AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 14, 1999
REGISTRATION STATEMENT NO. 333-68493
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SL GREEN REALTY CORP.
(Exact name of registrant as specified in its charter)
MARYLAND 13-3956775
(State or other jurisdiction of incorporation or (I.R.S. employer identification number)
organization)
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420 LEXINGTON AVENUE
NEW YORK, NEW YORK 10170
(212) 594-2700
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
70 WEST 36(TH) STREET
NEW YORK, NEW YORK 10018
(FORMER ADDRESS OF REGISTRANT)
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STEPHEN L. GREEN
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
420 LEXINGTON AVENUE
NEW YORK, NEW YORK 10170
(212) 594-2700
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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COPY TO:
MICHAEL F. TAYLOR, ESQ.
BROWN & WOOD LLP
ONE WORLD TRADE CENTER, 58(TH) FLOOR
NEW YORK, N.Y. 10048
(212) 839-8602
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF PUBLIC: From time to
time after this Registration Statement becomes effective. If the only securities
being registered on this form are being offered pursuant to dividend or interest
reinvestment plans, please check the following box. / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, other than securities offered only in connection with dividend
or interest reinvestment plans, please check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act of 1933 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 of 1933, check the following box and list the
Securities Act of 1933 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/
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON THE 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 WITH SECTION 8(A) OF THE SECURITIES
ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON THE
DATE THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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PROSPECTUS
$400,000,000
[LOGO]
COMMON STOCK AND PREFERRED STOCK
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We may offer our common stock and preferred stock, which may be convertible
into common stock, with an aggregate initial offering price of $400,000,000 on
terms to be determined at the time of offering. We may issue the securities
separately or together in one or more series, in amounts, at prices and on terms
described in one or more prospectus supplements. It is important that you read
both this prospectus and the prospectus supplement before you invest.
Investing in the securities involves certain risks. RISK FACTORS BEGIN ON
PAGE 2.
We may offer the securities directly, through agents, or to or through
underwriters. The prospectus supplement will describe the terms of the plan of
distribution and set forth the names of any underwriters involved in the sale of
the securities. SEE "PLAN OF DISTRIBUTION" ON PAGE 22 FOR MORE INFORMATION ON
THIS TOPIC. No securities may be sold without delivery of a prospectus
supplement describing the method and terms of the offering of those securities.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
June 14, 1999
INFORMATION ABOUT SL GREEN
SL Green is a self managed real estate investment trust, which we refer to
as a REIT, with in-house capabilities in property management, development,
construction and acquisitions. We are the first such REIT to own, manage, lease,
acquire and reposition only Class B office properties in Manhattan. We own all
of our assets and conduct substantially all of our business through our
Operating Partnership, SL Green Operating Partnership, L.P. We are the managing
general partner of the Operating Partnership and as of March 31, 1999, we owned
90.8% of the outstanding partnership interests in the Operating Partnership.
The term "Class B" is generally used in the Manhattan office market to
describe office properties which are more than 25 years old but 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 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 these areas include the Garment District, the
Flatiron District, the areas immediately south and north of Houston Street,
Chelsea, and the area surrounding the United Nations. Certain industries are
significantly concentrated in these areas, including the following industries:
new media, garment, toy, jewelry, interior decoration, antiques, giftware,
contract furnishing and United Nations-related businesses. The concentration of
these businesses creates strong demand for the available Class B office space in
those locations.
We were incorporated in the State of Maryland on June 10, 1997. Our
executive offices are located at 420 Lexington Avenue, New York, New York 10170
and our telephone number is (212) 594-2700.
RISK FACTORS
Set forth below are risks that we believe are material to investors who
purchase or own common stock or preferred stock. We refer to the common stock
and the preferred stock together as "securities."
OUR DEPENDENCE ON THE MARKET FOR OFFICE SPACE IN MIDTOWN MANHATTAN COULD
ADVERSELY AFFECT OUR FINANCIAL PERFORMANCE
Most of our office properties are located in midtown Manhattan. As a result,
our business is largely dependent on the condition of the New York City economy
in general and the market for office space in midtown Manhattan, in particular.
The New York City economy may not continue to grow. The market for office space
in midtown Manhattan has experienced downturns, most recently in the late 1980's
and the early 1990's. Future declines in the demand for office space in midtown
Manhattan could adversely affect our business and, consequently, our ability to
make distributions to shareholders.
WE MAY BE UNABLE TO RENEW LEASES OR RELET SPACE AS LEASES EXPIRE. When our
tenants decide not to renew their leases upon their expiration, we may not be
able to relet the space. Even if tenants do renew or we can relet the space, the
terms of renewal or reletting, including the cost of required renovations, may
be less favorable than current lease terms. Over the next five years, through
the end
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of 2003 leases will expire on approximately 40% of the rentable square feet at
our properties. If we are unable to promptly renew the leases or relet this
space, or if the rental rates upon a renewal or reletting are significantly
lower than expected rates, then our results of operations and financial
condition will be adversely affected. Consequently, our cash flow and ability to
service debt and make distributions to shareholders would be adversely affected.
THE EXPIRATION OF CERTAIN LEASES COULD ADVERSELY AFFECT OUR FINANCIAL
CONDITION. With respect to five of our properties, we hold a long-term
leasehold or operating sublease interests in the land and the improvements. The
average term of these long term leases, assuming exercise of our unilateral
rights with regard to two of the properties, is 49 years. Pursuant to the
operating sublease arrangements, we, as tenant under the operating sublease,
perform the functions traditionally performed by landlords with respect to our
subtenants. We are responsible for not only collecting rent from our subtenants,
but also maintaining the property and paying expenses relating to the property.
Accordingly, unless we can purchase the subject real estate or extend the terms
of these leases before their expiration, we will lose our interest in the
improvements and land upon expiration of the leases.
RELIANCE ON MAJOR TENANTS COULD ADVERSELY AFFECT OUR FINANCIAL
CONDITION. Giving effect to signed leases in effect as of March 31, 1999 for
properties owned as of March 31, 1999, five tenants each accounted for more than
1.63% of our total annualized rental revenues and these five tenants
collectively accounted for approximately 9.64% of our total annualized rental
revenues. Our business would be adversely affected if any of these tenants
became insolvent, declared bankruptcy or otherwise refused to pay rent in a
timely fashion or at all.
DEBT FINANCING, FINANCIAL COVENANTS, DEGREE OF LEVERAGE, AND INCREASES IN
INTEREST RATES COULD ADVERSELY AFFECT OUR ECONOMIC PERFORMANCE
SCHEDULED DEBT PAYMENTS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION. Our
business is subject to risks normally associated with debt financing. Cash flow
could be insufficient to pay distributions at expected levels and meet required
payments of principal and interest. Our current credit facility matures on
December 18, 2000, which date may be extended by an additional year, subject to
the consent of the lenders. We may not be able to refinance existing
indebtedness, which in virtually all cases requires substantial principal
payments at maturity. Refinancing prior to maturity would not cause us to incur
any penalties under our credit facility although the terms of the refinancing
might not be as favorable as the terms of existing indebtedness. The total
principal amount of our outstanding indebtedness was $294.6 million as of March
31, 1999, 38% of which is comprised of drawdowns under our credit facility. If
principal payments due at maturity cannot be refinanced, extended or paid with
proceeds of other capital transactions, such as new equity capital, our cash
flow will not be sufficient in all years to repay all maturing debt. If we are
unable to make such payments under our credit facility, all amounts due and
owing at such time shall accrue interest at a rate equal to 4% higher than the
rate at which each such loan was made. At the time of refinancing, prevailing
interest rates or other factors such as the possible reluctance of lenders to
make commercial real estate loans, may result in higher interest rates.
Increased interest expense on the refinanced debt would adversely affect cash
flow and our ability to service debt and make distributions to shareholders.
FINANCIAL COVENANTS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION. If a
property is mortgaged to secure payment of indebtedness and we are unable to
meet mortgage payments, the mortgagee could foreclose on the property, resulting
in loss of income and asset value. The mortgages on our properties contain
customary negative covenants which, among other things, limit our ability,
without the prior consent of the lender, to further mortgage the property, to
enter into new leases or materially modify existing leases, and to discontinue
insurance coverage. In addition, our credit facility contains customary
restrictions, requirements and other limitations on our ability to operate. The
credit facility also has requirements that designated total debt to assets
ratios, debt service coverage ratios and minimum
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ratios of unencumbered assets to unsecured debt are maintained. Foreclosure on
mortgaged properties or an inability to refinance existing indebtedness would
likely have a negative impact on our financial condition and results of
operations.
RISING INTEREST RATES COULD ADVERSELY AFFECT OUR CASH FLOW. Advances under
our credit facility and property-level mortgage debt will bear interest at a
variable rate. In addition, we may incur indebtedness in the future that also
bears interest at a variable rate or may be required to refinance our debt at
higher rates. Normal interest rate fluctuations based on historical trends are
factored into our business plan to the extent that the models for potential
acquisition properties are calculated at an interest rate which is greater than
one percent of our actual current borrowing rate. Accordingly, greater than
normal increases in interest rates could increase our interest expense, which
could adversely affect our ability to continue to make distributions to
shareholders.
OUR POLICY OF NO LIMITATION ON DEBT COULD ADVERSELY AFFECT OUR CASH
FLOW. As of March 31, 1999, assuming the conversion of all outstanding units of
the Operating Partnership into shares of our common stock, our debt to market
capitalization ratio was approximately 32.3%, but we may increase our debt to
market capitalization ratio in connection with future acquisitions. Our policy
is to incur debt only if upon this incurrence our debt to market capitalization
would be 50% or less. However, our organizational documents do not contain any
limitation on the amount of indebtedness we may incur. Accordingly, our Board of
Directors could alter or eliminate this policy and would do so, for example, if
it were necessary in order for us to continue to qualify as a REIT, or to
provide capital for investment, if our Board of Directors determines that this
action is in the best interests of our business. If this policy were changed, we
could become more highly leveraged, resulting in an increase in debt service
that could adversely affect cash available for distribution to shareholders and
could increase the risk of default on our indebtedness. In addition, any change
that increases our debt to market capitalization percentage could be viewed as
negative by investors. As a result, our share price could decrease.
We have established our debt policy relative to the total market
capitalization of our business rather than relative to the book value of our
assets. We use total market capitalization because we believe that the book
value of our assets, which to a large extent is the depreciated original cost of
our properties, our primary tangible assets, does not accurately reflect our
ability to borrow and to meet debt service requirements. Our market
capitalization, however, is more variable than book value, and does not
necessarily reflect the fair market value of our assets at all times. We 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 our
properties upon refinancing and the ability of particular properties and our
business as a whole to generate cash flow to cover expected debt service.
OUR SHAREHOLDERS' ABILITY TO EFFECT CHANGES IN CONTROL OF SL GREEN IS LIMITED.
PROVISIONS OF OUR ARTICLES OF INCORPORATION AND BYLAWS COULD INHIBIT CHANGES
IN CONTROL. Provisions contained in our Articles of Incorporation and Bylaws
may delay or prevent a change in control of SL Green that could provide our
shareholders with a premium over the then-prevailing market price of their
stock. These provisions, discussed more fully below are:
- staggered Board of Directors;
- ownership limitations for tax purposes;
- the Board of Directors ability to issue additional common stock and
preferred stock without shareholder approval; and
- Maryland control share acquisition statute and the business combination
statute.
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OUR BOARD OF DIRECTORS IS STAGGERED INTO THREE SEPARATE CLASSES. The Board
of Directors of SL Green is divided into three classes. The terms of the Class
I, Class II and Class III directors expire in 2000, 2001 and 2002, respectively.
Our classified board may deter changes in control because of the increased time
period necessary for a third party to acquire control of the Board.
WE HAVE A SHARE OWNERSHIP LIMIT FOR REIT TAX PURPOSES. To remain qualified
as a REIT for federal income tax purposes, not more than 50% in value of our
outstanding capital stock may be owned, directly or indirectly, by five or fewer
individuals at any time during the last half of any year. An "individual" for
these purposes is defined by the federal income tax laws pertaining to REITs and
is very complex. To avoid violating this rule regarding share ownership
limitations and maintain our REIT qualification, our Articles of Incorporation
prohibit ownership by any single shareholder of more than 9.0% in value or
number of shares of any class or series of our stock. We refer to this as the
"Ownership Limit." The Board of Directors has the discretion to waive the
Ownership Limit with respect to any shareholder, provided that the Board and our
tax counsel are presented evidence that ownership in excess of the Ownership
Limit by the shareholder will not affect, at that time or in the future, our
REIT status and the waiver is deemed by the Board to be in the best interest of
SL Green. Our Articles of Incorporation permit our Board of Directors to
increase the Ownership Limit with respect to any class or series of stock.
Further, our Board of Directors must waive or modify the Ownership Limit with
respect to a shareholder who would not be treated as an "individual" for
purposes of the tax code if the shareholder's ownership in excess of the limit
will not cause a shareholder who is an individual to be treated as owning stock
in excess of the Ownership Limit or otherwise jeopardize our REIT status. Absent
any exemption or waiver, stock acquired or held in violation of the Ownership
Limit will be transferred to a trust for the exclusive benefit of a designated
charitable beneficiary, and the shareholder's rights to distributions and to
vote would terminate. The shareholder would be entitled to receive, from the
proceeds of any subsequent sale of the shares transferred to the charitable
trust, the lesser of:
(a) the price paid for the stock or, if the owner did not pay for the stock,
the market price of the stock on the date of the event causing the stock to be
transferred to the charitable trust; and
(b) the amount realized from the sale.
A transfer of stock may be void if it causes a person to violate the
Ownership Limit. The Ownership Limit could delay or prevent a change in control
and, therefore, could adversely affect our shareholders' ability to realize a
premium over the then-prevailing market price for their stock.
FUTURE ISSUANCES OF COMMON STOCK AND PREFERRED STOCK COULD DILUTE EXISTING
SHAREHOLDERS' INTERESTS. Our Articles of Incorporation authorize our Board of
Directors to issue additional shares of common stock and preferred stock without
shareholder approval. This issuance could dilute our existing shareholders'
interests. Also, any future series of preferred stock may have voting provisions
that could delay or prevent a change of control.
PROVISIONS OF MARYLAND LAW COULD INHIBIT CHANGES IN CONTROL. The Maryland
General Corporation Law contains provisions referred to as the "control share
acquisition statute" which eliminate the voting rights of shares acquired in a
Maryland corporation in quantities so as to constitute "control shares," as
defined under the Maryland General Corporation Law. The Maryland General
Corporation Law also contains provisions referred to as the "business
combination statute" which generally limit business combinations between a
Maryland corporation and any 10% owners of the corporation's stock or any
affiliate thereof. These provisions may have the effect of inhibiting a third
party from making an acquisition proposal for SL Green or of delaying, deferring
or preventing a change in control of SL Green under circumstances that otherwise
could provide the holders of shares of common stock with the opportunity to
realize a premium over the then-prevailing market price of the shares.
Currently, our bylaws contain a provision exempting any and all acquisitions by
any person of shares of our stock
5
from the control share acquisition statute. In addition, our Board of Directors
adopted a resolution exempting SL Green from the provisions of the business
combination statute. The Board of Directors may amend or eliminate these
provisions at any time.
OUR DEPENDENCE ON SMALLER AND GROWTH-ORIENTED BUSINESSES TO RENT CLASS B OFFICE
SPACE COULD ADVERSELY AFFECT OUR CASH FLOW
Many of the tenants in our properties are smaller, 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. Dependence on these companies could create a higher risk
of tenant defaults, turnover and bankruptcies, which could adversely affect our
distributable cash flow.
THERE ARE POTENTIAL CONFLICTS OF INTEREST IN CONNECTION WITH THE FORMATION
TRANSACTIONS AND THE BUSINESS OF SL GREEN
Stephen L. Green, members of his immediate family and Benjamin P. Feldman,
both of whom are members of senior management, or partnerships in which they
were partners contributed property during our formation in exchange for units.
The tax consequences flowing from the sale of property held by the Operating
Partnership or from the retirement of debt by the Operating Partnership will be
identical for all of our shareholders. The effect of such transactions may,
however, have differing tax consequences for different holders of units of the
Operating Partnership.
As part of our formation, these individuals contributed appreciated property
to the Operating Partnership in exchange for units representing partner
interests in the Operating Partnership. The unitholders did not recognize any
taxable gain as a result of the contribution. The Operating Partnership,
however, took a tax basis in the contributed property equal to that of the
contributing unitholder. In almost all instances, the fair market value of the
property contributed exceeded its tax basis by a significant amount at the time
of contribution. The spread between fair market value and tax basis at the time
of contribution represents a built-in gain. If the Operating Partnership
disposed of the contributed property in a transaction in which a taxable gain is
recognized (E.G., a sale of the property), for tax purposes the built-in gain
would be allocated solely to the contributing unitholder. Thus, a sale of
contributed property may have no tax consequences for unitholders (including SL
Green) other than the unitholder that contributed the property, which could be
significant.
A unitholder would recognize gain if it were to receive a distribution of
cash from the Operating Partnership in an amount that exceeds the unitholder's
tax basis in the unitholder's units. A unitholder's tax basis includes the
unitholder's share of Operating Partnership liabilities (E.G., mortgage
indebtedness). Operating Partnership liabilities can be specially allocated to
property contributing unitholders to ensure that they will not recognize gain on
the contribution of property to the Operating Partnership. If the Operating
Partnership were to retire such debt, then the unitholder would experience a
decrease in the unitholder's share of liabilities which, for tax purposes, would
be treated as a distribution of cash to that unitholder. To the extent the
deemed distribution of cash exceeded the unitholder's tax basis, the unitholder
would recognize gain. Other unitholders (including SL Green) would not recognize
gain as a result of the debt retirement.
As a result, these people, some of which have substantial influence over the
operations of SL Green, may have different economic incentives relating to these
particular properties' sale or refinancing than SL Green and other shareholders.
CERTAIN MANAGEMENT MAY HAVE A CONFLICT OF INTEREST OVER WHETHER TO ENFORCE
TERMS OF CERTAIN AGREEMENTS. Two entities owned by one of Mr. Green's sons,
First Quality Maintenance, L.P. and Classic Security LLC, currently provide
cleaning and security services to all of our office properties, with the
exception of cleaning services at one property. SL Green and our tenants account
for approximately 29.5% of
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First Quality Maintenance, L.P.'s 1998 total revenue and 44.02% of Classic
Security LLC's 1998 total revenue. The contracts pursuant to which these
services are provided are not the result of arm's length negotiations and,
therefore, there can be no assurance that the terms and conditions are not less
favorable than those which could be obtained from third parties providing
comparable services. We currently have a policy that any material contract or
transaction with an affiliate of management must be approved by a majority of
the disinterested directors of our Board of Directors. The contracts with Mr.
Green's son's companies are annually reviewed by the Board of Directors pursuant
to this policy.
CERTAIN MANAGEMENT MAY HAVE A CONFLICT OF INTEREST OVER WHETHER TO ENFORCE
TERMS OF CERTAIN EMPLOYMENT AND NONCOMPETITION AGREEMENTS. Mr. Green, David J.
Nettina, Nancy A. Peck, Steven H. Klein, Benjamin P. Feldman, Marc Holliday and
Gerard Nocera have entered into employment and noncompetition agreements with us
pursuant to which they have agreed not to engage in the acquisition, development
or operation of office real estate in the New York City metropolitan area. With
the exception of Ms. Peck's agreement, for the most part these restrictions
apply both during their employment and for a period of time thereafter. They are
also prohibited from otherwise disrupting or interfering with our business
through the solicitation of our employees or clients or otherwise. To the extent
that we choose to enforce our rights under any of these agreements, we may
determine to pursue available remedies, such as actions for damages or
injunctive relief, less vigorously than we otherwise might because of our desire
to maintain our ongoing relationship with the individual involved.
CONFLICTS OF INTEREST EXIST WITH SL GREEN AFFILIATES. To address conflicts
of interest as they arise, SL Green has adopted certain policies and entered
into agreements with its executive officers designed to eliminate or minimize
certain potential conflicts of interest. In that regard, we have adopted a
policy that, without the approval of a majority of the disinterested directors,
we will not:
- acquire from or sell to any of our directors, officer or employees or
their affiliates, or any entity in which any of them beneficially owns
more than a 1% interest, any of our assets;
- make loan to or borrow from any of these persons; or
- engage in any other transaction with any of these persons.
In addition, SL Green's Board of Directors is subject to provisions of
Maryland law which are designed to eliminate or minimize potential conflicts of
interest. We cannot guarantee, however, that these policies and provisions or
these agreements always will be successful in eliminating the influence of such
conflicts. As a result, decisions could be made that may fail to reflect fully
the interests of all stockholders.
OUTSIDE INTERESTS OF OFFICERS AND DIRECTORS COULD CONFLICT WITH OUR
INTERESTS. As we have previously stated, Messrs. Green and Feldman own
interests in some of our properties through their ownership of units in the
operating partnership. In addition, Mr. Green, Mr. Feldman and Ms. Peck own
direct and indirect interests in office properties and other real estate assets
and these interests may give rise to conflicts of interest concerning the
fulfillment of their responsibilities as officers and, in the case of Messrs.
Green and Feldman, directors of SL Green.
WE RELY ON KEY PERSONNEL WHOSE CONTINUED SERVICE IS NOT GUARANTEED
We are dependent on the efforts of our executive officers, Mr. Green, Nancy
A. Peck, David J. Nettina, Steven H. Klein, Benjamin P. Feldman, Gerard Nocera,
Ann Iseley and Marc Holliday. Mr. Green has interests in various properties in
Manhattan and a property located in Pennsylvania which are exempt from the
non-competition provisions of Mr. Green's employment and non-competition
agreement. Each of our executive officers, except Ms. Iseley, has entered into
an employment and noncompetition agreement with us which provides, among other
items, that each
7
person will devote substantially all of his or her business time to SL Green.
The non-competitive provisions of these agreements despite being limited in
scope and duration, could be difficult to enforce, or may be subject to limited
enforcement, should litigation arise over them in the future. At her request, we
did not enter into an employment and noncompetition agreement with Ms. Iseley.
With the exception of Messr's Green and Nettina, in the event that any other
such officer is no longer our employee, we would not consider any such loss to
be critical.
SHAREHOLDER APPROVAL IS NOT REQUIRED TO CHANGE OUR POLICIES
Our investment, financing, borrowing and distribution policies and our
policies with respect to all other activities, including qualification as a
REIT, are determined by our Board of Directors. Our Board of Directors may amend
or revise these policies at any time at its discretion without a vote of our
shareholders. A change in these policies could adversely affect our financial
condition, results of operations or the market price of the common stock.
LIMITATIONS ON ABILITY TO SELL OR REDUCE THE MORTGAGE INDEBTEDNESS ON CERTAIN
PROPERTIES COULD ADVERSELY AFFECT THE VALUE OF THE STOCK
We have agreed to certain restrictions relating to future transactions
involving 673 First Avenue and 470 Park Avenue, which we call the "Lock-out
Provisions." Pursuant to the Lock-out Provisions, we may not sell our interest
in, or earlier than one year prior to maturity, reduce the mortgage
indebtedness, other than pursuant to scheduled amortization, on 673 First Avenue
and 470 Park Avenue South during the Lock-out Period without the approval of
unit holders holding at least 75% of the units issued in consideration for these
properties. In addition, during the Lock-out Period, we are obligated to use
commercially reasonable efforts, beginning one year prior to the stated
maturity, to refinance at maturity, on a basis that is nonrecourse to the
Operating Partnership and us, with the least amount of principal amortization as
is available on commercially reasonable terms, the mortgage indebtedness secured
by each of these properties at not less than the principal amount outstanding on
the maturity date. The maturity date for the mortgage loan for 673 First Avenue
is December 12, 2003 and the maturity date for the mortgage loan for 470 Park
Avenue is April 1, 2004. Finally, during the Lock-out Period, we may not incur
debt secured by any of these 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. As
used herein "Lock-out Period" refers to the time period during which
restrictions contained in the Lock-out Provisions apply.
The Lock-out Provisions may impair our ability to take actions during the
Lock-out Period that would otherwise be in your best interests and, therefore,
may have an adverse impact on the value of our 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 from participating
in certain major transactions that could result in a disposition of the
Operating Partnership's assets or a change in control of SL Green even though a
disposition or change in control might be in the best interests of the
shareholders.
We anticipate that, in connection with future acquisitions of interests in
properties in which we use units as consideration, we may agree to similar
limitations on our ability to sell, or reduce the amount of mortgage
indebtedness on, the acquired properties, which may increase our leverage. The
limitations may impair our ability to take actions that would otherwise be in
the best interests of shareholders and, therefore, may have an adverse impact on
the value of our securities relative to the value that would result if the
limitations did not exist.
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FAILURE OF SL GREEN TO QUALIFY AS A REIT WOULD BE COSTLY
SL Green has operated so as to qualify as a REIT for federal income tax
purposes beginning with our taxable year ended December 31, 1997. Many of these
requirements, however, are highly technical and complex. The determination that
we are a REIT requires an analysis of various factual matters and circumstances
that may not be totally within our control. For example, to qualify as a REIT,
at least 95% of our gross income must come from certain sources that are
itemized in the REIT tax laws. We are also required to distribute to
shareholders at least 95% of our REIT taxable income excluding capital gains.
The fact that we hold our assets through the Operating Partnership and its
subsidiaries further complicates the application of the REIT requirements. Even
a technical or inadvertent mistake could jeopardize our REIT status.
Furthermore, Congress and the IRS might make changes to the tax laws and
regulations, and the courts might issue new rulings that make it more difficult,
or impossible for us to remain qualified as a REIT.
If we fail to qualify as a REIT, we would be subject to federal income tax
at regular corporate rates. Also, unless the IRS granted us relief under certain
statutory provisions, we would remain disqualified as a REIT for four years
following the year we first failed to qualify. If we failed to qualify as a
REIT, we would have to pay significant income taxes and would therefore have
less money available for investments or for distributions to shareholders. This
would likely have a significant adverse affect of the value of our securities.
In addition, we would no longer be required to make any distributions to
shareholders.
THE FINANCIAL CONDITION OF THIRD-PARTY PROPERTY MANAGEMENT, LEASING AND
CONSTRUCTION BUSINESSES COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION
In order to maintain and preserve our status as a REIT, we cannot provide
certain services directly to tenants of properties that we do not wholly own.
These services include management, leasing and construction services. Rather
than providing the services ourselves, we have non-controlled subsidiaries,
which we refer to as the "Services Corporations," provide the services. We are
subject to the risks associated with the management, leasing and construction
businesses that are conducted by our Service Corporations, in which the
Operating Partnership holds 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, will be canceled pursuant to cancellation
options or will not be renewed on terms at least as favorable to us 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 we service, and that leasing and
construction activity generally will decline. Since our initial public offering,
11 management and leasing contracts with third party property owners have been
cancelled, representing an aggregate decrease of approximately $0.9 million in
annual revenue. We do not intend to seek to replace the contracts or to pursue
other third party management and leasing opportunities. Each of these
developments could adversely affect the revenues of the Service Corporations and
could adversely affect our ability to continue to make expected distributions to
our shareholders.
The Service Corporation LLC currently owns 100% of the voting common stock,
representing 5% of the economic interest, of each of the Service Corporations.
As a result, we do not have the ability to elect or remove any members of the
Board of Directors of the Service Corporations, and, therefore, our ability to
influence the day-to-day decisions of the Service Corporations is 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 us and that are adverse to our interests or that lead to
adverse financial results, which could adversely affect our ability to make
expected distributions to shareholders.
9
WE ARE DEPENDENT ON EXTERNAL SOURCES OF CAPITAL
Because of distribution requirements imposed on us to qualify as a REIT, it
is not likely that we will be able to fund all future capital needs, including
acquisitions, from income from operations. We therefore will have to rely on
third-party sources of capital, which may or may not be available on favorable
terms or at all. Our access to third-party sources of capital depends on a
number of things, including the market's perception of our growth potential and
our current and potential future earnings. In addition, we anticipate having to
raise money in the public equity and debt markets with some regularity, and our
ability to do so will be dependent upon the general conditions prevailing in
these markets. Recent conditions have demonstrated that conditions may exist
which effectively prevent us, and REITs in general, from accessing these
markets. Moreover, additional equity offerings may result in substantial
dilution of our shareholders' interests, and additional debt financing may
substantially increase our leverage.
10
USE OF PROCEEDS
The net proceeds to us from the sale of the securities offered hereby will
be used for general corporate purposes, which may include the repayment of
existing indebtedness, the development or acquisition of additional properties
as suitable opportunities arise and the renovation, expansion and improvement of
our existing properties. Further details relating to the use of the net proceeds
will be set forth in the applicable Prospectus Supplement.
RATIOS OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
Our ratios of earnings to fixed charges are as follows:
SL GREEN REALTY CORP. SL GREEN PREDECESSOR(1)
(CONSOLIDATED) (COMBINED)
------------------------------------------------------- ----------------------------
THREE MONTHS JANUARY 1, 1997
ENDED YEAR ENDED AUGUST 21, 1997 TO TO YEARS ENDED
MARCH 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997 AUGUST 20, 1997 DECEMBER 31,
--------------- ----------------- ------------------- ----------------- -------------------------------
1996 1995 1994
--------- --------- ---------
Ratio of Earnings to
Fixed Charges
(2)............... 1.57 1.63 3.96 (3) (3) (3) (3)
- ------------------------
(1) 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 Mr. Green.
(2) Prior to completion of the initial public offering on August 20, 1997, the
SL Green Predecessor operated in a manner as to minimize net taxable income
to the owners. The initial public offering and the related Formation
Transactions permitted us to deleverage our properties significantly,
resulting in a significantly improved ratio of earnings to fixed charges.
(3) For the period January 1, 1997 to August 20, 1997 and the years ended
December 31, 1996, 1995 and 1994, SL Green Predecessor's fixed charge ratios
were deficits of $100, $3,470, $6,923 and $5,040, respectively.
The ratios of earnings to combined fixed charges and preferred stock
dividends were computed by dividing earnings by fixed charges, which includes
100% of majority owned non-combined entities of the SL Green Predecessor. For
this purpose, earnings consist of income or loss before gains from sale of
property and extraordinary items plus fixed charges. Fixed charges consist of
interest expense including interest costs capitalized, the amortization of debt
issuance costs and rental expense deemed to represent interest expense and has
been combined with preferred dividends which was associated with preferred stock
issued by SL Green during May 1998.
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DESCRIPTION OF COMMON STOCK
GENERAL
SL Green's Articles of Incorporation, which we refer to as the "Charter,"
provide that we may issue up to 100 million shares of common stock, $.01 par
value per share. 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 shareholders, including the election of
directors, and, except as provided with respect to any other class or series of
stock, the holders of this stock 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. On March 31, 1999, there were
24,191,826 shares of common stock outstanding.
All shares of common stock offered hereby have been duly authorized, and
will be 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 this stock if, as and when authorized and declared by the Board of
Directors of SL Green out of assets legally available therefor and to share
ratably in the assets of SL Green legally available for distribution to its
shareholders in the event of its liquidation, dissolution or winding up after
payment of or adequate provision for all known debts and liabilities of SL
Green.
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 SL Green. Subject to the provisions of the
Charter regarding excess stock, shares of common stock will have equal dividend,
liquidation and other rights.
CERTAIN PROVISIONS OF SL GREEN'S ARTICLES OF INCORPORATION
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
class or series.
The Board of Directors is divided into three classes of directors, each
class constituting approximately one-third of the total number of directors,
with the classes serving staggered terms. At each annual meeting of
shareholders, the class of directors to be elected at the meeting will be
elected for a three-year term and the directors in the other two classes will
continue in office. We believe that classified directors will help to assure the
continuity and stability of the Board of Directors and our business strategies
and policies as determined by the Board of Directors. The use of a staggered
board may delay or defer a change in control of SL Green or removal of incumbent
management.
RESTRICTIONS ON OWNERSHIP
For SL Green to qualify as a REIT under the Internal Revenue Code of 1986,
as amended, not more than 50% in value of its outstanding common stock may be
owned, directly or indirectly, by five or fewer individuals, according to the
definition in the Code, during the last half of a taxable year and the common
stock must be beneficially owned by 100 or more persons during at least 335 days
of a taxable year of 12 months or during a proportionate part of a shorter
taxable year. To satisfy the above ownership requirements and certain other
requirements for qualification as a REIT, the Board of Directors has adopted,
and the shareholders prior to the initial public offering approved, a provision
in the Charter restricting the ownership or acquisition of shares of common
stock. SEE "RESTRICTIONS ON OWNERSHIP OF CAPITAL STOCK."
12
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is the American Stock
Transfer & Trust Company.
DESCRIPTION OF PREFERRED STOCK
GENERAL
The Charter provides that we may issue up to 25 million shares of preferred
stock, $.01 par value per share. On March 31, 1999 there were 4,600,000 shares
of preferred stock outstanding.
The following description of the preferred stock sets forth certain general
terms and provisions of the preferred stock to which any Prospectus Supplement
may relate. The statements below describing the preferred stock are in all
respects subject to and qualified in their entirety by reference to the
applicable provisions of the Charter and Bylaws of SL Green and any applicable
articles supplementary to the Charter designating terms of a series of preferred
stock.
The issuance of preferred stock could adversely affect the voting power,
dividend rights and other rights of holders of common stock. Although the Board
of Directors does not have this intention at the present time, it could
establish a series of preferred stock that could, depending on the terms of the
series, delay, defer or prevent a transaction or a change in control of SL Green
that might involve a premium price for the common stock or otherwise be in the
best interest of the holders thereof. Management believes that the availability
of preferred stock will provide SL Green with increased flexibility in
structuring possible future financing and acquisitions and in meeting other
needs that might arise.
TERMS
Subject to the limitations prescribed by the Charter, the Board of Directors
is authorized to fix the number of shares constituting each series of preferred
stock and the designations and powers, preferences and relative, participating,
optional or other special rights and qualifications, limitations or restrictions
thereof, including provisions as may be desired concerning voting, redemption,
dividends, dissolution or the distribution of assets, conversion or exchange,
and other subjects or matters as may be fixed by resolution of the Board of
Directors. The preferred stock will, when issued, be fully paid and
nonassessible by SL Green and will have no preemptive rights.
Reference is made to the Prospectus Supplement relating to the series of
preferred stock offered thereby for the specific terms thereof, including:
- The title and stated value of the preferred stock;
- The number of shares of the preferred stock, the liquidation preference
per share of the preferred stock and the offering price of the preferred
stock;
- The dividend rate(s), period(s) and/or payment day(s) or method(s) of
calculation thereof applicable to the preferred stock;
- The date from which dividends on the preferred stock shall accumulate, if
applicable;
- The procedures for any auction and remarketing, if any, for the preferred
stock;
- The provision for a sinking fund, if any, for the preferred stock;
- The provision for redemption, if applicable, of the preferred stock;
- Any listing of the preferred stock on any securities exchange;
13
- The terms and conditions, if applicable, upon which the preferred stock
may or will be convertible into common stock of SL Green, including the
conversion price or manner of calculation thereof;
- The relative ranking and preferences of the preferred stock as to dividend
rights and rights upon liquidation, dissolution or winding up of the
affairs of SL Green;
- Any limitations on direct or beneficial ownership and restrictions on
transfer, in each case as may be appropriate to preserve the status of SL
Green as a REIT;
- A discussion of federal income tax considerations applicable to the
preferred stock; and
- Any other specific terms, preferences, rights, limitations or restrictions
of the preferred stock.
RANK
Unless otherwise specified in the applicable prospectus supplement, the
preferred stock will, with respect to dividend rights and rights upon
liquidation, dissolution or winding up of SL Green, rank:
(a) senior to all classes or series of common stock and to all equity
securities issued by SL Green the terms of which provide that the equity
securities shall rank junior to the preferred stock;
(b) on a parity with all equity securities issued by SL Green other than
those referred to in clauses (a) and (c); and
(c) junior to all equity securities issued by SL Green which the terms
of the preferred stock provide will rank senior to it. The term "equity
securities" does not include convertible debt securities.
DIVIDENDS
Unless otherwise specified in the applicable Prospectus Supplement, the
preferred stock will have the rights with respect to payment of dividends set
forth below.
Holders of the preferred stock of each series will be entitled to receive,
when, as and if declared by the Board of Directors, out of assets of SL Green
legally available for payment, cash dividends in the amounts and on the dates as
will be set forth in, or pursuant to, the applicable prospectus supplement. Each
dividend shall be payable to holders of record as they appear on the share
transfer books of SL Green on the record dates as shall be fixed by the Board of
Directors.
Dividends on any series of preferred stock may be cumulative or
non-cumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the Board of Directors fails to declare a
dividend payable on a dividend payment date on any series of preferred stock for
which dividends are non-cumulative, then the holders of this series of preferred
stock will have no right to receive a dividend in respect of the related
dividend period and SL Green will have no obligation to pay the dividend accrued
for the period, whether or not dividends on this series of preferred stock are
declared payable on any future dividend payment date.
If preferred stock of any series is outstanding, no full dividends will be
declared or paid or set apart for payment on any capital stock of SL Green of
any other series ranking, as to dividends, on a parity with or junior to the
preferred stock of this series for any period unless:
(a) if this series of preferred stock has a cumulative dividend, full
cumulative dividends have been or contemporaneously are declared and paid or
declared and a sum sufficient for the
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payment thereof set apart for the payment for all past dividend periods and
the then current dividend period; or
(b) if this series of preferred stock does not have a cumulative
dividend, full dividends for the then current dividend period have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for the payment on the preferred stock of this
series.
When dividends are not paid in full or a sum sufficient for the full payment
is not so set apart upon preferred stock of any series and the shares of any
other series of preferred stock ranking on a parity as to dividends with the
preferred stock of this series, all dividends declared upon the preferred stock
of this series and any other series of preferred stock ranking on a parity as to
dividends with the preferred stock shall be declared pro rata so that the amount
of dividends declared per share of preferred stock of this series and the other
series of preferred stock shall in all cases bear to each other the same ratio
that accrued dividends per share on the preferred stock of this series and the
other series of preferred stock which shall not include any accumulation in
respect of unpaid dividends for prior dividend periods if the preferred stock
does not have a cumulative dividend, bear to each other. No interest, or sum of
money in lieu of interest, shall be payable in respect of any dividend payment
or payments on preferred stock of this series which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (a) if
this series of preferred stock has a cumulative dividend, full cumulative
dividends on the preferred stock of this series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for all past dividend periods and the then current
dividend period, and if this series of preferred stock does not have a
cumulative dividend, full dividends on the preferred stock of this series have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for payment for the then current dividend
period, no dividends, other than in shares of common stock or other capital
stock ranking junior to the preferred stock of this series as to dividends and
upon liquidation, shall be declared or paid or set aside for payment or other
distribution shall be declared or made upon the common stock, or any other
capital stock of SL Green ranking junior to or on a parity with the preferred
stock of this series as to dividends or upon liquidation, nor shall any shares
of common stock, or any other capital stock of SL Green ranking junior to or on
a parity with the preferred stock of this series as to dividends or upon
liquidation, be redeemed, purchased or otherwise acquired for any consideration
or any moneys be paid to or made available for a sinking fund for the redemption
of any of the shares by SL Green except:
(a) by conversion into or exchange for other capital stock of SL Green
ranking junior to the preferred stock of this series as to dividends and
upon liquidation; or
(b) redemptions for the purpose of preserving SL Green's status as a
REIT.
REDEMPTION
If so provided in the applicable Prospectus Supplement, the preferred stock
will be subject to mandatory redemption or redemption at the option of SL Green,
as a whole or in part, in each case upon the terms, at the times and at the
redemption prices set forth in the Prospectus Supplement.
The Prospectus Supplement relating to a series of preferred stock that is
subject to mandatory redemption will specify the number of shares of the
preferred stock that shall be redeemed by SL Green in each year commencing after
a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accumulated and unpaid dividends thereon
which shall not, if the preferred stock does not have a cumulative dividend,
include any accumulation in respect of unpaid dividends for prior dividend
periods, to the date of redemption. The redemption price may be payable in cash
or other property, as specified in the applicable Prospectus Supplement. If the
15
redemption price for preferred stock of any series is payable only from the net
proceeds of the issuance of capital stock of SL Green, the terms of the
preferred stock may provide that, if no capital stock shall have been issued or
to the extent the net proceeds from any issuance are insufficient to pay in full
the aggregate redemption price then due, the preferred stock shall automatically
and mandatorily be converted into the applicable capital stock of SL Green
pursuant to conversion provisions specified in the applicable prospectus
supplement.
Notwithstanding the foregoing, unless (a) if this series of preferred stock
has a cumulative dividend, full cumulative dividends on all shares of any series
of preferred stock shall have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for payment for
all past dividend periods and the then current dividend period, and (b) if this
series of preferred stock does not have a cumulative dividend, full dividends on
the preferred stock of any series have been or contemporaneously are declared
and paid or declared and a sum sufficient for the payment thereof set apart for
payment for the then current dividend period, no shares of any series of
preferred stock shall be redeemed unless all outstanding preferred stock of this
series is simultaneously redeemed; PROVIDED, HOWEVER, that the foregoing shall
not prevent the purchase or acquisition of preferred stock of this series to
preserve the REIT status of SL Green or pursuant to a purchase or exchange offer
made on the same terms to holders of all outstanding preferred stock of this
series. In addition, unless (a) if this series of preferred stock has a
cumulative dividend, full cumulative dividends on all outstanding shares of any
series of preferred stock have been or contemporaneously are declared and paid
or declared and a sum sufficient for the payment thereof set apart for payment
for all past dividend periods and the then current dividend period, and (b) if
this series of preferred stock does not have a cumulative dividend, full
dividends on the preferred stock of any series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for the then current dividend period, SL Green shall not
purchase or otherwise acquire, directly or indirectly, any shares of preferred
stock of this series except by conversion into or exchange for capital stock of
SL Green ranking junior to the preferred stock of this series as to dividends
and upon liquidation; PROVIDED, HOWEVER, that the foregoing shall not prevent
the purchase or acquisition of preferred stock of this series to preserve the
REIT status of SL Green or pursuant to a purchase or exchange offer made on the
same terms to holders of all outstanding preferred stock of this series.
If fewer than all of the outstanding shares of preferred stock of any series
are to be redeemed, the number of shares to be redeemed will be determined by SL
Green and the shares may be redeemed pro rata from the holders of record of the
shares in proportion to the number of the shares held or for which redemption is
requested by the holder, with adjustments to avoid redemption of fractional
shares, or by lot in a manner determined by SL Green.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of preferred stock of
any series to be redeemed at the address shown on the share transfer books of SL
Green. Each notice shall state:
- the redemption date;
- the number of shares and series of the preferred stock to be redeemed;
- the redemption price;
- the place or places where certificates for the preferred stock are to be
surrendered for payment of the redemption price;
- that dividends on the shares to be redeemed will cease to accumulate on
the redemption date; and
- the date upon which the holder's conversion rights, if any, as to the
shares shall terminate.
16
If fewer than all the shares of preferred stock of any series are to be
redeemed, the notice mailed to each holder thereof shall also specify the number
of shares of preferred stock to be redeemed from each holder. If notice of
redemption of any preferred stock has been given and if the funds necessary for
the redemption have been set aide by SL Green in trust for the benefit of the
holders of any preferred stock so called for redemption, then from and after the
redemption date dividends will cease to accumulate on the preferred stock, and
all rights of the holders of the preferred stock will terminate, except the
right to receive the redemption price.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of SL Green, then, before any distribution or payment shall be made
to the holders of any common stock or any other class or series of capital stock
of SL Green ranking junior to the preferred stock of this series in the
distribution of assets upon any liquidation, dissolution or winding up of SL
Green, the holders of the preferred stock shall be entitled to receive out of
assets of SL Green legally available for distribution to shareholders
liquidating distributions in the amount of the liquidation preference per share
that is set forth in the applicable Prospectus Supplement, plus an amount equal
to all dividends accumulated and unpaid thereon, which shall not include any
accumulation in respect of unpaid dividends for prior dividend periods if the
preferred stock does not have a cumulative dividend. After payment of the full
amount of the liquidating distributions to which they are entitled, the holders
of preferred stock will have no rights or claim to any of the remaining assets
of SL Green. In the event that, upon any voluntary or involuntary liquidation,
dissolution or winding up, the available assets of SL Green are insufficient to
pay the amount of the liquidating distributions on all outstanding preferred
stock of this series and the corresponding amounts payable on all shares of
other classes or series of capital stock of SL Green ranking on a parity with
the preferred stock in the distribution of assets, then the holders of the
preferred stock and all other classes or series of capital stock shall share
ratably in any distribution of assets in proportion to the full liquidating
distributions to which they would otherwise be respectively entitled.
The consolidation or merger of SL Green with or into any other entity, or
the merger of another entity with or into SL Green, or a statutory share
exchange by SL Green, or the sale, lease or conveyance of all or substantially
all of the property or business of SL Green, shall not be deemed to constitute a
liquidation, dissolution or winding up of SL Green.
VOTING RIGHTS
Holders of the preferred stock will not have any voting rights, except as
set forth below or as otherwise from time to time required by law or as
indicated in the applicable Prospectus Supplement.
Whenever dividends on any series of preferred stock shall be in arrears for
six or more quarterly periods, the holders of the preferred stock, voting
separately as a class with all other series of preferred stock upon which like
voting rights have been conferred and are exercisable, will be entitled to vote
for the election of two additional directors of SL Green at a special meeting
called by the holders of record of at least ten percent of any series of
preferred stock so in arrears, unless the request is received less than 90 days
before the date fixed for the next annual or special meeting of the
shareholders, or at the next annual meeting of shareholders, and at each
subsequent annual meeting until (a) if this series of preferred stock has a
cumulative dividend, all dividends accumulated on this shares of preferred stock
for the past dividend periods and the then current dividend period shall have
been fully paid or declared and a sum sufficient for the payment thereof set
aside for payment or (b) if this series of preferred stock does not have a
cumulative dividend, four quarterly dividends shall have been fully paid or
declared and a sum sufficient for the payment thereof set aside for payment. In
these cases, the entire Board of Directors will be increased by two directors.
17
Unless provided otherwise for any series of preferred stock, so long as any
shares of the preferred stock remain outstanding, SL Green will not, without the
affirmative vote or consent of the holders of at least two-thirds of the shares
of this series of preferred stock outstanding at the time, given in person or by
proxy, either in writing or at a meeting with this series voting separately as a
class:
(a) authorize or create, or increase the authorized or issued amount of,
any class or series of capital stock ranking senior to the preferred stock
with respect to payment of dividends or the distribution of assets upon
liquidation, dissolution or winding up of SL Green, or reclassify any
authorized capital stock of SL Green into the stock, or create, authorize or
issue any obligation or security convertible into or evidencing the right to
purchase any of this stock; or
(b) amend, alter or repeal the provisions of the Charter or the
Designating Amendment for this series of preferred stock, whether by merger,
consolidation or otherwise, so as to materially and adversely affect any
right, preference, privilege or voting power of this series of preferred
stock or the holders thereof;
PROVIDED, HOWEVER, with respect to the occurrence of any of the events set
forth in (b) above, so long as this series of preferred stock remains
outstanding with the terms thereof materially unchanged, taking into account
that upon the occurrence of an event SL Green may not be the surviving entity,
the occurrence of any similar event shall not be deemed to materially and
adversely affect the rights, preferences, privileges or voting powers of holders
of this series of preferred stock; and provided, further, that (x) any increase
in the amount of the authorized preferred stock or the creation or issuance of
any other series of preferred stock, or (y) any increase in the amount of
authorized shares of this series of preferred stock or any other series of
preferred stock, in each case ranking on a parity with or junior to the
preferred stock of this series with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up of SL Green,
shall not be deemed to materially and adversely affect the rights, preferences,
privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which the vote or consent would otherwise be
required shall be effected, all outstanding shares of this series of preferred
stock shall have been converted, redeemed or called for redemption and
sufficient funds shall have been deposited in trust to effect the redemption.
CONVERSION RIGHTS
The terms and conditions, if any, upon which any series of preferred stock
is convertible into shares of common stock will be set forth in the applicable
Prospectus Supplement. The terms will include the number of shares of common
stock into which the shares of preferred stock are convertible, the conversion
price, or manner of calculation thereof, the conversion period, provisions as to
whether conversion will be at the option of the holders of the preferred stock
or SL Green, the events requiring an adjustment of the conversion price and
provisions affecting conversion in the event of the redemption of the preferred
stock.
SHAREHOLDER LIABILITY
As discussed above under "Description of Common Stock--General," applicable
Maryland law provides that no shareholder, including holders of preferred stock,
shall be personally liable for the acts and obligations of SL Green and that the
funds and property of SL Green shall be the only recourse for these acts or
obligations.
RESTRICTIONS ON OWNERSHIP
As discussed below under "Restrictions on Ownership of Capital Stock," for
SL Green to qualify as a REIT under the Code, not more than 50% in value of its
outstanding capital stock may be owned,
18
directly or indirectly, by five or fewer individuals, which in the Code includes
certain entities, during the last half of a taxable year. Therefore, the
Designating Amendment for each series of preferred stock may contain provisions
restricting the ownership and transfer of the preferred stock. The applicable
Prospectus Supplement will specify any additional ownership limitation relating
to a series of preferred stock.
REGISTRAR AND TRANSFER AGENT
The Registrar and Transfer Agent for the preferred stock is the American
Stock Transfer & Trust Company.
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RESTRICTIONS ON OWNERSHIP OF CAPITAL STOCK
EXCESS STOCK
The Charter provides that SL Green may issue up to 75 million shares of
excess stock, par value $.01 per share. FOR A DESCRIPTION OF EXCESS STOCK, SEE
"--RESTRICTIONS ON OWNERSHIP" BELOW.
RESTRICTIONS ON OWNERSHIP
For SL Green 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 during the last half of a taxable
year, other than the first year, and the 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 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 these entities for purposes of the five or fewer
requirement. For example, the beneficial owners of these entities will be
counted as shareholders of SL Green.
In order to protect SL Green against the risk of losing its status as a REIT
due to a concentration of ownership among its shareholders, the Charter, subject
to certain exceptions, provides that no shareholder may own, or be deemed to own
by virtue of the attribution provisions of the Code, more than 9.0%, which we
refer to as the "Ownership Limit," of the aggregate number or value of SL
Green's outstanding shares of common stock. Limitations on the ownership of
preferred stock may also be imposed by SL Green. SEE "DESCRIPTION OF PREFERRED
STOCK--RESTRICTIONS ON OWNERSHIP." Any direct or indirect ownership of shares of
stock in excess of the Ownership Limit or that would result in the
disqualification of SL Green as a REIT, including any transfer that results in
shares of capital stock being owned by fewer than 100 persons or results in SL
Green 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 SL Green 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 SL
Green's tax counsel is presented that the changes in ownership will not then or
in the future jeopardize SL Green's REIT status and the Board of Directors
otherwise decides that this action is in the best interest of SL Green.
Shares of capital stock owned, or deemed to be owned, or transferred to a
shareholder 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
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-shareholder. Any dividend or distribution paid to the original
transferee-shareholder of excess stock prior to the discovery by SL Green that
capital stock has been transferred in violation of the provisions of SL Green's
Charter shall be repaid to the trustee upon demand. Any dividend or distribution
authorized and declared but unpaid shall be rescinded as void from the beginning
with respect to the original transferee-shareholder 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-shareholder of shares of capital stock
constituting excess stock prior to the discovery by SL Green that shares of
capital stock have been transferred in violation of the provisions of the
Charter shall be rescinded as void from the beginning. While the excess stock is
held in trust, the original transferee-shareholder 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
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trust representing the excess stock to any person whose ownership of the shares
of capital stock converted into this excess stock would be permitted under the
Ownership Limit. If this transfer is made, the interest of the charitable
beneficiary shall terminate and the proceeds of the sale shall be payable to the
original transferee shareholder and to the charitable beneficiary as described
herein. The original transferee-shareholder shall receive the lesser of (a) the
price paid by the original transferee-shareholder for the shares of capital
stock that were converted into excess stock or, if the original
transferee-shareholder did not give value for the shares, the average closing
price for the class of shares from which the shares of capital stock were
converted for the ten trading days immediately preceding the sale or gift, and
(b) 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-shareholder by the amount of dividends and distributions
relating to the shares of excess stock which have been paid to the original
transferee-shareholder and are owed by the original transferee-shareholder to
the trustee. Any proceeds in excess of the amount payable to the original
transferee-shareholder 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, statute, rule or regulations, then the original
transferee-shareholder of any shares of excess stock may be deemed, at the
option of SL Green, to have acted as an agent on behalf of SL Green in acquiring
the shares of excess stock and to hold the shares of excess stock on behalf of
SL Green.
In addition, SL Green 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 (a) the price initially
paid for the shares by the original transferee-shareholder, or if the original
transferee-shareholder did not give value for the shares, the average closing
price for the class of stock from which the shares of excess stock were
converted for the ten trading days immediately preceding the sale or gift, and
(b) the average closing price for the class of stock from which the shares of
excess stock were converted for the ten trading days immediately preceding the
date SL Green elects to purchase the shares. SL Green may reduce the amount
payable to the original transferee-shareholder by the amount of dividends and
distributions relating to the shares of excess stock which have been paid to the
original transferee-shareholder and are owed by the original
transferee-shareholder to the trustee. SL Green may pay the amount of the
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-shareholder gives notice to SL
Green of the transfer or, if no notice is given, the date the Board of Directors
determines that a violative transfer has been made.
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 shareholder shall upon demand be required to disclose to SL Green in
writing any information with respect to the direct, indirect and constructive
ownership of capital stock of SL Green 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 SL Green unless the Board of Directors determines that
maintenance of REIT status is no longer in the best interest of SL Green.
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MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material Federal income tax
consequences that are generally applicable to all prospective holders of the
Offered Securities. The specific tax consequences of owning the Offered
Securities will vary depending on the circumstances of a particular stockholder.
The discussion contained herein does not purport to address all aspects of
Federal income taxation that may be relevant to particular holders, therefore,
it is imperative that a stockholder review the following discussion and consult
with a tax advisor to determine the interaction of such stockholder's tax
situation with the anticipated tax consequences of owning Offered Securities.
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. SL Green and the Operating Partnership do not plan
to obtain any rulings from the IRS concerning any tax issue with respect to SL
Green. 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.
This summary does not discuss state, local or foreign tax considerations.
Except where indicated, the discussion below describes general Federal income
tax considerations applicable to individuals who are "U.S. persons" for federal
income tax purposes. 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 "Operating Partnership" refers solely to
SL Green Operating Partnership, L.P.
PROSPECTIVE STOCKHOLDERS ARE 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 SL GREEN
GENERAL
We elected to be taxed as a REIT under Sections 856 through 860 of the Code
effective for our taxable year ending December 31, 1997. In the opinion of Brown
& Wood LLP, commencing with our taxable year ended December 31, 1997, we have
been organized in conformity with the requirements for qualification and
taxation as a REIT under the Code and our method of operation will enable us 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 SL
Green, the Operating Partnership, the Management LLC, the Management
Corporation, the Leasing Corporation and the Construction Corporation and upon
certain of their representations as to certain relevant factual matters,
including matters related to their organization and expected manner of
operation. We refer to the Management Corporation and the Management LLC as the
"Management Entities." Moreover, qualification and taxation as a REIT will
depend upon our ability to meet on a continuing basis, through actual annual
operating results, the various qualification tests imposed under the Code. Brown
& Wood LLP will not review compliance with these tests on a continuing basis.
SEE "FAILURE TO QUALIFY" BELOW.
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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 we qualify for taxation as a REIT, we generally will not be subject to
Federal corporate income taxes on net income that we distribute 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, we will be subject to Federal income
and excise tax in certain circumstances, including the following. First, we will
be taxed at regular corporate rates on any undistributed REIT taxable income,
including undistributed net capital gains, other than certain retained capital
gains as discussed below. Second, under certain circumstances, we may be subject
to the "alternative minimum tax" on our items of tax preference. Third, if we
have (a) 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 (b) other nonqualifying income
from foreclosure property, we will be subject to tax at the highest corporate
rate on such income. Fourth, if we have net income from prohibited transactions,
which are, in general, certain sales or other dispositions of property held
primarily for sale to customers in the ordinary course of business, such income
will be subject to a 100% tax. Fifth, if we fail to satisfy either the 75% gross
income test or the 95% gross income test, but nonetheless maintains our
qualification as a REIT because certain other requirements have been met, we
will be subject to a 100% tax on the greater of the amount by which we fail the
75% or 95% test, multiplied by a fraction intended to reflect our profitability.
Sixth, if we fail to distribute during each calendar year at least the sum of
(a) 85% of our REIT ordinary income for such year, (b) 95% of our REIT capital
gain net income for such year and (c) any undistributed taxable income from
prior years, we will be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed. Seventh, if we
acquire any asset from a C corporation, a corporation generally subject to full
corporate level tax, in a transaction in which the basis of the asset in our
hands is determined by reference to the basis of the asset in the hands of the C
corporation and we recognize gain on the disposition of such asset during the
ten-year period, which we refer to as the "Recognition Period", beginning on the
date on which such asset was acquired by us, 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 SL Green over the adjusted basis in such property
at such time, such gain will be subject to tax at the highest regular corporate
rate applicable, which we refer to as the "Built-In Gain Rule".
REQUIREMENTS FOR QUALIFICATION
The Code defines a REIT as a corporation, trust, or association (a) that is
managed by one or more trustees or directors; (b) the beneficial ownership of
which is evidenced by transferable shares or by transferable certificates of
beneficial interest; (c) that would be taxable as a domestic corporation, but
for Section 856 through 859 of the Code; (d) that is neither a financial
institution nor an insurance company subject to certain provisions of the Code;
(e) the beneficial ownership of which is held by 100 or more persons; (f) 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;
and (g) that meets certain other tests, described below, regarding the nature of
its income and assets. The Code provides that conditions (a) through (d),
inclusive, must be met during the entire taxable year and that condition (e)
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 (e) and
(f), however, will not apply until after the first taxable year for which an
election is made to be taxed as a REIT. We believe we have issued and have
outstanding sufficient shares of stock with sufficient diversity of ownership to
allow us to satisfy conditions (e) and (f). In addition, we intend to comply
with Treasury Regulations requiring us to ascertain the actual ownership of our
outstanding shares. Our Charter includes
23
restrictions regarding the transfer of its shares of capital stock that are
intended to assist us in continuing to satisfy the share ownership requirements
described in (e) and (f) above. SEE "RESTRICTIONS ON OWNERSHIP OF CAPITAL
STOCK."
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. 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.
SEE "RECENT DEVELOPMENTS" BELOW.
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, our proportionate share of the assets,
liabilities and items of gross income of the Operating Partnership will be
treated as our assets, liabilities and items of gross income for purposes of
applying the requirements described herein.
INCOME TESTS. In order to maintain qualification as a REIT, certain 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.
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, which we refer to as a "Related
Party Tenant". Third, if rent attributable to personal property, leased in
connection with a lease of real property, is greater than 15% of the total rent
received under the lease, then the portion of rent attributable to such personal
property will not qualify as "rents from real property." Finally, in order for
rents received with respect to a property to qualify as "rents from real
property," the REIT generally must not operate or manage the property or furnish
or render services to tenants, except through an "independent contractor" who is
adequately compensated and from whom the REIT 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." However, under the DE MINIMIS rule for
noncustomary services, if the value of the noncustomary service income with
respect to a property, valued at no less than 150% of the REITs direct costs of
performing such services, is 1% or less of the total income derived from the
property, then all rental income except the noncustomary service income will
qualify as "rents from real property."
If we fail to satisfy one or both of the 75% or the 95% gross income tests
for any taxable year, we nevertheless may qualify as a REIT for such year if we
are entitled to relief under certain provisions of
24
the Code. These relief provisions generally will be available if our failure to
meet any such tests was due to reasonable cause and not due to willful neglect,
we attach a schedule of the sources of our income to our 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 we 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.
ASSET TESTS. We must also satisfy three tests relating to the nature of our
assets at the close of each quarter of our taxable year. First, at least 75% of
the value of our total assets must be represented by real estate assets,
including (a) our allocable share of real estate assets held by the Operating
Partnership or any partnerships in which the Operating Partnership owns an
interest and (b) 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 SL Green, 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 SL Green may not exceed 5% of the
value of our total assets. Third, of the investments not included in the 75%
asset class, we may not own more than 10% of any one issuer's outstanding voting
securities. SEE "RECENT DEVELOPMENTS" BELOW.
After initially meeting the asset tests at the close of any quarter, we will
not lose ours status as a REIT for failure to satisfy the asset tests at the end
of a later quarter solely by reason of changes in asset values. If the failure
to satisfy the asset tests results from an acquisition of securities or other
property during a quarter, the failure can be cured by disposition of sufficient
nonqualifying assets within 30 days after the close of that quarter.
ANNUAL DISTRIBUTION REQUIREMENTS. In order to qualify as a REIT, we are
required to distribute dividends, other than capital gain dividends, to our
stockholders in an amount at least equal to (a) the sum of (A) 95% of our "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 (b) the sum of certain items of non-cash income.
Such distributions must be paid during the taxable year to which they relate, or
during the following taxable year, if declared before we timely file our tax
return for the preceding year and paid on or before the first regular dividend
payment after such declaration. In addition, a dividend declared and payable to
a stockholder of record in October, November or December of any year will be
treated as paid and received on December 31 of such year even if paid in January
of the following year. To the extent that we do not distribute all of our net
capital gain or distributes at least 95%, but less than 100%, of our "REIT
taxable income," as adjusted, we will be subject to tax on the undistributed
amount at regular corporate capital gains rates and ordinary income tax rates.
Furthermore, if we fail to distribute during each calendar year at least the sum
of (a) 85% of our REIT ordinary income of such year, (b) 95% of our REIT capital
gain income for such year and (c) any undistributed taxable income from prior
periods, we will be subject to a 4% excise tax on the excess of such amounts
over the amounts actually distributed.
We intend to make timely distributions sufficient to satisfy the annual
distribution requirements. In this regard, it is expected that our REIT taxable
income will be less than our cash flow due to the allowance of depreciation and
other non-cash charges in computing REIT taxable income. Moreover, the
Partnership Agreement of the Operating Partnership authorizes us, 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 us to meet these distribution requirements. It is possible, however, that
we, 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 our REIT
taxable income, or due to an excess of nondeductible expenses such as principal
amortization or
25
capital expenditures over non-cash deductions such as depreciation. In the event
that such circumstances do occur, then in order to meet the 95% distribution
requirement, we may cause the Operating Partnership to arrange for short-term,
or possibly long-term, borrowings to permit the payment of required
distributions.
Under certain circumstances, we 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 our deduction for dividends
paid for the earlier year. Thus, we may be able to avoid being taxed on amounts
distributed as deficiency dividends. However, we would be required to pay to the
IRS interest based upon the amount of any deduction taken for deficiency
dividends.
FAILURE TO QUALIFY
If we fail to qualify for taxation as a REIT in any taxable year and certain
relief provisions do not apply, we will be subject to tax, including any
applicable alternative minimum tax, on our taxable income at regular corporate
rates. Distributions to stockholders in any year in which we fail to qualify as
a REIT will not be deductible by us, nor will we be required to make
distributions. Unless entitled to relief under specific statutory provisions, we
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 we would be entitled to such statutory
relief.
RECENT DEVELOPMENTS
On April 28, 1999, a bill (H.R. 1616) was introduced in the House of
Representatives which contains a provision that would change the restriction on
the ability of a REIT to own securities of any issuer from the current 10% of
the voting securities of an issuer to 10% of the vote or value of the securities
of an issuer. In addition, the bill would allow REITs to own up to 100% of the
stock of "taxable REIT subsidiaries." The bill includes several constraints
which seek to ensure that REITs will not engage in substantial non-real estate
activities and that taxable REIT subsidiaries will pay corporate level tax on
their income. For example, the deductibility of the interest paid by a taxable
REIT subsidiary to its affiliated REIT is subject to certain limitations. In
addition, rents paid by a taxable REIT subsidiary to its affiliated REIT will
constitute qualified rents to the REIT only if certain restrictions are met. The
bill would not affect currently existing preferred stock subsidiaries except
that preferred stock subsidiaries would generally not be able to expand their
business activities or assets after the date of first committee action. However,
a REIT could combine and convert preferred stock subsidiaries into taxable REIT
subsidiaries tax-free within a certain time frame. The bill also contains a
provision, among others, that would reduce a REIT's annual distribution
requirement from the current 95% of REIT taxable income to 90%. A bill, S. 1057,
substantially identical to H.R. 1616, was introduced in the Senate on May 14,
1999. Some of the foregoing provisions contained in the bill were also contained
in the Clinton Administration's February 1999 budget proposal, but with
modifications. If either of the bills or the proposal were enacted in their
present forms, they may affect our operations and limit the future activities
and growth of our subsidiary corporations. No one can predict, however, as to
whether either of the bills will be enacted into law or whether the proposal
will be introduced as another bill in Congress and if so introduced, whether it
would be enacted.
TAXATION OF STOCKHOLDERS
The discussion does not address all of the tax consequences that may be
relevant to particular stockholders in light of their particular circumstances.
Stockholders should consult their own tax adviser for a complete description of
the tax consequences of investing in the offered stock.
26
U.S. STOCKHOLDERS
As used herein, the term "U.S. Stockholder" means a stockholder who is a
"U.S. Person". A "U.S. Person" is defined as a citizen or resident of the United
States, a corporation or partnership (including an entity treated as a
corporation or partnership for United States Federal income tax purposes)
created or organized in or under the laws of the United States, any State of the
United States or the District of Columbia, other than a partnership that is not
treated as a U.S. Person under any applicable Treasury regulations, or an estate
whose income is subject to United States Federal income tax regardless of its
source, or a trust if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more U.S.
Persons have the authority to control all substantial decisions of the trust.
Notwithstanding the preceding sentence, to the extent provided in Treasury
regulations, certain trusts in existence on August 20, 1996, and treated as U.S.
Persons prior to such date, that elect to continue to be treated as U.S.
Persons, also will be U.S. Persons.
DISTRIBUTIONS. As long as we qualify as a REIT, distributions made to our
taxable U.S. 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. 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 capital gains to the extent they do not
exceed our actual net capital gain for the taxable year without regard to the
period for which the stockholder has held our stock. If we elect to retain and
pay income tax on any net capital gain, U.S. Stockholders would include in their
income as capital gain their proportionate share of such net capital gain. A
U.S. Stockholder would also receive a refundable tax credit for such
stockholder's proportionate share of the tax paid by SL Green on such retained
capital gains and an increase in its basis in the stock of SL Green in an amount
equal to the difference between the undistributed capital gains and the amount
of tax paid by SL Green. 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 stock, but rather will reduce the
adjusted basis of the stock. To the extent that such distributions exceed a
stockholder's adjusted basis in the stock, such distribution will be included in
income as capital gain, assuming the stock is a capital asset in the hands of
the stockholder.
Any dividend declared by us 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 us and received by the stockholder on December 31 of
such year, even if the dividend is actually paid by us during January of the
following calendar year.
27
SALE OR EXCHANGE. In general, a U.S. Stockholder will realize capital gain
or loss on the sale or exchange of the stock equal to the difference between (a)
the amount of cash and the fair market value of any property received on such
disposition, and (b) the stockholder's adjusted basis in the stock. To the
extent a U.S. Stockholder who is an individual, a trust or an estate holds the
stock for at least one year, any gain realized would be subject to a maximum
rate of 20%
BACKUP WITHHOLDING. We will report to our U.S. 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 (a) is a corporation or comes within
certain other exempt categories and, when required, demonstrates this fact, or
(b) provides a taxpayer identification number and certifies as to no loss of
exemption, and otherwise complies with the applicable requirements of the backup
withholding rules. In addition, we may be required to withhold a portion of
capital gain distributions made to any stockholders who fail to certify their
non-foreign status to us.
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 will
not be UBTI to a tax-exempt stockholder, provided that the tax-exempt
stockholder has not held stock as "debt financed property" within the meaning of
the Code and such stock is not otherwise used in a trade or business. Similarly,
income from the sale of the stock will not constitute UBTI unless such
tax-exempt stockholder has held such stock as "debt financed property" within
the meaning of the Code or has used the shares in a trade or business.
TAXATION OF NON-U.S. STOCKHOLDERS
The rules governing U.S. Federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships and other foreign
stockholders, which refer to collectively as "Non-U.S. Stockholders", are
complex and no attempt will be made herein to provide more than a limited
summary of such rules. 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 the stock, including any reporting
requirements.
ORDINARY DIVIDENDS. Distributions, other than distributions that are
treated as attributable to gain from sales or exchanges by us of U.S. real
property interests and other than distributions designated by us as capital gain
dividends, will be treated as ordinary income to the extent that they are made
out of our current or accumulated earnings and profits. Such distributions to
Non-U.S. 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
the 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.
Pursuant to the Final Regulations generally effective for payments made on
or after January 1, 2001, dividends paid to an address in a country outside the
United States will no longer be 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. A Non-U.S. Stockholder who
wishes to claim the benefit of an applicable treaty rate will now be required to
satisfy certain certification and other requirements.
28
RETURN OF CAPITAL. Distributions in excess of our current and accumulated
earnings and profits, which are not treated as attributable to the gain from the
disposition by us 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 stock, but rather will reduce the adjusted basis of such stock. To the
extent that such distributions exceed the adjusted basis of the 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 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 our current and accumulated earnings and
profits.
CAPITAL GAIN DIVIDENDS. For any year in which we qualify as a REIT,
distributions that are attributable to gain from sales or exchanges by us 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 us 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. We are required
by applicable Treasury Regulations under FIRPTA to withhold 35% of any
distribution that could be designated by us as a capital gain dividend.
SALE OR EXCHANGE OF STOCK. Gain recognized by a Non-U.S. Stockholder upon a
sale or exchange stock, including a redemption that is treated as a sale,
generally will not be taxed under FIRPTA if we are 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. However, gain not subject to FIRPTA will be
taxable to a Non-U.S. Stockholder if (a) investment in the 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 (b) 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 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 we anticipate that we will qualify as a domestically controlled
REIT, no assurance can be given that we will continue to so qualify. If we were
not a domestically controlled REIT, whether or not a Non-U.S. Stockholder's sale
of stock would be subject to tax under FIRPTA would depend on whether or not the
stock were regularly traded on an established securities market and on the size
of the selling Non-U.S. Stockholder's interest in us. If the gain on the sale of
the 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 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 our significant investments are held through the
Operating Partnership. The Operating Partnership may
29
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: (a) allocations of income and expense items of the Operating
Partnership and the Property-owning entities, which could affect the computation
of taxable income of SL Green, (b) 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 (c) the taking
of actions by the Operating Partnership or any of the Property-owning entities
that could adversely affect our qualification as a REIT.
In the opinion of Brown & Wood LLP, based on certain representations by SL
Green 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, we 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 us to satisfy the requirements for
classification as a REIT. In this regard, we will control the operation of the
Operating Partnership through its rights as the sole general partner of the
Operating Partnership.
TAX ALLOCATIONS WITH RESPECT TO THE PROPERTIES. When property is
contributed to a partnership in exchange for an interest in the partnership, the
partnership generally takes a carryover basis in that property for tax purposes.
Therefore, 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, which we refer to as 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 was funded by way of contributions of appreciated property
to the Operating Partnership in the transactions leading to its formation.
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, which we refer to as 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 they
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 our 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 SL Green 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 this property is sold, gain equal to the Book-Tax Difference at the
time of sale will be specially allocated to the contributor of the property.
These allocations will tend to eliminate the Book-Tax Differences with respect
to the contributed properties over the depreciable lives of the contributed
property. However, they may not always entirely eliminate the Book-Tax
Difference on an annual basis or with respect to a
30
specific taxable transaction such as a sale. This could cause us (a) to be
allocated lower amounts of depreciation deduction for tax purposes than would be
allocated to us if all properties were to have a tax basis equal to their fair
market value at the time of contribution and (b) 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 us as a
result of such sale, with a corresponding benefit to the other partners in the
Operating Partnership. These allocations possibly might adversely affect our
ability to comply with REIT distribution requirements, although we do not
anticipate that this will occur. These allocations may also affect our earnings
and profits for purposes of determining the portion of distributions taxable as
a dividend income. The application of these rules over time may result in a
higher portion of distributions being taxed as dividends than would have
occurred had we purchased our interests in the Properties at their agreed
values.
Interests in the properties purchased by the Operating Partnership for cash
simultaneously with or subsequent to our admission 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.
STATE AND LOCAL TAX
SL Green and our stockholders may be subject to state and local tax in
states and localities in which it does business or owns property. Our tax
treatment and the stockholders in such jurisdictions may differ from the Federal
income tax treatment described above.
31
PLAN OF DISTRIBUTION
SL Green may sell the securities to one or more underwriters for public
offering and sale by them or may sell the securities to investors directly or
through agents. Any underwriter or agent involved in the offer and sale of the
securities will be named in the applicable prospectus supplement.
Underwriters may offer and sell the securities at a fixed price or prices,
which may be changed related to the prevailing market prices at me time of sale
or at negotiated prices. SL Green also may, from time to time, authorize
underwriters acting as their agents to offer and sell the securities upon the
terms and conditions as are set forth in the applicable Prospectus Supplement.
In connection with the sale of securities, underwriters may be deemed to have
received compensation from SL Green in the form of underwriting discounts or
commissions and may also receive commissions from purchasers of securities for
whom they may act as agent. Underwriters may sell securities to or through
dealers, and the dealers may receive compensation in the form of discounts,
concessions or commissions from the underwriters and/or commissions from the
purchasers for whom they may act as agent.
Any underwriting compensation paid by SL Green to underwriters or agents in
connection with the offering of securities, and any discounts, concessions for
commissions allowed by underwriters to participating dealers, are set forth in
the applicable Prospectus Supplement. Underwriters, dealers and agents
participating in the distribution of the securities may be deemed to be
underwriters, and any discounts and commissions received by them and any profit
realized by them on resale of the securities may be deemed to be underwriting
discounts and commissions, under the Securities Act of 1933. Underwriters,
dealers and agents may be entitled, under agreements entered into with SL Green
and the Operating Partnership, to indemnification against and contribution
toward certain civil liabilities, including liabilities under the Securities Act
of 1933.
Certain of the underwriters and their affiliates may be customers of, engage
in transactions with and perform services for SL Green and the Operating
Partnership and its subsidiaries in the ordinary course of business.
LEGAL MATTERS
The validity of the issuance of the securities offered hereby and certain
legal matters described under "Federal Income Tax Considerations" will be passed
upon for SL Green by Brown & Wood LLP, New York, New York.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule for the year ended December 31, 1998 and for
the period August 21, 1997, which is the date of commencement of operations to
December 31, 1997, the combined financial statements of the SL Green Predecessor
and schedule for the period January 1, 1997 to August 20, 1997 and for the year
ended December 31, 1996 and the combined financial statements of the uncombined
joint ventures of the SL Green Predecessor for the period January 1, 1997 to
August 20, 1997 and for the year ended December 31, 1996 included in our Annual
Report on Form 10-K and the statement of revenues and certain expenses for the
555 West 57(th) Street property for the year ended December 31, 1998, included
in our Current Report on Form 8-K/A dated January 25, 1999 as set forth in their
reports which are incorporated by reference in this registration statement. Our
financial statements and schedule and the financial statements and schedule
mentioned above are incorporated by reference in reliance on Ernst & Young LLP's
reports, given on their authority as experts in accounting and auditing.
32
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
This document and the documents that are incorporated by reference contain
forward-looking statements that are subject to risks and uncertainties. Forward-
looking statements include information concerning possible or assumed future
results of our operations, including any forecasts, projections and plans and
objections for future operations. You can identify forward-looking statements by
the use of forward-looking expressions like "may," "will," "should," "expect,"
"anticipate," "estimate," or "continue" or any negative or other variations on
the expressions. Many factors could affect our actual financial results, and
could cause actual results to differ materially from those in the
forward-looking statements. These factors include the following:
- general economic or business conditions, either nationally or in New York
City, being less favorable than expected;
- demand for office space;
- risks of real estate acquisition;
- availability and creditworthiness of prospective tenants;
- adverse changes in the real estate markets;
- unanticipated increases occurring in financing and other costs;
- competition with other companies;
- legislative or regulatory changes adversely affecting real estate
investment trusts and the real estate business; and
- environmental and/or safety requirements.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks and uncertainties, the forward-looking events and
circumstances discussed in this prospectus might not occur.
------------------------
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not, and the underwriters have not,
authorized anyone to provide you with different information. If anyone provides
you with different or inconsistent information, you should not rely on it. We
are not, and the underwriters are not making an offer to sell these securities
in any jurisdiction where the offer or sale is not permitted. You should not
assume that the information contained or incorporated by reference in this
prospectus is accurate as of any date other than the date on the front cover of
this prospectus. Our business, financial condition, results of operations and
prospects may have changed since that date.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any reports, statements or other information we file at the SEC's public
reference rooms located at Judiciary Plaza, 450 Fifth Street, N.W, Washington,
D.C. 20549, Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, IL
60661 and 7 World Trade Center, Suite 1300, New York, NY 10048. Please call the
SEC at 1-800-SEC-0330 for further information on the public reference rooms. Our
SEC filings are also available to the public from commercial document retrieval
services and at the web site maintained by the SEC at "http://www.sec.gov."
33
We have filed a registration statement on Form S-3, of which this prospectus
forms a part, to register the securities with the SEC. As allowed by SEC rules,
this prospectus does not contain all the information you can find in the
registration statement or the exhibits to the registration statement.
The SEC allows us to "incorporate by reference" information into this
prospectus, which means that we can disclose important information to you by
referring you to another document filed separately with the SEC. The information
incorporated by reference is deemed to be part of this prospectus, except for
any information superseded by information in this prospectus. This prospectus
incorporates by reference the documents set forth below that we have previously
filed with the SEC. These documents contain important information about us, our
business and our finances.
DOCUMENT PERIOD
- ----------------------------------------------------------------------- -------------------
Annual Report on Form 10-K
(File No. 1-13199)................................................... Year ended December 31, 1998
Quarterly Reports on Form 10-Q (File No. 1-13199)...................... Quarter ended March 31, 1999
DATED FILED
------------------- --------------------
Current Reports on Form 8-K January 25, 1999 February 8, 1999
(File No. 1-13199)................................................... March 22, 1999 March 23, 1999
May 24, 1999 June 8, 1999
DATED FILED
------------------- --------------------
Amendments to Current Reports on Form 8-K
(File No. 1-13199)................................................... January 25, 1999 April 9, 1999
Any documents which we file pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act after the date of this prospectus but before the end of any
offering of securities made under this prospectus will also be considered to be
incorporated by reference.
If you request, either orally or in writing, we will provide you with a copy
of any or all documents which are incorporated by reference. The documents will
be provided to you free of charge, but will not contain any exhibits, unless
those exhibits are incorporated by reference into the document. Requests should
be addressed to Benjamin Feldman, Esq., SL Green Realty Corp., 420 Lexington
Avenue, New York, NY 10170, telephone number (212) 594-2700.
34
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following sets forth the estimated expenses in connection with the
issuance and distribution of our securities being registered hereby, other than
underwriting discounts and commissions, all of which will be borne by SL Green:
Securities and Exchange Commission registration fee............ $111,200.00
Printing and engraving expenses................................ 10,000.00
NASD fees...................................................... 30,500.00
Legal fees and expenses........................................ 50,000.00
Accounting fees and expenses................................... 25,000.00
Blue Sky fees and expenses..................................... 5,000.00
Miscellaneous.................................................. 15,000.00
----------
Total........................................................ $246,700.00
----------
----------
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Maryland General Corporation Law, as amended from time to time, permits
a Maryland corporation to include in its charter a provision limiting the
liability of its directors and officers to the corporation and its shareholders
for money damages except for liability resulting from (a) actual receipt of an
improper benefit or profit in money, property or services, or (b) active and
deliberate dishonesty established by a final judgment as being material to the
cause of action. The Amended and Restated Articles of Incorporation contain a
provision which eliminates the liability to the maximum extent permitted by
Maryland law.
The Amended and Restated Articles of Incorporation authorize SL Green, 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 (a) any present or former director or officer or (b) any
individual who, while a director of SL Green and at the request of SL Green,
serves or has served another corporation, partnership, joint venture, trust,
employee benefit plan or any other enterprise as a director, officer, partner or
trustee of the corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise. The Bylaws of SL Green obligate it, 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 (a) any
present or former director or officer who is made a party to the proceeding by
reason of his service in that capacity or (b) any individual who, while a
director of SL Green and at the request of SL Green, serves or has served
another corporation, partnership, joint venture, trust, employee benefit plan or
any other enterprise as a director, officer, partner or trustee of the
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise and who is made a party to the proceeding by reason of his service in
that capacity. The Amended and Restated Articles of Incorporation and Bylaws
also permit SL Green to indemnify and advance expenses to any person who served
a predecessor of SL Green in any of the capacities described above and to any
employee or agent of SL Green or a predecessor of SL Green.
The Maryland General Corporation Law requires a corporation 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 Maryland General Corporation Law 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
II-1
or other capacities unless it is established that (a) the act or omission of the
director or officer was material to the matter giving rise to the proceeding and
(1) was committed in bad faith or (2) was the result of active and deliberate
dishonesty, (b) the director or officer actually received an improper personal
benefit in money, property or services or (c) 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 Maryland General Corporation Law requires SL Green, as a condition
to advancing expenses, to obtain (a) 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 SL Green as authorized by the Bylaws and (b) a
written statement by or on his behalf to repay the amount paid or reimbursed by
SL Green if it shall ultimately be determined that the standard of conduct was
not met.
SL Green has entered into indemnification agreements with each of its
executive officers and directors. The indemnification agreements require, among
other matters, that SL Green indemnify its executive officers and directors to
the fullest extent permitted by law and advance to the executive officers and
directors all related expenses, subject to reimbursement if it is subsequently
determined that indemnification is not permitted. Under these agreements, SL
Green must also indemnify and advance all expenses incurred by executive
officers and directors seeking to enforce their rights under the indemnification
agreements and may cover executive officers and directors under SL Green's
directors' and officers' liability insurance. Although indemnification
agreements offer substantially the same scope of coverage afforded the Bylaws,
they provide greater assurance to directors and executive officers that
indemnification will be available, because, as contracts, they cannot be
modified unilaterally in the future by the Board of Directors or the
shareholders to eliminate the rights they provide.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling SL Green
pursuant to the foregoing provisions, SL Green has been informed that in the
opinion of the Securities and Exchange Commission the indemnification is against
public policy as expressed in the Act and is therefore unenforceable.
ITEM 16. EXHIBITS.
1.1 --Form of Underwriting Agreement.(1)
4.1 --Form of Designating Amendment for Preferred Stock.(1)
5.1 --Opinion of Brown & Wood LLP as to the legality of the securities.
8.1 --Opinion of Brown & Wood LLP as to tax matters.
12.1 --Calculation of Ratios of Earnings to Combined Fixed Charges and Preferred Dividends.
23.1 --Consent of Brown & Wood LLP (included in Exhibit 5.1).
23.2 --Consent of Ernst & Young LLP.
24.1 --Power of attorney (included on signature page of this registration statement) (2).
- ------------------------
(1) To be filed by amendment or incorporated by reference in connection with the
offering of securities.
(2) Previously filed.
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to the registration statement;
II-2
(A) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(B) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement, of the most recent
post-effective amendment thereof, which, individually or in the
aggregate, represents a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered if the total dollar
value of securities offered would not exceed that which was registered
and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum
offering price set forth in the "Calculation of Registration Fee" table
in the effective registration statement;
(C) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to the information in the registration statement.
Provided, however, that paragraphs (1)(A) and (1)(B) do not apply if the
information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the Registrant
pursuant to Section 13 or 15(d) of the Exchange Act that are incorporated
by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each of these post-effective amendments shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of the securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act, and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act, that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of the
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 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 Securities and Exchange
Commission the indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against these 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 the 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
the indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of this
issue.
(d) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon
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Rule 430A and contained in a form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) under the Securities Act of of 1933 shall
be deemed to be part of this registration statement as of the time it was
declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, 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 the securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, SL Green Realty
Corp. certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in New York, on June 14, 1999.
SL GREEN REALTY CORP.
BY:
------------------------------------------
DAVID J. NETTINA
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------------------------------ --------------------------------- ----------------------
Chief Executive Officer and
------------------------------------------- Chairman of the Board of June 14, 1999
Stephen L. Green Directors
President and Chief Operating
------------------------------------------- Officer (principal executive June 14, 1999
David J. Nettina officer)
Executive Vice President and
Chief Financial Officer
------------------------------------------- (principal financial officer June 14, 1999
Ann Iseley and principal accounting
officer)
------------------------------------------- Director June 14, 1999
Benjamin P. Feldman
/s/ JOHN H. ALSCHULER*
------------------------------------------- Director June 14, 1999
John H. Alschuler
/s/ EDWIN THOMAS BURTON, III*
------------------------------------------- Director June 14, 1999
Edwin Thomas Burton, III
/s/ JOHN S. LEVY*
------------------------------------------- Director June 14, 1999
John S. Levy
* By Power of Attorney
II-5
EXHIBIT INDEX
EXHIBITS DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------
1.1 -- Form of Underwriting Agreement.(1)
4.1 -- Form of Designating Amendment for Preferred Stock.(1)
5.1 -- Opinion of Brown & Wood LLP as to the legality of the securities.
8.1 -- Opinion of Brown & Wood LLP as to tax matters.
12.1 -- Calculation of Ratios of Earnings to Fixed Charges.
23.1 -- Consent of Brown & Wood LLP (included in Exhibit 5.1).
23.2 -- Consent of Ernst & Young LLP.
24.1 -- Power of attorney (included on signature page of this registration statement).(2)
- ------------------------
(1) To be filed by amendment or incorporated by reference in connection with the
offering of securities.
(2) Previously filed.
Exhibit 5.1
June ___, 1998
SL Green Realty Corp.
70 West 36th Street
New York, NY 10018
Ladies and Gentlemen:
This opinion is furnished in connection with the registration statement
on Form S-3 (the "Registration Statement"), pursuant to the Securities Act of
1933, as amended (the "Securities Act"), relating to an indeterminate amount of
shares of Common Stock and Preferred Stock (as such terms are defined in the
Registration Statement), of SL Green Realty Corp., a Maryland corporation (the
"Company") authorized for issuance under the Company's Amended and Restated
Articles of Incorporation (the "Articles of Incorporation"), with an aggregate
public offering price of up to $400,000,000 (collectively, the "Securities").
The Registration Statement provides that the Securities may be offered
separately or together, in separate series, in amounts, at prices and on terms
to be set forth in one or more prospectus supplements to the prospectus
contained in the Registration Statement (collectively, the "Prospectus").
In connection with rendering this opinion, we have examined the
Articles of Incorporation, and the Bylaws, as amended, of the Company; such
records of the corporate proceedings of the Company as we deemed appropriate;
the Registration Statement, and such other certificates, receipts, records and
documents as we considered necessary for the purposes of
this opinion.
We express no opinion concerning the laws of any jurisdictions other
than the laws of the United States of America, the State of Maryland and the
State of New York.
Based upon the foregoing, we are of the opinion that:
(a) The shares of Common Stock have been duly authorized and,
when delivered and paid for in the manner contemplated by the Prospectus, will
be validly issued, fully paid and nonassessable.
(b) The shares of Preferred Stock have been duly authorized
and, when the number and specific terms thereof have been duly established in
accordance with the Designating Amendment (as defined in the Prospectus) and
such shares are delivered and paid for in the manner contemplated by the
Prospectus, will be validly issued, fully paid and nonassessable.
The foregoing assumes that all requisite steps will be taken to comply
with the requirements of the Securities Act and applicable requirements of state
laws regulating the offer and sale of securities.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the reference to our firm under the caption "Legal
Matters" in the Prospectus.
Very truly yours,
Exhibit 8.1
June 14, 1999
SL Green Realty Corp.
70 West 36th Street
New York, New York 10018-8007
Ladies and Gentlemen:
You have requested our opinion concerning certain of the federal income
tax matters with respect to SL Green Realty Corp. (the "Company") in connection
with the Form S-3 Registration Statement of the Company filed by the Company
with the Securities and Exchange Commission (the "SEC") on December 7, 1998
(the "Registration Statement").
This opinion is based, in part, upon various assumptions and factual
representations set forth in the Registration Statement, in registration
statements on Form S-11 previously filed by the Company with the SEC and in a
letter delivered to us by the Company today. This opinion is also based upon the
Internal Revenue Code of 1986, as amended (the "Code"), the Treasury Regulations
promulgated thereunder and existing administrative and judicial interpretations
thereof, all as they exist at the date of this letter. All of the foregoing
statutes, regulations and interpretations are subject to change, in some
circumstances with retroactive effect. Any changes to the foregoing authorities
might result in modifications of our opinions contained herein.
Based on the foregoing, we are of the opinion that, commencing with the
Company's taxable year ended December 31, 1997, the Company was organized in
conformity with the requirements for qualification and taxation as a real estate
investment trust (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.
We express no opinion with respect to the transactions described herein
and in the Registration Statement other than those expressly set forth herein.
Furthermore, the Company's qualification as a REIT will depend on the Company's
making a timely election for REIT status and meeting, in its actual operations,
the applicable asset composition, source of income, shareholder diversification,
distribution, recordkeeping and other requirements of the Code and Treasury
Regulations necessary for a corporation to qualify as a REIT. We will not review
these operations and no assurance can be given that the actual operations of the
Company and its
affiliates will meet these requirements or the representations made to us with
respect thereto.
This opinion is furnished to you solely for your use in connection with
the Registration Statement. We hereby consent to the filing of this opinion as
Exhibit 8.1 to the Registration Statement and to the use of our name in
connection with the material discussed therein under the caption "Federal Income
Tax Consequences."
Very truly yours,
EXHIBIT 12.1
SL GREEN REALTY CORP. SL GREEN COMPANY PREDECESSOR
(CONSOLIDATED) (COMBINED)
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THREE MONTHS YEAR ENDED AUGUST 21, 1997 JANUARY 1, 1997
ENDED MARCH 31, DECEMBER 31, TO DECEMBER 31, TO AUGUST 20, YEARS ENDED DECEMBER 31,
--------------- ------------- ----------------- --------------- ----------------------------------
1999 1998 1997 1997 1996 1995 1994
-------------- ------------- --------------- --------------- ----------- ---------- ---------
EARNINGS:
Income (loss) from
continuing operations ........ $ 8,214 $23,482 $6,633 $(100) $(3,470) $(6,923) $(5,040)
Interest ....................... 4,887 11,699 1,637 4,874 7,252 7,338 7,639
Portion of rent expense
representative of
interest ..................... 2,577 9,903 497 867 1,344 1,323 1,295
Amortization of loan costs ..... 569 1,084 110 143 192 200 266
---------- --------- --------- ----------- --------- --------- --------
Total earnings ................. $ 16,247 $46,168 $8,877 $ 5,784 $ 5,318 $ 1,938 $4,160
---------- --------- --------- ----------- --------- --------- --------
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FIXED CHARGES AND:
PREFERRED STOCK
DIVIDENDS(1)
Interest ....................... $ 4,887 $11,699 $1,637 $4,874 $7,252 $7,338 $7,639
Preferred stock dividends ...... 2,300 5,720 --- --- --- --- ---
Interest capitalized --- --- --- --- --- --- ---
Portion of rent expense
representative of
interest ..................... 2,577 9,903 497 867 1,344 1,323 1,295
Amortization of loan costs
expensed ..................... 569 1,084 110 143 192 200 266
Amortization of loan costs
capitalized .................. --- --- --- --- --- --- ---
---------- --------- --------- ----------- --------- --------- --------
Total fixed charges and
preferred stock dividends .... $ 10,333 $ 28,406 $2,244 $ 5,884 $ 8,788 $ 8,861 $9,200
---------- --------- --------- ----------- --------- --------- --------
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Ratio of earnings to combined
fixed charges and preferred
stock dividends .............. 1.57x 1.63x 3.96x (2) (2) (2) (2)
---------- --------- --------- ----------- --------- --------- --------
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(1) Prior to May 18, 1998, no preferred stock had been issued or was
outstanding.
(2) For the period January 1, 1997 to August 20, 1997 and the years ended
December 31, 1996, 1995 and 1994, SL Green Predecessor's fixed charge ratios
were deficits of $100, $3,470, $6,923 and $5,040, respectively.
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in Amendment
No. 1 to the Registration Statement Form S-3 and related Prospectus of SL Green
Realty Corp. (the "Company") for the registration of $400,000,000 of its
preferred and common stock and to the incorporation by reference therein of our
reports (i) dated February 10, 1999, except for the last paragraph in Note 16,
as to which the date is March 12, 1999, with respect to the consolidated
financial statements and schedule of the Company for the year ended December 31,
1998 and for the period August 21, 1997 (date of commencement of operation) to
December 31, 1997, (ii) dated February 10, 1998 with respect to the combined
financial statements of SL Green Predecessor and schedule for the period January
1, 1997 to August 20, 1997 and for the year ended December 31, 1996 and (iii)
dated February 10, 1998 with respect to combined financial statements of the
uncombined joint ventures of SL Green Predecessor for the period January 1, 1997
to August 20, 1997 and for the year ended December 31, 1996, included in its
Annual Report on Form 10-K of the Company for the year ended December 31, 1998,
filed with the Securities and Exchange Commission. We also consent to the use of
our report dated March 19, 1999 with respect to the statement of revenues and
certain expenses for the 555 West 57th property for the year ended December 31,
1998, included in its Form 8-K/A, dated January 25, 1999 and filed with the
Securities and Exchange Commission on April 9, 1999.
/s/ Ernst & Young LLP
New York, New York
June 10, 1999
