such action. Executive hereby agrees to
waive his right to a jury trial with respect to any action commenced to
enforce the terms of this Agreement.
(h) TRANSITION. Regardless of the reason for his departure from the
Employer, the Executive agrees that: (i) he shall assist the Employer in
maintaining the business of the clients and customers with whom the
Executive has a relationship; and (ii) he shall take all steps reasonably
requested by the Employer to effect a successful transition of those
relationships to the person or persons designated by the Employer.
(i) SURVIVAL. The provisions of this Section 8 shall survive
termination of the Executive's employment. The covenants contained in
Section 8 shall be construed as independent of any of other provisions
contained in this Agreement and shall be enforceable regardless of whether
the Executive has a claim against the Employer under the Agreement or
otherwise.
9. COOPERATION. The Executive agrees to give prompt written notice to
the Employer of any claim or injury relating to the Employer, and to fully
cooperate in good faith and to the best of his ability with the Employer in
connection with all pending, potential or future claims, investigations or
actions which directly or indirectly relate to any transaction, event or
activity about which the Executive may have knowledge because of his employment
with the Employer. Such cooperation shall include all assistance that the
Employer, its counsel, or its representatives may reasonably request, including
reviewing documents, meeting with counsel, providing factual information and
material, and appearing or testifying as a witness.
10. CONFLICTING AGREEMENTS. Executive hereby represents and warrants that
the execution of this Agreement and the performance of his obligations hereunder
will not breach or be in conflict with any other agreement to which he is a
party or is bound, and that he is not now subject to any covenants against
competition or similar covenants which would affect the performance of his
obligations hereunder.
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11. NOTICES. All notices or other communications required or permitted to
be given hereunder shall be in writing and shall be delivered by hand and or
sent by prepaid telex, cable or other electronic devices or sent, postage
prepaid, by registered or certified mail or telecopy or overnight courier
service and shall be deemed given when so delivered by hand, telexed, cabled or
telecopied, or if mailed, three days after mailing (one business day in the case
of express mail or overnight courier service), as follows:
(a) if to the Executive:
_____________________________
[Address]
[Address]
(b) if to the Employer:
SL Green Realty Corp.
70 West 36th Street
New York, New York 10018
or such other address as either party may from time to time specify by written
notice to the other party hereto.
12. AMENDMENTS. No amendment, modification or waiver in respect of this
Agreement shall be effective unless it shall be in writing and signed by the
party against whom such amendment, modification or waiver is sought.
13. SEVERABILITY. If any provision of this Agreement (or any portion
thereof) or the application of any such provision (or any portion thereof) to
any person or circumstance shall be held invalid, illegal or unenforceable in
any respect by a court of competent jurisdiction, such invalidity, illegality or
unenforceability shall not affect any other provision hereof (or the remaining
portion thereof) or the application of such provision to any other persons or
circumstances.
14. SUCCESSORS. Neither this Agreement nor any rights hereunder may be
assigned or hypothecated by the Executive. This Agreement may be assigned by
the Employer and shall be binding upon, and inure to the benefit of, the
Employer's successors and assigns.
15. 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 such counterparts have been signed by
each of the parties and delivered to the other party.
16. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to agreements made
and to be
13
performed entirely within such State, without regard to the conflicts of law
principles of such State.
17. CHOICE OF VENUE. Executive agrees to submit to the jurisdiction of
the United States District Court for the Southern District of New York or the
Supreme Court of the State of New York, New York County, for the purpose of any
action to enforce any of the terms of this Agreement.
18. ENTIRE AGREEMENT. This Agreement contains the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements and understandings relating to such
subject matter. The parties hereto shall not be liable or bound to any other
party in any manner by any representations, warranties or covenants relating to
such subject matter except as specifically set forth herein.
19. PARAGRAPH HEADINGS. Paragraph headings used in this Agreement are
included for convenience of reference only and will not affect the meaning of
any provision of this agreement.
14
IN WITNESS WHEREOF, this Agreement is entered into as of the date and year
first above written.
SL GREEN REALTY CORP.
By:________________________________
Name:
Title:
_______________________________
[Employee]
15
Exhibit 10.6
EMPLOYMENT AND NONCOMPETITION AGREEMENT
This EMPLOYMENT AND NONCOMPETITION AGREEMENT ("Agreement") is made as of
the 8th day of July, 1997 between David Nettina ("Executive") and SL Green
Realty Corp., a Maryland corporation with its principal place of business at 70
West 36th Street, New York, New York 10018 (the "Employer").
1. TERM. The term of this Agreement shall commence on the date first
above written and, unless earlier terminated as provided in Section 3(f)(ii)(A)
and Section 6 below, shall terminate on the third anniversary of the date of
this Agreement (the "Original Term"); PROVIDED, HOWEVER, that Section 8 hereof
shall survive the termination of this Agreement as provided therein. The
Original Term may be extended for such period or periods, if any, as may be
mutually agreed to by Executive and the Employer (each a "Renewal Term"). If
the Employer intends not to extend the Original Term, the Employer will give
Executive at least six (6) months written notice of such intention. The period
of Executive's employment hereunder consisting of the Original Term and all
Renewal Terms, if any, is herein referred to as the "Employment Period".
2. EMPLOYMENT AND DUTIES.
(a) DUTIES. During the Employment Period, Executive shall be
employed in the business of the Employer and its affiliates. Executive
shall serve the Employer as a senior corporate executive with the titles of
Executive Vice President and Chief Operating Officer of the Employer.
Executive will report directly to Stephen L. Green, the Chief Executive
Officer of the Employer. Executive shall also serve as Chief Financial
Officer of the Employer for so long as the Employer desires and at the sole
discretion of the Employer. Any other person appointed as Chief Financial
Officer during the period of Executive's employment will report directly to
Executive. Executive's duties and authority shall be as set forth in the
By-laws of the Employer and as otherwise established from time to time by
the Board of Directors of the Employer, but in all events such duties shall
be commensurate with his titles and positions with the Employer. In
addition, within two years of the date first above written, Executive shall
be considered for the office of President of the Employer and for a seat on
the Employer's Board of Directors. Any such appointment shall be made at
the sole discretion of the Board of Directors.
(b) BEST EFFORTS. Executive agrees to his employment as described in
this Section 2 and agrees to devote substantially all of his business time
and efforts to the performance of his duties under this Agreement, except
as otherwise approved by the Board of Directors of the Employer; PROVIDED,
HOWEVER, that nothing herein shall be interpreted to preclude Executive
from (i) participating as an officer or director of, or
advisor to, any charitable or other tax exempt organization or otherwise
engaging in charitable, fraternal or trade group activities, or (ii)
investing his assets as a passive investor in other entities or business
ventures, provided that he performs no management or similar role with
respect to such entities or ventures and such investment does not violate
Section 8 hereof.
(c) TRAVEL. In performing his duties hereunder, Executive shall be
available for all reasonable travel as the needs of the Employer's business
may require. Executive shall be based in the metropolitan area of New York
City (the "New York City metropolitan area").
3. COMPENSATION AND BENEFITS. In consideration of Executive's services
hereunder, the Employer shall compensate Executive as provided in this Section
3.
(a) BASE SALARY. The Employer shall pay Executive an aggregate
minimum annual salary at the rate of $200,000 per annum during the period
commencing upon Executive's reporting for work at the Employer through the
end of the Employment Period ("Base Salary"), subject to applicable
withholding. Base Salary shall be payable monthly in accordance with the
Employer's normal business practices.
(b) BONUSES. The Employer shall pay Executive a minimum yearly bonus
of $100,000, subject to applicable withholdings, payable respectively on
the first, second and third anniversaries of the date of this Agreement
(respectively, the "First Anniversary", the "Second Anniversary" and the
"Third Anniversary").
(c) STOCK LOAN. Upon completion of the initial public offering
("IPO") of the Employer's Common Stock, par value $.01 per share,
Employer agrees to provide to Executive a loan to purchase Common Stock
in the principal amount of $300,000 in accordance with the terms set
forth in Exhibit A hereto.
(d) INCENTIVE COMPENSATION. In addition to the Base Salary payable
to Executive pursuant to Section 3(a), during the Employment Period,
Executive shall be eligible to participate in any incentive compensation
plans in effect with respect to senior executive officers of the Employer,
subject to Executive's compliance with such criteria as the Employer's
Board of Directors, in its sole discretion, may establish for Executive's
participation in such plans from time to time, which criteria will be at
least
2
as favorable as those criteria applicable to all other executive officers
of the Employer except Stephen L. Green and Nancy A. Peck. Any awards to
Executive under such plans will be established by the Employer's Board of
Directors, or a committee thereof, in its sole discretion.
(e) STOCK OPTIONS. During the Employment Period, in the sole
discretion of the Employer's Board of Directors or a committee thereof,
Executive shall be eligible to participate in the Employer's stock option
and incentive plan (the "Plan"), which authorizes the grant of stock
options, stock awards and the making of loans to acquire stock, pursuant to
criteria at least as favorable as those criteria applicable to all other
executive officers of the Employer except Stephen L. Green and Nancy A.
Peck. It is the intention of the Employer, within eighteen (18) months of
the closing of the IPO, to design and implement performance based
compensation standards that will permit the Employer to award to Executive,
in the sole discretion of the Employer's Board of Directors or a committee
thereof, a material equity position in the Employer. Notwithstanding the
foregoing, it is specifically agreed that upon the closing of the IPO,
Executive shall receive options to purchase the greater of (i) 50,000
shares of the Employer's Common Stock; or (ii) the greatest number of
shares encompassed by any stock option award made to any executive officer
of the Employer other than Stephen L. Green or Nancy Peck on or prior to the
completion of the IPO (the "Options"). The exercise price per share of
the Options shall be equal to the IPO price. The Options shall have a
term of ten years, and shall be exercisable for one third of the shares
encompassed by the Options on each of the first, second and third
anniversaries of the date of completion of the IPO respectively. The
Options shall be exercisable only in accordance with the terms and
conditions of the Plan and in accordance with applicable federal, state
and local laws and regulations.
(f) EQUITY AWARDS.
(i) If the IPO is completed on or prior to the First
Anniversary, Executive will be awarded $200,000 worth of restricted
shares of the Common Stock of the Employer on each of the First
Anniversary, the Second Anniversary and the Third Anniversary. For
the purposes of any such awards, the shares awarded shall be valued as
of the date of the IPO.
(ii) If the IPO is not completed on or prior to the First
Anniversary, Executive shall have the option to:
(A) resign, and, in addition to the payments provided for
in Section 6 of this Agreement, receive a lump-sum cash payment
of $500,000 in complete satisfaction of the terms of this
Agreement; or
3
(B) remain in the employment of the Employer under the
terms of this Agreement and on each of the First Anniversary,
Second Anniversary and Third Anniversary be awarded an equity
interest in existing property partnerships or service
corporations through which Stephen L. Green presently conducts
the commercial real estate business of SL Green Real Estate,
having an aggregate value of not less than $200,000, as valued by
such appraisal process as may be mutually and reasonably agreed
upon by Executive and the Employer. In the event that the IPO is
completed prior to the Second Anniversary or the Third
Anniversary, in lieu of the awards provided for in this Section
3(e)(ii)(B), Executive shall receive $200,000 worth of restricted
shares of common stock of the Employer on either or each of the
Second Anniversary and the Third Anniversary, as the case may be.
For the purposes of any such awards, the shares awarded shall be
valued as of the date of the IPO.
(g) EXPENSES. Executive shall be reimbursed for all reasonable
business related expenses incurred by Executive at the request of or on
behalf of the Employer, provided that such expenses are incurred and
accounted for in accordance with the policies and procedures established by
the Employer.
(h) RELOCATION EXPENSES. The Employer will reimburse the Executive
on terms mutually and reasonably agreed upon by Executive and the Employer
for the customary and reasonable costs Executive incurs in relocating and
moving his household goods and belongings from Manlius, New York to the New
York City metropolitan area. Such costs shall include (i) customary and
reasonable moving and packing expenses incurred by Executive in moving such
household goods and belongings, (ii) customary and reasonable real estate
brokerage costs and closing costs incurred by Executive upon the sale of
his home in Manlius, New York, (iii) customary and reasonable closing costs
(including a maximum of one "point" on any related mortgage loan) incurred
by Executive upon purchase or lease of a residence in the New York City
metropolitan area, (iv) customary and reasonable rental costs (including
any customary and reasonable rental agent's commission) incurred by
Executive in connection with the temporary rental of a furnished one
bedroom apartment in the New York City metropolitan area for the period
from the beginning of Executive's employment through the month in which
Executive takes possession of a permanent residence in such area, but in no
event for more than six months, (v) reimbursement of costs actually
incurred by Executive for the purchase and use of (a) up to a total of four
round-trip coach class airline tickets between Syracuse, New York and New
York City for Executive's wife and (b) up to four round-trip coach class
airline tickets per month between New York City and Syracuse, New York for
Executive, both during the period from the beginning of Executive's
employment through Executive's taking possession of a permanent residence
in the New York City metropolitan area, and (vi) if the Internal Revenue
Service or any state or
4
local taxing authorities takes the position that the relocation expenses
reimbursed pursuant to this Section 3(h) results in the receipt of taxable
income to Executive, an amount equal to the aggregate Federal, state, and
local income and employment taxes imposed on Executive as a direct result
of such reimbursement.
(i) OTHER EXPENSES. (i) The Employer will reimburse the Executive
$500 for the costs incurred by Executive in connection with Executive's
cancelled vacation plans during August 1997 and, (ii) if any medical
insurance expense pursuant to the Consolidated Omnibus Budget
Reconciliation Act of 1985 is incurred by Executive solely as a result of a
delay of more than 60 days in Executive's eligibility for coverage under
Employer's medical plan, such insurance expense shall be reimbursed by
Employer to Executive.
(j) MEDICAL INSURANCE. During the Employment Period, Executive and
Executive's immediate family shall be entitled to participate in such
medical benefit plan as the Employer shall maintain from time to time for
the benefit of senior executive officers of the Employer and their
families, on the terms and subject to the conditions set forth in such
plan. Nothing in this section shall limit the Employer's right to change,
modify or terminate any benefit plan or program as it sees fit from time to
time in the normal course of business.
(k) VACATIONS. Executive shall be entitled to reasonable paid
vacations in accordance with the then regular procedures of the Employer
governing senior executive officers.
(l) OTHER BENEFITS. During the Employment Period, the Employer shall
provide to Executive such other benefits, including sick leave and the
right to participate in such retirement or pension plans, as are made
generally available to senior executive officers and employees of the
Employer from time to time.
4. INDEMNIFICATION AND LIABILITY INSURANCE. The Employer agrees to
indemnify Executive to the extent permitted by applicable law from and against
any and all losses, damages, claims, liabilities and expenses for which such
indemnified party has not otherwise been reimbursed (including the costs and
expenses of legal counsel retained by the Employer to defend the Executive and
judgments, fines and amounts paid in settlement actually and reasonably incurred
by or imposed on such indemnified party) with respect to any actions commenced
against Executive in his capacity as an officer or director, or former officer
or director, of the Employer or any affiliate thereof for which he may serve in
such capacity. The Employer also agrees to use its best efforts to secure and
maintain officers and directors liability insurance providing coverage for
Executive.
5
(a) INDEMNIFICATION BY EXECUTIVE. Executive agrees to indemnify the
Employer and its affiliates and their respective directors, officers and
employees from and against any and all losses, damages, claims, liabilities
and expenses for which such indemnified party has not otherwise been
reimbursed (including the costs and expenses of legal counsel retained by
Executive to defend the Employer and its affiliates and their respective
directors, officers and employees, and judgments, fines and amounts paid in
settlement actually and reasonably incurred by or imposed on any
indemnified party) in connection with any action, suit or proceeding
resulting from breach of any other contract or agreement to which Executive
may be a party, or any restrictive covenant by which Executive may be
bound, and Executive hereby warrants that his execution of this Agreement,
and performance of duties hereunder, does not constitute the breach of any
other contract or agreement to which Executive may be a party, and does not
constitute the breach of any restrictive covenant by which Executive may be
bound.
5. EMPLOYER'S POLICIES. Executive agrees to observe and comply with the
reasonable rules and regulations of the Employer as adopted by its Board of
Directors from time to time regarding the performance of his duties and to carry
out and perform orders, directions and policies communicated to him from time to
time by the Employer's Board of Directors.
6. TERMINATION. The Executive's employment hereunder may be terminated
under the following circumstances:
(a) TERMINATION BY THE EMPLOYER.
(i) DEATH. The Executive's employment hereunder shall terminate
upon his death.
(ii) DISABILITY. If, in the reasonable good faith determination
of the Board of Directors, as a result of the Executive's incapacity
due to physical or mental illness or disability, the Executive shall
have been incapable of performing his duties hereunder even with a
reasonable accommodation on a full-time basis for the entire period of
three consecutive months or any 90 days in a 180-day period, and
within 30 days after written Notice of Termination (as defined in
Section 6(c)) is given he shall not have returned to the performance
of his duties hereunder on a full-time basis, the Employer may
terminate the Executive's employment hereunder.
(iii) CAUSE. The Employer may terminate the Executive's
employment hereunder for Cause. For purposes of the Agreement,
"Cause" shall mean that the Board of Directors of the Employer
concludes, in good faith and after reasonable investigation, that: (i)
the Executive engaged in conduct which is a felony under the laws of
the United States or any state or political subdivision
6
thereof; (ii) the Executive engaged in conduct constituting breach of
fiduciary duty, gross negligence or willful misconduct relating to the
Employer, fraud or dishonesty or willful or material misrepresentation
relating to the business of the Employer; or (iii) the Executive
breached his obligations or covenants under Section 8 of this
Agreement in any material respect.
(iv) WITHOUT CAUSE. Executive's employment hereunder may be
terminated by the Employer at any time with or without Cause (as
defined in Section 6(a)(iii) above), by a majority vote of all of the
members of the Board of Directors of the Employer upon written notice
to Executive, subject only to the severance provisions specifically
set forth Section 7.
(b) TERMINATION BY THE EXECUTIVE.
(i) DISABILITY. The Executive may terminate his employment
hereunder for Disability within the meaning of Section 6(a)(ii) above.
(ii) WITH GOOD REASON. Executive's employment hereunder may be
terminated by Executive With Good Reason effective immediately by
written notice to the Board of Directors of the Employer. For
purposes of this Agreement, "With Good Reason" shall mean: (i) a
failure of the Board of Directors of the Employer to elect Executive
to offices with the same or substantially the same duties and
responsibilities as set forth in Section 2 or to continue Executive's
reporting relationship as set forth in Section 2; (ii) a material
failure by the Employer to comply with the provisions of Section 3 or
a material breach by the Employer of any other provision of this
Agreement which has not been cured within 30 days after notice of
noncompliance, (specifying the nature of the noncompliance) has been
given by the Executive to the Employer; or (iii) a Change-in-Control
(as such term is defined in Section 6(d) below).
(c) NOTICE OF TERMINATION. Any termination of the Executive's
employment by the Employer or by the Executive (other than termination
pursuant to subsection (a)(i) hereof) shall be communicated by written
Notice of Termination to the other party hereto in accordance with Section
10 of this Agreement. For purposes of this Agreement, a "Notice of
Termination" shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon and, as applicable,
shall set forth in reasonable detail the fact and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated.
(d) DEFINITIONS. The following terms shall be defined as set forth
below.
7
(i) A "Change-in-Control" shall be deemed to have occurred after
the effective date of the IPO if:
(A) any Person, together with all "affiliates" and
"associates" (as such terms are defined in Rule 12b-2 under the
Securities Exchange Act of 1934 (the "Exchange Act")) of such
Person, shall become the "beneficial owner" (as such term is
defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Employer representing 40% or
more of either (A) the combined voting power of the Employer's
then outstanding securities having the right to vote in an
election of the Employer's Board of Directors ("Voting
Securities") or (B) the then outstanding shares of all classes of
stock of the Employer (in either such case other than as a result
of the acquisition of securities directly from the Employer); or
(B) individuals who, as of the date of the closing of the
IPO, constitute the Employer's Board of Directors (the "Incumbent
Directors") cease for any reason, including, without limitation,
as a result of a tender offer, proxy contest, merger or similar
transaction, to constitute at least a majority of the Employer's
Board of Directors, provided that any person becoming a director
of the Employer subsequent to the closing of the IPO whose
election or nomination for election was approved by a vote of at
least a majority of the Incumbent Directors shall, for purposes
of this Agreement, be considered an Incumbent Director; or
(C) the stockholders of the Employer shall approve (1) any
consolidation or merger of the Employer or any subsidiary where
the stockholders of the Employer, immediately prior to the
consolidation or merger, would not, immediately after the
consolidation or merger, beneficially own (as such term is
defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, shares representing in the aggregate at least 50% of
the voting shares of the corporation issuing cash or securities
in the consolidation or merger (or of its ultimate parent
corporation, if any), (2) any sale, lease, exchange or other
transfer (in one transaction or a series of transactions
contemplated or arranged by any party as a single plan) of all or
substantially all of the assets of the Employer or (3) any plan
or proposal for the liquidation or dissolution of the Employer;
Notwithstanding the foregoing, a "Change-in-Control" shall not be deemed to
have occurred for purposes of the foregoing clause (A) solely as the result of
an acquisition of securities by the Employer which, by reducing the number of
shares of stock or other Voting
8
Securities outstanding, increases (x) the proportionate number of shares of
stock of the Employer beneficially owned by any Person to 40% or more of the
shares of stock then outstanding or (y) the proportionate voting power
represented by the Voting Securities beneficially owned by any Person to 40% or
more of the combined voting power of all then outstanding Voting Securities;
PROVIDED, HOWEVER, that if any Person referred to in clause (x) or (y) of this
sentence shall thereafter become the beneficial owner of any additional stock of
the Employer or other Voting Securities (other than pursuant to a share split,
stock dividend, or similar transaction), then a "Change-in-Control" shall be
deemed to have occurred for purposes of the foregoing clause (A). In addition,
notwithstanding the foregoing, a "Change-in-Control" shall not be deemed to have
occurred if Stephen L. Green continues to serve as Chief Executive Officer or
the equivalent of the surviving entity of any event listed in the foregoing
clauses (A), (B) or (C) and no Force Out (as defined below) has occurred with
respect to the Executive.
(ii) A "Force Out" shall be deemed to have occurred in the event
of a Change-In-Control followed by:
(A) a change in duties, responsibilities, status or
positions with the Employer, which, in Executive's reasonable
judgment, does not represent a promotion from or maintaining of
Executive's duties, responsibilities, status or positions as in
effect immediately prior to the Change-In-Control, or any removal
of Executive from or any failure to reappoint or reelect
Executive to such positions, except in connection with the
termination of Executive's employment for Cause, disability,
retirement or death;
(B) a reduction by the Employer in Executive's Base Salary
as in effect immediately prior to the Change-In-Control;
(C) the failure by the Employer to continue in effect any
of the benefit plans in which Executive is participating at the
time of the Change-In-Control of the Employer (unless Executive
is permitted to participate in any substitute benefit plan with
substantially the same terms and to the same extent and with the
same rights as Executive had with respect to the benefit plan
that is discontinued) other than as a result of the normal
expiration of any such benefit plan in accordance with its terms
as in effect at the time of the Change-In-Control, or the taking
of any action, or the failure to act, by the Employer which would
adversely affect Executive's continued participation in any of
such benefit plans on at least as favorable a basis to Executive
as was the case on the date of the Change-In-Control or which
would materially reduce Executive's benefits in the future under
any of such benefit plans or deprive Executive of any material
benefits enjoyed by Executive at the time of the
9
Change-In-Control; PROVIDED, HOWEVER, that any such action or
inaction on the part of the Employer, including any modification,
cancellation or termination of any benefits plan, undertaken in
order to maintain such plan in compliance with any federal, state
or local law or regulation governing benefits plans, including,
but not limited to, the Employment Retirement Income Security Act
of 1974, shall not constitute a Force Out for the purposes of
this Agreement.
(D) the Employer's requiring Executive to be based in an
office located beyond a reasonable commuting distance from
Executive's residence immediately prior to the Change-In-Control,
except for required travel relating to the Employer's business to
an extent substantially consistent with the business travel
obligations which Executive undertook on behalf of the Employer
prior to the Change-In-Control;
(E) the failure by the Employer to obtain from any
successor to the Employer an agreement to be bound by this
Agreement pursuant to Section 13 hereof; or
(iii) "Person" shall have the meaning used in Sections 13(d)
and 14(d) of the Exchange Act; provided however, that the term
"Person" shall not include (A) Stephen L. Green or Nancy A. Peck, or
(B) the Employer, any of its subsidiaries, or any trustee, fiduciary
or other person or entity holding securities under any employee
benefit plan of the Employer or any of its subsidiaries.
7. COMPENSATION UPON TERMINATION OR DURING DISABILITY.
(a) TERMINATION WITHOUT CAUSE OR WITH GOOD REASON. If (i) Executive
is terminated without Cause pursuant to Section 6(a)(iv) above, or (ii)
Executive shall terminate his employment hereunder with Good Reason
pursuant to Section (6)(b)(ii) above, then the Employment Period shall
terminate as of the effective date set forth in the written notice of such
termination (the "Termination Date") and Executive shall be entitled to the
following benefits:
(i) The Employer shall continue to pay Executive's Base Salary
for the remaining term of the Employment Period after the date of
Executive's termination, or for one year, whichever period is longer,
at the rate in effect on the date of his termination and on the same
periodic payment dates as payment would have been made to Executive
had the Employment Period not been terminated;
10
(ii) For the remaining term of the Employment Period, or for one
year, whichever period is longer, Executive shall continue to receive
all benefits described in Section 3 existing on the date of
termination, including, but not limited to, any bonuses or equity
awards described in Section 3 of this Agreement, subject to the terms
and conditions upon which such benefits may be offered. For purposes
of the application of such benefits, Executive shall be treated as if
he had remained in the employ of the Employer with a Base Salary at
the rate in effect on the date of termination;
(iii) For purposes of any stock option plan of the Employer,
if any, Executive shall be treated as if he had remained in the employ
of the Employer for the remaining term of the Employment Period after
the date of Executive's termination, or for one year, whichever period
is longer, so that Executive may exercise any exercisable options and
Executive's other rights shall continue to vest during the remaining
term of the Employment Period with respect to any options previously
granted under such plans except as otherwise provided in such plans;
(iv) If Executive obtains other employment, or receives any
compensation, income or benefits from services rendered to any person
or entity during the remaining term of Employment Period after the
date of Executive's termination, the payments and benefits due under
Section 7(a) will be reduced by the amount of such compensation,
income, or benefits, except that in no event shall the payment and
benefits due under Section 7(a) be reduced to less than the amount of
such payments and benefits that would have been received by Executive
over a one year period. Executive shall give prompt notice to the
Employer of any such employment undertaken or services rendered by
him, which notice shall include a description of the compensation,
income or benefits he will receive, and the date of receipt.
Executive shall also give prompt notice to the Employer of any changes
in such employment or income.
(b) TERMINATION FOR CAUSE OR WITHOUT GOOD REASON. If (i) Executive
is terminated for Cause pursuant to Section 6(a)(iii) above, or (ii)
Executive shall voluntarily terminate his employment hereunder without Good
Reason pursuant to Section 6(b)(ii) above, then the Employment Period shall
terminate as of the effective date set forth in the written notice of such
termination (the "Termination Date") and, subject to the terms of Section
3(f)(ii)(A) above, Executive shall be entitled to receive only his Base
Salary at the rate then in effect until the Termination Date and any
outstanding stock options held by Executive shall expire in accordance with
the terms of the stock option plan or option agreement under which the
stock options were granted.
11
(c) TERMINATION BY REASON OF DEATH. If Executive's employment
terminates due to his death, the Employer shall pay Executive's Base Salary
plus any applicable pro rata portion of the yearly bonus described in
Section 3(b) above for a period of six months from the date of his death,
or such longer period as the Employer's Board of Directors may determine,
to Executive's estate or to a beneficiary designated by Executive in
writing prior to his death. Any unexercised or unvested stock options
shall remain exercisable or vest upon Executive's death only to the extent
provided in the applicable option plan and option agreements.
(d) TERMINATION BY REASON OF DISABILITY. In the event that
Executive's employment terminates due to his disability as defined in
Section 6(a)(ii) above, Executive shall be entitled to be paid his Base
Salary plus any applicable pro rata portion of the yearly bonus described
in Section 3(b) above for a period of three months from the date of such
termination, or such longer period as the Employer's Board of Directors may
determine. Any unexercised or unvested stock options shall remain
exercisable or vest upon such termination only to the extent provided in
the applicable option plan and option agreements.
(e) ARBITRATION IN THE EVENT OF A DISPUTE REGARDING THE NATURE OF
TERMINATION. In the event that the Executive's employment is terminated by
the Employer for Cause or by Executive for Good Reason, and either party
contends that such Cause or Good Reason did not exist, the parties agree to
submit such claim to arbitration before the American Arbitration
Association ("AAA"), and Executive hereby agrees to submit to any such
dispute to arbitration pursuant to the terms of this Section 7(e). In such
a proceeding, the only issue before the arbitrator will be whether
Executive's employment was in fact terminated for Cause or for Good Reason,
as the case may be. If the arbitrator determines that Executive's
employment was terminated by the Employer without Cause or was terminated
by Executive for Good Reason, the only remedy that the arbitrator may award
is an amount equal to the severance payments specified in Section 7, the
costs of arbitration, and Executive's attorneys' fees. If the arbitrator
finds that Executive's employment was terminated by the Employer for Cause
or by the Executive without Good Reason, the arbitrator will be without
authority to award Executive anything, and the parties will each be
responsible for their own attorneys' fees, and the costs of arbitration
will be paid 50% by Executive and 50% by the Employer.
8. CONFIDENTIALITY; PROHIBITED ACTIVITIES. The Executive and the
Employer recognize that due to the nature of his employment and relationship
with the Employer, the Executive has access to and develops confidential
business information, proprietary information, and trade secrets relating to the
business and operations of the Employer. The Executive acknowledges that such
information is valuable to the business of the Employer, and that disclosure to,
or use for the benefit of, any person or entity other than the Employer, would
cause irreparable damage to the Employer. The Executive further acknowledges
that his duties for the Employer include
12
the duty to develop and maintain client, customer, employee, and other business
relationships on behalf of the Employer; and that access to and development of
those close business relationships for the Employer render his services special,
unique and extraordinary. In recognition that the good will and business
relationships described herein are valuable to the Employer, and that loss of or
damage to those relationships would destroy or diminish the value of the
Employer, the Executive agrees as follows:
(a) CONFIDENTIALITY. During the term of this Agreement (including
any renewals), and at all times thereafter, the Executive shall maintain
the confidentiality of all confidential or proprietary information of the
Employer ("Confidential Information"), and, except in furtherance of the
business of the Employer or as specifically required by law or by court
order, he shall not directly or indirectly disclose any such information to
any person or entity; nor shall he use Confidential Information for any
purpose except for the benefit of the Employer. For purposes of the
Agreement, "Confidential Information" includes, without limitation: client
or customer lists, identities, contacts, business and financial
information; investment strategies; pricing information or policies, fees
or commission arrangements of the Employer; marketing plans, projections,
presentations or strategies of the Employer; financial and budget
information of the Employer; new personnel acquisition plans; and all other
business related information which has not been publicly disclosed by the
Employer. This restriction shall apply regardless of whether such
Confidential Information is in written, graphic, recorded, photographic,
data or any machine readable form or is orally conveyed to, or memorized
by, the Executive. The Executive further agrees that, during the
Employment Period and at all times thereafter, he shall keep confidential
and shall not release, use or disclose without prior written permission of
the Employer, all Confidential Information developed by him on behalf of
the Employer or provided to him by the Employer, excepting only such
information as was already known to him prior to the commencement of his
employment by the Employer or such information as is already known to the
public.
(b) PROHIBITED ACTIVITIES. Because Executive's services to the
Employer are essential and because Executive has access to the Employer's
Confidential Information, Executive covenants and agrees that (i) during
the Employment Period and (ii) in the event that this Agreement is
terminated by the Employer for Cause or by Executive other than for Good
Reason, Executive will not, without the prior written consent of the Board
of Directors of the Employer which shall include the unanimous consent of
the Directors who are not officers of the Employer, directly or indirectly
(individually, or through or on behalf of another entity as owner, partner,
agent, employee, consultant, or in any other capacity), during the
Noncompetition Period:
(i) engage, participate or assist, as an owner, partner,
employee, consultant, director, officer, trustee or agent, in any
business that engages or attempts to engage in, directly or
indirectly, the acquisition, development,
13
construction, operation, management or leasing of any office real
estate property anywhere in the New York City metropolitan area;
(ii) seek, solicit, or engage in any attempt to establish for
himself or for any other person or entity, a business relationship
with any person or entity who was a client or customer of the
Employer, or who was solicited to become a client or customer of the
Employer, during the Employment Period ("Employer Clients") (for
purposes of this Section 8(b)(ii) only, the term "Employer Clients"
shall not include tenants in properties owned or managed by the
Employer, unless such Employer Clients are otherwise clients or
customers of the Employer; all other uses of the term "Employer
Clients" herein shall include such tenants);
(iii) engage in any activity to interfere with, disrupt or
damage the business of the Employer, or its relationships with any
Employer Client, employee, supplier or other business relationship;
(iv) engage in business with, or provide advice or services to,
any Employer Client solicited by the Executive in breach of Section 8
of this Agreement (whether or not such services are compensated);
(v) receive, or cause any other person or entity to receive, any
compensation, consideration, or income, in any form, from any Employer
Client solicited by him in breach of Section 8 of this Agreement; or
(vi) solicit, encourage, or engage in any activity to induce any
Employee of the Employer to terminate employment with the Employer, or
to become employed by, or to enter into a business relationship with,
any other person or entity. For purposes of this subsection, the term
Employee means any individual who is an employee of or consultant to
the Employer (or any affiliate) during the six-month period prior to
Executive's last day of employment.
(c) NONCOMPETITION PERIOD. For purposes of this Section 8, the
Noncompetition Period shall mean the period commencing on the date of
termination of Executive's employment under this Agreement and ending on
the later of (i) the Third Anniversary or (ii) the first anniversary of the
date of termination of Executive's employment under this Agreement.
(d) PASSIVE INVESTMENTS. Notwithstanding anything contained herein
to the contrary, Executive is not prohibited by this Section 8 from making
investments in any entity that engages, directly or indirectly, in the
acquisition, development, construction, operation, management or leasing of
office real estate properties, regardless of where they are located, if the
shares or other ownership interests of such entity are publicly
14
traded and Executive's aggregate investment in such entity constitutes less
than one percent (1%) of the equity ownership of such entity.
(e) EMPLOYER PROPERTY. The Executive acknowledges that all originals
and copies of materials, records and documents generated by him or coming
into his possession during his employment by the Employer are the sole
property of the Employer ("Employer Property"). During his employment, and
at all times thereafter, the Executive shall not remove, or cause to be
removed, from the premises of the Employer, copies of any record, file,
memorandum, document, computer related information or equipment, or any
other item relating to the business of the Employer, except in furtherance
of his duties under the Agreement. When the Executive terminates his
employment with the Employer, or upon request of the Employer at any time,
the Executive shall promptly deliver to the Employer all originals and
copies of Employer Property in his possession or control and shall not
retain any originals or copies in any form.
(f) NO DISPARAGEMENT. Following termination of the Executive's
employment for any reason, the Executive shall not disclose or cause to be
disclosed any negative, adverse or derogatory comments or information about
(i) the Employer and its parent, affiliates or subsidiaries, if any; (ii)
any product or service provided by the Employer and its parent, affiliates
or subsidiaries, if any; or (iii) the Employer's and its parent's,
affiliates' or subsidiaries' prospects for the future. Following
termination of the Executive's employment for any reason other than for
Cause, the Employer shall not disclose or cause to be disclosed any
negative, adverse or derogatory comments or information about the
Executive.
(g) REMEDIES. The Executive declares that the foregoing limitations
in Sections 8(a) through 8(f) above are reasonable and necessary for the
adequate protection of the business and the goodwill of the Employer. If
any restriction contained in this Section 8 shall be deemed to be invalid,
illegal or unenforceable by reason of the extent, duration or scope
thereof, or otherwise, then the court making such determination shall have
the right to reduce such extent, duration, scope, or other provisions
hereof to make the restriction consistent with applicable law, and in its
reduced form such restriction shall then be enforceable in the manner
contemplated hereby. In the event that the Executive breaches any of the
promises contained in this Section 8, the Executive acknowledges that the
Employer's remedy at law for damages will be inadequate and that the
Employer will be entitled to specific performance, a temporary restraining
order or preliminary injunction to prevent the Executive's prospective or
continuing breach and to maintain the status quo. The existence of this
right to injunctive relief, or other equitable relief, or the Employer's
exercise of any of these rights, shall not limit any other rights or
remedies the Employer may have in law or in equity including, without
limitation, the right to arbitration contained in Section 7(e) hereof and
the right to
15
compensatory and monetary damages. In the event that a final
non-appealable judgment is entered in favor of one of the parties, that
party shall be reimbursed by the other party for all costs and attorneys'
fees incurred by such party in such action. Executive hereby agrees to
waive his right to a jury trial with respect to any action commenced to
enforce the terms of this Agreement.
(h) TRANSITION. Regardless of the reason for his departure from the
Employer, the Executive agrees that: (i) he shall assist the Employer in
maintaining the business of the clients and customers with whom the
Executive has a relationship; and (ii) he shall take all steps reasonably
requested by the Employer to effect a successful transition of those
relationships to the person or persons designated by the Employer.
(i) COOPERATION WITH RESPECT TO LITIGATION. During the Employment
Period and at all times thereafter, Executive agrees to give prompt written
notice to the Employer of any claim or injury relating to the Employer and
to cooperate fully, in good faith and to the best of his ability with the
Employer in connection with any and all pending, potential or future
claims, investigations or actions which directly or indirectly relate to
any action, event or activity about which Executive may have knowledge in
connection with or as a result of his employment by the Employer hereunder.
Such cooperation will include all assistance that the Employer, its counsel
or its representatives may reasonably request, including reviewing
documents, meeting with counsel, providing factual information and
material, and appearing or testifying as a witness; PROVIDED, HOWEVER, that
the Employer will reimburse Executive for all reasonable travel expenses,
including lodging and meals, incurred by him in fulfilling his obligations
under this Section 8(i) and, except as may be required by law or by court
order, should Executive then be employed by an entity other than the
Employer, such cooperation will not unreasonably interfere with Executive's
then current employment.
(j) SURVIVAL. The provisions of this Section 8 shall survive
termination of the Executive's employment. The covenants contained in
Section 8 shall be construed as independent of any of other provisions
contained in this Agreement and shall be enforceable regardless of whether
the Executive has a claim against the Employer under the Agreement or
otherwise.
9. CONFLICTING AGREEMENTS. Executive hereby represents and warrants that
the execution of this Agreement and the performance of his obligations hereunder
will not breach or be in conflict with any other agreement to which he is a
party or is bound, and that he is not now subject to any covenants against
competition or similar covenants which would affect the performance of his
obligations hereunder.
10. NOTICES. All notices or other communications required or permitted to
be given hereunder shall be in writing and shall be delivered by hand and or
sent by prepaid telex, cable
16
or other electronic devices or sent, postage prepaid, by registered or certified
mail or telecopy or overnight courier service and shall be deemed given when so
delivered by hand, telexed, cabled or telecopied, or if mailed, three days after
mailing (one business day in the case of express mail or overnight courier
service), as follows:
(a) if to the Executive:
David Nettina
8045 Merrimac Drive
Manlius, New York 13104
(b) if to the Employer:
SL Green Realty Corp.
70 West 36th Street
New York, New York 10018
or such other address as either party may from time to time specify by written
notice to the other party hereto.
11. AMENDMENTS. No amendment, modification or waiver in respect of this
Agreement shall be effective unless it shall be in writing and signed by the
party against whom such amendment, modification or waiver is sought.
12. SEVERABILITY. If any provision of this Agreement (or any portion
thereof) or the application of any such provision (or any portion thereof) to
any person or circumstance shall be held invalid, illegal or unenforceable in
any respect by a court of competent jurisdiction, such invalidity, illegality or
unenforceability shall not affect any other provision hereof (or the remaining
portion thereof) or the application of such provision to any other persons or
circumstances.
13. SUCCESSORS. Neither this Agreement nor any rights hereunder may be
assigned or hypothecated by the Executive. This Agreement may be assigned by
the Employer and shall be binding upon, and inure to the benefit of, the
Employer's successors and assigns.
14. 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 such counterparts have been signed by
each of the parties and delivered to the other party.
15. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to agreements made
and to be
17
performed entirely within such State, without regard to the conflicts of law
principles of such State.
16. CHOICE OF VENUE. Executive agrees to submit to the jurisdiction of
the United States District Court for the Southern District of New York or the
Supreme Court of the State of New York, New York County, for the purpose of any
action to enforce any of the terms of this Agreement.
17. ENTIRE AGREEMENT. This Agreement contains the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements and understandings relating to such
subject matter. The parties hereto shall not be liable or bound to any other
party in any manner by any representations, warranties or covenants relating to
such subject matter except as specifically set forth herein.
18. PARAGRAPH HEADINGS. Paragraph headings used in this Agreement are
included for convenience of reference only and will not affect the meaning of
any provision of this agreement.
18
IN WITNESS WHEREOF, this Agreement is entered into as of the date and year
first above written.
SL GREEN REALTY CORP.
By: /s/ Stephen L. Green
---------------------------------
Name: Stephen L. Green
Title: President
/s/ David Nettina
--------------------------------
David Nettina
19
TERMS SHEET
STOCK LOAN TO DAVID J. NETTINA
Borrower: David J. Nettina, pursuant to terms of
Employment Agreement.
Amount: $300,000.
Term: Three years.
Interest Rate: The Federal mid-term "Applicable Federal
Rate" as in effect from time to time.
Purpose: Acquisition of Company Common Stock
pursuant to Company Stock Option Plan.
Security: Pledge of acquired shares.
Funding Date: One year from date employment agreement is
executed.
Per Share Acquisition Price: The price per share of Common Stock on the
New York Stock Exchange on the date of
funding.
Repayment: One-third of Stock Loan (together with
accrued interest on the Stock Loan) will be
forgiven each year during the term of the
Stock Loan, provided Borrower is then
employed by the Company. In the event of a
Change of Control of the Company, or the
Borrower's death or permanent disability or
termination of his employment by the
Company without cause, the outstanding
principal amounts of the Stock Loan will be
forgiven in full. In the event Borrower
leaves the employ of the Company or is
terminated with cause, the outstanding
amount of the Stock Loan will be
immediately due and payable. The
outstanding amount shall be equal to the
amount then due and owing, pro rated for
the number of months elapsed for the year
in which termination occurs.
Exhibit 10.8
SL GREEN REALTY CORP.
1997 STOCK OPTION AND INCENTIVE PLAN
ARTICLE 1. GENERAL
1.1. PURPOSE. The purpose of the SL Green Realty Corp. 1997 Stock
Option and Incentive Plan (the "Plan") is to provide for certain officers,
directors and key employees, as defined in Section 1.3, of SL Green Realty Corp.
(the "Company") and certain of its Affiliates (as defined below) an equity-based
incentive to maintain and enhance the performance and profitability of the
Company. It is the further purpose of this Plan to permit the granting of
awards that will constitute performance based compensation for certain executive
officers, as described in Section 162(m) of the Internal Revenue Code of 1986,
as amended (the "Code"), and regulations promulgated thereunder.
1.2. ADMINISTRATION.
(a)The Plan shall be administered by the Compensation Committee (the
"Committee") of the Board of Directors of the Company (the "Board"), which
Committee shall consist of two or more directors, or by the Board. It is
intended that the directors appointed to serve on the Committee shall be
"non-employee directors" (within the meaning of Rule 16b-3 promulgated under the
Securities Exchange Act of 1934 (the "Act")) and "outside directors" (within the
meaning of Code Section 162(m)); however, the mere fact that a Committee member
shall fail to qualify under either of these requirements shall not invalidate
any award made by the Committee which award is otherwise validly made under the
Plan. The members of the Committee shall be appointed by, and may be changed at
any time and from time to time in the discretion of, the Board.
(b)The Committee shall have the authority (i) to exercise all of the powers
granted to it under the Plan, (ii) to construe, interpret and implement the Plan
and any Plan agreements executed pursuant to the Plan, (iii) to prescribe, amend
and rescind rules relating to the Plan, (iv) to make any determination necessary
or advisable in administering the Plan, and (v) to correct any defect, supply
any omission and reconcile any inconsistency in the Plan.
(c)The determination of the Committee on all matters relating to the Plan
or any Plan agreement shall be conclusive.
(d)No member of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any award
hereunder.
(e)The Board may, in its sole discretion, at any time and from time to
time, resolve to administer the Plan, in which case, the term Committee as used
herein shall be deemed to mean the Board.
1.3. PERSONS ELIGIBLE FOR AWARDS. Awards under the Plan may be made to
such officers, directors and key employees ("key personnel") of the Company or
its Affiliates as the Committee shall from time to time in its sole discretion
select. No member of the Board who is not an officer or employee of the Company
or an Affiliate (an "Independent Director") shall be eligible to receive any
Awards under the Plan, except for non-qualified stock options granted
automatically under the provisions of Article 5 of the Plan.
1.4. TYPES OF AWARDS UNDER PLAN.
(a)Awards may be made under the Plan in the form of (i) stock options
("options"), (ii) restricted stock awards, and (iii) unrestricted stock awards
in lieu of cash compensation, all as more fully set forth in Articles 2 and 3.
(b)Options granted under the Plan may be either (i) "nonqualified" stock
options ("NQSOs") or (ii) options intended to qualify for incentive stock option
treatment described in Code Section 422 ("ISOs").
(c)All options when granted are intended to be NQSOs, unless the applicable
Plan agreement explicitly states that the option is intended to be an ISO. If
an option is intended to be an ISO, and if for any reason such option (or any
portion thereof) shall not qualify as an ISO, then, to the extent of such
nonqualification, such option (or portion) shall be regarded as a NQSO
appropriately granted under the Plan provided that such option (or portion)
otherwise meets the Plan's requirements relating to NQSOs.
1.5. SHARES AVAILABLE FOR AWARDS.
(a)Subject to Section 4.5 (relating to adjustments upon changes in
capitalization), as of any date the total number of shares of Common Stock with
respect to which awards may be granted under the Plan shall equal the remainder
(if any) of 1,100,000 shares of Common Stock, minus the sum of (i) the number of
shares of Common Stock subject to outstanding awards, (ii) the number of shares
of Common Stock in respect of which options have been exercised, or grants of
restricted or unrestricted Common Stock have been made pursuant to the Plan, and
(iii) the number of shares of Common Stock issued subject to forfeiture
restrictions which have lapsed.
In accordance with (and without limitation upon) the preceding sentence,
awards may be granted in respect of the following shares of Common Stock: shares
covered by previously granted awards that have expired, terminated or been
cancelled or forfeited for any reason whatsoever (other than by reason of
exercise or vesting).
(b)In any year, a person eligible for awards under the Plan may not be
granted options under the Plan covering a total of more than 100,000 shares of
Common Stock.
(c)Shares of Common Stock that shall be subject to issuance pursuant to the
Plan shall be authorized and unissued or treasury shares of Common Stock, or
shares of Common Stock purchased on the open market or from shareholders of the
Company for such purpose.
1.6. DEFINITIONS OF CERTAIN TERMS.
(a)The term "Affiliate" as used herein means SL Green Operating
Partnership, L.P., S.L. Green Management Corp., S.L. Green Realty, Inc., Emerald
City Construction Corp. and S.L. Green Management LLC, and any person or entity
as subsequently approved by the Board which, at the time of reference, directly,
or indirectly through one or more intermediaries, controls, is controlled by, or
is under common control with, the Company.
2
(b)The term "Cause" shall mean a finding by the Committee that the
recipient of an award under the Plan has (i) engaged in conduct which is a
felony under the laws of the United States or any state or political subdivision
thereof; (ii) engaged in conduct constituting breach of fiduciary duty, gross
negligence or willful misconduct relating to the Company, fraud or dishonesty or
willful or material misrepresentation relating to the business of the Company,
or (iii) failed to substantially perform his duties to the Company more than 15
days after receiving notice of such failure from the Company, which notice
specifically identifies the manner in which he has failed so to perform.
(c)The term "Common Stock" as used herein means the shares of common stock
of the Company as constituted on the effective date of the Plan, and any other
shares into which such common stock shall thereafter be changed by reason of a
recapitalization, merger, consolidation, split-up, combination, exchange of
shares or the like.
(d)The "fair market value" (or "FMV") as of any date and in respect of any
share of Common Stock shall be:
(i) if the Common Stock is listed for trading on the New York
Stock Exchange, the closing price, regular way, of the Common Stock as
reported on the New York Stock Exchange Composite Tape, or if no such
reported sale of the Common Stock shall have occurred on such date, on the
next preceding date on which there was such a reported sale; or
(ii) the Common Stock is not so listed but is listed on another
national securities exchange or authorized for quotation on the National
Association of Securities Dealers Inc.'s NASDAQ National Market System
("NASDAQ/NMS"), the closing price, regular way, of the Common Stock on such
exchange or NASDAQ/NMS, as the case may be, on which the largest number of
shares of Common Stock have been traded in the aggregate on the preceding
twenty trading days, or if no such reported sale of the Stock shall have
occurred on such date on such exchange or NASDAQ/NMS, as the case may be,
on the preceding date on which there was such a reported sale on such
exchange or NASDAQ/NMS, as the case may be; or
(iii) if the Stock is not listed for trading on a national
securities exchange or authorized for quotation on NASDAQ/NMS, the average
of the closing bid and asked prices as reported by the National Association
of Securities Dealers Automated Quotation System ("NASDAQ") or, if no such
prices shall have been so reported for such date, on the next preceding
date for which such prices were so reported.
1.7. AGREEMENTS EVIDENCING AWARDS.
(a)Options and restricted stock awards granted under the Plan shall be
evidenced by written agreements. Any such written agreements shall (i) contain
such provisions not inconsistent with the terms of the Plan as the Committee may
in its sole discretion deem necessary or desirable and (ii) be referred to
herein as "Plan Agreements."
(b)Each Plan Agreement shall set forth the number of shares of Common Stock
subject to the award granted thereby.
(c)Each Plan Agreement with respect to the granting of an option shall set
forth the amount (the "option exercise price") payable by the grantee to the
Company in connection with the exercise of the
3
option evidenced thereby. The option exercise price per share shall not be less
than 100% of the fair market value of a share of Common Stock on the date the
option is granted.
ARTICLE 2. STOCK OPTIONS
2.1. OPTION AWARDS.
(a) GRANT OF STOCK OPTIONS. The Committee may grant options to
purchase shares of Common Stock in such amounts and subject to such terms and
conditions as the Committee shall from time to time in its sole discretion
determine, subject to the terms of the Plan.
(b)DIVIDEND EQUIVALENT RIGHTS. To the extent expressly provided by the
Committee at the time of the grant, each NQSO granted under this Section 2.1
shall also generate Dividend Equivalent Rights ("DERs"), which shall entitle the
grantee to receive an additional share of Common Stock for each DER received
upon the exercise of the NQSO, at no additional cost, based on the formula set
forth herein. As of the last business day of each calendar quarter, the amount
of dividends paid by the Company on each share of Common Stock with respect to
that quarter shall be divided by the FMV per share to determine the actual
number of DERs accruing on each share subject to the NQSO. Such amount of DERs
shall be multiplied by the number of shares covered by the NQSO to determine the
number of DERs which accrued during such quarter.
FOR EXAMPLE. Assume that a grantee holds a NQSO to purchase 600 shares of
Common Stock. Further assume that the dividend per share for the first quarter
was $0.10, and that the FMV per share on the last business day of the quarter
was $20. Therefore, .005 DER would accrue per share for that quarter and such
grantee would receive three DERs for that quarter (600 X .005). For purposes of
determining how many DERs would accrue during the second quarter, the NQSO would
be considered to be for 603 shares of Common Stock.
2.2. EXERCISABILITY OF OPTIONS. Subject to the other provisions of the
Plan:
(a)EXERCISABILITY DETERMINED BY PLAN AGREEMENT. Each Plan agreement shall
set forth the period during which and the conditions subject to which the option
shall be exercisable (including, but not limited to vesting of such options), as
determined by the Committee in its discretion.
(b)PARTIAL EXERCISE PERMITTED. Unless the applicable Plan agreement
otherwise provides, an option granted under the Plan may be exercised from time
to time as to all or part of the full number of shares for which such option is
then exercisable, in which event the DERs, if any, relating to the portion of
the option being exercised shall also be exercised.
(c)NOTICE OF EXERCISE; EXERCISE DATE.
(i)An option shall be exercisable by the filing of a written notice
of exercise with the Company, on such form and in such manner as the
Committee shall in its sole discretion prescribe, and by payment in
accordance with Section 2.4.
(ii)Unless the applicable Plan agreement otherwise provides, or the
Committee in its sole discretion otherwise determines, the date of exercise
of an option shall be the date the Company receives such written notice of
exercise and payment.
4
2.3. LIMITATION ON EXERCISE. Notwithstanding any other provision of the
Plan, no Plan agreement shall permit an ISO to be exercisable more than 10 years
after the date of grant.
2.4. PAYMENT OF OPTION PRICE.
(a)TENDER DUE UPON NOTICE OF EXERCISE. Unless the applicable Plan
agreement otherwise provides or the Committee in its sole discretion otherwise
determines, any written notice of exercise of an option shall be accompanied by
payment of the full purchase price for the shares being purchased.
(b)MANNER OF PAYMENT. Payment of the option exercise price shall be made
in any combination of the following:
(i) by certified or official bank check payable to the Company (or
the equivalent thereof acceptable to the Committee);
(ii) by personal check (subject to collection), which may in the
Committee's discretion be deemed conditional;
(iii)with the consent of the Committee in its sole discretion, by
delivery of previously acquired shares of Common Stock owned by the grantee
for at least six months having a fair market value (determined as of the
option exercise date) equal to the portion of the option exercise price
being paid thereby, provided that the Committee may require the grantee to
furnish an opinion of counsel acceptable to the Committee to the effect
that such delivery would not result in the grantee incurring any liability
under Section 16(b) of the Act and does not require any Consent (as defined
in Section 4.2); and
(iv) with the consent of the Committee in its sole discretion, by
the full recourse promissory note and agreement of the grantee providing
for payment with interest on the unpaid balance accruing at a rate not less
than that needed to avoid the imputation of income under Code Section 7872
and upon such terms and conditions (including the security, if any,
therefor) as the Committee may determine.
(c)CASHLESS EXERCISE. Payment in accordance with Section 2.4(b) may be
deemed to be satisfied, if and to the extent provided in the applicable Plan
agreement, by delivery to the Company of an assignment of a sufficient amount of
the proceeds from the sale of Common Stock acquired upon exercise to pay for all
of the Common Stock acquired upon exercise and an authorization to the broker or
selling agent to pay that amount to the Company, which sale shall be made at the
grantee's direction at the time of exercise, provided that the Committee may
require the grantee to furnish an opinion of counsel acceptable to the Committee
to the effect that such delivery would not result in the grantee incurring any
liability under Section 16 of the Act and does not require any Consent (as
defined in Section 4.2).
(d)ISSUANCE OF SHARES. As soon as practicable after receipt of full
payment, the Company shall, subject to the provisions of Section 4.2, deliver to
the grantee one or more certificates for the shares of Common Stock so
purchased, which certificates may bear such legends as the Company may deem
appropriate concerning restrictions on the disposition of the shares in
accordance with applicable securities laws, rules and regulations or otherwise.
2.5.DEFAULT RULES CONCERNING TERMINATION OF EMPLOYMENT.
5
Subject to the other provisions of the Plan and unless the applicable Plan
agreement otherwise provides:
(a)GENERAL RULE. All options granted to a grantee shall terminate upon the
grantee's termination of employment for any reason except to the extent
post-employment exercise of the option is permitted in accordance with this
Section 2.5.
(b)TERMINATION FOR CAUSE. All unexercised or unvested options granted to a
grantee shall terminate and expire on the day a grantee's employment is
terminated for Cause.
(c)REGULAR TERMINATION; LEAVE OF ABSENCE. If the grantee's employment
terminates for any reason other than as provided in subsection (b), (d) or (f)
of this Section 2.5, any awards granted to such grantee which were exercisable
immediately prior to such termination of employment may be exercised, and any
awards subject to vesting may continue to vest, until the earlier of either: (i)
90 days after the grantee's termination of employment and (ii) the date on which
such options terminate or expire in accordance with the provisions of the Plan
(other than this Section 2.5) and the Plan agreement; provided that the
Committee may, in its sole discretion, determine such other period for exercise
in the case of a grantee whose employment terminates solely because the
grantee's employer ceases to be an Affiliate or the grantee transfers employment
with the Company's consent to a purchaser of a business disposed of by the
Company. The Committee may, in its sole discretion, determine (i) whether any
leave of absence (including short-term or long-term disability or medical leave)
shall constitute a termination of employment for purposes of the Plan and (ii)
the effect, if any, of any such leave on outstanding awards under the Plan.
(d)RETIREMENT. If a grantee's employment terminates by reason of
retirement (I.E., THE VOLUNTARY TERMINATION OF EMPLOYEE BY A GRANTEE AFTER
ATTAINING THE AGE OF 55), the options exercisable by the grantee immediately
prior to the grantee's retirement shall be exercisable by the grantee until the
earlier of (i) 12 months after the grantee's retirement and (ii) the date on
which such options terminate or expire in accordance with the provisions of the
Plan (other than this Section 2.5) and the Plan agreement.
(e)DEATH AFTER TERMINATION. If a grantee's employment terminates in the
manner described in subsections (c) or (d) of this Section 2.5 and the grantee
dies within the period for exercise provided for therein, the options
exercisable by the grantee immediately prior to the grantee's death shall be
exercisable by the personal representative of the grantee's estate or by the
person to whom such options pass under the grantee's will (or, if applicable,
pursuant to the laws of descent and distribution) until the earlier of (i) 12
months after the grantee's death and (ii) the date on which such options
terminate or expire in accordance with the provisions of subsections (c) or (d)
of this Section 2.5.
(f)DEATH BEFORE TERMINATION. If a grantee dies while employed by the
Company or any Affiliate, all options granted to the grantee but not exercised
before the death of the grantee, whether or not exercisable by the grantee
before the grantee's death, shall immediately become and be exercisable by the
personal representative of the grantee's estate or by the person to whom such
options pass under the grantee's will (or, if applicable, pursuant to the laws
of descent and distribution) until the earlier of (i) 12 months after the
grantee's death and (ii) the date on which such options terminate or expire in
accordance with the provisions of the Plan (other than this Section 2.5) and the
Plan agreement.
2.6. SPECIAL ISO REQUIREMENTS. In order for a grantee to receive
special tax treatment with respect to stock acquired under an option intended to
be an ISO, the grantee of such option must be, at
6
all times during the period beginning on the date of grant and ending on the day
three months before the date of exercise of such option, an employee of the
Company or any of the Company's parent or subsidiary corporations (within the
meaning of Code Section 424), or of a corporation or a parent or subsidiary
corporation of such corporation issuing or assuming a stock option in a
transaction to which Code Section 424(a) applies. If an option granted under
the Plan is intended to be an ISO, and if the grantee, at the time of grant,
owns stock possessing more than 10% of the total combined voting power of all
classes of stock of the grantee's employer corporation or of its parent or
subsidiary corporation, then (i) the option exercise price per share shall in no
event be less than 110% of the fair market value of the Common Stock on the date
of such grant and (ii) such option shall not be exercisable after the expiration
of five years after the date such option is granted.
ARTICLE 3. RESTRICTED STOCK AND UNRESTRICTED STOCK AWARDS
3.1. RESTRICTED STOCK AWARDS.
(a)GRANT OF AWARDS. The Committee may grant restricted stock awards, alone
or in tandem with other awards, under the Plan in such amounts and subject to
such terms and conditions as the Committee shall from time to time in its sole
discretion determine; provided, however, that the grant of any such restricted
stock awards may be made only in lieu of cash compensation and bonuses. The
vesting of a restricted stock award granted under the Plan may be conditioned
upon the completion of a specified period of employment with the Company or any
Affiliate, upon the attainment of specified performance goals, and/or upon such
other criteria as the Committee may determine in its sole discretion.
(b)PAYMENT. Each Plan agreement with respect to a restricted stock award
shall set forth the amount (if any) to be paid by the grantee with respect to
such award. If a grantee makes any payment for a restricted stock award which
does not vest, appropriate payment may be made to the grantee following the
forfeiture of such award on such terms and conditions as the Committee may
determine. The Committee shall have the authority to make or authorize loans to
finance, or to otherwise accommodate the financing of, the acquisition or
exercise of a restricted stock award.
(c)FORFEITURE UPON TERMINATION OF EMPLOYMENT. Unless the applicable Plan
agreement otherwise provides or the Committee otherwise determines, (i) if a
grantee's employment terminates for any reason (including death) before all of
his restricted stock awards have vested, such awards shall terminate and expire
upon such termination of employment, and (ii) in the event any condition to the
vesting of restricted stock awards is not satisfied within the period of time
permitted therefor, such unvested shares shall be returned to the Company.
(d)ISSUANCE OF SHARES. The Committee may provide that one or more
certificates representing restricted stock awards shall be registered in the
grantee's name and bear an appropriate legend specifying that such shares are
not transferable and are subject to the terms and conditions of the Plan and the
applicable Plan agreement, or that such certificate or certificates shall be
held in escrow by the Company on behalf of the grantee until such shares vest or
are forfeited, all on such terms and conditions as the Committee may determine.
Unless the applicable Plan agreement otherwise provides, no share of restricted
stock may be assigned, transferred, otherwise encumbered or disposed of by the
grantee until such share has vested in accordance with the terms of such award.
Subject to the provisions of Section 4.2, as soon as practicable after any
restricted stock award shall vest, the Company shall issue or reissue to the
grantee (or to the grantee's designated beneficiary in the event of the
grantee's death) one or more certificates for the Common Stock represented by
such restricted stock award.
7
(e)GRANTEES' RIGHTS REGARDING RESTRICTED STOCK. Unless the applicable Plan
agreement otherwise provides: (i) a grantee may vote and receive dividends on
restricted stock awarded under the Plan; and (ii) any stock received as a
distribution with respect to a restricted stock award shall be subject to the
same restrictions as such restricted stock.
3.2. UNRESTRICTED SHARES. The Committee may issue stock under the Plan,
alone or in tandem with other awards, in such amounts and subject to such terms
and conditions as the Committee shall from time to time in its sole discretion
determine; provided, however, that the grant of any such unrestricted stock
awards may be made only in lieu of cash compensation and bonuses.
ARTICLE 4. MISCELLANEOUS
4.1. AMENDMENT OF THE PLAN; MODIFICATION OF AWARDS.
(a)PLAN AMENDMENTS. The Board may, without stockholder approval, at any
time and from time to time suspend, discontinue or amend the Plan in any respect
whatsoever, except that no such amendment shall impair any rights under any
award theretofore made under the Plan without the consent of the grantee of such
award and except that stockholder approval of any amendment shall be obtained to
the extent required by applicable law.
(b)AWARD MODIFICATIONS. Subject to the terms and conditions of the Plan
(including Section 4.1(a)), the Committee may amend outstanding Plan agreements
with such grantee, including, without limitation, any amendment which would (i)
accelerate the time or times at which an award may vest or become exercisable
and/or (ii) extend the scheduled termination or expiration date of the award,
provided, however, that no modification having a material adverse effect upon
the interest of a grantee in an award shall be made without the consent of such
grantee.
4.2. RESTRICTIONS.
(a)CONSENT REQUIREMENTS. If the Committee shall at any time determine that
any Consent (as hereinafter defined) is necessary or desirable as a condition
of, or in connection with, the granting of any award under the Plan, the
acquisition, issuance or purchase of shares or other rights hereunder or the
taking of any other action hereunder (each such action being hereinafter
referred to as a "Plan Action"), then such Plan Action shall not be taken, in
whole or in part, unless and until such Consent shall have been effected or
obtained to the full satisfaction of the Committee. Without limiting the
generality of the foregoing, the Committee shall be entitled to determine not to
make any payment whatsoever until Consent has been given if (i) the Committee
may make any payment under the Plan in cash, Common Stock or both, and (ii) the
Committee determines that Consent is necessary or desirable as a condition of,
or in connection with, payment in any one or more of such forms.
(b)CONSENT DEFINED. The term "Consent" as used herein with respect to any
Plan Action means (i) any and all listings, registrations or qualifications in
respect thereof upon any securities exchange or other self-regulatory
organization or under any federal, state or local law, rule or regulation, (ii)
the expiration, elimination or satisfaction of any prohibitions, restrictions or
limitations under any federal, state or local law, rule or regulation or the
rules of any securities exchange or other self-regulatory organization, (iii)
any and all written agreements and representations by the grantee with respect
to the disposition of shares, or with respect to any other matter, which the
Committee shall deem necessary or desirable to comply with the terms of any such
listing, registration or qualification or to obtain an
8
exemption from the requirement that any such listing, qualification or
registration be made, and (iv) any and all consents, clearances and approvals in
respect of a Plan Action by any governmental or other regulatory bodies or any
parties to any loan agreements or other contractual obligations of the Company
or any Affiliate.
4.3. NONTRANSFERABILITY. No award granted to any grantee under the Plan
or under any Plan agreement shall be assignable or transferable by the grantee
other than by will or by the laws of descent and distribution. During the
lifetime of the grantee, all rights with respect to any award granted to the
grantee under the Plan or under any Plan agreement shall be exercisable only by
the grantee.
4.4. WITHHOLDING TAXES.
(a)Whenever under the Plan shares of Common Stock are to be delivered
pursuant to an award, the Committee may require as a condition of delivery that
the grantee remit an amount sufficient to satisfy all federal, state and other
governmental withholding tax requirements related thereto. Whenever cash is to
be paid under the Plan, the Company may, as a condition of its payment, deduct
therefrom, or from any salary or other payments due to the grantee, an amount
sufficient to satisfy all federal, state and other governmental withholding tax
requirements related thereto or to the delivery of any shares of Common Stock
under the Plan.
(b)Without limiting the generality of the foregoing, the Committee may
permit any such delivery to be made by withholding shares of Common Stock from
the shares otherwise issuable pursuant to the award giving rise to the tax
withholding obligation (in which event the date of delivery shall be deemed the
date such award was exercised).
4.5. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. If and to the extent
specified by the Committee, the number of shares of Common Stock which may be
issued pursuant to awards under the Plan, the maximum number of options which
may be granted to any one person in any year, the number of shares of Common
Stock subject to awards, the option exercise price of options theretofore
granted under the Plan, and the amount payable by a grantee in respect of an
award, shall be appropriately adjusted (as the Committee may determine) for any
change in the number of issued shares of Common Stock resulting from the
subdivision or combination of shares of Common Stock or other capital
adjustments, or the payment of a stock dividend after the effective date of the
Plan, or other change in such shares of Common Stock effected without receipt of
consideration by the Company; provided that any awards covering fractional
shares of Common Stock resulting from any such adjustment shall be eliminated
and provided further, that each ISO granted under the Plan shall not be adjusted
in a manner that causes such option to fail to continue to qualify as an ISO
within the meaning of Code Section 422. Adjustments under this Section shall be
made by the Committee, whose determination as to what adjustments shall be made,
and the extent thereof, shall be final, binding and conclusive.
4.6. RIGHT OF DISCHARGE RESERVED. Nothing in the Plan or in any Plan
agreement shall confer upon any person the right to continue in the employment
of the Company or an Affiliate or affect any right which the Company or an
Affiliate may have to terminate the employment of such person.
4.7. NO RIGHTS AS A STOCKHOLDER. No grantee or other person shall have
any of the rights of a stockholder of the Company with respect to shares subject
to an award until the issuance of a stock certificate to him for such shares.
Except as otherwise provided in Section 4.5, no adjustment shall be made for
dividends, distributions or other rights (whether ordinary or extraordinary, and
whether in cash,
9
securities or other property) for which the record date is prior to the date
such stock certificate is issued. In the case of a grantee of an award which
has not yet vested, the grantee shall have the rights of a stockholder of the
Company if and only to the extent provided in the applicable Plan agreement.
4.8. NATURE OF PAYMENTS.
(a)Any and all awards or payments hereunder shall be granted, issued,
delivered or paid, as the case may be, in consideration of services performed
for the Company or for its Affiliates by the grantee.
(b)No such awards and payments shall be considered special incentive
payments to the grantee or, unless otherwise determined by the Committee, be
taken into account in computing the grantee's salary or compensation for the
purposes of determining any benefits under (i) any pension, retirement, life
insurance or other benefit plan of the Company or any Affiliate or (ii) any
agreement between the Company or any Affiliate and the grantee.
(c)By accepting an award under the Plan, the grantee shall thereby waive
any claim to continued exercisability or vesting of an award or to damages or
severance entitlement related to non-continuation of the award beyond the period
provided herein or in the applicable Plan agreement, notwithstanding any
contrary provision in any written employment contract with the grantee, whether
any such contract is executed before or after the grant date of the award.
4.9. NON-UNIFORM DETERMINATIONS. The Committee's determinations under
the Plan need not be uniform and may be made by it selectively among persons who
receive, or are eligible to receive, awards under the Plan (whether or not such
persons are similarly situated). Without limiting the generality of the
foregoing, the Committee shall be entitled, among other things, to make
non-uniform and selective determinations, and to enter into non-uniform and
selective Plan agreements, as to (a) the persons to receive awards under the
Plan, (b) the terms and provisions of awards under the Plan, and (c) the
treatment of leaves of absence pursuant to Section 2.7(c).
4.10. OTHER PAYMENTS OR AWARDS. Nothing contained in the Plan shall be
deemed in any way to limit or restrict the Company, any Affiliate or the
Committee from making any award or payment to any person under any other plan,
arrangement or understanding, whether now existing or hereafter in effect.
4.11. REORGANIZATION.
(a)In the event that the Company is merged or consolidated with another
corporation and, whether or not the Company shall be the surviving corporation,
there shall be any change in the shares of Common Stock by reason of such merger
or consolidation, or in the event that all or substantially all of the assets of
the Company are acquired by another person, or in the event of a reorganization
or liquidation of the Company (each such event being hereinafter referred to as
a "Reorganization Event") or in the event that the Board shall propose that the
Company enter into a Reorganization Event, then the Committee may in its
discretion, by written notice to a grantee, provide that his options will be
terminated unless exercised within 30 days (or such longer period as the
Committee shall determine in its sole discretion) after the date of such notice;
provided that if, and to the extent that, the Committee takes such action with
respect to the grantee's options not yet exercisable, the Committee shall also
accelerate the dates upon which such options shall be exercisable. The
Committee also may in its discretion by written notice to a grantee provide that
all or some of the restrictions on any of the grantee's
10
awards may lapse in the event of a Reorganization Event upon such terms and
conditions as the Committee may determine.
(b)Whenever deemed appropriate by the Committee, the actions referred to in
Section 4.11(a) may be made conditional upon the consummation of the applicable
Reorganization Event.
4.12. SECTION HEADINGS. The section headings contained herein are for
the purposes of convenience only and are not intended to define or limit the
contents of said sections.
4.13. EFFECTIVE DATE AND TERM OF PLAN.
(a)The Plan shall be deemed adopted and become effective upon the approval
thereof by the shareholders of the Company.
(b)The Plan shall terminate 10 years after the earlier of the date on which
it becomes effective or is approved by shareholders, and no awards shall
thereafter be made under the Plan. Notwithstanding the foregoing, all awards
made under the Plan prior to such termination date shall remain in effect until
such awards have been satisfied or terminated in accordance with the terms and
provisions of the Plan and the applicable Plan agreement.
4.14. GOVERNING LAW. The Plan shall be governed by the laws of the State
of New York applicable to agreements made and to be performed entirely within
such state.
ARTICLE 5. STOCK OPTIONS GRANTED TO INDEPENDENT DIRECTORS
5.1. AUTOMATIC GRANT OF OPTIONS. Each Independent Director appointed or
elected for the first time shall automatically be granted a NQSO to purchase
6,000 shares of Common Stock on his date of appointment or election which NQSO
shall vest on the one year anniversary of grant. The exercise price per share
for the Common Stock covered by a NQSO granted pursuant to this Section 5.1
shall be equal to the FMV of the Common Stock on the date the NQSO is granted
or, if granted in connection with the initial public offering of the Company's
Common Stock (the "IPO"), the initial public offering price set forth on the
cover page of the prospectus relating to the IPO.
5.2. EXERCISE; TERMINATION; NON-TRANSFERABILITY
(a) All NQSOs granted under this Article 5 shall be immediately
exercisable. No NQSO issued under this Article 5 shall be exercisable after the
expiration of ten years from the date upon which such NQSO is granted.
(b) The rights of an Independent Director in a NQSO granted under this
Article 5 shall terminate twelve months after such Director ceases to be a
Director of the Company or the specified expiration date, if earlier; provided,
however, that such rights shall terminate immediately on the date on which an
Independent Director ceases to be a Director by reason of termination of his
directorship on account of any act of (i) fraud or intentional misrepresentation
or (ii) embezzlement, misappropriation or conversion of assets or opportunities
of the Company or any Affiliate.
(c) No NQSO granted under this Article 5 shall be transferable by the
grantee otherwise than by will or by the laws of descent and distribution, and
such grantee shall be exercisable during the
11
grantee's lifetime only by the grantee. Any NQSO granted to an Independent
Director and outstanding on the date of his death may be exercised by the legal
representative or legatee of the grantee for the period of twelve months from
the date of death or until the expiration of the stated term of the option, if
earlier.
(d) NQSOs granted under this Article 5 may be exercised only by written
notice to the Company specifying the number of shares to be purchased. Payment
of the full purchase price of the shares to be purchased may be made by
certified or official bank check payable to the Company. A grantee shall have
the rights of a stockholder only as to shares acquired upon the exercise of a
NQSO and not as to unexercised NQSOs.
5.3. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. The number of shares
of Common Stock subject to awards and the option exercise price of NQSOs
theretofore granted under this Article 5, and the amount payable by a grantee in
respect of an award, shall be appropriately adjusted for any change in the
number of issued shares of Common Stock resulting from the subdivision or
combination of shares of Common Stock or other capital adjustments, or the
payment of a stock dividend after the effective date of the Plan, or other
change in such shares of Common Stock effected without receipt of consideration
by the Company; provided that any awards covering fractional shares of Common
Stock resulting from any such adjustment shall be eliminated.
5.4 LIMITED TO INDEPENDENT DIRECTORS. The provisions of this Article
5 shall apply only to NQSOs granted or to be granted to Independent Directors,
shall be interpreted as if this Article 5 constituted a separate plan of the
Company and shall not be deemed to modify, limit or otherwise apply to any other
provision of this Plan or to any NQSO issued under this Plan to a participant
who is not an Independent Director of the Company. To the extent inconsistent
with the provisions of any other Section of this Plan, the provisions of this
Article 5 shall govern the rights and obligations of the Company and Independent
Directors respecting NQSOs granted or to be granted to Independent Directors.
12
EXHIBIT 10.9
SUPPLEMENTAL REPRESENTATIONS AND
WARRANTIES AGREEMENT
THIS SUPPLEMENTAL REPRESENTATIONS AND WARRANTIES AGREEMENT (this
"Agreement") is made and entered into as of _______, 1997 by and among Stephen
L. Green, Hippomenes Associates, LLC, 64-36 Realty Associates, 673 First
Associates L.P., Green 6th Avenue Associates, L.P., [S.L. Green Realty, Inc.],
S.L. Green Properties, Inc. and EBG Midtown South Corp. (the "Indemnitors"), SL
Green Operating Partnership, L.P., a Delaware limited partnership (the
"Operating Partnership") and SL Green Realty Corp., a Maryland corporation (the
"Company").
WHEREAS, in connection with an initial public offering of shares of
common stock of the Company (the "Offering"), the closing of which is occurring
on the date hereof, (a) direct or indirect interests in certain properties owned
by the Indemnitors or entities of which the Indemnitors or affiliates of the
Indemnitors are general partners or managing members (the "General Partners")
are being contributed to the Operating Partnership pursuant to the omnibus
contribution agreement (the "Omnibus Contribution Agreement"), the Contract of
Sale regarding 470 Park Avenue South and the Contract of Sale regarding 29 West
35th Street (together with the Omnibus Contribution Agreement, the "Contribution
Agreements"), (b) non-voting stock representing 95% of the economic interest in
each of the construction, management and leasing businesses (collectively, the
"Service Businesses"), respectively, of Emerald City Construction Corp., a New
York corporation, S.L. Green Management Corp., a New York corporation and S.L.
Green Realty, Inc., a New York corporation (collectively, the "Service
Companies") are being contributed to the Operating Partnership pursuant to the
Omnibus Contribution Agreement, and (c) the Indemnitors own units of partnership
interest ("Units") in the Operating Partnership (all of the foregoing being
collectively referred to herein as the "Transactions"); and
WHEREAS, in order to induce the Company to consummate the Offering and
to cause the foregoing transfers to occur, the Indemnitors have agreed to make
the representations and warranties
1
contained in this Agreement for the benefit of the Company and the Operating
Partnership on the condition that the liability of the Indemnitors hereunder be
limited as provided in Section 4 hereof.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, the parties hereto agree as follows:
1. Representations and Warranties with Respect to the Properties and
the Entities. The Indemnitors hereby represent and warrant to the Company and
the Operating Partnership, with respect to (i) each of the properties listed on
Exhibit "A" (the "Properties"), and (ii) each of the partnerships and limited
liability companies that currently own the Properties (the "Entities") which are
listed on Exhibit "B-1" , as follows:
1.1. Organization, Power and Authority, and Qualification. Each Entity is duly
formed and organized, validly existing and in good standing under the laws of
the jurisdiction of its organization. Each Entity has the requisite power and
authority to carry on its business as it is now being conducted. The general
partner or managing member of each Entity has made available to the Operating
Partnership complete and correct copies of such Entity's organizational
documents, with all amendments as in effect on the date of this Agreement (the
"Entity Agreements"). Each Entity is qualified to do business and is in good
standing in each jurisdiction where the character of its property owned or
leased or the nature of its activities make such qualification necessary, except
where the failure to be so qualified and in good standing would not have a
material adverse effect on the business or financial condition of such Entity.
Except as set forth on Schedule 1.1, none of the execution and
delivery of the Omnibus Contribution Agreement by the Contributors (as defined
therein), the consummation by the Contributors of the contribution of the
Interests (as that term is defined in the Omnibus Contribution Agreement) or
compliance by the Contributors with any of the provisions of the Omnibus
Contribution Agreement will (i) conflict with or result in any breach of any
provisions of any of the Entity Agreements; (ii) result in a violation or breach
of, or constitute (with or without due notice
2
or lapse of time or both) a default (or give rise to any right of termination,
cancellation or acceleration) under any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, lease, license, contract, agreement or
other instrument or obligation to which any Entity is a party or by which any
Entity may be bound; or (iii) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to any Partnership or its property;
except in the case of clauses (ii) or (iii) above, for violations, breaches or
defaults that would not in the aggregate have a material adverse effect on the
business or financial condition of any Entity and that will not impair the
effectiveness of the contributions pursuant to the Omnibus Contribution
Agreement and, except in the case of clauses (i), (ii) and (iii) above, for
which waivers or consents have been obtained on or prior to the date hereof.
1.2. Compliance with Entity Agreements and Contracts. None of
the Entities are (i) in violation of its Entity Agreements or (ii) to the
knowledge of the Contributor, in default in the performance or observance of any
obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, loan agreement, note, lease, partnership agreement, joint
venture or other instrument or agreement to which the Entity is a party or by
which the Entity or its assets are or may be bound, except for a default which
would not have a material adverse effect on the business or financial condition
of the Entity.
1.3. Title. Each Entity owns marketable, legal and beneficial
title to the Property owned by it subject to the leases described on Schedule
1.4 (the "Leases") and the matters set forth on Schedule 1.3 (the "Permitted
Exceptions").
1.4. Leases. With respect to each Property, the Leases, are
the only leases, licenses, tenancies, possession agreements and occupancy
agreements affecting that Property on the date hereof in which that Entity holds
the lessor's, licensor's or grantor's interest thereunder and there are no other
leases, licenses, tenancies, possession agreements or occupancy agreements
affecting the Property (other than subleases, licenses, tenancies or other
possession or occupancy agreements which may have been entered into by the
tenants, or their predecessors in interest, under such Leases); a true and
complete copy of all such Leases have been made available to the Operating
Partnership; such Leases,
3
are in full force and, except as indicated otherwise on Schedule 1.4, the
Entities, as lessor under such Leases, has not received any notice that it is in
default of any of its obligations under such Leases beyond any applicable grace
period which has not been cured; fixed rent and additional rent are being billed
to the tenants in accordance with the schedule set forth on Schedule 1.4; no
tenant is entitled to "free" rent, rent concessions, rebates, rent abatements,
set-offs, or offsets against rent except as set forth in the Lease with such
tenant and no tenant claims a right to any of the foregoing, except as set forth
on Schedule 1.4; except as set forth on Schedule 1.4, the Entities has received
no written notice that any tenant contests its pro rata shares of tax increases
as required by its Lease or that any tenant contests its pr rata shares of tax
increases as required by its Lease or that any tenant contests any rent,
escalation or other charges billed to it; no assignment of the Entities' rights
under any Lease is in effect on the date hereof other than collateral
assignments to secure mortgage indebtedness; and, except as set forth on
Schedule 1.4, with respect to any Leases entered into by the Entities, no
brokerage commissions will be due upon the failure of any tenant to exercise any
cancellation right granted in its Lease or upon any extension or renewal of such
Leases.
1.5. Tax Bills. The copies of the real property tax bills for
each Property for the current tax year which have been furnished to the
Operating Partnership are true and correct copies of all of the tax bills for
such tax year actually received by the Entities or the Entities' agents for the
Property.
1.6. Employees and Contracts. There are no (a) employees of
any Entity, nor (b) service or maintenance contracts affecting any Property
which are not cancelable upon thirty (30) days notice or less or which are for a
contract amount greater than $50,000 per annum, except as shown on Schedule 1.6;
all persons who regularly perform services at any Property are employees of the
Service Companies, or other independent contractors; true and correct copies of
the service, supply, utility or maintenance agreements relating to any Property
(the "Service Contracts") have been delivered to the Operating Partnership and
the same are in full force and effect and have not been modified or amended.
1.7. Governmental Proceedings. There is no governmental action
or governmental proceeding (zoning or
4
otherwise) or governmental investigation pending or threatened in writing
against or relating to any Property or the transactions contemplated by this
Agreement other than tax certiorari proceedings which have been commenced by an
Entity.
1.8. No Agreements. Except as set forth in the partnership or
operating agreements of the Entities or as set forth on Schedule 1.8, other than
the Leases, no Property is subject to any outstanding agreement of sale or
lease, option to purchase or other right of any third party to acquire any
interest therein.
1.9. Litigation. Except as set forth in Section 1.7 or on
Schedule 1.9 and except for actions covered (less any deductibles thereunder) by
the policies of insurance described in Section 1.18, there is no litigation or
proceedings pending against any Entity or with respect to any Entity or any
Entity's interest therein (including, but not limited to, landlord-tenant
proceedings). Neither any Entity nor any Property is subject to any order,
judgment, injunction or decree of any court, tribunal or other governmental,
regulatory or other authority or body, that individually or collectively would
have a material adverse effect on the business or financial condition of the
Entity or the business, financial or other condition of the Property.
1.10. Violations. To the knowledge of the Contributors, the
only violations of law or municipal ordinances, orders or requirements noted in
or issued by the department of buildings, fire, labor, health or other Federal,
State, County, City, Town or other departments and governmental agencies having
jurisdiction against or affecting any Property ("Violations") against or
affecting any Property on the date hereof are set forth on Schedule 1.10.
1.11. Hazardous Substances. To the knowledge of the
Contributors, no Hazardous Substances (hereinafter defined) exist or have been
disposed of in, on or under any Property other than (i) as described in the
reports listed on Schedule 1.11 hereof, or (ii) Hazardous Substances the
presence of which is not prohibited by any applicable law, or which have been
addressed in accordance with applicable law, (iii) Hazardous Substances which
are commonly used by owners in the day to day operation and maintenance of
office buildings and by tenants in the day to day conduct of their businesses.
As used herein, "Hazardous
5
Substances" shall mean any toxic, radioactive or otherwise hazardous material,
substance or waste the presence, use or handling of which is prohibited, limited
or regulated by any applicable Federal, New York State or New York City law
rule, ordinance or regulation.
1.12. Capital Improvements; Condition of Property. To the
knowledge of the Contributors, there is no material defect in the condition of
any Property, the improvements thereon, the structural elements thereof, or the
mechanical systems therein, nor any material damage from uninsured casualty or
other cause, nor any soil condition of any such Property that will not support
all of the improvements thereon without the need for unusual or new subsurface
excavations, fill, footings, caissons or other installations, except for (i) any
such defect, damage or condition that has been corrected or will be corrected in
the ordinary course of the business of such Property as part of its scheduled
annual maintenance and improvements program and (ii) as described in the reports
listed on Schedule 1.12 hereof.
1.13. Debt. As of the date hereof, each Property is subject to
mortgage debt (the "Mortgage Debt") in the approximate outstanding principal
balance set forth on Schedule 1.13. To the knowledge of the Contributors,
except as set forth on Schedule 1.13, there exists no default with respect to
any Mortgage Debt that has not been cured. No Entity has received any notice of
such a default.
1.14. Financial Statements. The combined financial statements
included in the Registration Statement or Form S-11 of the Company with respect
to certain of the Entities (the "Financial Statements") have been prepared from
the books and records of such Entities in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
specified. The balance sheets in the Financial Statements fairly present the
financial condition of such Entities as of the dates shown, and the income
statements in the Financial Statements fairly present the results of operations
for the periods indicated.
1.15. Financial Condition. Since the date of the Financial
Statements and except as set forth on Schedule 1.15, there has been no material
adverse change in the business or financial condition of any Entity or any
Property.
6
1.16. Permits. To the knowledge of the Contributors, each
Entity has all permits as are necessary for the ownership, use and operation of
the Property, except for such permits for which the failure to possess would not
have a material adverse effect on the business or financial condition of the
Entities and except for such permits as are required to be obtained by tenants
pursuant to the terms of the Leases. To the knowledge of the Contributors, each
Entity is not in violation of any permit in any material respect.
1.17. Taxes. (a) all taxes or information returns required to
be filed on or before the date hereof by or on behalf of the partnerships have
been filed through the date hereof in accordance with all applicable laws; (b)
there is no action, suit or proceeding pending against, or with respect to, any
Entity or any Property for any tax, nor has any claim for additional tax been
asserted by any authority; and (c) except as set forth on Schedule 1.17, all
taxes (including any related penalties, interest and additional amounts) imposed
upon any Entity and required to be reflected upon a return required to be filed
(without regard to any applicable extensions) on or before the date hereof have
been paid or will be paid on or before the date hereof.
1.18. Insurance. Each Entity currently has in place public
liability, casualty and other insurance coverage with respect to its Property in
customary amounts for projects similar to the Properties in the markets in which
such Properties are located, and in all cases in compliance with the Mortgage
Debt. Each of such policies is in full force and effect, and all premiums due
and payable thereunder have been fully paid when due. No notice of cancellation
has been received or to the knowledge of the Contributors threatened with
respect thereto.
2. Representations and Warranties with Respect to the Service
Businesses. The Indemnitors hereby represent and warrant to the Company and the
Operating Partnership with respect to the Service Businesses, as follows:
2.1. Title to Transferred Assets. To the knowledge of the
Indemnitors, the applicable Indemnitor has good and valid title to the Service
Businesses. To the knowledge of the Indemnitors, the Service Businesses are not
subject to any imperfections in title, liens, encumbrances, pledges, claims,
7
chargers, options, defects, preferential purchase rights, or other encumbrances
(collectively referred to herein as "Liens") except for liens which are not
material in character, amount, or extent and do not materially detract from the
value or interfere with the operation of the Service Businesses ("Permitted
Liens").
2.2. Management Agreements, etc. Annexed hereto as Schedule
2.2 are the only agreements pursuant to which the Service Companies provide
management and/or leasing services with respect to any property (the "Management
Agreements"). Each of the Management Agreements is valid and binding on the
applicable Service Company and is in full force and effect in all material
respects. Except as set forth in Schedule 2.2, neither the Service Companies
nor, to the knowledge of the applicable Service Company, any other party thereto
has breached or defaulted under the terms of any of the Management Agreements,
except for such breaches or defaults that would not have a material adverse
effect on the Transactions or the Service Businesses. A true and correct copy
of each of the Management Agreements has been delivered to or made available to
the Operating Partnership.
2.3. Permits. To the knowledge of the applicable Service
Company, each Service Company has all permits as are necessary for the
ownership, use and operation of its Service Business, except for such permits
for which the failure to possess would not have a material adverse effect on
such Service Business. To the knowledge of the applicable Service Company, such
Service Company is not in violation of any such permit in any material respect.
2.4. Litigation. Except as set forth in Schedule 2.4 hereto,
there are no claims, actions, suits, proceedings or investigations pending or,
to the knowledge of the applicable Service Company, threatened against such
Service Company, or any properties or rights of such Service Company, before any
court or administrative, governmental or regulatory authority or body, domestic
or foreign, that would have a material adverse effect on the Service
Businesses. Neither the Service Companies nor the Service Businesses are
subject to any order, judgment, injunction or decree of any court, tribunal or
other governmental authority (other than generally applicable laws, rules and
regulations) that would have a material adverse effect on the Service
Businesses.
8
2.5. Compliance with Laws. [Except as set forth in Schedule
2.5 hereto,] the Service Companies have not received any written or other actual
notice from any governmental authority having jurisdiction over the Service
Companies of any violation of any applicable regulation or ordinance, or of andy
employment or other regulatory law, order, regulation or requirement relating to
the Service Businesses that remains uncured, and, to the knowledge of the
applicable Service Company, there are no such violations that, individually or
in the aggregate, would have a material adverse effect on the Service
Businesses.
2.6. Insurance. The Service Companies have insurance coverage
with respect to the Service Businesses as is appropriate to the nature of the
business. Each of such policies is in full force and effect, and all premiums
due and payable thereunder have been fully paid when due.
3. Additional Representations and Warranties with Respect to the
Indemnitors. The Indemnitors hereby represent and warrant to the Company and
the Operating Partnership, as follows:
3.1. Authority Relative to this Agreement. All action of the
Indemnitors necessary to authorize the execution, delivery and performance of
this Agreement by the Indemnitors has been taken, and no other proceedings on
the part of the Indemnitors are necessary to authorize the execution and
delivery by the Indemnitors of this Agreement and the consummation by the
Indemnitors of the transactions hereunder.
Neither the execution and delivery of this Agreement by the
Indemnitors nor compliance by the Indemnitors with any of the provisions of this
Agreement will (i) result in a violation or breach of, or constitute with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation or acceleration) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, lease, license,
contract, agreement or other instrument or obligation to which an Indemnitor is
a party or by which an Indemnitor may be bound, or (ii) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to an Indemnitor,
except for violations, breaches or defaults that would not in the aggregate have
a material adverse effect on the business or financial condition of the
Indemnitors or the obligations of the Indemnitors hereunder
9
and, except for which waivers or consents have been obtained on or prior to the
date hereof.
3.2. Binding Obligations. This Agreement has been duly and
validly executed and delivered by the Indemnitors and constitutes a valid and
binding agreement of the Indemnitors, enforceable against the Indemnitors in
accordance with its terms, except as such enforcement may be subject to
bankruptcy, conservatorship, receivership, insolvency, moratorium or similar
laws affecting creditors' rights generally and to general principles of equity.
4. Indemnity; Limitations on Liability. Subject to the terms
hereof, the Indemnitors hereby agree to indemnify and hold harmless the
Company and the Operating Partnership from any damage, expense, loss, cost,
claim or liability (each a "Claim") suffered or incurred by the Company or
the Operating Partnership as a result of any inaccuracy in any representation
or warranty contained in Sections 1, 2 and 3 herein. Notwithstanding
anything to the contrary contained herein, (a) the liability of the
Indemnitors shall hereunder be joint and several and (b) the maximum
liability of the Indemnitors collectively shall not exceed $20,000,000 and
shall be satisfied exclusively from, and recourse of the Company and the
Operating Partnership shall be limited exclusively to, the rights of the
Indemnitors to the Units pledged by the Indemnitors pursuant to a Pledge
Agreement (the "Pledge Agreement") in the form of Exhibit A attached hereto.
The Indemnitors shall not have any personal liability to the Company or the
Operating Partnership under the terms of this Agreement and the Indemnitors
shall not have any liability resulting from any Claims or other assertion of
liability under this Agreement unless and until such damages shall exceed in
the aggregate $250,000. The liability of the Indemnitors hereunder is
expressly limited to the actual out-of-pocket expenses, damages, losses,
costs or liabilities suffered or incurred by the Company or the Operating
Partnership (after application of any insurance proceeds (including, without
limitation, reasonable attorney's fees and expenses and other costs incurred
in defending any claims) as a result of a breach by an Indemnitor of any of
the representations and warranties set forth in Sections 1, 2 or 3 hereof and
with respect to which a claim is made in accordance with Section 5 hereof,
and the Indemnitors shall not be liable to the Company or the Operating
Partnership under this Agreement for any indirect, special, consequential,
loss of
10
profits, loss of value or other similar speculative damages asserted or claimed
by the Company or the Operating Partnership.
5. Survival. It is the express intention and agreement of the
parties hereto that the representations and warranties of the Indemnitors set
forth in this Agreement. Shall survive the consummation of the Transactions for
the period ending one (1) year from the date hereof and shall expire and be
terminated and extinguished forever at such time, except with respect to claims
asserted against the Indemnitors in good faith pursuant hereto by written notice
from the Company, the Operating Partnership or the Services Company to the
indemnitor at any time within the one (1) year period following the date
hereof. Any written notice given within such one (1) year period must set
forth the nature and details of the claim with specificity in order to
constitute a valid notice pursuant to the preceding sentence.
6. Pledge of Units by Indemnitors. As security for the full and
timely performance of their obligations hereunder, the Indemnitors shall execute
and deliver the Pledge Agreement and make the deliveries and perform the
obligations required thereunder.
7. Miscellaneous.
7.1. Notices. All notices, demands, requests or other
communications which may be or are required to be given or made by the
Indemnitors or by the Company or the Operating Partnership pursuant to this
Agreement shall be in writing and shall be hand delivered or transmitted by
certified mail, express overnight mail or delivery service, telegram, telex or
facsimile transmission to the parties at the following addresses:
If to an Indemnitor: c/o SL Green Realty Corp.
70 West 36th Street
New York, NY 10018
11
With a copy to: Greenberg, Traurig, Hoffman,
Lipoff, Rosen & Quentel
153 East 53rd Street
New York, New York 10022
Attn: Robert J. Ivanhoe, Esq.
If to the Operating SL Green Operating
Partnership or the Partnership, L.P.
Company, to: 70 West 36th Street
New York, NY 10018
With a copy to: Brown & Wood LLP
One World Trade Center
New York, New York 10048-5300
Attn: Douglas A. Sgarro, Esq.
or such other address as the addressee may indicate by written notice to the
other parties.
Each notice, demand, request or communication which shall be given or
made in the manner described above shall be deemed sufficiently given or made
for all purposes at such time as it is deliver ed to the addressee (with the
delivery receipt, the affidavit of a messenger or (with respect to a telex) the
answer back being deemed conclusive but not exclusive evidence of such delivery)
or at such time as delivery is refused by the addressee upon presentation.
7.2. Benefit and Assignment. No party hereto shall assign this
Agreement, in whole or in part, whether by operation of law or otherwise,
without the prior written consent of the Indemnitors (if the assignor is the
Operating Partnership, the Company or the Service Companies) or the Operating
Partnership, the Company and the Service Companies (if the assignor is the
Indemnitors), which consent shall not be unreasonably withheld; and any
purported assignment contrary to the terms hereof shall be null, void and of no
force and effect.
This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors
12
and assigns as permitted hereunder. No person or entity other than the parties
hereto is or shall be entitled to bring any action to enforce any provision of
this Agreement against any of the parties hereto, and the covenants and
agreements set forth in this Agreement shall be solely for the benefit of, and
shall be enforceable only by, the parties hereto or their respective successors
and assigns as permitted hereunder.
7.3. Entire Agreement; Amendment. This Agreement, the Pledge
Agreement and the Schedules hereto contain s the final and entire agreement
between the parties hereto with respect to the subject matter hereof and is
intended to be an integration of all prior negotiations and understandings. The
parties of this Agreement shall not be bound by any terms, conditions,
statements, warranties or representations, oral or written, relating to the
subject matter hereof not contained or referred to herein or therein. No change
or modification of this Agreement shall be valid unless the same is in writing
and signed by the parties hereto.
7.4. No Waiver. No delay or failure on the part of any party
hereto in exercising any right, power or privilege under this Agreement or under
any other instrument or document given in connection with or pursuant to this
Agreement shall impair any such right, power or privilege or be construed as a
waiver of any default or any acquiescence therein. No single or partial
exercise of any such right, power or privilege shall preclude the further
exercise of such right, power or privilege. No waiver shall be valid against
any party hereto unless made in writing and signed by the party against whom
enforcement of such waiver is sought and then only to the extent expressly
specified therein.
7.5. Governing Law. This Agreement, the rights and obligations
of the parties hereto and any claims or disputes relating thereto shall be
governed by and construed under the laws of the State of New York (but not
including the choice of law rules thereof).
7.6. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
shall constitute one and the same instrument.
13
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement, or caused this Agreement to be duly executed and delivered on its
behalf as of the date first above written.
___________________________
STEPHEN L. GREEN
HIPPOMENES ASSOCIATES, LLC
By: ________________________
64-36 REALTY ASSOCIATES
By: ________________________
673 FIRST ASSOCIATES L.P.
By: ________________________
GREEN 6TH AVENUE ASSOCIATES, L.P.
By: ________________________
[S.L. GREEN REALTY, INC.]
By: ________________________
S.L. GREEN PROPERTIES, INC.
By: ___________________________
14
EBG MIDTOWN SOUTH CORP.
By: ___________________________
15
SL GREEN OPERATING PARTNERSHIP, L.P.
By: ___________________________
SL GREEN REALTY CORP.
By: ___________________________
16
Exhibit 10.11
Unit/Cash Contract
CONTRACT OF SALE
BETWEEN
SL GREEN OPERATING PARTNERSHIP, L.P.
(In Formation)
AND
29/35 REALTY ASSOCIATES, L.P.
Dated as of June 5, 1997
TABLE OF CONTENTS
ARTICLE I. CONTRIBUTION TERMS AND CLOSING PROCEDURES........................ 2
1.1 Acquisition of Interests...................................... 2
1.2 Term of Agreement............................................. 2
1.3 Consideration................................................. 2
1.4 Closing; Condition to Obligations............................. 2
1.5 Documents to be Delivered at Closing by the Seller........... 5
1.6 Cessation of IPO.............................................. 7
1.7 Closing Costs................................................. 8
1.8 Default....................................................... 8
1.9 Further Assurances............................................ 8
ARTICLE II. REPRESENTATIONS, WARRANTIES
AND COVENANTS OF SELLER......................................... 10
2.1 Title to Interests............................................ 10
2.2 Authority..................................................... 11
2.3 Litigation.................................................... 11
2.4 No Other Agreements to Sell................................... 11
2.5 No Brokers.................................................... 11
2.6 Investment Representations and Warranties..................... 11
2.7 FIRPTA Representation......................................... 12
2.8 Covenant to Remedy Breaches................................... 12
2.9 Operation of Premises......................................... 12
ARTICLE III. REPRESENTATIONS, WARRANTIES AND COVENANTS
OF OPERATING PARTNERSHIP ................. 13
3.1 Authority..................................................... 13
3.2 No Brokers.................................................... 13
ARTICLE IV. CLOSING ADJUSTMENTS............................................. 14
4.1 Prorations.................................................... 14
4.2 Intentionally Omitted......................................... 15
4.3 Accounts Receivable........................................... 15
4.4 Security Deposits............................................. 16
4.5 Timing of Calculations; Cooperation........................... 16
4.6 Allocation of Adjustments..................................... 16
ARTICLE V. INTENTIONALLY OMITTED............................................ 17
........................................................................ 17
ARTICLE VI. MISCELLANEOUS................................................... 17
6.1 Amendment..................................................... 17
6.2 Entire Agreement; Counterparts; Applicable Law.............. 17
6.3 Assignability................................................. 17
6.4 Titles........................................................ 17
6.5 Third Party Beneficiary....................................... 17
6.6 Severability.................................................. 17
6.7 Equitable Remedies............................................ 18
i
6.8 Attorneys' Fees............................................... 18
6.9 Notices....................................................... 18
6.10 As Is......................................................... 19
6.11 Confidentiality............................................... 19
6.12 Computation of Time........................................... 19
6.13 Survival...................................................... 20
6.14 Time of the Essence........................................... 20
EXHIBIT A: Description of Land
EXHIBIT B: Schedule of Leases
EXHIBIT C: Consideration
EXHIBIT D: Permitted Encumbrances
EXHIBIT E: Operating Partnership Agreement
EXHIBIT F: Amendment to Seller's Partnership Agreement
EXHIBIT G: Consent to Assumption of Existing Mortgage
EXHIBIT H: Assignment and Assumption
ii
CONTRACT OF SALE
This Contract of Sale (the "CONTRACT") is executed as of the 5th day of
June, 1997 by SL Green Operating Partnership, L.P. (the "OPERATING
PARTNERSHIP"), a Delaware limited partnership in formation, and 29/35 Realty
Associates, L.P., a New York limited partnership (the "SELLER").
WHEREAS, in connection with the consolidation of its commercial real estate
business, S.L. Green Realty, Inc. intends to form a Maryland corporation (the
"REIT") that will be the sole general partner and a limited partner of the
Operating Partnership and to effect an initial public offering (the "IPO") of
the REIT's shares of common stock ("COMMON STOCK");
WHEREAS, it is intended that, upon consummation of the IPO, the Operating
Partnership will acquire interests in certain office properties including,
without limitation, 29 West 35th Street, New York, New York (which is the Land
and Building defined below), as well as interests in the property construction,
management and leasing businesses currently conducted by Emerald City
Construction Corp., a New York corporation, SL Green Management Corp., a New
York corporation and S.L. Green Realty, Inc., a New York corporation;
WHEREAS, it is further understood that the Operating Partnership may
acquire interests in additional office properties located in New York, New York;
WHEREAS, the Operating Partnership desires to acquire from the Seller and
the Seller (upon the receipt of the Consideration) desires to convey to the
Operating Partnership under the terms and conditions set forth herein, (a) the
parcel of land more particularly described on EXHIBIT A (the "LAND"); (b) all
buildings and improvements situated on the Land (collectively, the "BUILDING");
(c) all right, title and interest of Seller, if any, in and to any strips and
gores of land adjoining the Land and the land lying in the bed of any street or
highway in front of or adjoining the Land to the center line thereof, to any
unpaid insurance proceeds (as may be contemplated under Section 1.4 below) and
to any unpaid award for any taking by condemnation or any damage to the Land by
reason of a change of grade of any street or highway hereafter occurring; (d)
the appurtenances and all the estate and rights of Seller in and to the Land and
Building; and (e) all right, title and interest of Seller, if any, in and to the
fixtures, equipment and other personal property attached or appurtenant to, or
used in connection with, the Building (the "PERSONAL PROPERTY"); (f) Seller's
interest in all leases, licenses and other agreements covering space in the
Building and further described on EXHIBIT B (collectively, the "LEASES") and the
interest of the landlord under the Leases
arising from and after the Final Closing, together with the security deposit
made to the landlord by the tenant or other occupants thereunder to the extent
remaining at the time of Final Closing; and (g) Seller's interest in all other
assignable service, maintenance and other agreements and all other assignable
permits necessary for the operation of the Building (collectively, the
"PREMISES"). The Premises are located at or known as 29 West 35th Street, New
York, New York;
NOW, THEREFORE, in consideration of the mutual covenants and conditions set
forth herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Operating Partnership and the
Seller agree as follows:
ARTICLE I. CONTRIBUTION TERMS AND CLOSING PROCEDURES
1.1 ACQUISITION OF INTERESTS. At the Final Closing (as defined below),
Seller shall, subject to Section 1.4 hereof, transfer, assign, and convey to the
Operating Partnership and the Operating Partnership shall acquire and accept
from Seller, all right, title and interest of Seller in the Premises, free and
clear of all Encumbrances (as defined below) except Permitted Encumbrances (as
defined below), and the Operating Partnership shall pay or deliver, as
applicable, to Seller the Consideration (as defined below), both in accordance
with and subject to this Contract and all pertinent provisions hereof.
1.2 TERM OF AGREEMENT. If the IPO Closing (as defined below) and/or the
Final Closing (as defined below) do not occur by March 31, 1998 (the
"TERMINATION DATE"), time being of the essence, this Contract shall be deemed
terminated and shall be of no further force and effect and neither the Operating
Partnership nor the Seller shall have any further obligations hereunder except
as specifically set forth herein, and except, further, if the IPO Closing occurs
by March 31, 1998 but, through no default of the Seller hereunder, the Final
Closing does not occur, Seller shall have the right to specifically enforce this
Contract.
1.3 CONSIDERATION. The full consideration for the Premises (the
"CONSIDERATION") shall be payable as set forth in EXHIBIT C, subject to the
terms and provisions of Article IV hereof providing for adjustments to the
Consideration based on closing adjustments. As used herein, the term "UNITS"
means units of limited partnership interest in the Operating Partnership.
1.4 CLOSING; CONDITION TO OBLIGATIONS. In connection with its acquisition
of the Premises, the Operating Partnership will notify the Seller of a closing
date, which date will be no earlier than five (5) business days after such
notification and no later than March 10, 1998 (fifteen (15) business days prior
to
2
the Termination Date), for the initial closing (the "INITIAL CLOSING") of the
acquisition contemplated by this Contract. At or before the Initial Closing,
which shall be held at the offices of Brown & Wood LLP, One World Trade Center,
New York, New York 10048 or such other place located in New York City as is
determined by the Operating Partnership in its sole discretion at a time
specified by the Operating Partnership in its sole discretion, the Operating
Partnership and the Seller will execute all closing documents (the "CLOSING
DOCUMENTS") required by this Agreement in accordance with Section 1.5 hereof and
deposit the same in escrow with Brown & Wood LLP, New York, New York, as escrow
agent of the Operating Partnership (the "CLOSING AGENT"), the terms of such
escrow to be reasonably satisfactory to the Seller and the Operating
Partnership.
The transactions contemplated by this Contract and by the Closing Documents
executed and deposited in connection with such transactions will be consummated
at the Final Closing (as defined below) only if the closing of the IPO (the "IPO
CLOSING") is consummated by the earlier of (a) fifteen (15) business days after
the date of the Initial Closing and (b) the Termination Date. If the IPO
Closing occurs by such date:
(a) The Operating Partnership shall, contemporaneously with the
IPO Closing, (x) cause to be delivered to the Closing Agent
(i) an assumption (the "ASSUMPTION AGREEMENT") of the
Existing Mortgage (as defined in EXHIBIT C hereof) and (ii)
a certificate of the General Partner of the Operating
Partnership certifying that the Seller has been or will be,
effective upon the Final Closing (as hereinafter defined),
admitted as a limited partner of the Operating Partnership
and that the Operating Partnership's books and records
indicate or will indicate that the Seller is the holder of
the number of Units which are called for pursuant to the
Consideration as adjusted pursuant to the provisions hereof,
including, without limitation, Article IV hereof and (y) pay
to the Seller the cash portion of the Consideration, as
adjusted pursuant to the provisions hereof, set forth in
clause (b) of EXHIBIT C;
(b) upon receipt of the Consideration set forth in subclause (x)
of clause (a) above and confirmation by the Closing Agent
that the cash portion of the Consideration set forth in
subclause (y) of clause (a) above has been wired to the
Seller, the Closing Agent will
3
release the Closing Documents to the Operating Partnership
and/or the Seller as contemplated by the escrow agreement
with the Closing Agent and/or this Contract and deliver to
the Seller the Assumption Agreement and, if requested by the
Seller, a copy of such General Partner's certificate
referred to is subclause (x) of clause (a) above; and
(c) the transactions described or otherwise contemplated herein
or in the Closing Documents will thereupon be deemed to have
been consummated simultaneously with the IPO Closing (such
consummation, the "FINAL CLOSING").
Notwithstanding the above, in the event that the Seller specifies, in the
documents to be delivered pursuant to Section 1.5(b) hereof, a breach of or
other exception with respect to Article 2 hereof or has otherwise materially
breached this Contract, the Operating Partnership may, in its sole discretion
and as for its sole right, remedy and privilege in such circumstance, elect
either to waive such breach or other exception and complete the acquisition of
the Premises or not to complete the acquisition of the Premises, in which
latter case the Operating Partnership shall, in lieu of the delivery pursuant to
clause (a) above, notify the Closing Agent of such election and direct the
Closing Agent to return the Closing Documents and Ancillary Agreements (as
defined below) to the Seller and thereafter no party shall have any further
liability hereunder.
The risk of loss to the Building and Personal Property prior to the Final
Closing shall be borne by the Seller. If, prior to the Final Closing, a
material portion of the Building and Personal Property shall be destroyed or
damaged by fire or other casualty, then this Contract may, at the option of the
Operating Partnership, to be exercised within 15 days after any such occurrence,
be terminated. If, after the occurrence of any such casualty, this Contract is
not so terminated, the Operating Partnership shall, subject to the provisions of
this Contract, (a) purchase the Premises and (b) direct the Seller to pay or
cause to be paid to the Operating Partnership (subject to the rights of the
holder of the Existing Mortgage) any sums collected under any policies of
insurance because of damage due to such casualty not utilized in restoring and
or repairing the damage caused by any such occurrence and otherwise assign,
without recourse, to the Operating Partnership all rights to collect such sums
as may then be uncollected; provided, however, that the Seller shall not adjust
or settle any insurance claim without the Operating Partnership's prior consent,
not to be unreasonably withheld or delayed. As used herein "a material portion
of the
4
Building and Personal Property" shall mean that (a) the cost of repair or
restoration to the Building or Personal Property is reasonably estimated by the
Operating Partnership to be in excess of five hundred thousand dollars
($500,000) or (b) more than twenty-five percent of the Building and the Personal
Property, collectively, is damaged or destroyed
If the IPO Closing does not occur by the earlier of (a) fifteen (15)
business days after the date of the Initial Closing and (b) the Termination
Date, then, except as set forth in Section 1.8 hereof, neither party shall have
any obligations under the Closing Documents or under any agreements or
instruments executed in connection with the transactions contemplated hereunder
or thereunder (such other agreements or instruments, collectively, "ANCILLARY
AGREEMENTS"), this Contract, the Closing Documents and the Ancillary Agreements
shall be deemed null and void AB INITIO and the Closing Agent will be, and is
hereby, directed to (a) destroy the Closing Documents and any Ancillary
Agreement it holds, (b) give notice to the Seller of such destruction and (c)
return to the Operating Partnership the Consideration, if any, delivered by the
Operating Partnership to the Closing Agent.
1.5 DOCUMENTS TO BE DELIVERED AT CLOSING BY THE SELLER. At the Initial
Closing, the Seller shall execute, acknowledge where deemed desirable or
necessary by the Operating Partnership, and deliver to the Closing Agent, in
addition to any other documents mentioned elsewhere herein, the following:
(a) statutory form of bargain and sale deed without covenants
against grantor's acts (the "ASSIGNMENT") which shall convey good and marketable
title in and to the Land and Building free and clear of all Encumbrances,
except, where applicable, for the Permitted Encumbrances (acceptance of the
Assignment by the Operating Partnership shall be deemed full performance and
compliance by the Seller of its obligations under this Contract and thereafter
the Seller shall have no further liability or obligations hereunder except to
the extent otherwise expressly provided);
(b) a reaffirmation of warranties which shall either (i) reaffirm
the accuracy of all representations and warranties and the satisfaction of all
covenants made by the Seller in Article II hereof or (ii) if such reaffirmation
cannot be made, identify those representations, warranties and covenants of
Article II hereof (other than Section 2.5 hereof) with respect to which
circumstances have changed, represent that the Seller has used all reasonable
efforts within its control to prevent and remedy such breach (it being
understood, however, that Seller will not be required to spend any money or
institute any proceedings in such regard), and reaffirm the accuracy of all
5
other representations and warranties and the satisfaction of all other covenants
made by the Seller in Article II hereof;
(c)any other documents reasonably requested by the Operating
Partnership or reasonably necessary to effectuate the transactions contemplated
hereby;
(d) the consent from the holder of the Existing Mortgage to the
sale contemplated herein and the assumption of the Existing Mortgage by the
Operating Partnership a copy of which is attached hereto as Exhibit G;
(e) an affirmation that the amendment to the Seller's agreement
of limited partnership in the form attached hereto as Exhibit F has been
executed together with a photocopy of such executed amendment);
(f) a schedule of all cash security deposits and a check or
credit to the Operating Partnership in the amount of such security deposits,
including any interest thereon (less any sums to be retained by Seller pursuant
to Section 4.4 hereof), held by the Seller on the date of the Final Closing
under the Leases or, if held by a commercial bank, savings bank or other
institution, an assignment to the Operating Partnership and written instructions
to the holder of such deposits to transfer the same to the Operating
Partnership, and appropriate instruments of transfer or assignment with respect
to any Lease security deposits which are other than cash;
(g) if requested by the Operating Partnership, a schedule
setting forth all arrears in rents and all prepayments of rents;
(h) if requested by the Operating Partnership, an original of
all service maintenance and other agreements to be transferred to the Operating
Partnership;
(i) an assignment to the Operating Partnership of all of the
interest of the Seller in the Leases and in those service, maintenance and other
agreements to be transferred to the Operating Partnership in the form set forth
as Exhibit H attached hereto;
(j) if requested by the Operating Partnership, an original of
all Leases;
(k) if requested by the Operating Partnership, to the extent
they are then in Seller's possession and not posted at the Building,
certificates, licenses, permits, authorizations and approvals issued for or with
respect to the Premises by governmental and quasi-governmental authorities
having jurisdiction over the Premises;
6
(l) all applicable real property transfer tax returns executed
by Seller (which shall be countersigned, if required, by the Operating
Partnership;
(m) if requested by the Operating Partnership, to the extent
they are then in Seller's possession, copies of all Building and tenant files
and records;
(n) if requested by the Operating Partnership, an original
letter, executed by the Seller or by its agent, advising the tenants of the sale
of the Building to the Operating Partnership and directing that rents and other
payments thereafter be sent to the Operating Partnership or as the Operating
Partnership may direct;
(o) an affidavit to the Operating Partnership signed by the
Seller under penalties of perjury, which contains: (a) the Seller's name; (b)
Seller's U.S. Taxpayer Identification Number; (c) the Seller's business address;
(d) a statement that the Seller is not a "foreign person" within the meaning of
Internal Revenue Code Sections 1445 and 7701, that is, the Seller is not a
nonresident alien, foreign corporation, foreign partnership, foreign trust or
foreign estate as those terms are defined under the Internal Revenue Code and
regulations promulgated thereunder;
(p) if requested by the Operating Partnership, a closing
statement setting forth all prorations, credits and adjustments required
hereunder;
(q) if requested by the Operating Partnership, notices from the
Seller to each of the parties under the service, maintenance and other
agreements which are being sold to the Operating Partnership notifying them of
the sale of the Premises to the Operating Partnership;
(r) an assignment of all Seller's right, title and interest in
escrow deposits for real estate taxes, insurance premiums and other amounts, if
any, then held by the holder of the Existing Mortgage; and
(s) if requested by the Operating Partnership, notice(s) to the
holder of the Existing Mortgage, executed by the Seller or by its agent,
advising of the sale of the Premises to the Operating Partnership and directing
that future bills and other correspondence should thereafter be sent to the
Operating Partnership or as the Operating Partnership may direct.
1.6 CESSATION OF IPO. If at any time the Operating Partnership or the
underwriter or underwriters determine in good faith to abandon the formation of
the REIT or the IPO or that the IPO Closing will not occur on or prior to the
Termination Date
7
(the date of such determination being referred to as the "CESSATION DATE"), the
Operating Partnership will so advise the Seller in writing and thereupon each
party hereto will be relieved of all obligations under this Contract, all
Ancillary Agreements, and all Closing Documents (except for obligations arising
under Sections 1.7, 2.5 and 3.2 hereof).
1.7 CLOSING COSTS. The Operating Partnership agrees to pay (and to hold
the Seller harmless therefrom) all of the closing costs, other than the Seller's
legal and advisory fees, arising from the transfer of the Premises pursuant to
the provisions of this Contract including, without limitation any applicable
transfer, gains and sales taxes and any transfer fee due in connection with the
assumption of the Existing Mortgage by the Operating Partnership.
1.8 DEFAULT. (a) If, after notifying the Seller of a date for the Initial
Closing, the Operating Partnership fails to close (including a failure due to
the IPO Closing not occurring), then the Operating Partnership will pay to the
Seller the sum of $100.00 as liquidated and agreed-upon damages. It would be
difficult, if not impossible, to ascertain the actual measure of the Seller's
damages in the event of the Operating Partnership's default and the parties
agree that $100.00 is a fair reflection of the Seller's damages in the event of
the Operating Partnership's default; provided, however, if, after notifying the
Seller of a date for the Initial Closing, (i) the Operating Partnership fails to
close and (ii) the IPO Closing does occur and (iii) the Seller has not defaulted
with respect to its obligations under this Contract, the Seller shall be
entitled to its right to specific performance, including payment of the
Consideration, but not to any monetary damages except as specifically set forth
in this Section 1.8(a).
(b) If the Seller defaults with respect to its obligations
under this Contract, the Operating Partnership shall be entitled to exercise
against the Seller any and all remedies provided at law or in equity (except as
otherwise provided in this Contract), including but not limited to, the right to
specific performance; provided, however, if the Seller is unable to perform its
obligations under this Contract and such inability to perform did not result
from an act or failure to act of the Seller which occurred after the date
hereof, this Contract shall be terminated and neither the Seller nor the
Operating Partnership shall have any obligations under this Contract (except for
obligations arising under Section 1.7, 2.5 and 3.2 hereof). In any event, the
Seller shall not be required to spend any money or institute any proceedings in
order to perform hereunder, except under circumstances where the Seller
wilfully, intentionally or negligently restricted its ability to perform
hereunder.
8
1.9 FURTHER ASSURANCES. The Seller will, from time to time, execute and
deliver to the Operating Partnership all such other and further instruments and
documents and take or cause to be taken all such other and further action as the
Operating Partnership may reasonably request in order to effect the transactions
contemplated by this Contract, including instruments or documents deemed
necessary or desirable by the Operating Partnership to effect and evidence the
conveyance of the Premises in accordance with the terms of this Contract. The
provisions of this Section 1.9 shall survive the Final Closing for the period of
three (3) months.
1.10 AFFIRMATION OF THE OPERATING PARTNERSHIP REPRESENTATIONS. At the
Initial Closing, the Operating Partnership shall execute and deliver to the
Closing Agent a reaffirmation of warranties which shall either (i) reaffirm the
accuracy of all representations and warranties made by the Operating Partnership
in Article III hereof or (ii) if such reaffirmation cannot be made, identify
those representations and warranties of Article III hereof (other than Section
3.2 hereof) with respect to which circumstances have changed, represent that the
Operating Partnership has used all reasonable efforts within its control to
prevent and remedy such breach, and reaffirm the accuracy of all other
representations and warranties made by the Operating Partnership in Article III
hereof; provided, however, that the Operating Partnership may forego deliverance
of the items set forth in clauses (i) and (ii) above, in which event, all of the
representations and warranties of the Operating Partnership contained in Article
III hereof shall be deemed reaffirmed as of the date of the Initial Closing.
1.11 DOCUMENTS TO BE DELIVERED AT CLOSING BY THE OPERATING PARTNERSHIP. At
the Initial Closing, Operating Partnership shall execute, acknowledge where
deemed desirable or necessary by the Seller, in addition to any other documents
mentioned elsewhere herein an assumption (with indemnity) of (a) the Leases and
all obligations thereunder first occurring after the date of the IPO Closing
together with the security deposits held in connection therewith and (b) all
service, maintenance and other agreements and permits which constitute part of
the Premises, in each case only to the extent actually transferred to the
Operating Partnership in connection with the sale of the Premises.
9
ARTICLE II. REPRESENTATIONS, WARRANTIES
AND COVENANTS OF SELLER
As a material inducement to the Operating Partnership to enter into this
Contract and to consummate the transactions contemplated hereby, the Seller
hereby makes to the Operating Partnership each of the representations and
warranties set forth in this Article II, which representations and warranties
(unless otherwise noted) are true as of the date hereof. As a condition to the
Operating Partnership's obligation to complete the acquisition of the Premises,
such representations and warranties must continue to be true as of the date of
the Initial Closing and as of the date of the Final Closing; provided, however,
in the event that such representation and warranties were true when initially
made but are not true as of the date of the Initial Closing and as of the date
of the Final Closing, and Seller has complied with the provisions of Section
1.5(b)(ii) hereof, no default shall exist hereunder, but the Operating
Partnership may, in its sole and absolute discretion, and as its sole remedy
under such circumstances, terminate this Contract in which event each party
hereto will be relieved of all obligations under this Contract, all Ancillary
Agreements and all Closing Documents (except obligations arising under Sections
1.7, 2.5 or 3.2 hereof).
2.1 TITLE TO INTERESTS. The Seller owns the Premises beneficially and of
record, and to its knowledge free and clear of any claim, lien, pledge, voting
agreement, option, charge, security interest, mortgage, deed of trust,
encumbrance, rights of assignment, purchase rights or other rights of any nature
whatsoever (collectively, "ENCUMBRANCES"), except as disclosed as exceptions in
a title report for the Premises, dated on or after April 4, 1997, and as set
forth on EXHIBIT D attached hereto (any such encumbrance, a "PERMITTED
ENCUMBRANCE"), and has full power and authority to convey the Premises to the
Operating Partnership free and clear of any Encumbrance except the Permitted
Encumbrances. While this Contract is in effect in accordance with the
provisions hereof, Seller will not consent to join in or in any way effect the
transfer of the Premises prior to the Final Closing. At the Final Closing, if
so requested, the managing general partner of the Seller on its own behalf, but
not on the behalf of or for the account of the Seller, will execute all
documents reasonably necessary to enable a title insurance company (acceptable
to the Operating Partnership, in its sole discretion) to issue to the Operating
Partnership (at the Operating Partnership's expense) an ALTA Form B (1987 or
later) Owner's Policy and such endorsements as the Operating Partnership may
reasonably request, insuring fee simple title subject only to Permitted
Encumbrances to all real property and improvements comprising all or any part of
the Premises to the Operating Partnership.
10
2.2 AUTHORITY. The Seller has full right, authority, power and capacity:
(a) to enter into this Contract and each agreement, document and instrument to
be executed and delivered by or on behalf of the Seller pursuant to this
Contract; (b) to carry out the transactions contemplated hereby and thereby; and
(c) to transfer, convey, assign and deliver all of the Seller's, right, title
and interest in the Premises to the Operating Partnership upon delivery to the
Seller of the Consideration therefor in accordance with this Contract.
2.3 LITIGATION. To the best knowledge of the Seller, there is no
litigation or proceeding (except tax certiori proceedings), either judicial or
administrative, pending or, overtly threatened, affecting all or any portion of
the Premises or the Seller's ability to consummate the transactions contemplated
hereby. The Seller knows of no outstanding order, writ, injunction or decree of
any court, government, governmental entity or authority or arbitration against
or affecting all or any portion of the Premises or the Seller, which in any such
case would impair the Seller's ability to enter into and perform all of its
obligations under this Contract.
2.4 NO OTHER AGREEMENTS TO SELL. The Seller has not made any agreement
with, and until such time, if any, as this Contract is terminated, will not
enter into any agreement with, and has no obligation (absolute or contingent)
to, any person or firm other than the Operating Partnership to sell, transfer or
in any way encumber (except for Permitted Encumbrances) the Premises or to sell
the Premises; provided, however, that the foregoing shall not preclude the
Seller from entering into and or extending, amending or modifying space leases
for portions of the Building in accordance with the provisions of Section 2.9
hereof.
2.5 NO BROKERS. The Seller has not entered into, and covenants that it
will not enter into, any agreement, arrangement or understanding with any person
or firm which will result in the obligation of the Operating Partnership to pay
any finder's fee, brokerage commission or similar payment in connection with the
transactions contemplated hereby and the Seller shall indemnify and hold
harmless the Operating Partnership for all costs and expenses incurred by the
Operating Partnership as a result of a breach of this representation. The
provisions of this Section 2.5 shall survive termination of this Contract.
2.6 INVESTMENT REPRESENTATIONS AND WARRANTIES. (a) Pursuant to and
subject to the Seller's Limited Partnership Agreement, as amended, it is
contemplated that the Units to be issued to the Seller at the Closing are to be
distributed to S.L. Green Properties, Inc. and the limited partners are to
receive, as a distribution, the Consideration set forth in clause (b) of Exhibit
C, as adjusted pursuant to the provisions of this Contract, including, without
limitation, the provisions of
11
Article IV hereof. Upon the issuance of Units to the Seller pursuant to this
Contract, and so long as the Seller holds any such Units, the Seller shall be
subject to, and shall (in the capacity as a holder of such Units) be bound by,
the terms and provisions of the agreement of limited partnership of the
Operating Partnership (in substantially the form attached hereto as EXHIBIT E)
(the "PARTNERSHIP AGREEMENT"), including the terms of the power of attorney
contained in Section 15.11 thereof, as the Partnership Agreement may be amended
from time in accordance with its terms; provided, however, that, anything in
this Contract, in the Partnership Agreement or in any other agreement to the
contrary notwithstanding, Seller may distribute any or all Units issued to it
pursuant to this Contract to S.L. Green Properties, Inc. or any affiliate
thereof.
(b) Seller warrants that it satisfies the definition of "accredited
investor" specified in Rule 501(a)(3) under the Securities Act of 1933, as
amended.
2.7 FIRPTA REPRESENTATION. The Seller is not a "foreign person" within
the meaning of Section 1145 of the Internal Revenue Code of 1986, as amended.
2.8 COVENANT TO REMEDY BREACHES. Subject, nevertheless, to the
understanding that the Seller will not have to spend money or institute
litigation as herein otherwise provided, the Seller covenants to use all
reasonable efforts within its control (a) to prevent the breach of any
representation or warranty of the Seller hereunder, (b) to satisfy all covenants
of the Seller hereunder and (c) to promptly use reasonable efforts to cure any
breach of a representation, warranty or covenant of the Seller hereunder upon
its learning of same.
2.9 OPERATION OF PREMISES. The Seller shall operate the Premises from the
date hereof through and including the Final Closing in a manner consistent with
that in which the Seller operates the Premises as of the date hereof and shall
maintain or cause to be maintained all existing insurance carried by the Seller
relating to the Premises. During the pendency of this Contract, the Seller may
enter into new leases or agreements relative to the Premises and/or amend,
modify or extend existing leases or agreements.
2.10 FURTHER ASSURANCES. The Operating Partnership will, from time to
time, execute and deliver to the Seller all such other and further instruments
and documents and take or cause to be taken all such other and further action as
the Seller may reasonably request in order to effect the transactions
contemplated by this Contract. The provisions of this Section shall survive the
Final Closing for the period of three (3) months.
12
ARTICLE III. REPRESENTATIONS, WARRANTIES AND COVENANTS
OF OPERATING PARTNERSHIP
As a material inducement to the Seller to enter into this Contract and to
consummate the transactions contemplated hereby, the Operating Partnership
hereby makes to the Seller each of the representations and warranties set forth
in this Article III, which representations and warranties shall be true as of
the date hereof, as of the date of the Initial Closing and as of the date of
consummation of the Final Closing.
3.1 AUTHORITY. The Operating Partnership will be duly formed prior to the
Initial Closing has full right, authority, power and capacity: (a) to enter into
this Contract and each agreement, document and instrument to be executed and
delivered by or on behalf of it pursuant to this Contract; (b) to carry out the
transactions contemplated hereby and thereby; and (c) to issue Units and/or pay
cash to the Seller to the extent called for in accordance with the terms of this
Contract. This Contract and each agreement, document and instrument executed
and delivered by the Operating Partnership pursuant to this Contract
constitutes, or when executed and delivered will constitute, the legal, valid
and binding obligation of the Operating Partnership, each enforceable in
accordance with their respective terms. The execution, delivery and performance
of this Contract and each such agreement, document and instrument by the
Operating Partnership: (a) does not and will not violate the Partnership
Agreement; (b) does not and will not violate any foreign, federal, state and
local or other laws applicable to Operating Partnership or require the Operating
Partnership to obtain any approval, consent or waiver of, or make any filing
with, any person or authority (governmental or otherwise) that has not been
obtained or made; and (c) does not and will not result in a breach of,
constitute a default under, accelerate any obligation under or give rise to a
right of termination of, any indenture or loan or credit agreement or any other
agreement, contract, instrument, mortgage, lien, lease, permit, authorization,
order, writ, judgment, injunction, decree, determination or arbitration award to
which the Operating Partnership is a party or by which the property of the
Operating Partnership is bound or affected. If the IPO Closing occurs, the
Operating Partnership covenants to fulfill its obligations under this Contract.
3.2 NO BROKERS. The Operating Partnership represents that it has not
entered into, and covenants that will not enter into, any agreement, arrangement
or understanding with any person or firm which will result in the obligation of
the Seller to pay any finder's fee, brokerage commission or similar payment in
connection with the transactions contemplated hereby and the Operating
Partnership shall indemnify and hold harmless the Seller for all costs and
expenses incurred by the Seller as a
13
result of a breach of this representation. The provisions of this Section 3.2
shall survive termination of this Contract.
ARTICLE IV. CLOSING ADJUSTMENTS
4.1 PRORATIONS. The Operating Partnership and the Seller shall make the
prorations set forth below, and make payment with respect to such prorations as
appropriate.
(a) TAXES. Real property taxes and general and special assessments,
water and sewer rents, tap charges, and business improvements district charges
upon the Premises shall be adjusted and prorated as of the date of the Final
Closing on the basis of the fiscal year for such taxes and assessments (the "TAX
YEAR"). If the Final Closing shall occur before the real property tax rate for
the Tax Year is fixed, the apportionment of taxes shall be made on the basis of
the taxes assessed for the preceding Tax Year. After the real property taxes
are finally fixed for the Tax Year in which the Final Closing occurs, the
Operating Partnership and the Seller shall make a recalculation of the
apportionment of such taxes, and the Operating Partnership or the Seller, as the
case may be, shall make an appropriate payment to the other based on such
recalculation. To the extent that either the Seller or the Operating
Partnership shall obtain any real estate tax abatement, reduction, refund or
incentive with respect to the Premises, the amount of the net proceeds of such
tax abatement, reduction, refund or incentive shall be prorated through the date
of the Final Closing if, as, and when such proceeds are paid or credited by the
applicable governmental taxing authority (it being understood that to the extent
any tenant demising space in the Premises owned by such Seller shall be entitled
to any portion of such tax abatement, that such portion shall be turned over to
the Operating Partnership to remit to such tenant and shall be deducted from any
tax abatement, reduction, refund or incentive proceeds in connection with
calculating the net proceeds thereof).
(b) RENTS. Rents, additional rents, including electricity charges,
operating expense recoveries, and tax reimbursements under the Leases
(collectively, "RENTS") shall be adjusted and prorated as of the date of the
Final Closing. Rents collected after the date of the Final Closing from tenants
whose rental was delinquent on the date of the Final Closing shall be deemed
trust funds to apply first to current rents due at the time of payment and
second to past due rents accruing after the Final Closing and last to the rents
which were past due on the date of the Final Closing. Unpaid and past due rents
to which the Seller is entitled shall be promptly paid over to the Seller as and
when collected by the Operating Partnership after the date of the Final Closing,
less any reasonable collection costs actually incurred by the Operating
Partnership.
14
(c) PREPAYMENTS. Any prepayment made by or on behalf of the Seller
under any service, maintenance, management, consulting, or similar contracts
shall be adjusted and prorated as of the date of the Final Closing. In the
event that the holder of the Existing Mortgage has escrowed or otherwise
received any sums for taxes or insurance premiums, such sums shall be adjusted
and prorated as of the date of the Final Closing. Unapplied escrows or deposits
with the holder of the Existing Mortgage shall be reimbursed to Seller by the
Operating Partnership at Final Closing.
(d) EXPENSES. Charges and assessments for sewer and water and other
utilities, including charges for consumption of electricity, steam and gas not
payable by tenants under the leases (unless the Operating Partnership elects to
have final meter readings made as of the Final Closing in which event the
adjustment shall be made based on such meter readings); current operating
expenses, including, without limitation, obligations under any service,
maintenance, management, consulting, or similar contracts; payroll and related
expenses (including all benefits and vacation and sick days); license and permit
fees relating to the operation of the Premises; insurance and bond premiums; and
any other charges incident to the ownership, use and/or occupancy of the
Premises shall be adjusted and prorated as of the date of the Final Closing.
(e) INTEREST ON EXISTING MORTGAGE. Interest on the Existing Mortgage
shall be adjusted and prorated as of the date of the Final Closing.
(f) FUEL AND MAINTENANCE SUPPLIES STORED ON SITE. The costs of fuel
and maintenance supplies stored on site shall be adjusted and prorated as of the
date of the Final Closing.
(g) RELETTING EXPENSES FOR NEW LEASES. Customary reletting expenses
(including, without limitation, brokerage commissions, tenant improvements and
moving expenses paid by Seller) for Leases entered into after the date hereof
and prior to the Final Closing shall be adjusted and prorated over the base term
of the applicable Lease and based upon prices in effect on or immediately prior
to the date of the Final Closing.
4.2 INTENTIONALLY OMITTED.
4.3 ACCOUNTS RECEIVABLE. The Seller shall retain all accounts receivable
and other income items other than Rents which are attributable to periods prior
to the date of the Final Closing. The Seller shall deliver to the Operating
Partnership at the Final Closing a schedule of all such unpaid accounts
receivable and other income items as of the date of the Final Closing. All such
accounts receivable and other income items collected by or for the Operating
Partnership after the date of
15
the Final Closing which are attributable to periods prior to the date of the
Final Closing shall be promptly remitted to the order of the Seller or as the
Seller directs. Except for sums actually received by the Operating Partnership
pursuant to the immediately preceding sentence, the Operating Partnership shall
assume no obligation to collect or enforce the payment of any amounts that may
be due to the Seller, except that the Operating Partnership shall render
reasonable assistance, at no expense to the Operating Partnership, to the Seller
after the Final Closing in the event the Seller proceeds against any third-party
to collect any accounts receivable or other income items due the Seller.
4.4 SECURITY DEPOSITS. An amount equal to all tenant security deposits
and, subject to the proviso below, interest thereon, if any, and any other
amounts due tenants with respect to such security deposits shall be paid over to
the Operating Partnership at the Final Closing; provided, however, that the
Seller may to the extent that the lessor under any of the Leases is entitled
under the terms of such Leases to retain any portion of the interest on such
security deposits, retain a portion of the interest accrued on such security
deposits, if any, up to an amount not to exceed one percent (1%) of any such
security deposits.
4.5 TIMING OF CALCULATIONS; COOPERATION. The Seller and the Operating
Partnership agree to use reasonable efforts to reconcile, prorate, and adjust
all of the foregoing items upon Final Closing and, in all events, within ninety
(90) days after the date of the Final Closing, to adjust and prorate such
prorations and adjustments. In the event any adjustments or prorations made
pursuant to this Contract are, subsequent to Final Closing, found to be
erroneous, then either party hereto who is entitled to additional amounts shall
invoice the other party for such additional amounts as may be owing, and such
amounts shall be paid promptly by the other party upon receipt of invoice. Such
invoice shall be accompanied by reasonable substantiating evidence.
4.6 ALLOCATION OF ADJUSTMENTS. All adjustments contemplated by this
Article IV shall survive the Final Closing for a period of one (1) year and
shall, to the extent practicable, be made by adjusting (either up or down) the
portion of the Consideration set forth in clause (b) of EXHIBIT C by an amount
equal to 78.5% of such total adjustment and by adjusting (either up or down) the
portion of the Consideration set forth in clause (a) of EXHIBIT C by an amount
equal to 21.5% of such total adjustment.
16
ARTICLE V. INTENTIONALLY OMITTED
ARTICLE VI. MISCELLANEOUS
6.1 AMENDMENT. Any amendment hereto shall be effective only against those
parties hereto who have acknowledged in writing their consent to such amendment.
No waiver of any provisions of this Contract shall be valid unless in writing
and signed by the party against whom enforcement is sought.
6.2 ENTIRE AGREEMENT; COUNTERPARTS; APPLICABLE LAW. This Contract and all
Ancillary Agreements (a) constitute the entire agreement and supersede
conflicting provisions set forth in all other prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, (b) may be executed in several counterparts, each of
which will be deemed an original and all of which shall constitute one and the
same instrument and (c) shall be governed in all respects, including validity,
interpretation and effect, by the internal laws of the State of New York without
giving effect to the conflict of law provisions thereof.
6.3 ASSIGNABILITY. This Contract shall be binding upon, and shall be
enforceable by and inure to the benefit of, the parties hereto and their
respective heirs, legal representatives, successors and assigns; provided,
however, that this Contract may not be assigned (except by operation of law) by
any party without the prior written consent of the other parties, and any
attempted assignment without such consent shall be void and of no effect.
6.4 TITLES. The titles and captions of the Articles, Sections and
paragraphs of this Contract are included for convenience of reference only and
shall have no effect on the construction or meaning of this Contract.
6.5 THIRD PARTY BENEFICIARY. No provision of this Contract is intended,
nor shall it be interpreted, to provide or create any third party beneficiary
rights or any other rights of any kind in any customer, affiliate, stockholder,
partner, member, director, officer or employee of any party hereto or any other
person or entity, provided, however, that Sections 5.3 and 6.3 of this Contract
shall be enforceable by and shall inure to the benefit of the persons described
therein.
6.6 SEVERABILITY. If any provision of this Contract, or the application
thereof, is for any reason held to any extent to be invalid or unenforceable,
the remainder of this Contract and application of such provision to other
persons or circumstances will be interpreted so as reasonably to effect the
intent of the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Contract with a valid and
17
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of the void or unenforceable provision and to
execute any amendment, consent or agreement mutually deemed necessary or
desirable to effect such replacement.
6.7 EQUITABLE REMEDIES. The parties hereto agree that irreparable damage
would occur in the event that any of the provisions of this Contract 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 Contract and to enforce specifically the
terms and provisions hereof in any federal or state court located in New York
(as to which the parties agree to submit to jurisdiction for the purposes of
such action), this being in addition to any other remedy to which they are
entitled under this Contract or otherwise at law or in equity. However, if this
provision conflicts with any other provision of this Contract that otherwise
limits the Seller's liability under this Contract, such other provision shall
control.
6.8 ATTORNEYS' FEES. In connection with any litigation or a court
proceeding arising out of this Contract, the prevailing party shall be entitled
to recover all costs incurred, including reasonable attorneys' fees and legal
assistants' fees and costs whether incurred prior to trial, at trial, or on
appeal.
6.9 NOTICES. Any notice or demand which must or may be given under this
Contract or by law shall, except as otherwise provided, be in writing and shall
be deemed to have been given (a) when physically received by personal delivery
(which shall include the confirmed receipt of a telecopied facsimile
transmission), or (b) three (3) business days after being deposited in the
United States certified or registered mail, return receipt requested, postage
prepaid, or (c) one (1) business day after being deposited with a nationally
known commercial courier service providing next day delivery service (such as
Federal Express); addressed and delivered or telecopied in the case of a notice
to the Operating Partnership at the following address and telecopy number:
SL Green Operating Partnership, L.P.
70 West 36th Street
New York, New York 10018
Attention: Stephen L. Green
Phone: 212-594-2700
Telecopy: 212-594-2262
18
with copies to:
Brown & Wood LLP
One World Trade Center
New York, New York 10048
Attention: David J. Weinberger
Phone: 212-839-5300
Telecopy: 212-839-5599
Greenberg, Traurig, Hoffman,
Lipoff, Rosen & Quental
153 East 53rd Street
35th Floor
New York, New York 10022
Attention: Robert J. Ivanhoe
Phone: 212-801-9200
Telecopy: 212-223-7161
and addressed and delivered or telecopied, in the case of a notice to the
Seller, at the address and telecopy number set forth under the Seller's name in
the signature page hereof with a copy thereof to Kramer, Levin, Naftalis &
Frankel, 919 Third Avenue, New York, New York 10022, Attention: Michael Paul
Korotkin, Telecopy: 212-715-8000.
6.10 AS IS. The Operating Partnership has inspected the Premises and is
fully familiar with the physical condition and state of repair thereof, and the
leases, the Personal Property and other agreements to which the Operating
Partnership shall take the Premises subject to upon the Final Closing and it has
independently investigated, analyzed and appraised the value and potential
profitability thereof and has done all things it deemed necessary and
appropriate therefor without reliance on the Seller. The Operating Partnership
acknowledges that it has inspected the Premises and shall accept the Premises
"as is" and in their present condition, subject to any and all defects therein
(latent or otherwise) and to reasonable use, wear and tear between the date of
this Contract and the date of the Final Closing without any reduction in the
Consideration by reason thereof subsequent to the date of this Contract and that
except as specifically set forth herein, the Seller makes no representations or
warranties with respect to the Premises or otherwise.
6.11 CONFIDENTIALITY. All press releases or other public communications of
any kind relating to the IPO or the transactions contemplated herein, and the
method and timing of release for publication thereof, will be subject to the
prior written approval of the Operating Partnership.
19
6.12 COMPUTATION OF TIME. Any time period provided for herein which shall
end on a Saturday, Sunday or legal holiday shall extend to 5:00 p.m. of the next
full business day. All times are Eastern Time.
6.13 SURVIVAL. It is the express intention and agreement of the parties
hereto that the representations, warranties and covenants of the Seller set
forth in this Contract shall survive the consummation of the transactions
contemplated hereby for 3 months; provided that, the representations and
warranties set forth in Section 2.6 of this Contract shall not survive the
distribution of the Units by the Seller to S.L. Green Properties, Inc.
6.14 TIME OF THE ESSENCE. Time is of the essence with respect to all
obligations under this Contract.
6.15NO RECORDATION. Neither this Contract nor any memorandum thereof may
be recorded in any public real estate records.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
20
IN WITNESS WHEREOF, each of the parties hereto has executed this Contract,
or caused this Contract to be duly executed on its behalf, as of the date first
written above.
SL GREEN OPERATING PARTNERSHIP, L.P.,
(In Formation)
By: SL GREEN REALTY Inc., Sponsor
By: /s/ Stephen L. Green
-------------------------------
Name: Stephen L. Green
Title: President
29/35 REALTY ASSOCIATES, L.P., Seller
By: S.L. Green Properties, Inc.,
a general partner
By: /s/ Stephen L. Green
-------------------------------
Name: Stephen L. Green
Title: Chairman
By: 29 W. 35th Realty Corp., a general partner
By: /s/ Harvey L. Friedman
-------------------------------
Name: Harvey L. Friedman
Title: President
Address of Seller:
70 West 36th Street
New York, New York 10018
Telephone/Facsimile Numbers:
212-594-2700/212-594-2262
21
EXHIBIT A
DESCRIPTION OF LAND
EXHIBIT B
SCHEDULE OF LEASES
EXHIBIT C
CONSIDERATION
The Consideration to be paid by the Operating Partnership to the Seller for
the Premises is Six Million and No/100 Dollars ($6,000,000.00) to be payable as
follows:
(a) Units* having an aggregate value equal to Six Hundred Forty-three
Thousand Three Hundred Eighty-seven and 50/100 Dollars ($643,387.50);
(b) Two Million Three Hundred Forty-nine Thousand One Hundred Twelve and
50/100 Dollars ($2,349,112.50) in federal wire funds to an account to be
designated by Seller not less than two (2) business days prior to the Initial
Closing; and
(c) Three Million Seven Thousand Five Hundred No/100 Dollars
($3,007,500.00) by taking title subject to that certain first mortgage loan in
the outstanding principal balance of $3,007,500 held by Local America Bank of
Tulsa, a Federal Savings Bank (the "EXISTING MORTGAGE").
The amounts specified in clause (c) above are approximate. If at the Final
Closing the principal amount of the Existing Mortgage, as reduced by payments
required thereunder prior to the Final Closing, is less than the principal
amount of the Existing Mortgage as specified in clause (c) above, a portion of
the difference equal to 21.5% of the total sum of such difference shall be added
to the portion of the Consideration paid pursuant to clause (a) above and a
portion of the difference equal to 78.5% of the total sum of such difference
shall be added to the portion of the Consideration to be paid pursuant to clause
(b) above. If at the Final Closing the principal amount of the Existing
Mortgage, is greater than the principal amount of the Existing Mortgage as
specified in clause (c) above, a portion of the difference equal to 21.5% of the
total sum of such difference shall be subtracted from the portion of the
Consideration paid pursuant to clause (a) above and a portion of the difference
equal to 78.5% of the total sum of such difference shall be subtracted from the
portion of the Consideration to be paid pursuant to clause (b) above.
* Each Unit will be valued for these purposes at the initial public offering
price of a share of Common Stock.
EXHIBIT D
PERMITTED ENCUMBRANCES
1) The Existing Mortgage
2) Any state of facts on accurate survey of the Premises would disclose.
3) All matters set forth in Certificate of Title #135NYNY 21011-7 issued by
First American Title Insurance Company of New York in respect of the
Premises, as same may be brought down to the date of this Contract.
4) Leases and Tenancies affecting the Premises.
5) Violations affecting the Premises or conditions which, if noted, would be
violations.
6) Zoning regulations and ordinances now or hereafter affecting the Premises,
consents by Seller or any former owner of the Premises for the erection of
any structure or structures on, under or above any street or streets on
which the Premises may abut; encroachments of any kind by the Premises or
any part thereof upon adjoining property or over any street, and
encroachments by/from adjoining property over the Premises; variations, if
any, of record lines and tax lots, revocability or lack of right to
maintain vaults, chutes, excavations or sub-surface equipment beyond the
lines of the Premises; rights of utilities to lay, maintain, install or
repair pipes, lines, poles, conduits, cable boxes or related equipment on,
over and under the Premises.
EXHIBIT E
Operating Partnership Agreement
EXHIBIT F
Amendment to Seller's Partnership Agreement
EXHIBIT G
Consent to Assumption of Existing Mortgage
EXHIBIT H
ASSIGNMENT AND ASSUMPTION OF LEASES AND SERVICE CONTRACTS
Agreement made as of this ___ day of ____________ 199__, by and between
_____________ , a ______________ having an address at _________________________
("Assignor") and ___________________ a ______________ having an address at
________________ ("Assignee").
RECITALS
WHEREAS, Assignor is the holder of the landlord's interest under those
certain leases more particularly set forth on EXHIBIT A hereto (collectively the
"Lease") relating to property and interests more particularly therein described,
and commonly known as ______________________ (the "Property").
WHEREAS, Assignor is a party to those certain contracts and agreements
relating to the property more particularly set forth on EXHIBIT B hereto (the
"Service Contracts").
WHEREAS, Assignor, as owner of the Property, may be the beneficiary of all
warranties (the "Warranties"), licenses (the "Licenses"), certificates, (the
"Certificates) and permits (the "Permits") relating to the Property.
WHEREAS, by Contract of Sale dated as of _______________, and as heretofore
modified (the "Contract"), Assignor agreed, INTER ALIA, to assign (a) the Lease
subject to the terms and conditions of the Lease, together with the security
deposit and any interest thereon held pursuant to the Lease and (b) the Service
Contracts, the Warranties, the Licenses, the Certificates and the Permits to
Assignee and Assignee agreed to assume Assignor's obligations thereunder.
AGREEMENTS
NOW THEREFORE, in consideration of the promises and conditions contained
herein, and of other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
(i) Assignor hereby assigns to Assignee, without warranty, representation
or recourse, all of its right, title and interest in, to and under (a) the Lease
and to the security deposit and any interest accrued thereon held by landlord
pursuant to the Lease (less 1% administrator's fee that may have been deducted
therefrom), (b) the Service Contracts, (c) the Warranties, (d) the Licenses, (e)
the Certificates and (f) the Permits.
(ii) Assignee hereby assumes the Lease and all of landlord's obligations
under (a) the Lease and (b) the Service Contracts arising after the date hereof,
and Assignee agrees to indemnify Assignor against and hold Assignor harmless
from any and all costs, damages, liabilities and expenses, including, without
limitation, reasonable attorney's fees, imposed upon or incurred by Assignor by
reason of Assignee's failure to perform any obligations under the Lease or the
Service Contracts arising from and after the date of this Agreement.
(iii) This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto, their successors in interest and assigns.
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto as of the day and year first above written.
ASSIGNOR:
By: _______________________
ASSIGNEE:
By: _______________________
Exhibit 10.12
CONTRACT OF SALE
BETWEEN
SL GREEN OPERATING PARTNERSHIP, L.P.
(In Formation)
AND
470 PARK SOUTH ASSOCIATES, L.P.
Dated as of May 20, 1997
TABLE OF CONTENTS
ARTICLE I. CONTRIBUTION TERMS AND CLOSING PROCEDURES
1.1 Acquisition of Interests...................................... 2
1.2 Term of Agreement............................................. 2
1.3 Consideration................................................. 2
1.5 Documents to be Delivered at Closing.......................... 4
1.6 Cessation of IPO.............................................. 5
1.7 Closing Costs................................................. 5
1.8 Default....................................................... 6
1.9 Further Assurances............................................ 6
ARTICLE II. REPRESENTATIONS, WARRANTIES
AND COVENANTS OF SELLER
2.1 Title to Interests............................................ 7
2.2 Authority..................................................... 7
2.3 Litigation.................................................... 8
2.4 No Other Agreements to Sell................................... 8
2.5 No Brokers.................................................... 8
2.6 Investment Representations and Warranties..................... 8
2.7 FIRPTA Representation......................................... 11
2.8 Covenant to Remedy Breaches................................... 11
ARTICLE III. REPRESENTATIONS, WARRANTIES AND COVENANTS
OF OPERATING PARTNERSHIP
3.1 Authority..................................................... 11
3.2 No Brokers.................................................... 12
ARTICLE IV. CLOSING ADJUSTMENTS
4.1 Prorations.................................................... 12
4.2 Seller's Retained Items....................................... 14
4.3 Accounts Receivable........................................... 14
4.4 Security Deposits............................................. 14
4.5 Timing of Calculations; Cooperation........................... 14
4.6 Allocation of Adjustments..................................... 15
ARTICLE V. POWER OF ATTORNEY
5.1 Grant of Power of Attorney.................................... 15
5.2 Limitation on Liability....................................... 17
5.3 Ratification; Third Party Reliance............................ 17
i
ARTICLE VI. MISCELLANEOUS
6.1 Amendment..................................................... 17
6.2 Entire Agreement; Counterparts;
Applicable Law................................................ 17
6.3 Assignability................................................. 18
6.4 Titles........................................................ 18
6.5 Third Party Beneficiary....................................... 18
6.6 Severability.................................................. 18
6.7 Equitable Remedies............................................ 18
6.8 Attorneys' Fees............................................... 19
6.9 Notices....................................................... 19
6.10 Intentionally Omitted......................................... 20
6.11 Confidentiality............................................... 20
6.12 Computation of Time........................................... 20
6.13 Survival...................................................... 20
6.14 Time of the Essence........................................... 20
EXHIBIT A: Description of Land
EXHIBIT B: Schedule of Leases
EXHIBIT C: Consideration
EXHIBIT D: Permitted Encumbrances
EXHIBIT E: Operating Partnership Agreement
EXHIBIT F: Investor Questionnaire
EXHIBIT G: Registration Rights Agreement
ii
CONTRACT OF SALE
This Contract of Sale (the "CONTRACT") is executed as of the 20th day of
May, 1997 by SL Green Operating Partnership, L.P. (the "OPERATING PARTNERSHIP"),
a Delaware limited partnership in formation, and 470 Park South Associates,
L.P., a Delaware limited partnership (the "SELLER").
WHEREAS, in connection with the consolidation of its commercial real estate
business, S.L. Green Realty, Inc. intends to form a Maryland corporation (the
"REIT") that will be the sole general partner and a limited partner of the
Operating Partnership and to effect an initial public offering (the "IPO") of
the REIT's shares of common stock ("COMMON STOCK");
WHEREAS, it is intended that, upon consummation of the IPO, the Operating
Partnership will acquire interests in certain office properties including,
without limitation, 470 Park Avenue South, New York, New York, as well as
interests in the property construction, management and leasing businesses
currently conducted by Emerald City Construction Corp., a New York corporation,
SL Green Management Corp., a New York corporation and S.L. Green Realty, Inc., a
New York corporation;
WHEREAS, it is further understood that the Operating Partnership may
acquire interests in additional office properties located in New York, New York;
WHEREAS, the Operating Partnership desires to acquire from the Seller and
the Seller desires to convey to the Operating Partnership under the terms and
conditions set forth herein, (a) the parcel of land more particularly described
on EXHIBIT A (the "LAND"); (b) all buildings and improvements situated on the
Land (collectively, the "BUILDING"); (c) all right, title and interest of
Seller, if any, in and to any strips and gores of land adjoining the Land and
the land lying in the bed of any street or highway in front of or adjoining the
Land to the center line thereof, to any unpaid insurance proceeds and to any
unpaid award for any taking by condemnation or any damage to the Land by reason
of a change of grade of any street or highway; (d) the appurtenances and all the
estate and rights of Seller in and to the Land and Building; and (e) all right,
title and interest of Seller, if any, in and to the fixtures, equipment and
other personal property attached or appurtenant to, or used in connection with,
the Building (the "PERSONAL PROPERTY"); (f) all leases, licenses and other
agreements covering space in the Building and further described on EXHIBIT B
(collectively, the "LEASES") and the interest of the landlord under the Leases,
together with the security deposit made to the landlord by the tenant or other
occupants thereunder; and (g) all
other assignable service, maintenance and other agreements and all other
assignable permits necessary for the operation of the Building (collectively,
the "PREMISES"). The Premises are located at or known as 470 Park Avenue South,
New York, New York;
NOW, THEREFORE, in consideration of the mutual covenants and conditions set
forth herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Operating Partnership and the
Seller agree as follows:
ARTICLE I. CONTRIBUTION TERMS AND CLOSING PROCEDURES
1.1 ACQUISITION OF INTERESTS. At the Final Closing (as defined below),
Seller shall, subject to Section 1.4 hereof, transfer, assign, and convey to the
Operating Partnership and the Operating Partnership shall acquire and accept
from Seller, all right, title and interest of Seller in the Premises, free and
clear of all Encumbrances (as defined below) except Permitted Encumbrances (as
defined below), and the Operating Partnership shall deliver to Seller the
Consideration (as defined below), both in accordance with this Contract.
1.2 TERM OF AGREEMENT. If the IPO Closing (as defined below) does not
occur by March 31, 1998 (the "TERMINATION DATE"), this Contract shall be deemed
terminated and shall be of no further force and effect and neither the Operating
Partnership nor the Seller shall have any further obligations hereunder except
as specifically set forth herein.
1.3 CONSIDERATION. The full consideration for the Premises (the
"CONSIDERATION") shall be payable as set forth in EXHIBIT C, subject to the
terms and provisions of Article IV hereof providing for adjustments to the
Consideration based on closing adjustments. As used herein, the term "UNITS"
means units of limited partnership interest in the Operating Partnership.
1.4 CLOSING; CONDITION TO OBLIGATIONS. In connection with its acquisition
of the Premises, the Operating Partnership will notify the Seller of a closing
date, which date will be no earlier than five (5) business days after such
notification and no later than March 10, 1998 (fifteen (15) business days prior
to the Termination Date), for the initial closing (the "INITIAL CLOSING") of the
acquisition contemplated by this Contract. At or before the Initial Closing,
which shall be held at the offices of Brown & Wood LLP, One World Trade Center,
New York, New York 10048 or such other place as is determined by the Operating
Partnership in its sole discretion at a time specified by the Operating
Partnership in its sole discretion, the Operating Partnership and the Seller
will execute all closing documents (the "CLOSING DOCUMENTS") required by the
Operating Partnership in accordance with Section 1.5 hereof and deposit the same
in
2
escrow with Brown & Wood LLP, New York, New York, as escrow agent of the
Operating Partnership (the "CLOSING AGENT").
The transactions contemplated by this Contract and by the Closing Documents
executed and deposited in connection with such transactions will be consummated
at the Final Closing (as defined below) only if the closing of the IPO (the "IPO
CLOSING") is consummated by the earlier of (a) fifteen (15) business days after
the date of the Initial Closing and (b) the Termination Date. If the IPO
Closing occurs by such date:
(a) The Operating Partnership shall, contemporaneously with the
IPO Closing, cause to be delivered to the Closing Agent with
respect to the Seller (i) an assumption (the "ASSUMPTION
AGREEMENT") of the Existing Mortgages (as defined in EXHIBIT
C hereof), and (ii) a certificate of the General Partner of
the Operating Partnership certifying that the Seller has
been or will be, effective upon the Final Closing (as
hereinafter defined), admitted as a limited partner of the
Operating Partnership and that the Operating Partnership's
books and records indicate or will indicate that the Seller
is the holder of the number of Units which are called for
pursuant to the Consideration as adjusted pursuant to
Article IV hereof;
(b) upon receipt of the Consideration set forth in clause (a)
above, the Closing Agent will release the Closing Documents
to the Operating Partnership and deliver to the Seller the
Assumption Agreement and, if requested by the Seller, a copy
of such General Partner's certificate; and
(c) the transactions described or otherwise contemplated herein
or in the Closing Documents will thereupon be deemed to have
been consummated simultaneously with the IPO Closing (such
consummation, the "FINAL CLOSING").
Notwithstanding the above, the Operating Partnership may, in its sole
discretion, elect not to complete the acquisition of the Premises only in the
event that the Seller specifies, in the documents to be delivered pursuant to
Section 1.5(a)(ii) hereof, a breach of or other exception with respect to
Article 2 hereof or has otherwise materially breached this Contract, in which
case the Operating Partnership shall, in lieu of the delivery pursuant to clause
(a) above, notify the Closing Agent of such election
3
and direct the Closing Agent to return the Closing Documents and Ancillary
Agreements (as defined below) to the Seller.
The risk of loss to the Premises prior to the Final Closing shall be borne
by the Seller. If, prior to the Final Closing, the Premises shall be destroyed
or damaged by fire or other casualty, then this Contract may, at the option of
the Operating Partnership, be terminated. If, after the occurrence of any such
casualty, this Contract is not so terminated, the Operating Partnership may
elect to (a) purchase the Premises and (b) direct the Seller to pay or cause to
be paid to the Operating Partnership any sums collected under any policies of
insurance because of damage due to such casualty and otherwise assign to the
Operating Partnership all rights to collect such sums as may then be
uncollected; provided, however, that the Seller shall not adjust or settle any
insurance claim without the Operating Partnership's prior consent, not to be
unreasonably withheld or delayed. Under such circumstances, the Consideration
payable in Units upon such purchase shall be reduced by the amount of any
deductibles under the applicable insurance policies.
If the IPO Closing does not occur by the earlier of (a) fifteen (15)
business days after the date of the Initial Closing and (b) the Termination
Date, then, except as set forth in Section 1.8 hereof, neither party shall have
any obligations under the Closing Documents or under any agreements or
instruments executed in connection with the transactions contemplated hereunder
or thereunder (such other agreements or instruments, collectively, "ANCILLARY
AGREEMENTS"), this Contract, the Closing Documents and the Ancillary Agreements
shall be deemed null and void AB INITIO and the Closing Agent will be, and is
hereby, directed to destroy the Closing Documents and any Ancillary Agreement it
holds and return to the Operating Partnership the Consideration, if any,
delivered by the Operating Partnership to the Closing Agent.
1.5 DOCUMENTS TO BE DELIVERED AT CLOSING. (a) At the Initial Closing,
the Seller shall, directly or through the attorney-in-fact appointed pursuant to
Article V hereof, execute, acknowledge where deemed desirable or necessary by
the Operating Partnership, and deliver to the Closing Agent, in addition to any
other documents mentioned elsewhere herein, the following:
(i) statutory form of bargain and sale deed with covenants
against grantor's acts (the "ASSIGNMENT") which shall be in form and substance
satisfactory to the Operating Partnership which shall convey good and marketable
title in and to the Premises free and clear of all Encumbrances, except, where
applicable, for the Permitted Encumbrances;
(ii) a reaffirmation of warranties which shall either (x)
reaffirm the accuracy of all representations and
4
warranties and the satisfaction of all covenants made by the Seller in Article
II hereof or (y) if such reaffirmation cannot be made, identify those
representations, warranties and covenants of Article II hereof (other than
Section 2.5 hereof) with respect to which circumstances have changed, represent
that the Seller has used all reasonable efforts within its control to prevent
and remedy such breach, and reaffirm the accuracy of all other representations
and warranties and the satisfaction of all other covenants made by the Seller in
Article II hereof;
(iii)any other documents reasonably requested by the Operating
Partnership or reasonably necessary or desirable to assign, transfer and convey
the Premises and effectuate the transactions contemplated hereby, including,
without limitation, deeds, assignments of ground leases and the Leases (as
applicable), New York City and New York State transfer tax and gains tax returns
and any other filings with any applicable governmental jurisdiction in which the
Operating Partnership is required to file its partnership documentation or the
recording of the Assignment is required; and
(iv) an agreement executed by the holder of the Lowe Mortgage (as
defined in EXHIBIT C hereof), in form and substance reasonably acceptable to the
Operating Partnership, in which such holder agrees to satisfy all of the
obligations secured by the Lowe Mortgage in consideration of a payment not to
exceed $12,000,000.00.
(b) At the Initial Closing, the Operating Partnership shall execute and
deliver to the Closing Agent an agreement executed by the Operating Partnership,
which may be relied upon by the holder of the Lowe Mortgage, to satisfy, within
one business day of the IPO Closing, the Lowe Mortgage for an amount not to
exceed $12,000,000.00.
1.6 CESSATION OF IPO. If at any time the Operating Partnership or the
underwriter or underwriters determine in good faith to abandon the formation of
the REIT or the IPO (the date of such determination being referred to as the
"CESSATION DATE"), the Operating Partnership will so advise the Seller in
writing and thereupon each party hereto will be relieved of all obligations
under this Contract, all Ancillary Agreements, and all Closing Documents (except
for obligations arising under Sections 1.7, 2.5 and 3.2 hereof).
1.7 CLOSING COSTS. The Operating Partnership agrees to pay all of the
closing costs, other than Seller's legal and advisory fees, arising from the
transfer of the Premises pursuant to the provisions of this Contract other than
any applicable real property transfer taxes which shall be paid by Seller at
Final Closing.
5
1.8 DEFAULT. (a) If, after notifying the Seller of a date for the Initial
Closing, the Operating Partnership fails to close (including a failure due to
the IPO Closing not occurring), then the Operating Partnership will pay to the
Seller the sum of $100.00 as liquidated and agreed-upon damages. It would be
difficult, if not impossible, to ascertain the actual measure of the Seller's
damages in the event of the Operating Partnership's default and the parties
agree that $100.00 is a fair reflection of the Seller's damages in the event of
the Operating Partnership's default.
(b) If the Seller defaults with respect to its obligations
under this Contract, the Operating Partnership shall be entitled to exercise
against the Seller any and all remedies provided at law or in equity, including
but not limited to, the right to specific performance.
1.9 FURTHER ASSURANCES. The Seller will, from time to time, execute and
deliver to the Operating Partnership all such other and further instruments and
documents and take or cause to be taken all such other and further action as the
Operating Partnership may reasonably request in order to effect the transactions
contemplated by this Contract, including instruments or documents deemed
necessary or desirable by the Operating Partnership to effect and evidence the
conveyance of the Premises in accordance with the terms of this Contract. The
provisions of this Section 1.9 shall survive the Final Closing.
ARTICLE II. REPRESENTATIONS, WARRANTIES
AND COVENANTS OF SELLER
As a material inducement to the Operating Partnership to enter into this
Contract and to consummate the transactions contemplated hereby, the Seller
hereby makes to the Operating Partnership each of the representations and
warranties set forth in this Article III, which representations and warranties
(unless otherwise noted) are true as of the date hereof. As a condition to the
Operating Partnership's obligation to complete the acquisition of the Premises,
such representations and warranties must continue to be true as of the date of
the Initial Closing and as of the date of the Final Closing; provided, however,
in the event that such representation and warranties were true when initially
made but are not true as of the date of the Initial Closing and as of the date
of the Final Closing, and Seller has complied with the provisions of Section
1.5(b)(ii) hereof, no default shall exist hereunder, but the Operating
Partnership may, in its sole and absolute discretion, terminate this Contract in
which event each party hereto will be relieved of all obligations under this
Contract, all Ancillary Agreements and all Closing Documents (except obligations
arising under Sections 1.7, 2.5 or 3.2 hereof).
6
2.1 TITLE TO INTERESTS. The Seller owns the Premises beneficially and of
record, free and clear of any claim, lien, pledge, voting agreement, option,
charge, security interest, mortgage, deed of trust, encumbrance, rights of
assignment, purchase rights or other rights of any nature whatsoever
(collectively, "ENCUMBRANCES"), except as set forth on EXHIBIT D attached hereto
(any such encumbrance, a "PERMITTED ENCUMBRANCE"), and has full power and
authority to convey free and clear of any Encumbrances (except, where
applicable, the Permitted Encumbrances), the Premises and, upon delivery of any
Assignment by the Seller conveying title to the Premises and delivery of the
Consideration for such conveyance as herein provided, the Operating Partnership
will acquire good, marketable and valid fee title thereto, free and clear of any
Encumbrance except Encumbrances created in favor of the Operating Partnership by
the transactions contemplated hereby and, where applicable, the Permitted
Encumbrances. Seller will not consent to join in or in any way effect the
transfer of the Premises prior to the Final Closing. At the Final Closing, if
so requested, the Seller will execute all documents necessary to enable a title
insurance company (acceptable to the Operating Partnership, in its sole
discretion) to issue to the Operating Partnership an ALTA Form B (1987 or later)
Owner's Policy and such endorsements as the Operating Partnership may reasonably
request, insuring fee simple title to all real property and improvements
comprising all or any part of the Premises to the Operating Partnership;
provided that the Seller's cost of complying with this requirement shall be
limited to ten percent of the gross Consideration to be received by the Seller,
which amount shall be deducted from the Consideration at the Final Closing. The
Seller covenants and warrants that no Encumbrance on the Premises (except, where
applicable, the Permitted Encumbrances) will be in existence as of the date of
the Final Closing.
2.2 AUTHORITY. The Seller has full right, authority, power and capacity:
(a) to enter into this Contract and each agreement, document and instrument to
be executed and delivered by or on behalf of the Seller pursuant to this
Contract; (b) to carry out the transactions contemplated hereby and thereby; and
(c) to transfer, convey, assign and deliver all of the Seller's, right, title
and interest in the Premises to the Operating Partnership upon delivery to the
Seller of the Consideration therefor in accordance with this Contract. This
Contract and each agreement, document and instrument executed and delivered by
or on behalf of the Seller pursuant to this Contract constitutes, or when
executed and delivered will constitute, the legal, valid and binding obligation
of the Seller, each enforceable in accordance with their respective terms.
Except for any breaches, violations or defaults which will be waived or cured
prior to the Initial Closing and all loans, indentures, creditor agreements or
other agreements which will be discharged or repaid prior to or
contemporaneously with the IPO Closing, the execution, delivery
7
and performance of this Contract and each such agreement, document and
instrument by or on behalf of the Seller: (a) does not and will not violate the
Seller's partnership agreement, operating agreement, declaration of trust,
charter or bylaws, as applicable, or other organizational documentation; (b)
does not and will not violate any foreign, federal, state, local or other laws
applicable to or binding on the Seller or the Premises or require the Seller to
obtain any approval, consent or waiver of, or make any filing with, any person
or authority (governmental or otherwise) that has not been obtained or made or
which does not remain in effect; and (c) does not and will not result in a
breach of, constitute a default under, accelerate any obligation under or give
rise to a right of termination of, any indenture or loan or credit agreement or
any other agreement, contract, instrument, mortgage, lien, obligation, lease,
permit, authorization, order, writ, judgment, injunction, decree, determination
or arbitration award to which the Seller is a party or bound or by which the
property of the Seller is bound or affected, or result in the creation of any
Encumbrance on the Premises.
2.3 LITIGATION. There is no litigation or proceeding, either judicial or
administrative, pending or overtly threatened, affecting all or any portion of
the Premises or the Seller's ability to consummate the transactions contemplated
hereby. The Seller knows of no outstanding order, writ, injunction or decree of
any court, government, governmental entity or authority or arbitration against
or affecting all or any portion of the Premises or the Seller, which in any such
case would impair the Seller's ability to enter into and perform all of its
obligations under this Contract.
2.4 NO OTHER AGREEMENTS TO SELL. The Seller has not made any agreement
with, and will not enter into any agreement with, and has no obligation
(absolute or contingent) to, any person or firm other than the Operating
Partnership to sell, transfer or in any way encumber (except for Permitted
Encumbrances) the Premises or to sell the Premises.
2.5 NO BROKERS. The Seller has not entered into, and covenants that it
will not enter into, any agreement, arrangement or understanding with any person
or firm which will result in the obligation of the Operating Partnership to pay
any finder's fee, brokerage commission or similar payment in connection with the
transactions contemplated hereby and the Seller shall indemnify and hold
harmless the Operating Partnership for all costs and expenses incurred by the
Operating Partnership as a result of a breach of this representation. The
provisions of this Section 2.5 shall survive termination of this Contract.
2.6 INVESTMENT REPRESENTATIONS AND WARRANTIES. (a) Upon the issuance of
Units to the Seller, the Seller shall become
8
subject to, and shall be bound by, the terms and provisions of the agreement of
limited partnership of the Operating Partnership (in substantially the form
attached hereto as EXHIBIT E) (the "PARTNERSHIP AGREEMENT"), including the terms
of the power of attorney contained in Section 15.11 thereof, as the Partnership
Agreement may be amended from time in accordance with its terms.
(b) The Seller understands the risks of, and other considerations
relating to, the purchase of the Units. The Seller, by reason of its business
and financial experience, together with the business and financial experience of
those persons, if any, retained by it to represent or advise it with respect to
its investment in the Units, has such knowledge, sophistication and experience
in financial and business matters and in making investment decisions of this
type that it is capable of evaluating the merits and risks of an investment in
the Operating Partnership and of making an informed investment decision, (ii) is
capable of protecting its own interest or has engaged representatives or
advisors to assist it in protecting its interests and (iii) is capable of
bearing the economic risk of such investment. If the Seller retained a person
to represent or advise it with respect to the investment in Units that may be
made hereby then, at the Seller's request, the Seller shall, prior to or at the
Initial Closing, (i) acknowledge in writing such representation and (ii) cause
such representative or advisor to deliver a certificate to the Operating
Partnership containing such representations as are reasonably requested by the
Operating Partnership.
(c) The Seller understands that an investment in the Operating
Partnership involves substantial risks. The Seller has been given the
opportunity to make a thorough investigation of the proposed activities of the
Operating Partnership and has been furnished with materials relating to the
Operating Partnership and its proposed activities. The Seller has been afforded
the opportunity to obtain any additional information deemed necessary by the
Seller to verify the accuracy of any representations made or information
conveyed to the Seller. The Seller confirms that all documents, records, and
books pertaining to its investment in the Operating Partnership and requested by
the Seller have been made available or delivered to the Seller. The Seller has
had an opportunity to ask questions of and receive answers from the Operating
Partnership, or from a person or persons acting on the Operating Partnership's
behalf, concerning the terms and conditions of this investment. The Seller has
relied and is making its investment decision upon written information provided
to the Seller by or on behalf of the Operating Partnership.
(d) The Units to be issued to the Seller will be acquired by the
Seller for its own account for investment only and not with a view to, or with
any intention of, a distribution or resale thereof, in whole or in part, or the
grant of any
9
participation therein, without prejudice, however, to the Seller's right
(subject to the terms of the Units) at all times to sell or otherwise dispose of
all or any part of its Units under an exemption from such registration available
under the Securities Act of 1933, as amended (the "SECURITIES ACT"), and
applicable state securities laws, and subject, nevertheless, to the disposition
of its assets being at all times within its control. The Seller was not formed
for the specific purpose of acquiring an interest in the Operating Partnership.
(e) The Seller acknowledges that (i) the Units to be issued to the
Seller have not been registered under the Securities Act or state securities
laws by reason of a specific exemption or exemptions from registration under the
Securities Act and applicable state securities laws and, if such Units are
represented by certificates, such certificates will bear a legend to such
effect, (ii) the REIT's and the Operating Partnership's reliance on such
exemptions is predicated in part on the accuracy and completeness of the
representations and warranties of the Seller contained herein, (iii) such Units,
therefore, cannot be resold unless registered under the Securities Act and
applicable state securities laws, or unless an exemption from registration is
available, (iv) there is no public market for such Units, and (v) the Operating
Partnership has no obligation or intention to register such Units for resale
under the Securities Act or any state securities laws or to take any action that
would make available any exemption from the registration requirements of such
laws. The Seller hereby acknowledges that because of the restrictions on
transfer or assignment of such Units to be issued hereunder which will be set
forth in the Partnership Agreement and/or in a Registration Rights Agreement (as
defined below), the Seller may have to bear the economic risk of the investment
commitment evidenced by this Contract and any Units acquired hereby for an
indefinite period of time, although (i) under the terms of the Partnership
Agreement, as it will be in effect at the time of the IPO, Units will be
redeemable at the request of the holder thereof at any time after the second
anniversary of their issuance for cash or (at the option of the Operating
Partnership) for Common Stock of the REIT and (ii) the holder of any such Common
Stock issued upon a presentation of Units for redemption will be afforded
certain rights to have such Common Stock registered for resale under the
Securities Act or applicable state securities laws under the Registration Rights
Agreement as described more fully below.
(f) The information set forth in the investor questionnaire a form of
which is attached hereto as EXHIBIT F (the "INVESTOR QUESTIONNAIRE") which has
been completed and executed by the Seller and delivered to the Operating
Partnership on the date hereof is true, correct and complete.
10
2.7 FIRPTA REPRESENTATION. The Seller is not a "foreign person" within
the meaning of Section 1145 of the Internal Revenue Code of 1986, as amended.
2.8 COVENANT TO REMEDY BREACHES. The Seller covenants to use all
reasonable efforts within its control (a) to prevent the breach of any
representation or warranty of the Seller hereunder, (b) to satisfy all covenants
of the Seller hereunder and (c) to promptly cure any breach of a representation,
warranty or covenant of the Seller hereunder upon its learning of same.
2.9 OPERATION OF PREMISES. The Seller shall operate the Premises from the
date hereof through and including the Final Closing in a manner consistent with
that in which the Seller operates the Premises as of the date hereof and shall
maintain or cause to be maintained all existing insurance carried by the Seller
relating to the Premises.
ARTICLE III. REPRESENTATIONS, WARRANTIES AND COVENANTS
OF OPERATING PARTNERSHIP
As a material inducement to the Seller to enter into this Contract and to
consummate the transactions contemplated hereby, the Operating Partnership
hereby makes to the Seller each of the representations and warranties set forth
in this Article III, which representations and warranties shall be true as of
the date hereof, as of the date of the Initial Closing and as of the date of
consummation of the Final Closing.
3.1 AUTHORITY. The Operating Partnership has full right, authority, power
and capacity: (a) to enter into this Contract and each agreement, document and
instrument to be executed and delivered by or on behalf of it pursuant to this
Contract; (b) to carry out the transactions contemplated hereby and thereby; and
(c) to issue Units to the Seller to the extent called for in accordance with the
terms of this Contract. This Contract and each agreement, document and
instrument executed and delivered by the Operating Partnership pursuant to this
Contract constitutes, or when executed and delivered will constitute, the legal,
valid and binding obligation of the Operating Partnership, each enforceable in
accordance with their respective terms. The execution, delivery and performance
of this Contract and each such agreement, document and instrument by the
Operating Partnership: (a) does not and will not violate the Partnership
Agreement; (b) does not and will not violate any foreign, federal, state and
local or other laws applicable to Operating Partnership or require the Operating
Partnership to obtain any approval, consent or waiver of, or make any filing
with, any person or authority (governmental or otherwise) that has not been
obtained or made; and (c) does not and will not result in a breach of,
constitute a default under, accelerate any obligation
11
under or give rise to a right of termination of, any indenture or loan or credit
agreement or any other agreement, contract, instrument, mortgage, lien, lease,
permit, authorization, order, writ, judgment, injunction, decree, determination
or arbitration award to which the Operating Partnership is a party or by which
the property of the Operating Partnership is bound or affected.
3.2 NO BROKERS. The Operating Partnership represents that it has not
entered into, and covenants that will not enter into, any agreement, arrangement
or understanding with any person or firm which will result in the obligation of
the Seller to pay any finder's fee, brokerage commission or similar payment in
connection with the transactions contemplated hereby and the Operating
Partnership shall indemnify and hold harmless the Seller for all costs and
expenses incurred by the Seller as a result of a breach of this representation.
The provisions of this Section 3.2 shall survive termination of this Contract.
ARTICLE IV. CLOSING ADJUSTMENTS
4.1 PRORATIONS. The Operating Partnership and the Seller shall make the
prorations set forth below, and make payment with respect to such prorations as
appropriate.
(a) TAXES. Real property taxes and general and special assessments,
water and sewer rents, tap charges, and business improvements district charges
upon the Premises shall be adjusted and prorated as of the date of the Final
Closing on the basis of the fiscal year for such taxes and assessments (the "TAX
YEAR"). If the Final Closing shall occur before the real property tax rate for
the Tax Year is fixed, the apportionment of taxes shall be made on the basis of
the taxes assessed for the preceding Tax Year. After the real property taxes
are finally fixed for the Tax Year in which the Final Closing occurs, the
Operating Partnership and the Seller shall make a recalculation of the
apportionment of such taxes, and the Operating Partnership or the Seller, as the
case may be, shall make an appropriate payment to the other based on such
recalculation. To the extent that either the Seller or the Operating
Partnership shall obtain any real estate tax abatement, reduction, refund or
incentive with respect to the Premises, the amount of the net proceeds of such
tax abatement, reduction, refund or incentive shall be prorated through the date
of the Final Closing if, as, and when such proceeds are paid by the applicable
governmental taxing authority (it being understood that to the extent any tenant
demising space in the Premises owned by such Seller shall be entitled to any
portion of such tax abatement, that such portion shall be turned over to the
Operating Partnership to remit to such tenant and shall be deducted from any tax
abatement, reduction, refund or incentive proceeds in connection with
calculating the net proceeds thereof).
12
(b) RENTS. Rents, additional rents, including electricity charges,
operating expense recoveries, and tax reimbursements under the Leases
(collectively, "RENTS") shall be adjusted and prorated as of the date of the
Final Closing. Rents collected after the date of the Final Closing from tenants
whose rental was delinquent on the date of the Final Closing shall be deemed to
apply first to current rents due at the time of payment and second to past due
rents accruing after the Final Closing and last to the rents which were past due
on the date of the Final Closing. Unpaid and past due rents to which the Seller
is entitled shall be promptly paid over to the Seller as and when collected by
the Operating Partnership after the date of the Final Closing, less any
reasonable collection costs actually incurred by the Operating Partnership.
(c) PREPAYMENTS. Any prepayment made by or on behalf of the Seller
under any service, maintenance, management, consulting, or similar contracts
shall be adjusted and prorated as of the date of the Final Closing.
(d) EXPENSES. Charges and assessments for sewer and water and other
utilities, including charges for consumption of electricity, steam and gas
(unless the Operating Partnership elects to have final meter readings made as of
the Final Closing in which event the adjustment shall be made based on such
meter readings); current operating expenses, including, without limitation,
obligations under any service, maintenance, management, consulting, or similar
contracts; payroll and related expenses (including all benefits and vacation and
sick days); license and permit fees relating to the operation of the Premises;
insurance and bond premiums; and any other charges incident to the ownership,
use and/or occupancy of the Premises shall be adjusted and prorated as of the
date of the Final Closing.
(e) INTEREST ON EXISTING MORTGAGES. Interest on the Existing
Mortgages shall be adjusted and prorated as of the date of the Final Closing.
(f) FUEL AND MAINTENANCE SUPPLIES STORED ON SITE. The costs of fuel
and maintenance supplies stored on site shall be adjusted and prorated as of the
date of the Final Closing.
(g) RELETTING EXPENSES FOR NEW LEASES. Customary reletting expenses
(including, without limitation, brokerage commissions, tenant improvements and
moving expenses) for Leases entered into after the date hereof and prior to the
Final Closing shall be adjusted and prorated over the base term of the
applicable Lease and based upon prices in effect on or immediately prior to the
date of the Final Closing. All reletting expenses (including, without
limitation, brokerage commissions, tenant improvements and moving expenses) for
Leases
13
entered into prior to the date hereof shall be paid by Seller or, if not paid
prior to the Final Closing, a credit shall be given to Purchaser at the Final
Closing for such amounts.
4.2 SELLER'S RETAINED ITEMS. All cash on hand, working capital, escrow
and reserve accounts other than tenant security deposits, and utility or other
deposits shall be distributed by the Seller to its current shareholders,
partners, or members, as applicable, prior to the Final Closing.
4.3 ACCOUNTS RECEIVABLE. The Seller shall retain all accounts receivable
and other income items other than Rents which are attributable to periods prior
to the date of the Final Closing. The Seller shall deliver to the Operating
Partnership at the Final Closing a schedule of all such unpaid accounts
receivable and other income items as of the date of the Final Closing. All such
accounts receivable and other income items collected by or for the Operating
Partnership after the date of the Final Closing which are attributable to
periods prior to the date of the Final Closing shall be promptly remitted to the
order of the Seller. Except for sums actually received by the Operating
Partnership pursuant to the immediately preceding sentence, the Operating
Partnership shall assume no obligation to collect or enforce the payment of any
amounts that may be due to the Seller, except that the Operating Partnership
shall render reasonable assistance, at no expense to the Operating Partnership,
to the Seller after the Final Closing in the event the Seller proceeds against
any third-party to collect any accounts receivable or other income items due the
Seller.
4.4 SECURITY DEPOSITS. An amount equal to all tenant security deposits
and interest thereon, if any, and any other amounts due tenants with respect to
such security deposits shall be paid over to the Operating Partnership at the
Final Closing to the extent that such tenant security deposits have not been
applied against sums due under the respective lease to which such deposits
relate.
4.5 TIMING OF CALCULATIONS; COOPERATION. The Seller and the Operating
Partnership agree to use reasonable efforts to reconcile, prorate, and adjust
all of the foregoing items upon Final Closing and, in all events, within ninety
(90) days after the date of the Final Closing, to adjust and prorate such
prorations and adjustments. In the event any adjustments or prorations made
pursuant to this Contract are, subsequent to Final Closing, found to be
erroneous, then either party hereto who is entitled to additional amounts shall
invoice the other party for such additional amounts as may be owing, and such
amounts shall be paid promptly by the other party upon receipt of invoice. Such
invoice shall be accompanied by reasonable substantiating evidence.
14
4.6 ALLOCATION OF ADJUSTMENTS. All adjustments contemplated by this
Article IV shall survive the Final Closing and shall, to the extent practicable,
be made by adjusting (either up or down) the number of Units issued to the
Seller as part of the Consideration.
ARTICLE V. POWER OF ATTORNEY
5.1 GRANT OF POWER OF ATTORNEY. The Seller does hereby irrevocably
appoint Stephen L. Green, Benjamin P. Feldman, and the Operating Partnership,
and each of them individually and any successor thereof from time to time (such
persons or the Operating Partnership or any such successor of any of them acting
in his, her or its capacity as attorney-in-fact pursuant hereto, the
"ATTORNEY-IN-FACT") as the true and lawful attorney-in-fact and agent of such
Seller, to act in the name, place and stead of such Seller:
(a) To enter into a registration rights agreement a form of which is
attached hereto as EXHIBIT G (the "REGISTRATION RIGHTS AGREEMENT").
(b) To enter into a lock-up agreement (the "LOCK-UP AGREEMENT") which
provides that the Seller will not, directly or indirectly, offer, sell,
offer to sell, contract to sell, grant any option to purchase or otherwise
dispose of (or announce any offer, sale, offer of sale, contract of sale,
grant of any option to purchase or other sale or disposition of) any share
of REIT Common Stock or any securities convertible into or exchangeable for
or substantially similar to REIT Common Stock, for a period of one year
from the IPO Closing without the prior written consent of the managing
underwriter named in the Lock-up Agreement.
(c) To take for the Seller all steps deemed necessary or advisable by
the Operating Partnership in connection with the registration of the REIT's
Common Stock under the Securities Act, including without limitation (i)
filing a registration statement and amendments thereto under the Securities
Act which shall describe the benefits to be received by the Seller in
connection with the formation of the REIT and the IPO, (ii) distributing a
preliminary prospectus and prospectus regarding the IPO (respectively, the
"PRELIMINARY PROSPECTUS" and "PROSPECTUS") which contain such information
as is deemed necessary or desirable to lawfully effect the initial public
offering of such shares, and (iii) to take such other steps as the
Attorney-in-Fact may deem necessary or advisable.
15
(d) To make, execute, acknowledge and deliver all such other
contracts, orders, receipts, notices, requests, instructions, certificates,
consents, letters and other writings (including without limitation the
execution of Closing Documents, Ancillary Agreements, the Partnership
Agreement, any other documents relating to the acquisition by the Operating
Partnership of the Premises, and, in general, to do all things and to take
all action which the Attorney-in-Fact in its sole discretion may consider
necessary or proper in connection with or to carry out the transaction
contemplated by this Contract, the Ancillary Agreements, if any, and the
Closing Documents as fully as could the Seller if personally present and
acting.
(e) To make, acknowledge, verify and file on behalf of the Seller
applications, consents to service of process and such other undertakings or
reports as may be required by law with state commissioners or officers
administering state securities or Blue Sky laws and to take any other
action required to facilitate the exemption for registration of the Units
and the qualification of the REIT's Common Stock under the securities or
Blue Sky laws of the jurisdictions in which the Units and the REIT's Common
Stock are to be offered.
The power of attorney granted by the Seller pursuant to this Article V and
all authority conferred hereby is granted and conferred subject to and in
consideration of the interests of the Operating Partnership and the REIT and is
for the purpose of completing the transactions contemplated by this Contract.
The power of attorney granted hereby shall terminate upon termination of this
Contract. The power of attorney granted hereby and all authority conferred
hereby is coupled with an interest and therefore shall be irrevocable and shall
not be terminated by any act of the Seller or by operation of law, whether by
the death, disability, incapacity or liquidation of the Seller or by the
occurrence of any other event or events (including without limitation the
termination of any trust or estate for which the Seller is acting as a fiduciary
or fiduciaries), and if, after the execution hereof, the Seller shall die or
become disabled or incapacitated or is liquidated, as applicable, or if any
other such event or events shall occur before the completion of the transactions
contemplated by this Contract, the Attorney-in-Fact shall nevertheless be
authorized and directed to complete all such transactions as if such death,
disability, incapacity, liquidation or other event or events, as applicable, had
not occurred and regardless of notice thereof. The Seller acknowledges that
Stephen L. Green, Benjamin P. Feldman and the Operating Partnership have, and
any successor thereof acting as Attorney-in-Fact may have an economic interest
in the transactions contemplated by this Contract. The Seller agrees that, at
the request of the Operating Partnership, it will
16
promptly execute a separate power of attorney on the same terms set forth in
this Article V, such execution to be witnessed and notarized.
5.2 LIMITATION ON LIABILITY. It is understood that the Attorney-in-Fact
assumes no responsibility or liability to any person by virtue of the power of
attorney granted hereby. The Attorney-in-Fact makes no representations with
respect to and shall have no responsibility for the formation of the REIT, the
acquisitions of the Premises by the Operating Partnership, the registration
statement filed in connection with the formation of the REIT, the Prospectus or
any Preliminary Prospectus, nor for any aspect of the offering of the REIT's
Common Stock, and it shall not be liable for any error of judgment or for any
act done or omitted or for any mistake of fact or law except for its own gross
negligence or bad faith. The Seller agrees that the Attorney-in-Fact may
consult with counsel of its own choice (who may be counsel for the Operating
Partnership or the REIT) and it shall have full and complete authorization and
protection for any action taken or suffered by it hereunder in good faith and in
accordance with the opinion of such counsel. It is understood that the
Attorney-in-Fact may, without breaching any express or implied obligation to the
Seller, release, amend or modify any other power of attorney granted by any
other person under any related agreement. The provisions of this Section 5.2
shall not limit or otherwise affect the obligations of the Operating Partnership
(acting for itself and not as Attorney-in-Fact) under the other Articles of this
Contract.
5.3 RATIFICATION; THIRD PARTY RELIANCE. The Seller does hereby ratify and
confirm all that the Attorney-in-Fact shall lawfully do or cause to be done by
virtue of the exercise of the powers granted unto it by the Seller hereunder,
and the Seller authorizes the reliance of third parties on the power of attorney
granted hereby and waives its rights, if any, as against any such third party
for its reliance hereon.
ARTICLE VI. MISCELLANEOUS
6.1 AMENDMENT. Any amendment hereto shall be effective only against those
parties hereto who have acknowledged in writing their consent to such amendment.
No waiver of any provisions of this Contract shall be valid unless in writing
and signed by the party against whom enforcement is sought.
6.2 ENTIRE AGREEMENT; COUNTERPARTS; APPLICABLE LAW. This Contract and all
Ancillary Agreements (a) constitute the entire agreement and supersede
conflicting provisions set forth in all other prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, (b) may be executed in several counterparts, each of
which will be
17
deemed an original and all of which shall constitute one and the same instrument
and (c) shall be governed in all respects, including validity, interpretation
and effect, by the internal laws of the State of New York without giving effect
to the conflict of law provisions thereof.
6.3 ASSIGNABILITY. This Contract shall be binding upon, and shall be
enforceable by and inure to the benefit of, the parties hereto and their
respective heirs, legal representatives, successors and assigns; provided,
however, that this Contract may not be assigned (except by operation of law) by
any party without the prior written consent of the other parties, and any
attempted assignment without such consent shall be void and of no effect.
6.4 TITLES. The titles and captions of the Articles, Sections and
paragraphs of this Contract are included for convenience of reference only and
shall have no effect on the construction or meaning of this Contract.
6.5 THIRD PARTY BENEFICIARY. No provision of this Contract is intended,
nor shall it be interpreted, to provide or create any third party beneficiary
rights or any other rights of any kind in any customer, affiliate, stockholder,
partner, member, director, officer or employee of any party hereto or any other
person or entity, provided, however, that Sections 5.3 and 6.3 of this Contract
shall be enforceable by and shall inure to the benefit of the persons described
therein.
6.6 SEVERABILITY. If any provision of this Contract, or the application
thereof, is for any reason held to any extent to be invalid or unenforceable,
the remainder of this Contract and application of such provision to other
persons or circumstances will be interpreted so as reasonably to effect the
intent of the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Contract with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of the void or unenforceable provision and to execute any amendment,
consent or agreement deemed necessary or desirable by the Operating Partnership
to effect such replacement.
6.7 EQUITABLE REMEDIES. The parties hereto agree that irreparable damage
would occur in the event that any of the provisions of this Contract 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 Contract and to enforce specifically the
terms and provisions hereof in any federal or state court located in New York
(as to which the parties agree to submit to jurisdiction for the purposes of
such action), this being in addition to any other remedy to which they
18
are entitled under this Contract or otherwise at law or in equity.
6.8 ATTORNEYS' FEES. In connection with any litigation or a court
proceeding arising out of this Contract, the prevailing party shall be entitled
to recover all costs incurred, including reasonable attorneys' fees and legal
assistants' fees and costs whether incurred prior to trial, at trial, or on
appeal.
6.9 NOTICES. Any notice or demand which must or may be given under this
Contract or by law shall, except as otherwise provided, be in writing and shall
be deemed to have been given (a) when physically received by personal delivery
(which shall include the confirmed receipt of a telecopied facsimile
transmission), or (b) three (3) business days after being deposited in the
United States certified or registered mail, return receipt requested, postage
prepaid, or (c) one (1) business day after being deposited with a nationally
known commercial courier service providing next day delivery service (such as
Federal Express); addressed and delivered or telecopied in the case of a notice
to the Operating Partnership at the following address and telecopy number:
SL Green Operating Partnership, L.P.
70 West 36th Street
New York, New York 10018
Attention: Stephen L. Green
Phone: 212-594-2700
Telecopy: 212-594-2262
with copies to:
Brown & Wood LLP
One World Trade Center
New York, New York 10048
Attention: Douglas A. Sgarro
Phone: 212-839-5300
Telecopy: 212-839-5599
Greenberg, Traurig, Hoffman,
Lipoff, Rosen & Quental
153 East 53rd Street
35th Floor
New York, New York 10022
Attention: Robert J. Ivanhoe
Phone: 212-801-9200
Telecopy: 212-223-7161
and addressed and delivered or telecopied, in the case of a notice to the
Seller, at the address and telecopy number set forth under the Seller's name in
the signature page hereof.
19
6.10 INTENTIONALLY OMITTED.
6.11 CONFIDENTIALITY. All press releases or other public communications of
any kind relating to the IPO or the transactions contemplated herein, and the
method and timing of release for publication thereof, will be subject to the
prior written approval of the Operating Partnership.
6.12 COMPUTATION OF TIME. Any time period provided for herein which shall
end on a Saturday, Sunday or legal holiday shall extend to 5:00 p.m. of the next
full business day. All times are Eastern Time.
6.13 SURVIVAL. It is the express intention and agreement of the parties
hereto that the representations, warranties and covenants of the Seller set
forth in this Contract shall survive the consummation of the transactions
contemplated hereby.
6.14 TIME OF THE ESSENCE. Time is of the essence with respect to all
obligations of the Seller under this Contract.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
20
IN WITNESS WHEREOF, each of the parties hereto has executed this Contract,
or caused this Contract to be duly executed on its behalf, as of the date first
written above.
SL GREEN OPERATING PARTNERSHIP, L.P.,
(In Formation)
By: S.L. GREEN REALTY, INC., Sponsor
By:_______________________________
Name: Stephen L. Green
Title: President
470 PARK SOUTH ASSOCIATES, L.P., Seller
By: EBG Midtown South Corp.,
a general partner
By: _______________________________
Name:
Title:
By: Miami Corp., a general partner
By:___________________________
Sheldon Lowe
President
Address of Seller:
______________________
______________________
Telephone/Facsimile Numbers:
______________________
By the Seller's execution of this Contract, the Seller grants a power
of attorney to certain individuals and to the Operating Partnership hereunder
pursuant to Article V.
21
EXHIBIT A
DESCRIPTION OF LAND
EXHIBIT B
SCHEDULE OF LEASES
EXHIBIT C
CONSIDERATION
The Consideration to be paid by the Operating Partnership to the Seller for
the Premises is TWENTY-FIVE MILLION ONE HUNDRED THOUSAND and No/100 Dollars
($25,100,000.00) to be payable as follows:
(a) Units* having an aggregate value equal to ONE MILLION ONE HUNDRED
THOUSAND and No/100 Dollars ($1,100,000.00)**; and
(b) TWENTY-FOUR MILLION and No/100 Dollars ($24,000,000.00) by taking
title subject to (i) that certain first mortgage loan in the outstanding
principal balance of $11,000,000 held by Sun Life Assurance Company of Canada
(U.S.) (the "SUN LIFE MORTGAGE"); (ii) that certain second mortgage loan in the
outstanding principal balance of $1,000,000 held by 470 Park Avenue South
Corporation (the "YARMOUTH MORTGAGE") and (iii) that certain third mortgage loan
held by Sheldon Lowe, as assignee of 470 Park Holding Co., for which the holder
has agreed to accept $12,000,000 in full satisfaction of the obligations secured
thereby (the "LOWE MORTGAGE" and together with the Yarmouth Mortgage and the Sun
Life Mortgage, the "EXISTING MORTGAGES").
The amounts specified in clause (b) above are approximate. If at the Final
Closing the aggregate principal amount of the Existing Mortgages, as reduced by
payments required thereunder prior to the Final Closing, is less than the
aggregate amount of the Existing Mortgages as specified in clause (b) above, the
difference shall be added to the portion of the Consideration paid in Units
pursuant to clause (a) above. If at the Final Closing the aggregate principal
amount of the Existing Mortgages is greater that the aggregate principal amount
of the Existing Mortgages as specified in clause (b) above, the difference shall
be subtracted from portion of the Consideration paid in Units pursuant to clause
(a) above.
* Each Unit will be valued for these purposes at the initial public offering
price of a share of Common Stock.
** Subject to adjustment pursuant to Article IV of the Contract.
EXHIBIT D
PERMITTED ENCUMBRANCES
1. The Sun Life Mortgage
2. The Yarmouth Mortgage
3. The Lowe Mortgage
4. Subway Entrance Easement in Liber 4505 page 468
5. Covenants and Restrictions in Liber 337 page 341
6. Party Wall Agreement in Liber 1096 page 667
7. Any state of facts on accurate survey of the Premises would disclose
provided the same does not render title unmarketable
8. Option Agreement between 470 Park South Associates, L.P. and Mellon
Bank, N.A., as trustee of the Bell Atlantic Master Pension Trust as
evidenced by memorandum in Reel 1116 page 1561
EXHIBIT E
Operating Partnership Agreement
EXHIBIT F
Investor Questionnaire
EXHIBIT G
Registration Rights Agreement
Exhibit 10.13
17 Battery Place
OPTION TO PURCHASE
THIS OPTION TO PURCHASE (the "AGREEMENT") made this 25th day of July, 1997
by and between Green 17 Battery LLC, having an address at 70 West 36th Street,
New York, New York ("SELLER") and SL Green Operating Partnership, L.P., having
an address at 70 West 36th Street, New York, New York ("PURCHASER").
WHEREAS, Purchaser desires to acquire an option to purchase Seller's
interest as contract vendee ("SELLER'S INTEREST") of the Premises, as defined in
the Agreement of Sale attached hereto as EXHIBIT A and made a part hereof (the
"AGREEMENT OF SALE"); and
WHEREAS, Seller desires to grant to Purchaser an option to purchase the
Seller's Interest;
NOW, THEREFORE, in pursuance of said agreement and in consideration of the
sum of Ten Dollars ($10.00) and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. Seller hereby grants to Purchaser an option, upon the terms and
conditions hereinafter set forth (the "OPTION"), to acquire the Seller's
Interest. The Option may be exercised by Purchaser in the manner hereinafter
set forth from the date hereof through and including the tenth (10th)
anniversary of the date hereof (the "OPTION PERIOD"). In the event Purchaser
elects to exercise the Option, Purchaser shall give written notice thereof to
Seller (the "OPTION NOTICE"), which Option Notice must (a) be received by Seller
on or before the expiration of the Option Period and (b) be accompanied by
Purchaser's unendorsed certified check in an amount equal to Seller's Investment
(as defined below) to the order of Seller. In the event that the Option Notice
is not delivered to Seller on or prior to the expiration of the Option Period or
the Option Notice is not accompanied by Purchaser's unendorsed, certified check
in an amount equal to the Seller's Investment, the Option shall be terminated
and of no further force and effect and neither party shall have any further
rights or liabilities under this paragraph. In the event the Option Notice and
the Seller's Investment are delivered to Seller prior to the expiration of the
Option Period, Seller shall, assign all of its right title and interest in the
Agreement of Sale to Purchaser pursuant to an assignment in the form of EXHIBIT
B attached hereto and made a part hereof. As used herein "SELLER'S INVESTMENT"
shall mean a sum equal to all funds of whatever nature invested by Seller in
connection with the acquisition of the Premises, including, without limitation,
(a) all sums paid to 17 Battery Associates LLC ("BATTERY ASSOCIATES") pursuant
to the Agreement of Sale, (b) sums incurred in connection with any financing of
sums paid to Battery Associates or otherwise incurred in connection with the
purchase of the Premises, including, without limitation, principal and interest
and commitment and application fees, (c) all accounting, legal, architectural,
and engineering fees and expenses, (d) all other fees and expenses incurred in
connection with any of the foregoing and (e) interest on all such sums at a rate
equal to 12% from the date each such expense is actually incurred through and
including the date the Option is exercised.
2. Seller may not sell or otherwise transfer the Seller's Interest to any
party other than Purchaser (a "THIRD PARTY") without giving at least thirty (30)
days prior written notice (the "SALE NOTICE") of such sale or transfer to
Purchaser, which notice shall be accompanied by a copy of the proposed contract
to be executed in connection with such sale or transfer. Upon receipt of the
Sale Notice, Purchaser may, by giving notice to Seller within fifteen (15) days,
exercise the Option on the terms contained herein and, at the sole and absolute
option of Purchaser, either sell the Seller's Interest to the Third Party on the
terms and conditions set forth in the aforementioned proposed contract, or such
other terms as Purchaser and Third Party shall subsequently agree upon, or
retain the option to purchase the Seller's Interest pursuant to the terms
hereof. All contracts which Seller may enter into which relate to the sale or
transfer of the Seller's Interest after the date hereof shall specifically state
that they are subject and subordinate to the rights of Purchaser hereunder. In
the event that Purchaser does not exercise the Option on the terms contained
herein and a sale or transfer of the Seller's Interest by Seller to a Third
Party is consummated, Seller shall pay to Purchaser on the date upon which such
sale or transfer is consummated, a sum equal to (a) the gross sales price for
the Seller's Interest (including normal and customary closing adjustments) minus
(b)(i) Seller's Interest, (ii) all Federal income tax payable by the partners of
Seller which results from the sale of the Premises and (iii) other normal and
customary costs attributable to the sale of the Premises, including, without
limitation, transfer taxes, brokerage commissions, reasonable legal fees and
reasonable accounting fees (the "NET AFTER TAX PROFIT"). Upon the payment of
Seller's Net After Tax Profit to Purchaser, this Agreement shall be terminated
and of no further force and effect and neither party shall have any further
rights or liabilities hereunder.
3. Seller represents and warrants that (a) it is the sole owner of, and
has good and marketable title to, the Seller's Interest, (b) Seller has not
granted an option or right of first refusal to purchase the Seller's Interest to
any party other than Purchaser and (c) Seller is not a "foreign person" within
the
2
meaning of Section 1445 of the Internal Revenue Code, as amended, or any
regulation promulgated thereunder.
4. Seller covenants that (a) it will not modify the Purchase Agreement or
enter into any agreement with respect to the Premises which in any way would
have a material adverse effect upon the rights of Purchaser hereunder without
Purchaser's prior written consent, which consent may be withheld or granted in
Purchaser's sole discretion and (b) that it will not purchase the Premises or
give a Purchaser's Closing Notice (as defined in the Agreement of Sale) without
first giving Purchaser 15 days prior written notice and the opportunity to
exercise the Option.
5. Seller and Purchaser mutually represent and warrant that neither
Seller nor Purchaser know of any broker who has claimed, or may have the right
to claim, a commission or any similar finder's fee in connection with the
transaction contemplated by this Agreement. Seller and Purchaser shall
indemnify and defend each other against any costs, claims or expenses, including
reasonable attorneys' fees, arising out of the breach on their respective parts
of any representations, warranties or agreements contained in this paragraph.
The representations and obligations under this paragraph shall survive the
closing of the transactions contemplated in this Agreement (the "CLOSING") or,
if the Closing does not occur, the termination of this Agreement.
6. All notices hereunder shall be in writing and may be given either by
(a) federal express or other nationally recognized overnight courier or (b) hand
delivery, in each case to the Seller or Purchaser, as applicable, at the address
first set forth above with a copy in either case to Brown & Wood LLP, One World
Trade Center, New York, New York 10045. Attn: David J. Weinberger, Esq.
Notices shall be deemed given one day after posting, if given pursuant to (a)
above or upon delivery, if given pursuant to (b) above.
7. Time shall be of the essence with regard to all notices given
hereunder.
8. All matters relating to the operation, construction or interpretation
of this Agreement shall be governed and determined by the internal laws of the
State of New York, without giving effect to the principles of conflicts of laws.
9. Unless specifically provided herein, 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 upon a breach thereof shall
constitute a waiver of any such breach of any other covenant, agreement, term or
condition set forth herein. Neither this Agreement nor any provision hereof may
be waived, modified, amended, discharged or terminated except by an instrument
signed by the party against whom the enforcement of such waiver, modification,
amendment, discharge or
3
termination is sought, and then only to the extent set forth in such instrument.
No waiver shall affect or alter the remainder of this Agreement but each and
every covenant, agreement, term and condition hereof shall continue in full
force and effect with respect to any other then existing or subsequent breach.
10. This Agreement constitutes the entire agreement between the parties
hereto pertaining to the subject matter hereof and supersedes all prior and
contemporaneous agreements and understandings of the parties in connection
therewith. No covenant, representation or condition not expressed in this
Agreement shall affect, or be effective to interpret, change or restrict, the
express provisions of this Agreement.
11. This Agreement may not be assigned, transferred or conveyed by
Purchaser to any person(s) or entity without the prior written consent of
Seller.
12. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs or successors and permitted assigns.
13. Exercise by Purchaser of the Option shall be subject to the approval
of a majority of the Independent Directors. As used herein "Independent
Directors" shall mean the directors of SL Green Realty Corp. (the "COMPANY") who
are neither officers of the Company nor affiliated with Seller.
14. No provision of this Agreement is intended, nor shall it be
interpreted, to provide or create any third party beneficiary rights or any
other rights of any kind in any customer, affiliate, stockholder, partner,
director, officer or employee of any party hereto or any other person or entity.
15. If any provision of this Agreement, or the application thereof, is for
any reason held to any extent to be invalid or unenforceable, the remainder of
this Agreement and application of such provision to other persons or
circumstances will be interpreted so as reasonably to effect the intent of the
parties hereto. The parties hereto further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of the void or unenforceable provision and to execute any amendment,
consent or agreement deemed necessary or desirable by Purchaser to effect such
replacement.
16. The parties hereto agree that irreparable damage would occur in the
event that any of the provisions of this Agreement
4
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 hereof in any federal or state court
located in New York (as to which the parties agree to submit to jurisdiction for
the purposes of such action), this being in addition to any other remedy to
which they are entitled under this Agreement or otherwise at law or in equity.
17. The parties hereto each agree to do such other and further acts and
things, and to execute and deliver such instruments and documents (not creating
any obligations additional to those otherwise imposed by this Agreement) as
either may reasonably request from time to time, whether at, before or after the
Closing, to confirm or effectuate the provisions of this Agreement.
* * * *
5
IN WITNESS WHEREOF, Seller and Purchaser have executed this Agreement the
day and year first above written.
GREEN 17 BATTERY LLC, Seller
By: /s/ Stephen L. Green
--------------------------
Stephen L. Green
Member
SL GREEN OPERATING PARTNERSHIP, L.P.,
Purchaser
By: SL Green Realty Corp.,
its general partner
By: /s/ Stephen L. Green
--------------------------
Stephen L. Green
President
6
EXHIBIT B
ASSIGNMENT AND ASSUMPTION OF CONTRACT
Agreement made as of this ___ day of ____________, by and between
_____________ , a ______________ having an address at _________________________
("ASSIGNOR") and ___________________ a ______________ having an address at
________________ ("ASSIGNEE").
RECITALS
Assignor is the contract vendee under that certain agreement of sale
between Assignor, as purchaser, and 17 Battery Associates LLC, as seller, dated
as of June 27, 1997, covering the property and interests more particularly
therein (the "CONTRACT").
Pursuant to the Option to Purchase dated as of ____________ (the "OPTION"),
Assignor agreed, INTER ALIA, to assign the Contract, to Assignee and Assignee
agreed to assume Assignor's obligations thereunder and with respect thereof.
AGREEMENTS
In consideration of the promises and conditions contained herein, and of
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:
1. Assignor hereby assigns to Assignee, without warranty, representation
or recourse, all of its right, title and interest in, to and under the Contract
and to the Downpayment (as defined therein).
2. Assignee hereby assumes the Contract and all of Assignor's obligations
under the Contract and Assignee agrees to indemnify Assignor against and hold
Assignor harmless from any and all costs, damages, liabilities and expenses,
including, without limitation, reasonable attorney's fees, imposed upon or
incurred by Assignor by reason of Assignee's failure to perform the purchaser's
obligations under the Contract arising from and after the date of this
Agreement.
3. This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto, their successors in interest and assigns.
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto as of the day and year first above written.
ASSIGNOR:
By: _______________________
ASSIGNEE:
By: _______________________
Exhibit 10.14
================================================================================
CREDIT AGREEMENT
among
GREEN REALTY LLC
as Borrower,
and
LEHMAN BROTHERS HOLDINGS INC.,
as Lender
Dated as of March 24, 1997
================================================================================
TABLE OF CONTENTS
PAGE
SECTION 1. DEFINITIONS................................................... 1
1.1 Defined Terms................................................. 1
1.2 Accounting Terms and Determinations........................... 10
1.3 Other Definitional Provisions................................. 11
SECTION 2. CREDIT FACILITY............................................... 11
2.1 Tranche A Term Loans.......................................... 11
2.2 Tranche B Term Loans.......................................... 13
2.3 Prepayments................................................... 14
2.4 Additional Financing.......................................... 15
SECTION 3. FEES AND PAYMENTS; YIELD PROTECTION........................... 16
3.1 Tranche A Term Loan Fees...................................... 16
3.2 Tranche B Term Loan Fees...................................... 16
3.3 Computation of Interest....................................... 17
3.4 Payments...................................................... 17
3.5 Taxes......................................................... 17
3.6 Funding Losses................................................ 18
3.7 Inability to Determine Interest Rate.......................... 18
3.8 Illegality.................................................... 18
SECTION 4. REPRESENTATIONS AND WARRANTIES................................ 19
4.1 Organization and Good Standing................................ 19
4.2 Authorization and Power....................................... 19
4.3 No Conflicts or Consents...................................... 19
4.4 Enforceable Obligations....................................... 19
4.5 Title to Assets............................................... 20
4.6 Financial Condition........................................... 20
4.8 No Default.................................................... 20
4.9 Agreements.................................................... 20
4.10 No Litigation................................................. 20
4.11 Burdensome Contracts.......................................... 20
4.12 Security Interests............................................ 21
4.13 Use of Proceeds; Margin Stock................................. 21
4.14 Taxes......................................................... 21
4.15 Principal Office, Etc......................................... 21
4.16 ERISA......................................................... 21
4.17 Compliance with Law........................................... 22
4.18 Government Regulation......................................... 22
4.19 Solvency...................................................... 22
PAGE
4.20 Insurance..................................................... 22
SECTION 5. CONDITIONS PRECEDENT.......................................... 22
5.1 Conditions to Loans made on the Closing Date.................. 22
5.2 Conditions to the Tranche A Term Loan and Tranche B
Term Loans to be made after the Closing Date.................. 24
5.3 Additional Conditions to Tranche B Term Loans for
Acquisitions.................................................. 25
SECTION 6. AFFIRMATIVE COVENANTS......................................... 26
6.1 Financial Statements, Reports and Documents................... 26
6.2 Payment of Taxes and Other Indebtedness....................... 27
6.3 Maintenance of Existence and Rights; Conduct of Business...... 27
6.4 Notice of Default............................................. 27
6.5 Other Notices................................................. 27
6.6 Compliance with Material Agreements........................... 28
6.7 Books and Records; Access..................................... 28
6.8 Compliance with Law........................................... 28
6.9 Insurance..................................................... 28
6.10 Authorizations and Approvals.................................. 28
6.11 ERISA Compliance.............................................. 28
6.12 Reimbursement from Issuer..................................... 29
6.13 Further Assurances............................................ 29
SECTION 7. NEGATIVE COVENANTS............................................ 29
7.1 Limitation on Indebtedness.................................... 29
7.2 Negative Pledge............................................... 29
7.3 No Restrictions............................................... 29
7.4 Limitation on Investments..................................... 30
7.5 Prohibition on Dividends...................................... 30
7.6 Material Agreements........................................... 30
7.7 Certain Transactions.......................................... 30
7.8 Issuance of Interests......................................... 30
7.9 Name, Fiscal Year and Accounting Method....................... 31
7.10 Mergers and Sales of Assets................................... 31
7.11 Lines of Business............................................. 31
7.12 No Amendments................................................. 31
7.13 Acquisition Properties........................................ 31
SECTION 8. EVENTS OF DEFAULT............................................. 31
8.1 Events of Default............................................. 31
8.2 Remedies...................................................... 34
8.3 Set-Off....................................................... 34
8.4 Default Interest.............................................. 34
ii
PAGE
SECTION 9. MISCELLANEOUS................................................. 35
9.1 Limitations on Recourse....................................... 35
9.3 Notices....................................................... 37
9.4 No Waiver; Cumulative Remedies................................ 38
9.5 Survival of Representations and Warranties.................... 38
9.6 Payment of Lender's Expenses, Indemnity, etc.................. 38
9.7 Benefit of Agreement; Assignments and Participations.......... 39
9.8 Headings...................................................... 39
9.9 GOVERNING LAW................................................. 39
9.10 Submission to Jurisdiction.................................... 39
9.11 WAIVER OF JURY TRIAL.......................................... 40
9.12 Confidentiality............................................... 40
EXHIBITS
A-1 - Form of Tranche A Term Note
A-2 - Form of Tranche B Term Note
B - Form of Acquisition Pledge Agreement
C - Form of Tranche A Collateral Account Agreement
D - Form of Environmental Indemnity Agreement
E - Form of Principal's Agreement
F - Form of Principal's Pledge Agreement
G - Form of SLGP Guarantee
H - Form of SLGP Pledge Agreement
I - Form of SLGM Guarantee
J - Form of SLGM Collateral Assignment
K - Form of Opinion of Counsel
iii
CREDIT AGREEMENT dated as of March 24, 1997 between GREEN REALTY
LLC (the "BORROWER") and LEHMAN BROTHERS HOLDINGS INC. (the "LENDER").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Borrower has requested that the Lender make two term
loans to it, the first in an aggregate principal amount of up to $20,000,000 and
the second in an aggregate principal amount of up to $15,000,000; and
WHEREAS, the Lender is willing to make such loans on, and subject
to, the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
SECTION 1. DEFINITIONS
1.1 DEFINED TERMS. As used in this Agreement, the following
terms shall have the following meanings:
"ACQUIROR": shall mean the Borrower or any Affiliate of the
Borrower that uses the proceeds of any Tranche B Term Loan to make an
Acquisition.
"ACQUISITION": shall mean any acquisition of an equity interest
in a Person directly or indirectly owning real property, which equity interest
is to be contributed to the Issuer in connection with the Initial Public
Offering. References herein to an "ACQUISITION PROPERTY" shall mean the real
property directly or indirectly owned by the Person whose equity interest was
acquired.
"ACQUISITION PLEDGE AGREEMENT": shall mean the Acquisition Pledge
Agreement, substantially in the form of Exhibit B hereto, executed by the
Acquiror in favor of the Lender.
"AFFILIATE": shall mean as to any Person, (a) any other Person
which, directly or indirectly, is in control of, is controlled by, or is under
common control with such Person or (b) any Person who is a director or executive
officer (i) of such Person or (ii) of any Person described in clause (a) above.
For purposes of this definition, control of a Person shall mean the power,
direct or indirect, to direct or cause the direction of the management and
policies of such Person whether through ownership of voting securities, by
contract or otherwise, PROVIDED that, in any event, any Person that owns
directly or indirectly securities having 5% or more of the voting power for the
election of directors (or Persons having similar management functions) of any
other Person shall be deemed to control such other Person.
"AGREEMENT": shall mean this Credit Agreement, as amended,
restated, supplemented, modified or extended from time to time.
"APPLICABLE MARGIN": shall mean with respect to any period set
forth below, the amount per annum set forth opposite such period:
Period Rate
------ ----------
Closing Date to but not including
September 24, 1998 2.75%
September 24, 1998 to but not including March 24,
1999 (if applicable) 3.75%
"BANKRUPTCY CODE": shall mean the Federal Bankruptcy Code of
1978, as amended from time to time.
"BASE RATE": shall mean, for any Interest Period, a rate per
annum equal to the sum of the per annum rate of interest published in The Wall
Street Journal two (2) Business Days prior to the first day of such Interest
Period for U.S. Treasury bills having a term equal to such Interest Period, PLUS
the Applicable Margin. Any determination of the Base Rate by the Lender shall
be conclusive absent manifest error.
"BORROWING DATE": shall mean the date on which any Loan is made
by the Lender to the Borrower.
"BUSINESS DAY": shall mean a day on which commercial banks are
not authorized or required by law or executive order to close in New York, New
York and on which dealings are carried on in the London interbank market.
"CAPITALIZED LEASE": shall mean (a) any lease of property, real
or personal, if the then present value of the minimum rental commitment
thereunder should, in accordance with GAAP, be capitalized on a balance sheet of
the lessee, and (b) any other such lease the obligations under which are
capitalized on the balance sheet of the Borrower.
"CLOSING DATE": shall mean the date on which each of the
conditions set forth in Section 5.1 hereof have been satisfied or waived by the
Lender.
"CODE": shall mean the Internal Revenue Code of 1986, as amended
from time to time.
"COLLATERAL": shall mean any property or assets in which the
Lender has been granted a security interest in order to secure the Obligations,
and includes the Tranche A Collateral.
2
"COMMITMENTS": shall mean the Tranche A Term Loan Commitment and
the Tranche B Term Loan Commitment.
"DEFAULT": shall mean any Event of Default or any event which has
occurred and which with the giving of notice, the lapse of time, or both, would
become an Event of Default.
"DIVIDENDS": shall mean, with respect to any Person, (i) any
dividends, payments, return of capital or distributions (cash or otherwise) made
or declared on or in respect of any class of equity interests or securities of
such Person, except for distributions made solely in equity interests or
securities of the same class of such Person, and (ii) any and all funds, cash or
other payments made in respect of, or set aside or apart for a sinking or other
analogous fund for, the redemption, repurchase or acquisition of equity
interests or securities of such Person.
"DOLLARS" and "$": shall mean dollars in lawful currency of the
United States of America.
"ENVIRONMENTAL INDEMNITY AGREEMENT": shall mean the Environmental
Indemnity Agreement, substantially in the form of Exhibit D hereto, executed by
the Borrower, SLGP and the Principal in favor of the Lender.
"ERISA": shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time.
"ERISA GROUP": shall mean the Borrower and all members of a
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with each such Borrower, are
treated as a single employer under Section 414 of the Code or Section 4001 of
ERISA.
"EVENT OF DEFAULT": shall mean any of the events specified in
Section 8.1.
"GAAP": shall mean generally accepted accounting principles in
the United States of America in effect from time to time.
"GOVERNMENTAL AUTHORITY": shall mean any nation or government,
any state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"GUARANTEE": shall mean, with respect to any Person, any
obligation, contingent or otherwise, of such Person directly or indirectly
guaranteeing any Indebtedness or other obligation of any other Person and,
without limiting the generality of the foregoing, any obligation, direct or
indirect, contingent or otherwise, of such Person (i) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Indebtedness or
other obligation (whether arising by virtue of partnership arrangements, by
agreement to keep-well, to purchase assets, goods, securities or services, to
take-or-pay, or to maintain financial statement conditions or otherwise) or
(ii) entered into for the purpose of assuring in any other manner the obligee of
such Indebtedness or other obligation of the payment thereof or to protect such
obligee against
3
loss in respect thereof (in whole or in part), PROVIDED that the term Guarantee
shall not include endorsements for collection or deposit in the ordinary course
of business. The term "Guarantee" used as a verb has a corresponding meaning.
"INDEBTEDNESS": shall mean as to any Person, at any date,
without duplication, (i) all obligations of such Person for borrowed money,
(ii) all obligations of such Person evidenced by bonds, debentures, notes or
other similar instruments, (iii) all obligations of such Person to pay the
deferred purchase price of property or services, except trade accounts payable
arising in the ordinary course of business (provided such accounts are promptly
paid and discharged when due), (iv) all obligations of such Person under
Capitalized Leases, (v) all contingent or non-contingent obligations of such
Person to reimburse any bank or other Person in respect of amounts paid or
payable (currently or in the future, on a contingent or non-contingent basis)
under a letter of credit or similar instrument, (vi) all Indebtedness of others
secured by a Lien on any asset of such Person, whether or not such Indebtedness
is assumed by such Person, (vii) all obligations of such Person under interest
rate swaps, caps or collars or under any other financial hedging arrangement net
of any amounts receivable by such Person under such arrangements and (viii) all
Indebtedness of others Guaranteed by such Person.
"INITIAL PUBLIC OFFERING": shall mean the initial public offering
of equity interests by the Issuer to be lead managed by Lehman Brothers Inc.
"INTEREST PERIOD": shall mean with respect to any Tranche B Term
Loan:
(a) initially, the period commencing on the Borrowing Date of
such Loan and ending (A) in the case of the initial Tranche B Term Loan to be
made pursuant to Section 2.2(a), on the numerically corresponding day in the
month after the Borrowing Date thereof, and (B) in the case of any Tranche B
Term Loan made after the initial Tranche B Term Loan, on the last day of the
Interest Period then in effect with respect to the then outstanding Tranche B
Term Loans or, if no such Interest Period is then in effect, on the numerically
corresponding day in the month after the Borrowing Date of such Tranche B Term
Loan; and
(b) thereafter, each period commencing on the last day of the
immediately preceding Interest Period and ending on the numerically
corresponding day in the month thereafter.
Notwithstanding the first sentence of this definition, (i) if any
Interest Period would end after the Tranche B Maturity Date, such Interest
Period shall end on the Tranche B Maturity Date, (ii) each Interest Period which
would otherwise end on a day which is not a Business Day shall end on the next
succeeding Business Day (or, if such next succeeding Business Day falls in the
next succeeding calendar month, on the next preceding Business Day) and (iii) if
any Interest Period begins on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period, such
Interest Period shall end on the last Business Day of such calendar month.
"INVESTMENT": shall mean, when used with reference to any
investment of any Person:
4
(a) any loan, advance or other extension of credit, including
obligations represented by bonds, notes or other securities and any Guarantees,
made by it to, or for the benefit of, any other Person (excluding commission,
travel, salary, relocation expenses, and similar advances to officers and
employees made in the ordinary course of business); and
(b) any capital contribution by such Person to, or purchase of
stock or other securities or partnership interests by such Person in, any other
Person, or any other investment evidencing an ownership or other interest of
such Person in any other Person.
"ISSUER": shall mean the corporation to be formed by Affiliates
of the Borrower which will, through one or more Subsidiaries, hold the equity
interests acquired in Acquisitions, the equity interests in the Persons owning
the properties included in the Portfolio and certain other assets contributed to
it by the Borrower and other Persons.
"LIBO RATE": shall mean, for any Interest Period, the rate per
annum (rounded upwards, if necessary, to the next higher 1/16th of a percent)
for deposits in U.S. Dollars for a period equal to such Interest Period, which
appears on the Telerate Page 3750 as of 11:00 a.m. (New York time) two Business
Days (2) prior to the first day of such Interest Period. In the event such rate
does not so appear, "LIBO RATE" shall mean the rate per annum determined by the
Lender to be the arithmetic mean (rounded upwards, if necessary, to the nearest
1/16 of a percent) of the rates of interest per annum quoted to the Lender by
each of two or more Reference Banks (as hereinafter defined) as the rate of
interest at which deposits in U.S. Dollars in an amount approximately equal to
the principal amount of the Loans to be outstanding during such Interest Period
and having a maturity equal to such Period are offered by such Reference Bank to
leading banks in the London interbank market at or about 11:00 a.m. (New York
time) on the second Business Day prior to the commencement of such Interest
Period. As used herein, "Reference Bank" means a leading bank engaged in
transactions in the London interbank market as selected by the Lender. Anything
in this definition to the contrary notwithstanding, the LIBO Rate applicable
with respect to the initial Interest Period for any Tranche B Term Loan made
after the initial Tranche B Term Loan shall be equal to the LIBO Rate then in
effect with respect to the then outstanding Tranche B Term Loans; PROVIDED that
if no such LIBO Rate is then in effect, the LIBO Rate shall be determined in
accordance with the other provisions of this definition. Each determination of
the LIBO Rate by Lender pursuant hereto shall be conclusive absent manifest
error.
"LIEN": shall mean any mortgage, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, security interest, lien (statutory
or other) or preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever (including, without limitation, any
conditional sale or other title retention agreement, any Capitalized Lease
having substantially the same economic effect as any of the foregoing, and the
filing of any financing statement under the Uniform Commercial Code or
comparable law of any jurisdiction in respect of any of the foregoing).
"LOANS": shall mean the Tranche A Term Loans and the Tranche B
Term Loans.
5
"MATERIAL ADVERSE EFFECT": shall mean any (i) adverse effect
whatsoever upon the validity or enforceability of this Agreement or any of the
Related Documents or any of the transactions contemplated hereby or thereby,
(ii) material adverse effect upon the properties, business, prospects or
condition (financial or otherwise) of the Borrower or (iii) material adverse
effect upon the ability of the Borrower or any other Person to fulfill any of
their obligations under this Agreement or any of the Related Documents.
"MULTIEMPLOYER PLAN": shall mean a Plan which is a multiemployer
plan as defined in Section 4001(a)(3) of ERISA.
"NOTES": shall mean the Tranche A Term Note and the Tranche B
Term Note.
"OBLIGATIONS": shall mean any and all of the debts, obligations
and liabilities of the Borrower to the Lender provided for or arising under this
Agreement or the Related Documents (including, without limitation, the
obligation to repay the Loan and to pay interest thereon), whether now existing
or hereafter arising, voluntary or involuntary, direct or indirect, absolute or
contingent, liquidated or unliquidated, and whether or not from time to time
decreased or extinguished and later increased, created or incurred.
"PBGC": shall mean the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA.
"PERMITTED INDEBTEDNESS": shall mean (i) the Obligations, and
(ii) any additional Indebtedness incurred by the Borrower with the consent of
the Lender in connection with any Acquisition.
"PERMITTED INVESTMENTS": shall mean (i) marketable securities
issued or directly and fully guaranteed or insured by the United States of
America or any agency or instrumentality thereof having maturities of not more
than twelve months from the date of acquisition, (ii) time deposits and
certificates of deposit of any commercial bank of recognized standing having
capital and surplus in excess of U.S. $500,000,000 and a Keefe Bank Watch Rating
of B or better, with maturities of not more than six months from the date of
acquisition, (iii) commercial paper rated A-1 or the equivalent thereof by
Standard & Poor's Corporation or P-1 or the equivalent thereof by Moody's
Investors Service, Inc. and in each case maturing within six months from the
date of acquisition and (iv) money market mutual funds with total assets in
excess of $2,000,000,000 which invest solely in assets of a type described in
the foregoing provisions of this definition.
"PERMITTED LIENS": shall mean (i) pledges or deposits made to
secure payment of worker's compensation insurance (or to participate in any fund
in connection with worker's compensation insurance), unemployment insurance,
pensions or social security programs, (ii) Liens imposed by mandatory provisions
of law such as for materialmen's, mechanics', warehousemen's and other like
Liens arising in the ordinary course of business, securing Indebtedness whose
payment is not yet due or which are being contested in good faith and by
appropriate proceedings as to which appropriate reserves in accordance with GAAP
or surety, stay or appeal bonds have been provided, (iii) Liens for taxes,
assessments and governmental charges or levies imposed upon a Person or upon
such Person's income or profits or property,
6
if the same are not yet due and payable or if the same are being contested in
good faith and as to which appropriate reserves in accordance with GAAP have
been provided, (iv) Liens arising from good faith deposits in connection with
tenders, leases, real estate bids or contracts (other than contracts involving
the borrowing of money), pledges or deposits to secure public or statutory
obligations, deposits to secure (or in lieu of) surety, stay, appeal or customs
bonds, and deposits to secure the payment of taxes, assessments, customs duties
or other similar charges, (v) encumbrances consisting of zoning restrictions,
easements, or other restrictions on the use of real property, PROVIDED that such
items do not materially impair the use of such property for the purposes
intended, (vi) Liens assumed or otherwise incurred with the consent of the
Lender in connection with or as a result of any Acquisition and (vii) Liens in
favor of the Lender under the Security Documents.
"PERSON": shall mean an individual, partnership, corporation,
limited liability company, business trust, joint stock company, trust,
unincorporated association, joint venture, Governmental Authority or other
entity of whatever nature.
"PLAN": shall mean any employee benefit plan which is covered by
Title IV of ERISA and in respect of which the Borrower or any member of the
ERISA Group is (or, if such plan were terminated at such time, would under
Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5)
of ERISA.
"PORTFOLIO": shall mean the following properties located in New
York, New York: (i) the Bar Building located at 35 West 43rd Street and 34-36
West 44th Street, (ii) 70 West 36th Street, (iii) 470 Park Avenue South, (iv)
673 First Avenue, (v) 1414 Avenue of the Americas and (vi) 29 West 35th Street.
References herein to a "PORTFOLIO PROPERTY" shall mean any of the foregoing
properties.
"PRINCIPAL": shall mean Stephen L. Green, an individual residing
at 100 U.N. Plaza, Apt. 42D, New York, New York 10017.
"PRINCIPAL'S AGREEMENT": shall mean the Principal's Agreement,
substantially in the form of Exhibit E hereto, executed by the Principal in
favor of the Lender.
"PRINCIPAL'S PLEDGE AGREEMENT": shall mean the Pledge Agreement,
substantially in the form of Exhibit F hereto, executed by the Principal in
favor of the Lender.
"RELATED DOCUMENTS": shall mean the Notes, the Principal's
Agreement, the SLGM Guarantee, the SLGP Guarantee, the Environmental Indemnity
Agreement and the Security Documents.
"REPORTABLE EVENT": shall mean any of the events set forth in
Section 4043(b) of ERISA.
"SECURITY DOCUMENTS": shall mean the Principal's Pledge
Agreement, the SLGP Pledge Agreement, the SLGM Collateral Assignment, each
Acquisition Pledge Agreement
7
and any other documents which the Lender requires to be executed on or after the
Closing Date in order to evidence, perfect, record or maintain the Lender's
security interest in any Collateral.
"SLGM": shall mean S.L. Green Management Corp., a New York
corporation.
"SLGM COLLATERAL ASSIGNMENT": shall mean the Collateral
Assignment, substantially in the form of Exhibit J hereto, executed by SLGM in
favor of the Lender.
"SLGM GUARANTEE": shall mean the Limited Guarantee, substantially
in the form of Exhibit I hereto, executed by SLGM in favor of the Lender.
"SLGP": shall mean S.L. Green Properties, Inc., a New York
corporation.
"SLGP GUARANTEE": shall mean the Limited Guarantee, substantially
in the form of Exhibit G hereto, executed by SLGP in favor of the Lender.
"SLGP PLEDGE AGREEMENT": shall mean the Pledge Agreement,
substantially in the form of Exhibit H hereto, executed by SLGP in favor of the
Lender.
"SOLVENT": shall mean with respect to any Person on a particular
date, that on such date (i) the fair value of the property of such Person is
greater than the total amount of liabilities, including, without limitation,
contingent liabilities, of such Person, (ii) the present fair salable value of
the assets of such Person is not less than the amount that will be required to
pay the probable liability of such Person on its debts as they become absolute
and matured, (iii) such Person is able to realize upon its assets and pay its
debts and other liabilities, contingent obligations and other commitments as
they mature in the normal course of business, (iv) such Person does not intend
to, and does not believe that it will, incur debts or liabilities beyond such
Person's ability to pay as such debts and liabilities mature, and (v) such
Person is not engaged in business or a transaction, and is not about to engage
in business or a transaction, for which such Person's property would constitute
unreasonably small capital after giving due consideration to the prevailing
practice in the industry in which such Person is engaged. In computing the
amount of contingent liabilities at any time, it is intended that such
liabilities will be computed at the amount which, in light of all the facts and
circumstances existing at such time, represents the amount that can reasonably
be expected to become an actual or matured liability.
"SUBSIDIARY": shall mean as to any Person, a corporation or
other business entity of which shares of stock or other ownership interests
having ordinary voting power to elect a majority of the board of directors or
other managers of such corporation or business entity are at the time owned,
directly or indirectly through one or more intermediaries, by such Person.
"TRANCHE A COLLATERAL ACCOUNT": shall have the meaning set forth
in the Tranche A Collateral Account Agreement.
8
"TRANCHE A COLLATERAL ACCOUNT AGREEMENT": shall mean the Tranche
A Collateral Account Agreement, substantially in the form of Exhibit C hereto,
executed by the Borrower in favor of the Lender.
"TRANCHE A COLLATERAL": shall mean the Tranche A Collateral
Account and all funds, securities, monies and credit balances from time to time
held in the Tranche A Collateral Account and any other property or assets of the
Borrower or any other Person given as security for the Tranche A Term Loans.
"TRANCHE A EXTENSION DATE": shall mean each of September 24,
1997, December 24, 1997, March 24, 1998 and June 24, 1998, PROVIDED that the
Tranche A Maturity Date is extended in accordance with the terms of Section
2.1(d).
"TRANCHE A MATURITY DATE": shall mean September 24, 1997 or, if
extended in accordance with the terms of Section 2.1(d), then the date as so
extended.
"TRANCHE A TERM LOAN COMMITMENT": shall mean the obligation of
the Lender to make the Tranche A Term Loans pursuant to Section 2.1(a).
"TRANCHE A TERM LOANS": shall mean the term loans to be made by
the Lender pursuant to Section 2.1(a).
"TRANCHE A TERM NOTE": shall have the meaning set forth in
Section 2.1(f).
"TRANCHE B MATURITY DATE": shall mean September 24, 1998 or, if
extended in accordance with the terms of Section 2.2(e), March 24, 1999.
"TRANCHE B TERM LOAN COMMITMENT": shall mean the obligation of
the Lender to make Tranche B Term Loans pursuant to Section 2.2(a).
"TRANCHE B TERM LOANS": shall mean the term loans to be made by
the Lender pursuant to Section 2.2(a).
"TRANCHE B TERM NOTE": shall have the meaning set forth in
Section 2.2(g).
1.2 ACCOUNTING TERMS AND DETERMINATIONS. Except as otherwise
expressly provided herein, (a) all accounting terms used herein and (b) all
financial statements and all certificates and reports as to financial matters
required to be delivered to the Lender hereunder shall (unless otherwise
disclosed to the Lender in writing at the time of delivery thereof) shall be
interpreted or prepared in accordance with GAAP applied on a basis consistent
with those used in the preparation of the latest corresponding financial
statements furnished to the Lender hereunder (or, prior to the delivery of the
first financial statements under Section 6.1(a) or (b), the financial statements
referred to in Section 4.6), unless the Borrower notifies the Lender of any
change therein required to be made by the Borrower, in which event the Borrower
shall deliver to the Lender at or prior to the time such change is required to
take effect a description in reasonable detail of (i) the change and (ii) the
effect of such change on the Borrower's
9
financial statements and the calculations required to be made for purposes of
determining compliance with this Agreement.
10
1.3 OTHER DEFINITIONAL PROVISIONS.
(a)Unless otherwise specified therein, all terms defined in this
Agreement shall have the defined meanings when used in the Related Documents or
any certificate or other document made or delivered pursuant hereto.
(b)The words "hereof," "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and section,
subsection, schedule and exhibit references are to this Agreement unless
otherwise specified.
(c) Defined terms in the Agreement shall include in the
singular number the plural and in the plural number the singular.
(d) References in this Agreement to any other agreement,
document or instrument shall, unless the context otherwise requires, include
such other agreement, document or instrument as the same may be from time to
time amended, modified or supplemented.
SECTION 2. CREDIT FACILITY
2.1 TRANCHE A TERM LOANS.
(a) On the terms and subject to the conditions of this Agreement,
the Lender agrees to make Tranche A Term Loans to the Borrower as follows:
(i) On or prior to the Tranche A Maturity Date, the Lender
agrees to make a Tranche A Term Loan to the Borrower on its request therefor in
the principal amount of $15,000,000 or, if the agreement by the Principal to
sell or pledge or otherwise hypothecate up to 12.5% of the stock of SLGP owned
by the Principal to Blackacre Capital Group or an Affiliate of Blackacre Capital
Group has been terminated, $20,000,000. Any request for a Tranche A Term Loan
pursuant to this Section 2.1(a)(i) must be delivered to the Lender not later
than 10:00 a.m., New York City time, five (5) Business Days before the date on
which such Loan is requested to be made and must specify (A) the principal
amount of the Loan requested (which must be either $15,000,000 or $20,000,000),
(B) the Borrowing Date (which must be a Business Day on or prior to the Tranche
A Maturity Date), and (C) if the requested principal amount of such Loan is
$20,000,000, that the agreement by the Principal to sell or pledge or otherwise
hypothecate up to 12.5% of the stock of SLGP owned by the Principal to Blackacre
Capital Group or an Affiliate of Blackacre Capital Group has been terminated.
Such request must be accompanied by payment of the fee required pursuant to
Section 3.1(a).
(ii) If (A) the principal amount of the Tranche A Term Loan
made by the Lender to the Borrower pursuant to clause (i) above is $15,000,000
and (B) after the date of such Tranche A Term Loan, the agreement by the
Principal to sell or pledge or otherwise hypothecate up to 12.5% of the stock of
SLGP owned by the Principal to Blackacre Capital Group or an Affiliate of
Blackacre Capital Group is terminated, then the Lender agrees to make, on or
prior to the Tranche A Maturity Date, an additional Tranche A Term Loan to the
11
Borrower on its request therefor in the principal amount of $5,000,000. Any
request for an additional Tranche A Term Loan pursuant to this clause (ii) must
be delivered to the Lender not later than 10:00 a.m., New York City time, five
(5) Business Days before the date on which such Loan is requested to be made and
must be accompanied by payment of the fee required pursuant to Section 3.1(b).
Such request must state (A) that the agreement by the Principal to sell or
pledge or otherwise hypothecate up to 12.5% of the stock of SLGP owned by the
Principal to Blackacre Capital Group or an Affiliate of Blackacre Capital Group
has been terminated, and (B) the Borrowing Date (which must be a Business Day on
or prior to the Tranche A Maturity Date).
Amounts borrowed under this Section 2.1(a) and prepaid or repaid may not be
reborrowed.
(b) The Lender shall make each Tranche A Term Loan available
to the Borrower by crediting the amount thereof to the Tranche A Collateral
Account. The proceeds of each Tranche A Term Loan shall be invested exclusively
in United States Treasury securities in accordance with the terms of the Tranche
A Collateral Account Agreement.
(c) The Borrower agrees to repay to the Lender the outstanding
principal amount of the Tranche A Term Loans on or prior to the Tranche A
Maturity Date.
(d) Not less than five (5) nor more than thirty (30) days
prior to each Tranche A Extension Date, the Borrower may request that the Lender
extend the then current Tranche A Maturity Date for a period of three months.
Any such request shall be made to the Lender in writing and shall be accompanied
by payment of the fee required pursuant to Section 3.1(c). Upon receipt of such
request and the accompanying fee payment, and provided that no Default has
occurred and is continuing, the Tranche A Maturity Date shall be extended for
three months from the then current Tranche A Maturity Date.
(e) The Borrower agrees to pay interest on the unpaid
principal amount of the Tranche A Term Loans from time to time outstanding from
and including the Closing Date to but not including the date on which such Loans
are paid in full at a rate per annum equal to the per annum rate of interest
payable on the United States Treasury securities held from time to time in the
Tranche A Collateral Account. Interest on the Tranche A Term Loans shall be
payable, in arrears, on the Tranche A Maturity Date.
(f) The Tranche A Term Loans made by the Lender shall be
evidenced by a single promissory note of the Borrower substantially in the form
of Exhibit A-1 (the "TRANCHE A TERM NOTE") payable to the order of Lender. The
Lender will note on its internal records the date and amount of each Tranche A
Term Loan, the date and amount of each repayment of principal thereof and will,
prior to any transfer of the Tranche A Term Note, endorse on the schedule
attached thereto the outstanding principal amount of the Loans evidenced
thereby. Failure to record such information shall not alter the obligations of
the Borrower under this Agreement or the Tranche A Term Note.
2.2 TRANCHE B TERM LOANS.
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(a) On the terms and subject to the conditions of this Credit
Agreement, the Lender agrees to make one or more Tranche B Term Loans to the
Borrower from time to time on or prior to September 24, 1998 on the Borrower's
request therefor; PROVIDED that the aggregate principal amount of the Tranche B
Term Loans extended to the Borrower pursuant to this Section 2.2(a) shall not
exceed $15,000,000. Any request for a Tranche B Term Loan pursuant to this
Section 2.2(a) must be delivered to the Lender by not later than 10:00 a.m., New
York City time, three (3) Business Days before the date on which such Loan is
requested to be made and must specify (A) the requested Loan amount (which must
be at least $100,000 or a multiple of $100,000 in excess thereof), (B) the
Borrowing Date (which must be a Business Day on or prior to September 24, 1998),
(C) the intended use of proceeds of such Loan and (D) the account into which
such Loan proceeds are to be disbursed. Amounts borrowed under this Section
2.2(a) and prepaid or repaid may not be reborrowed.
(b) Subject to the conditions of this Agreement, the Lender
shall make the Tranche B Term Loans available to the Borrower by transferring
the amount thereof to such account as the Borrower shall designate in writing to
the Lender.
(c) Up to $2,500,000 of the Tranche B Term Loans may be used
to pay costs and expenses incurred in connection with the Initial Public
Offering. All other proceeds of any Tranche B Term Loans shall be used solely
for the purpose of funding Acquisitions.
(d) The Borrower agrees to repay to the Lender the outstanding
principal amount of the Tranche B Term Loans on or prior to September 24, 1998;
PROVIDED that if the Tranche B Maturity Date is extended from September 24, 1998
to March 24, 1999 in accordance with subsection (e) below, then (i) the Borrower
shall repay to the Lender on September 24, 1998 the outstanding principal amount
of the Tranche B Term Loans in excess of $10,000,000, together with accrued
interest thereon and any amounts payable pursuant to Section 3.5, and (ii) the
Borrower shall repay to the Lender on March 24, 1999, the outstanding principal
balance of the Tranche B Term Loans.
(e) Not less than thirty (30) nor more than ninety (90) days
prior to September 24, 1998, the Borrower may request that the Lender extend the
Tranche B Maturity Date for a period of six months. Any such request shall be
made to the Lender in writing. Upon receipt of such request and PROVIDED that
no Default has occurred and is continuing, the Tranche B Maturity Date shall be
extended to March 24, 1999.
(f) The Borrower agrees to pay interest on the unpaid
principal amount of the Tranche B Term Loans from time to time outstanding from
and including the Closing Date to but not including the date on which such Loans
are paid in full at a rate per annum equal to the sum of the LIBO Rate plus the
Applicable Margin in effect from time to time. Interest on the Tranche B Term
Loans shall be payable, in arrears, on the last day of each Interest Period and
on the Tranche B Maturity Date.
(g) The Tranche B Term Loans made by the Lender shall be
evidenced by a single promissory note of the Borrower, substantially in the form
of Exhibit A-2 (the "TRANCHE B TERM NOTE"), payable to the order of the Lender.
The Lender will note on its internal records
13
the date and amount of each Tranche B Term Loan, the date and amount of each
repayment of principal thereof and will, prior to any transfer of the Tranche B
Term Note, endorse on the schedule attached thereto the outstanding principal
amount of the Loans evidenced thereby. Failure to so record any such
information shall not alter the obligations of the Borrower under this Agreement
or the Tranche B Term Note.
2.3 PREPAYMENTS. (a) The Borrower may, at any time and
from time to time, prepay, in whole or in part, the then outstanding principal
amount of the Loans. Except as otherwise provided in Section 2.3(f), any such
prepayment shall be without penalty or premium. The Borrower shall give the
Lender not less than thirty (30) days' notice of its intent to prepay the Loans,
which notice shall specify the date and amount of the prepayment and the Loans
to which such prepayment is to be applied. Any notice of prepayment given by
the Borrower shall be irrevocable and obligate the Borrower to make the
prepayment specified in such notice on the date specified therein. Any partial
prepayment of the Loans shall be in an aggregate principal amount of at least
$100,000.
(b) The Borrower shall prepay the outstanding principal amount
of the Tranche A Term Loans upon the Lender's receipt of notice from the
Borrower, any Affiliate of the Borrower or the lead manager of the Initial
Public Offering of any determination not to proceed with the Initial Public
Offering.
(c) The Borrower shall prepay the outstanding principal amount
of the Tranche B Term Loans in an amount equal to 100% of (i) the net cash
proceeds paid or payable to SLGP or any of its Affiliates in connection with the
sale, transfer or other disposition of, or any financing or refinancing of any
Portfolio Property or any interest owned by SLGP or any such Affiliate in any
Person directly or indirectly owning any Portfolio Property or interest therein
and (ii) the net cash proceeds paid or payable to any Acquiror or Affiliate of
any Acquiror in connection with the sale, transfer or other disposition of, or
any financing or refinancing, of any Acquisition Property or any interest owned
by such Acquiror or Affiliate in any Person directly or indirectly owning any
Acquisition Property or interest therein. For purposes of this subsection
2.3(c), "net cash proceeds" shall mean the cash proceeds of such sale net of (A)
attorney's fees, accountant's fees, brokerage and other similar fees actually
incurred in connection with such sale and (B) taxes payable as a result of such
sale.
(d) The Borrower shall prepay the outstanding principal amount
of the Tranche B Term Loans in an amount equal to 100% of the cash proceeds
received by the Borrower from the Issuer in reimbursement of any expenses of the
Initial Public Offering advanced by the Borrower on behalf of the Issuer.
(e) Upon (i) the contribution, directly or indirectly, by the
Borrower or any other Acquiror to the Issuer or any Subsidiary of the Issuer of
any Acquisition Property (regardless of whether such contribution is effected by
a direct contribution of the property or indirectly through the contribution of
interests in the direct or indirect owners of such property), (ii) the
contribution, directly or indirectly by SLGP to the Issuer or any Subsidiary of
the Issuer of any Portfolio property (regardless of whether such contribution is
effected by a direct contribution of the property or indirectly through the
contribution of interests in the direct or
14
indirect owners of such property) or (iii) the contribution, directly or
indirectly, by SLGM of any or all of the Assigned Agreements, the Borrower shall
prepay the entire outstanding principal balance of all Tranche B Term Loans.
(f) All prepayments made pursuant to this Section 2.3 shall be
made together with (i) accrued interest to the date of such prepayment on the
amount prepaid, (ii) any amounts payable pursuant to Section 3.5 and (iii) any
fees due pursuant to Section 3.2(b). Unless otherwise specified, all
prepayments required to be made pursuant to this Section 2.3 shall be due and
payable on the date of receipt of the amounts, or the occurrence of the event
giving rise to such prepayment.
2.4 ADDITIONAL FINANCING. (a) The Borrower shall, and shall
cause each other Acquiror to, give the Lender a right of first offer and a right
of first refusal, as hereinafter set forth, to provide any additional financing
that the Borrower or such other Acquiror may require in connection with any
Acquisition, including, without limitation, any mortgage, financing. Prior to
consummating any Acquisition, the Acquiror shall notify the Lender as to the
amount, term and proposed security for any additional financing. Within five
(5) Business Days after its receipt of such notice, the Lender shall advise the
Acquiror as to whether the Lender is interested in providing such financing and
the proposed terms thereof. If the Lender elects not to provide such financing,
the Acquiror may solicit proposals from other lenders. If the Acquiror receives
a financing proposal from another lender which the Acquiror finds acceptable,
prior to accepting such proposal, the Acquiror shall notify the Lender and
provide the Lender with a copy of such proposal. The Lender shall have two (2)
Business Days after the Lender's receipt of such proposal to determine whether
to provide the Acquiror with the financing on the terms set forth in the
proposal. If the Lender elects not to provide such financing, then the Acquiror
may obtain such financing from the other lender on the terms set forth in the
proposal delivered to the Lender.
(b) If the Lender elects not to provide any financing which the
Acquiror has given it the option to provide pursuant to Section 2.4(a), the
Lender agrees that the Acquiror will not be required to pledge the equity
interests acquired in the Acquisition to the Lender and that, if such interest
has already been pledged to the Lender, the Lender will, at the Borrower's
expense, terminate the applicable Acquisition Pledge Agreement (other than
Sections 6(h), 7(a), 7(b) and 7(h) which shall survive) and release its Lien on
the pledged equity interests.
SECTION 3. FEES AND PAYMENTS; YIELD PROTECTION
3.1 TRANCHE A TERM LOAN FEES. (a) In consideration of the
Lender's agreement to make a Tranche A Term Loan pursuant to Section 2.1(a)(i),
the Borrower shall pay to the Lender at the time it submits a request for such
Loan a loan funding fee equal to 0.02% of the principal amount of such Loan.
(b) In consideration of the Lender's agreement to make an
additional Tranche A Term Loan pursuant to Section 2.1(a)(ii), the Borrower
shall pay to the Lender at the time it submits a request for such Loan a loan
funding fee equal to 0.02% of the principal amount of such additional Loan.
15
(c) In consideration of the Lender's agreement to extend the
Tranche A Maturity Date, the Borrower shall pay to the Lender at the time it
submits each request for an extension an extension fee equal to 0.02% of the
principal amount of the aggregate principal amount of all of the Tranche A Term
Loans outstanding at such time.
3.2 TRANCHE B TERM LOAN FEES. (a) In consideration of the
Lender's agreement to make the Tranche B Term Loans, the Borrower shall pay to
the Lender on each Borrowing Date a loan funding fee equal to 1% of the amount
of the Tranche B Term Loans advanced to the Borrower on such date.
(b) On each date on which the principal of any Tranche B Term
Loan is repaid or prepaid, the Borrower shall pay to the Lender a fee equal to
1% of the principal amount of the Tranche B Term Loans repaid or prepaid.
(c) The Borrower shall pay to the Lender a servicing fee from
and including the Closing Date to but not including the date on which the
Tranche B Term Loans are paid in full at a rate per annum equal to 0.1% of the
Tranche B Term Loan Commitment (computed on the basis of a 360-day year and the
actual number of days elapsed). Such fee shall be payable monthly, in arrears,
on the last day of each calendar month, commencing March 31, 1997, and on the
date on which the Tranche B Term Loans are repaid in full.
3.3 COMPUTATION OF INTEREST. Interest on the all Loans
shall be calculated on the basis of a 360-day year and the actual number of days
elapsed. In computing the amount of interest payable in respect of any period,
the first day of such period shall be included and the last day of such period
shall be excluded. Each determination of an interest rate by the Lender shall
be conclusive and binding on the Borrower absent manifest error.
3.4 PAYMENTS. All payments (including prepayments) to be made
by the Borrower on account of principal and interest shall be made without
set-off or counterclaim and shall be made to the Lender, at such account of the
Lender designated for such purpose, in Dollars and in immediately available
funds not later than 12:00 noon, New York City time, on the date on which such
payment shall become due. Any payment received after such time on any Business
Day shall be deemed to have been received on the next Business Day. If any
payment hereunder becomes due and payable on a day other than a Business Day,
such payment shall be extended to the next succeeding Business Day, and, with
respect to payments of principal, interest thereon shall be payable at the then
applicable rate during such extension.
3.5 TAXES. All payments made by the Borrower under this
Agreement and the Related Documents shall be made free and clear of, and without
reduction for or on account of, any current or future taxes, levies, imposts,
duties, charges, fees, deductions or withholdings, now or hereafter imposed,
levied, collected, withheld or assessed by any Governmental Authority, excluding
income and franchise taxes imposed on the Lender (such non-excluded taxes being
called "TAXES"). If any Taxes are required to be withheld from any amounts
payable to the Lender hereunder or under any of the Related Documents, the
amounts so payable to the Lender shall be increased to the extent necessary to
yield to the Lender (after payment of all Taxes) interest or any such other
amounts payable hereunder or under the Related Documents
16
at the rates or in the amounts specified in this Agreement and the Related
Documents. Whenever any Taxes are payable by the Borrower, as promptly as
possible thereafter, the Borrower shall send to the Lender a certified copy of
an original official receipt showing payment thereof. If the Borrower fails to
pay Taxes when due to the appropriate taxing authority or fails to remit to the
Lender the required receipts or other required documentary evidence, the
Borrower shall indemnify and hold harmless the Lender against, and reimburse the
Lender upon demand for, any incremental taxes, interest or penalties that may
become payable by the Lender as a result of any such failure. The obligations
of the Borrower set forth in this Section 3.5 shall survive the termination of
this Agreement and the payment in full of the Notes and all other Obligations.
3.6 FUNDING LOSSES. The Borrower agrees to indemnify the
Lender against and to hold the Lender harmless from, and on demand reimburse the
Lender for, any loss, premium, penalty or expense which the Lender may sustain
or incur (including, without limitation, interest or fees payable to lenders of
funds obtained by the Lender in order to make any Loan and any loss or expense
incurred by reason of the relending, depositing or other employment of funds
acquired by the Lender to fund any Loan) as a consequence of (a) any default by
the Borrower in payment of the principal amount of or interest on the Loans, (b)
any failure by the Borrower to borrow any Loan on the date such Loan is
requested to be made, other than as a result of a default by the Lender, (c)
default by the Borrower in making any prepayment of the Loans after having given
a notice in accordance with Section 2.3, and/or (d) any acceleration of the
Loans pursuant to Section 8.2 hereof. A certificate setting forth any amounts
payable pursuant to this Section 3.6, submitted by the Lender to the Borrower,
shall be conclusive absent manifest error.
3.7 INABILITY TO DETERMINE INTEREST RATE. In the event that,
prior to the first day of any Interest Period, the Lender shall have reasonably
determined (which determination shall be conclusive and binding upon the
Borrower) that, by reason of market circumstances, adequate and reasonable means
do not exist for ascertaining the LIBO Rate applicable to such Interest Period,
the Lender shall forthwith give telecopy notice of such determination to the
Borrower and the Tranche B Term Loans shall thereafter bear interest at a rate
equal to the Base Rate plus the Applicable Margin. Such notice shall be
withdrawn by the Lender when the Lender shall reasonably determine that adequate
and reasonable means exist for ascertaining the LIBO Rate.
3.8 ILLEGALITY. Notwithstanding any other provision hereof to
the contrary, if any introduction of or change in any law, rule, regulations or
treaty or in the interpretation or application thereof occurring after the date
hereof shall make it unlawful for the Lender to charge interest on any Tranche B
Term Loan based on the LIBO Rate, the Lender shall forthwith give notice of such
circumstances to the Borrower, and (a) the obligation of the Lender to charge
interest on such Loan based upon the LIBO Rate shall immediately be cancelled
and (b) such Loan shall automatically on the last day of the applicable Interest
Period (or within such earlier time as may be required by law) bear interest at
a rate equal to the Base Rate plus the Applicable Margin. Any such conversion
of the applicable interest on the Tranche B Term Loans on a date other than the
end of an Interest Period shall be accompanied by the payment
17
of accrued interest on such Loans to the date of conversion and any additional
amounts owing under Section 3.6.
SECTION 4. REPRESENTATIONS AND WARRANTIES
In order to induce the Lender to enter into this Agreement and to
make the Loans herein provided for, the Borrower hereby represents and warrants
to the Lender that:
4.1 ORGANIZATION AND GOOD STANDING. The Borrower is a New
York limited liability company, duly organized, validly existing and in good
standing under the laws of the state of its organization, is duly qualified as a
foreign entity and in good standing in all states in which the failure to so
qualify would have a Material Adverse Effect, and has the power and authority to
own its properties and assets and to transact the business in which it is
currently engaged. The Borrower has no Subsidiaries; the sole member of the
Borrower is SLGP.
4.2 AUTHORIZATION AND POWER. The Borrower has the power and
authority to execute, deliver and perform this Agreement and the Related
Documents to which it is a party, and has taken all action necessary to
authorize the execution and delivery of this Agreement and the Related Documents
to which it is a party and to perform its obligations contemplated hereunder and
thereunder.
4.3 NO CONFLICTS OR CONSENTS. Neither the execution, delivery
or performance of this Agreement or the Related Documents to which it is a party
nor the consummation of the transactions contemplated hereby or thereby, nor the
compliance with the terms and provisions hereof or thereof, will contravene or
conflict with any provision of any constitution, law or regulation to which the
Borrower is subject, or any judgment, license, order or permit applicable to the
Borrower or any indenture, loan agreement, mortgage, deed of trust, or other
material agreement or instrument to which the Borrower is a party or by which
any of its assets may be bound or subject, or violate any provision of its
organizational documents. No consent, approval, authorization or order of any
court or Governmental Authority or third party is required in connection with
the execution, delivery and performance by the Borrower of this Agreement or any
of the Related Documents to which it is a party or for the consummation of the
transactions contemplated hereby or thereby, except those that have been
obtained and are in full force and effect.
4.4 ENFORCEABLE OBLIGATIONS. This Agreement and the Related
Documents to which the Borrower is a party have been duly executed and delivered
by the Borrower and are the legal, valid and binding obligations of the
Borrower, enforceable against it in accordance with their respective terms,
except as limited by applicable bankruptcy, insolvency, reorganization or other
similar laws affecting creditors' rights generally and general principles of
equity.
4.5 TITLE TO ASSETS. The Borrower has good and marketable
title to all of its assets free and clear of all Liens and other encumbrances
and adverse claims of any nature, except Permitted Liens.
18
4.6 FINANCIAL CONDITION. The Borrower has delivered to the
Lender a copy of its unaudited balance sheet as of March 13, 1997, certified by
its Chief Financial Officer. Such balance sheet fairly presents the financial
condition of the Borrower as of such date and has been prepared in accordance
with GAAP (subject to non-material audit adjustments and the absence of full
footnote disclosures). Prior to March 11, 1997, the Borrower has conducted no
business. As of March 13, 1997, there were no obligations, liabilities or
Indebtedness (including contingent and indirect liabilities and obligations) of
the Borrower which are not reflected in such balance sheet. Since March 13,
1997, no event, act, condition or change has occurred that could reasonably be
expected to have a Material Adverse Effect.
4.7 FULL DISCLOSURE. With respect to the representations and
warranties contained in this Agreement or in any of the Related Documents or in
any financial statements, certificates or other documents delivered in
connection herewith or therewith, there is no material fact that the Borrower
has not disclosed to the Lender. Neither this Agreement, the Related Documents,
the financial statements referenced in Section 4.6 hereof, nor any agreement,
document, certificate or written statement delivered herewith or heretofore by
the Borrower or any Affiliate of the Borrower to the Lender in connection with
the transactions contemplated hereby, contains any untrue statement of a
material fact or omits to state any material fact necessary to keep the
statements contained herein or therein from being misleading in light of the
circumstances under which they are made.
4.8 NO DEFAULT. No Default has occurred and is continuing,
nor will the execution, delivery and performance of this Agreement or any of the
Related Documents cause a Default to occur.
4.9 AGREEMENTS. The Borrower is not in default in any respect
under any contract, lease, loan agreement, indenture, mortgage, security
agreement or other agreement or obligation to which it is a party or by which
any of its properties is bound.
4.10 NO LITIGATION. There are no actions, suits or legal,
equitable, arbitration or administrative proceedings pending or, to the best of
the Borrower's knowledge, threatened against the Borrower, which if adversely
determined, could reasonably be expected to have a Material Adverse Effect.
4.11 BURDENSOME CONTRACTS. The Borrower is not party to any
agreement or instrument or subject to any legislative or charter or other
corporate restriction or any judgment, order, writ, injunction, decree, rule or
regulation which could reasonably be expected to have a Material Adverse Effect.
4.12 SECURITY INTERESTS. Each of the Security Documents
creates or will create, as security for the obligations described therein, a
valid, exclusive and perfected first security interest in and Lien on all of the
Collateral described in such agreements in favor of the Lender superior and
prior to the rights of all third Persons and subject to no other Liens except
Permitted Liens. No filings or recordings are required in order to perfect the
security interests created under the Security Documents except for the filing of
UCC-1 financing statements with
19
the New York Secretary of State and the City Register in New York County and
such other filing offices as the Borrower may hereafter designate in writing to
the Lender.
4.13 USE OF PROCEEDS; MARGIN STOCK. None of the proceeds of
the Loans will be used for the purpose of purchasing or carrying any "margin
stock" as defined in Regulations U, T, X, or G of the Board of Governors of the
Federal Reserve, or for the purpose of reducing or retiring any Indebtedness
which was originally incurred to purchase or carry "margin stock," or for any
other purpose which might constitute this transaction a "purpose credit" within
the meaning of Regulations U, T, X or G. The Borrower is not engaged in the
business of extending credit for the purpose of purchasing or carrying margin
stocks. Neither the Borrower nor any Person acting on behalf of the Borrower
has taken or will take any action which might cause any violation of Regulations
U, T, X, G or any other regulations of the Board of Governors of the Federal
Reserve System or any violation of Section 7 of the Securities Exchange Act of
1934 or any rule or regulation promulgated thereunder, in each case as now in
effect or as the same may hereinafter be in effect.
4.14 TAXES. All tax returns required to be filed by the
Borrower in any jurisdiction have been filed or extensions obtained and all
taxes as reflected in such returns (including mortgage recording taxes),
assessments, fees and other governmental charges upon the Borrower or upon any
of its properties, income or franchises have been paid prior to the time that
such taxes would give rise to a Lien thereon. There is no proposed tax
assessment against the Borrower, and there is no basis for any such assessment.
4.15 PRINCIPAL OFFICE, ETC. The principal office, chief
executive office and principal place of business of the Borrower is 70 West 36th
Street, New York, NY 10018. The Borrower maintains its records and books at
such address. There are no assets at any other location, individual or in the
aggregate, that are material to the operation of the business of the Borrower as
currently conducted.
4.16 ERISA. (a) No Reportable Event has occurred and is
continuing with respect to any Plan; (b) the PBGC has not instituted proceedings
to terminate any Plan; (c) neither the Borrower nor any duly-appointed
administrator of a Plan: (i) has incurred any liability to PBGC with respect to
any Plan other than for premiums not yet due or payable, or (ii) has (A)
instituted or, intends, to the Borrower's knowledge, to institute proceedings to
terminate any Plan under Sections 4041 or 4041A of ERISA or (B) withdrawn or
intends, to the Borrower's knowledge, to withdraw from any Multiemployer Plan;
and (d) each Plan of the Borrower has been maintained and funded in all material
respects in accordance with its terms and with all provisions and requirements
of the Code and ERISA applicable thereto.
4.17 COMPLIANCE WITH LAW. The Borrower and, to the Borrower's
knowledge, its Affiliates are in compliance with all applicable provisions of
all constitutions, laws, rules, regulations, orders, judgments, decrees,
licenses and approvals of any Governmental Authority (including, without
limitation, any such laws, rules or regulations, orders, judgments or decrees
relating to tender offers) the violation of which would have a Material Adverse
Effect.
20
4.18 GOVERNMENT REGULATION. The Borrower is not subject to
regulation under the Public Utility Holding Company Act of 1935, the Federal
Power Act, the Investment Company Act of 1940, the Interstate Commerce Act (as
any of the preceding acts have been amended), or any other law (other than
Regulation X of the Board of Governors of the Federal Reserve) which would
regulate the incurring by the Borrower of any Indebtedness, including but not
limited to laws relating to common contract carriers or the sale of electricity,
gas, steam, water, or other public utility services.
4.19 SOLVENCY. The Borrower is, and after consummation of the
transactions contemplated hereby, including all Acquisitions, and after giving
effect to all Indebtedness incurred or to be incurred hereunder or in connection
with any Acquisition will be, Solvent.
4.20 INSURANCE. The Borrower maintains insurance coverage of
the types and in the amounts required under Section 6.9.
SECTION 5. CONDITIONS PRECEDENT
5.1 CONDITIONS TO LOANS MADE ON THE CLOSING DATE. The
obligation of the Lender to make the initial Tranche A Term Loan and the initial
Tranche B Term Loan is subject to the satisfaction, immediately prior to or
concurrently with the making of such Loans, of the following conditions
precedent:
(a) THIS AGREEMENT AND RELATED DOCUMENTS. The Lender shall
have received a counterpart of this Agreement and each of the Related Documents,
duly executed by each of the parties thereto.
(b) ORGANIZATIONAL DOCUMENTS. The Lender shall have received
(i) a copy of the certificate of formation and the operating agreement of the
Borrower, (ii) a copy of the charter and by-laws of SLGM and (iii) a copy of the
charter and by-laws of SLGP, in each case, together with all amendments thereto
and certified to be true, correct and complete by the Secretary or an Assistant
Secretary of the Borrower, SLGM or SLGP, as applicable.
(c) GOOD STANDING CERTIFICATES. The Lender shall have
received certificates from the Secretary of State of the State of New York
evidencing the good standing of the Borrower, SLGM and SLGP.
(d) CORPORATE PROCEEDINGS. The Lender shall have received a
copy of resolutions, in form and substance reasonably satisfactory to it, of (i)
the Principal, in his capacity as the sole member of the Borrower, (ii) the
Board of Directors (or duly empowered committee thereof) of SLGM and (iii) the
Board of Directors (or duly empowered committee thereof) of SLGP, in each case,
authorizing the execution, delivery and performance of this Agreement and the
Related Documents to which it is a party and the consummation of the
transactions hereunder and thereunder certified by its Secretary or an Assistant
Secretary, which certificate shall state that the resolutions thereby certified
have not been amended, modified, revoked or rescinded as of the date of such
certificate.
21
(e) INCUMBENCY CERTIFICATE. The Lender shall have received a
certificate of the Secretary or an Assistant Secretary of the Borrower, SLGM and
SLGP as to the incumbency and signature of its officers authorized to sign this
Agreement and the Related Documents to which it is a party.
(f) LEGAL OPINION OF COUNSEL TO THE BORROWERS. The Lender
shall have received an executed legal opinion, addressed to the Lender, of
counsel to the Borrower, the Principal, SLGM and SLGP, in substantially the form
set forth in Exhibit K.
(g) COLLATERAL. The Lender shall have received (i) all
certificates or other instruments representing any interests or other securities
pledged as Collateral, together with executed and undated stock powers or
assignments in blank, and (ii) evidence that all filings and other actions
necessary to perfect the Lender's security interest in the Collateral have been
made or taken and that the Lender's Lien on the Collateral has priority over any
other Liens, other than Permitted Liens.
(h) APPROVALS. All governmental and third party consents and
approvals necessary in connection with this Agreement and the Related Documents
(including, without limitation, any consents of any partners and lenders
required in order to pledge the interests to be pledged under the SLGP Pledge
Agreement) shall have been obtained (without the imposition of any conditions
other than those that are reasonably acceptable to the Lender) and shall remain
in effect and no law or regulation shall be applicable which, in the judgment of
the Lender, restrains, prevents, or imposes adverse conditions upon, the
transactions contemplated hereby. The Lender shall have received copies,
certified as true, correct and complete by the Secretary or an Assistant
Secretary of the Borrower, of any and all governmental and third party consents
and approvals necessary in connection with this Agreement and the Related
Documents.
(i) NO LITIGATION. There shall exist no action, suit,
investigation, litigation or proceeding that purports to affect the legality,
validity or enforceability of this Agreement, the Related Documents or any
document to be executed or delivered in connection herewith.
(j) PORTFOLIO EQUITY. The Lender shall have received evidence
that SLGP has an equity interest, as determined by the Lender using such
valuation method as the Lender deems appropriate, in the Portfolio of not less
than $35,000,000.
(k) ORGANIZATIONAL DOCUMENTS. The Lender shall have received
copies of the certificates of limited partnership or formation and the
partnership or operating agreement of each partnership or limited liability
company that directly or indirectly owns any Portfolio property and in which
SLGP has a direct or indirect interest, certified to be true, correct and
complete by the Secretary or an Assistant Secretary of SLGP.
(l) RENT ROLLS. Lender shall have received certified copies
of the rent rolls relating to each Portfolio property from the general partner
or managing member of the owner of such property as the case may be.
22
(m) INSURANCE. The Lender shall have received reasonable
evidence that each of the Borrower, SLGP and SLGM has in effect the insurance
coverages of the type required under this Agreement and the Related Documents,
as applicable.
(n) FEES AND EXPENSES. The Lender shall have received all
amounts payable pursuant to Section 9.6 on or prior to the Closing Date.
(o) ENGAGEMENT LETTER. The Lender shall have received a
fully executed copy of an engagement letter appointing Lehman Brothers Inc. as
the lead manager of the Initial Public Offering.
(p) OTHER. The Lender shall have received such other
documents, certificates, opinions and financial or other information as it may
reasonably request, and all corporate and other proceedings and all other legal
matters in connection herewith shall be satisfactory in form and substance to
the Lender and its counsel.
5.2 CONDITIONS TO THE TRANCHE A TERM LOAN AND TRANCHE B TERM
LOANS TO BE MADE AFTER THE CLOSING DATE. In addition to the conditions set
forth in Section 5.1, the obligation of the Lender to make any Tranche A Term
Loan or Tranche B Term Loan, including the initial Tranche A Term Loan and the
initial Tranche B Term Loan, is subject to the satisfaction, immediately prior
to or concurrently with the making of such Loans, of the following conditions
precedent:
(a) REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties made by the Borrower pursuant to this Agreement
and the Related Documents to which it is a party, and each of the
representations and warranties contained in any certificate, document or
financial or other statement furnished in connection with this Agreement and the
Related Documents, shall be true and complete in all material respects on and as
of the date of such Loan as if made on and as of such date, except to the extent
such representations and warranties expressly relate to a particular date.
(b) NO DEFAULT. No Default shall have occurred and be
continuing on such date or would occur as a result of such Loan.
(c) NOTICE OF BORROWING. The Lender shall have received the
notice required pursuant to Section 2.1 or 2.2, as applicable.
(d) OFFICER'S CERTIFICATE. The Lender shall have received a
certificate from an appropriate officer of the Borrower certifying as to each of
the conditions set forth in subsections (a) and (b).
(e) FEES. The Lender shall have received the fees payable
pursuant to Section 3.1 and/or 3.2, as applicable.
5.3 ADDITIONAL CONDITIONS TO TRANCHE B TERM LOANS FOR
ACQUISITIONS. In addition to the conditions set forth in subsections 5.1 and
5.2, the obligation of the Lender to
23
make a Tranche B Term Loan to fund any Acquisition is subject to the
satisfaction of the following further conditions precedent:
(a) ACQUISITION PLEDGE AGREEMENT. The Lender shall have
received (i) (A) a counterpart of an Acquisition Pledge Agreement or an
amendment to an existing Acquisition Pledge Agreement, duly executed by the
Acquiror making such Acquisition, pledging to the Lender as Collateral the
equity interests acquired in such Acquisition, (B) all certificates or other
instruments representing any Collateral pledged pursuant to such Acquisition
Pledge Agreement, together with executed and undated stock powers or assignments
in blank, and (C) evidence that all filings and other actions necessary to
perfect the Lender's security interest in the Collateral pledged pursuant to
such Acquisition Pledge Agreement have been made or taken and that the Lender's
Lien on such Collateral has priority over any other Liens or (ii) if in
accordance with Section 2.4(b) no pledge of the equity interests to be acquired
in the Acquisition is required, an agreement, in form and substance satisfactory
to the Lender, duly executed by the Acquiror making the Acquisition, to the
effect provided in Sections 6(h), 7(a), 7(b) and 7(h) of the Acquisition Pledge
Agreement.
SECTION 6. AFFIRMATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitments are
in effect or the Notes or any Loan remains outstanding and unpaid or any other
Obligation is owing to the Lender, the Borrower shall:
6.1 FINANCIAL STATEMENTS, REPORTS AND DOCUMENTS. The Borrower
shall deliver to the Lender each of the following:
(a) INTERIM STATEMENTS. As soon as available and in any event
within forty-five (45) days after the end of each fiscal quarter, (i) copies of
the balance sheet of the Borrower as of the end of each such period, and
statements of operations, member's equity and cash flows of the Borrower for
each such period and for the portion of the fiscal year ending with such period,
in each case setting forth in comparative form the figures for the corresponding
period of the preceding fiscal year and (ii) a schedule of the contingent
liabilities of the Borrower, all in reasonable detail, and certified on behalf
of the Borrower by its chief financial officer to fairly represent the financial
position of the Borrower as of such date and to have been prepared in accordance
with GAAP, subject to normal year-end audit adjustments and the absence of full
footnote disclosures;
(b) ANNUAL STATEMENTS. As soon as available and in any event
within ninety (90) days after the close of each fiscal year, copies of the
balance sheet of the Borrower as of the close of such fiscal year and statements
of operations, member's equity and cash flows of the Borrower for such fiscal
year, in each case setting forth in comparative form the figures for the
preceding fiscal year, all in reasonable detail and accompanied by an opinion
thereon (which shall not be qualified by reason of any limitation imposed by the
Borrower) of independent public accountants of recognized national standing
selected by the Borrower, to the effect that such financial statements have been
prepared in accordance with GAAP, and that the examination of such accountants
in connection with such financial statements has been made in
24
accordance with generally accepted auditing standards and, accordingly, includes
such tests of the accounting records and such other auditing procedures as were
considered necessary in the circumstances;
(c) ACCOUNTANTS' CERTIFICATES. Within the period provided in
paragraph (b) above, a certificate of the accountants who render an opinion with
respect to such financial statements, stating that they have reviewed this
Agreement and stating further whether, in making their audit, such accountants
have become aware of any condition or event which would constitute a Default
under any of the terms or provisions of this Agreement and, if any such
condition or event then exists, specifying the nature and period of existence
thereof;
(d) MANAGEMENT REPORTS. Promptly upon receipt thereof by the
Borrower, one copy of each written report submitted to the Borrower by its
independent accountants in any annual, quarterly or special audit made, it being
understood and agreed that all management reports which are furnished to the
Lender pursuant hereto shall be subject to the confidentiality covenant of the
Lender contained in Section 9.12;
(e) SEC FILINGS. Promptly upon the filing thereof, one copy
of each registration statement or prospectus, or other document filed by the
Issuer with any securities exchange or the Securities and Exchange Commission or
any successor agency; and
(f) OTHER INFORMATION. Such other information concerning the
business, properties or financial condition of the Borrower as the Lender shall
reasonably request.
6.2 PAYMENT OF TAXES AND OTHER INDEBTEDNESS. The Borrower
shall pay and discharge: (i) all taxes, assessments and governmental charges or
levies imposed upon it or upon its income or profits, or upon any property
belonging to it, before delinquent, (ii) all lawful claims (including claims for
labor, materials and supplies) and (iii) all of its Indebtedness as and when
due; PROVIDED, HOWEVER, that the Borrower shall not be required to pay any such
tax, assessment, charge, claim or levy, if and so long as the amount,
applicability or validity thereof is at the time being contested in good faith
by appropriate proceedings and appropriate accruals and reserves therefor have
been established in accordance with GAAP.
6.3 MAINTENANCE OF EXISTENCE AND RIGHTS; CONDUCT OF BUSINESS.
The Borrower shall preserve and maintain its limited liability company existence
and all of its rights, privileges and franchises necessary or desirable in the
normal conduct of its businesses, and conduct its businesses in an orderly and
efficient manner consistent with good business practices and in accordance with
all valid regulations and orders of any Governmental Authority.
6.4 NOTICE OF DEFAULT. Immediately upon becoming aware of the
existence of any condition or event which constitutes a Default, the Borrower
shall furnish to the Lender written notice specifying the nature and period of
existence thereof and the action which the Borrower is taking or proposes to
take with respect thereto.
6.5 OTHER NOTICES. The Borrower shall promptly notify the
Lender of (i) any change which could reasonably be expected to have a Material
Adverse Effect; (ii) the
25
commencement of, or any material determination in, any litigation with any third
party or any proceeding before any Governmental Authority affecting the Borrower
which could reasonably be expected to have a Material Adverse Effect; and (iii)
any material adverse claim against or affecting the Borrower or any of its
properties.
6.6 COMPLIANCE WITH MATERIAL AGREEMENTS. The Borrower shall
comply in all material respects with all material agreements indentures,
mortgages or documents binding on it or affecting its properties or business.
6.7 BOOKS AND RECORDS; ACCESS. The Borrower shall give any
representative or agent of the Lender reasonable access upon reasonable notice
and during business hours and permit such representative or agent to examine,
copy or make excerpts from, any and all books, records and documents in the
possession of the Borrower and relating to the affairs of the Borrower and to
inspect any of the properties of the Borrower. The Borrower shall, and shall
cause each other Acquiror or such other appropriate Person to permit any
representative or agent of the Lender to visit and inspect any property
indirectly acquired in any Acquisition and examine, copy and make abstracts from
the books and records relating to such property upon reasonable notice at any
reasonable time and as often as may be reasonably desired and to discuss the
operations and conditions of such property with the officers and employees of
such Person. The Borrower shall maintain complete and accurate books and
records of its transactions in accordance with good accounting practices.
6.8 COMPLIANCE WITH LAW. The Borrower shall comply with all
applicable constitutions, laws, rules, regulations, judgments, orders,
decisions, rulings and decrees of any Governmental Authority applicable to it or
to any of its properties, business operations or transactions, a violation of
which would have a Material Adverse Effect.
6.9 INSURANCE. The Borrower shall maintain workers'
compensation insurance, liability insurance, casualty insurance and other
insurance on its properties, assets and businesses, now owned or hereafter
acquired, against such casualties, risks and contingencies, and in such types
and amounts, as are consistent with customary practices and standards of
companies engaged in similar businesses.
6.10 AUTHORIZATIONS AND APPROVALS. The Borrower shall promptly
obtain, from time to time at its own expense, all such governmental licenses,
authorizations, consents, permits and approvals as may be required to enable it
to comply with its obligations hereunder.
6.11 ERISA COMPLIANCE. The Borrower shall: (i) at all times,
make prompt payment of all contributions required under all of its Plans and the
minimum funding standard set forth in the Code and ERISA with respect to such
Plans; (ii) within thirty (30) days after the filing thereof, furnish to the
Lender a copy of each annual report/return (Form 5500 Series), as well as all
schedules and attachments required to be filed with the Department of Labor
and/or the Internal Revenue Service pursuant to ERISA, and the regulations
promulgated thereunder, in connection with each Plan for each Plan year;
(iii) notify the Lender immediately of any fact, including, but not limited to,
any Reportable Event arising in connection with any Plan, which might constitute
grounds for termination thereof by the PBGC or for the appointment by the
26
appropriate United States District Court of a trustee to administer such Plan,
together with a statement, if requested by the Lender, as to the reason therefor
and the action, if any, proposed to be taken with respect thereto; and
(iv) furnish to the Lender, upon its request, such additional information
concerning any Plan as may be reasonably requested.
6.12 REIMBURSEMENT FROM ISSUER. The Borrower shall, upon
formation of the Issuer, obtain from the Issuer an unconditional written promise
to reimburse the Borrower for all costs and expenses incurred in connection with
the Initial Public Offering and paid by the Borrower using the proceeds of the
Tranche B Term Loans.
6.13 FURTHER ASSURANCES. The Borrower shall, and shall cause
each of its Affiliates to, make, execute or endorse, and acknowledge and deliver
or file or cause the same to be done, all such notices, certificates and
additional agreements, undertakings, conveyances, transfers, assignments or
other assurances, and take any and all such other action, as the Lender may,
from time to time, deem reasonably necessary or proper in connection with this
Agreement or any of the Related Documents, or the obligations of the Borrower or
its Affiliates hereunder or thereunder.
SECTION 7. NEGATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitments are
in effect or the Notes or any Loan remain outstanding and unpaid or any other
Obligation is owing to the Lender hereunder:
7.1 LIMITATION ON INDEBTEDNESS. The Borrower shall not
incur, create, contract, assume, have outstanding, Guarantee or otherwise be or
become, directly or indirectly, liable in respect of any Indebtedness, except
Permitted Indebtedness.
7.2 NEGATIVE PLEDGE. The Borrower shall not create, incur or
permit or suffer to exist any Lien upon any of its properties or assets, now
owned or hereafter acquired, except for Permitted Liens.
7.3 NO RESTRICTIONS. The Borrower shall not, nor shall it
permit any other Acquiror to, allow there to be any restrictions on the sale or
transfer of any shares of stock, partnership interests, membership interests or
assets acquired with the proceeds of any Loan, except for restrictions expressly
consented to by the Lender in writing and restrictions imposed by applicable
law.
7.4 LIMITATION ON INVESTMENTS. The Borrower shall not,
without the prior written consent of the Lender, make or maintain any
Investments, except Permitted Investments and any Acquisition as to which the
Lender has made a Tranche B Term Loan.
7.5 PROHIBITION ON DIVIDENDS. The Borrower shall not make or
declare any Dividend, either directly or indirectly, whether in cash or property
or in obligations of the Borrower; PROVIDED that, if, as of the end of any
fiscal year of the Borrower, (i) the sum of (A) the Borrower's net income for
such period PLUS (B) the sum of any required principal payments
27
of Indebtedness of the Borrower for such period, PLUS (C) the aggregate interest
expense of the Borrower for such period (but only to the extent deducted in
computing net income), PLUS (D) any amortization expenses and other non-cash
changes of the Borrower for such period (but only to the extent deducted in
computing net income) exceeds (ii) the sum of (X) any required principal
payments of Indebtedness of the Borrower for such period, PLUS (Y) the aggregate
interest expense of the Borrower for such period, then the Borrower may at any
time during the 30 day period after the date of delivery to the Lender pursuant
to Section 6.1(b) of the Borrower's audited financial statements for such fiscal
year and a certificate of the Borrower's Chief Financial Officer setting forth
in reasonable detail the computation set forth above, pay a Dividend to the
Principal in an amount equal to such excess, PROVIDED that on the date such
payment is to be made no Default has occurred and is continuing or would result
therefrom. Determination of each of the amounts described in the foregoing
proviso shall be made in accordance with GAAP applied on a basis consistent with
those used in the preparation of the Borrower's audited financial statements
delivered pursuant to Section 6.1(b).
7.6 MATERIAL AGREEMENTS. The Borrower shall not consent to or
permit any alteration, amendment, modification, release, waiver or termination
of any provision of any agreement to which it is a party, including, without
limitation, any agreement governing or relating to any Collateral, if such
action could adversely effect the interest of the Lender or could reasonably be
expected to have a Material Adverse Effect.
7.7 CERTAIN TRANSACTIONS. Except as permitted hereunder, the
Borrower shall not enter into any transaction with an Affiliate upon terms less
favorable to the Borrower than those which the Borrower could obtain in
arm's-length dealings with Persons other than Affiliates.
7.8 ISSUANCE OF INTERESTS. The Borrower shall not issue, sell
or otherwise dispose of its membership interests or other securities, or rights,
warrants or options to purchase or acquire any such interests or other
securities.
7.9 NAME, FISCAL YEAR AND ACCOUNTING METHOD. The Borrower
shall not change its name or fiscal year or, unless required by GAAP, its method
of accounting.
7.10 MERGERS AND SALES OF ASSETS. The Borrower shall not
dissolve or liquidate, or become a party to any merger or consolidation, sell,
transfer, lease or otherwise dispose of any of its property or assets or
business, PROVIDED, HOWEVER, that in connection with the Initial Public
Offering, the Borrower may contribute to the Issuer or a Subsidiary of the
Issuer any equity interest acquired in connection with any Acquisition and such
other assets as the Lender may agree, provided that simultaneously with the
making of such contribution the Borrower makes the prepayment of the Loans
required pursuant to Section 2.3(e).
7.11 LINES OF BUSINESS. The Borrower shall not, directly or
indirectly, change the lines of business in which it currently is engaged or
substantially alter its method of doing business.
28
7.12 NO AMENDMENTS. The Borrower shall not amend its
organizational documents.
7.13 ACQUISITION PROPERTIES. The Borrower shall not, and shall
not permit any Person owning a direct or indirect interest in any Acquisition
Property to, sell, transfer or otherwise dispose of any Acquisition Property, or
any direct or indirect interest in such property, or to finance, or refinance
any Indebtedness encumbering such property, or any direct or indirect interest
in such property, unless the net cash proceeds of any such transaction paid or
payable to the applicable Acquiror or any Affiliate of such Acquiror are applied
to the prepayment of the Tranche B Loans in accordance with Section 2.3 hereof.
SECTION 8. EVENTS OF DEFAULT
8.1 EVENTS OF DEFAULT. Each of the following events shall
constitute an Event of Default:
(a) The Borrower shall fail to pay (i) any principal of or
interest on the Loans when due (whether at stated maturity or by prepayment or
otherwise) in accordance with the terms hereof, or (ii) any other amount payable
hereunder or under any Related Document within three (3) Business Days of when
such payment is due in accordance with the terms hereof or thereof;
(b) Any representation or warranty made or deemed made by the
Borrower herein or in any Related Document to which it is a party, or in any
certificate, document or financial or other statement furnished at any time
under or in connection with this Agreement, shall prove to have been incorrect
in any material respect on or as of the date made or deemed made or shall be
breached; or
(c) The Borrower shall default in the observance or
performance of any covenant contained in Sections 2.4, 6.3, (with respect to
maintenance of existence), 6.4, 6.7 or Section 7; or
(d) The Borrower shall default in the observance or
performance of any of the other covenants or agreements contained herein or in
any of the Related Documents and such default shall continue unremedied for a
period of thirty (30) days after notice thereof to the Borrower by the Lender;
or
(e) The Borrower shall, with respect to any Indebtedness
having an outstanding aggregate principal amount in excess of $25,000,
(i) default in any payment of principal of or premium or interest on any
Indebtedness (other than the Notes) beyond any applicable cure period (not to
exceed thirty (30) days), (ii) default in the observance or performance of any
other agreement or condition relating to any such Indebtedness or contained in
any instrument or agreement evidencing, securing or relating thereto and such
default shall continue beyond any applicable grace period (not to exceed thirty
(30) days), or (iii) any other event shall occur or condition exist, the effect
of which default or other event or condition is to cause, or to permit the
holder or holders of such Indebtedness (or a trustee or agent on behalf of such
holder or
29
holders) to cause, with the giving of notice if required, such Indebtedness to
become due prior to its stated maturity, or (iv) have any such Indebtedness be
declared to be due and payable, or be required to be prepaid (other than by a
regularly scheduled required prepayment) prior to the stated maturity thereof;
or
(f) The Borrower, the Principal, SLGM or SLGP shall (i) apply
for or consent to the appointment of a receiver, trustee, custodian, intervenor
or liquidator of itself or of all or a substantial part of such Person's assets,
(ii) file a voluntary petition in bankruptcy, admit in writing that such Person
is unable to pay such Person's debts as they become due, or generally not pay
such Person's debts as they become due, (iii) make a general assignment for the
benefit of creditors, (iv) file a petition or answer seeking reorganization or
an arrangement with creditors or to take advantage of any bankruptcy or
insolvency laws, (v) file an answer admitting the material allegations of, or
consent to, or default in answering, a petition filed against such Person in any
bankruptcy, reorganization or insolvency proceeding, or (vi) take corporate
action for the purpose of effecting any of the foregoing;
(g) An involuntary petition or complaint shall be filed
against the Borrower, the Principal, SLGM or SLGP seeking bankruptcy relief or
reorganization or the appointment of a receiver, custodian, trustee, intervenor
or liquidator of such Person, or all or substantially all of such Person's
assets and such petition or complaint shall not have been dismissed within sixty
(60) days of the filing thereof, or an order, order for relief, judgment or
decree is entered by any court of competent jurisdiction or other competent
authority approving or ordering any of the foregoing;
(h) Both the following events shall occur: (i) either (x)
proceedings shall have been instituted to terminate, or a notice of termination
shall have been filed with respect to, any Plan (other than a Multiemployer
Plan) by the Borrower, the PBGC or any representative of any thereof, or any
such Plan shall be terminated, in each case under Section 4041 or 4042 of ERISA,
or (y) a Reportable Event, the occurrence of which would cause the imposition of
a lien under Section 4069 of ERISA, shall have occurred with respect to any Plan
(other than a Multiemployer Plan) and be continuing for a period of sixty (60)
days; and (ii) the sum of the estimated liability to the PBGC under Section 4062
of ERISA and the currently payable obligations of the Borrower to fund
liabilities (in excess of amounts required to be paid to satisfy the minimum
funding standard of Section 412 of the Code) under the Plan or Plans subject to
such event shall exceed ten percent (10%) of the Borrower's net worth at such
time;
(i) Any or all of the following events shall occur with
respect to any Multiemployer Plan to which the Borrower contributes or has
contributed on behalf of its employees: (i) the Borrower incurs a withdrawal
liability under Section 4201 of ERISA; or (ii) any such plan is "in
reorganization" as that term is defined in Section 2441 of ERISA; or (iii) any
such Plan is terminated under Section 4041A of ERISA, and the Lender determines
in good faith that the aggregate liability likely to be incurred by the Borrower
thereof, as a result of all or any of the events specified in subparagraphs (i),
(ii) and (iii) above occurring, shall have a Material Adverse Effect; or
30
(j) One or more judgments or decrees shall be entered against
the Borrower involving in the aggregate a liability (to the extent not paid or
fully covered by insurance and for which the insurer has accepted liability in
writing) of $25,000 or more and all such judgments or decrees shall not have
been vacated, discharged, stayed or bonded (if required in order to effect an
appeal) pending appeal within sixty (60) days from the entry thereof; or
(k) The Lender does not have or ceases to have a valid and
perfected first priority security interest (subject to Permitted Liens) in the
Collateral or this Agreement or any of the Related Documents shall cease for any
reason to be in full force and effect in accordance with their terms or any
Person obligated thereunder shall so assert in writing or the Security Documents
shall cease to be effective to grant the Liens purported to be granted thereby
in favor of the Lender or such Liens shall cease to be enforceable or superior
to and prior to the rights of any other Person (subject to Permitted Liens); or
(l) The Principal shall cease to beneficially own 100% of the
issued and outstanding membership interests in the Borrower;
(m) There shall occur any change in the condition (financial
or otherwise) of the Borrower which, in the reasonable opinion of the Lender,
has a Material Adverse Effect; or
(n) Any Affiliates of the Principal shall publicly offer its
securities by means of an underwriting that is not lead managed by Lehman
Brothers Inc.
8.2 REMEDIES. If any Event of Default shall occur and be
continuing, then, and in any such event, (a) if such event is an Event of
Default specified in Section 8.1(f) or (g), automatically the Commitments shall
be terminated and reduced to zero and all Loans (with accrued interest thereon)
and all other amounts owing under this Agreement and the Related Documents shall
immediately become due and payable, and (b) if such event is any other Event of
Default, the Lender may, by notice of default to the Borrower, terminate the
Commitments and declare the Loans (with accrued interest thereon) and all other
amounts owing under this Agreement and the Related Documents to be due and
payable forthwith, whereupon the same shall immediately become due and payable.
Except as expressly provided above in this Section 8.2, presentment, demand,
protest and all other notices of any kind are hereby expressly waived.
8.3 SET-OFF. In addition to any rights and remedies of the
Lender provided by law, the Lender shall have the right, without presentment,
demand, protest or other notice of any kind to the Borrower or to any other
Person, any such notice being hereby expressly waived by the Borrower, to the
extent permitted by applicable law, upon the occurrence and during the
continuance of any Event of Default, to set-off and apply against the
Obligations any amount owing from the Lender at any of its branches or offices
to the Borrower. The Lender agrees promptly to notify the Borrower after any
such set-off and application made by the Lender, PROVIDED that the failure to
give such notice shall not affect the validity of such set-off and application.
8.4 DEFAULT INTEREST. Notwithstanding any other provision of
this Agreement to the contrary, if the Borrower shall fail to pay any amount
owing to the Lender under this
31
Agreement when due (whether at stated due date, on acceleration or otherwise),
then the Borrower will pay interest to the Lender, payable on demand, on the
amount in default from the date such payment became due until payment in full at
a rate equal to the rate of interest payable on the Loans immediately prior to
the date of such default plus 10% per annum, such rate to change as and when the
Applicable Margin would otherwise change as provided herein.
32
SECTION 9. MISCELLANEOUS
9.1 LIMITATIONS ON RECOURSE. (a) Subject to the
qualifications set forth in this Section 9.1, the Lender shall not enforce the
liability of the Borrower to pay and perform the Obligations by an action or
proceeding wherein a money judgment shall be sought against the Borrower, except
that the Lender may bring a foreclosure action, an action for specific
performance or any other appropriate action or proceeding to enable the Lender
to enforce this Agreement and the Related Documents and realize upon any
Collateral; PROVIDED, HOWEVER, that, except as specifically provided in this
Section, any judgment in any such action or proceeding shall be enforceable
against the Borrower only to the extent of the interest of the Borrower in the
Collateral. By accepting this Agreement and the Related Documents, the Lender
agrees that it shall not sue for, seek or demand any deficiency judgment against
the Borrower in any such action or proceeding under, by reason of or in
connection with this Agreement or the Related Documents. The provisions of this
Section shall not, however: (i) constitute a waiver, release or impairment of
any obligation evidenced or secured by this Agreement or the Related Documents;
(ii) affect the validity or enforceability of any guaranty or indemnity made in
connection with this Agreement or of any Collateral therefor; (iii) impair the
right of the Lender to obtain the appointment of a receiver; (iv) impair the
right of the Lender to bring suit with respect to fraud or intentional
misrepresentation by the Borrower or any other Person in connection with this
Agreement or the Related Documents; or (v) affect the validity or enforceability
of this Agreement or the Related Documents or limit (except as expressly
provided) the liability of the Borrower or any other party thereunder.
(b) Nothing herein shall be deemed to be a waiver of any right
which the Lender may have under Section 506(a), 506(b), 1111(b) or any other
provisions of the U.S. Bankruptcy Code to file a claim for the full amount of
the Loans or to require that all Collateral shall continue to secure all of the
Obligations owing to the Lender in accordance with this Agreement and the
Related Documents.
(c) Notwithstanding the foregoing provisions of this Section or
any other provision in this Agreement or any of the Related Documents, the
Borrower, the Principal, SLGM, SLGP and any other guarantor of the Loans shall
be fully liable for and shall indemnify the Lender for any and all loss, cost,
liability, judgment, claim, damage or expense sustained, suffered or incurred by
the Lender (including, without limitation, Lender's reasonable attorneys' fees)
arising out of or attributable or relating to:
(i) Physical waste of all or any portion of the Collateral,
any property in which the Collateral represents a direct or indirect
interest or any property included in the Portfolio;
(ii) The wrongful removal or disposal of any portion of the
Collateral, any property in which the Collateral represents a direct or
indirect interest or any property included in the Portfolio after a
Default under this Agreement or any of the Related Documents;
33
(iii) The failure to have in effect the insurance coverages
required under this Agreement or any of the Related Documents, which
failure continues unremedied for a period of thirty (30) days after
notice thereof to the party obligated to maintain such insurance and the
Borrower by the Lender; and
(iv) The breach of any indemnification obligation owing to the
Lender or any other indemnitee under this Agreement or any of the
Related Documents which breach continues unremedied for a period of
thirty (30) days after notice thereof to the breaching party and the
Borrower by the Lender;
(d) Notwithstanding the foregoing, the agreement of the
Lender not to pursue recourse liability as set forth in subsection (a) above
SHALL BECOME NULL AND VOID and shall be of no further force or effect in the
event: (i) of a voluntary bankruptcy or insolvency proceeding of the Borrower,
the Principal, SLGM, SLGP or any other guarantor of the Loans; (ii) of the
Borrower's, SLGP's or any other guarantor's failure to permit or cause its
Affiliates to permit, as applicable, inspections of properties, books and
records as provided herein or in any of the other Related Documents or to
provide financial reports and information as required by this Agreement; (iii)
any financial information concerning the Borrower, the Principal, SLGM, SLGP or
any other guarantor of the Loans proving to be fraudulent or misrepresenting in
any material respect the financial condition of the Borrower, the Principal,
SLGM, SLGP or any other guarantor of the Loans; (iv) the misapplication or
conversion of any distributions, insurance proceeds, awards, rents, issues,
profits, proceeds, accounts, or other amounts received by the Borrower, the
Principal, SLGM, SLGP or any other guarantor of the Loans; (v) fraud or material
misrepresentation by the Borrower, the Principal, SLGM, SLGP or any other
guarantor of the Loans in connection with the Loans; (vi) the gross negligence
or willful misconduct of the Borrower, the Principal, SLGM, SLGP or their
respective agents or employees; or (vii) the Borrower, the Principal, SLGM, SLGP
or any other guarantor of the Loans contests the validity or enforceability of
this Agreement or any of the Related Documents and/or asserts defenses for the
sole purpose of delaying, hindering, or impairing the Lender's rights or
remedies under this Agreement or the Related Documents.
9.2 AMENDMENTS. This Agreement may be amended, or any
provision waived, only by an instrument in writing executed by each of the
Borrower and the Lender. Any waiver given shall be effective only in the
specific instance and for the specific purpose for which it is given.
9.3 NOTICES. Except as expressly otherwise provided herein,
all notices, requests and demands to or upon the respective parties hereto to be
effective shall be in writing (including by telecopy or telex), and shall be
deemed to have been duly given or made when delivered by hand, or one Business
Day after being sent by overnight mail, or five (5) Business Days after being
deposited in the mail, postage prepaid, or, in the case of telecopy notice, when
acknowledged as received addressed as follows, or to such other address as may
be hereafter notified by the respective parties hereto and any future holders of
the Notes:
34
The Lender: Lehman Brothers Holdings Inc.
3 World Financial Center
New York, New York 10285
Attn: Yon Cho
Tel.: (212) 526-2103
Fax: (212) 526-3738
with a copy of each such notice to:
Rogers & Wells
200 Park Avenue
New York, New York 10166
Attn: G. David Brinton
Tel.: (212) 878-8276
Fax: (212) 878-8375
The Borrower: Green Realty LLC
70 West 36th Street
New York, New York 10018
Attn: Stephen L. Green
Tel.: (212) 594-2700
Fax: (212) 594-2262
with a copy of each such notice to:
S.L. Green Properties, Inc.
70 West 36th Street
New York, New York 10018
Attn: Benjamin P. Feldman
Tel.: (212) 594-2700
Fax: (212) 594-2262
and
Robert R. Ivanhoe
Greenburg, Traurig, Hoffman, Lipoff,
Rosen & Quental
153 East 53rd Street
35th Floor
New York, New York 10022
Tel: (212) 801-9333
Fax: (212) 223-7161
35
PROVIDED that any notice to the Lender pursuant to Section 2 shall not be
effective until actually received. Any notice, request or demand received on a
day which is not a Business Day shall be deemed to have been received on the
next following Business Day.
9.4 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise
and no delay in exercising, on the part of the Lender, of any right, remedy,
power or privilege hereunder, shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, remedy, power or privilege hereunder
preclude any other or further exercise thereof or the exercise of any other
right, remedy, power or privilege. The rights, remedies, powers and privileges
herein provided are cumulative and not exclusive of any rights, remedies, powers
and privileges provided at law, in equity or otherwise.
9.5 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made hereunder and in any document, certificate
or statement delivered pursuant hereto or in connection herewith shall survive
the execution and delivery of this Agreement and the Related Documents.
9.6 PAYMENT OF LENDER'S EXPENSES, INDEMNITY, ETC. The
Borrower shall:
(a) whether or not the transactions hereby contemplated are
consummated, pay all out-of-pocket costs and expenses of the Lender in
connection with the closing of the Loans made pursuant to this Agreement up to a
limit of $40,000; PROVIDED, HOWEVER, that any unused portion of the loan
application fee of $25,000, heretofore paid to the Lender, shall be credited
against such costs and expenses;
(b) pay, and hold the Lender harmless from and against, any
and all present and future stamp, excise and other similar taxes and hold the
Lender harmless from and against any and all liabilities with respect to or
resulting from any delay or omission (other than to the extent attributable to
the Lender) to pay such taxes; and
(c) indemnify the Lender, its officers, directors, employees,
representatives and agents and any persons or entities owned or controlled by,
owning or controlling, or under common control or Affiliated with Lender (each
an "INDEMNITEE") from, and hold each of them harmless against, any and all
losses, liabilities, claims, damages, expenses, obligations, penalties, actions,
judgments, suits, costs or disbursements of any kind or nature whatsoever
(including, without limitation, the reasonable fees and disbursements of counsel
for such Indemnitee in connection with any investigative, administrative or
judicial proceeding commenced or threatened, whether or not such Indemnitee
shall be designated a party thereto) that may at any time (including, without
limitation, at any time following the payment of the Obligations) be imposed on,
asserted against or incurred by any Indemnitee as a result of, or arising out
of, or in any way related to or by reason of, (i) any of the transactions
contemplated under, or the execution, delivery or performance of, this Agreement
or any of the Related Documents, (ii) the breach of any of the Borrower's, the
Principal's, SLGM's or SLGP's representations and warranties or of any of their
respective agreements or obligations hereunder or under any of the Related
Documents to which it is a party, and (iii) the exercise by the Lender of its
rights and remedies (including, without limitation, foreclosure) under this
36
Agreement or any Related Document (but excluding, as to any Indemnitee, any such
losses, liabilities, claims, damages, expenses, obligations, penalties, actions,
judgments, suits, costs or disbursements to the extent incurred solely by reason
of the gross negligence or willful misconduct of such Indemnitee as finally
determined by a court of competent jurisdiction). Borrower's obligations under
this subsection shall survive the termination of this Agreement and the payment
of the Obligations.
9.7 BENEFIT OF AGREEMENT; ASSIGNMENTS AND PARTICIPATIONS. (a)
This Agreement shall be binding upon and inure to the benefit of the Borrower,
the Lender, all future holders of the Notes and their respective successors and
assigns, except that the Borrower may not assign or transfer any of its rights
or obligations under this Agreement without the prior written consent of the
Lender.
(b) The Lender shall have the right to enter into one or more
participations, sales or assignments of all or any portion of any Loan.
9.8 HEADINGS. The Section and subsection headings in this
Agreement are for convenience of reference only and shall not affect the
interpretation hereof.
9.9 GOVERNING LAW. THIS AGREEMENT AND THE RELATED DOCUMENTS
AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT AND THE
RELATED DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
9.10 SUBMISSION TO JURISDICTION. The Borrower hereby
irrevocably and unconditionally: (i) submits for itself and its property in any
legal action or proceeding relating to this Agreement or any Related Document,
or for recognition and enforcement of any judgment in respect thereof, to the
non-exclusive jurisdiction of the courts of the State of New York, the courts of
the United States of America for the Southern District of New York, and
appellate courts from any thereof; (ii) consents that any such action or
proceeding may be brought in such courts, and waives any objection that it may
now or hereafter have to the venue of any such action or proceeding in any such
court or that such action or proceeding was brought in an inconvenient court and
agrees not to plead or claim the same; (iii) agrees that service of process in
any such action or proceeding may be effected by mailing a copy thereof by
registered or certified mail (or any substantially similar form of mail),
postage prepaid, to the Borrower at its address set forth in or designated
pursuant to Section 9.2; and (iv) agrees that nothing herein shall affect the
right to effect service of process in any other manner permitted by law or shall
limit the right to sue in any other jurisdiction.
9.11 WAIVER OF JURY TRIAL. EACH OF THE PARTIES TO THIS
AGREEMENT IRREVOCABLY AND UNCONDITIONALLY WAIVES ALL RIGHT TO TRIAL BY JURY AS
TO ANY ISSUE RELATING HERETO IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING
OUT OF OR RELATING TO THIS AGREEMENT.
37
9.12 CONFIDENTIALITY. The Lender agrees to hold any non-public
information which it may receive from the Borrower pursuant to this Agreement in
confidence, except for disclosure to (i) employees, directors, agents, legal
counsel, accountants and other professional advisors on a need-to-know basis,
(ii) regulatory officials, (iii) as required by law or legal process or in
connection with any legal proceeding, and (iv) another financial institution in
connection with a disposition or proposed disposition of the Lender's interests
hereunder or under the Related Documents, upon execution by such institution of
an agreement to keep such information confidential to the extent described in
this Section 9.12. Notwithstanding (ii) and (iii) above, in the event that the
Lender is requested pursuant to, or required by, applicable law, regulation,
legal process, or Governmental Authority to disclose any such information, the
Lender will provide the Borrower with prompt notice of such request or
requirement in order to enable the Borrower to seek an appropriate protective
order or other remedy, or to consult with the Lender with respect to the
Borrower's taking steps to resist or narrow the scope of such request or legal
process. If, in such event, the Borrower has not provided the Lender with a
protective order or other remedy in sufficient time, for the Lender, acting in
good faith and otherwise in its sole discretion, to avoid unlawful nondisclosure
of such information, the Lender may disclose such information pursuant to such
law, regulation, or in such legal process, or to such Governmental Authority, as
the case may be, without any recourse or remedy against the Lender by the
Borrower which the Borrower hereby expressly waives.
38
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and delivered by their proper and duly authorized officers
as of the day and year first above written.
LEHMAN BROTHERS HOLDINGS INC.
By: /s/ Yon Cho
---------------------------------
Name: Yon Cho
Title: Vice President
GREEN REALTY LLC
By: S.L. Green Properties, Inc.
its sole member
By: /s/ Stephen L. Green
---------------------------------
Name: Stephen L. Green
Title: President
39
AMENDMENT NO. 1
TO
CREDIT AGREEMENT
Amendment No. 1, dated as of the ____ day of June, 1997, to the Credit
Agreement, dated as of March 24, 1997 (the "Credit Agreement"), among Green
Realty LLC (the "Borrower") and Lehman Brothers Holdings Inc. (the "Lender").
WHEREAS, the Borrower has requested that the Lender increase the
Tranche B Commitment under the Credit Agreement; and
WHEREAS, the Lender has agreed to such request on the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration (the receipt and adequacy of which are hereby
acknowledged), the parties hereto hereby agree as follows:
1. DEFINITIONS. All capitalized terms used herein which are defined
in the Credit Agreement and not otherwise defined herein are used herein as
defined therein.
2. AMENDMENTS TO CREDIT AGREEMENT.
(a) The definition of "Applicable Margin" Section 1.1 of the Credit
Agreement is amended in its entirety to read as follows:
"APPLICABLE MARGIN": shall mean (x) with respect to that portion of
the outstanding principal amount of Tranche B Loans not exceeding
$15,000,000 for any period set forth below, the amount per annum set
forth opposite such period:
PERIOD RATE
Closing Date to but not
including September 24, 1998 2.75%
September 24, 1998 to but not
including March 24, 1999 (if
applicable) 3.75%
(y) for that portion of the outstanding principal amount of Tranche B
Loans in excess of $15,000,000 for any period set forth below, the
amount per annum set forth opposite such period (as such rate may be
increased pursuant to clause (z):
PERIOD RATE
Closing Date to and including
December 31, 1997 2.75%
From and including January 1,
1998 and thereafter 3.75%
and (z) for that portion of the outstanding principal amount of
Tranche B Loans in excess of $20,000,000 for any period set forth
below, the amount per annum set forth opposite such period:
PERIOD RATE
From and including September 24,
1998 and thereafter 4.75%
(b) The first sentence of Section 2.2(a) of the Credit Agreement is
amended by deleting the figure "$15,000,000" and replacing it with
"$26,000,000".
(c) The reference to "Tranche B Term Note" in Section 2.2(g) of the
Credit Agreement is amended to mean the Tranche B Note annexed hereto as Exhibit
A.
(d) Section 3.2(b) of the Credit Agreement is amended in its entirety
to read as follows:
(b) On each date on or before the close of business on December 31,
1997 on which the principal of any Tranche B Term Loan is repaid or
prepaid, the Borrower shall pay to the Lender a fee equal to 1% of the
principal amount of the Tranche B Term Loan repaid or prepaid;
provided that the aggregate fees payable with respect to such
repayments or prepayments made in 1997 shall not exceed $150,000. On
each date after December 31, 1997 on which the principal of any
Tranche B Term Loan is repaid or prepaid, the Borrower shall pay to
the Lender a fee equal to (i) in the case of repayments and
prepayments made after December 31, 1997 and not exceeding $20,000,000
in aggregate principal amount, 1% of the principal amount of the
Tranche B Term Loans repaid or prepaid and (ii) in the case of
repayments or prepayments exceeding $20,000,000 in aggregate principal
amount, 2% of the principal amount of such excess.
3. REPRESENTATIONS AND WARRANTIES. In order to induce the Lender to
enter into this Amendment No. 1, Borrower makes the following representations
and warranties to the Lender which shall survive the execution and delivery
hereof:
(a) The execution and delivery of this Amendment No. 1 has been
authorized by all necessary action on the part of Borrower and its members, this
Amendment No. 1 has been duly executed and delivered by the Borrower, and this
Amendment No. 1 and the Credit Agreement, as amended hereby constitute the
legal,
- NEXTRECORD -
valid and binding obligations of the Borrower enforceable in accordance with
their respective terms subject to applicable bankruptcy, insolvency,
reorganization and other laws affecting creditors' rights generally, moratorium
laws from time to time in effect and general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law);
(b) Neither the execution and delivery of this Amendment No. 1, nor
the consummation by the Borrower of the transactions herein contemplated, nor
compliance by the Borrower with the terms, conditions and provisions hereof will
conflict with or result in a breach of any of the terms, conditions or
provisions of (i) the organizational documents of the Borrower; (ii) any other
agreement or instrument to which the Borrower is now a party or by which it or
its property is, or may be, bound, or constitute a default thereunder, or result
thereunder in the creation or imposition of any security interest, mortgage,
lien, charge or encumbrance of any nature whatsoever upon any of the properties
or assets of the Borrower; (iii) any judgment or order, writ, injunction or
decree of any court; or (iv) any requirement of law;
(c) No action of, or filing with, any governmental or public body or
authority is required to authorize, or is otherwise required in connection with
the execution, delivery and performance of this Amendment No. 1 by the Borrower;
and
(d) The representations and warranties set forth in Section 4 of the
Credit Agreement are true and correct as of the date hereof.
4. CONDITIONS PRECEDENT. This Amendment No. 1 shall not be
effective until the Lender shall have received duly executed originals of the
following documents:
(a)This Amendment No. 1 executed by the Borrower;
(b) Acknowledgments and Consents from the parties to the Related
Documents with respect to this Amendment No. 1 in form and substance
satisfactory to the Lender;
(c) a replacement Tranche B Term Note in the form annexed hereto as
Exhibit A, executed by the Borrower; and
(d) A favorable opinion of counsel to the Borrower and the parties to
the Related Documents in form and substance satisfactory to Lender.
5. EXPENSES. The Company shall pay all reasonable expenses,
including, without limitation, the reasonable legal fees incurred by Lender in
connection with the preparation, negotiation, execution and delivery and review
of this Amendment No. 1, and all other documents and instruments executed in
connection with this transaction.
6. REFERENCES TO CREDIT AGREEMENT. The Credit Agreement is, and
shall continue to be, in full force and effect and is hereby ratified and
confirmed in all respects except that after giving effect to this Amendment No.
1 all references in the Credit Agreement to "this Agreement", "hereto",
"hereof", "hereunder" or words of like import referring to the Credit Agreement
shall mean the Credit Agreement, as amended.
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7. AMENDMENT NO. 1. This Amendment No. 1 is limited as written and
shall not be deemed (i) to be an amendment of or a consent under or waiver of
any other term or condition of the Credit Agreement, or any of the various
agreements guaranteeing or securing the obligations of the Borrower under the
Credit Agreement or (ii) to prejudice any right or rights which the Lender now
has or may have in the future under or in connection with the Credit Agreement
or such other agreements except as expressly waived hereby.
8. GOVERNING LAW. This Amendment No. 1, including the validity
thereof and the rights and obligations of the parties hereunder, shall be
construed in accordance with and governed by the laws of the State of New York.
IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 1
this ____ day of June, 1997.
LEHMAN BROTHERS HOLDINGS INC.
By: ______________________________
Name:
Title:
Green Realty LLC
By: S.L. Green Properties, Inc.
its sole member
By: ______________________________
Name: Stephen L. Green
Title: President
- NEXTRECORD -
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Amendment No. 1 to Form S-11) and related Prospectus of
SL Green Realty Corp. (the "Company") for the registration of 11,615,000 shares
and to the use of our reports dated (i) June 12, 1997 with respect to the
balance sheet of the Company as of June 12, 1997; (ii) April 16, 1997, except
for note 9, as to which the date is May 27, 1997 with respect to the combined
financial statements of SL Green Predecessor for each of the three years in the
period ended December 31, 1996; and (iii) April 16, 1997 with respect to the
combined financial statements of the uncombined joint ventures of SL Green
Predecessor for each of the three years in the period ended December 31, 1996.
We also consent to the use of our reports dated (i) May 2, 1997 with respect to
the Statement of Revenues and Certain Expenses of 1414 Avenue of the Americas
for the year ended December 31, 1995, (ii) May 7, 1997 with respect to the
Statement of Revenues and Certain Expenses of 36 West 44th Street for the year
ended December 31, 1996, (iii) May 2, 1997 with respect to the Statement of
Revenues and Certain Expenses of 1372 Broadway for the year ended December 31,
1996, (iv) May 23, 1997 with respect to the Statement of Revenues and Certain
Expenses of 1140 Avenue of the Americas for the year ended December 31, 1996,
and (v) May 29, 1997 with respect to the Statement of Revenues and Certain
Expenses of 50 West 23rd Street for the year ended December 31, 1996.
/s/ Ernst & Young LLP
New York, New York
July 21, 1997
EXHIBIT 23.3
CONSENT
Rosen Consulting Group hereby consents to the use of its report regarding
the New York metropolitan economy and Manhattan office market and the references
to the firm and such report under the caption "Market Overview" in the
Registration Statement on Form S-11 of SL Green Realty Corp.
Rosen Consulting Group
By: /s/ Kenneth T. Rosen
------------------------------------------------------------------------------
Name: Kenneth T. Rosen
Title: President
Date: July 24, 1997
EXHIBIT 99.3
CONSENT OF DIRECTOR NOMINEE
To SL Green Realty Corp.:
Pursuant to Rule 438 promulgated under the Securities Act of 1933, as
amended, I hereby consent to the references in the Registration Statement of SL
Green Realty Corp. (the "Company") on Form S-11, and amendments thereto, which
indicate that I have accepted a nomination to become a director of the Company
subsequent to the closing of the Company's initial public offering.
/s/ John H. Alschuler, Jr.
Dated: July 16, 1997
Exhibit 99.4
The New York Metropolitan Economy
Summary
Strong growth of the national economy has benefited New York City, causing the
New York metropolitan economy to improve significantly in recent years.* In
fact, in July of 1996, Inc. Magazine named New York City as the Best Place to Do
Business, stating that urban, compact areas promote interaction among companies,
suppliers and customers. Manhattan is one of the worlds most important business
centers. As the headquarters of 47 Fortune 500 companies, Manhattan is home to
more Fortune 500 companies than any other city in the country. In addition to
its diverse base of large businesses, Manhattan also has a large base of small
companies. The New York City Office of the Comptroller reports that 99.7% of all
private sector businesses in New York City had fewer than 500 employees and that
these small businesses, representing 70.7% of the private sector work force,
added a net total of 68,821 jobs during 1994 and 1995; between the third
quarters of 1995 and 1996, almost 22,000 jobs were added at small businesses.
Sixty-four of the 100 largest law firms in the country have a presence in
Manhattan, and 27 of those are based there. Four of the Big Six accounting firms
are headquartered in Manhattan, and three of the four largest U.S. commercial
banks are based in Manhattan. In addition, four of the nations ten largest money
managers and 23 of the 25 largest securities firms are based in Manhattan. New
York City is one of the world's leading cultural centers. It is a world leader
in the advertising industry, and it has a large base of nonprofit organizations.
It also has the largest consulate community in the world, contributing to its
position as an international center of business an politics.
The outlook in the New York metropolitan area is for healthy private sector
employment growth through 2001, which should generate significant demand for
office space. Within Manhattan, Mayor Giuliani's efforts to improve services,
reduce taxes and crime, and streamline local government have made this vibrant
24-hour city more attractive to businesses. In addition, office rents in
Manhattan are relatively inexpensive when compared internationally with other
major cities. In January of 1997, Richard Ellis Company ranked Midtown Manhattan
13th among major business centers around the world in terms of office rents,
while downtown Manhattan ranked 37th. Many businesses are expanding within
Manhattan or opening local offices, and a number of companies have made long
term commitments to Manhattan by purchasing buildings or signing long term
leases. The emergence of the new media industry is another major boon for
Manhattan because these jobs have a high multiplier effect, generating jobs in
related industries, particularly in the services sector.
Economic Overview
Economic growth in the New York metropolitan statistical area (MSA) has
strengthened during the past several years. Private sector employment gained an
average of almost 44,000 jobs per year during the three years between 1994 and
1996 for an average annual growth rate of 1.4%. Between May of 1996 and 1997,
private sector employment growth was 1.7%, which is the strongest growth rate in
more than ten years. This 1.7% private sector growth rate represents the
addition of almost 55,000 jobs (see Figure 1 and Tables 1 and 2). The New York
MSA led the Northeast and ranked eighth in the nation in terms of the number of
jobs created in metropolitan statistical areas with more than 250,000 jobs
during the twelve months ended in May of 1997. The metropolitan area offers
- -------------
* The New York metropolitan area includes the following counties: Bronx,
Kings, New York, Putnam, Queens, Richmond, Rockland and Westchester.
several key competitive advantages, including access to a skilled work force,
customers, partners and investors, that make it a strategically advantageous
place to do business and which drive private sector employment growth. Similar
to each of the prior economic cycles, the New York metropolitan areas economy is
going through a reengineering process, characterized by the emergence of several
dynamic new industries and the streamlining of older industries, including the
public sector. It is primarily knowledge-based industries, such as the
securities industry, the new media industry and overall business services, that
are benefiting from the areas key strengths. Growth in these industries, in
turn, is fueling expansion in other sectors of the economy.
The vibrancy of New York City is a function of more than job growth. With about
8.6 million people in 1995 (including 7.4 million in New York City), the
metropolitan area ranks second only to Los Angeles in terms of population. Many
New Yorkers are highly educated. According to the 1990 Census, about 42% of the
population over the age of 25 in New York County had a bachelors degree and
almost half of those had a graduate or professional degree, rates that are well
above the national average. Manhattan is also a cultural hotspot, with many of
the nations and worlds leading restaurants, museums, and a rich concentration of
theater and performing arts. Because of the large number of people living and
working in such a small area, activity occurs around the clock, making New York
a 24-hour city.
Chart 1
(Bar Chart Regarding Absolute Change in Private Employment in the New York
Metropolitan Statistical Area ("MSA") from 1971 through the forecast for 1997)
Table 1
(Table regarding New York MSA Employment by Sector from 1988 through May 1997)
Table 1
New York MSA Employment by Sector (OOO)
1988 1989 1990 1991 1992 1993 1994 1995 1996 May 97
---- ---- ---- ---- ---- ---- ---- ---- ---- ------
Total Nonagricultural 4134.8 4138.0 4093.8 3878.8 3772.5 3772.6 3803.2 3820.3 3857.7 3909.0
% Change 0.5% 0.1% -1.1% -5.3% -2.7% 0.0% 0.8% 0.4% 1.0% 1.2%
Construction & Mining 153.5 152.4 144.3 123.8 107.8 106.4 110.6 112.1 114.2 117.1
% Change -0.7% -5.3% -14.2% -12.9% -1.3% 3.9% 1.4% 1.9% 3.5%
Manufacturing 450.3 435.6 410.6 377.1 358.1 348.8 337.6 328.9 318.5 315.6
% Change -2.4% -3.3% -5.7% -8.2% -5.0% -2.6% -3.2% -2.6% -3.2% -1.6%
Apparel & Textiles 103.4 102.3 96.4 89.7 86.5 83.9 79.3 -76.1 73.3 73.2
% Change -2.6% -1.1% -5.8% -7.0% -3.6% -3.0% -5.5% -4.0% -3.7% -2.3%
Printing & Publishing 100.5 98.0 94.5 86.9 82.0 81.9 82.2 82.2 81.3 81.6
% Change -3.2% -2.5% -3.6% -8.0% -5.6% -0.1% 0.4% 0.0% -1.1% 0.5%
T.C.P.U. 245.2 242.9 255.9 245.1 230.8 230.0 228.2 228.9 230.5 232.1
% Change 2.0% -0.9% 5.4% -4.2% -5.8% -0.3% -0.8% 0.3% 0.7% 0.6%
Communications* 77.7 23.7 75.8 74.8 70.7 69.6 68.6 68.7 69.4 71.2
% Change 1.8% -69.5% 219.8% -1.3% -5.5% -1.6% -1.4% 0.1% 1.0% 2.6%
Trade 758.1 751.7 726.3 676.2 652.9 645.4 653.6 667.6 673.7 679.3
% Change -0.0% 0.8% -3.4% -6.9% -3.4% -1.1% 1.3% 2.1% 0.9% 0.9%
Wholesale Trade 267.1 262.2 253.0 234.9 225.7 219.2 218.9 220.8 217.0 216.2
% Change -0.8% -1.8% -3.5% -7.2% -3.9% -2.9% -0.1% 0.9% -1.7% -0.3%
Retail Trade 491.0 489.5 473.3 441.3 427.2 426.3 434.7 446.9 456.7 463.1
% Change 0.4% -0.3% -3.3% -6.8% -3.2% -0.2% 2.0% 2.8% 2.2% 1.5%
General Merchandise 67.9 64.0 58.7 53.8 49.2 46.0 43.5 44.2 46.0 44.0
% Change -2.0% -5.7% -8.3% -8.3% -8.6% -6.5% -5.4% 1.6% 4.1% -1.8%
Apparel & Accessories 52.5 54.1 53.9 50.0 48.9 50.1 51.0 52.8 52.0 51.8
% Change 0.6% 3.0% -0.4% -7.2% -2.2% 2.5% 1.8% 3.5% -1.5% 2.2%
Eating & Drink. Places 155.3 155.5 152.2 140.5 138.1 139.7 145.0 150.0 155.5 162.2
% Change 1.3% 0.1% -2.1% -7.7% -1.7% 1.2% 3.8% 3.4% 3.7% 2.2%
F.I.R.E. 577.4 566.4 555.6 528.1 508.0 505.0 513.3 505.5 504.1 507.5
% Change -1.0% -1.9% -1.9% -4.9% -3.8% -0.6% 1.6% -1.5% -0.3% 1.2%
Depository Institutions 185.1 179.7 175.8 163.9 148.3 142.3 139.2 134.0 130.2 127.5
% Change 2.8% -2.9% -2.2% -6.8% -9.5% -4.0% -2.2% -3.7% -2.8% -1.5%
Security Brokers 155.1 147.7 139.5 131.5 133.2 137.8 148.6 147.5 150.0 153.7
% Change -3.0% -4.8% -5.6% -5.7% 1.3% 3.5% 7.8% -0.7% 1.7% 4.0%
Services 1272.7 1304.8 1309.6 1252.9 1249.0 1275.1 1310.5 1350.6 1401.1 1447.0
% Change 1.3% 2.5% 0.4% -4.3% -0.3% 2.1% 2.8% 3.1% 3.7% 3.0%
Total Private 3457.1 3453.9 3402.3 3203.2 3106.6 3110.7 3154 3193.8 3242.2 3298.6
% Change 0.1% -0.1% -1.5% -5.9% -3.0% 0.1% 1.4% 1.3% 1.5% 1.7%
Government 677.7 684.1 691.5 675.6 665.9 661.9 649.2 626.5 615.5 610.4
% Change 2.4% 0.9% 1.1% -2.3% -1.4% -0.6% -1.9% -3.5% -1.8% -1.7%
Local Government 519.7 528.2 532.5 524.5 516.9 515.9 503.4 483.4 478.4 476.6
% Change 3.1% 1.6% 0.8% -1.5% -1.4% -0.2% -2.4% -4.0% -1.0% -1.3%
* According to the Bureau of Labor Statistics, employment in this sector was
affected by a strike in 1989.
Sources: Bureau of Labor Statistics, Rosen Consulting Group (RCG)
Table 2
(Table regarding New York MSA Employment by Sector - Absolute Change from 1988
through May 1997)
Table 2
New York MSA Employment by Sector-Absolute Change (O00)
1988 1989 1990 1991 1992 1993 1994 1995 1996 May 97
---- ---- ---- ---- ---- ---- ---- ---- ---- ------
Total Nonagricultural 4134.8 4138.0 4093.8 3878.8 3772.5 3772.6 3803.2 3820.3 3857.7 3909.0
Absolute Change 21.2 3.2 (44.2) (215.0) (106.3) 0.1 30.6 17.1 37.4 44.5
Construction & Mining 153.5 152.4 144.3 123.8 107.8 106.4 llO.6 112.1 114.2 117.1
Absolute Change (1.1) (8.1) (20.5) (16.0) (1.4) 4.2 1.5 2.1 4.0
Manufacturing 450.3 435.6 410.6 377.1 358.1 348.8 337.6 328.9 318.5 315.6
Absolute Change (11.0) (14.7) (25.0) (33.5) (19.0) (9.3) (11.2) (8.7) (10.4) (5.2)
Apparel & Textiles 103.4 102.3 96.4 89.7 86.5 83.9 79.3 76.1 73.3 73.2
Absolute Change (2.8) (1.1) (5.9) (6.7) (3.2) (2.6) (4.6) (3.2) (2.8) (1.7)
Printing & Publishing 100.5 98.0 94.5 86.9 82.0 81.9 82.2 82.2 81.3 81.6
Absolute Change (3.3) (2.5) (3.5) (7.6) (4.9) (0.1) 0.3 0.0 (0.9) 0.4
T.C.P.U. 245.2 242.9 255.9 245.1 230.8 230.0 228.2 228.9 230.5 232.1
Absolute Change 4.7 (2.3) 13.0 (10.8) (14.3) (0.8) (1.8) 0.7 1.6 1.3
Communications* 77.7 23.7 75.8 74.8 70.7 69.6 68.6 68.7 69.4 71.2
Absolute Change 1.4 (54.0) 52.1 (1.0) (4.1) (1.1) (1.0) 0.1 0.7 1.8
Trade 758.1 751.7 726.3 676.2 652.9 645.4 653.6 667.6 673.7 679.3
Absolute Change (0.2) (6.4) (25.4) (50.1) (23.3) (7.5) 8.2 14.0 6.1 6.3
Wholesale Trade 267.1 262.2 253.0 234.9 225.7 219.2 218.9 220.8 217.0 216.2
Absolute Change (2.2) (4.9) (9.2) (18.1) (9.2) (6.5) (0.3) 1.9 (3.8) (0.6)
Retail Trade 491.0 489.5 473.3 441.3 427.2 426.3 434.7 446.9 456.7 463.1
Absolute Change 2.0 (1.5) (16.2) (32.0) (14.1) (0.9) 8.4 12.2 9.8 6.9
General Merchandise 67.9 64.0 58.7 53.8 49.2 46.0 43.5 44.2 46.0 44.0
Absolute Change (1.4) (3.9) (5.3) (4.9) (4.6) (3.2) (2.5) 0.7 1.8 (0.8)
Apparel & Accessories 52.5 54.1 53.9 50.0 48.9 50.1 51.0 52.8 52.0 51.8
Absolute Change 0.3 1.6 (0.2) (3.9) (1.1) 1.2 0.9 1.8 (0.8) 1.1
Eating & Drink. Places 155.3 155.5 152.2 140.5 138.1 139.7 145.0 150.0 155.5 162.2
Absolute Change 2.0 0.2 (3.3) (11.7) (2.4) 1.6 5.3 5.0 5.5 3.5
F.I.R.E. 577.4 566.4 555.6 528.1 508.0 505.0 513.3 505.5 504.1 507.5
Absolute Change (5.6) (11.0) (10.8) (27.5) (20.1) (3.0) 8.3 (7.8) (1.4) 6.1
Depository Institutions 185.1 179.7 175.8 163.9 148.3 142.3 139.2 134.0 130.2 127.5
Absolute Change 5.1 (5.4) (3.9) (11.9) (15.6) (6.0) (3.1) (5.2) (3.8) (2.0)
Security Brokers 155.1 147.7 139.5 131.5 133.2 137.8 148.6 147.5 150.0 153.7
Absolute Change (4.8) (7.4) (8.2) (8.0) 1.7 4.6 10.8 (1.1) 2.5 5.9
Services 1272.7 1304.8 1309.6 1252.9 1249.0 1275.1 1310.5 1350.6 1401.1 1447.0
Absolute Change 16.9 32.1 4.8 (56.7) (3.9) 26.1 35.4 40.1 50.5 42.3
Total Private 3457.1 3453.9 3402.3 3203.2 3106.6 3110.7 3154 3193.8 3242.2 3298.6
Absolute Change 5.0 (3.2) (51.6) (199.1) (96.6) 4.1 43.3 39.8 48.4 54.8
Government 677.7 684.1 691.5 675.6 665.9 661.9 649.2 626.5 615.5 610.4
Absolute Change 16.2 6.4 7.4 (15.9) (9.7) (4.0) (12.7) (22.7) (11.0) (10.3)
Local Government 519.7 528.2 532.5 524.5 516.9 515.9 503.4 483.4 478.4 476.6
Absolute Change 15.6 8.5 4.3 (8.0) (7.6) (1.0) (12.5) (20.0) (5.0) (6.1)
* According to the Bureau of Labor Statistics, employment in this sector was
affected by a strike in 1989.
Sources: Bureau of Labor Statistics, Rosen Consulting Group (RCG)
From a quality of life perspective, Mayor Giuliani's efforts to improve city
services, reduce taxes and crime, and streamline city government are paying off.
Crime is down dramatically in New York City, particularly compared to national
crime trends (see Figure 2). Preliminary estimates for 1996 show that New York
City ranked 159th for total crime among the 198 largest U.S. cities. New York
City ranked lower than Atlanta (1), Miami (8), Phoenix (42), Milwaukee (83) and
Philadelphia (114). According to the New York City Police Department, New York
City's crime rate decreased 16% during 1996, and the seven felony categories
have declined a cumulative 39% since 1993. This decrease is greater than any
other large U.S. city during the last three years. Several factors are
contriuting to this decline including increased drug enforcement efforts and
police redeployment to problem areas. The drastic reduction in crime has been a
boon to the tourism industry, which has experienced strong gains in visitor
volume, spending and hotel occupancy. In turn, reduced crime and more tourism
activity has stimulated after-business-hours activities such as theater, dining
and clubs, reinforcing New York's reputation as a 24-hour city.
Chart 2
(Chart regarding New York City Crimes Reported (per thousand inhabitants)
from 1950 through 1995)
Much of the recent job growth has occurred at small companies, defined as
businesses with fewer than 500 employees. Following the recession of the early
1990s, job growth at small firms recovered quickly, while large companies
languished. According to the New York City Office of the Comptroller, between
1984 and 1995, small businesses added 43,034 jobs, while large businesses lost
103,112 jobs. Growth in recent years has been the strongest. During 1994 and
1995, small businesses added 68,821 jobs, while large companies lost a small
number of jobs during this period, and between the third quarters of 1995 and
1996 (the most recent period for which data is available), small businesses
gained almost 22,000 jobs. About 99.7% of the businesses in New York City are
small businesses. About 90% of these small businesses employ fewer than 20
people, about 6.3% employ 20 to 50 people, 2.1% employ 50 to 100 people, and
only 1.6% employ 100 to 500 people. Many of these small businesses occupy Class
B office space. During 1996, 47% of the Class B leasing activity in Manhattan
was for blocks of space of less than 20,000 square feet, illustrating the
strong demand for Class B space by smaller tenants.
The Services Sector
The single fastest-growing employment sector in the New York metropolitan
economy in terms of jobs added is the services sector. The services sector grew
at a strong rate of 3.0% during the year ended in May of 1997 for the addition
of 42,300 jobs. With more than 1.4 million jobs, the services sector currently
represents 37% of the New York metropolitan areas total employment base and 44%
of its private sector employment base. Between 1992 and 1996, about 152,000 new
jobs were created in the services sector (see Figure 3).
One of the largest components of the services industry is business services,
with about 290,000 jobs as of May 1997, representing 20% of total services
employment. Fueling growth in the business services sector are the advertising
industry, the increased demand for computer programmers as well as the trend
towards hiring temporary workers as a way to maintain corporate flexibility and,
thus, to lower payroll costs. New York City's Madison Avenue dominates the
worlds advertising industry. Agencies in New York account for about half of all
advertising billings worldwide, and about one of every three advertising
professionals in America works in New York City. Other components of the
business services sector are the audio recording and the software industries.
Accordingly, the entertainment and information technology industries contribute
to the rapid growth within business services. Between 1992 and 1996, growth in
business services, fueled by the overall health of the local economy, averaged a
robust 4% per year, and between May of 1996 and 1997, business services grew
6.6% (see Table 3).
Chart 3
(Bar Chart regarding Absolute Change in Services Employment for the New York
MSA from 1971 through the forecast for 1997)
Table 3
(Table regarding New York MSA Services Sector Employment from 1988 through
May 1997)
Table 3
New York MSA Services Sector Employment (000)
1988 1989 1990 1991 1992 1993 1994 1995 1996 May 97
---- ---- ---- ---- ---- ---- ---- ---- ---- ------
Services 1272.7 1304.8 1309.6 1252.9 1249.0 1275.1 1310.5 1350.6 1401.1 1447.0
% Change 1.3% 2.5% 0.4% -4.3% -0.3% 2.1% 2.8% 3.1% 3.7% 3.0%
Business Services 289.1 292.6 278.6 243.0 233.9 240.2 248.4 254.7 273.7 290.4
% Change -11.1% 1.2% -4.8% -12.8% -3.7% 2.7% 3.4% 2.5% 7.5% 6.6%
Health Services 286.3 295.0 305.2 318.6 328.7 338.9 346.3 356.6 362.5 367.3
% Change 3.3% 3.0% 3.5% 4.4% 3.2% 3.1% 2.2% 3.0% 1.7% 1.5%
Social Services 130.9 135.7 142.3 146.0 153.3 159.6 166.0 169.4 171.7 174.4
% Change 2.1% 3.7% 4.9% 2.6% 5.0% 4.1% 4.0% 2.0% 1.4% 0.9%
Engin. & Mgmt. Svcs. 109.6 114.0 113.7 100.9 98.4 100.3 102.9 106.0 111.1 116.1
% Change 4.0% -0.3% -11.3% -2.5% 1.9% 2.6% 3.0% 4.8% 5.4%
Educational Services 112.7 114.3 115.0 111.3 109.7 110.6 114.2 121.5 130.2 138.3
% Change 4.3% 1.4% 0.6% -3.2% -1.4% 0.8% 3.3% 6.4% 7.2% 3.6%
Legal Services 74.9 79.8 80.9 76.5 74.6 74.4 73.8 72.7 73.1 72.4
% Change 4.2% 6.5% 1.4% -5.4% -2.5% -0.3% -0.8% -1.5% 0.6% 1.4%
Membership Orgs. 62.4 63.1 63.5 61.6 61.1 61.7 62.1 63.0 64.4 66.1
% Change 2.1% 1.1% 0.6% -3.0% -0.8% 1.0% 0.6% 1.4% 2.2% 0.9%
Hotels & Lodging 38.2 39.3 38.8 35.7 35.7 35.1 35.7 36.7 37.1 38.0
% Change 4.1% 2.9% -1.3% -8.0% 0.0% -1.7% 1.7% 2.8% 1.1% 0.8%
Amusement & Recr. 51.6 54.1 55.4 51.1 51.3 47.7 45.5 47.9 49.5 52.6
% Change 13.4% 4.8% 2.4% -7.8% 0.4% -7.0% -4.6% 5.3% 3.3% 4.8%
Motion Pictures 23.7 24.6 25.9 25.2 21.9 25.9 34.2 38.2 41.2 42.8
% Change 3.8% 5.3% -2.7% -13.1% 18.3% 32.0% 11.7% 7.9% 4.6%
Sources: Bureau of Labor Statistics, Rosen Consulting Group (RCG)
One very active area of small business creation is a new industry called new
media that is centered south of 41st Street in Midtown South's Silicon Alley.
The new media industry is a cross-disciplinary industry combining elements of
computing technology, telecommunications and media content (information,
entertainment, personal/group communications and transactions) to create
products and services which can be used interactively by consumers and business
users. The companies which work in this industry include entertainment software,
online/Internet services, CD-ROM title developers, and web site designers. In
addition, advertising and publishing companies participate in the industry,
although their core businesses remain outside new media in traditional business
lines. Roughly 1,250 firms in Manhattan belong to the new media industry, and
employment growth is expected to be a dramatic 30% per year through 1998. This
industry is expected to become a major growth sector in the Manhattan economy
for several reasons: (i) the focus of interactive media development is shifting
from CD-ROM to the World Wide Web, the authoring technology of which has been
more available to content creators; (ii) Manhattan is the home for many major
media companies (broadcast, cable TV networks, magazine and book publishing) and
these companies are moving the new media industry from experimentation to a more
mainstream role in multiple-media strategies; and (iii) Manhattan is the center
of the advertising industry, and advertising revenue is increasingly one of the
key drivers of the new media industry. Strong growth in the new media industry
will have major multiplier effects for the overall Manhattan economy. The direct
benefits of growth in this industry will flow to business services and to the
broadcast, publishing and advertising industries, all of which are concentrated
in Manhattan.
Other important components of the service sectors are legal services,
engineering and management services and membership organizations. Together,
these three subsectors added about 7,500 jobs between May of 1996 and 1997, many
of which occupy office space (see Table 4). Legal services is the third most
highly concentrated industry in the New York metropolitan area (see Table 5).
According to the National Law Journal, 64 of the 100 largest law firms have a
presence in Manhattan, and 27 of those firms are based in Manhattan. In
addition, hundreds of other domestic and international law firms are located in
Manhattan. In the engineering and management services sector, four of the Big
Six accounting firms have their national headquarters in Manhattan, and many of
the worlds foremost management consulting firms are located in Manhattan. In
addition, about 20,000 nonprofit organizations are based in New York City,
ranging from cultural groups and trade associations to research facilities.
Table 4
(Table regarding MSA Services Sector Employment - Absolute Growth from 1988
through May 1997)
Table 4
New York MSA Services Sector Employment-Absolute Growth (000)
1988 1989 1990 1991 1992 1993 1994 1995 1996 May 97
---- ---- ---- ---- ---- ---- ---- ---- ---- ------
Services 1272.7 1304.8 1309.6 1252.9 1249.0 1275.1 1310.5 1350.6 1401.1 1447.0
% Change 16.9 32.1 4.8 (56.7) (3.9) 26.1 35.4 40.1 50.5 42.3
Business Services 289 1 292.6 278.6 243.0 233.9 240.2 248.4 254.7 273.7 290.4
% Change (36.1) 3.5 (14.0) (35.6) (9.1) 6.3 8.2 6.3 19.0 18.O
Health Services 286.3 295.0 305.2 318.6 328.7 338.9 346.3 356.6 362.5 367.3
% Change 9.2 8.7 10.2 13.4 10.1 10.2 7.4 10.3 5.9 5.4
Social Services 130.9 135.7 142.3 146.0 153.3 159.6 166.0 169.4 171.7 174.4
% Change 2.7 4.8 6.6 3.7 7.3 6.3 6.4 3.4 2.3 1.5
Engin. & Mgmt. Svcs. 109.6 114.0 113.7 100.9 98.4 100.3 102.9 106.0 111.1 116.1
% Change 4.4 (0.3) (12.8) (2.5) 1.9 2.6 3.1 5.1 5.9
Educational Services 112.7 114.3 115.0 111.3 109.7 110.6 114.2 121.5 130.2 138.3
% Change 4.6 1.6 0.7 (3.7) (1.6) 0.9 3.6 7.3 8.7 4.8
Legal Services 74.9 79.8 80.9 76.5 74.6 74.4 73.8 72.7 73.1 72.4
% Change 3.0 4.9 1.1 (4.4) (1.9) (0.2) (0.6) (1.1) 0.4 1.0
Membership Orgs. 62.4 63.1 63.5 61.6 61.1 61.7 62.1 63.0 64.4 66.1
% Change 1.3 0.7 0.4 (1.9) (0.5) 0.6 0.4 0.9 1.4 0.6
Hotels & Lodging 38.2 39.3 38.8 35.7 35.7 35.1 35.7 36.7 37.1 38.0
% Change 1.5 1.1 (0.5) (3.1) 0.0 (0.6) 0.6 1.0 0.4 0.3
Amusement & Recr. 51.6 54.1 55.4 51.1 51.3 47.7 45.5 47.9 49.5 52.6
% Change 6.1 2.5 1.3 (4.3) 0.2 (3.6) (2.2) 2.4 1.6 2.4
Motion Pictures 23.7 24.6 25.9 25.2 21.9 25.9 34.2 38.2 41.2 42.8
% Change 0.9 1.3 (0.7) (3.3) 4.0 8.3 4.0 3.0 1.9
Sources: Bureau of Labor Statistics, Rosen Consulting Group (RCG)
Table 5
(Table regarding New York MSA Location Quotients (which measure the regional
concentration of employment in a particular industry))
Table 5
New York MSA Location Quotients
Sector Location Quotient*
- ------ ------------------
Security and Commodity Brokers 8.59
Apparel and Other Textile Products 2.68
Legal Services 2.43
Motion Pictures 2.43
Social Services 2.22
Educational Services 2.02
Depository Institutions 1.99
Local and lnterurban Passenger Transit 1.93
Miscellaneous Manufacturing Industries 1.91
Printing and Publishing 1.65
Communications 1.55
Apparel and Accessory Stores 1.46
Total Local Government 1.23
Engineering & Management Services 1.19
Business Services (incl. advertising, software & temp. workers) 1.18
Health Services 1.17
Insurance Carriers 1.16
Wholesale Trade 1.02
Amusement & Recreation Services 1.01
* A location quotient measures the regional concentration of employment in a
particular industry. If employment in an industry were evenly distributed
throughout the U.S., a region's location quotient would be 1.0.
Mathematically, it is defined as the ratio of the percentage of total
employment in industry x in a given region divided by the percentage of
total employment in industry x nationally.
Sources: U.S. Bureau of Labor Statistics, Rosen Consulting Group (RCG)
Motion pictures is another highly concentrated industry in the New York
metropolitan area. This is an export-oriented industry that has a large
multiplier affect on the local economy. Among the largest employers in New York
City are several major media and broadcasting companies, including Time Warner,
Westinghouse Electric, which owns CBS, and Walt Disney Company, which owns
Capital Cities/ABC (see Table 6). The motion picture industry alone added 19,300
new jobs between 1992 and 1996 in the New York MSA, representing stunning growth
averaging 17.1% per year.
The amusement and recreation services sector and hotel and lodging industry both
benefit from tourism and visitor spending. New York has a plethora of theater
and performing arts, which fuels growth in amusement and recreation. It is home
to some of the world's most famous museums, including the Metropolitan Museum of
Art, the Museum of Modern Art, the Guggenheim Museum, the Whitney Museum and the
Museum of Natural History. In the tourism industry, during 1996, total visitor
volume increased 1.8% to 30.3 million people, following growth of 3.0% during
1995. Visitor spending rose 5.4% to about $13 billion in 1996. This represents
roughly 3.8% of the gross city product of $343.1 billion. Visitor volume and
spending has benefited substantially from the dramatic decline in crime in New
York City over the past three years. Reflecting the strength of visitor
spending, the hotel and lodging industry is enjoying strong revenue growth.
Hotel occupancy was up to 81.5% in 1996 from 79.5% in 1995 and the average daily
room rate rose 10% to $170.50 during 1996 (see Figures 4 and 5). The number of
hotel room nights filled grew from 14.8 million in 1993 to 17.6 million in 1996,
representing a gain of 6% per year (see Figure ).
Table 6
(Table regarding New York City's Top Employers by Employees)
Table 6
New York City Top Employers
Rank Firm Employees Sector
---- ---- --------- ------
1 Chase Manhattan Corp. 31,000 Banking
2 NYNEX Corp. 25,000 Telecommunications
3 Citicorp 19,000 Banking
4 Columbia University 14,800 Education
5 Consolidated Edison of NY 14,700 Utility
6 New York University 14,000 Education
7 Travelers Group 12,000 Insurance/Financial
8 Time Warner, Inc. 10,400 Media
9 Merrill Lynch & Company 8,900 Financial Services
10 Bank of New York 8,600 Banking
11 New York Times 8,200 Publisher
12 American Airlines 7,900 Airline
13 J.P. Morgan & Company 7,200 Financial Services
14 Bankers Trust New York 7,150 Banking
15 Morgan Stanley 5,800 Financial Services
15 Bear Stearns 5,800 Financial Services
16 Lefrak Organization 5,700 Real Estate Developer
17 Walt Disney Company 5,500 Entertainment
18 Metropolitan Life Insurance Co. 5,150 Insurance
19 American International Group 4,950 Insurance
20 Federated Department Stores 4,900 Retail
20 Equitable Companies 4,900 Insurance/Financial
21 Westinghouse Electric Corp. 4,800 Broadcasting
Source: ND International Trade
While health, social and educational services are mainly population-serving and
thus do not create many office-occupying jobs, they contribute to growth in New
York's economy. Health services added about 5,400 jobs between May of 1996 and
1997, even though growth in this sector has been tempered in recent years by
restructuring in the City's public and private health industry. Among the
leading medical facilities in Manhattan area Columbia-Presbyterian and Cornell
Medical Centers and Memorial Sloan-Kettering Cancer Center. Manhattan is also
home to several internationally recognized universities, including Columbia
University, New York University, Rockefeller University and Fordham University.
These and other local institutes graduate thousands of students each year,
creating a large, high-level professional talent pool for New York employers.
Chart 4
(Bar Chart regarding New York City Hotel Occupancy Rates from 1990 through 1996)
Chart 5
(Bar Chart regarding New York City Average Daily Hotel Rates from 1990 through
1996)
Chart 6
(Bar Chart regarding New York City Hotel Room Nights Filled from 1991 through
the forecast for 1997)
The Trade Sector
In absolute numbers, the trade sector is the second largest and fastest growing
part of the metropolitan economy, with a gain of 6,300 jobs during the year
ended in May 1997 for a 0.9% growth rate. About 68% of the metropolitan areas
trade jobs are in the retail sector, where growth was an even stronger 1.5%
during the 12 months ended in May of 1997. The retail industry has benefited
from improved city services, reduced crime and an increase in the number of
visitors and their spending volume. The improved health of the New York economy
has stimulated spending by locals, and with about 169,000 households with income
exceeding $150,000 per year, many New York City residents have significant
disposable income with which to purchase goods and services. Increased spending
by locals combined with a higher level of visitor spending caused retail sales
growth in New York City to average 3.2% between 1994 and 1996, following four
years of declining retail sales (see Figure 7).
Chart 7
(Chart regarding New York City's Annual Percent Change in Retail Sales from 1987
through 1996)
Attesting to the strength of the retail trade sector, a number of retailers are
expanding in New York City and are adding new employees. Not only are big box
discount retailers establishing a niche, but upscale designers are opening
outlets. Kmart has opened stores on 34th Street west of 7th Avenue and at Astor
Place in the North of Houston Street (NoHo) area. Upscale designers and
manufacturers, such as Calvin Klein, Armani and Valentino, are also opening
retail stores. Demand from designers has reportedly caused rents on Madison
Avenue to rise 15% during each of the past three years to more than $300 per
square foot per year. In some cases, rents are $400 per square foot per year on
upper Madison Avenue and $500 per square foot on Fifth Avenue. Retail
development is also moving into the downtown and Times Square areas. In
downtown, Borders Books and Music has a new store in the World Trade Center, and
in the Times Square area, Forest City/Ratner is building a 25-screen AMC
multiplex with a Madame Tussaud's Wax museum that will contain 325,000 square
feet of retail space. Next to this project, Disney has redeveloped the New
Amsterdam Theatre. Also in the Times Square area, the Ford Motor Company will
open a new 1,839-seat theater called the Ford Center for Performance Arts in the
first quarter of 1998. In addition, Tishman Urban Development is building the
193,000 square-foot E-Walk retail complex in Times Square, and as part of he
E-Walk project, Disney plans to build a 45-story hotel. The redevelopment of
Times Square is expected to eventually create 20,000 jobs and to generate
significant new taxes.
Finance, Insurance and Real Estate Employment
Following several years of acquisitions and mergers in the commercial banking
industry, employment in the metropolitan areas overall finance, insurance and
real estate (FIRE) sector has turned the corner, with a 1.2% gain between May of
1996 and 1997. Half of New York City's top 23 employers are financial
institutions (see Table 6). According to Pensions and Investments magazine, four
of the ten largest money managers in the United States, ranked by total assets,
are based in Manhattan, and the Securities Industry Association reports that 23
of the 25 largest U.S. securities firms are based in Manhattan. In addition,
according to The American Banker, three of the nations top four commercial banks
are based in Manhattan.
Consolidation has occurred among some FIRE sector industries, including
commercial banks and insurance companies. Commercial banks have consolidated to
be competitive with non-bank institutions that now offer bank-like depository
and lending services. For example, the merger of
Chase Manhattan Bank and Chemical Banking Corporation is causing the loss of
4,000 jobs in the greater New York area. Because many of these jobs are retail
banking jobs, such as tellers, the effect on the office market has been
minimized. On a positive note for the FIRE sector, the consolidation of
commercial banks has created a much more competitive set of players in New York
City, and in some cases, consolidation of FIRE sector employers has translated
to new jobs for New York City. The consolidation of Mutual of New York's
operations has resulted in the relocation of 350 jobs to New York City. Other
companies in the FIRE sector, specifically international banks, are increasing
their presence in Manhattan. Foreign financial institutions, such as Deutsche
Bank and UBS Securities, have been hiring aggressively in Manhattan.
The securities industry represents 4% of the overall employment base in the
metropolitan area. Although it represents only a small part of the economy, this
industry is highly concentrated in the New York metropolitan area, and many of
the worlds most active underwriters are based in Manhattan or have a strong
presence there. Others, such as San Francisco-based Montgomery Securities, have
fairly recently established a presence in Manhattan. Wall Street accounts for
almost 14% of the city's total wages. Because per person wages on Wall Street
average $150,000, the multiplier effect of these jobs on other employment
sectors is large. The number of jobs in the securities and commodities brokers
employment sector in the New York metropolitan area increased an average of 2.7%
per year between 1991 and 1996, rising from a recession trough of 131,500 in
1991 to 153,700 jobs in May of 1997. Growth in this industry was instrumental in
turning the New York metropolitan economy around following the recession in the
early 1990s.
The securities industry has been very strong, and the recent acceleration of
initial public offerings and other investment banking activities should lead to
additional growth in this industry. n the long term, both the finance and
securities industries will contribute to local economic growth because of New
York's position as an international center of finance and securities innovation.
The Transportation, Communications, Public Utilities and Manufacturing Sectors
Employment in the New York metropolitan areas transportation, communications and
public utilities (TCPU) sector increased 0.6% between May of 1996 and 1997. The
communications part of this sector has been affected by the merger of several
Bell operating companies across the nation, the merger of cable and
entertainment firms, of publishers and broadcasters and of broadcasters and
entertainment firms. Some of the mergers have resulted in new jobs for the New
York metropolitan area as companies consolidate operations from other cities.
For example, the combined Bell Atlantic and Nynex will be headquartered in New
York City.
The New York metropolitan area has gradually shed manufacturing jobs. Because
New York is an urban center with high operating costs and difficult
transportation access, it is an unfavorable site for manufacturing, and many
traditional manufacturers have relocated. Both textiles and publishing have
moved out of the city. Many manufacturing firms have returned a large volume of
industrial space to the market, with such space gradually being converted to
office or residential uses. An increasing proportion of the manufacturing jobs
in New York are actually white-collar management or staff positions.
The Public Sector
New York City's government is reinventing itself. About 78% of the metropolitan
areas total government employment is in local government, and the remaining 22%
is state and federal government employment. Intense efforts to streamline the
government and to provide services more efficiently have caused local government
employment to decline by about 55,900 jobs, or 10.5%, between 1990 and May of
1997.
The strong growth in private sector employment, coupled with a much more
disciplined approach to city services and expenditures, have resulted in both a
greatly improved outlook for New York City's budget and higher quality of city
services. In May, Mayor Giuliani announced a New York City budget surplus of
$856 million for the fiscal year ending June 30, 1997. This increase in revenues
comes in spite of reduced taxes. Among the taxes that have been reduced or
eliminated are the commercial occupancy tax (on tenants), taxes on
proprietorships and partnerships, hotel occupancy taxes, transfer taxes and
gains taxes.
The overall business climate in New York has improved significantly as a result
of both private sector initiatives and public sector programs. The most visible
private sector initiatives have been the Business Improvement Districts (BIDs).
A BID is formed by a group of employers in a geographic area with the express
purpose of improving the business environment in the area through heightened
security, improved street cleaning and lighting and other business-enhancing
services. Following on the success of three large BIDs in the Grand Central
Terminal, Penn Station and Times Square areas, approximately 33 additional BIDs
in New York City have been created.
In addition, a number of public sector efforts have been launched to improve New
York City's business environment, specifically to retain the existing base of
employers and attract additional employers. For example, the New York Economic
Development Department has been involved with 23 transactions since mid-1994,
amounting to the retention of 55,482 jobs as of November of 1996. Most recently,
in April of 1997, Standard & Poor's Corporation agreed to keep its 2,057
employees in Manhattan through the year 2019 in exchange for a package of tax
incentives and energy discounts.
New York also has a large diplomatic community, affiliated with the United
Nations and local consulates. A report published by the New York City Commission
for the United Nations and Consular Corps reported that the United Nations
Headquarters, Agencies, Missions and Consulates spent about $1.5 billion in the
New York metropolitan area during 1994 with an indirect impact of $3 billion.
New York City also hosts the largest Consulate community in the world, which
attracts private sector foreign businesses. The large diplomatic community
contributes to New York's position as an important international center of
business and politics.
Employment Outlook
The outlook for the New York metropolitan economy is strong. Private sector
employment in the metropolitan area will grow at an average rate of 1.4% in 1997
and 1998 and will continue to increase at about 0.9% annually through 2001 (see
Table 7). The strong growth of the national
economy will fuel activity in the finance sector, which includes the securities
industry. However, much of the growth will continue to occur in the services
sector, especially in industries such as advertising, law, software, motion
pictures, hotels and tourism. Specifically, because of the large number of
corporate headquarters in New York and the city's position as the center for
much of the intellectual and creative aspects of business, local business
services such as advertising will benefit disproportionately from continued
strong growth in the national economy. Strong growth in small businesses, such
as those in the new media industry, will further enhance the growth prospects
for business services and, generally, other industries which provide services to
businesses.
Table 7
(Table regarding New York MSA Employment Forecast from 1995 through the forecast
for 2001).
Table 7
New York MSA Employment Forecast (000)
------
1995 1996 1997f 1998f 1999f 2000f 2001f
---- ---- ----- ----- ----- ----- -----
Total Nonagricultural 3820.3 3857.7 3915.3 3967.2 4009.8 4040.9 4076.2
% Change 1.0% 1.5% 1.3% 1.1% 0.8% 0.9%
Construction & Mining 112.1 114.2 117.1 118.8 118.8 119.2 119.9
% Change 1.9% 2.5% 1.5% 0.0% 0.3% 0.6%
Manufacturing 328.9 318.5 312.1 306.5 301.9 298.3 293.5
% Change -3.2% -2.0% -1.8% -1.5% -1.2% -1.6%
T.C.P.U 228.9 230.5 231.4 231.7 232.3 232.8 232.6
% Change 0.7% 0.4% 0.1% 0.3% 0.2% -0.1%
Trade 667.6 673.7 681.8 687.2 692.0 694.1 696.9
% Change 0.9% 1.2% 0.8% 0.7% 0.3% 0.4%
F.I.R.E 505.5 504.1 508.6 511.7 514.2 515.3 516.8
% Change -0.3% 0.9% 0.6% 0.5% 0.2% 0.3%
Services 1350.6 1401.1 1454.3 1503.8 1542.9 1573.7 1608.4
% Change 3.7% 3.8% 3.4% 2.6% 2.0% 2.2%
Total Private 3193.8 3242.2 3305.4 3359.7 3402.3 3433.4 3468.1
% Change 1.5% 1.9% 1.6% 1.3% 0.9% 1.0%
Government 626.5 615.5 610.0 607.5 607.5 607.5 608.1
% Change -1.8% -0.9% -0.4% 0.0% 0.0% 0.1%
------
Sources: Bureau of Labor Statistics, Rosen Consulting Group (RCG)
The Office Market
Summary
Manhattan is the largest office market in the country, with an overall stock of
more than 375 million square feet in the Midtown, Midtown South and Downtown
submarkets. The amount of space in Manhattan exceeds the combination of the next
six largest central business districts in the nation, those of Chicago, the
District of Columbia, Boston, San Francisco, Philadelphia and Los Angeles.
Within Manhattan, 45.7% of the space is classified as Class B space (see Table
8).* Almost 74% of the Class B space is located in the Midtown and Midtown South
submarkets combined, and about one fourth of the Class B space is located in
Downtown.**
Table 8
(Table regarding Manhattan Office Market Overview showing Class A and B stock,
Class A and B 2nd Quarter vacancy rates and 2nd Quarter Rents per square foot,
for different areas of Manhattan)
Table 8
Manhattan Office Market Overview
% of Stock 2Q97 Vacancy Rate 2Q97 Rent/SF
----------------- ----------------- -----------------
Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- -------
MT+MTS 70.2% 73.9% 10.1% 11.3% $37.42 $24.44
Midtown (MT) 67.9% 48.3% 10.0% 11.4% $37.88 $26.57
Midtown South (MTS) 2.4% 25.7% 13.3% 11.2% $27.40 $20.35
Downtown 29.8% 26.1% 13.5% 18.8% $28.19 $22.42
Total 54.3%* 45.7%* 11.1% 13.3% $34.08 $23.70
* Represents proportion of total Class A + Class B Stock
Sources: RELocate, Rosen Consulting Group (RCG)
Improved job growth in recent years, resulting from the recovery of the national
and New York metropolitan economies, has caused office market conditions in
Manhattan to strengthen. The overall Class B vacancy rate fell from 17.8% in
1992 to 13.3% in the second quarter of 1997, a rate that is only moderately
higher than the Class A vacancy rate of 11.1% (see Table 9). At 11.2%, Midtown
South has the lowest Class B vacancy rate, followed by Midtown, with an 11.4%
Class B vacancy rate. When combined, the second quarter 1997 Class B vacancy
rate for Midtown and Midtown South is 11.3%. Contributing to demand in the
Midtown area are existing Midtown Manhattan businesses that are expanding, as
well as some traditional Downtown tenants, such as banks and securities firms,
which have moved to Midtown in search of greater amenities and improved access
to transportation.
Table 9
(Table regarding summary of Manhattan Office Market Vacancy Rates for 1991
through the forecast for 2001)
Table 9
Summary of Manhattan Office Market Vacancy Rates
-----
1991 1992 1993 1994 1995 1996 2Q97 1997f 1998f 1999f 2000f 2001f
---- ---- ---- ---- ---- ---- ---- ----- ----- ----- ----- -----
Class B
Total 17.0% 17.8% 17.4% 15.6% 15.1% 13.1% 13.3% 11.4% 10.0% 9.0% 8.2% 7.3%
MT+MTS 15.7% 17.3% 16.4% 14.0% 12.8% 11.5% 11.3% 9.7% 8.4% 7.4% 6.6% 5.7%
Midtown(MT) 15.0% 16.8% 15.9% 14.2% 12.9% 11.3% 11.4% 9.5% 8.2% 7.2% 6.4% 5.5%
Midtown South (MTS) 17.1% 18.1% 17.4% 13.7% 12.8% 11.9% 11.2% 10.1% 8.8% 7.7% 6.9% 6.0%
Downtown 20.7% 19.3% 20.3% 20.2% 21.3% 17.8% 18.8% 16.0% 14.7% 13.6% 12.8% 11.9%
Class A
Total 18.1% 15.7% 14.8% 14.8% 15.2% 13.3% 11.1% 10.7% 8.7% 7.9% 7.2% 6.3%
MT + MTS 17.8% 14.4% 13.2% 13.6% 14.6% 12.2% 10.1% 9.6% 7.6% 7.1% 6.5% 5.9%
Midtown (MT) 18.3% 14.8% 13.6% 12.1% 14.3% 12.0% 10.0% 9.5% 7.5% 7.0% 6.5% 5.8%
Midtown South (MTS) 3.4% 2.6% 2.7% 55.9% 23.1% 18.6% 13.3% 13.1% 11.2% 9.6% 8.5% 7.1%
Downtown 18.8% 18.9% 18.5% 17.5% 16.8% 15.9% 13.5% 13.3% 11.4% 9.8% 8.6% 7.3%
-----
Sources: RELocate, Rosen Consulting Group (RCG)
During the next several years, overall market conditions will tighten further,
Class A rents will rise, and tenants will have fewer options for available Class
A space. As a result, we anticipate that demand for Class B space will increase,
especially in buildings with modern infrastructure and good locations, but which
offer rents that are less expensive than those in the Class A market. Additional
demand, combined with a lack of new construction for the near term, leads us to
believe that the overall Manhattan Class B vacancy rate will fall to 7.3% by
2001 and that the Class B vacancy rate in the combined area of Midtown and
Midtown South will fall to 5.7% by 2001 (see Table 10).
Table 10
(Table regarding Manhattan Class B Office Market Trends from 1991 through
the forecast for 2001)
Table 10
Manhattan Class B Office Market Trends (000)
1991 1992 1993 1994 1995 1996 2Q97 1997f 1998f 1999f
---- ---- ---- ---- ---- ---- ---- ----- ----- -----
Total Manhattan
Total Stock 172,940 172,940 173,028 173,028 173,028 173,028 173,028 173,028 173,028 173,028
New Construction 185 0 88 0 0 0 0 0 0 0
Net Absorption (1,342) 666 3,105 1,008 3,304 (232) 3,096 2,272 1,824
Occupied Stock 143,542 142,200 142,866 145,971 146,979 150,283 150,051 153,379 155,652 157,476
Vacancy Rate 17.0% 17.8% 17.4% 15.6% 15.1% 13.1% 13.3% 11.4% 10.0% 9.0%
Avg. Asking Rent $ 23.21 $ 22.23 $ 22.15 $ 22.02 $ 22.32 $ 22.54 $ 23.70 $ 23.71 $ 24.66 $ 25.93
% Change -4.2% -0.4% -0.6% 1.4% 1.0% 5.2% 4.0% 5.1%
Midtown + Midtown South
Total Stock 127,829 127,829 127,917 127,917 127,917 127,917 127,917 127,917 127,917 127,917
New Construction 185 0 88 0 0 0 0 0 0 0
Net Absorption (1,978) 1,144 3,032 1,532 1,711 219 2,289 1,680 1,349
Occupied Stock 107,755 105,777 106,921 109,954 111,485 113,197 113,416 115,486 117,166 118,514
Vacancy Rate 15.7% 17.3% 16.4% 14.0% 12.8% 11.5% 11.3% 9.7% 8.4% 7.4%
Avg. Asking Rent $ 23.17 $ 22.24 $ 21.89 $ 22.15 $ 22.78 $ 23.00 $ 24.44 $ 24.39 $ 25.60 $ 27.17
% Change -4.0% -1.6% 1.2% 2.8% 1.0% 6.1% 5.0% 6.1%
Midtown
Total Stock 83,436 83,436 83,524 83,524 83,524 83,524 83,524 83,524 83,524 83,524
New Construction 185 0 88 0 0 0 0 0 0 0
Net Absorption (1,552) 833 1,403 1,128 1,303 (92) 1,495 1,097 881
Oocupied Stock 70,954 69,402 70,235 71,638 72,766 74,069 73,977 75,563 76,660 77,541
Vacancy Rate 15.0% 16.8% 15.9% 14.2% 12.9% 11.3% 11.4% 9.5% 8.2% 7.2%
Avg. Asking Rent $ 26.29 $ 25.25 $ 24.86 $ 24.78 $ 25.42 $ 25.05 $ 26.57 $ 26.62 $ 28.00 $ 29.77
% Change -4.0% -1.5% -0.3% 2.6% 1.5% 6.3% 5.2% 6.3%
Midtown South
Total Stock 44,393 44,393 44,393 44,393 44,393 44,393 44,393 44,393 44,393 44,393
New Construction 0 0 0 0 0 0 0 0 0 0
Net Absorption (426) 311 1,629 404 408 311 794 583 468
Occupied Stock 36,802 36,376 36,686 38,316 38,720 39,128 39,439 39,922 40,505 40,974
Vacancy Rate 17.1% 18.1% 17.4% 13.7% 12.8% 11.9% 11.2% 10.1% 8.8% 7.7%
Avg. Asking Rent $ 18.05 $ 16.97 $ 16.77 $ 17.01 $ 17.77 $ 19.31 $ 20.35 $ 20.42 $ 21.36 $ 22.60
% Change -6.0% -1.2% 1.4% 4.5% 8.7% 5.7% 4.6% 5.8%
2000f 2001f
----- -----
Total Manhattan
Total Stock 173,028 173,028
New Construction 0 0
Net Absorption 1,374 1,567
Occupied Stock 158,850 160,418
Vacancy Rate 8.2% 7.3%
Avg. Asking Rent $ 27.46 $ 29.28
% Change 5.9% 6.6%
Midtown + Midtown South
Total Stock 127,917 127.917
New Construction 0 0
Net Absorption 1,016 1,159
Occupied Stock 119,530 120,689
Vacancy Rate 6.6% 5.7%
Avg. Asking Rent $ 29.04 $ 31.30
% Change 6.9% 7.8%
Midtown
Total Stock 83,524 83,524
New Construction 0 0
Net Absorption 663 757
Oocupied Stock 78,204 78,961
Vacancy Rate 6.4% 5.5%
Avg. Asking Rent $ 31.90 $ 34.46
% Change 7.1% 8.0%
Midtown South
Total Stock 44,393 44,393
New Construction 0 0
Net Absorption 353 402
Oocupied Stock 41,326 41,728
Vacancy Rate 6.9% 6.0%
Avg. Asking Rent $ 24.09 $ 25.90
% Change 6.6% 7.5%
Demand Analysis
In order to capture the actual demand in the Manhattan Class B office market, we
have utilized three measures (see Table 11). The first is gross leasing
activity, which involves summing up all the leases signed in the market. This
measures all leases, including renewals of existing leases and relocations
within the market and, as a result, may lead to some double counting of space.
It also includes pre-leasing of space in new buildings. However, it is a good
measure of the overall health of the office mrketplace. A second measure,
derived from the vacancy rate, is calculated net absorption. Calculated net
absorption is a constructed data series created by examining the change in
occupied stock. The change in occupied stock, in turn, is created by multiplying
the occupancy rate (1- vacancy rate) by the total stock of space. It must be
emphasized that this is a constructed data series to approximate historical net
absorption. It is the best measure of net demand for office space. The third
measure of office space demand is constructed from employment growth and is used
to forecast office space demand. Specifically, job growth by office-using
sectors is multiplied
- ----------
* Class B space generally meets 3-4 of the following criteria, while Class A
space meets at least 5: geographic location-prominence of area; age of
building- those built after 1975; tenant roster-industry leaders occupy a
significant amount of space; building size-in excess of 250,000 square
feet; average asking rent- consistently above the area's average;
amenities-including concierge and security. Class B space generally
includes older buildings in desirable locations that are in good physical
conditions and that frequently have a high tenant roster. Class A
buildings, on the other hand, are generally newer, have higher quality
finishes and command higher rents. Examples of Class B buildings include
the Graybar Building, the Kent Building, the Lincoln Building, the Fred
French Building, Five and Seven Penn Plaza and 14 Wall Street.
** Midtown is defined as the north side of 32nd Street to 62nd Street, East
River to the Hudson River, Midtown South is defined as Canal Street to the
South Side of 32nd Street, East River to the Hudson River. Downtown is
defined as Battery to Canal Street, East River to the Hudson River.
by an office space utilization factor, in this case 200 square feet per person
for Class B space and 175 square feet per person for Class A space, to produce a
forecasted net absorption of office space. All three measures of demand, gross
leasing activity, calculated net absorption, and forecasted net absorption, must
be viewed as proxies for demand because there are no official numbers to measure
demand.
Table 11
(Table regarding Calculated/Forecasted Net Absorption and Gross Leasing
Activity Summary from 1992 throught the forecast for 2001).
Table 11
Calculated/Forecasted Net Absorption and Gross Leasing Activity Summary
1992 1993 1994 1995 1996 1997f 1998f 1999f 2000f 2001f
---- ---- ---- ---- ---- ----- ----- ----- ----- -----
Calculated/Forecasted Net Absorption
Class B
Total (1,342) 666 3,105 1,008 3,304 3,096 2,272 1,824 1,374 1,567
MT+MTS (1,978) 1,144 3,032 1,532 1,711 2,289 1,680 1,349 1,016 1,159
Midtown (1,552) 833 1,403 1,128 1,303 1,495 1,097 881 663 757
Midtown South (426) 311 1,629 404 408 794 583 468 353 402
Downtown 636 (478) 72 (523) 1,592 807 592 476 358 409
Class A
Total 4,828 2,343 14 (944) 3,890 5,419 3,977 3,193 2,405 2,743
MT + MTS 4,883 2,105 (572) (1,408) 3,370 3,806 2,793 2,243 1,689 1,927
Midtown 4,848 2,107 2,006 (2,995) 3,149 3,542 2,699 2,167 1,632 1,862
Midtown South 35 (2) (2,578) 1,587 222 264 94 75 57 65
Downtown (55) 238 587 465 520 1,614 1,184 951 716 817
Gross Leasing Activity
Total 22,077 26,788 22,680 28,524
ClassB 10,722 12,516 10,654 12,876
MT+MTS 8,651 10,439 9,016 10,349
Midtown 5,749 6,850 6,139 6,997
Midtown South 2,902 3,589 2,878 3,352
Downtown 2,071 2,077 1,637 2,527
Class A 11,354 14,271 12,026 15,647
MT+MTS 8,618 11,127 9,322 12,227
Midtown 8,562 11,067 8,175 11,560
Midtown South 57 60 1,146 667
Downtown 2,736 3,145 2,705 3,420
Sources: RELocate, Rosen Consulting Group (RCG)
As Figures 8 and 9 show, gross leasing activity in Manhattan has been strong
during the past several years. Between 1993 and 1996, gross leasing activity for
the overall office market averaged 25 million square feet per year, and first
half 1997 activity indicates that 1997 will be another strong year for leasing
activity. This leasing activity signifies that the Manhattan office market is
healthy.
Chart 8
(Bar Chart regarding Gross leasing activity for Manhattan Class A office from
1993 through the 2nd quarter of 1997)
Chart 9
(Bar Chart regarding Gross leasing activity for Manhattan Class B office from
1993 through the 2nd quarter of 1997)
Leasing activity for Class A space is strongest in Midtown, but for Class B
space is fairly evenly divided between Midtown and Downtown (see Figures 10 to
17). Some traditional downtown tenants, such as banks and securities firms, have
moved to Midtown locations because of their perceptions that Midtown amenities,
such as a location that is more easily accessible to many employees, outweigh
the cost savings of Downtown locations, although this trend has slowed. Other
tenants generating strong demand for Midtown office space include those in the
advertising, printing and publishing, legal services, and communications
industries. Among the largest Midtown leases during 1996 were pre-leases by
publisher Conde Nast and the law firm of Skadden, Arps, Slate Meagher & Flom at
the new Four Times Square building. The lease rates on these transactions were
not high enough to justify the construction. Rather, they reflect the financial
incentives that the developer, the Durst Organization, received.
In Midtown South, gross leasing activity increased during 1996 and is on track
to strengthen further during 1997. Midtown South is largely a market of Class B
space. It is becoming more desirable because it offers less expensive office
space than Midtown and an improving quality of life as older buildings are
renovated and neighborhoods improve. In fact, Class B space in the Midtown South
area with good infrastructure is performing better than the overall Class B
market. In addition to its traditional base of small companies, Midtown South is
increasingly attracting back office operations and even primary office
operations of companies that are finding it difficult to locate large blocks of
contiguous space in Midtown. For instance, America Online recently announced its
decision to move its sales office to Midtown South. Another significant Midtown
South transaction which recently occurred was the move of Credit Suisse First
Boston to 11 Madison Avenue. Credit Suisse First Boston has consolidated several
Manhattan offices into more than 1.6 million square feet in the building, which
had been vacated by Metropolitan Life Insurance during 1994. Other tenants
signing large leases at 11 Madison Avenue are Alexander & Alexander Services,
Wells, Rich and Green, and Emanuel/Emanuel Ungaro. As buildings such as 11
Madison Avenue are renovated to accommodate these "name" tenants, they have been
reclassified as Class A space. In addition, moves by these "name" tenants are
spurring other tenants to consider Midtown South locations.
Chart 10
(Bar Chart regarding Class A Net Absorption for Midtown & Midtown South from
1992 through the forecast for 2001)
Chart 11
(Bar Chart regarding Class B Net Absorption for Midtown & Midtown South from
1992 through the forecast for 2001)
Chart 12
(Bar Chart regarding Class A Net Absorption for Midtown Manhattan from 1992
through the forecast for 2001)
Chart 13
(Bar Chart regarding Class B Net Absorption for Midtown Manhattan from 1992
through the forecast for 2001)
Chart 14
(Bar Chart regarding Class A Net Absorption for Midtown South from 1992
through the forecast for 2001)
Chart 15
(Bar Chart regarding Class B Net Absorption for Midtown South from 1992
through the forecast for 2001)
Chart 16
(Bar Chart regarding Class A Net Absorption for Downtown Manhattan from 1992
through the forecast for 2001)
Chart 17
(Bar Chart regarding Class B Net Absorption for Downtown Manhattan from 1992
through the forecast for 2001)
Efforts to revitalize Downtown New York are beginning to pay off with increasing
demand for office space. The Downtown Commercial Revitalization Program offers a
mix of commercial rent tax, real estate tax, and energy expense relief to
tenants who sign new or renew leases in buildings constructed before 1975. Most
tenants considering Downtown are financial services companies, high tech
start-up companies, and large tenants that have been forced out of Midtown by
lack of
available space. For example, McGraw-Hill's Standard & Poors unit signed a
937,000 square-foot, 20-year lease at 55 Water Street in one of the largest
Downtown leases in several years. Other notable leases have been signed by Chubb
Insurance and Depository Trust Company for space at 55 Water Street. Numerous
new media and high tech companies have leased space at 55 Broad Street, which
has been transformed into the New York Information Technology Center, and
beginning in early 1997, a public private partnership between the Alliance for
Downtown New York, property owners, and the City of New York began developing
Plug 'n' Go space in Downtown office buildings to provide space for high
technology start-up companies. The Plug 'n' Go properties are pre-wired for
Internet use, and are located in the same general area, creating a high
technology start-up community. Tenants receive simplified leases and rebates of
up to half of the real estate taxes. In April of 1997, additional buildings were
joining the program as only six of 25 Plug 'n' Go spaces in the six original
buildings were still available.
Another part of the Downtown revitalization program generating significant
activity is the incentive to encourage the conversion of older, obsolete
buildings to residential use. In fact, 19 buildings totalling 4.3 million square
feet of space have been converted to residential use. Not only do residential
conversions eliminate older, obsolete office space from the inventory, but as
old office space is converted to residential uses, Downtown will become more of
a 24-hour city, making it more attractive to office users and contributing
further to the areas revitalization.
During the first half of 1997, Downtown rent growth has accelerated, even though
vacancy rates have yet to fall significantly (see Table 12). Going forward,
Downtown office market conditions will strengthen as obsolete space is renovated
and converted to other uses. We expect the Downtown Class B vacancy rate to fall
to 11.9% in 2001 and Downtown rent growth to accelerate to 5.6% per year by
2001.
Table 12
(Table regarding Downtown Manhattan Class B Office Market Trends from 1991
through the forecast for 2001)
Table 12
Downtown Manhattan Class B Office Market Trends (000)
1991 1992 1993 1994 1995 1996 2Q97 1997f 1998f 1999f 2000f 2001f
---- ---- ---- ---- ---- ---- ---- ----- ----- ----- ----- -----
Total Stock 45,112 45,112 45,112 45,112 45,112 45,112 45,112 45,112 45,112 45,112 45,112 45,112
New Construction 0 0 0 0 0 0 0 0 0 0 0 0
Net Absorption 636 (478) 72 (523) 1,592 (451) 807 592 476 358 409
Occupied Stock 35,787 36,423 35,945 36,017 35,494 37,086 36,635 37,893 38,486 38.962 39,320 39,728
Vacancy Rate 20.7% 19.3% 20.3% 20.2% 21.3% 17.8% 18.8% 16.0% 14.7% 13.6% 12.8% 11.9%
Avg. Asking Rent $23.30 $22.22 $ 22.74 $21.75 $ 21.53 $21.71 $ 22.42 $22.53 $23.15 $ 24.04 $25.16 $26.56
% Change -4.6% 2.3% -4.4% -1.0% 0.8% 3.8% 2.7% 3.9% 4.7% 5.6%
Sources: Historical data on construction, vacancy & rents-RELocate; Calculations
and forecasts-RCG.
In recent years, strong growth in business services and the stabilization of the
commercial banking industry have fueled net absorption throughout the office
market. Office demand growth surged in 1996, causing calculated net absorption
in Manhattan for the overall market to surpass 7.1 million square feet. About
3.3 million square feet, or about 46%, of this absorption occurred in Class B
buildings (see Table 11 on page 19). Class B overall net absorption in Manhattan
was negative during the first half of 1997, but we do not believe that this
creates cause for concern.
Forecasted Demand Analysis
Forecasted net absorption is based on the number of office occupying jobs
created. As Table 13 shows, FIRE sector employment growth was slightly weak
through 1996, but it has picked up in 1997. Mergers continue in the banking
industry, but many of the jobs lost are in the retail banking sector and involve
employees working at retail branches, rather than in offices. In addition, other
employment sectors, whose employees typically do not occupy office space, are
more likely to occupy office space in New York. For example, manufacturing,
textile and communications companies in New York frequently have a management
presence in the city as opposed to physical operations. As a result, RCG
conservatively estimates that 10% of private sector jobs, excluding FIRE and
services, will occupy office space. Assuming each new employee occupies about
175 to 200 square feet, an average of 5.6 million square feet on net will be
absorbed annually between 1997
and 2001. From 1991 through the second quarter of 1997, about one-third of the
calculated net absorption in Manhattan has occurred in Class B space. Assuming
that this trend will continue through 2001, net absorption will be sufficient to
cause the overall Class B vacancy rate to fall to 73% in 2001 and rent growth to
accelerate to about 6.6% per year.
Table 13
(Table regarding New York MSA Office Employment Growth from 1991 through
the forecast for 2001)
Table 13
New York MSA Office Employment Growth (000)
1991 1992 1993 1994 1995 1996 1997f 1998f 1999f 2000f 2001f
---- ---- ---- ---- ---- ---- ----- ----- ----- ----- -----
Office Occupy. FIRE Jobs 528.1 508.0 505.0 513.3 505.5 504.1 508.6 511.7 514.2 515.3 516.8
Security & Commod. Brok. 131.5 133.2 137.8 148.6 147.5 150.0
Depository Institutions 163.9 148.3 142.3 139.2 134.0 130.2
Nondepository Institutions 9.7 9.1 9.3 9.5 9.5 9.5
Office Occupy. Svcs. Jobs 674.7 663.3 676.2 693.0 710.0 742.0 780.8 807.3 828.3 844.9 863.5
Business Services 243.0 233.9 240.2 248.4 254.7 273.7
Legal Services 76.5 74.6 74.4 73.8 72.7 73.1
Membership Orgs. 61.6 61.1 61.7 62.1 63.0 64.4
Engin. & Mgmt. Svcs. 100.9 98.4 100.3 102.9 106.0 111.1
Other 192.7 195.3 199.6 205.8 213.6 219.7
Other Private Sector Ofc. 527.9 517.9 520.5 525.0 529.2 537.0 547.1 556.7 564.6 570.7 577.6
Total Office Jobs in MSA 1,730.7 1,689.2 1,701.7 1,731.3 1,744.6 1,783.1 1,836.5 1,875.7 1,907.2 1,930.8 1,957.9
New Ofc. Jobs Created in MSA (108.7) (41.6) (12.5) 29.6 13.4 38.5 53.4 39.2 31.5 23.7 27.0
New Ofc. Jobs Created in NYC (94.6) (36.2) 10.9 25.8 11.6 33.5 46.4 34.1 27.4 20.6 23.5
Sources: Bureau of Labor Statistics, Forecast-Rosen Consulting Group (RCG).
Supply Analysis
Improvement in the Manhattan office market is a function of both forecasted
construction and demand growth. Currently, little construction is underway,
planned or proposed, and all of the activity is occurring in Midtown. The only
major project underway is the Durst Organizations 1.5 million square-foot Four
Times Square office project that is scheduled for completion in 1999. The
developer received tax incentives to make this project economically feasible.
Limited build-to-suit construction is also occurring for tenants with specific
needs. For example, LVMH, the parent of Louis Vuitton, is building a 23-story,
103,000 square-foot office building at 17 to 21 East 57th Street between Fifth
and Madison Avenues. The building, scheduled for completion in the fourth
quarter of 1997, will contain Louis Vuitton's flagship store on its ground
floor. In addition, the German Mission to the United Nations is building a
23-story, 112,000 square-foot headquarters at 871 United Nations Plaza that will
be completed in mid 1998.
Forecasted Supply Analysis
Several factors are limiting new construction, including the lack of available
sites, the long lead time for new development, and current market rents that are
well below those needed to justify new construction. Assuming development costs
of approximately $358 per square foot, an expected return of 10%, and no tax
incentives for development, an effective rent of approximately $55 is needed to
make construction economically viable (see Table 14).
As leasing options diminish and the market anticipates strong increases in
rents, construction activity will return to the market. Already, several office
buildings have been proposed. As part of the Times Square Redevelopment Plan,
office buildings could be constructed on the southwest and northwest corners of
Seventh Avenue and 42nd Street. Another potential development site is on 42nd
Street above the 42nd Street subway station between Seventh Avenue and Broadway.
Given the success of its Four Times Square project, the Durst Organization may
team up with developer George Klein to build on one of these sites. Another
prime developable site is 383 Madison Avenue, where Chase Manhattan Bank is
reportedly considering a build-to-suit. The site could hold a building of up to
800,000 square feet. In addition, the New York Metropolitan Transportation
Authority is considering nine mixed-use proposals for the New York Coliseum
Site, four of which include office components ranging from 1.2 million square
feet to 700,000 square feet. However, given the long lead time for new
construction, even if announced during 1997, none of these projects would be
completed until at least 2000, at which time forecasted market rents could
better justify new construction. Even if several of these buildings are
constructed, because of the size of the market, the new supply will have little
overall impact on the market.
Table 14
(Table regarding Midtown Manhattan Class A Office Market Economic Rents in 1996)
Table 14
Midtown Manhattan Class A Office Market
Economic Rents in 1996 ($/SF)
Land $ 85.00
Hard Costs (Core & Shell) 150.00
Soft Costs 46.25
Tenant Improvements 50.00
Leasing Commissions 26.41
Total Development Costs $357.66
NOI Necessary to Achieve 10% Return 35.77
Plus: Stabilized Vacancy (5%) 2.75
Plus: Expenses 16.50
Effective Rent Necessary to Achieve 10% Return $ 55.02
1996 Midtown Class A Asking Office Rent $ 38.76
Sources: RELocate, Cushman & Wakefield, Rosen Consulting Group Estimates
Rent Analysis
Compared to other major world business centers, office rents in Manhattan are
relatively inexpensive, making the area attractive to foreign companies. A
January 1997 world survey of office rents by Richard Ellis Company ranked
Midtown Manhattan 13th and Downtown Manhattan 37th among major business centers
around the world. Midtown Manhattan was less expensive than Bombay, Hong Kong,
Tokyo, London, Moscow, New Delhi, Singapore, Beijing, Shanghai and Paris.
Rent growth is inversely related to the vacancy rate. When market conditions
tighten and the market vacancy rate falls below the optimal vacancy rate, rent
growth accelerates. The optimal vacancy rate is the vacancy rate at which
neither excess supply or demand exists, and it is determined by examining the
historical relationship between vacancy rates and rent growth. The combined
Midtown and Midtown South Manhattan Class B office vacancy rate was at its
highest in 1992, during which time average asking rents fell the most (see
Figure 16). Since 1992, the Class B office vacancy rate has decreased, and as
the actual vacancy rate has approached the optimal vacancy rate, average asking
rents stabilized and began to rise again in 1995.
Chart 16
(Bar Chart regarding Office Vacancy Rates and Asking Rents for Midtown &
Midtown South Class B for 1991 through the forecast for 2001)
To forecast rent growth, we use a stock-adjustment disequilibrium model in which
we assume that future rent growth will be a function of inflation plus a
coefficient times the difference between the optimal vacancy rate and the market
vacancy rate. Based on our forecasted vacancy rates, we believe that, by 2001,
the overall Class B vacancy rate will fall to 7.3% which will cause average
asking rents to increase 6.6% during that year (see Table 15). Class B average
asking rent growth in the combined Midtown and Midtown South areas will be 7.8%
in 2001, while Downtown rent growth is forecasted to be 5.6% in 2001.
Table 15
(Table regarding summary of Manhattan Office Market Rent Growth from 1992
through the forecast for 2001).
Table 15
Summary of Manhattan Office Market Rent Growth
1992 1993 1994 1995 1996 1997f 1998f 1999f 2000f 2001f
---- ---- ---- ---- ---- ----- ----- ----- ----- -----
Class B
Total -4.2% -0.4% -0.6% 1.4% 1.0% 5.2% 4.0% 5.1% 5.9% 6.6%
MT+MTS -4.0% -1.6% 1.2% 2.8% 1.0% 6.1% 5.0% 6.1% 6.9% 7.8%
Midtown -4.0% -1.5% -0.3% 2.6% -1.5% 6.3% 5.2% 6.3% 7.1% 8.0%
Midtown South -6.0% -1.2% 1.4% 4.5% 8.7% 5.7% 4.6% 5.8% 6.6% 7.5%
Downtown -4.6% 2.3% -4.4% -1.0% 0.8% 3.8% 2.7% 3.9% 4.7% 5.6%
Class A
Total -8.1% -2.4% 0.1% 3.2% -1.0 2.3% 4.0% 6.4% 7.0% 8.0%
MT+MTS -9.9% -3.5% 2.4% 7.2% 1.1% 3.9% 5.6% 6.6% 7.1% 7.8%
Midtown -9.9% -3.5% 5.9% 5.0% 1.1% 3.8% 5.9% 6.5% 7.0% 7.7%
Midtown South -5.1% 2.1% 23.9% 0.4% -0.5% 0.2% 2.2% 3.9% 5.0% 6.4%
Downtown -2.7% -0.1% -4.4% -6.6% -3.9% 0.0% 2.0% 3.7% 4.9% 6.2%
Sources: RELocate, Rosen Consulting Group (RCG)
Forecasted Office Market Trends
The growth in demand for office space in Midtown Manhattan will be moderately
strong over the next five years. Employment growth in the key office-consuming
sectors such as finance, securities, legal services, and accounting will
accelerate through 1997, before slowing through 1999 and increasing again
through 2001. When combined with growth in other office occupying sectors, an
average of 30,400 office space-consuming jobs will be created annually in New
York City between 1997 and 2001. Assuming a coefficient of space used per office
employee of 175 to 200 square feet, that one-third of the space absorbed is
Class B space, and that about half of the Class B space is in Midtown with
another fourth in each Midtown South and Downtown, the forecasted net absorption
for Class B space would be almost two million square feet per year.
While demand for office space in Midtown will be strong, no significant new
construction is expected until the Durst project is completed in 1999. As a
result, we expect the Class B vacancy rate to fall to 5.7% in the combined
Midtown and Midtown South areas, and 11.9% in Downtown by 2001. Even with a
small amount of new construction between 1999 and 2001, the Class A vacancy rate
is expected to fall to 5.9% in the combined Midtown and Midtown South areas, and
7.3% in Downtown by 2001 (see Appendix Tables A.2 to A.5). As the vacancy rates
fall, growth in Class B average asking rents will accelerate to 7.8% in the
combined Midtown and Midtown South areas and 5.6% in Downtown.
Based on the economic rents needed to justify new construction calculated in
Table 14, we believe
that the potential exists for significant revenue growth in the Manhattan
marketplace as rental and occupancy rates for office properties recover to
levels that would provide a reasonable return on investment to a developer of a
new Class A multi-tenant office building (see Table 16).
Table 16
(Table regarding Estimated Economic Rent Analysis Multi-tenant Office Buildings
(Per Net Rentable Square Foot)).
Table 16
Estimated Economic Rent Analysis
Multi-tenant Office Buildings
(Per Net Rentable Square Foot)
Development Costs $357.66
Estimated Economic Rents $ 55.02
1996 Midtown Class A Asking Rental Rates $ 38.76
Increase in Class A Rental Rates Necessary $ 16.26
to Reach Economic Rent
Percentage Increase in Class A Rental Rates Necessary 42.0%
to Reach Economic Rents
Source: Rosen Consulting Group Estimates
Appendix
Table A.1
(Table regarding overall Manhattan Class A Office Market Trends from 1991
through the forecast for 2001)
Table A.1
Overall Manhattan Class A Office Market Trends (000)
-------
1991 1992 1993 1994 1995 1996 2Q97 1997f 1998f 1999f 2000f 2001f
---- ---- ---- ---- ---- ---- ---- ----- ----- ----- ----- -----
Total Stock 204,871 204,871 205,284 205,284 205,284 205,284 205,284 205,284 205,284 206,784 207,784 208,784
New Construction 2,577 0 413 0 0 0 0 0 0 1,500 1,000 1,000
Net Absorption 4,828 2,343 14 (944) 3,890 4,471 5,419 3,977 3,193 2,405 2,743
Occupied Stock 167,799 172,627 174,970 174,985 174,041 177,931 182,402 183,350 187,327 190,520 192,925 195,669
Vacancy Rate 18.1% 15.7% 14.8% 14.8% 15.2% 13.3% 11.1% 10.7% 8.7% 7.9% 7.2% 6.3%
Avg. Asking Rent $38.01 $34.92 $34.09 $34.12 $35.20 $34.83 $34.08 $35.63 $37.06 $39.43 $42.19 $45.55
% Change -8.1% -2.4% 0.1% 3.2% -1.0% 2.3% 4.0% 6.4% 7.0% 8.0%
-------
Sources: Historical data on construction, vacancy & rents-RELocate; Calculations
and forecasts-RCG.
Table A.2
(Table regarding Midtown & Midtown South Class A Office Market Trends from 1991
through the forecast for 2001)
Table A.2
Midtown and Midtown South Class A Office Market Trends (000)
-------
1991 1992 1993 1994 1995 1996 2Q97 1997f 1998f 1999f 2000f 2001f
---- ---- ---- ---- ---- ---- ---- ----- ----- ----- ----- -----
Total Stock 143,752 143,752 144,165 144,165 144,165 144,165 144,165 144,165 144,165 145,665 146,665 147,665
New Construction 2,577 0 413 0 0 0 0 0 0 1,500 1,000 1,000
Net Absorption 4,883 2,105 (572) (1,408) 3,370 2,998 3,806 2,793 2,243 1,689 1,927
Occupied Stock 118,170 123,053 125,158 124,585 123,177 126,547 129,546 130,353 133,146 135,389 137,078 139,004
Vacancy Rate 17.8% 14.4% 13.2% 13.6% 14.6% 12.2% 10.1% 9.6% 7.6% 7.1% 6.5% 5.9%
Avg. Asking Rent $39.58 $35.66 $34.40 $35.23 $37.75 $38.17 $37.42 $39.65 $41.89 $44.65 $47.82 $51.53
% Change -9.9% -3.5% 2.4% 7.2% 1.1% 3.9% 5.6% 6.6% 7.1% 7.8%
-------
Sources: Historical data on construction, vacancy & rents-RELocate; Calculations
and forecasts-RCG.
Table A.3
(Table regarding Midtown Manhattan Class A Office Market Trends from 1991
through the forecast for 2001)
Table A.3
Midtown Manhattan Class A Office Market Trends (000)
-------
1991 1992 1993 1994 1995 1996 2Q97 1997f 1998f 1999f 2000f 2001f
---- ---- ---- ---- ---- ---- ---- ----- ----- ----- ----- -----
Total Stock 138,902 138,902 139,315 139,315 139,315 139,315 139,315 139,315 139,315 140,815 141,815 142,815
New Construction 2,577 0 413 0 0 0 0 0 0 1,500 1,000 1,000
Net Absorption 4,848 2,107 2,006 (2,995) 3,149 2,745 3,542 2,699 2,167 1,632 1,862
Occupied Stock 113,483 118,331 120,438 122,444 119,449 122,598 125,342 126,140 128,839 131,006 132,638 134,500
Vacancy Rate 18.3% 14.8% 13.6% 12.1% 14.3% 12.0% 10.0% 9.5% 7.5% 7.0% 6.5% 5.8%
Avg. Asking Rent $39.69 $35.75 $34.49 $36.51 $38.34 $38.76 $37.88 $40.25 $42.62 $45.40 $48.59 $52.32
% Change -9.9% -3.5% 5.9% 5.0% 1.1% 3.8% 5.9% 6.5% 7.0% 7.7%
-------
Sources: Historical data on construction, vacancy & rents-RELocate; Calculations
and forecasts-RCG.
Table A.4
(Table regarding Midtown South Manhattan Class A Office Market Trends from 1991
through the forecast for 2001)
Table A.4
Midtown South Manhattan Class A Office Market Trends (000)
-------
1991 1992 1993 1994 1995 1996 2Q97 1997f 1998f 1999f 2000f 2001f
---- ---- ---- ---- ---- ---- ---- ----- ----- ----- ----- -----
Total Stock 4,849 4,849 4,849 4,849 4,849 4,849 4,849 4,849 4,849 4,849 4,849 4,849
New Construction 0 0 0 0 0 0 0 0 0 0 0 0
Net Absorption 35 (2) (2,578) 1,587 222 254 264 94 75 57 65
Occupied Stock 4,686 4,722 4,719 2,141 3,728 3,950 4,203 4,213 4,307 4,383 4,440 4,504
Vacancy Rate 3.4% 2.6% 2.7% 55.9% 23.1% 18.6% 13.3% 13.1% 11.2% 9.6% 8.5% 7.1%
Avg. Asking Rent $22.71 $21.55 $22.01 $27.26 $27.38 $27.23 $27.40 $27.28 $27.89 $28.97 $30.43 $32.37
% Change -5.1% 2.1% 23.9% 0.4% -0.5% 0.2% 2.2% 3.9% 5.0% 6.4%
-------
Sources: Historical data on construction, vacancy & rents-RELocate; Calculations
and forecasts-RCG.
Table A.5
(Table regarding Downtown Manhattan Class A Office Market Trends from 1991
through the forecast for 2001)
Table A.5
Downtown Manhattan Class A Office Market Trends(000)
-------
1991 1992 1993 1994 1995 1996 2Q97 1997f 1998f 1999f 2000f 2001f
---- ---- ---- ---- ---- ---- ---- ----- ----- ----- ----- -----
Total Stock 61,120 61,120 61,120 61,120 61,120 61,120 61,120 61,120 61,120 61,120 61,120 61,120
New Construction 0 0 0 0 0 0 0 0 0 0 0 0
Net Absorption (55) 238 587 465 520 1,473 1,614 1,184 951 716 817
Occupied Stock 49,629 49,574 49,813 50,399 50,864 51,383 52,856 52,997 54,181 55,132 55,848 56,665
Vacancy Rate 18.8% 18.9% 18.5% 17.5% 16.8% 15.9% 13.5% 13.3% 11.4% 9.8% 8.6% 7.3%
Avg. Asking Rent $34.52 $33.60 $33.55 $32.09 $29.96 $28.79 $28.19 $28.79 $29.38 $30.47 $31.96 $33.94
% Change -2.7% -0.1% -4.4% -6.6% -3.9% 0.0% 2.0% 3.7% 4.9% 6.2%
-------
Sources: Historical data on construction, vacancy & rents-RELocate; Calculations
and forecasts-RCG.
Table A.6
(Table regarding overall Manhattan Class A and B Combined Office Market Trends
from 1991 through the forecast for 2001)
Table A.6
Overall Manhattan Class A and B Combined Office Marks Trends (000)
-------
1991 1992 1993 1994 1995 1996 2Q97 1997f 1998f 1999f 2000f 2001f
---- ---- ---- ---- ---- ---- ---- ----- ----- ----- ----- -----
Total Stock 377,812 377,812 378,313 378,313 378,313 378,313 378,313 378,313 378,313 379,813 380,813 381,813
New Construction 2,762 0 501 0 0 0 0 0 0 1,500 1,000 1,000
Net Absorption 3,486 3,009 3,119 65 7,193 4,239 8,516 6,249 5,018 3,779 4,311
Occupied Stock 311,341 314,827 317,836 320,955 321,020 328,214 332,452 336,729 342,979 347,996 351,776 356,086
Vacancy Rate 17.6% 16.7% 16.0% 15.2% 15.l% 13.2% 12.1% 11.0% 9.3% 8.4% 7.6% 6.7%
Avg. Asking Rent $31.47 $28.73 $28.13 $28.41 $29.34 $29.25 $28.88 $30.00 $30.96 $32.83 $35.00 $37.58
% Change -8.7% -2.1% 1.0% 3.3% -0.3% 2.5% 3.2% 6.0% 6.6% 7.4%
-------
Sources: Historical data on construction, vacancy & rents-RELocate; Calculations
and forecasts-RCG.
Table A.7
(Table regarding Midtown and Midtown South Class A and B Combined Office Market
Trends from 1991 through the forecast for 2001)
Table A.7
Midtown and Midtown South Class A and B Combined Office Marks Trends (000)
-------
1991 1992 1993 1994 1995 1996 2Q97 1997f 1998f 1999f 2000f 2001f
---- ---- ---- ---- ---- ---- ---- ----- ----- ----- ----- -----
Total Stock 271,580 271,580 272,081 272,081 272,081 272,081 272,081 272,081 272,081 273,581 274,581 275,581
New Construction 2,762 0 501 0 0 0 0 0 0 1,500 1,000 1,000
Net Absorption 2,905 3,249 2,460 123 5,082 3,217 6,095 4,473 3,591 2,705 3,085
Occupied Stock 225,925 228,830 232,079 234,539 234,663 239,744 242,961 245,839 250,312 253,903 256,608 259,694
Vacancy Rate 16.8% 15.7% 14.7% 13.8% 13.8% 11.9% 10.7% 9.6% 8.0% 7.2% 6.5% 5.8%
Avg. Asking Rent $32.37 $28.74 $27.84 $28.97 $31.18 $31.26 $30.96 $32.42 $33.85 $36.30 $39.06 $42.33
% Change -11.2% -3.1% 4.1% 7.6% 0.3% 3.7% 4.4% 7.2% 7.6% 8.4%
-------
Sources: Historical data on construction, vacancy & rents-RELocate; Calculations
and forecasts-RCG.
Table A.8
(Table regarding Midtown Manhattan Class A and B Combined Office Market
Trends from 1991 through the forecast for 2001)
Table A.8
Midtown Manhattan Class A and B Combined Office Market Trends (000)
-------
1991 1992 1993 1994 1995 1996 2Q97 1997f 1998f 1999f 2000f 2001f
---- ---- ---- ---- ---- ---- ---- ----- ----- ----- ----- -----
Total Stock 222,338 222,338 222.839 222,839 222,839 222,839 222,839 222,839 222,839 224,339 225,339 226,339
New Construction 2,762 0 501 0 0 0 0 0 0 1,500 1,000 1,000
Net Absorption 3,296 2,941 3,409 (1,868) 4,451 2,653 5,037 3,796 3,048 2,295 2,618
Occupied Stock 184,437 187,733 190,673 194,082 192,215 196,666 199,319 201,703 205,499 208,547 210,842 213,461
Vacancy Rate 17.0% 15.6% 14.4% 12.9% 13.7% 11.7% 10.6% 9.5% 7.8% 7.0% 6.4% 5.7%
Avg. Asking Rent $35.28 $31.49 $30.51 $31.66 $33.80 $33.81 $33.29 $35.12 $36.83 $39.48 $42.47 $45.99
% Change -10.7% -3.1% 3.8% 6.8% 0.0% 3.9% 4.9% 7.2% 7.6% 8.3%
-------
Sources: Historical data on construction, vacancy & rents-RELocate; Calculations
and forecasts-RCG.
Table A.9
(Table regarding Midtown South Manhattan Class A and B Combined Office Market
Trends from 1991 through the forecast for 2001)
Table A.9
Midtown South Manhattan Class A and B Combined Office Market Trends (000)
-------
1991 1992 1993 1994 1995 1996 2Q97 1997f 1998f 1999f 2000f 2001f
---- ---- ---- ---- ---- ---- ---- ----- ----- ----- ----- -----
Total Stock 49,242 49,242 49,242 49,242 49,242 49,242 49,242 49,242 49,242 49,242 49,242 49,242
New Construction 0 0 0 0 0 0 0 0 0 0 0 0
Net Absorption (391) 308 (949) 1,991 630 564 1,058 677 544 409 467
Occupied Stock 41,488 41,098 41,406 40,457 42,448 43,078 43,642 44,136 44,813 45,356 45,766 46,233
Vacancy Rate 15.7% 16.5% 15.9% 17.8% 13.8% 12.5% 11.4% 10.4% 9.0% 7.9% 7.1% 6.1%
Avg. Asking Rent $18.15 $17.04 $16.86 $20.17 $19.36 $20.47 $21.16 $21.27 $22.16 $23.37 $24.84 $26.64
% Change -6.1% -1.1% 19.7% -4.0% 5.7% 3.9% 4.2% 5.4% 6.3% 7.3%
-------
Sources: Historical data on construction, vacancy & rents-RELocate; Calculations
and forecasts-RCG.
Table A.10
(Table regarding Downtown Manhattan Class A and B Combined Office Market
Trends from 1991 through the forecast for 2001).
Table A.10
Downtown Manhattan Class A and B Combined Office Market Trends (000)
-------
1991 1992 1993 1994 1995 1996 2Q97 1997f 1998f 1999f 2000f 2001f
---- ---- ---- ---- ---- ---- ---- ----- ----- ----- ----- -----
Total Stock 106,231 106,231 106,231 106,231 106,231 106,231 106,231 106,231 106,231 106,231 106,231 106,231
New Construction 0 0 0 0 0 0 0 0 0 0 0 0
Net Absorption 581 (240) 659 (59) 2,112 1,022 2,421 1,777 1,426 1,074 1,225
Occupied Stock 85,416 85,997 85,757 86,416 86,358 88,469 89,491 90,890 92,667 94,093 95,167 96,393
Vacancy Rate 19.6% 19.0% 19.3% 18.7% 18.7% 16.7% 15.8% 14.4% 12.8% 11.4% 10.4% 9.3%
Avg. Asking Rent $29.49 $28.71 $28.71 $27.34 $25.88 $25.59 $25.27 $25.85 $26.34 $27.21 $28.40 $29.90
% Change -2.6% -0.0% -4.8% -5.4% -1.1% 1.0% 1.9% 3.3% 4.4% 5.3%
-------
Sources: Historical data on construction, vacancy & rents-RELocate; Calculations
and forecasts-RCG.
