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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Metropolis Realty Holdings LLC
(Exact Name of Registrant as Specified in Its Charter)
Delaware 9995 74-3043954
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Identification Number)
Incorporation or Classification Code
Organization) Number)
c/o Capital Trust, Inc.
410 Park Avenue, 14th Floor
New York, New York 10022
Telephone: (212) 655-0220
(Address, Including Zip Code, and Telephone Number, Including Area
Code, of Registrant's Principal Executive Offices)
Mr. John Klopp
c/o Capital Trust, Inc.
410 Park Avenue, 14th Floor
New York, New York 10022
Telephone: (212) 655-0220
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
Copies to:
Louis Vitali, Esq.
Akin, Gump, Strauss, Hauer & Feld, LLP
590 Madison Avenue
New York, New York 10022
(212) 872-8005
Approximate date of commencement of proposed sale to the public: As soon
as practicable on or after the effective date of this Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. |_|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
CALCULATION OF REGISTRATION FEE
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Title of Each Class of
Securities to be Proposed Maximum Proposed Maximum Amount of Registration
Registered Amount to be Registered Offering Price Per Unit Aggregate Offering Price Fee
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LLC Units 13,004,946 N/A N/A $68,586*
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* Pursuant to Section 6(b) of the Securities Act, the registration fee is
calculated at $92 per $1,000,000 of the maximum aggregate price. The aggregate
consideration to be received in the sale transaction will be $745,500,000
($745,500,000 x .000092 = $68,586)
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereunder become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the registration statement
shall become effective on such date as the securities and exchange commission,
acting pursuant to said Section 8(a), may determine.
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METROPOLIS REALTY TRUST, INC.
c/o Capital Trust, Inc.
410 Park Avenue
14th Floor
New York, New York 10022
June __, 2002
Dear Stockholders:
You are cordially invited to attend the Special Meeting of Stockholders of
Metropolis Realty Trust, Inc., to be held on [_______ ___], 2002 at 10:00 a.m.,
local time, at the law offices of Akin, Gump, Strauss, Hauer & Feld, L.L.P., 590
Madison Avenue, New York, New York 10022.
On May 7, 2002, we entered into an Amended and Restated Purchase Agreement
with Jamestown 1290, L.P., pursuant to which we agreed to sell, subject to
stockholder approval, our entire interest in the real property and office
building located at 1290 Avenue of the Americas, New York, New York 10022 for a
purchase price of $745.5 million, subject to certain adjustments and customary
prorations. After repayment of existing indebtedness and the costs associated
therewith and after certain expenses associated with the sale transaction are
paid and certain reserves are established, we intend to liquidate and distribute
the net proceeds to our stockholders on a pro rata basis, which we expect to be
approximately $295 million in the aggregate, or approximately $22.75 per share.
Actual distributed amounts, however, may differ. See "Risk Factors."
A special committee of our board of directors that was convened to
independently review the sale transaction has unanimously approved the sale
transaction and the transactions contemplated by the purchase agreement, and has
determined that the sale transaction and the terms of the purchase agreement are
fair to and in the best interests of our stockholders.
In order to facilitate the consummation of the sale transaction, to
effectively utilize our tax status as a real estate investment trust, and as
more fully described in the joint information statement-prospectus attached
hereto, the special committee has also approved our formation of a wholly-owned
limited liability company, which subsidiary in turn has created a wholly-owned
limited liability company subsidiary. Prior to the closing of the sale
transaction, we will merge with this lower tier subsidiary, and we will be the
surviving entity of the merger. The special committee has unanimously approved
the merger, and has determined that the merger is in the best interests of our
stockholders. Our board of directors has declared each of the sale transaction
and the merger advisable and has recommended that our stockholders vote for each
of the proposals
The sale transaction constitutes a sale of all or substantially all of our
assets. The affirmative vote of holders of at least 66 2/3% of the issued and
outstanding shares of common stock is required in order to approve each of the
sale transaction and the merger. Consummation of each of the proposals is
contingent upon the approval of the other proposal.
Seven of our largest stockholders, representing 10.3 million shares of our
common stock (approximately 79% of the outstanding shares of our common stock),
have entered into separate agreements with Jamestown 1290 to vote their shares
in favor of the sale transaction and the merger. Accordingly, approval of the
sale transaction and the merger are assured without the vote of any other
stockholder. Therefore, we are not asking you for a proxy and you are requested
not to send us a proxy.
Sincerely,
---------------------------
Lee S. Neibart
President
1
PRELIMINARY COPIES
METROPOLIS REALTY TRUST, INC.
c/o Capital Trust, Inc.
410 Park Avenue
14th Floor
New York, New York 10022
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON [_____________,] 2002
To the Stockholders of Metropolis Realty Trust, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of stockholders (the
"Special Meeting") of Metropolis Realty Trust, Inc., a Maryland corporation (the
"Company"), will be held on [_____], [_______ __], 2002 at 10:00 a.m. local
time, at the law offices of Akin, Gump, Strauss, Hauer & Feld, L.L.P., 590
Madison Avenue, New York, New York 10022, and at any adjournment or postponement
thereof, for the following purposes:
1. To consider and approve the sale by the Company of its principal
asset, the real property and building located at 1290 Avenue of the
Americas, New York, New York 10022 (the "1290 Property"), for a
purchase price of $745.5 million, subject to certain adjustments and
customary prorations ("Purchase Price"), to Jamestown 1290, L.P.
("Purchaser"), a Delaware limited partnership (the "Sale
Transaction").
2. To consider and authorize the Company, prior to the consummation of
the Sale Transaction, to merge into Metropolis Realty Lower Tier
LLC, a Delaware limited liability company and a wholly-owned
subsidiary of Metropolis Realty Holdings LLC, a Delaware limited
liability company and a wholly-owned subsidiary of the Company
("Holdings"), with the Company as the surviving entity of such
merger (the "Merger").
Any action may be taken on the foregoing matters at the Special Meeting on
the date specified above, or on any date or dates to which, by original or later
adjournment, the Special Meeting may be adjourned, or to which the Special
Meeting may be postponed.
Only stockholders of the Company of record as of the close of business on
[_______ __], 2002 will be entitled to notice of and to vote at the Special
Meeting and at any adjournment or postponement thereof.
The presence at the Special Meeting, in person or by proxy, of holders of
at least a majority of the total number of outstanding shares of Class A Common
Stock, par value $10.00 per share (the "Common Stock") entitled to vote is
necessary to constitute a quorum for the transaction of business at the Special
Meeting.
The Sale Transaction constitutes a sale of all or substantially all of the
Company's assets. Following the Sale Transaction, the Company will no longer own
any assets, other than the net proceeds from the Sale Transaction. The
affirmative vote of holders of 66 2/3% of the issued and outstanding shares of
Common Stock is required to approve the Sale Transaction and the Merger.
Consummation of each of the proposals is contingent upon the approval of the
other proposal. Seven of the company's largest stockholders, representing 10.3
million shares of Common Stock (approximately 79% of the outstanding shares of
Common Stock), have entered into separate agreements with Purchaser to vote
their shares in
favor of each of the Sale Transaction and the Merger at the Special Meeting.
Accordingly, approval of the Sale Transaction and the Merger are assured without
the vote of any other stockholder.
Therefore, the Company is not asking you for a proxy and you are requested
not to send a proxy to the Company.
By Order of the Board of Directors,
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John R.S. Jacobsson
Secretary
New York, New York
June [___], 2002
2
The information in this joint information statement - prospectus is not complete
and may be changed. We may not sell these securities until this joint
information statement -- prospectus is delivered in final form. This offering
memorandum is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
Subject to Completion, dated May 24, 2002
METROPOLIS REALTY TRUST, INC.
c/o Capital Trust, Inc.
410 Park Avenue
14th Floor
New York, New York 10022
JOINT INFORMATION STATEMENT- PROSPECTUS
______________
We Are Not Asking You For A Proxy And You Are Requested Not To Send Us A Proxy
______________
A Special Meeting of the stockholders of Metropolis Realty Trust,
Inc. (the "Company") is to be held on [______], [_________ __], 2002, at 10:00
a.m., local time, at the law offices of Akin, Gump, Strauss, Hauer & Feld,
L.L.P., 590 Madison Avenue, New York, New York 10022, and at any adjournment or
postponement thereof (the "Special Meeting").
This joint information statement--prospectus and the accompanying
Notice of Special Meeting are first being mailed to stockholders on or about
[____________ __,] 2002.
The Board of Directors has fixed the close of business on
[____________ __,] 2002 as the record date for the determination of stockholders
entitled to notice of and to vote at the Special Meeting (the "Record Date").
Only holders of record of the Company's Class A Common Stock, par value $10.00
per share (the "Common Stock"), at the close of business on the Record Date will
be entitled to notice of and to vote at the Special Meeting. As of the Record
Date, there were 13,004,946 shares of Common Stock outstanding and entitled to
vote at the Special Meeting. Holders of Common Stock outstanding as of the close
of business on the Record Date will be entitled to one vote for each share held
by them.
Proposals to be Considered at the Special Meeting
At the Special Meeting, and at any adjournment or postponement of
the Special Meeting, the Company will ask you:
1. To consider and approve the sale by the Company of its principal
asset, the real property and building located at 1290 Avenue of the
Americas, New York, New York 10022 (the "1290 Property") for a
purchase price $745.5 million, subject to certain adjustments and
customary prorations (the "Purchase Price"), to Jamestown 1290, L.P.
("Purchaser"), a Delaware limited partnership (the "Sale
Transaction").
2. To consider and authorize the Company, prior to the consummation of
the Sale Transaction, to merge with Metropolis Realty Lower Tier
LLC, a Delaware limited liability company and a wholly-owned
subsidiary of Metropolis Realty Holdings LLC, a Delaware limited
liability company and a wholly-owned subsidiary of the Company
("Holdings"), with the Company as the surviving entity of such
merger (the "Merger").
The presence at the Special Meeting, in person or by proxy, of
holders of at least a majority of the total number of outstanding shares of
Common Stock entitled to vote is necessary to constitute a quorum for the
transaction of business at the Special Meeting.
The Sale Transaction constitutes a sale of substantially all of the
Company's assets. Following the Sale Transaction, the Company will no longer own
any assets, other than the net proceeds from the Sale Transaction. The
affirmative vote of 66 2/3% of the issued and outstanding shares of Common Stock
is required to approve the Sale Transaction.
In order to facilitate the consummation of the Sale Transaction and
effectively utilize the Company's tax status as a real estate investment trust,
the Special Committee and the Board have approved and recommended that the
Company consummate the Merger. Following the Merger, Holdings will borrow
approximately $200 million from Purchaser or its designee (the "Pre-Closing
Loan") and contribute this amount to the capital of the Company. The Company
will use the capital contributed to it by Holdings to repay a portion of the
outstanding mortgage indebtedness ("Existing Debt") held by General Electric
Capital Corporation ("GE Capital"). The Pre-Closing Loan to Holdings will be
secured by the shares of Common Stock owned by Holdings after the Merger, and is
expected to be repaid from the distribution to Holdings of the net proceeds of
the Sale Transaction in connection with the liquidation of the Company.
In the Merger, Company stockholders will receive an aggregate number of
limited liability company units of Holdings ("LLC Units") equal to the aggregate
number of shares of Common Stock held by such stockholders immediately prior to
the Merger. As a result of the Merger, each stockholder will own the same
percentage interest in Holdings immediately after the Merger as such stockholder
held in the Company immediately prior to the Merger.
The affirmative vote of holders of at least 66 2/3% of the issued and
outstanding shares of Common Stock is required in order to approve the Merger.
Our Board of Directors has declared each of the Sale Transaction and the
Merger advisable and has recommended that our stockholders vote for each of the
proposals. Consummation of each of the proposals is contingent upon the approval
of the other proposal.
Seven of the Company's largest stockholders, representing 10.3 million
shares of Common Stock (approximately 79% of the outstanding shares of Common
Stock), have entered into separate agreements with Purchaser to vote their
shares in favor of each of the Sale Transaction and Merger at the Special
Meeting (collectively, the "Voting Agreements"). Accordingly, the approval of
both the Sale Transaction and Merger is assured without the vote of any other
stockholder. Therefore, the Company is not asking you for a proxy and you are
requested not to send a proxy to the Company.
A special committee (the "Special Committee") of the Board of Directors
consisting of Russel S. Bernard, David A. Strumwasser and David Roberts has
reviewed the Sale Transaction. For a discussion of the reasons for the formation
of the Special Committee, see "PROPOSAL 1 - THE SALE TRANSACTION; Interests of
Certain Persons in the Sale Transaction" and "PROPOSAL 1 - THE SALE TRANSACTION;
Background of the Sale Transaction." The Special Committee has unanimously
determined that each of the Sale Transaction and the Merger is fair to, and in
the best interests, of the Company and its stockholders.
Abstentions and broker non-votes will count as shares present at the
Special Meeting for quorum purposes but will have the effect of votes against
the Sale Transaction and the Merger. However, as approval of the Sale
Transaction and Merger are assured because stockholders representing 10.3
million shares of Common Stock (approximately 79% of the outstanding shares of
Common Stock) have agreed
ii
to vote their shares of Common Stock in favor of the Sale Transaction and
Merger, any abstentions and broker non-votes by other stockholders of the
Company will not have any effect on the result of the stockholder vote at the
Special Meeting.
Stockholders are entitled under Maryland General Corporation Law to
dissenters' rights of appraisal in connection with the approval of the Merger,
but are not entitled dissenters' rights of appraisal in connection with the
approval of the Sale Transaction.
For a discussion of the risks relating to the Sale Transaction and Merger,
see "Risk Factors" on page _____.
Forward Looking Statements
This joint information statement--prospectus contains certain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Exchange Act, and is subject to
the safe harbor created by such sections. Such statements include, but are not
limited to, statements relating to our operations, economic performance and
financial condition and the likelihood of the consummation of the Sale
Transaction. Forward-looking statements in this joint information
statement--prospectus involve known and unknown risks, uncertainties and other
factors that may cause the actual results, performance, or achievements
expressed or implied by such forward-looking statements to vary from those
stated in this joint information statement--prospectus. Such factors include,
among others, the following: general economic and business conditions and
various other factors referred to in this joint information
statement--prospectus. We assume no obligations to update forward-looking
statements or to update the reasons why actual results could differ from those
projected in the forward-looking statements.
Once again, we are not asking you for a proxy and you are requested not to
send us a proxy.
June __, 2002
Neither the Securities and Exchange Commission nor any state securities
regulators have approved the LLC Units to be issued in the Merger or determined
if this joint information statement--prospectus is accurate or adequate. Any
representation to the contrary is a criminal offense.
iii
TABLE OF CONTENTS
SUMMARY TERM SHEET............................................................1
PROPOSAL 1 - DESCRIPTION OF THE PROPOSED SALE TRANSACTION.....................1
PROPOSAL 2 - THE MERGER......................................................5
SELECTED COMPANY FINANCIAL DATA..............................................10
SELECTED 1290 PARTNERS, L.P. FINANCIAL DATA..................................12
PRO FORMA SOURCES AND USES OF PROCEEDS.......................................13
RISK FACTORS.................................................................19
PROPOSAL 1 THE SALE TRANSACTION.............................................21
Background to the Sale Transaction........................................21
Recommendation of the Special Committee, Reasons for the Proposed Sale
Transaction.............................................................25
Vote Required.............................................................26
Opinion of Houlihan Lokey.................................................26
Parties to the Sale Transaction...........................................31
Material U.S. Federal Income Tax Consequences of the Sale Transaction
and Liquidation of the Company.......................................32
Use of Purchase Price Proceeds............................................33
Regulatory Approvals......................................................34
Interests of Certain Persons in the Sale Transaction......................35
Dissenters' Appraisal Rights..............................................36
Private Placement by AP-1290..............................................36
Termination of the Company's Registration under the Securities
Exchange Act of 1934....................................................36
DESCRIPTION OF THE PURCHASE AGREEMENT........................................37
Purchase Price............................................................37
Closing Date..............................................................37
Representations and Warranties............................................37
Conduct of Business Operations Prior to Closing Date......................38
Superior Offers...........................................................38
Break Up Fee..............................................................39
Indemnification...........................................................40
Conditions to Closing.....................................................41
Transaction Costs.........................................................42
Default by Purchaser or the Company.......................................43
Apportionments............................................................43
Pre-Closing Loan, Payment of Purchase Price and Other Related
Transactions............................................................44
AREIF Note................................................................46
iv
DESCRIPTION OF THE VOTING AGREEMENTS.........................................46
PROPOSAL 2 THE MERGER........................................................47
The Merger Consideration..................................................48
Ownership Following the Merger............................................48
Reasons for Merger........................................................48
Material U.S. Federal Income Tax Consequences.............................48
Vote Required.............................................................49
Parties to the Merger.....................................................50
Conditions to the Merger..................................................65
Accounting Treatment of Merger............................................65
Appraisal Rights..........................................................65
Exchange of Certificates..................................................66
Material Differences in the Rights of Holders of Shares of Common
Stock and LLC Units.....................................................67
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...............73
INCORPORATION BY REFERENCE...................................................76
LEGAL MATTERS................................................................78
EXPERTS......................................................................78
COST OF JOINT INFORMATION STATEMENT--PROSPECTUS..............................78
ANNEXES
Annex A: Fairness Opinion of Houlihan, Lokey, Howard & Zukin Financial
Advisors, Inc.
Annex B: Purchase Agreement
Annex C: Form of Voting Agreement
Annex D: Dissenters' Rights of Appraisal under the MGCL
Annex E: Operating Agreement of Metropolis Realty Holdings LLC
Annex F: 1290 Partners, L.P. Financial Statements
Annex G: Metropolis Realty Trust, Inc. Financial Statements
v
SUMMARY TERM SHEET
The following is a summary of certain information contained elsewhere in
this joint information statement--prospectus. Reference is made to, and this
summary term sheet is qualified in its entirety by, the more detailed
information contained in this joint information statement--prospectus, the
attached Annexes and the information incorporated by reference herein. Unless
otherwise defined, capitalized terms used in this summary term sheet have the
meanings set forth elsewhere in this joint information statement--prospectus.
You are urged to read this joint information statement--prospectus and the
Annexes in their entirety. References in this joint information
statement--prospectus to "us", "our" and the "Company" are meant to refer to
Metropolis Realty Trust, Inc. References in this joint information
statement--prospectus to "Holdings" are meant to refer to Metropolis Realty
Holdings LLC.
PROPOSAL 1 - DESCRIPTION OF THE PROPOSED SALE TRANSACTION
Parties to the Sale Transaction
The Company. Our principal executive offices are located at c/o Capital
Trust, Inc., 410 Park Avenue, 14th Floor, New York, New York 10022, and the
telephone number of the Company at this location is (212) 655-0220. See
"PROPOSAL 1 - DESCRIPTION OF THE PROPOSED SALE TRANSACTION; Parties to the Sale
Transaction."
1290 Partners, L.P. 1290 Partners L.P. , the owner of the 1290 Avenue of
Americas property, is our indirect subsidiary. We are its sole limited partner.
We also own 100% of the common stock of the sole general partner of 1290
Partners through 1290 GP Corp., a Delaware corporation. The principal executive
offices of 1290 Partners are located at c/o Capital Trust, Inc., 410 Park
Avenue, 14th Floor, New York, New York 10022, and the telephone number of 1290
Partners at this location is (212) 655-0220. 1290 Partners' principal business
is to own the 1290 Property. "PROPOSAL 1 - DESCRIPTION OF THE PROPOSED SALE
TRANSACTION; Parties to the Sale Transaction."
Purchaser. Jamestown 1290, L.P. is a newly-formed Delaware limited
partnership without any operational history. Purchaser's limited partners are
Jamestown 1290 Partners, a Georgia general partnership, and AP-1290 Partners
LLC. Purchaser's general partner is JT 1290 Corp., a Georgia corporation. The
principal executive offices of Purchaser are located at Two Paces West, Suite
1600, 2727 Paces Ferry Road, Atlanta, Georgia 30339, and the telephone number of
Purchaser at this location is (770) 805-1000. "PROPOSAL 1 - DESCRIPTION OF THE
PROPOSED SALE TRANSACTION; Parties to the Sale Transaction."
JT 1290 Corp. and Jamestown 1290 Partners. JT 1290 Corp. and
Jamestown 1290 Partners are affiliates of Jamestown, a Georgia general
partnership. Jamestown 1290 Partners and JT 1290 Corp. together own 77.21%
of the partnership interests in Purchaser. Jamestown is a real estate
investment and management company with offices in Atlanta and Cologne,
Germany. Jamestown's and its affiliates' holdings in New York City exceed
$1 billion dollars in property value. JT 1290 Corp. and Jamestown 1290
Partners have been formed by Jamestown for the purpose of consummating the
sale transaction, do not have any operational history, and have not
conducted any business other than in connection with the sale transaction
and the transactions contemplated thereby. Each of JT 1290 Corp.'s and
Jamestown 1290 Partners' principal executive offices are located at Two
Paces West, Suite 1600, 2727 Paces Ferry Road, Atlanta, Georgia 30339, and
their telephone number at this location is (770) 805-1000.
AP-1290 Partners LLC. AP-1290 was formed for the purpose of
consummating the sale transaction. AP-1290 owns a 22.79% limited
partnership interest in Purchaser. Apollo Real Estate Investment Fund
currently owns 100% of the limited liability company interests of AP-1290,
but after
the closing of the private placement offering by AP-1290 described below,
Apollo Real Estate Investment Fund may own less than 100% of the limited
liability company interests of AP-1290. See "PROPOSAL 1 - THE SALE
TRANSACTION; PRIVATE PLACEMENT BY AP-1290." Apollo Real Estate Investment
Fund is also a stockholder of the Company, holding approximately 38% of
the Common Stock. In addition, four of the Company's directors are
affiliated with Apollo Real Estate Investment Fund. For a detailed
discussion of certain of Apollo Real Estate Investment Fund's and its
affiliates' interests in the sale transaction, see "PROPOSAL 1 - THE SALE
TRANSACTION; Interests of Certain Persons in the Sale Transaction." The
principal executive offices of AP-1290 are located at 1301 Avenue of the
Americas, New York, New York, 10022, and the telephone number of AP-1290
at this location is (212) 515-3200. AP-1290 does not have any operational
history and has not conducted any business other than in connection with
the sale transaction.
Purchase Agreement
o On May 7, 2002, we entered into an amended and restated purchase agreement
with Purchaser, whereby Jamestown 1290 agreed to purchase the 1290 Avenue
of Americas property. See "PROPOSAL 1 - THE SALE TRANSACTION; Description
of The Purchase Agreement; Assets to be Sold and Liabilities to be
Assumed."
o The sale transaction constitutes a sale of substantially all of our
assets. Following the sale transaction, we will liquidate and distribute
all of our assets, including all of the net proceeds received in the sale
transaction.
Purchase Price
o Purchaser has agreed to pay us $745.5 million to purchase our interest in
the 1290 Avenue of Americas property. After repayment of existing
indebtedness and the costs associated therewith and after certain expenses
associated with the sale transaction are paid and certain reserves are
established, we will liquidate and distribute the net proceeds from our
liquidation to Holdings which, in turn, will distribute such net proceeds
(less an amount determined by us to satisfy our indemnification
obligations under the purchase agreement, the pre-closing loan, and to pay
other expenses of the sale transaction) to our stockholders on a pro rata
basis, which we expect to be approximately $295 million in the aggregate,
or approximately $22.75 per share. See "PROPOSAL 1 - THE SALE TRANSACTION;
Description of the Purchase Agreement; Purchase Price." Actual amounts
distributed to you, however, may differ. See "Risk Factors."
Right to Demand an Appraisal of Your Shares
o Under Maryland law, you are not entitled to appraisal rights in connection
with the approval of the sale transaction. Under Maryland law, however,
you are entitled to appraisal rights in connection with the approval of
the merger. See "PROPOSAL 1 - THE SALE TRANSACTION -- Dissenters'
Appraisal Rights;" and "PROPOSAL 2 - THE MERGER; Dissenters' Appraisal
Rights."
Fairness Opinion
o Houlihan, Lokey, Howard & Zukin Financial Advisors, Inc. was retained by
the Special Committee to deliver a fairness opinion in connection with the
sale transaction. On May 7, 2002, Houlihan Lokey rendered an opinion to
the special committee of our board of directors stating that the
consideration to be received by us in connection with the sale transaction
is fair from a financial point of view and the sale transaction is fair,
from a financial point of view, to our stockholders who are not affiliated
with Apollo Real Estate Investment Fund, our largest stockholder. A copy
of this opinion is
2
attached hereto as Annex A. See "PROPOSAL 1 - THE SALE TRANSACTION;
Opinion of Houlihan Lokey."
Appointment of Special Committee
o Because some members of our board of directors are affiliated with Apollo
Real Estate Investment Fund, which has interests in the sale transaction
that are in addition to its interests as a stockholder, our board of
directors formed a special committee of the board of directors comprised
of non-Apollo Real Estate Investment Fund affiliated directors.
o The special committee was formed for the following purposes:
o to explore the proposed transaction with Purchaser;
o if the special committee deemed it appropriate, authorizing and
recommending to the board of directors, subject to stockholder
approval, that it approve the sale transaction, which approval would
be based upon, among other things, the special committee's
consideration and evaluation of the terms and fairness of the sale
transaction; and
o to consider the terms and conditions of any alternatives to the sale
transaction. See "PROPOSAL 1 - THE SALE TRANSACTION; Background of
the Sale Transaction."
Interests of Certain Persons in the Sale Transaction
o Apollo Real Estate Advisors, L.P. Some members of our management and board of
directors are affiliated with Apollo Real Estate Advisors, L.P., and as a result
have interests in the sale transaction that are in addition to their interests
as stockholders. Apollo Real Estate Advisors is the general partner of Apollo
Real Estate Investment Fund, which beneficially owns approximately 38% of the
outstanding shares of our common stock. These interests of Apollo Real Estate
Advisors and its affiliates in the sale transaction include:
o AP-1290 is a Limited Partner of Purchaser. Apollo Real Estate Investment
Fund owns 100% of the limited liability company interests of AP-1290.
AP-1290 owns a 22.79% limited partnership interest in Purchaser, entitling
it to a preferred return on its invested capital and 43.75% of any
remaining net cash flow from operations of Purchaser. This preferred
return is subordinated to the prior payment of a preferred return to
Purchaser's other partners. In connection with any capital transaction by
Purchaser, AP-1290 would be entitled to a return of its invested capital
and 50% of any net proceeds from such capital transaction. The return of
its invested capital is subordinated to the prior return of capital to
Purchaser's other partners and the achievement of certain specified
distribution thresholds.
o Officers and Directors of the Company. Certain of our existing
officers are also partners of Apollo Real Estate Advisors and
officers of the general partner of Apollo Real Estate Advisors. Four
of Apollo Real Estate Advisors' partners serve on our board of
directors. These directors are: William L. Mack, Lee S. Neibart,
Bruce H. Spector and John R.S. Jacobsson. In addition, Mr. Mack
serves as our Chairman, Mr. Neibart serves as our President, and Mr.
Jacobsson serves as our Vice President and Secretary. None of these
directors or officers serve on the special committee that has
approved the sale transaction.
o Manager of 1290 Avenue of Americas Property. Purchaser has agreed to
appoint 1290 Management L.P. to serve as the manager of the 1290
Avenue of Americas property following the closing of the sale
transaction. 1290 Management is owned 99.9% by the Purchaser and
0.1%
3
by JT 1290 Corp. An affiliate of Apollo Real Estate Advisors and
Jamestown 1290 Partners have agreed to share on a 50/50 basis a
management fee equal to 1.75% of effective gross rents received from
the 1290 Avenue of Americas property. 1290 Management, however,
expects to subcontract some of its management duties to a third
party property management firm, and as a result, the compensation
that it is entitled to receive as manager of the 1290 Avenue of
Americas property will be reduced by the amount that it pays to such
property management firm. This subcontracted property management fee
is currently expected to be approximately 1.0% of effective gross
rents per year.
o Post-Closing Transaction Fee. If, after the closing of the sale
transaction, the 1290 Avenue of Americas property is sold by
Purchaser, an affiliate of Apollo Real Estate Advisors will be
entitled to a sales fee equal to 1.2% of the gross sale price, which
is not expected until on or after 2009.
o Apollo Real Estate Investment Fund Note. We have agreed to accept a
promissory note from Apollo Real Estate Investment Fund in the
amount of up to approximately $77.4 million as a portion of the
purchase price to be paid by Purchaser in the sale transaction. This
promissory note will be secured by shares of common stock owned by
Apollo Real Estate Investment Fund and will be repaid from the
distributions we pay to Apollo Real Estate Investment Fund from the
net proceeds of the sale transaction. The amount of the net proceeds
from the sale transaction to be distributed to Apollo Real Estate
Investment Fund as our stockholder is expected to exceed the amount
of the promissory note.
o Voting Agreement. Apollo Real Estate Investment Fund has executed a
voting agreement with Purchaser pursuant to which it has agreed to
vote in favor of the sale transaction and the merger. See "PROPOSAL
1 - THE SALE TRANSACTION; Interests of Certain Persons In The Sale
Transaction - Description of Voting Agreement"; and "SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."
o Capital Trust. Some members of our management and board of directors are
affiliated with Capital Trust, Inc., and as a result may have interests in
the sale transaction that are in addition to their interests as our
stockholders. Capital Trust is the Asset Manager of the 1290 Avenue of
Americas property, and its Chief Executive Officer, John R. Klopp serves
on our board of directors. In addition, Mr. Klopp serves as our Vice
President and Jeremy FitzGerald, a Managing Director of Capital Trust,
serves as our Vice President and Assistant Secretary. Mr. Klopp initially
served on the special committee that approved the sale transaction and the
merger, but later resigned as a member when the Special Committee received
and considered an alternative bid from an entity that may have been
considered to be an affiliate of Capital Trust. See "PROPOSAL 1 - THE SALE
TRANSACTION; Background to the Sale Transaction. [Upon the closing of the
sale transaction, Capital Trust will be paid a fee in the amount of
$______ [characterize rationale for fee]]. "PROPOSAL 1 - THE SALE
TRANSACTION; Interests of Certain Persons in the Sale Transaction."
Private Placement by AP-1290
o AP-1290 has notified us that it intends to offer to all of our
stockholders that are "accredited investors" (as such term is defined
under the rules promulgated under the Securities Act of 1933, as amended),
the right to purchase membership interests in AP-1290 at a price and on
the terms set forth in a private placement memorandum that is expected to
be delivered to such accredited investors contemporaneously with the
delivery of this joint information statement--prospectus. AP-1290 owns a
22.79% limited partnership interest in Purchaser, and following the
closing of the sale transaction, Purchaser will own the 1290 Avenue of
Americas Property. AP-1290 intends to close its private placement offering
simultaneously with the closing of the sale transaction. The terms and
conditions
4
of AP-1290's offering are subject to the AP-1290 private placement
memorandum. The consummation of this offering is not a condition to the
merger or sale transaction. This joint information statement -- prospectus
is not an offering or solicitation of the securities to be offered in the
AP-1290 offering. See "PROPOSAL 1 - THE SALE TRANSACTION; PRIVATE
PLACEMENT BY AP-1290."
Material Income Tax Consequences of the Sale Transaction
o We will recognize a gain or loss for federal income tax purposes generally
equal to the amount received for the 1290 Avenue of Americas property over
our adjusted tax basis in the 1290 Avenue of Americas property, less any
selling expenses. As a real estate investment trust, we are allowed a
dividends paid deduction for the amount we distribute in liquidation. As a
result of the merger and related capital restructuring transactions, we
should have funds following the sale transaction at least equal to the
amount of gain recognized by us in the sale transaction. As a result, we
should receive a dividends paid deduction sufficient to offset any gain
recognized in the sale transaction when we distribute the net proceeds of
the sale transaction to Holdings upon our liquidation. The distribution of
net proceeds upon our liquidation should be treated by Holdings as a gain
from the disposition of our shares of common stock which will be allocated
to the holders of Holdings limited liability company units in proportion
to their respective percentage interests in Holdings. As a partnership for
federal income tax purposes, Holdings should have no federal income
liability with respect to the gain. See "PROPOSAL 1 - THE SALE
TRANSACTION; Material U.S. Income Tax Consequences of the Sale Transaction
and Liquidation of the Company."
Termination of Registration under the Securities Act of 1934
o Following the closing of the sale transaction and the merger, we will
terminate our registration under the Securities Exchange Act of 1934, as
amended. As a result, we will no longer be under any obligation to deliver
to you annual or quarterly reports. The issuance of the limited liability
company units you receive from Holdings in the merger, however, will be
registered under the Securities Act of 1933, as amended, and Holdings will
be required to comply with the reporting obligations under the Securities
Exchange Act of 1934, as amended. See "PROPOSAL 1 - THE SALE TRANSACTION;
Termination of Registration" and "PROPOSAL 2 - THE MERGER; Parties to
Merger; Holdings."
PROPOSAL 2 - THE MERGER
Parties to the Merger
o The Company. We are a party to the merger. For information about us, see
"PROPOSAL 1 - DESCRIPTION OF THE PROPOSED SALE TRANSACTION; Parties to the
Sale Transaction; The Company."
o Metropolis Realty Lower Tier LLC. Metropolis Lower Tier is a newly-formed
Delaware limited liability company and wholly-owned subsidiary of Holdings
without any operational history. It has not conducted any business other
than in connection with the merger. Upon the effective time of the merger,
we will merge into Metropolis Lower Tier and Metropolis Lower Tier will
cease to exist. Metropolis Lower Tier's principal executive offices are
located at c/o Capital Trust, Inc., 410 Park Avenue, 14th Floor, New York,
New York 10022, and its telephone number at this location is (212)
655-0220. See "PROPOSAL 2--THE MERGER; Parties to the Merger; Lower Tier."
o Holdings. Holdings is a newly-formed Delaware limited liability company
which is our wholly-owned subsidiary without any operational history. It
has not conducted any business other than in connection with the merger,
the pre-closing loan and the other matters described under the section
5
"PROPOSAL 1 - SALE TRANSACTION; Material U.S. Federal Income Tax Consequences of
the Sale Transaction and Liquidation of the Company." Holdings' principal
executive offices are located at c/o Capital Trust, Inc., 410 Park Avenue, 14th
Floor, New York, New York 10022, and the telephone number of Holdings at this
location is (212) 655-0220. See "PROPOSAL 2--THE MERGER; Parties to the Merger;
Holdings."
o Governance of Holdings. Holdings will be managed by a board of managers,
which will be comprised of our entire existing eight member board of
directors. In addition, Holdings' initial officers will be our existing
officers.
o Voting. From and after the merger, holders of Holdings' limited liability
company units will have voting rights equal to one vote per unit and will
be entitled to vote on all matters in respect of which members of a
limited liability company would be entitled to vote under Delaware law.
Action by the members of Holdings will generally require the affirmative
vote of holders of a majority of the outstanding limited liability company
units.
o Assignability and Transferability of Holdings Units. Subject to compliance
with federal and state securities law restrictions on transfer, there will
be no restriction on the assignability or transferability of the limited
liability company units, other than restrictions in Holdings' operating
agreement to ensure that Holdings is not treated as a publicly traded
partnership under the federal tax code. Until such time as we are
liquidated, the holders of Holdings' limited liability company units will
continue to be subject to certain restriction on the number of limited
liability company units which may be owned by a holder, which restrictions
will mirror the transfer restrictions included in our charter.
o No Public Market for the Holdings Limited Liability Company Units. The
limited liability company units will not be traded on any established
trading market and no market of this type is expected to develop. Thus,
there will be limited liquidity and information available regarding the
prevailing market prices for the limited liability company units.
o Registered with the Commission. The issuance of the limited liability
company units are being registered under this joint information
statement-prospectus with the Commission under the Securities Act of 1933.
As a result, Holdings will be required under the federal securities laws
to file quarterly and annual reports with the Commission and otherwise
comply with the reporting obligations under the Securities Exchange Act of
1934.
o Assumption of Indemnification Obligations to Purchaser.
o We have agreed to indemnify Purchaser for the breach of our
representations and warranties in the purchase agreement up to a
maximum amount of $10 million, less any amounts paid or payable by
us in connection with post-closing adjustments related to the sale
transaction. The deadline for purchaser asserting indemnification
obligations is December 30, 2002.
o Since we are disposing of our final asset in the sale transaction,
we will not have any operating income from which to settle and/or
satisfy any indemnification claims. Accordingly, in order to ensure
that there will be sufficient funds to satisfy or settle any
indemnification claims made during the indemnification period,
Holdings, as our successor entity, will retain $10 million of the
net proceeds from the sale transaction, less any amounts paid or
payable by us in connection with post-closing adjustments related to
the sale transaction. In addition, Holdings will also retain a cash
reserve amount equal to $2 million in order to pay any professional
expenses or other costs that may arise. Any remaining portion of the
$10 million holdback amount and the $2 million cash reserve amount,
6
including any interest earned thereon, after the final settlement of
any indemnification claims that may have arisen during the
indemnification period, will be distributed pro rata to the holders
of Holdings limited liability company units as soon as practicable
following expiration of the indemnification period and the
settlement of such claims. See "PROPOSAL 2 - THE MERGER; Parties to
the Merger; Holdings; Assumption of Indemnification Obligations to
Purchaser."
o Assets of Holdings following the merger and sale transaction.
Holdings' assets following the merger and sale transaction will
consist of the $10 million cash holdback amount, plus a cash reserve
account of $2 million in order to pay any professional expenses or
other costs that may arise. Other than the holdback amount and this
cash reserve account, Holdings will not own any other assets.
o Operations of Holdings following the merger and sale transaction.
Following the merger and sale transaction, Holdings will not conduct
any business or operations other than to settle and/or satisfy
indemnification claims in accordance with the terms of the purchase
agreement.
o Dividend Rights. Other than the distribution of the net sale
proceeds to the holders of Holdings limited liability company units
upon the closing of the sale transaction (less the $10 million
holdback and the $2 million cash reserve), Holdings does not intend
to distribute any of its assets until the expiration of its
indemnification obligations and the settlement of such claims at
which time it intends to distribute the remaining portion of the
holdback amount, plus interest, if any.
The Merger and Related Transactions
o Holdings is our wholly-owned subsidiary. Holdings has, in turn, formed
Metropolis Realty Lower Tier LLC, a Delaware limited liability company, a
wholly-owned subsidiary of Holdings and our indirect wholly-owned
subsidiary.
o Prior to the consummation of the sale transaction, we will merge with
Lower Tier and we will be the surviving entity of the merger. Accordingly,
following consummation of the merger, we will be a subsidiary of Holdings
and Holdings will own all of our common stock other than shares issued by
us to comply with the 100 stockholder requirement of a real estate
investment trust. See "PROPOSAL 2 - THE MERGER; Introduction."
o Immediately following the merger, Holdings will borrow a pre-closing loan
from Purchaser or a designee of Purchaser in an amount equal to
approximately $200 million. Immediately thereafter, Holdings will
contribute the proceeds of the pre-closing loan to our capital. We intend
to use this capital contribution to repay a portion of our existing
indebtedness before the sale transaction.
o The pre-closing loan will be secured by our common stock owned by Holdings
following the merger and is expected to be repaid several days later upon
the closing of the sale transaction at which time we will be liquidated
and the net proceeds of the sale transaction will be distributed to
Holdings. Following the payment of the remaining existing indebtedness,
the costs associated the termination of our swap agreement, prorations,
transfer taxes, cash reserves, and other costs, fees and expenses
described in the section "PRO FORMA SOURCES AND USES OF PROCEEDS",
Holdings will distribute the net proceeds of the purchase price to its
members in proportion to their respective ownership interests in Holdings.
The contribution of the pre-closing loan proceeds to our capital should
permit us to minimize any federal income tax liabilities associated with
the sale transaction and liquidation. See "PROPOSAL 2 - THE MERGER;
Reasons for the Merger" and "PROPOSAL 2 - THE MERGER; Pre-Closing Loan,
Payment of Purchase Price and Other Related Transactions."
7
Reasons for the Merger and Related Transactions
o The merger is being consummated as part of a restructuring of our capital
stock which includes the formation of Holdings, the merger, and the
pre-closing loan. The merger, together with the formation of Holdings, and
the pre-closing loan are expected to facilitate the consummation of the
sale transaction and effectively utilize our tax status as a real estate
investment trust.
Merger Consideration
o In the merger, each of our stockholders will receive a certificate
representing a number of limited liability company units in Holdings equal
to the number of shares of common stock held by such stockholder
immediately prior to the merger. See "PROPOSAL 2 - MERGER; The Merger
Consideration."
Ownership of Holdings Following the Merger
o Immediately following the merger, each of our stockholders will own the
same number of limited liability company units in Holdings as shares of
common stock they own in us, and accordingly will own the same percentage
interest in Holdings as they held in us immediately prior to the merger,
subject to adjustment as a result of any exercise by stockholders of
appraisal rights. See "PROPOSAL 2 - MERGER; Ownership Following the
Merger;" and "PROPOSAL 2 - THE MERGER; Appraisal Rights."
Risks of the Merger
There are risks associated with the merger of us with the lower tier subsidiary.
These risks include:
o that Holdings may be required to settle or satisfy indemnification claims
made by Purchaser following the closing of the sale transaction and to pay
post-closing costs associated with the sale transaction, and as a result,
members of Holdings may not receive the full $10 million indemnification
holdback amount and the $2 million cash reserve amount. See "PROPOSAL 2 -
THE MERGER; Parties to the Merger; Holdings; Assumption of Company
Indemnification Obligations to Purchaser."
o that there is a lack of a market for the limited liability company units
to be issued by Holdings in the merger and the limited liability company
units will not be traded on any established trading market; and we do not
expect that an active trading market for the units will develop or be
sustained.
o that Holdings has a lack of operating history.
o that although Holdings expects to distribute approximately $295 million or
$22.75 per unit to its members, the termination of our swap agreement, the
prorations and certain fees and expenses associated with the sale
transaction may be higher than we estimated, and as a result, Holdings may
have less than $295 million to distribute to its members.
o that Holdings will have no assets other than the $10 million holdback
amount and the $2 million cash reserve amount following distribution of
the net sale transaction proceeds to its holders of limited liability
company units. See "RISK FACTORS".
Special Committee and Board of Directors Approval
8
o The special committee and our board members who did not recuse themselves
have unanimously approved and recommended the merger, and have determined
that the merger is in the best interests of our stockholders. See
"PROPOSAL 2 - THE MERGER; Introduction"
Material U.S. Federal Income Tax Consequences of the Merger
o For U.S. federal income tax purposes, Metropolis Lower Tier will be
disregarded, and the merger will be treated as a contribution by our
stockholders of their shares of common stock to Holdings in exchange for
Holdings limited liability company units. After the merger, aside from
shares of common stock that we may need to issue in order to comply with
the 100 shareholder requirement for qualification as a real estate
investment trust, all of the outstanding shares of common stock will be
held by Holdings. Accordingly, we (as the surviving entity of the merger)
will become an approximately 99.9% owned subsidiary of Holdings.
o No gain or loss will be recognized by stockholders upon receipt of
Holdings' limited liability company units in exchange for their shares of
common stock. Each of our stockholder's adjusted tax basis in their
respective Holdings' limited liability company units received in the
merger will be equal to its adjusted tax basis in the shares of common
stock surrendered. The holding period for the limited liability company
units received in the merger will include the holding period of the common
stock surrendered in the merger.
o If a stockholder receives cash pursuant to an exercise of appraisal
rights, such holder will be required to recognize gain or loss, measured
by the difference between the amount of cash received and its adjusted tax
basis in the common stock surrendered. This gain or loss will be capital
gain or loss, and will be long-term capital gain or loss if the common
stock surrendered was held for more than one year at the effective time of
the merger.
o Holdings should be considered a partnership and each stockholder receiving
Holdings limited liability company units should be considered a partner of
Holdings for federal income tax purposes. See "PROPOSAL 2 - THE MERGER;
Certain U.S. Federal Income Tax Consequences."
Material Differences in the Rights of Holding Stock and Holding Limited
Liability Company Interests
o The rights of our stockholders are governed by the Maryland General
Corporation Law, the Company's charter and by-laws. Following the merger,
our stockholders will be members of Holdings and hold limited liability
company units instead of common stock. The rights of members of Holdings
will be governed by the Delaware Limited Liability Company Act and the
operating agreement of Holdings. See "PROPOSAL 2 - THE MERGER; Material
Differences in the Rights of Holders of Shares of Common Stock and LLC
Units." A copy of the form of operating agreement of Holdings is attached
hereto as Annex E.
Right to Demand an Appraisal of Your Shares of Common Stock
o Under Maryland law, you are entitled to appraisal rights in connection
with the approval of the Merger. See "PROPOSAL 2 - THE MERGER; Appraisal
Rights."
Exchange of Certificates
o We will appoint Continental Stock Transfer & Trust Company to act as
exchange agent in the merger. See "PROPOSAL 2 - THE MERGER; Exchange of
Certificates."
9
SELECTED COMPANY FINANCIAL DATA
The following table sets forth our selected historical financial data, as
of and for each of the five years in the period ended December 31, 2001, the
three months ended March 31, 2002 and March 31, 2001, and has been derived from
our historical consolidated financial statements. Our selected financial data
presented below should be read in conjunction with the consolidated financial
statements and the notes thereto which are attached hereto as Annex G. This
financial data includes information relating not only to the1290 Avenue of
Americas property, but also the 237 Park Avenue property that was owned by us
during this period and sold in November 1999. Because of this, we have also
included financial data relating to 1290 Partners, L.P. for the years ended
December 31, 2001 and December 31, 2000 and for the three months ended March 31,
2002 and March 31, 2001. Our annual financial statements and those annual
financial statements of 1290 Partners, L.P. have been audited by Deloitte &
Touche LLP.
Three Months
Ended March 31, Years Ended December 31,
2002 2001 2001 2000 1999(1) 1998(1) 1997(1)
---- ---- ---- ---- ------- ------- -------
(unaudited) (in thousands, except share amounts)
REVENUES
Rental income ........ $ 20,749 $ 21,182 $91,030 $90,073 $126,434 $134,754 $129,617
Lease termination
income ............. 1,309 913 -- -- 26,455 -- --
2,936 5,245 4,669 4,889 1,190
-------- -------- ------- ------- -------- -------- --------
Miscellaneous
income ............. 1,071 692 93,966 95,318 157,558 139,643 130,807
-------- -------- ------- ------- -------- -------- --------
Total revenues ....... 23,129 22,787 17,821 18,266 27,414 27,733 26,813
-------- -------- ------- ------- -------- -------- --------
OPERATING EXPENSES
Real estate taxes .... 4,495 4,363 5,518 5,173 6,756 7,119 7,224
Operating and
maintenance ........ 1,363 1,175 9,450 8,186 6,991 6,674 6,870
Utilities ............ 1,611 2,384 3,480 3,091 4,323 4,430 4,332
Payroll .............. 925 848 1,820 1,770 2,198 2,298 2,121
Management fees ...... 481 470 524 932 1,960 3,451 2,055
Professional fees .... 119 109 328 430 980 562 1,032
General and
administrative ..... 38 55 1,301 -- 585 -- 329
Bad debt expense ..... -- -- 11,981 11,680 16,245 14,466 13,347
------- ------- -------- -------- --------
Depreciation and
amortization ....... 2,950 3,060 52,223 49,528 67,452 66,733 64,123
-------- -------- ------- ------- -------- -------- --------
Total operating
expenses .......... 11,982 12,464 973 2,917 3,759 3,293 3,676
-------- --------
OTHER ITEMS
Interest income ...... 90 326 (41,400) (41,464) (33,582) (35,800) (36,233)
Interest expense ..... (10,046) (10,054) -- -- (1,088) -- --
Write-off of note
receivable .........
(continued)
10
Three Months
Ended March 31, Years Ended December 31,
--------------- ------------------------
2002 2001 2001 2000 1999(1) 1998(1) 1997(1)
------------ ------------ ------------ ------------ ------------ ------------ ------------
(unaudited)
Write-off of
deferred
financing costs ... -- -- -- -- (2,307) -- --
------------ ------------ ------------ ------------ ------------ ------------ ------------
Total other items .... (9,956) (9,728) (40,427) (38,547) (33,218) (32,507) (32,557)
------------ ------------ ------------ ------------ ------------ ------------ ------------
GAIN ON SALE OF
PROPERTY ............. -- -- -- 50,445 -- -- --
------------ ------------ ------------ ------------ ------------ ------------ ------------
GAIN ON REPURCHASE OF
MINORITY INTEREST .... -- 13,009 13,009 -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------ ------------
NET INCOME ........... $ 1,191 $ 13,604 $ 14,325 $ 7,243 $ 107,333 $ 40,403 $ 34,127
============ ============ ============ ============ ============ ============ ============
Net Income Per Common
Share:
Net income ........... $ .09 $ 1.05 $ 1.10 $ .56 $ 8.27 $ 3.12 $ 2.63
------------ ------------ ------------ ------------ ------------ ------------ ------------
Weighted average
common shares
outstanding ....... 13,004,443 13,001,246 13,001,307 12,997,699 12,971,262 12,967,153 12,963,963
------------ ------------ ------------ ------------ ------------ ------------ ------------
Net Income Per Common
Share (assuming
dilution):
Net income ........... $ .09 $ 1.05 $ 1.10 $ .56 $ 8.26 $ 3.11 $ 2.63
------------ ------------ ------------ ------------ ------------ ------------ ------------
Weighted average
common shares
outstanding
(assuming dilution) 13,007,443 13,004,246 13,004,307 13,000,699 12,998,646 12,993,666 12,988,963
------------ ------------ ------------ ------------ ------------ ------------ ------------
Consolidated Balance
Sheet Data:
Total assets as of
year end .......... $ 460,346 $ 477,076 $ 475,276 $ 767,771 $ 757,932
------------ ------------ ------------ ------------ ------------
Long-term debt as of
year end .......... $ 425,000 $ 425,000 $ 425,000 $ 410,625 $ 418,125
------------ ------------ ------------ ------------ ------------
Cash dividends
declared per
common share ...... $ 1.00 $ .70 $ 31.50 $ 1.50 $ 2.75
------------ ------------ ------------ ------------ ------------
- -----------------------
(1) On November 22, 1999, we sold the real property and office building
located at 237 Park Avenue, New York, New York 10022. The selected
financial data presented above for years ended December 31, 1997 and
December 31, 1998 and for the period for January 1, 1999 through November
21, 1999 include the results of operations for 237 Park Avenue. The total
revenues, total operating expenses and net income for 237 Park Avenue for
the period for January 1, 1999 through November 21, 1999 were $69,968,
$20,794 and $38,473, respectively.
11
SELECTED 1290 PARTNERS, L.P. FINANCIAL DATA
The following table sets forth the 1290 Partners, L.P.'s selected
historical financial data, as of and for each of the two years in the period
ended December 31, 2001, and has been derived from its historical financial
statements. The year-end financial information has been derived from its audited
financial statements and relates solely to the 1290 Avenue of Americas property.
The selected financial information below for the three months ended March 31,
2002 and March 31, 2001 has been prepared by the Company's property manager and
is unaudited. 1290 Partners, L.P.'s selected financial data presented below
should be read in conjunction with the financial statements and the notes
thereto attached hereto as Annex F.
STATEMENTS OF INCOME
--------------------
(in thousands)
Three Months Ended March 31, Years ended December 31,
2002 2001 2001 2000
---- ---- ---- ----
REVENUES: (unaudited)
Base rental income .......... $ 20,749 $ 21,182 $ 86,165 $ 85,129
Escalation income ........... 1,309 913 4,865 4,944
Miscellaneous income ........ 1,071 692 2,936 6,848
-------- -------- -------- -----------
Total revenues ............... 23,129 22,787 93,966 96,921
-------- -------- -------- -----------
OPERATING EXPENSES:
Real estate taxes ........... 4,495 4,363 17,821 18,266
Utilities ................... 1,611 2,384 9,450 8,186
Payroll ..................... 925 848 3,480 3,091
Cleaning .................... 689 614 2,581 2,499
Repairs and maintenance ..... 1,337 454 2,363 2,151
Management fees ............. 374 352 1,383 1,333
Insurance ................... 85 83 301 284
Professional fees ........... 19 16 137 218
Building supplies and office
Expenses .................... -- -- 184 149
General and administrative .. 37 52 320 247
Bad debt expense ............ -- -- 1,301 --
Depreciation and amortization 2,950 3,061 11,981 11,680
-------- -------- -------- -----------
Total expenses ............... 11,750 1,224 51,304 48,104
-------- -------- -------- -----------
NET OPERATING INCOME .......... 11,380 10,560 42,664 48,817
-------- -------- -------- -----------
OTHER INCOME (EXPENSES):
Interest expense ............ (10,045) (10,054) (41,400) (41,464)
Interest income ............. (90) 320 959 1,156
-------- -------- -------- -----------
Total other expenses ......... (9,956) (9,734) (40,441) (40,308)
-------- -------- -------- -----------
NET INCOME .................... $ 1,424 $ 826 $ 2,223 $ 8,510,363
======== ======== ======== ===========
12
PRO FORMA SOURCES AND USES OF PROCEEDS
(in thousands)
Set forth below is a description of the pro forma sources and uses of the
proceeds in connection with the consummation of the sale transaction and merger.
Sources - Company
- -----------------
Purchase price $745,500
Holdings capital contribution 200,000
Cash on hand 27,000
--------
Total Sources $972,500
========
Uses - Company
- --------------
Existing indebtedness - principal $425,000
Existing indebtedness - accrued interest 3,020
Swap agreement termination costs(a) 10,000
Holdback amount 10,000
Transaction fees and expenses(b) 4,000
Transfer taxes(c) 22,551
Cash Reserves for Company 2,000
Distribution to Holdings(d) 495,929
--------
Total Uses $972,500
========
Sources - Holdings
- ------------------
Distribution from the Company $495,929
Pre-Closing Loan $200 million 200,000
--------
Total Sources $695,929
========
Uses - Holdings
- ---------------
Capital contribution to Company $200,000
Repayment of Pre-Closing Loan 200,000
Distributions to Members (pro rata) 295,929
--------
Total Uses $695,929
========
- ---------------
(a) Swap agreement breakage fee is a current estimate based on a breakage as
of June 30, 2002.
(b) Transaction costs represent an estimate of certain fees and expenses to be
paid in the transaction, including, without limitation, attorneys' and
accountants fees, as well as Commission filing fees, printing and other
miscellaneous expenses
(c) Transfer taxes are 3.025% of the purchase price.
(d) Calculated from the difference between the Total Company Sources
($972,500) and Total Company Uses other than distribution to Holdings
($476,571).
13
Comparative Per Share Data (Unaudited)
The following table presents historical and pro forma per share data for
the Company and its subsidiaries and Holdings. The following tables should be
read in conjunction with the historical consolidated financial statements of the
Company and the unaudited pro forma financial data included under the caption
"Pro Forma Balance Sheet of Holdings," all of which are included elsewhere in
this joint information statement--prospectus or incorporated herein.
As of As of
March 31, December 31,
2002 2001
---------- -------------
Book Value Per Common Share/LLC Unit
Historical:
The Company(1) $ 0.82 $ 0.56
Holdings(2) n/a n/a
Pro forma:
Pro forma per share of Common Stock(3) n/a n/a
Equivalent pro forma per share of Holdings LLC Units(4)
$ 0.92 $ 0.92
For the Three
Months Ended For the Year Ended
March 31, 2002 December 31, 2001
-------------- -----------------
Income from Continuing Operations Per Common Share/LLC Unit:
Basic and Diluted Earnings per Share:
Historical:
The Company ............................................ $0.09 $1.10
Holdings(2) ............................................ n/a n/a
Pro forma:
Pro forma per share of Common Stock..................... n/a n/a
Equivalent pro forma per share of
Holdings LLC Units(5)............................. n/a n/a
Common Stock/LLC Units:
Common Stock............................................ 13,004,946 13,001,346
Holdings LLC Units...................................... 0 0
Pro forma Common Stock.................................. 0 0
Pro forma Holdings LLC Units............................ 13,004,946 13,001,346
- ------------------------------
(1) This historical book value per common share is computed by dividing total
stockholders' equity by the number of shares of common stock outstanding
at the end of the period. The pro forma book value per share is computed
by dividing pro forma stockholders' equity related to common stock by the
pro forma number of shares of common stock at the end of the period.
(2) Holdings is a newly-formed subsidiary of the Company without any
historical operational history.
(3) Following the closing of the sale transaction and the merger, we will
liquidate and as a result, we will not have any stockholders' equity.
(4) Holdings' pro forma book value is computed by dividing Holdings members'
equity ($12.0 million) by the number of Holdings limited liability company
units outstanding immediately following the merger and sale transaction
(13,004,946). The number of Holdings limited liability company units
outstanding immediately following the merger will be the same number of
shares of common stock outstanding immediately prior to the merger,
subject to the exercise of appraisal rights. See "PRO FORMA BALANCE SHEET
OF HOLDINGS."
(5) Following the merger and sale transaction, Holdings will not conduct any
business or operations other than to settle and/or satisfy indemnification
claims in accordance with the terms of the Purchase Agreement, and to pay
costs and expenses related to the sale transaction. Although it is
expected that Holdings will earn interest on the $10 million holdback
amount and the $2 million cash reserve amount, it is uncertain how much,
if any portion of the $10 million will be subject to indemnification
claims during the indemnification period or post-closing costs, and how
much of the reserve amount will be used to pay professional fees and other
costs and expenses. Additionally, even if the entire $12 million were to
remain as an asset of Holdings during the entire indemnification period,
any interest earned on a per limited liability company basis would not be
meaningful.
14
METROPOLIS REALTY HOLDINGS LLC
BALANCE SHEET
As of May 6, 2002
The following table sets forth the audited balance sheet for Metropolis
Realty Holdings LLC as of May 6, 2002, the date of its formation, which has been
audited by Deloitte & Touche LLP. Holdings was formed on May 6, 2002 pursuant to
a Certificate of Formation and Limited Liability Company Operating Agreement.
The balance sheet of Holdings was prepared on the accrual basis of accounting in
accordance with accounting principles generally accepted in the United States of
America, and reflects the financial position of the Company at that date.
TOTAL ASSETS $ --
TOTAL LIABILITIES
MEMBERS' CAPITAL
Member's Capital 100
Receivable from Founding Member (100)
-----
Total Members' Capital $ --
=====
TOTAL LIABILITIES AND MEMBERS' CAPITAL $ --
15
METROPOLIS REALTY HOLDINGS LLC
PRO FORMA BALANCE SHEET
AS OF MARCH 31, 2002
The following unaudited pro forma balance sheet for Holdings has been presented
as if the merger and sale transaction were consummated as of March 31, 2002.
This balance sheet has assumed that the pre-closing loan will be in an amount
equal to $200 million.
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
(in thousands)
Rental property $356,142 $(356,142) (B) $ --
Cash and cash equivalents 15,859 200,000 (A) 12,000
299,845 (B)
(200,000)(C)
(303,704)(D)
Escrow deposits and restricted cash 13,883 (13,883) (B) --
Prepaid real estate taxes 4,493 (4,493) (B) --
Tenants' security deposits 204 (204) (B) --
Due from tenants 1,239 (1,239) (B) --
Deferred financing costs 3,018 (3,018) (B) --
Deferred leasing costs 16,657 (16,657) (B) --
Deferred rent receivable 50,084 (50,084) (B) --
Note receivable 271 (271) (B) --
Other assets 268 (268) (B) --
-------- --------- -------
Total assets $462,118 $(450,118) $12,000
======== ========= =======
Liabilities and member's equity
Liabilities:
Secured notes 425,000 (425,000) (B) --
200,000 (A)
(200,000) (C)
Accounts payable and accrued expenses 7,843 (5,843) (B) 2,000
Unrealized loss on derivatives 12,433 (12,433) (B)
Tenants security deposit, unearned revenue and 2,887 (2,887) (B) --
credit due to tenants
Dividends payable 3,251 (3,251) (B)
-------- ---------
Total liabilities $451,414 $(449,414) $ 2,000
======== ========= =======
Members' Equity
20,000,000 authorized, 13,004,946 outstanding 10,704 (303,704) (D) 10,000
303,000 (B)
Total Liabilities and Members' Equity $462,118 $(450,118) $12,000
======== ========= =======
(A) To record receipt of cash in exchange for the $200 million pre-closing
loan.
(B) To record the sale transaction.
(C) To record repayment of pre-closing loan.
(D) To record distribution to stockholders.
16
METROPOLIS REALTY HOLDINGS LLC
PRO FORMA INCOME STATEMENT
FOR THE THREE MONTHS ENDING MARCH 31, 2002
The following unaudited pro forma income statement has been presented as if the
1290 Avenue of Americas property was sold as of March 31, 2002.
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
(unaudited)
REVENUES
Rental Income $ 20,749 $(20,749)(E) --
Lease termination income 1,309 (1,309)(E) --
Miscellaneous income 1,071 (1,071)(E) --
-------- -------- --------
Total Revenues 23,129 (23,129) --
======== ======== ========
OPERATING EXPENSES
Real Estate Taxes 4,495 (4,495)(E) --
Operating and maintenance 1,363 (1,363)(E) --
Utilities 1,611 (1,611)(E) --
Payroll 925 (925)(E) --
Management fees 481 (481)(E) --
Professional Fees 119 (119)(E) --
G&A 38 (38)(E) --
Depreciation and Amortization 2,950 (2,950)(E) --
-------- -------- --------
Total Operating Expenses 11,982 (11,982) --
OTHER ITEMS
Interest Income 90 (51)(E)(F) 39
Interest Expense (10,046) 10,046 (E) --
-------- -------- --------
Total Other Items (9,956) 9,995 39
NET INCOME 1,191 (1,152) 39
OTHER COMPREHENSIVE INCOME 5,463 (5,463)(E) --
-------- -------- --------
COMPREHENSIVE INCOME $ (6,654) ($ 6,615) $ 39
======== ======== ========
(E) To record removal of operations of the 1290 Avenue of Americas property.
(F) To record interest income on cash held for the quarter based on 1.5%
average interest rate during the quarter.
17
METROPOLIS REALTY HOLDINGS LLC
PRO FORMA INCOME STATEMENT
DECEMBER 31, 2001
The following unaudited pro forma income statement has been presented as if the
property was sold as of December 31, 2001.
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
000s 000s 000s
REVENUES
Rental Income $ 86,165 (86,165)(E) --
Operating escalation income 4,865 (4,865)(E) --
Miscellaneous income 2,936 (2,936)(E) --
-------- ------- ---
Total Revenues 93,966 (93,966) --
======== ======= ===
OPERATING EXPENSES
Real Estate Taxes 17,821 (17,821)(E) --
Operating and maintenance 5,518 (5,518)(E) --
Utilities 9,450 (9,450)(E) --
Payroll 3,480 (3,480)(E) --
Management fees 1,820 (1,820)(E) --
Professional Fees 524 (524)(E) --
G&A 328 (328)(E) --
Bad debt expense 1,301 (1,301)(E) --
Depreciation and Amortization 11,981 (11,981)(E) --
-------- ------- ---
Total Operating Expenses 52,223 (52,223) --
OTHER ITEMS
Interest Income 973 (723)(E)(F) 250
Interest Expense (41,400) 41,400 (E) --
-------- ------- ---
Total Other Items (40,427) 40,677 250
GAIN ON REPURCHASE OF
MINORITY INTEREST 13,009 (13,009)(E) --
-------- ------- ---
NET INCOME 14,325 (14,075) 250
OTHER COMPREHENSIVE LOSS (17,897) 17,897 (E) --
-------- ------- ---
COMPREHENSIVE LOSS (3,572) 3,822 250
======== ======= ===
(E) To record removal of operations of 1290 Avenue of Americas property.
(F) To record interest income on cash held for the year based on 2.5% average
interest rate.
18
RISK FACTORS
In addition to other information in this joint information
statement--prospectus, the following risks should be considered by you in
deciding whether to vote for the approval and adoption of the sale transaction
and merger.
If Holdings settles or satisfies any indemnification claims made by Purchaser,
pays post-closing costs associated with the sale transaction, or pays
professional fees and other expenses, there may be less than $12 million to
distribute to the holders of limited liability company units after the end of
the indemnification period.
Under the terms of our purchase agreement with Purchaser, we have agreed
to indemnify Purchaser for the breach of certain of our representations and
warranties that are contained in the purchase agreement up to a maximum amount
of $10 million, less any post-closing costs that we may be required to pay under
the purchase agreement as a result of the sale transaction. The date upon which
these indemnification obligations must be asserted is December 30, 2002. Since
we are liquidating following the sale transaction, we will not have any
operating income from which to settle and/or satisfy any such indemnification
claims.
Accordingly, in order to ensure that there will be sufficient funds to
satisfy or settle any indemnification claims made during the indemnification
period, Holdings, as our successor entity in the merger, will retain $10 million
of the net sale proceeds that is distributed to it by us on the closing date of
the sale transaction. Other than its ownership of approximately 99.9% of the
shares of common stock in the Company, this $10 million holdback amount, the $2
million cash reserve amount, plus the interest earned thereon, will be Holdings'
sole asset following the closing of the sale transaction.
This $10 million holdback amount will be used to settle and/or satisfy any
indemnification claims asserted by Purchaser on or prior to December 30, 2002,
and to pay any post-closing costs under the purchase agreement that we may be
required to pay as a result of the sale transaction. The amount, if any, of
these post-closing costs are uncertain, but generally relate to allocations of
rent and other apportionments described under the section "PROPOSAL 1 - THE SALE
TRANSACTION; Description of the Purchase Agreement; Apportionments." We will not
know the amount of these costs, if any, until following the closing of the sale
transaction. We have also determined to have Holdings retain a $2 million cash
reserve amount in order to satisfy any additional costs and expenses that may
arise that are unrelated to the sale transaction, such as professional fees,
including legal and accounting.
Following the expiration of the indemnification period, Holdings will
distribute the remaining portion of the $10 million holdback amount and the $2
million cash reserve amount pro rata to the holders of Holdings limited
liability company units. Because we do not know if Purchaser will make any valid
indemnification claims, and if such claims are made, what the magnitude of these
claims will be, there can be no assurance that the $10 million holdback amount,
or any portion thereof, will be remaining after the satisfaction or settlement
of any claims to distribute to the members of holders of Holdings limited
liability units. Additionally, we do know that Holdings will incur some fees and
expenses, but we are uncertain as to the amount of fees and expenses that
Holdings will incur during the indemnification period. Accordingly, there can be
no assurance that that $2 million reserve amount, or any portion thereof, will
be remaining at the end of the indemnification period.
19
There will not be a market for the limited liability company units to be issued
by Holdings in the merger.
The limited liability company units that you will receive in the
merger will not be traded on any established trading market or national exchange
and no market of this type is expected to develop. As a result, there will be
limited information available regarding the prevailing market prices for the
limited liability company units. See "PROPOSAL 2 - THE MERGER; Parties to the
Merger; Holdings."
Holdings has a lack of operating history.
Holdings is a newly formed company without any operating history.
Following the closing of the merger and sale transaction, Holdings will not
generate any income other than interest earned on the $10 million holdback
amount and $2 million cash reserve amount, and will not conduct and does not
intend to conduct any business or operations, other than to settle and/or
satisfy indemnification claims in accordance with the terms of the purchase
agreement, to pay any post-closing costs that we may be required to pay under
the purchase agreement, and our compliance with federal and state securities
laws.
Holdings will have no assets other than the $10 million holdback amount and $2
million cash reserve amount following distribution of the net sale transaction
proceeds to its holders of limited liability company units.
Following the merger and sale transaction, Holdings' only assets
will be $10 million in cash (and the interest earned thereon), subject to
Purchaser's indemnification claims and the payment by us of costs and expenses
associated with the sale transaction, and a $2 million cash reserve amount (and
the interest earned thereon).
If our estimated adjustments to the sale transaction proceeds are inaccurate,
there may be less than $295 million or $22.75 per limited liability company unit
to distribute.
Based on our good faith estimates, we believe that there will be
approximately $295 million or $22.75 per limited liability company unit will be
distributed by Holdings to its members following the closing of the sale
transaction. However, our estimates may be inaccurate, particularly with respect
to our swap agreement termination costs, which are difficult to estimate because
any amount that we will have to pay is tied to the specific date the swap
agreement is terminated and the interest rate on the date of its termination.
Since we will only terminate the swap agreement several days in advance of the
closing of the sale transaction, it is possible that the closing date will be
delayed for unforseen reasons or that interest rates may be different on the
termination date of the swap agreement. In addition, the other amounts that we
have estimated as set forth in the section "PRO FORMA SOURCES AND USES OF
PROCEEDS", may also be inaccurate. Accordingly, there is no assurance that you
will receive exactly $22.75 for each limited liability company unit that you
receive in the merger, and you may receive less than that amount.
You may continue to hold limited liability company interests in Holdings after
the time in which it ceases to be a reporting company under the Exchange Act.
Although Holdings will initially be a reporting company under the
Exchange Act, beginning in _______, 2003, Holdings may no longer be required to
comply with such reporting requirements if it does not meet the asset and
stockholder requirements of the Exchange Act. Although the indemnification
period expires on December 30, 2002, Holdings will retain cash after such date
in an amount sufficient to satisfy outstanding indemnification claims, if any,
asserted by Purchaser prior to such time. Until resolution of all such claims,
Holdings cannot distribute all of its assets or liquidate. Accordingly, you
20
may continue to hold limited liability company interests in Holdings after the
time in which it ceases to be a reporting company under the Exchange Act.
PROPOSAL 1
THE SALE TRANSACTION
Background to the Sale Transaction
The chronology of events and actions of the Board of Directors and
the Special Committee leading to the proposed Sale Transaction are outlined
below. Each meeting of the Board of Directors or the Special Committee, as the
case may be, was attended by at least a majority of the Directors who are
members of the respective body. Certain of the Board of Directors or Special
Committee meetings, as the case may be, were also attended by key executive
officers of the Company and the Company's and Special Committee's outside
advisors, including its financial advisor and respective legal counsel.
In June 1998, the Board of Directors approved the retention of
Victor Capital Group and Eastdil Realty Company ("Eastdil," and together with
Victor Capital Group, the "Representatives") to explore strategic alternatives
for the Company, including a possible sale of the Company's interests in the
1290 Property and another property that the Company then owned at 237 Park
Avenue, New York, New York (the "237 Property"). The Company received
approximately eight bids, certain of which were offers to purchase both
properties and certain of which related to only one of the properties. In
November 1998, the Board of Directors determined that it was not in the best
interests of the Company or its stockholders to pursue the offers received up to
that time, but that the Company would continue to explore strategic alternatives
as appropriate.
In July 1999, the Board of Directors again approved the retention of
the Representatives to explore strategic alternatives for the Company, including
a possible sale of the Company's interests in the 237 Property. The
Representatives commenced formal marketing of the 237 Property on or about July
20, 1999. During September and early October of 1999, the Company and 237 Park
Investors, L.L.C. negotiated a definitive purchase agreement, which was approved
by the Company's Board of Directors in October 1999 and by the Company's
stockholders on November 19, 1999. The sale of the 237 Property was consummated
on November 22, 1999.
On November 4, 1999, the Board of Directors approved the refinancing
of the then existing mortgage indebtedness encumbering the 1290 Property. In
connection with this refinancing, the Board of Directors authorized, and the
Company declared, a special dividend of $15.00 per share, which was paid on
December 27, 1999 to Company stockholders of record as of December 23, 1999.
After December 1999, the Board of Directors periodically reviewed
various strategic alternatives with respect to the Company's remaining asset,
the 1290 Property. During late 2000 and 2001, the Board of Directors authorized
the Company to enter into confidentiality agreements in connection with
proposals to acquire the 1290 Property from four potential buyers. None of these
preliminary discussions resulted in a proposal that the Board of Directors
determined to be in the best interests of the Company and its stockholders.
21
On December 13, 2001, the Company received an unsolicited letter
from Jamestown notifying the Company that Jamestown was prepared to offer a
purchase price of $700 million for the 1290 Property (the "Initial Offer").
On December 14, 2001, the Company's Board of Directors held its
annual meeting, and at such meeting the Initial Offer was discussed. At that
meeting, although the Board of Directors considered the existing proposal
inadequate, the Board of Directors authorized the officers of the Company to
pursue discussions with Purchaser regarding their interest in purchasing the
1290 Property.
During the months of December 2001 and January 2002, the officers of
the Company and Purchaser negotiated and discussed the business terms with
respect to a possible sale of the 1290 Property. During this time, the proposed
purchase price was increased to $725 million.
On February 4, 2002, the Company's Board of Directors held a meeting
to discuss the proposed terms of the revised offer, consisting of a purchase
price of $725 million (the "Revised Offer"). The officers of the Company
provided the members of the Board of Directors with a memorandum and term sheet
outlining the proposed Revised Offer. The members of the Company's Board of
Directors that are affiliated with Apollo Real Estate Investment Fund, L.P., a
Delaware limited partnership ("AREIF") notified the Board at this meeting that
AREIF may have interests in the Sale Transaction that are in addition to AREIF's
interests as a stockholder of the Company. Following such discussion, at this
meeting a Special Committee of the Board of Directors was formed comprised of
non-AREIF affiliated directors. The Special Committee was initially composed of
David Roberts, John R. Klopp, David A. Strumwasser and Russel S. Bernard. The
Special Committee was formed for the following purposes: (a) to explore the
proposed transaction with Purchaser; (b) if the Special Committee deemed it
appropriate, to approve and recommend to the Board of Directors, subject to
stockholder approval, the Sale Transaction, which approval would be based upon,
among other things, the Special Committee's consideration and evaluation of the
terms and fairness of the Sale Transaction; and (c) to consider the terms and
conditions of any alternatives to the Sale Transaction. At such meeting, the
Special Committee was also authorized to retain a financial advisor to, among
other things, provide an opinion as to the fairness from a financial point of
view of the terms of the Sale Transaction to the Company and its stockholders.
On February 18, 2002, February 20, 2002, February 28, 2002, and
March 8, 2002, the Special Committee met to review the status of negotiations
with Purchaser with respect to the 1290 Property and to consider several
candidates for retention by the Special Committee as a financial advisor in
connection with the Sale Transaction or any other proposal. At several of these
meetings, the Special Committee also reviewed the condition of the New York City
real estate market generally, and the impact that market conditions, in light of
the events of September 11, 2001, would have on financing a proposed acquisition
of the 1290 Property.
During the months of February, March and April 2002, officers of the
Company and Purchaser continued negotiations of a definitive agreement.
On March 21, 2002, the Special Committee met to review the status of
negotiations with Purchaser and the anticipated time frame for Purchaser's
delivery of satisfactory evidence of its financing commitment. The Special
Committee noted in its discussions that the real estate trade press in New York
City was reporting that the Company was in negotiations with Purchaser regarding
the possible sale of the 1290 Property and speculated as to the amount of the
purchase price. The Special Committee approved and authorized the Company to
enter into an Exclusivity Agreement with Purchaser, pursuant to which the
Company agreed not to solicit offers or negotiate with any third party relating
to the acquisition of the 1290 Property, or of the assets or stock of the
Company, until April 5, 2002, the date on which the Exclusivity Agreement
expired.
22
On April 11, 2002, the Company received separate expressions of
interest from two real estate investment companies (the "Preliminary Bidders")
in acquiring the 1290 Property. On the same date, the Company entered into
separate confidentiality letters with these two companies and delivered
information concerning the Company to each Preliminary Bidder.
On April 12, 2002, the Special Committee met to consider approval of
the proposed Purchase Agreement between Purchaser and 1290 Partners, a
wholly-owned subsidiary of the Company (the "Original Purchase Agreement"),
which provided for, among other things, a purchase price of $725 million which
included an earnest money deposit of $5 million which was to increase to $20
million as provided below, and was subject to several conditions, which are
discussed more fully below. At this meeting, the Special Committee also reviewed
the indications of interest from the Preliminary Bidders in acquiring the 1290
Property and considered various alternatives in responding to them, while
continuing to move forward in reaching a definitive agreement with Purchaser.
The Special Committee also considered, among other things, the status of the New
York City real estate market, and the likelihood of receiving additional
competitive proposals to acquire the 1290 Property. At this meeting, the Special
Committee authorized and approved the retention of Houlihan, Lokey, Howard &
Zukin Financial Advisors, Inc. ("Houlihan Lokey") as a financial advisor in
connection with the Sale Transaction or any other proposal relating to the 1290
Property, including any proposal from a Preliminary Bidder.
On April 16, 2002, the Special Committee met to again consider
authorizing the Company to enter into the Original Purchase Agreement. After
careful consideration of, among other factors, (a) the proposed Sale
Transaction; (b) all of the conditions which would be required to be met before
the Original Purchase Agreement became binding on the Company, which are
discussed more fully below; (c) the expressions of interest from the Preliminary
Bidders; and (d) past efforts to market the 1290 Property and the current
information in the marketplace with respect to the Sale Transaction, the Special
Committee authorized the Company to cause 1290 Partners to enter into the
Original Purchase Agreement.
Following the Special Committee's meeting on April 16, 2002,
Purchaser and 1290 Partners entered into the Original Purchase Agreement later
the same day. The Original Purchase Agreement provided for a $10 million
reduction of the purchase price in exchange for the assumption by Purchaser of
certain identified tenant improvements and leasing commissions totaling
approximately $10 million. The Original Purchase Agreement also provided for a
three week period (until May 8, 2002) during which the Company was permitted to
negotiate with, and deliver nonpublic information to, any prospective purchasers
of the 1290 Property submitting unsolicited offers, including the Preliminary
Bidders until such time as certain conditions were satisfied or waived. The
Original Purchase Agreement was subject to several conditions before such time
as the Purchase Agreement would be binding and effective as against either the
Company and Purchaser. These conditions included, among others, (a) Purchaser's
satisfactory completion of its due diligence; (b) receipt by the Company of a
commitment letter from Purchaser's lenders satisfactory to the Company ("Debt
Commitment Letter"); (c) receipt by the Company of an opinion from Houlihan
Lokey, its financial advisor, that the consideration paid by Purchaser in the
Sale Transaction is fair from a financial point of view; and (d) the additional
earnest money deposit of $15 million by Purchaser. The Original Purchase
Agreement also provided that the Company could enter into negotiations with and
provide information to the two Preliminary Bidders and any other unsolicited
bidder. The Original Purchase Agreement further provided that, if the Company
determined to terminate the Agreement on or prior to May 8, 2002 and instead
pursue a transaction with another purchaser, including either of the Preliminary
Bidders, the Company would not be required to pay the Break Up Fee (as defined
in the Original Purchase Agreement).
23
On April 17, 2002, the Company issued a press release announcing the
execution of the Original Purchase Agreement. Later that same day, the Company
requested that the two Preliminary Bidders submit preliminary proposals to the
Company on April 19, 2002, and final proposals on April 24, 2002.
On April 19, 2002, the Company received a preliminary written
proposal from one of the Preliminary Bidders (the "Interested Bidder") to
purchase the 1290 Property for a purchase price of $740 million (the "Initial
Unsolicited Proposal"), plus the assumption of certain identified tenant
improvements and leasing commissions in an amount equal to approximately $11
million. On the same date, the other Preliminary Bidder notified the Company in
writing that it would not submit any preliminary proposal to the Company, but
that it expected to submit a final bid on April 24, 2002. Later that day, the
Company, in accordance with the terms of the Original Purchase Agreement,
notified Purchaser orally and in writing of the Initial Unsolicited Proposal.
On April 24, 2002, the Company received a letter from the Interested
Bidder confirming its offer to purchase the 1290 Property consistent with the
terms of the Initial Unsolicited Proposal, and increasing the amount of earnest
money deposit from $10 million to $25 million. On the same date, the Company
received notice from the other Preliminary Bidder that it would not proceed with
a proposal. Later that day, the Company, in accordance with the terms of the
Original Purchase Agreement notified Purchaser orally and in writing of the
terms of the letter that it had received earlier that day from the Interested
Bidder.
On April 25, 2002, the Special Committee met to consider the Initial
Unsolicited Proposal. At this meeting Mr. Klopp resigned from the Special
Committee in order to avoid any appearance of a conflict of interest that may
have arisen because an affiliate of the Interested Bidder may also have been
considered an affiliate of Capital Trust, of which Mr. Klopp is the Chief
Executive Officer. After consideration of various factors, including (a) the
superior price of the Initial Unsolicited Proposal; (b) the Interested Bidder's
indication that its proposal was not subject to any financing contingency; and
(c) other potential benefits associated with an alternative transaction
structure, the Special Committee determined that the Company should pursue a
definitive agreement with the Interested Bidder, while at the same time
encouraging further discussions with Purchaser.
During the period from April 24, 2002 until May 2, 2002, the Company
negotiated the terms of a purchase and sale agreement with the Interested
Bidder.
On May 3, 2002, the Company received a letter from the Interested
Bidder with an attached purchase and sale agreement executed by the Interested
Bidder (the "Interested Bidder Purchase Agreement") stating that the Interested
Bidder was prepared to execute the attached draft and confirming its commitment
to purchase the 1290 Property for $740 million. Later that day, the Company, in
accordance with the terms of the Original Purchase Agreement notified Purchaser
orally and in writing of the terms of the letter and the material terms of the
Interested Bidder Purchase Agreement that it had received earlier that day from
the Interested Bidder.
On May 6, 2002, the Company received a written offer from Purchaser
to purchase the 1290 Property at a purchase price of $741 million and
notification that Purchaser was prepared to enter into a purchase and sale
agreement on the same terms as the Interested Bidder Purchase Agreement Purchase
Agreement ("Purchaser's Revised Offer"). Also on May 6, 2002, the Company
received (A) written notice from the escrow agent that Purchaser had delivered
additional funds to the Escrow Account in the amount of $20 million, increasing
Purchaser's earnest money deposit to $25 million in the aggregate, and (B) from
Purchaser a copy of an executed Debt Commitment Letter by Morgan Stanley Dean
Witter Mortgage Capital Inc. Later that day, the Special Committee met to review
the recent developments in the negotiations and discussions with both Purchaser
and the Interested Bidder. Following the Special
24
Committee's meeting, the Company received a revised written proposal from the
Interested Bidder increasing its proposal to purchase the 1290 Property to $745
million and stating that such proposal was the Interested Bidder's "best and
final offer" (the "Final Unsolicited Offer"). Later that day, the Company, in
accordance with the terms of the Original Purchase Agreement, notified Purchaser
orally and in writing of the Final Unsolicited Offer.
On May 7, 2002, the Company received a revised written proposal from
Purchaser increasing its offer to purchase the 1290 Property to $745.5 million
(the "Final Purchaser Offer") and a draft of the Purchase Agreement reflecting
substantially the same terms and conditions as the Interested Bidder Purchase
Agreement. The Special Committee met later that day to discuss and consider the
Final Unsolicited Offer and the Final Purchaser Offer. At this meeting, members
of Houlihan Lokey delivered their opinion to the Special Committee that the
consideration to be received by the Company in connection with the Final
Purchaser Offer is fair from a financial point of view; and that the Sale
Transaction is fair, from a financial point of view, to the Company's
stockholders who are not affiliated with AREIF. A copy of such fairness opinion
is attached hereto as Annex A. At this meeting, after discussion and further
analysis, the Special Committee unanimously decided to accept the Final
Purchaser Offer and approve the amended and restated Purchase Agreement and the
transactions contemplated thereby, and unanimously recommended to the Board of
Directors that the Sale Transaction pursuant to the restated Purchase Agreement
be approved and submitted to the Company's stockholders. The members of the
Company's Board of Directors who did not recuse themselves unanimously approved
the Sale Transaction pursuant to the terms and conditions set forth in the
restated Purchase Agreement and recommended that the Sale Transaction be
submitted to the Company's stockholders for their consideration. Following the
Special Committee's meeting and Board of Director action, the Company and
Purchaser entered into the amended and restated Purchase Agreement. A copy of
the amended and restated Purchase Agreement is attached hereto as Annex B. Later
that day, the Company issued a press release announcing the execution of the
amended and restated Purchase Agreement and the revised purchase price.
Recommendation of the Special Committee, Reasons for the Proposed Sale
Transaction
The Special Committee believes that the Sale Transaction is in the
stockholders' and the Company's best interests. Accordingly, the Special
Committee and the Board of Directors have approved the Sale Transaction. In
reaching its decision, the Special Committee consulted with the Company's
management and Houlihan Lokey, as well as its legal and accounting advisors and
considered a variety of factors, including the following:
o Current economic and real estate market conditions relating to
the 1290 Property;
o The financial attributes of the 1290 Property;
o The proposed terms and structure of the Sale Transaction,
including the terms of the Purchase Agreement;
o The Special Committee's consideration of alternatives to the
proposed Sale Transaction, including that, given the size of
the 1290 Property, the universe of qualified buyers was
limited;
o The presentation of Houlihan Lokey at the May 7, 2002 Special
Committee meeting and the opinion of Houlihan Lokey to the
effect that, as of the date of its opinion and based upon and
subject to certain matters stated therein, the consideration
to be received by the Company in connection with the Sale
Transaction is fair from a financial point of view; and the
Sale Transaction is fair, from a financial point of view, to
the Company's stockholders who are not affiliated with AREIF.
The full text of Houlihan Lokey's written opinion, which sets
forth
25
the assumptions made, matters considered and limitations on
the review undertaken by Houlihan Lokey, is attached hereto as
Annex A. See "- Opinion of Houlihan Lokey";
o Both the Interested Bidder and Purchaser had an opportunity to
submit several bids to the Special Committee and the Final
Purchaser Offer was the product of an active bidding procedure
between two qualified purchasers;
o On May 6, 2002, Purchaser had made an earnest money deposit of
$25 million into the Escrow Account; and
o On May 6, 2002, Purchaser had delivered to the Company a copy
of the Debt Commitment Letter and evidence of its bridge
financing, and that the terms of such Debt Commitment Letter
and bridge financing were satisfactory to the Special
Committee.
In reaching its decision to approve the Sale Transaction and
recommend that the Company's stockholders vote for the Sale
Transaction, the Special Committee also considered the following
potentially negative factors:
o A more favorable transaction might be available from a
third-party purchaser of the 1290 Property in the future;
o The Sale Transaction is taxable to the Company's stockholders;
and
o That some members of the Company's management and Board of
Directors have interests in the Sale Transaction that are in
addition to and not necessarily aligned with the interests in
the Sale Transaction of Company stockholders generally. See
"PROPOSAL 1 - THE SALE TRANSACTION; Interest of Certain
Persons in the Sale Transaction" and "Security Ownership of
Certain Beneficial Owners and Management."
In view of the wide array of factors considered in connection with
its evaluation of the proposed Sale Transaction, the Special Committee did not
find it practicable to, and did not, quantify or otherwise attempt to assign
relative weights to the specific factors considered in reaching its
determination.
Vote Required
In order to effect the Sale Transaction, the Company is required to
obtain the affirmative vote of the holders of at least 66 2/3% of the issued and
outstanding shares of Common Stock. Seven of the Company's largest stockholders,
representing 10.3 million shares of Common Stock (approximately 79% of the
outstanding shares of Common Stock), have entered into Voting Agreements with
Purchaser to vote their shares in favor of the Sale Transaction at the Special
Meeting. Accordingly, the approval of the Sale Transaction is assured without
the vote of any other stockholder. See "-- Description of Voting Agreement."
Of the Company's 13,004,946 shares of Common Stock issued and
outstanding, approximately 8,658,193 shares are held by affiliates of the
Company and approximately 4,346,753 shares are held by non-affiliates.
Opinion of Houlihan Lokey
The Special Committee retained Houlihan Lokey to render an opinion
that the consideration to be received by the Company in connection with the Sale
Transaction is fair to the Company from a financial point of view and the Sale
Transaction is fair, from a financial point of view, to our stockholders who are
not affiliated with AREIF.
26
The Special Committee retained Houlihan Lokey based upon Houlihan
Lokey's experience in the valuation of businesses and their securities in
connection with recapitalizations and similar transactions, especially with
respect to real estate holding and real estate services companies. Houlihan
Lokey is a nationally recognized investment banking firm that is continually
engaged in providing financial advisory services and rendering fairness opinions
in connection with mergers and acquisitions, leveraged buyouts, business and
securities valuations for a variety of regulatory and planning purposes,
recapitalizations, financial restructurings and private placements of debt and
equity securities.
As compensation to Houlihan Lokey for its services in connection
with the transaction, the Company agreed to pay Houlihan Lokey an aggregate fee
that will be between $300,000 and $450,000 in addition to Houlihan Lokey's
expenses (not to exceed $20,000) and legal fees (not to exceed $10,000) in
connection therewith. The actual fee earned by Houlihan Lokey will depend, in
part, upon the amount of time the Company is in existence following the closing
of the Sale Transaction. No portion of Houlihan Lokey's fee is contingent upon
the conclusions reached in the Houlihan Lokey opinion. The Company also agreed
to indemnify Houlihan Lokey and related persons against certain liabilities,
including liabilities under federal securities laws that arise out of the
engagement of Houlihan Lokey.
In arriving at its fairness opinion, among other things, Houlihan
Lokey did the following:
1. reviewed the Company's audited financial data for the years ended
December 31, 1999, 2000 and 2001;
2. reviewed the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 2001 as filed with the Commission;
3. reviewed the 1290 Property's 2002 Operating Budget, including (i)
monthly and year ended detailed projected revenues and expenses for
the period ended December 31, 2002, (ii) the rent roll for the 1290
Property, and (iii) the Marketing Plan for the 1290 Property;
4. met with representatives of the 1290 Property's asset manager
("Asset Manger") and officers of the Company;
5. conducted a site-visit of the 1290 Property, meeting with
representatives of the Company's property manager, Tishman Speyer
Properties, L.P.;
6. reviewed the cash flow projections, prepared by the Asset Manager
for the 1290 Property through December 31, 2013 (the "Projections");
7. reviewed the Agreement of Limited Partnership of Purchaser, dated as
of April 16, 2002;
8. reviewed the Purchase Agreement, dated April 16, 2002, between 1290
Partners, L.P. and Purchaser;
9. reviewed the acquisition proposal from the Interested Bidder, dated
April 19, 2002;
10. reviewed a draft dated April 29, 2002 of a Purchase Agreement
between the Company and the Interested Bidder (which Houlihan Lokey
understood is substantially the same agreement that would constitute
the purchase agreement for the Sale Transaction);
11. reviewed correspondence from the Interested Bidder to the Company
dated May 6, 2002;
27
12. reviewed correspondence from Purchaser to the Company dated May 6,
2002 and May 7, 2002;
13. reviewed a Marketing Status Report, dated August 10, 1998, prepared
by Eastdil which summarizes the history of contact and interest by
potential acquirors of the 1290 Property during the 1998 marketing
process by the Representatives; and
14. conducted other studies, analyses and inquiries as Houlihan Lokey
deemed appropriate.
Analyses
Houlihan Lokey used several methodologies to assess the fairness of
the consideration to be received by the Company in connection with the sale of
the 1290 Property. The following is a summary of the material financial analyses
used by Houlihan Lokey in connection with providing its opinion. This summary is
qualified in its entirety by reference to the full text of such opinion, which
is attached as Annex A to this joint information statement--prospectus. You are
urged to read the full text of the Houlihan Lokey opinion carefully and in its
entirety.
Houlihan Lokey's analyses of the 1290 Property and the Sale
Transaction included (i) a review of the process preceding the Sale Transaction,
(ii) an analysis to determine the estimated fair market value of the 1290
Property, (iii) a comparison of (a) the estimated fair market value of the 1290
Property and (b) the consideration to be received by the Company in connection
with the Sale Transaction; and (iv) an evaluation of the opportunity for certain
stockholders of the Company to reinvest in Purchaser a portion of the
stockholder's consideration to be received in the Sale Transaction (the
"Reinvestment Opportunity").
Process Review
Houlihan Lokey noted that though the 1290 Property was not formally
listed for sale, the 1290 Property was listed in 1998 and many potential buyers
were familiar with the 1290 Property and the desire for the Company to sell the
1290 Property. Further, Houlihan Lokey noted that informal discussions were
conducted with several potential buyers during 2001. Furthermore, Houlihan Lokey
noted that in April 2002 several real estate industry articles and the financial
press suggested that the Company was seeking to sell and was in the process of
selling the 1290 Property. An April 17, 2002 press release regarding the sale of
the 1290 Property to Purchaser also provided any potential buyers with
information regarding the Company's intention to sell the 1290 Property.
With respect to the 1290 Property and the marketability thereof,
Houlihan Lokey noted that the 1290 Property is very large, which limits the
number of qualified potential buyers. The property also has a key tenant whose
lease provides for rental rates that are at less than prevailing market rates.
Houlihan Lokey noted that the 1290 Property's primary tenant, who would be a
qualified buyer of the 1290 Property, was also contacted at various times
regarding an acquisition of the 1290 Property.
Houlihan Lokey noted that the Sale Transaction was the result of the
Company's negotiations with Purchaser, the Interested Bidder and a third
qualified potential buyer who declined to provide an offer after indicating some
interest in the 1290 Property.
Estimation of Fair Market Value
Houlihan Lokey performed the following analyses in order to
determine the estimated fair market value of the 1290 Property:
o Direct Capitalization Approach: In conducting the direct capitalization
rate approach, Houlihan
28
Lokey applied a capitalization rate to the 1290 Property's net operating
income for the calendar year 2001 and the forecasted calendar year 2002.
Houlihan Lokey arrived at the property level historical net operating
income from analyzing the public filings of the Company and was provided
by the Company with the projected financial information to determine the
forecasted net operating income. To determine appropriate capitalization
rates to apply to the 1290 Property's net operating income, Houlihan Lokey
reviewed the capitalization rates exhibited in recent comparable
transactions (including transactions involving office buildings in the
mid-town New York market), Market Monitor, Fourth Quarter 2001 and
statistics published in PriceWaterhouseCoopers Korpacz Real Estate
Investors Survey, First Quarter 2002. In its consideration of the
appropriate capitalization rate, Houlihan Lokey also noted that the 1290
Property is larger than many of the assets in recent comparable
transactions and that the 1290 Property has less retail space than many
other similar assets. The results of this analysis provided estimates of
the fair market value of the 1290 Property of $655 million to $791
million.
o Discounted Cash Flow Approach: In conducting the discounted cash flow
approach, Houlihan Lokey applied a discount rate to the Projections (as
provided by the Asset Manager) to arrive at present value of the 1290
Property. Capital Trust provided Houlihan Lokey with the property level
projected financial information used to determine the cash flow and net
operating income of the 1290 Property. To determine appropriate discount
rates to apply, Houlihan Lokey reviewed statistics published in
PriceWaterhouseCoopers Korpacz Real Estate Investors Survey, First Quarter
2002. The discount rates used were intended to reflect risks of ownership
of the 1290 Property and the associated risks of realizing the stream of
projected future cash flows. The results of this analysis provided
estimates of the fair market value of the 1290 Property of $639 million to
$751 million, with a midpoint of $723 million. Furthermore, sensitivities
to the Projections were performed to provide supplemental projections on
which to perform discounted cash flow analyses. Such sensitivities
involved changes to the assumed rental rates and changes to the assumed
tenant lease renewal that are inherent in the Projections. The discounted
cash flow analyses performed on the alternative, sensitized projections
resulted in estimates of the fair market value of the 1290 Property of
$648 million to $837 million, with a midpoint of $695 million.
o Price Per Square Foot Approach: In conducting the price per square foot
approach, Houlihan Lokey applied a price per square foot to the 1290
Property's Net Rentable Square Feet to arrive at an indicated value. To
determine an appropriate price per square foot to assign to the 1290
Property, Houlihan Lokey reviewed the price per square foot indications
exhibited in recent comparable transactions (including transactions
involving office buildings in the mid-town New York market), current
comparable property offerings and Cushman & Wakefield's summary of Class A
Midtown Manhattan Office Sales activity for 2001. In its consideration of
the appropriate price per square foot, Houlihan Lokey also noted that the
1290 Property is larger than many of the assets in recent comparable
transactions and that the 1290 Property has less retail space than many
other similar assets. This analysis resulted in estimates of the fair
market value of the 1290 Property of $690 million to $740 million, with a
midpoint of $715 million. In performing its Direct Capitalization Approach
and its Price Per Square Foot Approach, Houlihan Lokey considered that the
sale and transaction environment varies over time because of, among other
things, interest rate and equity market fluctuations and industry results
and growth expectations. No company, asset, or transaction used in the
analysis described above was directly comparable to the 1290 Property.
Accordingly, Houlihan Lokey reviewed the foregoing transactions to
understand the range of capitalization rates and price per square foot
paid for other office properties.
o Comparison of the Estimated Fair Market Value of the 1290 Property with
Sale Transaction Consideration: Houlihan Lokey - understands that the
purchase price for 1290 Property is $745.5 million, payable in cash to the
Company. Houlihan Lokey noted that the consideration of $745.5
29
million in cash is above the midpoint of all of the estimates of fair
market value resulting from the valuation methodologies described above.
o Evaluation of the Reinvestment Opportunity: In evaluating the Reinvestment
Opportunity, Houlihan Lokey noted that, based on the analyses described
above, the consideration to be paid to the Company ($745.5 million) in
exchange for the 1290 Property is above the midpoint of all the estimates
of the fair market value of the 1290 Property and therefore the buyer of
the 1290 Property (Purchaser) is not buying the asset at less than fair
market value. As such, any of the Company's stockholders who also
participate as a buyer through the Reinvestment Opportunity will be buying
the 1290 Property at approximately fair market value, and not at a bargain
purchase. In addition, Houlihan Lokey understands that the Reinvestment
Opportunity is being provided, on a pro-rata basis, to all stockholders
who are accredited investors under the federal securities laws.
Conclusion
Houlihan Lokey delivered its written opinion dated May 7, 2002 to
the Special Committee stating that, as of that date, based upon the assumptions
made, matters considered and limitations on the review described in the written
opinion, the consideration to be received by the Company in connection with the
Sale Transaction is fair to the Company from a financial point of view; and the
Sale Transaction is fair, from a financial point of view, to the Company's
stockholders who are not affiliated with AREIF.
As a matter of course, the Company does not publicly disclose
forward-looking financial information. Nevertheless, in connection with its
review, Houlihan Lokey considered financial projections. These financial
projections were prepared by the Asset Manager on behalf of the Company. The
financial projections were prepared under market conditions as they existed as
of approximately December 2001 and the Company does not intend to provide
Houlihan Lokey with any updated or revised financial projections in connection
with the Sale Transaction. The financial projections do not take into account
any circumstances or events occurring after the date they were prepared. In
addition, factors such as industry performance, general business, economic,
regulatory, market and financial conditions, as well as changes to the business,
financial condition or results of operation of the 1290 Property and the
Company, may cause the financial projections or the underlying assumptions to be
inaccurate. As a result, the financial projections should not be relied upon as
necessarily indicative of future results, and readers of this joint information
statement--prospectus are cautioned not to place undue reliance on such
financial projections.
In arriving at its fairness opinion, Houlihan Lokey reviewed key
economic and market indicators, including, but not limited to, growth in the
U.S. Gross Domestic Product, inflation rates, interest rates, consumer spending
levels, manufacturing productivity levels, unemployment rates and general stock
market performance. Houlihan Lokey's opinion is based on the business, economic,
market and other conditions as they existed as of May 7, 2002. In rendering its
opinion, Houlihan Lokey relied upon and assumed, without independent
verification that the accuracy and completeness of the financial and other
information provided to Houlihan Lokey, including the financial projections, was
reasonably prepared and reflects the best currently available estimates of the
financial results and condition of the 1290 Property and therefore the Company;
and that no material changes have occurred in the information reviewed between
the date the information was provided and the date of the Houlihan Lokey
opinion. Houlihan Lokey did not independently verify the accuracy or
completeness of the information supplied to it with respect to the Company or
the 1290 Property and does not assume responsibility for it. Houlihan Lokey did
not make any independent appraisal of the specific properties or assets of the
Company other than the 1290 Property.
30
Houlihan Lokey was not asked to opine and does not express any
opinion as to: (i) the tax or legal consequences of the Sale Transaction or the
Merger (ii) the realizable value of the Common Stock or the prices at which the
Common Stock or LLC Units may trade in the future following the Sale
Transaction; (iii) whether any stockholder of the Company should choose to
reinvest in Purchaser through the Reinvestment Opportunity; and (iv) the
fairness of any aspect of the transactions not expressly addressed in its
fairness opinion.
The Houlihan Lokey opinion does not address the underlying business
decision to effect the transactions, nor does it constitute a recommendation to
any stockholder as to how they should vote at the Special Meeting. Houlihan
Lokey has no obligation to update the Houlihan Lokey opinion. Houlihan Lokey did
not, and was not requested by the Company or any other person to, solicit third
party indications of interest in acquiring all or any part of the Company or the
1290 Property or to make any recommendations as to the form or amount of
consideration in connection with the Sale Transaction or any other matters not
specifically set forth in its fairness opinion. Furthermore, at the request of
the Special Committee, Houlihan Lokey has not negotiated any portion of the Sale
Transaction or advised the Special Committee with respect to alternatives to it.
The summary set forth above describes the material points of a more
detailed analyses performed by Houlihan Lokey in arriving at its fairness
opinion. The preparation of a fairness opinion is a complex analytical process
involving various determinations as to the most appropriate and relevant methods
of financial analysis and application of those methods to the particular
circumstances and is therefore not readily susceptible to summary description.
In arriving at its opinion, Houlihan Lokey made qualitative judgments as to the
significance and relevance of each analysis and factor. Accordingly, Houlihan
Lokey believes that its analyses and summary set forth herein must be considered
as a whole and that selecting portions of its analyses, without considering all
analyses and factors, or portions of this summary, could create an incomplete
and/or inaccurate view of the processes underlying the analyses set forth in
Houlihan Lokey's fairness opinion. In its analysis, Houlihan Lokey made numerous
assumptions with respect to the Company, the 1290 Property, the Sale
Transaction, industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control of
the respective entities. The estimates contained in such analyses are not
necessarily indicative of actual values or predictive of future results or
values, which may be more or less favorable than suggested by such analyses.
Additionally, analyses relating to the value of businesses or securities of the
Company are not appraisals. Accordingly, such analyses and estimates are
inherently subject to substantial uncertainty.
The full text of Houlihan Lokey's opinion, which describes, among
other things, the assumptions made, general procedures followed, matters
considered and limitations on the review undertaken by Houlihan Lokey in
rendering its opinion is attached to this joint information
statement--prospectus as Annex A and is incorporated herein by reference. The
summary of the Houlihan Lokey opinion in this joint information
statement--prospectus is qualified in its entirety by reference to the full text
of the Houlihan Lokey opinion. You are urged to read Houlihan Lokey's opinion in
its entirety.
Parties to the Sale Transaction
The Company. The Company's principal executive offices are located
at 410 Park Avenue, 14th Floor, New York, New York 10022, and the telephone
number of the Company at this location is (212) 655-0220. The Company's
principal asset consists of its general and limited partnership interests in
1290 Partners, through which the Company owns the 1290 Property. The Company's
principal business objective is to operate the 1290 Property in a manner that
will maximize the revenues and value of the 1290 Property and in turn maximize
funds from operations and stockholder value. For more information about the
Company, see "PROPOSAL 2 - THE MERGER; Parties to the Merger; The Company."
31
1290 Partners, L.P. 1290 Partners is an indirect subsidiary of the
Company. The Company is its sole limited partner. The Company also indirectly
holds the sole general partnership interest in 1290 Partners through 1290 GP
Corp., a Delaware corporation. The principal executive offices of 1290 Partners
are located at 410 Park Avenue, 14th Floor, New York, New York 10022, and the
telephone number of 1290 Partners at this location is (212) 655-0220. 1290
Partners' principal business is to hold title to the 1290 Property.
Purchaser. Purchaser is a newly-formed Delaware limited partnership
without any operational history. Purchaser's limited partners are Jamestown 1290
Partners, a Georgia general partnership ("Jamestown 1290"), and AP-1290 Partners
LLC ("AP-1290"). Purchaser's general partner is JT 1290 Corp., a Georgia
corporation. The principal executive offices of Purchaser are located at Two
Paces West, Suite 1600, 2727 Paces Ferry Road, Atlanta, Georgia 30339, and the
telephone number of Purchaser at this location is (770) 805-1000. Purchaser was
formed for the purpose of effecting the transactions contemplated by the
proposed Sale Transaction. As of the date hereof, Purchaser has not conducted
any business other than in connection with the Sale Transaction and the
transactions contemplated thereby. For more information about Purchaser, see
"Summary Term Sheet--Parties to the Sale Transaction."
Material U.S. Federal Income Tax Consequences of the Sale Transaction and
Liquidation of the Company
The following summary of the anticipated material U.S. federal
income tax consequences to the Company and its stockholders of the proposed
Merger and Sale Transaction is not intended as tax advice and is not intended to
be a complete description of the federal income tax consequences of the proposed
Merger and Sale Transaction and liquidation of the Company ("Liquidation"). This
summary is based upon the Internal Revenue Code of 1986, as amended (the
"Code"), as presently in effect, the rules and regulations promulgated
thereunder, current administrative interpretations and court decisions and
should be read in conjunction with "PROPOSAL 2 - THE MERGER; Material Federal
Income Tax Consequences." No assurance can be given that future legislation,
regulations, administrative interpretations or court decisions will not
significantly change these authorities, possibly with retroactive effect. No
rulings have been requested or received from the Internal Revenue Service
("IRS") as to the matters discussed and there is no intent to seek any such
ruling. Accordingly, no assurance can be given that the IRS will not challenge
the tax treatment of certain matters discussed or, if it does challenge the tax
treatment, that it will not be successful. This summary also does not discuss
all of the tax consequences that may be relevant to a particular stockholders or
to certain stockholders subject to special treatment under the United States
federal income tax laws, such as insurance companies, financial institutions, or
tax-exempt or foreign stockholders.
The Company will recognize a gain on the sale of 1290 Property equal
to the excess of the amount realized over its adjusted tax basis in the
property. However, because the Company has elected to be taxed as a real estate
investment trust ("REIT") for U.S. federal income tax purposes, the Company is
generally entitled to a dividends paid deduction in an amount equal to the
dividends paid during the taxable year. Distributions made in liquidation of a
REIT generally will, to the extent of the REIT's accumulated earnings and
profits and current earnings and profits (computed without regard to capital
losses), be treated as dividends in determining the amount of the dividends paid
deduction available. Under a special rule, the Company's earnings and profits
for purposes of the dividends paid deduction will be increased by the total
amount of gain on the sale or exchange of real property during the taxable year.
To the extent the amount of dividends paid deduction available to the Company
equals or exceeds the gain recognized by the Company from the Sale Transaction,
the Company will not be subject to federal income tax.
32
As described under the caption "PROPOSAL 2- THE MERGER; Reasons for
Merger", the Company will enter into the Merger to become a subsidiary of
Holdings. Holdings will borrow the Pre-Closing Loan from Purchaser or its
designee and contribute the Pre-Closing Loan proceeds (the "Pre-Closing Loan
Proceeds") to the Company to repay a portion of the Existing Debt held by GE
Capital.. See "PROPOSAL 2 - THE MERGER; Certain Material U.S. Federal Income Tax
Consequences" for discussion of the U.S. federal income tax consequences of the
Merger and the federal income tax classification of the Holdings as a
partnership.
After repayment of the balance of the Existing Debt with the net
proceeds of the Sale Transaction, the Company will liquidate and distribute all
remaining net Sale Transaction proceeds to Holdings. As a result of the
liquidating distribution, the Company should be entitled to a dividends paid
deduction in an amount at least equal to the gain recognized from the Sale
Transaction and should, therefore, not be subject to federal income tax.
Because Holdings is a partnership for U.S. federal income tax
purposes, it is itself not subject to federal income taxation with respect to
the gain realized upon receipt of a liquidating distribution from the Company.
Instead, each member of Holdings will be required to include its distributive
share of gain from the liquidation of the Company based on the allocation
provisions in the operating agreement of Holdings. The amount of gain reported
by Holdings from the liquidation of Holdings will be equal to the excess of the
liquidating distribution received over its adjusted tax basis in the Common
Stock (which includes the Pre-Closing Loan Proceeds contributed to the capital
of the Company).
Immediately after the liquidation of the Company, Holdings will
repay the Pre-Closing Loan and distribute to holders of its limited liability
company units (the "LLC Units") all remaining cash proceeds less the $10 million
Holdback Amount (as hereinafter defined) and $2 million cash reserved ("Cash
Reserve Amount") to pay for any additional expenses Holdings may incur, whether
as successor to the Company or otherwise. Gain or loss will be recognized by
each member of Holdings in an amount equal to the excess of the amount of cash
distribution received (including a deemed cash distribution attributable to the
repayment of the Pre-Closing Loan) over such member's tax basis in its LLC
Units. Each member's adjusted tax basis in its LLC Units generally will be its
adjusted tax basis in the Common Stock immediately prior to the Merger,
increased by its allocable share of the Pre-Closing Loan and distributive share
of gain from the liquidation of the Company. This gain or loss will be capital
in nature and will be long-term capital gain or loss if the member's holding
period in the LLC Units (which includes its holding period in the Common Stock
surrendered in the Merger) was more than one year. Distributions to members of
Holdings attributable to the release of all or any portion of the $10 million
Holdback Amount and the $2 million Cash Reserve Amount after the indemnification
period has expired generally will be taxable as capital gains to such members to
the extent such distributions exceed such members' adjusted tax basis in their
LLC Units.
The discussion above is not a complete analysis or description of
all potential federal income tax consequences of the proposed Sale Transaction
and Liquidation. You are advised to consult your own tax advisor to determine
the U.S. federal, state or local or foreign income tax consequences that are
applicable to you in light of your own personal circumstances.
Use of Purchase Price Proceeds
Purchase Price. The Purchase Price to be paid by Purchaser in the
Sale Transaction is $745.5 million, subject to customary prorations. In
addition, effective as of the date of the closing of the Sale Transaction (the
"Closing Date"), Purchaser has also agreed to assume and become responsible for
certain of the Company's tenant improvement obligations and leasing commissions
in an aggregate amount of
33
approximately $11.1 million. See "PRO FORMA SOURCES AND USES OF PROCEEDS." See
also "--Interests of Certain Persons in the Sale Transaction; AREIF Note."
Distribution to Stockholders. The Company expects that its net
proceeds from the Purchase Price will be approximately $500 million after
prepayment of the Existing Debt, the retention of the $10 million Holdback
Amount to satisfy indemnification claims and certain post-closing costs, the $2
million Cash Reserve Amount, and the payment of approximately $22.5 million in
transfer taxes, and certain other adjustments. As soon as practicable following
the Closing Date, this amount will be distributed by the Company to Holdings
which in turn will repay the Pre-Closing Loan and distribute the net proceeds of
approximately $295 million or $22.75 per LLC Unit to all of the holders of LLC
Units on a pro rata basis. Actual distributed amounts, however, may differ. See
"Risk Factors."
Prepayment of Existing Indebtedness and Swap Agreement Termination
Costs. The Company intends to use proceeds from the Sale Transaction and the
Pre-Closing Loan to repay the Existing Debt and to pay the expenses associated
with the termination of that certain ISDA Master Agreement, dated as of December
13, 1999, by and between 1290 Partners and Morgan Stanley Derivative Products,
Inc. (the "Swap Agreement"). The current amount of the Existing Debt is $425
million. The current estimated costs of terminating the Swap Agreement as of
June 30, 2002 would be approximately $10 million.
Indemnification Obligations. Under the Purchase Agreement, the
Company has agreed to indemnify Purchaser for all claims asserted prior to
December 30, 2002 ("Indemnification Period") for the breach of certain of its
representations and warranties made in the Purchase Agreement ("Indemnification
Obligations"). 1290 Partners' maximum indemnification obligation to Purchaser
under the Purchase Agreement is $10 million, less any amounts paid in connection
with certain post-closing costs related to the Sale Transaction. See "--
Description of the Purchase Agreement; Indemnification."
Following the Closing Date, the Company will no longer have any
operating income from which to pay the Indemnification Obligations because it
will liquidate following the distribution of the net proceeds that it receives
in the Sale Transaction to Holdings. In order to satisfy or settle
indemnification claims ("Indemnification Claims") made during the
Indemnification Period, if any, Holdings will retain $10 million of the Sale
Transaction proceeds, less any amounts paid in connection with certain
post-closing costs related to the Sale Transaction (the "Holdback Amount"),
until the expiration of the Indemnification Period, or if any claims are made by
Purchaser on or prior to December 30, 2002, then Holdings will retain, after
such date, an amount sufficient to satisfy such claim, until such time as such
claim is settled or satisfied. After all Indemnification Claims are settled
and/or satisfied, if any amount remains or is not subject to Indemnification
Claims, then Holdings will distribute such amount to all of its members in
proportion to their respective ownership of LLC Units.
Cash Reserve Amount. Because Holdings will not have any operating
income, and because it will be required to employ legal counsel and independent
accountants in order to comply with its obligations under the federal securities
laws, the Company has determined that Holdings retain the $2 million Cash
Reserve Amount in order to ensure that Holdings will have sufficient capital to
pay professional fees and any other fees and expenses it may incur during the
Indemnification Period. Upon the distribution of the Holdback Amount to the
members of Holdings, Holdings will also distribute to its members on a pro rata
basis, the remaining portion of the Cash Reserve Amount.
Regulatory Approvals
Other than obtaining the requisite vote of the Company's stockholders at
the Special Meeting, the filing of this joint information statement--prospectus
with the Commission, its distribution in accordance with federal securities laws
and Maryland General Corporation Law, and having the registration statement
34
under which this joint information statement--prospectus has been filed with the
Commission declared effective, none of the parties is obligated under the
Purchase Agreement to comply with any federal or state regulatory requirements
in connection with the Sale Transaction.
Interests of Certain Persons in the Sale Transaction
Apollo Real Estate Advisors, L.P. Some members of the Company's
management and Board of Directors are affiliated with Apollo Real Estate
Advisors, L.P. ("AREA"), and as a result have interests in the sale transaction
that are in addition to their interests as stockholders of the Company. AREA is
the general partner of AREIF, which beneficially owns approximately 38% of the
outstanding shares of Common Stock. The following is a description of the
interests of certain of the Company's stockholders in the Sale Transaction:
AP-1290 is a Limited Partner of Purchaser. AREIF owns 100% of the limited
liability company interests of AP-1290. AP-1290 owns a 22.79% limited
partnership interest in Purchaser, entitling it to a subordinated
preferred return on its invested capital in Purchaser and 43.75% of any
remaining net cash flow from operations. This preferred return is
subordinated to the payment of a preferred return to Purchaser's other
partners. In connection with any capital transaction by Purchaser, AP-1290
would be entitled to a return of its invested capital and 50% of any net
proceeds from such capital transaction. The return of its invested capital
is subordinated to the prior return of capital to Purchaser's other
partners and the achievement of certain specified distribution thresholds.
Officers and Directors of the Company. Certain of the Company's existing
officers are also partners of AREA and officers of the general partner of
AREA. Four of AREA's partners serve on the Company's Board of Directors.
These directors are: William L. Mack, Lee S. Neibart, Bruce H. Spector and
John R.S. Jacobsson. In addition, Mr. Mack serves as the Company's
Chairman, Mr. Neibart serves as the Company's President, and Mr. Jacobsson
serves as the Company's Vice President and Secretary. None of these
directors or officers served on the special committee that has approved
the Sale Transaction.
Manager of 1290 Property. Purchaser has agreed to appoint 1290 Management
L.P. to serve as the manager of the 1290 Property following the closing of
the Sale Transaction. 1290 Management is owned 99.9% by the Purchaser and
0.1% by 1290 JT Corp. An affiliate of AREA and Jamestown 1290 Partners
have agreed to share on a 50/50 basis a management fee equal to 1.75% of
effective gross rents received from the 1290 Property. 1290 Management,
however, expects to subcontract some of its management duties to a third
party property management firm, and as a result, the compensation that it
is entitled to receive as manager of the 1290 Property will be reduced by
the amount that it pays to such property management firm. This
subcontracted property management fee is expected to be approximately 1.0%
of effective gross rents per year.
Post-Closing Transaction Fee. If the 1290 Property is sold by Purchaser,
an affiliate of AREA will be entitled to a sales fee equal to 1.2% of the
gross sale price, which is not expected to be consummated until on or
after 2009.
AREIF Note. The Company has agreed to accept a promissory note
("Promissory Note") from AREIF in the amount of up to approximately $77.4
million as a portion of the Purchase Price to be paid by Purchaser in the
Sale Transaction. This Promissory Note is secured by shares of Common
Stock owned by AREIF and will be repaid from distributions AREIF receives
as a holder of LLC Units from the net proceeds of the Sale Transaction.
The amount of the net proceeds from the Sale Transaction to be distributed
to AREIF as a stockholder of the Company is expected to exceed the amount
of the Promissory Note.
35
Voting Agreement. AREIF has executed a voting agreement with Purchaser
pursuant to which it has agreed to vote in favor of the Sale Transaction
and the Merger. See "PROPOSAL 1 - THE SALE TRANSACTION; Interests of
Certain Persons In The Sale Transaction - Description of Voting Agreement";
and "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."
Capital Trust. Capital Trust, Inc. ("Capital Trust"), owns
approximately 0.2% of the outstanding shares of Common Stock, is the Asset
Manager of the 1290 Property, and its Chief Executive Officer, John R. Klopp
serves on the Company's Board of Directors. In addition, Mr. Klopp serves as the
Company's Vice President and Jeremy FitzGerald, a Managing Director of Capital
Trust, serves as the Company's Vice President and Assistant Secretary. Mr. Klopp
initially served on the Special Committee that approved the sale transaction and
the merger, but later resigned as a member when the Special Committee received
and considered an alternative bid from an entity that may be considered to be an
affiliate of Capital Trust. [Upon the closing of the Sale Transaction, Capital
Trust will be paid a fee in the amount of $______ [characterize rationale for
fee]].
Dissenters' Appraisal Rights
Under Maryland law, you are not entitled to appraisal rights in
connection with the approval of the Sale Transaction. Under Maryland law,
however, you are entitled to appraisal right in connection with the approval of
the Merger. See "PROPOSAL 2 - THE MERGER; Appraisal Rights."
Private Placement by AP-1290
AP-1290 has notified the Company that it intends to offer (the "AP-1290
Offering") to all of the stockholders of the Company who are "accredited
investors" (as such term is defined under the rules promulgated under the
Securities Act of 1933, as amended) pursuant to a private placement memorandum
("AP-1290 Offering Memorandum"), the right to purchase membership interests in
AP-1290 at a price and on the terms to be set forth in the AP-1290 Offering
Memorandum. AP-1290 owns a 22.79% limited partnership interest in Purchaser.
AP-1290 intends to close the AP-1290 Offering simultaneously with the closing of
the Sale Transaction. The terms and conditions of the AP-1290 Offering are
subject to the AP-1290 Offering Memorandum. The consummation of the AP-1290
Offering is not a condition to the Merger or Sale Transaction. This is not an
offering or solicitation of the securities to be offered in the AP-1290
Offering.
Termination of the Company's Registration under the Securities Exchange Act of
1934
Following the closing of the Sale Transaction and the Merger, the
Company will terminate its registration under the Securities Exchange Act of
1934, as amended (the "Exchange Act") and accordingly the Company will no longer
be required file with the Commission and to deliver to stockholders annual or
quarterly reports. However, the issuance of LLC Units that stockholders receive
from Holdings in the Merger will be registered under the Securities Act of 1933,
as amended, and Holdings will be required to comply with the reporting
obligations under the Exchange Act. See "PROPOSAL 2 - THE MERGER; Parties to
Merger; Holdings."
36
DESCRIPTION OF THE PURCHASE AGREEMENT
Although the Company believes that the following summary describes
the material terms and conditions of the Purchase Agreement, the summary is
qualified in its entirety by reference to the full text of the Purchase
Agreement, a copy of which is attached as Annex B to this joint information
statement--prospectus and is incorporated herein by reference. Capitalized terms
which are not otherwise defined in this summary have the meaning set forth in
the Purchase Agreement.
Purchase Price
Purchaser has agreed to purchase the 1290 Property for $745.5
million. In addition, Purchaser has agreed to assume and become responsible for
certain of the Company's tenant improvement obligations and leasing commissions
in an amount equal to approximately $11.1 million.
Pursuant to the Purchase Agreement, Purchaser has made an earnest
money deposit of $25 million with Fidelity National Title Insurance Company,
Atlanta Office, as escrow agent (the "Escrow Agent"). The earnest money deposit,
together with any additions thereto made by Purchaser in accordance with the
terms of the Purchase Agreement, and all interest accrued thereon is hereinafter
referred to herein as, the "Deposit".
Closing Date
Scheduled Closing Date. The transactions contemplated by the
Purchase Agreement (the "Closing") shall occur on a date selected by Purchaser
by giving no fewer than three business days notice to the Company, which date
shall be designated by Purchaser following the approval of the transaction
contemplated by the Purchase Agreement by not less than 66 2/3% of the
outstanding shares of the Common Stock, but not later than ____ ___, 2002 at
10:00 a.m. (such date, or the date set for the Closing if Purchaser elects to
extend this date pursuant to the terms of the Purchase Agreement, the "Scheduled
Closing Date"). Each of Purchaser and the Company shall have the right to extend
the Scheduled Closing Date for up to five business days in addition to the
extension rights described below through a date no later than October 7, 2002.
Purchaser Right to Extend Closing. Purchaser has the right to extend
the deadline for the Closing Date under certain circumstances to August 31, 2002
by giving written notice to the Company, and, simultaneously with the delivery
of the Purchaser's extension notice, delivering the sum of $15 million to Escrow
Agent, as an addition to the Deposit.
The Company's Right to Extend Closing. The Company shall have the
right to extend the deadline for the Closing Date under certain circumstances to
a date not later than October 7, 2002.
Representations and Warranties
The material representations and warranties of the Company in the
Purchase Agreement are customary for transactions similar to the Sale
Transaction and relate to the following matters:
o the Company having free and clear fee simple title to the 1290
Property, except for certain permitted encumbrances;
o the Company being duly formed, validly existing and in good
standing; and
37
o the absence of any lease defaults, tenant disputes,
litigation, violations of zoning, building, or other laws,
that would have a material adverse effect on the operation of
the 1290 Property.
The material representations and warranties of Purchaser in the
Purchase Agreement relate to the following matters:
o Purchaser has sufficient cash on hand or enforceable financial
commitments from credible sources to allow it to pay the
Purchase Price, consummate the transactions contemplated
thereby, and pay all related fees and expenses as set forth
therein.
Conduct of Business Operations Prior to Closing Date
The Purchase Agreement contains certain covenants customary to
transactions similar to the Sale Transaction. The Purchase Agreement also
contains specific covenants relating to the conduct of the Company's business
until the Closing Date including that it:
o will maintain in full force and effect the insurance policies
currently in effect with respect to the 1290 Property (or
replacements continuing similar coverage);
o will operate and manage the 1290 Property in a manner
consistent with past practice;
o will notify Purchaser promptly if the Company receives written
notices of any claimed material default or material
non-performance received or given by the Company with respect
to certain major leases;
o will not terminate any lease; amend or modify, or permit the
cancellation (other than non-material amendments or
modifications or pursuant to an express option granted to
tenant thereunder or which way tenant may have at law) or
surrender of, or consent to the assignment or subletting
under, any lease unless contractually bound; or enter into any
new lease for space at the 1290 Property except pursuant to a
leasing schedule agreed to in writing by the parties thereto;
o will not affirmatively subject the 1290 Property to any
additional liens, encumbrances, covenants or easements; and
o will not, except as provided below under the Section
"--Superior Offers," sell, transfer or otherwise dispose of
the 1290 Property, or solicit, initiate or encourage
(including by way of furnishing information), any transaction
involving the sale or other disposition of the 1290 Property,
except as contemplated in the Purchase Agreement;
Superior Offers
Until such time as the Pre-Closing Loan is funded, the Company and
the Special Committee will be permitted to participate in discussions and
negotiations, and to furnish information concerning the Company and/or the 1290
Property in connection with an unsolicited written inquiry, proposal or offer
("Unsolicited Offer") by an unaffiliated third party that the Special Committee
reasonably believes (after having obtained sufficient preliminary information
upon which to make such determination) that after giving due regard to the
likelihood of consummation of such Unsolicited Offer, such Unsolicited Offer
would result in the Company's stockholders realizing more value for their shares
than they would in connection with the transactions contemplated by the Purchase
Agreement (such offer a "Superior Offer"), which Superior Offer involves:
38
o the purchase of all or substantially all of the equity
interests in the Company;
o the purchase of all or substantially all of the 1290 Property;
and/or
o entering into any of the following transactions: merger,
consolidation, business combination, recapitalization,
liquidation and dissolution involving the Company;
provided, however, that in any such case, it is the good faith opinion of the
Special Committee, after consultation with outside counsel and after having
obtained such preliminary information, that failure to participate in such
discussion and negotiations or to furnish such information would likely be
inconsistent with the Special Committee's duties to the Company's stockholders
under applicable law.
The Company agreed that it will promptly (and in no event later than
24 hours after receipt of an Unsolicited Offer) notify Purchaser (which notice
will be provided orally and in writing and will identify the person or entity
making the Unsolicited Offer and set forth its material terms) after receipt of
an Unsolicited Offer, and thereafter shall keep Purchaser informed, on a current
basis, of the status and material terms of any Unsolicited Offer.
The Special Committee has agreed to recommend that the stockholders
of the Company vote to approve the Sale Transaction. However, the Special
Committee may withdraw or modify its recommendation that the stockholders of the
Company vote to approve the Sale Transaction, or may recommend that the Company
stockholders vote in favor of or accept an Unsolicited Offer, if:
o it is the opinion of the Special Committee, after consultation
with outside counsel, that failure to take such action would
likely be inconsistent with the Special Committee's duties to
the Company's stockholders under applicable law;
o the Special Committee shall have delivered written notice to
Purchaser advising Purchaser that it intends to take such
action unless the terms and conditions of the Purchase
Agreement are amended, and three (3) business days have
elapsed following the Special Committee's delivery of such
notice;
o the Purchase Agreement was amended by Purchaser before the
expiration of said three-business-day period, and the
Unsolicited Offer would nonetheless still constitute a
Superior Offer; and
o the Company has complied with its obligations described in the
section "PROPOSAL 1 - THE SALE TRANSACTION; Description of the
Purchase Agreement; Superior Offers."
The Company has agreed that it will not accept or enter into any
agreement concerning a Superior Offer for a period of at least five (5) business
days after Purchaser's receipt of the initial notification of the Unsolicited
Offer, during which period the Company will, and will cause its financial and
legal advisors to, negotiate with Purchaser to amend the terms and conditions of
the Purchase Agreement as would enable Purchaser to match the economic terms and
other conditions contained in such Superior Offer in order to proceed with the
transactions contemplated by the Purchase Agreement.
Break Up Fee
If the Company elects not to consummate the transactions
contemplated by the Purchase Agreement and instead elects to pursue a its rights
described above in the section "PROPOSAL 1 - THE SALE TRANSACTION; Description
of the Purchase Agreement; Superior Offers," then the Company
39
shall have the right to terminate the Purchase Agreement and will not be in
default thereunder so as to allow Purchaser to avail itself of the default
remedies set forth in section "PROPOSAL 1 - THE SALE TRANSACTION; Description of
the Purchase Agreement; Default by Purchaser or the Company;" provided, however,
that (A) until 11:59 p.m. on the date that the Company files this joint
information statement--prospectus with the Commission, but in no event later
than June 1, 2002, if the Company shall terminate the Purchase Agreement
pursuant to its rights set forth in Section 8(c) thereof, then the Company will
pay to Purchaser a fee equal to Fifteen Million Dollars ($15 million); and (B)
from and after 12:00 a.m. on the date immediately following the date upon which
the Company files the joint information statement--prospectus with the
Commission, but in no event later than June 2, 2002, if the Company terminates
the Purchase Agreement pursuant to its rights set forth in Section 8(c) thereof,
then the Company will pay to Purchaser a fee equal to Twenty Million Dollars
($20 million), which amounts in both subclauses (A) and (B) shall also be deemed
to include all of Purchaser's expenses incurred in connection with the
transactions contemplated thereby (the "Break Up Fee").
The Break Up Fee shall be payable to Purchaser upon the earlier of:
(i) five (5) business days following the consummation of the Superior Offer;
(ii) December 31, 2002; and (iii) ninety (90) days following the termination of
a Superior Offer transaction that 1290 Partners has elected to pursue; provided,
however, that as to subclauses (ii) and (iii), on or prior to the date the
Company is required to pay the Break Up Fee, the Company may elect, in lieu of
paying the Break Up Fee on such date, to instead deliver to Purchaser a letter
of credit in an amount equal to the Break Up Fee issued by a New York City money
center in favor of Purchaser. The terms of such letter of credit will provide
that it may be drawn upon by Purchaser on or after June 30, 2003 if the payment
of the Break Up Fee is not made by the Company on or prior to June 30, 2003.
Indemnification
The representations and warranties of the Company contained in the
Purchase Agreement will survive the Closing until December 30, 2002 (the
"Limitation Period"). The Company's representations and warranties and its post
closing obligations set forth therein will automatically be null and void and of
no further force and effect on the last day of the Limitation Period unless,
prior to the last day of the Limitation Period, Purchaser shall in good faith
have provided the Company with a written notice alleging that the Company will
be in breach of such representation, warranty or obligation, and specifying in
reasonable detail the nature of such breach. Purchaser will allow the Company
thirty (30) days after its notice within which to cure such breach. If the
Company fails to cure such breach after written notice thereof, Purchaser's sole
remedy shall be to commence a legal proceeding for damages against the Company
alleging that the Company will be in breach of such representation, warranty or
obligation and that Purchaser shall have suffered actual damages ("Damages") as
a result thereof (a "Proceeding"), which Proceeding must be commenced, if at
all, within thirty (30) days after the expiration of the Limitation Period;
provided, however, that the Company shall have no liability to Purchaser or any
of its successors or assigns with respect to a breach or breaches of its
representations, warranties, obligations or otherwise hereunder if any of
Stephen J. Zoukis, Christoph A. Kahl or Matt M. Bronfman had actual knowledge
prior to the Closing Date of such breach, breaches or other liability relating
to such Damages regardless of the amount of such Damages resulting from such
breach, breaches or other liability; provided, however, that the Company shall
have no liability to Purchaser or any of its successors or assigns hereunder for
Damages in excess of $10 million (less any amounts paid or payable by the
Company in accordance with the terms of the Purchase Agreement following the
Closing Date).
In consideration for such limitation on liability, the Company
agreed that following the Closing, the Company (or any successor entity) will
maintain a tangible net worth of at least $10 million (less any amounts paid or
payable by the Company in accordance with the terms of the Purchase Agreement
following the Closing Date) until the later of (A) December 31, 2002, if no
Proceedings have been
40
commenced by December 30, 2002; or (B) the final settlement of all Proceedings,
if any Proceedings have been commenced and remain unresolved by December 30,
2002. Notwithstanding the foregoing, the Company is relieved of any liability
thereunder with respect to representations made by the Company in the Purchase
Agreement concerning any tenant's lease to the extent that such tenant
independently confirms the content of such representation in a tenant estoppel
certificate delivered to Purchaser on or prior to the Closing.
Conditions to Closing
Conditions to Obligations of Purchaser. The obligations of Purchaser to effect
the Closing shall be subject to the fulfillment or written waiver by Purchaser
at or prior to the Closing Date of the following conditions:
o Certain major leases will be in full force and effect in all
material respects on the Closing Date.
o The 1290 Property shall be subject only to certain permitted
encumbrances.
o The Company shall have paid all of the transaction expenses (or made
provision for the payment thereof) for which it is responsible
pursuant to the Purchase Agreement.
o The Company will have delivered to Purchaser an executed estoppel
certificate and an executed subordination, nondisturbance and
attornment agreement from certain of its major tenants.
o The transactions contemplated by the Purchase Agreement shall have
been duly approved by an affirmative vote of the holders of at least
66-2/3% of the outstanding shares of the Common Stock.
o The Company will have delivered to Purchaser a customary payoff
letter from GE Capital or other authorized lender under the Loan
Agreement among 1290 Partners, Lenders Party thereto and General
Electric Capital Corporation, dated December 13, 1999 ("Existing
Loan Agreement") in respect of the Existing Debt.
o The Company's representations and warranties in the Purchase
Agreement will be true and correct in all material respects (A) as
of the execution date of the Purchase Agreement and (B) on and as of
the Closing Date.
o No provision of any applicable law or regulation and no judgment,
injunctions then enforceable against Purchaser, order or decree
shall prohibit the transactions contemplated by the Purchase
Agreement.
Purchaser shall have the right at any time to waive in writing any
of the contingencies or conditions set forth above. If the conditions and/or
contingencies described above are not fully and completely satisfied on the
Closing Date, unless Purchaser elects to waive the unsatisfied conditions and/or
contingencies in writing, Purchaser shall have the right to terminate the
Purchase Agreement by providing written notice of such termination to the
Company at any time through and including the Closing Date, in which event the
Deposit shall be returned to Purchaser.
Conditions to the Obligations of the Company. The obligation of the
Company to effect the Closing is subject to the fulfillment or written waiver by
the Company at or prior to the Closing Date of the following conditions:
41
o Purchaser shall have paid the balance of the Purchase Price, after
applying any credits against the Purchase Price thereunder, and
authorized the release of the Deposit with respect to the payment of
the Purchase Price.
o No provision of any applicable law or regulation and no judgment,
injunctions currently enforceable against the Company, order or
decree shall prohibit the transactions contemplated by the Purchase
Agreement.
o The transactions contemplated by the Purchase Agreement shall have
been duly approved by an affirmative vote of the holders of at least
66-2/3 % of the outstanding shares of the Company's Common Stock.
o Purchaser shall have paid all or substantially all of the
transaction expenses for which it is responsible pursuant to the
Purchase Agreement.
o Purchaser's representations and warranties in the Purchase Agreement
will be true and correct in all material respects (A) as of the
execution date of the Purchase Agreement and (B) on and as of the
Closing Date.
o The Pre-Closing Loan will have been consummated.
Transaction Costs
The Company is responsible for:
o payment in full of the Existing Debt and all amounts secured by the
Existing Loan Agreement, including without limitation all prepayment
costs incurred in the prepayment of the Existing Debt and all costs
of terminating the Swap Agreement;
o the costs of the Company's legal counsel, advisors and other
professionals employed by it in connection with the purchase and
sale of the 1290 Property and the other transactions contemplated by
the Purchase Agreement;
o any recording fees relating to its obligations to remove certain
title objections; and
o all conveyance closing costs, including state and local transfer,
stamp or deed taxes.
Purchaser is responsible for:
o the costs and expenses associated with its due diligence;
o the costs and expenses of its legal counsel, advisors and other
professionals employed by it in connection with the sale of the 1290
Property and the other transactions contemplated by the Purchase
Agreement;
o all mortgage recording taxes due in connection with Purchaser's
financing and costs of the owner's and lender's policies of title
insurance, and other endorsements; and
o any additional attorneys' fees and other related costs incurred by
the Company with respect to preparing and finalizing the joint
information statement--prospectus, including, without limitation,
revisions thereto required in order to respond to any review by, and
comments of, the
42
Commission but only to the extent such additional fees and costs
relate to AP-1290 being a partner of Purchaser.
Default by Purchaser or the Company
Default by Purchaser. If, other than as a result of the Company's
default under the Purchase Agreement or the permitted termination of the
Purchase Agreement by either party thereto, Purchaser defaults in any material
respect in the performance of any of its other obligations to be performed on or
prior to the Closing Date and such default continues for five business days
after written notice to Purchaser, the Company's sole remedy by reason thereof
shall be to terminate the Purchase Agreement and, upon such termination, the
Company, with respect to such default, shall be entitled to retain the Deposit
as liquidated damages for Purchaser's default hereunder.
In no event shall the failure of Purchaser to consummate the
transactions contemplated by the Purchase Agreement as a result of the failure
of one or more conditions to Purchaser's obligation to close described above in
the section "PROPOSAL 1 - THE SALE TRANSACTION; Description of Purchase
Agreement; Conditions to Closing" constitute a default by Purchaser under the
Purchase Agreement.
Default by the Company. If other than as a result of Purchaser's
default under the Purchase Agreement or the permitted termination of the
Purchase Agreement by either party thereto including, pursuant to a Superior
Offer described above, the Company defaults in any material respect in any of
its obligations to be performed on or prior to the Closing Date, and such
default continues for five (5) business days after written notice to the
Company, Purchaser as its sole remedy by reason thereof (in lieu of prosecuting
an action for damages or proceeding with any other legal course of conduct, the
right to bring such actions or proceedings being expressly and voluntarily
waived by Purchaser to the extent legally permissible) will have the right to
seek to obtain specific performance of the Company's obligations thereunder,
provided that any action for specific performance be commenced within thirty
(30) days after such default, and if Purchaser prevails thereunder, the Company
will reimburse Purchaser for all reasonable legal fees, court costs and other
reasonable out-of-pocket costs arising from such default; provided, however,
that if a court of competent jurisdiction determines in a non-appealable order
that specific performance against the Company is not an available remedy to
Purchaser, Purchaser shall be entitled to receive a return of the Deposit, and,
if a court of competent jurisdiction determines in a non-appealable order that
specific performance against the Company is not an available remedy to Purchaser
as a direct result of the willful misconduct or bad faith of the Company, to
pursue a claim against the Company for actual damages incurred by Purchaser as a
result of such default.
In no event will the failure of the Company to consummate the
transactions contemplated herein as a result of the failure of one or more
conditions to the Company's obligation to close described above in the section
"PROPOSAL 1 - THE SALE TRANSACTION; Description of Purchase Agreement;
Conditions to Closing" constitute a default by the Company under the Purchase
Agreement.
Apportionments
The items listed below will be apportioned between Purchaser and the
Company as of 11:59 p.m. on the day immediately preceding the Closing Date (the
"Apportionment Date") on the basis of the actual number of days of the month
which shall have elapsed as of the Closing Date and based upon the actual number
of days in the month and a 365 day year, and reflected on a closing statement
(the "Closing Statement") to be agreed upon by Purchaser and the Company and
executed at Closing.
No later than December 1, 2002, Purchaser shall prepare and deliver
to the Company a final reconciliation of the Closing Statement reasonably
satisfactory to the Company in form and substance
43
(the "Reconciliation Statement") setting forth the final determination of the
adjustments and prorations provided for below and in the Purchase Agreement and
setting forth any items which are not capable of being determined at such time
(and the manner in which such items shall be determined and paid). The Company
and Purchaser shall use good faith efforts to agree upon the Reconciliation
Statement by December 15, 2002 which includes the following:
o prepaid rents, fixed rents and additional rents payable pursuant to the
1290 Property leases and all other revenue or income derived with respect
to the 1290 Property, all on an if, as and when collected basis;
o real estate taxes, sewer rents and taxes, water rates and charges, vault
charges and taxes, business improvement district taxes and assessments and
any other governmental taxes, charges or assessments levied or assessed
against the 1290 Property, on the basis of the respective periods for
which each is assessed or imposed;
o fuel, if any, as reasonably estimated by the Company's supplier, at the
Company's cost, together with any sales taxes payable in connection
therewith, if any (a letter from the Company's fuel supplier shall be
conclusive evidence as to the quantity of fuel on hand and the Company's
cost therefor);
o prepaid fees, if any, for licenses and other permits which will be
transferred by the Company to Purchaser on the Closing Date;
o any amounts prepaid or payable by the Company under the Company's
contracts in effect as of the Closing Date;
o business improvement district dues, if any;
o such other items as are customarily apportioned between sellers and
purchasers of real property of a type similar to the 1290 Property and
located in the City, County and State of New York.
In addition, base rents, additional rents and overage rents will also be
adjusted and prorated on an if, as and when collected basis in accordance with
the terms of the Purchase Agreement.
Pre-Closing Loan, Payment of Purchase Price and Other Related Transactions
The Merger is being consummated as part of a restructuring of the
Company's capital stock which includes the formation of Holdings, the merger of
the Company into Lower Tier, and the Pre-Closing Loan. The Merger, together with
the formation of Holdings, and the Pre-Closing Loan are expected to facilitate
the consummation of the Sale Transaction and effectively utilize the Company's
tax status as a REIT.
Immediately following the Merger, Holdings will borrow the
Pre-Closing Loan from Purchaser or a designee of Purchaser in an amount equal to
approximately $200 million. Immediately thereafter, Holdings will contribute the
proceeds of the Pre-Closing Loan to the Company's capital. The Company intends
to use this capital contribution to repay a portion of the Existing Debt prior
to the consummation of the Sale Transaction.
The Pre-Closing Loan will be secured by the Common Stock owned by
Holdings following the Merger and is expected to be repaid several days later
upon the closing of the Sale Transaction at which time the Company will be
liquidated and the net proceeds of the Sale Transaction will be distributed to
Holdings. Following the payment of the remaining Existing Debt, the costs
associated the termination of the Swap Agreement, prorations, transfer taxes,
cash reserves, and other costs, fees and expenses
44
described in the section "PRO FORMA SOURCES AND USES OF PROCEEDS", Holdings will
distribute the net proceeds of the Sale Transaction to its members in proportion
to their respective ownership interests in Holdings. The contribution of the
Pre-Closing Loan Proceeds to the capital of the Company should permit the
Company to minimize any federal income tax liabilities associated with the Sale
Transaction and Liquidation. See "PROPOSAL 1 - THE SALE TRANSACTION - Material
Federal Income Tax Consequences of the Sale Transaction and Liquidation of the
Company."
AREIF Note
To the extent AP-1290 does not make all or any portion of its (i)
$76.3 million initial capital contribution and (ii) $1.1 million payment for its
portion of the closing costs for the new loan for the 1290 Property (the
"AP-1290 Obligations") in accordance with and subject to the terms of the
Limited Partnership Agreement, dated as of April 16, 2002 (the "Limited
Partnership Agreement"), by and among JT 1290 Corp., Jamestown 1290 Partners,
and AP-1290, then, (x) Purchaser may deliver a note made by AREIF in favor of
the Company in an amount not to exceed $77.4 million, which note shall be
secured by any dividends otherwise payable by the Company from the proceeds of
the sale hereunder, to AREIF, (y) the Company shall have a security interest in
the dividends payable to AREIF and immediately upon receipt of such dividends
AREIF shall pay the face amount of the note, and (iii) Purchaser shall receive a
credit against the Purchase Price in an amount equal to face amount of such
note.
DESCRIPTION OF THE VOTING AGREEMENTS
On May 21, 2002, May 23, 2002 or May 24, 2002 (in each case, the
"Voting Agreement Effective Date"), each of the following stockholders of the
Company (each, a "Major Stockholder") entered into separate Voting Agreements
with Purchaser: Oaktree Capital Management, LLC, TCW Asset Management Company,
TCW Special Credits, AREIF, Angelo, Gordon & Co., L.P., WSB Realty, L.L.C. and
NYPROP L.L.C. (an affiliate of Tishman Speyer, the Company's property manager).
The following summary of the material terms and provisions of the Voting
Agreements is qualified in its entirety by reference to the form of Voting
Agreements attached as Annex C to this joint information statement--prospectus
and is incorporated herein by reference.
Voting of Shares of Common Stock. Each of the Voting Agreements
provides that at every meeting of the stockholders of the Company called with
respect to any of the following, and at every adjournment or postponement
thereof, and on every action or approval by written consent of the stockholders
of the Company with respect to any of the following, each Major Stockholder will
vote or cause (including by the Proxy, as hereinafter defined) to be voted its
shares of Common Stock and any New Shares (as defined below) as follows:
o in favor of (A) approval and adoption of the Purchase
Agreement, the transactions contemplated thereby and by the
Voting Agreement, and any action in furtherance thereof, (B)
waiving any notice that may have been or may be required
relating to any reorganization of the Company, any
reclassification or recapitalization of the capital stock of
the Company or any sale of assets, change of control, or
acquisition of the Company by any other individual,
corporation (including any non-profit corporation), general or
limited partnership, limited liability company, joint venture,
estate, trust, association, organization, labor union, or
other entity or governmental body (any "Person"), or any
consolidation or merger of the Company with or into any other
Person to the extent such transaction is undertaken in
connection with the Sale Transaction, and (C) any matter that
could reasonably be expected to facilitate the Sale
Transaction; provided no changes or modifications have been
made to the Purchase Agreement or the transactions
contemplated thereby and no waiver has been granted under the
Purchase Agreement, in each case which would have a material
adverse effect on the
45
economic benefits to be realized by Stockholder pursuant to
the Purchase Agreement as in effect on the date thereof;
o in favor of the Merger; provided no changes or modifications
have been made to the Purchase Agreement or the transactions
contemplated thereby and no waiver has been granted under the
Purchase Agreement, in each case which would have a material
adverse effect on the economic benefits to be realized by
Stockholder pursuant to the Purchase Agreement as in effect on
the date thereof;
o against any matter that could reasonably be expected to
hinder, impede, or delay the consummation of the Sale
Transaction or materially adversely affect the Sale
Transaction and the transactions contemplated by the Voting
Agreement and the Purchase Agreement.
Each Major Stockholder will not, from the Voting Agreement Effective
Date until the Expiration Date (as hereinafter defined), enter into any
agreement or understanding with any Person to vote (other than the Proxy granted
in connection herewith) or give instructions inconsistent with the foregoing.
Proxy. Concurrently with the execution of the Voting Agreement:
o Each Major Stockholder has delivered or caused to be delivered
to Purchaser a proxy that is irrevocable to the fullest extent
permitted by law, with respect to its shares of Common Stock
for which it is the record holder (the "Proxy"); and
o Each Major Stockholder will cause to be delivered to Purchaser
an additional proxy executed on behalf of the record owner of
any shares of Common Stock that are owned beneficially (but
are not owned of record) by such Major Stockholder.
Special Committee. If, prior to a Major Stockholder casting its vote
at a meeting of the stockholders, (i) a Major Stockholder is advised in writing
by the Special Committee that the Purchase Agreement has been terminated in
accordance with its terms, , or (ii) changes or modifications have been made to
the Purchase Agreement or the transactions contemplated thereby or any waiver
has been granted under the Purchase Agreement, in each case which would have a
material adverse effect on the economic benefits to be realized by such Major
Stockholder pursuant to the Purchase Agreement as in effect on the date thereof,
then such Major Stockholder will have the right, but not the obligation, by
giving written notice to Purchaser at any time on or prior to the [scheduled
date of the Company's meeting of its stockholders], to terminate the Voting
Agreement, and revoke the Proxy, without voting its shares of Common Stock as
contemplated by the Voting Agreement.
New Shares. Each Major Stockholder has agreed that any shares of the
Company capital stock (or LLC Units) that Major Stockholder (A) holds of record
and owns beneficially as of the Voting Agreement Effective Date; or (B)
purchases or with respect to which Major Stockholder otherwise acquires record
or beneficial ownership after the execution of the Voting Agreement and prior to
the Expiration Date (the foregoing clauses (A) and (B) together "New Shares")
will be subject to the terms and conditions of the Voting Agreement to the same
extent as if they constituted Shares. From the Voting Agreement Effective Date
until the Expiration Date, each Major Stockholder agreed to execute or cause to
be executed such further proxies as may be requested by Purchaser with respect
to any New Shares of which such Major Stockholder acquires or discovers
beneficial ownership, and such Major Stockholder will promptly notify Purchaser
upon acquiring or discovering beneficial ownership of any additional securities
of the Company.
46
No Disposition or Encumbrance of Shares. Each Major Stockholder
agreed, from the Voting Agreement Effective Date until the Expiration Date, that
it will not, directly or indirectly: (i) other than in connection with the
Merger, offer, sell, offer to sell, contract to sell, pledge, grant any option
to purchase or otherwise dispose of or transfer (or permit or announce any
offer, sale, offer of sale, contract of sale or grant of any option for the
purchase of, or permit or announce any other disposition or transfer of) any of
the shares of Common Stock, or any interest in any of the shares of Common
Stock, to any Person other than Purchaser; (ii) create or permit to exist any
encumbrance on or otherwise affecting any of its shares of Common Stock; or
(iii) reduce such Major Stockholder's beneficial ownership of, interest in or
risk relating to any of its shares of Common Stock.
Transfer of Voting Rights. Each Major Stockholder has also agreed
that, from the Voting Agreement Effective Date until the Expiration Date, such
Major Stockholder will not deposit any of the shares of Common Stock into a
voting trust or grant a proxy (other than the Proxy granted in connection with
the Voting Agreement) or enter into a voting agreement or similar contract with
respect to any of its shares of Common Stock.
Waiver of Appraisal Rights. Each Major Stockholder irrevocably and
unconditionally waived any rights of appraisal, dissenters' rights or similar
rights that such Major Stockholder may have in connection with the Sale
Transaction and the Merger.
Termination. The Voting Agreement and the Proxy will terminate and
have no further force or effect upon the earlier of (i) the closing date of the
Sale Transaction; and (ii) the date the Purchase Agreement is terminated in
accordance with its terms (the "Expiration Date").
No Restraint on Director Action. The Voting Agreement is intended to
bind each Major Stockholder only with respect to the specific matters set forth
in the Voting Agreement, and does not prohibit any Major Stockholder from acting
in accordance with his or her duties as an officer or director of the Company.
PROPOSAL 2
THE MERGER
Introduction
On May 7, 2002, the Special Committee approved and recommended to
the Board of Directors the Merger of the Company into Lower Tier, with the
Company as the surviving entity in the Merger. The members of the Company's
Board of Directors who did not recuse themselves deemed the Merger advisable on
the terms set forth in the resolution and recommended that the Merger be
submitted to the Company's stockholders for their consideration.
Merger Effective Date
As soon as practicable following the Special Meeting, but in no
event more than three days prior to the consummation of the Sale Transaction,
the Company will consummate the Merger. The Merger will become effective upon
the filing by the Company of Articles of Merger with the State Department of
Assessments and Taxation of Maryland and Certificate of Merger with the
Secretary of State of the State of Delaware (the "Merger Effective Date").
Following the consummation of the Merger and at least two days prior
to the consummation of the Sale Transaction, Holdings will borrow from Purchaser
or a designee of Purchaser ("Lender") the Pre-
47
Closing Loan Proceeds and contribute the cash amount of the Pre-Closing Loan
Proceeds to the capital of the Company. The Pre-Closing Loan Proceeds will be
approximately $200 million. The Company intends to use all of the capital
contributed by Holdings to repay a portion of the Company's Existing Debt. The
Pre-Closing Loan to Holdings will be secured by the Common Stock owned by
Holdings and is expected to be repaid from a distribution to Holdings of the net
proceeds of the Sale Transaction in liquidation of the Company. Holdings' tax
basis in the Common Stock will be increased by the amount of the capital
contribution. The Merger should permit the Company to minimize any federal
income tax liabilities associated with the Sale Transaction and Liquidation.
The Merger Consideration
In the Merger, each stockholder of the Company will receive a
certificate representing a number of LLC Units of Holdings equal to the number
of shares of Common Stock held by such stockholder immediately prior to the
Merger. The issuance of the LLC Units is being registered under this joint
information statement--prospectus with the Commission under the Securities Act
of 1933. As a result, Holdings will be required under the federal securities
laws to file quarterly and annual reports with the Commission, and otherwise
comply with its reporting obligations under the Exchange Act.
Ownership Following the Merger
Immediately following the Merger, each stockholder of the Company
will own the same percentage interest in Holdings as it held in the Company
immediately prior to the Merger, subject to adjustment as a result of any
exercise by stockholders of appraisal rights. Immediately following the Merger,
there will be 13,004,946 LLC Units issued and outstanding (which is equal to the
number of shares of Common Stock that will be issued and outstanding immediately
prior to the Merger).
Reasons for Merger
The Merger is being consummated as part of a restructuring of the
Company's capital stock which includes the formation of Holdings, the Merger,
and the Pre-Closing Loan. The Merger, together with the formation of Holdings,
and the Pre-Closing Loan are expected to facilitate the consummation of the Sale
Transaction and effectively utilize the Company's tax status as a REIT. See
"PROPOSAL 1 - THE SALE TRANSACTION; Pre-Closing Loan, Payment of Purchase Price
and Other Related Transactions."
Material U.S. Federal Income Tax Consequences
The following summary of the anticipated material U.S. federal
income tax consequences to the Company and its stockholders of the proposed
Merger and the federal income tax classification of Holdings is not intended as
tax advice and is not intended to be a complete description of the federal
income tax consequences of the proposed Merger and an investment in Holdings.
This summary is based upon the Code, as presently in effect, the rules and
regulations promulgated thereunder, current administrative interpretations and
court decisions. No assurance can be given that future legislation, regulations,
administrative interpretations or court decisions will not significantly change
these authorities, possibly with retroactive effect. No rulings have been
requested or received from the IRS as to the matters discussed and there is no
intent to seek any such ruling. Accordingly, no assurance can be given that the
IRS will not challenge the tax treatment of certain matters discussed or, if it
does challenge the tax treatment, that it will not be successful. This summary
also does not discuss all of the tax consequences that may be relevant to a
particular stockholders or to certain stockholders subject to special treatment
under the United States federal income tax laws, such as insurance companies,
financial institutions, tax-exempt or foreign stockholders.
48
Classification of Holdings
Legal counsel to the Company has advised the Company that, for U.S.
federal income tax purposes, Holdings will be treated as a partnership and not
an association taxable as a corporation.
As a partnership, Holdings is not itself subject to U.S. federal
income tax. Holdings will be required to file an annual partnership information
return with the IRS that reports the results of its operations for the taxable
year. Each holder of the LLC Units (a "member") is required to report separately
on its income tax return its distributive share of Holdings' net long-term and
short-term capital gain or loss and net ordinary income and deductions and
credits. In addition, a member who contributes property other than cash to
Holdings is specifically allocated items of income, gain, loss, deduction or
credit attributable to such property to the extent of the difference, if any,
between the book value and the adjusted tax basis of the property at the time of
such contribution. Holdings is also required to distribute annually to each
member a form showing its distributive share of Holdings' items of income, gain,
loss, deduction or credit. Each member is liable for any taxes owed upon its
distributive share of the income or gains realized by Holdings, and may claim
deductions for its distributive share of Holdings' losses and deductions and
credits for its distributive share of Holdings' credits, to the extent allowed
under the Code. Each member is taxed on its distributive share of Holdings'
taxable income and gain regardless of whether it has received or will receive a
distribution from Holdings.
Tax Characterization of the Merger
Legal counsel to the Company has advised the Company that, for U.S.
federal income tax purposes, Lower Tier LLC will be disregarded and that the
Merger of Lower Tier LLC into the Company should be treated as a contribution by
the Company stockholders of their Common Stock to Holdings in exchange for LLC
Units. After the Merger, aside from shares issued by the Company to comply with
the 100 shareholder requirement for qualification as a REIT, all of the Common
Stock will be held by Holdings. Accordingly, the Company (as the surviving
entity of the Merger) will become a subsidiary of Holdings.
No gain or loss will be recognized by Company stockholders upon
receipt of LLC Units in exchange for their Common Stock. Each Company
stockholder's adjusted tax basis in the LLC Units received in the Merger will be
equal to its adjusted tax basis in the Common Stock surrendered, plus an
allocable share of the Pre-Closing Loan. The holding period for the LLC Units
received in the Merger will include the holding period of the Common Stock
surrendered in the Merger.
If a Company stockholder receives cash pursuant to an exercise of
appraisal rights, such holder will be required to recognize gain or loss,
measured by the difference between the amount of cash received and its adjusted
tax basis in the Common Stock surrendered. This gain or loss will be capital
gain or loss, and will be long-term capital gain or loss if the Common Stock
surrendered was held for more than one year at the effective time of the Merger.
This tax treatment may not apply to every Company stockholder.
Determining the actual tax consequences of the Merger to you may be complicated
and will depend on your specific situation and on variables not within the
Company's control. Stockholders, including but not limited to, tax-exempt and
foreign stockholders, should consult their own tax advisors for a full
understanding of the U.S. federal, state, local and foreign tax consequences of
the Merger and an investment in Holdings.
Vote Required
49
In order to effect the Merger, the Company is required to obtain the
affirmative vote of the holders of holders of at least 66 2/3% of the issued and
outstanding shares of Common Stock. Seven of the company's largest stockholders,
representing 10.3 million shares of Common Stock (approximately 79% of the
outstanding shares of Common Stock), have entered into separate Voting
Agreements with Purchaser to vote their shares in favor of the Merger.
Accordingly, the approval of the Merger is assured without the vote of any other
stockholders. A form of the Voting Agreement is attached hereto as Annex C.
Of the Company's 13,004,946 shares of Common Stock issued and
outstanding, approximately 8,658,193 shares are held by affiliates of the
Company and approximately 4,346,753 shares are held by non-affiliates.
Parties to the Merger
The Company.
o Description of Business. The Company is a REIT, which was formed on May
13, 1996. The Company's principal assets consist of its interests in 1290
Partners, through which it owns the 1290 Property. The Company's principal
business objective is to operate the 1290 Property in a manner that will
maximize the 1290 Property's revenues and value and in turn maximize funds
from operations and stockholder value.
o Competition. Numerous office building properties in New York City compete
with the 1290 Property in attracting tenants to lease space. Some of these
competing properties are newer or better located than the 1290 Property.
The amount of space available in competitive commercial properties in the
New York City area could have a material effect on the Company's ability
to lease space in the 1290 Property and on the rents charged. However, the
1290 Property is currently approximately 99% leased. Over the next five
years, approximately 28% of the total rentable square feet of the building
is subject to expiring leases, of which 7% has been leased to an existing
tenant as expansion space at the 1290 Property.
o Employees. The Company does not have any employees. 1290 Partners is a
party to labor agreements with respect to union employees employed at the
1290 Property. The property manager/leasing agent for the 1290 Property
has employed such union employees on behalf of 1290 Partners. The Company
believes that there are no unfunded retiree benefits liabilities under the
pension plans established pursuant to the labor agreements referred to
above.
o Qualification as a REIT. The Company has elected to be taxed as a REIT
under Sections 856 through 860 of the Code, commencing with its taxable
year ended December 31, 1996. As a REIT, the Company (subject to certain
exceptions) generally will not be subject to federal income taxation on
income it distributes to stockholders. For any year in which the Company
does not meet the requirements for qualifying to be taxed as a REIT, it
will be taxed as a corporation. Although the Company believes that it will
operate in such a manner so as to qualify to be taxed as a REIT,
qualification as a REIT involves the application of highly technical and
complex Code provisions for which there are only limited judicial or
administrative interpretations. The determination of various factual
matters and circumstances not entirely within the Company's control may
affect its ability to qualify and to continue to qualify as a REIT.
Moreover, no assurance can be given that legislation, new regulations,
administrative interpretations or court decisions will not change the tax
laws with respect to qualification as a REIT or the Federal income tax
consequences of such qualification.
To obtain the tax treatment accorded to a REIT under the Code, the Company
generally is required each year to distribute to its stockholders at least
90% of its taxable income. The Company is subject
50
to income tax on any of its undistributed taxable income and net capital
gains, and to a 4% nondeductible excise tax on the amount, if any, by
which certain distributions paid by it with respect to any calendar year
are less than the sum of 85% of its ordinary income plus 95% of its
capital gain net income for the calendar year, plus 100% of its
undistributed income from prior years.
Until its liquidation following the Merger, the Company intends to make
distributions to its stockholders to comply with the distribution
provisions of the Code and to avoid Federal income taxes and the
nondeductible 4% excise tax. A substantial portion of the Company's income
consists of the income of the 1290 Property and the Company's cash flow
consists primarily of distributions from the 1290 Property.
o Description of the 1290 Property. 1290 Partners holds the fee title to the
1290 Property and all improvements thereon. The 1290 Property, completed
in 1963, is a 43-story, first class commercial office building with
approximately 2,000,000 rentable square feet of space. The building is
centrally located in midtown Manhattan and is connected to the famed
"Rockefeller Center" complex via an underground passageway. The average
occupancy rates for the 1290 Property for the years 1997 through 2001 were
approximately 97%, 99%, 99%, 99% and 99%, respectively.
As of December 31, 2001, the 1290 Property was approximately 99% leased
and there were leases and license agreements with 31 tenants and 8
licensees covering approximately 1,960,000 rentable square feet of space.
For the year ended December 31, 2001, the annual average rent (including
electricity and additional rent payable on account of operating expenses,
porters wage, and real estate tax escalations) for office space leased in
the building was approximately $45.86 per square foot. For the year ended
December 31, 2001, approximately 72,000 square feet of space was under
lease to retail tenants, at an average annual rent (including electricity
and additional rent payable on account of operating expenses, porters wage
and real estate tax escalations) of approximately $82.58 per rentable
square foot. As of December 31, 2001, approximately 5,000 rentable square
feet of storage space was available for rent.
The building serves as the corporate headquarters of The Equitable Life
Assurance Society of the United States (also known as AXA Financial
Advisors) ("Equitable"). In addition to Equitable, the building houses a
variety of tenants, including financial institutions, entertainment
companies and law firms.
The following table summarizes certain information regarding the largest
leases at the 1290 Property as of December 31, 2001:
Annual Base
Leased Rent per Square Gross Rent per Date(s) of
Square Foot Square Foot Lease
Tenant Nature of Business Footage(1) Leased(2) Leased(3) Expiration
- ------ ------------------ ---------- --------------- --------- ----------
Equitable (AXA Financial Insurance/Financial 777,578 $38.16(4) $42.89(4) 12/31/11(5)
Advisors) Services
Warner Communications, Inc. Entertainment 226,373 $41.91(6) $45.59(6) 6/30/12(7)
Robinson Silverman Law Firm 125,744 $52.29(8) $58.53(8) 3/31/04
The Bank of New York Financial Services 107,448 $39.44(9) $42.78(9) 12/31/10(10)
EMI Entertainment World, Inc. Entertainment 104,553 $37.95(11) $43.29(11) 9/30/02(12)
51
Annual Base
Leased Rent per Square Gross Rent per Date(s) of
Square Foot Square Foot Lease
Tenant Nature of Business Footage(1) Leased(2) Leased(3) Expiration
- ------ ------------------ ---------- --------------- --------- ----------
Deutsche Bank, AG Financial Services 100,380 $41.00 $44.99 2/14/14
Morrison Foerster Law Firm 93,606 $50.19(13) $56.33(13) 9/30/12(14)
ABN-AMRO Financial Services 87,626 $57.00(15) $63.07(15) 10/31/14
GMAC Financial Services 81,892 $33.50 $37.66 12/31/10
Other Office and Retail Tenants Various 259,948 $50.57 $58.16 2001-2016
(1) Leased square footage does not include approximately 7,700 square feet of
vacant storage space and the building office.
(2) "Annual Base Rent" means the amount contractually due (excluding
adjustments related to recoveries from tenants for operating expenses,
porters wage, real estate taxes, utilities or other items and rent
concessions) for the year ended December 31, 2001. The Company believes
that base rent is a conservative and appropriate measure for comparative
purposes of commercial real estate rental revenue from office building
properties that do not generate percentage rents based on sales.
(3) "Gross Rent" means Annual Base Rent plus recoveries from tenants for
operating expenses, porters wage, real estate taxes, utilities and other
items.
(4) Does not include 42,110 square feet leased in the basement at an Annual
Base Rent of $28.01 per square foot and Gross Rent of $28.26 per square
foot.
(5) Leases with Equitable expire December 31, 2015 (with respect to 13,689
square feet), December 31, 2011 (with respect to 626,668 square feet and
38,454 square feet in the basement) and December 31, 2008 (with respect to
95,111 square feet and 3,656 square feet in the basement).
(6) Does not include 2,615 square feet of space leased in the basement at an
Annual Base Rent of $22.00 per square foot and Gross Rent of $24.50 per
square foot.
(7) Leases with Warner expire September 30, 2004 (with respect to 66,367
square feet) and June 30, 2012 (with respect to 157,391 square feet and
2,615 square feet in the basement).
(8) Does not include 1,800 square feet of space leased in the basement at an
Annual Base Rent of $24.00 per square foot and Gross Rent of $24.75 per
square foot.
(9) Does not include 11,633 square feet of space leased in the basement at an
Annual Base Rent and Gross Rent of $45.00 per square foot.
(10) Leases with The Bank of New York expire April 30, 2003 (with respect to
31,402 square feet and 11,633 square feet in the basement) and December
31, 2010 (with respect to 64,413 square feet).
(11) Does not include 2,456 square feet of space leased in the basement at an
Annual Base Rent of $26.80 per square foot and Gross Rent of $30.84 per
square foot.
(12) Leases with EMI expire September 30, 2002 (with respect to 75,474 square
feet and 923 square feet in the basement) and September 30, 2012 (with
respect to 26,623 square feet and 1,533 square feet in the basement). Of
the space expiring September 30, 2002, Morrison Foerster has leased 75,474
square feet through September 30, 2012. EMI has the option to terminate
its lease
52
effective September 30, 2007 by giving 1290 Partners written notice on or
before September 30, 2006 and by paying a termination fee of $1,258,000.
(13) Does not include 879 square feet of space leased in the basement at an
Annual Base Rent of $28.00 per square foot and Gross Rent of $30.36 per
square foot.
(14) Leases with Morrison & Forester expire on February 28, 2003 (with respect
to 17,468 square feet) and September 30, 2012 (with respect to 75,259
square feet and 879 square feet in the basement).
(15) Does not include 6,746 square feet of space leased in the basement at an
Annual Base Rent and Gross Rent of $26.65 per square foot.
Expenditures for capital projects for the 1290 Property in 2001 aggregated
approximately $477,000 and related primarily to (i) the completion of the
elevator modernization program; (ii) the completion of a 100-ton chiller
installation for the lobby; (iii) the upgrade and modernization of the
video surveillance system; and (iv) the modernization of the truck lift.
Anticipated expenditures for capital projects for the 1290 Property in
2002 are approximately $75,000 and relate to the completion of the
modernization of the trucklift.
53
The following table shows anticipated lease expirations on an aggregate
basis for each calendar year from 2002 through and including 2011. Such
chart assumes that there will be no early terminations of leases and
that leases expire without extension by existing tenants pursuant to
lease options.
Percentage of Total
Rentable Square Property Owning
Feet Subject to Annual Base Rent Partnership Annual Base
Year of Lease Number of Expiring Represented by Rent Represented by
Expiration Leases Expiring Leases Expiring Leases Expiring Leases
--------------- --------------- ------------ ----------------- ---------------
2002 4 102,660 $ 2,613,096 3.17%
2003 3 61,075 $ 2,957,440 3.50%
2004 5 234,757 $ 11,476,188 14.71%
2005 8 54,754 $ 2,901,468 3.99%
2006 3 94,538 $ 3,894,336 5.62%
2007 -- -- -- --
2008 2 116,070 $ 6,168,528 9.12%
2009 1 10,000 $ 150,000 .24%
2010 2 146,305 $ 6,279,314 9.86%
2011 1 665,122 $ 25,171,284 43.82%
Annual real estate taxes assessed against the 1290 Property for the fiscal
year ending June 30, 2002 and for each of the fiscal years ended June 30,
2001, 2000, and 1999 were $18,076,000, $17,442,000, $17,755,000, and
$17,964,000, respectively, which amounts were calculated on assessed
values of approximately $186,120,000, $178,560,000, $185,400,000, and
$175,500,000, respectively.
In December 1999, 1290 Partners refinanced mortgage indebtedness secured
by the 1290 Property of approximately $224,900,000 and obtained the
$425,000,000 Existing Debt. Interest on the Existing Debt is based on
LIBOR plus 2% and requires interest only payments through maturity on
January 2, 2003. 1290 Partners has a one time right (subject to achieving
certain conditions, including a debt service coverage ratio, loan to value
ratio and the payment of a 25 basis point extension fee), at its option,
to extend the maturity for a period of twelve months. The Existing Debt
may be repaid in whole without penalty.
o Legal Proceedings. There are no material pending legal proceedings, other
than ordinary routine litigation incidental to the business of the
Company, against or involving the Company, the 1290 Property Owning
Partnership or the 1290 Property.
o Market For Registrant's Common Equity and Related Stockholder Matters. The
Common Stock is not listed on any exchange, the Company does not intend to
list the Common Stock on any exchange in the near term, there is not
currently a public market for the Common Stock and it is not expected that
an active trading market for the Common Stock will develop or be
sustained. On October 10, 2001, the classification of the Common Stock
into two classes of Common Stock terminated pursuant to the terms of the
Charter. All shares of Class A and Class B Common Stock were automatically
54
converted into a single class of Class A Common Stock. As of March 15,
2002, there were approximately 111 holders of record of the Company's
Class A Common Stock.
o Distribution Policy. On March 6, 1997, the Board of Directors adopted a
distribution policy calling for regular quarterly distributions. The Board
of Directors, in its sole discretion, determines the actual distribution
rate based on a number of factors, including the amount of cash available
for distribution, the Company's financial condition, capital expenditure
requirements for the 1290 Property, the annual distribution requirements
under the REIT provisions of the Code and such other factors as the Board
of Directors deems relevant. The Company intends to make distributions to
comply with the REIT distribution requirements. In order to maintain its
qualification as a REIT, the Company must make annual distributions to
stockholders of at least 90% of its taxable income (excluding capital
gains). The Company has made the following distributions for its two most
recent fiscal years:
Amount of Distribution
Date of Distribution Type of Distribution (Per Share)
- -------------------- -------------------- ----------------------
April 13, 2000 Regular $ .15
July 13, 2000 Regular $ .15
October 12, 2000 Regular $ .15
December 14, 2000 Regular $ .25
April 16, 2001 Regular $ .25
July 16, 2001 Regular $ .25
October 19, 2001 Regular $ .25
December 28, 2001 Regular $ .25
March 20, 2002 Regular $ .25
o Management's Discussion and Analysis Of Financial Condition And Results Of
Operations (dollar amounts in this section are in thousands). The
following discussion should be read in conjunction with the Company's
selected financial data and the financial statements included in "SUMMARY
TERMS SHEET; SELECTED COMPANY FINANCIAL DATA;" and the Company's Financial
Statements and Supplementary Data attached hereto as Annex G.
o Overview. Prior to November 22, 1999, the Company owned and operated
the real property and office building located at 237 Park Avenue,
New York, New York (the "237 Property") and the 1290 Property. On
November 22, 1999, the Company sold ------------ its interests in
the 237 Property. Consequently, the Company's principal business
objective is to operate the 1290 Property in a manner that will
maximize the 1290 Property's revenues and value and in turn maximize
funds from operations and stockholder value. 1290 Partners has
retained Tishman Speyer Properties, L.P. to serve as the property
manager and leasing agent, which is responsible for managing the
daily operations of the 1290 Property, and Capital Trust, Inc. to
serve as the Asset Manager. The Company has also entered into a REIT
Management Agreement with Tishman Speyer Properties, L.P. to perform
certain accounting, administrative and REIT compliance monitoring
services. On October 10, 2001, the classification of the Common
Stock into two classes of Common Stock terminated pursuant to the
terms of the Charter. All shares of Class A and Class B Common Stock
were automatically converted into a single class of Class A Common
Stock. As of December 31, 2001, 13,001,346 shares of Class A Common
Stock, par value $10.00 per share, were issued and outstanding. The
Common Stock of the Company is not listed on any exchange, and the
Company does not intend to list the Common Stock on any exchange in
the near term. The assets and results of operations of the 1290
Property are reported in the consolidated financial statements of
the Company using the consolidation method of accounting.
55
o Quarters Ended March 31, 2002 and 2001.
Base rental income decreased by approximately $433 for the quarter
ended March 31, 2002 as compared to the same period in the prior
year due to the expiration of a lease in September 2001 where a
former tenant continued to pay base rental income on space no longer
occupied by them, offset by scheduled rent increases in existing
leases.
Operating escalation income increased by approximately $396 for the
quarter ended March 31, 2002 as compared to the quarter ended March
31, 2001. This increase is primarily due to an increase of
escalatable operating expense billings in 2002 as compared to 2001.
In addition, new leases for approximately 2% of the total rentable
area of the building commenced in 2001. Tenants under such leases
were not required to pay operating escalations until 2002.
Operating expenses for the quarter ended March 31, 2002 were
$11,982, a decrease of 3.8% from the quarter ended March 31, 2001.
This decrease was primarily attributable to a decrease in utilities
caused by (i) an energy rate cap agreement signed with Con Edison in
May 2001, (ii) a material decrease in the cost of steam, and (iii)
lower overall energy consumption. This decrease in utilities was
offset by an increase in operating and maintenance costs due to the
timing of certain periodic repairs. Operating expenses as a
percentage of base rental income and escalation income decreased to
54.3% for the quarter ended March 31, 2002 from 56.4% for the
quarter ended March 31, 2001.
On March 23, 2001, the Company exercised its right to repurchase the
Subordinated Minority Interest that was owned by the Upper Tier LP
in accordance with the Agreement of Limited Partnership of 1290
Partners. The exercise of such repurchase right resulted in a
payment of approximately $1,400 by the Company to the Upper Tier LP
and a gain to the Company of $13,009.
Liquidity and Capital Resources. During the three months ended March
31, 2002, cash flow from operations totaled $4,978. The Company used
this cash flow from operations to fund building and tenant
improvements of approximately $25 and leasing costs of approximately
$156.
At March 31, 2002, the Company had unrestricted cash on hand of
approximately $15,859 of which $3,251 was used to pay a first
quarter dividend on April 15, 2002 to holders of record of the
Company's Common Stock on March 29, 2002. The Company believes that
its cash flows from operations are adequate to allow it to fund
required interest payments, leasing costs, and pay dividends
sufficient for it to retain its REIT status.
o Historical Consolidated Statement of Income, year ended December 31, 2001.
Rental income for the year ended December 31, 2001 increased by
approximately $1,036, an increase of 1.2% from the year ended
December 31, 2000. This increase is primarily due to the
commencement of new leases at higher market rents and scheduled rent
increases in existing leases. Miscellaneous income for the year
ended December 31, 2001 decreased by approximately $2,309, a
decrease of 44.0% from the year ended December 31, 2000. This
decrease is primarily due to: (i) $2,100 that was recognized in
December 2000 related to real estate tax refunds received for the
tax years ending June 30, 1991 through June 30, 1996 and (ii) $1,000
that was received in June 2000 from a tenant at the 1290 Property in
connection with the occupancy of space that the tenant was
previously subleasing and now leases
56
directly. This decrease is offset by an increase in tenant
submetered electric charges of $629 during 2001.
Operating expenses for the year ended December 31, 2001 were
$52,223, an increase of 5.4% from the year ended December 31, 2000.
This increase is primarily attributable to increases in (i) bad debt
expense resulting from the write-off of certain tenant receivables
acquired from the Company's predecessors, (ii) utility expense,
(iii) payroll expense resulting from annual wage increases and (iv)
depreciation and amortization related to additions to building and
tenant improvements in 2000 and 2001. These increases were offset by
a decrease in professional fees as 2000 includes amounts incurred
related to the sale of the 237 Property. Operating expenses as a
percentage of base rental income and escalation income increased to
57.4% for the year ended December 31, 2001 as compared to 55% for
the year ended December 31, 2000.
Interest income for the year ended December 31, 2001 decreased by
approximately $1,944, a decrease of 66.7% from the year ended
December 31, 2000. This decrease was due to approximately $1,700 of
interest income that was recognized in December 2000 related to the
receipt of real estate tax refunds received in 2000. In addition,
interest income decreased due to a decline in interest rates during
2001 as compared to 2000.
On March 23, 2001, the Company exercised its right to repurchase the
4.95% limited partnership interest in the 1290 Property Owning
Partnership (the "Subordinated Minority Interest") that was owned by
237/1290 Upper Tier Associates, L.P. (the "Upper Tier LP"), in
accordance with the Agreement of Limited Partnership of the 1290
Partners. The exercise of such repurchase right resulted in a
payment of approximately $1,400 by the Company to the Upper Tier LP
and a gain to the Company of $13,009.
o Historical Consolidated Statement of Income, year ended December 31, 2000.
Rental income for the year ended December 31, 2000 decreased by
approximately $36,361, a decrease of 28.8% from the year ended
December 31, 1999. This decrease was the result of the sale of the
237 Property on November 22, 1999. This decrease is offset by an
increase in base rents at the 1290 Property associated with new
leases, and an increase in operating escalations at the 1290
Property, which was primarily the result of an increase in utility
expense in 2000. Miscellaneous income in 1999 includes approximately
$2,900 related to the reversal of a reserve for utility tax claims
settled during 1999. Miscellaneous income in 2000 includes $2,100
that was recognized in December 2000 related to the real estate tax
refunds received for the tax years ending June 30, 1991 through June
30, 1996. Miscellaneous income in 2000 also included $1,000 that was
received in June 2000 from a tenant at the 1290 Property in
connection with the occupancy of space that the tenant was
previously subleasing and now leases directly.
Operating expenses for the year ended December 31, 2000 were
$49,528, a decrease of 26.6% from the year ended December 31, 1999.
This decrease was the result of the sale of the 237 Property on
November 22, 1999. This decrease is partially offset by increases in
utilities, repairs and maintenance, payroll and management fees at
the 1290 Property and an increase in depreciation and amortization
related to additions to building and tenant improvements in 1999 and
2000. Operating expenses as a percentage of base rental income and
escalation income is 55.0% in 2000 versus 53.3% in 1999.
57
Interest income for the year ended December 31, 2000 decreased by
approximately $842, a decrease of 22.4% from the year ended December
31, 1999. This decrease was the result of the sale of the 237
Property on November 22, 1999, and a reduction in cash held by the
Company, offset by approximately $1,700 of interest income that was
recognized in December 2000 related to the real estate tax refunds
received for the tax years ending June 30, 1991 through June 30,
1996.
Interest expense for the year ended December 31, 2000 increased by
approximately $7,882, an increase of 23.5% from the year ended
December 31, 1999. This increase is due to a higher level of
mortgage indebtedness, a higher interest rate on such indebtedness
and an increase in the amortization of deferred financing costs
associated with such indebtedness.
Liquidity and Capital Resources. During 2001, the Company generated
cash flows from operations of approximately $13,747. The Company
used this cash and cash on hand to pay dividends in the amount of
$13,001, pay leasing commissions of approximately $2,069 and fund
building and tenant improvements of approximately $614. At December
31, 2001, the Company had unrestricted cash on hand of approximately
$11,012. At December 31, 2000, the Company had unrestricted cash on
hand of approximately $15,066. In December 1999, the 1290 Property
Owning Partnership refinanced mortgage indebtedness secured by the
1290 Property of approximately $224,900, and obtained the Existing
Loan. Interest on the Existing Loan is based on LIBOR plus 2% and
requires interest only payments through maturity on January 2, 2003.
The 1290 Property Owning Partnership has a one time right (subject
to achieving certain conditions, including a debt service coverage
ratio, loan to value ratio and the payment of a 25 basis point
extension fee), at its option, to extend the maturity for a period
of twelve months. The Existing Loan may be repaid in whole without
penalty.
Recent Pronouncements Statement of Financial Accounting Standards
("SFAS") No. 133, Accounting for Derivative Instruments and Hedging
Activities, was implemented by the Company on January 1, 2001. SFAS
No. 133, as amended and interpreted, establishes accounting and
reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging
activities. All derivatives, whether designated as hedging
relationships or not, are required to be recorded on the balance
sheet at fair value. If the derivative is designated as a fair-value
hedge, the changes in the fair value of the derivative and the
hedged item are recognized in earnings. If the derivative is
designated as a cash-flow hedge, the effective portion of changes in
the fair value of the derivative is recorded in other comprehensive
(loss) income and will be recognized in the income statement when
the hedged item affects earnings. The ineffective portion of changes
in the fair value of the derivative designated as a cash flow hedge
is recognized in the income statement. SFAS No. 133 defines new
requirements for designation and documentation of hedging
relationships as well as ongoing effectiveness assessments in order
to use hedge accounting. For a derivative that does not qualify as a
hedge, changes in fair value are recognized in earnings.
On January 1, 2001, the Company recorded approximately $6,900 in
other comprehensive loss as a cumulative transition adjustment, to
record its Swap Agreement at its estimated fair value as of that
date.
In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long Lived Assets (effective January 1,
2002). SFAS No. 144 supersedes existing accounting literature
dealing with impairment and disposal of long-lived assets, including
discontinued operations. It addresses financial accounting and
reporting for the impairment
58
of long-lived assets and for long-lived assets to be disposed of,
and expands current reporting for discontinued operations to include
disposals of a "component" of an entity that has been disposed of or
is classified as held for sale. Implementation of this standard did
not have a material impact on the Company's financial statements.
o Quantitative and Qualitative Disclosures about Market Risk. The Swap
Agreement provides that 1290 Partners will pay interest at an
effective rate of 8.4995% per annum on the notional amount of
$425,000. Management believes that the risk of incurring losses
related to the credit risk is remote and that any losses would be
immaterial. The maturity date of the 1290 Mortgage Loan and the
termination date of the 1290 Swap Agreement are identical. The
estimate of the cost to unwind the Swap Agreement is approximately
$14,182 at March 31, 2002. In connection with the Merger and the
Sale Transaction, the Company intends to unwind the Swap Agreement.
The current estimated costs of terminating the Swap Agreement as of
June 30, 2002 would be approximately $10 million.
o Executive Compensation. The Company has no employees and none of its
executive officers receives any compensation in their capacities as
executive officers. In 2000, each member of the Board of Directors
earned (i) $15,000 in cash as an annual retainer, (ii) $750 per
meeting of the Board of Directors attended by such member and (iii)
400 shares of Common Stock issued under the Company's Amended and
Restated 1996 Directors' Stock Plan (as amended, the "Stock Plan").
For the fiscal year 2001, the members of the Board of Directors
received (i) $15,000 in cash as an annual retainer and (ii) 400
shares of Common Stock to be issued under the Stock Plan. Such stock
and cash was paid to the then current members of the Board of
Directors at the time of the Annual Meeting of Stockholders for the
fiscal year 2001. Each director also received an additional payment
of $750 for each meeting of the Board of Directors attended by such
member. Upon initial election to the Board of Directors, each
Director received options, which vested over two years, to purchase
3,000 shares of the Company's Class A Common Stock. On December 13,
1999, the Board of Directors decreased the exercise price of all
outstanding options by $15.00 per share in consideration of a
special distribution to stockholders of $15.00 per share that was
made on December 10, 1999. On December 23, 1999, each member of the
Board of Directors (except Mr. Jacobsson) exercised his options. On
December 28, 1999, the Board of Directors decreased the exercise
price of Mr. Jacobsson's options by another $15.00 per share to
$12.50 per share in consideration of a second special distribution
to stockholders of $15.00 per share that was made on December 27,
1999. See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT." The Company has purchased a directors' and officers'
liability insurance policy in the amount of $10,000,000.
o Information concerning the Company's Board of Directors:
William L. Mack (age 61) has served as the Chairman of the Board of
Directors of the Company since 1996. Mr. Mack is the managing
partner of AREA, the manager of five opportunistic real estate
investment funds which he co-founded in 1993, and serves as
President of its corporate general partner. Beginning in 1969, Mr.
Mack served as Managing Partner of the Mack Company, where he
oversaw the dynamic growth of the Mack Company's office, industrial,
retail and hotel facilities. Mr. Mack has served as the Chairman of
Mack-Cali Realty Corporation since June of 2000. Mr. Mack is also a
director of The Bear Stearns Companies, Inc., an investment banking
firm, Vail Resorts, Inc., an owner and operator of Colorado ski
resorts, and Wyndham International, Inc., an owner and operator of a
national chain of hotel properties. Mr. Mack attended the Wharton
School of Business and
59
Finance at the University of Pennsylvania and received a B.S. degree
in business administration, finance and real estate from New York
University.
Lee S. Neibart (age 51) is a partner of AREA, with which he has been
associated since 1993, and directs portfolio and asset management.
From 1979 to 1993, he was Executive Vice President and Chief
Operating Officer of the Robert Martin Company, a private real
estate development and management firm. Mr. Neibart is a director of
Atlantic Gulf Communities Corp., a land development company, Koger
Equity, Inc., a real estate investment trust that owns and operates
office properties, NextHealth, Inc., an owner and operator of spa
and wellness facilities, Roland International Corporation, a land
development company, Wyndham International, Inc., Meadowbrook Golf
Group, Inc., an owner and operator of golf courses, and Schuler
Homes, Inc., a company that designs, builds and markets
single-family residences. Mr. Neibart received a B.A. from the
University of Wisconsin and an M.B.A. from New York University.
Bruce H. Spector (age 59) is a partner of AREA, with which he has
been associated since 1993, and has been responsible for advising on
matters of reorganization strategy. Mr. Spector is a partner of
Apollo Management, L.P., with which he has been associated since
1992. From 1967 to 1992, Mr. Spector was a member of the law firm of
Stutman, Treister and Glatt, spending a substantial amount of that
time as a senior partner and head of the firm's executive committee.
Mr. Spector is a director of Pacer International, Inc., a national
intermodal and logistics company, Vail Resorts, Inc. and Park Media,
LLC, a firm specializing in bringing advertising revenue to the
owners of parking venues. Mr. Spector received a B.A. from the
University of Southern California and a J.D. from the UCLA School of
Law.
John R.S. Jacobsson (age 33) is a partner of AREA, with which he has
been associated since its founding in 1993. Mr. Jacobsson is
responsible for investments, investment management and capital
raising at AREA and co-heads AREA's Japanese investment program.
Prior to 1993, Mr. Jacobsson was associated with the acquisitions
group of Trammell Crow Ventures, a real estate investment firm. Mr.
Jacobsson is a director of Koger Equity, Inc., Roland International
Corporation, and Oasis Car Wash, Inc., an owner and operator of car
washes. Mr. Jacobsson received a B.A. from Harvard College in 1990.
John R. Klopp (age 47) has been a Director of Capital Trust, an
investment management and finance company focused on the commercial
real estate industry, since January 1997 and the Chief Executive
Officer, a Vice Chairman and the President of Capital Trust since
February 1997, July 1997 and July 1999, respectively. Mr. Klopp was
a founder and a Managing Partner of Victor Capital Group L.P.
("VCG") from 1989 until the acquisition of VCG by Capital Trust in
July 1997. From 1982 to 1989, Mr. Klopp was a Managing Director and
co-head of Chemical Realty Corporation ("Chemical Realty"), the real
estate investment banking affiliate of Chemical Bank. Prior to
founding Chemical Realty, he held various positions in Chemical
Bank's Real Estate Division and was responsible for originating,
closing and monitoring portfolios of construction and interim loans.
He received a B.A. from Tufts University in 1976 with a major in
economics and an M.B.A. in 1978 from the Wharton School of Business
and Finance at the University of Pennsylvania with a major in real
estate and finance.
Russel S. Bernard (age 43) is a Principal of Oaktree Capital
Management, LLC ("Oaktree"), with which he has been associated since
1995, and is the portfolio manager of Oaktree's real estate and
mortgage funds. Prior to joining Oaktree in 1995, Mr. Bernard was a
Managing
60
Director of Trust Company of the West ("TCW"). Under subadvisory
relationships with Oaktree, Mr. Bernard continues to serve as
portfolio manager for the TCW Special Credits distressed mortgage
funds. From 1986 to 1994, Mr. Bernard was a partner in Win
Properties, Inc., a national real estate investment company, where
he was responsible for the acquisition, financing and operation of a
national real estate portfolio. Mr. Bernard holds a B.S. in Business
Management and Marketing from Cornell University.
David A. Strumwasser (age 50) is a principal of Whippoorwill
Associates, Incorporated ("Whippoorwill"), an investment management
firm, and has served as a Managing Director and General Counsel of
Whippoorwill since 1993. From 1984 to 1993, Mr. Strumwasser was a
Partner and co-head of the Bankruptcy and Reorganization Practice at
the New York law firm of Berlack, Israels & Liberman LLP. Prior to
that, he practiced bankruptcy law at Anderson Kill & Olick, LLP from
1981 to 1984 and at Weil, Gotshal & Manges LLP from 1976 to 1979.
From 1979 to 1981, Mr. Strumwasser was an Assistant Vice President
at Citicorp Industrial Credit, Inc. Mr. Strumwasser serves on the
Board of Directors of Barneys New York, Inc. Mr. Strumwasser
received a B.A. in political science from the State University of
New York at Buffalo in 1973 and a J.D. from Boston College Law
School in 1976.
David Roberts (age 39) has been a Managing Director of Angelo,
Gordon & Co., L.P. ("Angelo, Gordon"), an investment management
firm, since 1993, where he oversees the firm's real estate and
special situations investment activities. From 1988 until 1993, Mr.
Roberts was a principal of Gordon Investment Corporation, a Canadian
merchant bank, where he participated in a wide variety of principal
transactions, including investments in the real estate and mortgage
banking industries. Prior to that, Mr. Roberts worked in the
Corporate Finance Department of L.F. Rothschild & Co. Incorporated,
an investment bank, as a Senior Vice President specializing in
mergers and acquisitions. Mr. Roberts has a B.S. in Economics from
the Wharton School of the University of Pennsylvania.
o Information concerning the Company's Executive Officers:
The following discussion sets forth the names, ages and business
histories of the executive officers of the Company. Each of the
following individuals has served as an executive officer of the
Company since 1996.
Name Age Office Business History
---- --- ------ ----------------
William L. Mack 61 Chairman of the Board See above biography
Lee S. Neibart 51 President See above biography
John R. Klopp 47 Vice President See above biography
John R.S. Jacobsson 33 Vice President and See above biography
Secretary
o Certain Relationships And Related Party Transactions. The following
represent all related party transactions (i) for the fiscal year of the
Company ended December 31, 2000, and (ii) for the nine months ended
September 30, 2001.
61
Asset Management. The Company has retained Capital Trust to serve as the
Company's Asset Manager pursuant to the asset management agreement, dated
as of December 22, 2000 (the "Asset Management Agreement"). John R. Klopp,
one of the Company's Directors and an officer and a stockholder of the
Company, is the Chief Executive Officer of Capital Trust. Pursuant to the
Asset Management Agreement, the Asset Manager serves as the Company's
advisor and consultant with respect to the management of the 1290 Property
and the Company's interests in 1290 Partners, L.P. The Asset Management
Agreement had an initial term of one year. The term is automatically
extended for consecutive one-year periods thereafter unless the Company or
the Asset Manager notifies the other at least 30 days before the then
current term would otherwise terminate of its election not to extend the
term. The Company may terminate the Asset Management Agreement (i) after
the expiration of a certain cure period, by notice to the Asset Manager if
the Asset Manager defaults in any material respect in its performance
under the Asset Management Agreement, and (ii) immediately upon notice to
the Asset Manager if the 1290 Property is sold or if there is a change in
control of the Asset Manager. The Asset Manager may terminate the Asset
Management Agreement if the Company defaults in the payment of any amount
due and payable to the Asset Manager and such default continues for 30
days after the Asset Manager's written notice to the Company of such
default. Either party may terminate the Asset Management Agreement by
giving notice to the other upon the occurrence of certain events relating
to the bankruptcy or insolvency of the other party. Pursuant to the Asset
Management Agreement, the Company pays the Asset Manager a fee (the "Asset
Management Fee") of $25,000 per month. Asset management fees incurred for
the year ended December 31, 2000 aggregated approximately $300,000 and for
the nine months ended September 30, 2001 aggregated approximately
$225,000. In addition to the payment of the Asset Management Fee, the
Company reimburses the Asset Manager for certain expenses.
Management and Leasing Agreements. 1290 Partners entered into a management
and leasing agreement, dated as of October 10, 1996 (the "Property
Management Agreement"), with Tishman Speyer Properties, L.P. (the
"Property Manager/Leasing Agent"). Nyprop, LLC, a stockholder of the
Company, is an affiliate of the Property Manager/Leasing Agent. Pursuant
to the Property Management Agreement, the Property Manager/Leasing Agent
performs all supervisory, management and leasing services and functions
reasonably necessary or incidental to the leasing, management and
operations of the 1290 Property. Fees under the Property Management
Agreement for the year ended December 31, 2000 were approximately
$2,295,000 and for the nine months ended September 30, 2001 were
approximately $1,507,000. An affiliate of the Property Manager/Leasing
Agent provided cleaning services for the 1290 Property through February
2001. Fees paid for cleaning services for the year ended December 31, 2000
totaled $2,499,000 and for the nine months ended September 30, 2001
totaled $405,000. The Property Management Agreement had an initial term of
two years. The term is automatically extended for additional consecutive
90-day terms until such time as 1290 Partners notifies the Property
Manager/Leasing Agent in writing, at least 30 days before the then current
term would otherwise terminate, of its election not to extend the term of
the Property Management Agreement.
1290 Partners may terminate the Property Management Agreement on 60 days
notice if the 1290 Property is either sold by the 1290 Property Owning
Partnership or refinanced by the 1290 Property Owning Partnership pursuant
to a securitized financing of the 1290 Property; provided that termination
of the Property Management Agreement as a result of such financing will
only be effective if the Property Manager/Leasing Agent is not approved by
the rating agency participating in such financing. In addition, 1290
Partners may terminate the Property Management Agreement (i) after a
certain cure period, upon notice to the Property Manager/Leasing Agent if
the Property Manager/Leasing Agent breaches a material term of the
Property Management Agreement, and (ii) immediately upon notice to the
Property Manager/Leasing Agent if (x) the Property Manager/Leasing Agent
or any principal of the Property Manager/Leasing Agent intentionally
misappropriates funds of
62
1290 Partners or commits fraud against the 1290 Partners or (y) there is a
change in control of the Property Manager/Leasing Agent. The Property
Manager/Leasing Agent may terminate the Property Management Agreement (i)
after a certain cure period, upon notice to 1290 Partners if 1290 Partners
breaches a material term of the Property Management Agreement, and (ii)
upon 60 days notice to t1290 Partners if 1290 Partners fails to provide
funds on a consistent basis to operate and maintain the 1290 Property.
Either party may terminate the Property Management Agreement upon notice
to the other party if (x) a petition in bankruptcy is filed against the
other party and is not dismissed within 60 days, (y) a trustee, receiver
or other custodian is appointed for a substantial portion of the other
party's assets and is not vacated within 60 days or (z) the other party
makes an assignment for the benefit of its creditors.
Pursuant to the Property Management Agreement, 1290 Partners (i) pays the
Property Manager/Leasing Agent a fee in an amount equal to 1.5% of gross
revenues from the 1290 Property, which fee is paid monthly, and (ii)
reimburses the Property Manager/Leasing Agent for all reasonable
out-of-pocket expenses incurred by the Property Manager/Leasing Agent
related to the performance of its responsibilities under the Property
Management Agreement, to the extent set forth in the annual budget. In
addition, the Property Manager/Leasing Agent is entitled to receive
commissions in connection with the leasing of space at the 1290 Property
and renewals and extensions of leases. The Company entered into a REIT
Management Agreement with the Property Manager/Leasing Agent (the "REIT
Manager"). The REIT Manager performs certain accounting, administrative
and monitoring services. The REIT Management Agreement provides for
compensation to the REIT Manager of monthly fees aggregating approximately
$125,000 per annum and reimbursement of documented out-of-pocket expenses.
Fees and reimbursables paid to the REIT Manager under the REIT Management
Agreement for the year ended December 31, 2000 were $137,000 and for the
nine months ended September 30, 2001 aggregated approximately $94,000.
Holdings. Holdings is a newly-formed Delaware limited liability company without
any operational history. It has not conducted any business other than in
connection with the Merger, the Pre-Closing Loan and the other matters described
under the section "PROPOSAL 1 - THE SALE TRANSACTION; Description of Purchase
Agreement; Pre-Closing Loan, Payment of Purchase Price and Other Related
Transactions." Holdings' principal executive offices are located at 410 Park
Avenue, 14th Floor, New York, New York 10022, and the telephone number of
Holdings at this location is (212) 655-0220.
o Ownership of Holdings. Holdings is a wholly-owned subsidiary of the
Company. Upon the consummation of the Merger, Holdings will issue to
each stockholder of the Company immediately prior to the Merger, a
number of LLC Units equal to the number of shares of Common Stock
held by such stockholder at such time. Accordingly, following the
Merger, the beneficial ownership of Holdings will be identical to
the ownership of the Company immediately prior to the Merger.
o Governance of Holdings. Holdings will be managed by a Board of
Managers, which will be comprised of the entire existing eight
member Board of Directors of the Company. In addition, its initial
officers will be the existing officers of the Company. Except as
otherwise described below, Holdings' operating agreement will have
similar terms to the Company's charter.
o Voting. From and after the Merger, holders of LLC Units will have
voting rights equal to one vote per LLC Unit and will be entitled to
vote on all matters in respect of which members of a limited
liability company would be entitled to vote under Delaware law.
Action by the members of Holdings will require the affirmative vote
of a majority of the outstanding LLC Units. See a copy of Holdings
Limited Liability Company Operating Agreement attached hereto as
Annex F.
63
o Assignability and Transferability of LLC Units. Subject to federal
and state securities law restrictions on transfer, there will be no
restriction on the assignability or transferability of the LLC
Units.
o LLC Units will be Certificated. Certificates representing LLC Units
will be issued to stockholders in the Merger upon the surrender by
stockholders of their respective certificates representing shares of
Common Stock.
o No Public Market for the LLC Units. The LLC Units will not be traded
on any established trading market and no market of this type is
expected to develop. Thus, there will be limited liquidity of and
information available regarding the prevailing market prices for the
LLC Units.
o Registered with the Commission. The issuance of the LLC Units is
being registered with the Commission under this joint information
statement--prospectus and, accordingly, Holdings will be required
under the federal securities laws to file quarterly and annual
reports with the Commission and otherwise comply with the reporting
obligations under the Exchange Act.
o Assumption of Company Indemnification Obligations to Purchaser. The
Company has agreed to indemnify Purchaser for the breach of certain
of the Company's representations and warranties in the Purchase
Agreement up to the Holdback Amount. These indemnification
obligations expire on the end of the Indemnification Period on
December 30, 2002 unless claims are asserted prior to such time.
Since the Company is disposing of its final asset, liquidating and
distributing all of the net proceeds that it receives in the Sale
Transaction to Holdings, it will not have any operating income from
which to settle and/or satisfy any Indemnification Claims made
during the Indemnification Period. Accordingly, in order to ensure
there will be sufficient funds to satisfy or settle any
Indemnification Claims made during the Indemnification Period and
pay certain post-closing costs and expenses associated with the Sale
Transaction, Holdings will retain $10 million of the net proceeds it
receives in the Sale Transaction, in addition to the $2 million Cash
Reserve Amount. Following the expiration of the Indemnification
Period, the remaining proceeds of the Holdback Amount, including any
interest earned on such amount, but less any amounts used or set
aside to satisfy or settle any Indemnification Claims and pay such
post-closing costs that may have arisen during the Indemnification
Period, will be distributed as soon as practicable to the members of
Holdings.
o Assets of Holdings following the Merger and Sale Transaction.
Holdings' assets following the Merger and Sale Transaction and
liquidation of the Company will consist of the $10 million cash
Holdback Amount and the $2 million Cash Reserve Amount. Other than
the Holdback Amount and Cash Reserve Amount, Holdings will not own
any other assets.
o Operations of Holdings following the Merger and Sale Transaction.
Following the Merger and Sale Transaction, Holdings will not conduct
any business or operations other than to settle and/or satisfy
Indemnification Claims in accordance with the terms of the Purchase
Agreement.
o Dividend Rights. Other than the distribution of the net sale
proceeds to the holders of LLC Units of Holdings upon the Closing of
the Sale Transaction, less the $10 million Holdback Amount and $2
million Cash Reserve Amount, Holdings does not intend to distribute
any of its assets until after the expiration of the Indemnification
Period on December 30, 2002.
o No Legal Proceedings. There are no material pending legal
proceedings against or involving Holdings.
64
Lower Tier LLC. Lower Tier LLC is a wholly-owned subsidiary of Holdings and
indirect wholly-owned subsidiary of the Company. Lower Tier LLC does not have
any operational history and has not conducted any business other than in
connection with the Merger. Upon the effective time of the Merger, Lower Tier
LLC will merge with and into the Company, and Lower Tier LLC will cease to
exist.
Conditions to the Merger
If, for any reason, the Purchase Agreement is terminated on or prior
to the Merger Effective Date, the Merger will not be consummated.
Accounting Treatment of Merger
The Merger will be treated as a purchase of the Lower Tier LLC by
the Company for accounting purposes and accounted in a manner similar to the
pooling of interests method for entities under common control.
Appraisal Rights
Stockholders of the Company are entitled to appraisal rights under
the Maryland General Corporation Law (the "MGCL") in connection with the Merger.
The preservation and exercise of appraisal rights are conditioned on strict
adherence to the applicable provisions of the MGCL. Each stockholder desiring to
exercise appraisal rights should refer to Title 3, Subtitle 2, of the MGCL, a
copy of which is attached as Annex D to this joint information
statement--prospectus, for a complete statement of their rights and the steps
which must be followed in connection with the exercise of those rights. The
following summary of the rights of objecting stockholders does not purport to be
a complete statement of the procedures to be followed by stockholders of the
Company desiring to exercise their appraisal rights.
Under the MGCL, a stockholder of the Company will be entitled to
demand and receive payment of the fair value of its shares of Common Stock from
the Company instead of receiving LLC Units in the Merger. However, a stockholder
who wants to receive fair value for its shares must follow specific procedures.
Such stockholder must:
(a) before or at the Special Meeting at which the Merger will be
considered, file with the Company a written objection to the
Merger;
(b) not vote in favor of the Merger; and
(c) make written demand on the Company, within 20 days after the
Articles of Merger relating to the Merger (the "Articles of
Merger") have been accepted for record by the State Department
of Assessments and Taxation of Maryland (the "SDAT").
Any stockholder who fails to comply with the requirements described
above will be bound by the terms of the Merger.
The Company is required to promptly notify each objecting
stockholder in writing of the date of acceptance of the Articles of Merger for
record by the SDAT. The Company may send a written offer to each objecting
stockholder to pay for its shares at what the Company considers to be the fair
value thereof. Within 50 days after the SDAT accepts the Articles of Merger for
record, either the Company or any objecting stockholder who has not received
payment for its shares may petition a court of equity in the appropriate county
in Maryland for an appraisal to determine the fair value of the shares.
65
The Company does not presently intend to file an appraisal petition
and stockholders seeking to exercise appraisal rights should not assume that the
Company will file such a petition or that the Company will initiate any
negotiations with respect to the fair value of such shares. Accordingly,
stockholders of the Company who desire to have their shares appraised should
initiate any petitions necessary for the perfection of their appraisal rights
within the time periods and in the manner prescribed in the MGCL.
If the court finds that an objecting stockholder is entitled to an
appraisal of its shares, the court is required to appoint three disinterested
appraisers to determine the fair value of its shares on terms and conditions the
court determines proper. The appraisers must, within 60 days after appointment
(or such longer period as the court may direct), file with the court and mail to
each party to the proceeding their report stating their conclusion as to the
fair value of such shares. "Fair value" is determined as of the close of
business on the day the stockholders vote on the Merger and may not include any
appreciation or depreciation which directly or indirectly results from the
Merger or from its proposal.
Within 15 days after the filing of the report, any party may object
to such report and request a hearing on it. The court must, upon motion of any
party, enter an order either confirming, modifying or rejecting such report and,
if confirmed or modified, enter judgment for the appraised value of the shares.
If the appraisers' report is rejected, the court may determine the fair value of
the shares of the objecting stockholders or may remit the proceeding to the same
or other appraisers. Any judgment entered pursuant to a court proceeding shall
include interest from the date of the stockholders' vote on the action to which
objection was made. Costs of the proceeding shall be determined by the court and
may be assessed against the Company or, under certain circumstances, the
objecting stockholder, or both.
At any time after the filing of a petition for appraisal, the court
may require objecting stockholders to submit their certificates representing the
shares to the clerk of the court for notation of the pendency of the appraisal
proceeding.
A stockholder demanding payment for shares has no right to receive
any dividends or distributions payable to stockholders of record after the close
of business on the date of the stockholders' vote on the Merger and shall cease
to have any right as a stockholder of the Company with respect to such shares
except the right to receive payment of the fair value thereof.
Market Price Information
The shares of Common Stock are not listed on any exchange, the
Company does not intend to list the Common Stock on any exchange prior to the
Merger; and there is not currently a public market for the Common Stock.
The LLC Units are not listed on any exchange, Holdings does not
intend to list the LLC Units on any exchange in the near term, there is not
currently a public market for the LLC Units, and no market of this type is
expected to develop or be sustained.
Exchange of Certificates
The Company will appoint Continental Stock Transfer & Trust Company
to act as exchange agent (the "Exchange Agent") in the Merger. Before the
Merger, the Company will deposit with the Exchange Agent a sufficient number of
certificates representing LLC Units so as to allow for the exchange of shares of
Common Stock for LLC Units pursuant ot the Merger.
66
No more than ten business days following the Merger, the Company
will to mail to each holder of shares of Common Stock a form of letter of
transmittal instructing such holders to complete the form and to deliver their
respective certificates representing shares of Common Stock ("Stock
Certificates") to the Exchange Agent. These instructions will specify that
delivery will be effected and risk of loss and title to the Stock Certificates
will pass only upon proper delivery of the Stock Certificates. After the Merger,
each holder of shares of Common Stock, other than dissenting shares, will
surrender their shares of Common Stock to the Exchange Agent and will receive in
exchange certificates representing the LLC Units. Stockholders will receive a
certificate representing a number of LLC Units ("LLC Unit Certificates") equal
to the number of shares of Common Stock that such holders owned immediately
prior to the Merger.
Stock Certificates should not be returned with the enclosed joint
information statement--prospectus and should not be forwarded to the Exchange
Agent unless and until stockholders receive a letter of transmittal following
the time of the Merger.
If a Stock Certificate has been lost, stolen or destroyed, the
Exchange Agent will issue LLC Unit Certificates on receipt of appropriate
evidence as to its loss, theft or destruction and appropriate evidence as to its
ownership by the claimant.
Material Differences in the Rights of Holders of Shares of Common Stock and LLC
Units
The Company is a Maryland corporation subject to the provisions of
the MGCL. Holdings is a Delaware limited liability company subject to the
provisions of the Delaware Limited Liability Company Act ("DLLCA"). The rights
of current stockholders of the Company are governed by the Company's Amended and
Restated Certificate of Incorporation ("Certificate of Incorporation") and
Amended and Restated By-laws ("By-laws"). Upon consummation of the Merger,
stockholders of the Company will receive LLC Units in exchange for their shares
of Common Stock and will become members of Holdings and, at the Effective Time,
their rights as a member of Holdings will be determined by Holdings' Certificate
of Formation ("Certificate of Formation"), Limited Liability Company Operating
Agreement (the "Operating Agreement") and the DLLCA.
The following is a summary of the material differences in the rights
of stockholders of the Company under the Certificate of Incorporation, the
By-laws and the MGCL, on the one hand, and the rights of members of Holdings
under the Certificate of Formation and the Operating Agreement and the DLLCA, on
the other hand. The following discussion does not purport to be a complete
discussion of, and is qualified in its entirety by reference to, the MGCL, the
DLLC, the Certificate of Incorporation, the By-laws, the Certificate of
Formation and Operating Agreement.
Holdings is a limited liability company. As a result, Holdings'
organizational and governing documents consist of the Certificate of Formation
and the Operating Agreement, instead of the Company's Certificate of
Incorporation and By-laws. In general, the Operating Agreement was drafted to
mirror the terms, conditions and procedures of the Company's Certificate of
Incorporation and By-laws and to provide holders of LLC Units with rights
similar to those of the Company's stockholders. However, in certain instances
and as a result of the differences of applicable law, the rights set forth in
the Operating Agreement are not identical to those of the Company's Certificate
of Incorporation and By-laws. Certain significant differences are summarized
below. However, you should also carefully read the full text of Holdings'
Operating Agreement, which is included as Annex E hereto.
The following table compares certain characteristics of the Common
Stock and the LLC Units and should be read in conjunction with the more detailed
information following as well as Holdings' Operating Agreement:
67
Common Stock LLC Units
------------------------------------ --------------------------------------
Voting Rights o One vote per share on all o One vote per LLC Unit on
matters voted upon by all matters voted upon by the
stockholders. No cumulative members. No cumulative voting
voting in the election of in the election of members of
directors. Directors are the Board of Managers.
elected by a plurality of the Election of managers and other
votes cast in the election of matters submitted to members
directors. The approval of any generally require approval by
other routine matter submitted members holding a majority of
to stockholders requires the the outstanding LLC Units.
affirmative vote of a majority
of the votes cast on the matter.
Number and Composition of Board Members o Eight. The number of o Holdings' Board of Managers
directors may be changed in the immediately following the
manner provided in the Bylaws, Merger will be comprised of the
but may not be more than nine. same eight members of the
The Charter requires the Company's Board of Directors
Company to have at all times at immediately prior to the
least two directors who are not Merger. There is no requirement
affiliates of AREIF, any that any managers be
transferee of AREIF or any unaffiliated with AREIF
stockholder holding 10% or more
of the stock of the Company.
Number and Composition of Officers o Seven. o Officers of Holdings
immediately following the
Merger will be the same
officers of the Company
immediately prior to the Merger.
68
Common Stock LLC Units
------------------------------------ --------------------------------------
Transfer Restrictions o Contains REIT related o Until the liquidation of
restrictions and limitations. the Company, the LLC Units
In addition, the Common Stock will be subject to the REIT
has been registered pursuant to related restrictions and
the Securities Act, but is not limitations currently
listed on any national exchange. contained in the Company's
Charter.
o Following the liquidation
of the Company, the LLC Units
will not be subject to REIT
related restrictions and
limitations.
o The issuance of LLC Units
will be registered pursuant to
the Securities Act of 1933, as
amended, but will not be
listed on any national
exchange.
o Transferees of LLC Units
may be admitted as members of
Holdings in accordance with
the procedures set forth in
the Operating Agreement.
Capital Structure o The Company has authority o Holdings has authority to
to issue 50,000,000 shares of issue 50,000,000 LLC Units of
common stock, par value $10.00 which 13,004,946 LLC Units
per share, and 10,000,000 will be issued to the
shares of preferred stock, par stockholders of the Company in
value $10.00 per share. The the Merger.
Board of Directors may classify
or reclassify any unissued
shares of stock from time to
time in one or more classes or
series. 13,004,946 shares of
Common Stock were outstanding
immediately prior to Merger.
69
Common Stock LLC Units
------------------------------------ --------------------------------------
Limitation of Liability o Under Maryland law and the o Under the Operating
Charter, no director or officer Agreement, except as
shall be liable to the prohibited by law, neither the
Corporation for money damages, managers nor their affiliates
except for liability resulting shall be liable to the Company
from (a) actual receipt of an or to any member or any
improper benefit or profit in affiliate thereof for any
money, property or services or losses, claims, damages,
(b) active and deliberate liabilities or expenses
dishonesty established by a asserted against, suffered or
final judgment and which is incurred by any of them
material to the cause of action. arising out of, relating to or
in connection with any action
taken or omitted by the
manager or any related party
in good faith and in a manner
reasonably believed by the
manager or such related party
to be in or not opposed to the
best interests of Holdings,
including, without limitation,
in connection with the
management or conduct of the
business of Holdings or any
other person in which Holdings
has or had made an investment
or otherwise has or had an
interest.
Indemnification o The Company has the power o Holdings' managers and
under the Charter and Bylaws to officers will be indemnified
indemnify directors and to the fullest extent
officers to the fullest extent permitted under the DLLCA.
permitted under the MGCL.
Advance Notice Provisions o Under the Bylaws, o Members are not subject to
stockholders of the Company any advance notice procedures
must comply with advance notice for annual or special meetings
procedures relating to of members.
stockholder nominees for
director or other stockholder
proposals at annual or special
meetings of the stockholders.
70
Common Stock LLC Units
------------------------------------ --------------------------------------
Special Meetings o Under the Bylaws, special o Under the Operating
meetings of the stockholders Agreement, the president, the
may be called by the president, chairman or 25% of the members
the chairman of the Board or of the Board of Managers may
the Board of Directors. call special meetings of the
Special meetings of members.
stockholders shall also be
called upon the written request
of stockholders entitled to
cast not less than 25% of all
the votes entitled to be cast
at such meeting.
Extraordinary Actions o The approval of certain o Except as otherwise
extraordinary actions, such as required by the DLLCA, all
a merger or a dissolution of matters to be voted on by the
the Company, requires the Members will require the
affirmative vote of holders of affirmative vote of a majority
66-2/3% of the outstanding of the outstanding LLC Units.
shares of Common Stock. A majority of the entire Board
of Managers may approve the
dissolution of Holdings
without any action by the
members.
71
Common Stock LLC Units
------------------------------------ --------------------------------------
Amendments o Amendments to the Charter o Amendments to Holdings'
must be approved by the Board Operating Agreement require the
of Directors and generally majority vote of the Board of
approved by the affirmative Managers, except for amendments
vote of holders of 66-2/3% of that would (i) adversely affect
the outstanding shares of the limited liability of the
Common Stock. Members under the DLLCA or
under applicable law, or (ii)
o Amendments to the Bylaws cause Holdings to cease to be
may generally be approved by treated as a partnership for
the affirmative vote of holders federal or state income tax
of 66-2/3% of the outstanding purposes, which will require
shares of Common Stock or by the affirmative vote of a
the Board of Directors. majority of the outstanding LLC
Amendments to certain Bylaw Units.
provisions relating to the
authority of Board committees
generally and the authority and
composition of its executive
committee require a 66-2/3% or
75% vote of the entire Board of
Directors.
Business Combinations with Interested o The Company elected not be o There are no restrictions
Stockholder governed by Section 3-602 of contained in the Operating
the MGCL, which would otherwise Agreement prohibiting Holdings
provide certain restrictions on from engaging in any business
the Company entering into any combination with any interested
Business Combination with any member and Holdings is not
Interested Stockholder (as such prohibited by law from engaging
terms are defined in the in such transactions.
MGCL).
o Under the Charter any
Business Combination with any
Interested Stockholder (as such
terms are defined in the
Charter) requires the vote of
not less than 66-2/3% of
outstanding shares of Common
Stock excluding the shares of
the Interested Stockholder.
72
Common Stock LLC Units
------------------------------------ --------------------------------------
Federal Income Tax Classification o The Company is treated as a o Holdings is treated as a
REIT and stockholders are partnership and its members are
generally subject to tax upon taxed on their distributive
receipt of dividend share of Holdings' capital gain
distributions. net of ordinary income and
deductions and credits, without
regard to whether such members
receive any distributions.
Distributions and Dividends o Required to distribute 90% o Holdings will not be a
of taxable income to REIT. Accordingly, Holdings'
stockholders in order to managers will determine,
maintain status as a REIT. subject to the requirements of
the DLLCA, when and on what
o Distributions must be terms to make any
authorized by the Board of distributions; provided that no
Directors in accordance with portion of the $10 million
the requirements of the MGCL. Holdback Amount will be
distributed to members prior to
the end of the Indemnification
Period.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth in the following table is furnished as of
March 15, 2002, with respect to any person (including any "group," as that term
is used in Section 13(d)(3) of the Exchange Act) who is known to the Company to
be the beneficial owner of more than 5% of any class of the Company's voting
securities, and as to those shares of the Company's equity securities
beneficially owned by each of its directors, its executive officers, and all of
its executive officers and directors as a group. As of date of this joint
information statement--prospectus, there were 13,004,946 shares of Common Stock
outstanding.
Number of Shares Percent of Common
Beneficially Owned Stock
------------------ -----------------
Principal Stockholders
Apollo Real Estate Investment Fund, L.P. (1) 4,936,060 38.0%
The TCW Group, Inc. (2) 2,254,341 17.3%
Oaktree Capital Management, LLC (3) 1,917,463 14.7%
WSB Realty, L.L.C. (4) 1,122,421 8.6%
Angelo, Gordon & Co., L.P. (5) 1,094143 8.4%
Intermarket Corp. (6) 931,000 7.2%
Directors and Executive Officers
73
William L. Mack (7) 4,600 *
Lee S. Neibart (8) 4,600 *
John R.S. Jacobsson (9) 4,600 *
Bruce H. Spector (10) 4,600 *
John R. Klopp (11) 24,600 *
Russel S. Bernard (12) 0 *
David A. Strumwasser (13) 0 *
David Roberts (14) 0 *
-------
Directors and Executive Officers as a group (9 persons) (15) 43,000 *
=======
- -----------
* Less than 1%
(1) Held of record by Atwell & Co., c/o The Chase Manhattan Bank, N.A., 4 New
York Plaza, New York, NY 10004. AREA is the managing general partner of
AREIF and a joint reporting person with respect to beneficial ownership of
these shares of Common Stock according to AREIF's Schedule 13G filed with
the Commission on February 13, 1998.
(2) Includes 1,586,814 shares as to which voting and dispositive power is
shared with Oaktree Capital Management, LLC ("Oaktree") as an investment
sub-adviser to TCW Asset Management Company for various limited
partnerships, trusts and third party accounts for which TCW Asset
Management Company acts as general partner or investment manager. Also
includes 667,527 shares held by various limited partnerships, trusts and
third party accounts for which TCW Special Credits acts as general partner
or investment manager. The shares shown are held of record by (i) Hare &
Co., c/o Investors Bank and Trust Company, 200 Clarendon Street, Boston,
Massachusetts 02117-9130 (58,124 shares), and (ii) Cede & Co., 55 Water
Street, New York, New York 10041 (2,196,217 shares). To the extent
permitted by applicable law, the TCW Group Inc. and Robert Day hereby
disclaim beneficial ownership of such shares.
(3) Includes 1,586,814 shares as to which voting and dispositive power is
shared with TCW Asset Management Company, which acts as general partner or
investment manager for certain funds and accounts for which Oaktree acts
as an investment sub-adviser. Also includes 284,839 shares held by two
limited partnerships of which Oaktree is general partner and 41,210 shares
held by a third party account for which Oaktree acts as investment
manager. The 326,049 shares as to which Oaktree has sole voting and
dispositive power are held of record by (i) Cun & Co., c/o The Bank of New
York, P.O. Box 1068, Wall Street Station, New York, New York 10005
(150,000 shares); and (ii) Cede & Co., 55 Water Street, New York, New York
10041 (176,049 shares). Also includes 4,600 shares held directly by
Oaktree. To the extent permitted by applicable law, Oaktree hereby
disclaims beneficial ownership of such shares.
(4) Does not include 4,600 shares owned by The Goldman Sachs Group, Inc. WSB
Realty, L.L.C. is located at 85 Broad Street, New York, NY 10004.
According to Amendment No. 3 to the Schedule 13G filed by The Goldman
Sachs Group, Inc. with the Securities and Exchange Commission on February
13, 2001, these shares are reported as beneficially owned by: (i) Goldman,
Sachs & Co., (ii) The Goldman Sachs Group, Inc., (iii) WSB Realty, L.L.C.,
(iv) Whitehall Street Real Estate Limited Partnership V and (v) WH
Advisors, L.L.C. V.
(5) The address of Angelo, Gordon & Co., L.P. ("Angelo, Gordon") is 245 Park
Avenue, New York, NY 10167. According to Amendment No. 2 to the Schedule
13G filed by Angelo, Gordon with the Commission on February 12, 2001,
these shares are reported as beneficially owned by: (i) Angelo, Gordon,
(ii) John M. Angelo, in his capacities as a general partner of AG
Partners, L.P., the sole general partner of Angelo, Gordon, and the chief
executive officer of Angelo, Gordon and (iii) Michael L. Gordon, in his
capacities as the other general partner of AG Partners, L.P. and the chief
operating officer of Angelo, Gordon.
(6) Intermarket Corp.'s address is 667 Madison Avenue, New York, NY 10021.
74
(7) Does not include shares owned by AREIF. Includes 1,600 shares of Common
Stock issued directly to Mr. Mack, and 3,000 shares of Common Stock issued
upon the exercise of options granted to Mr. Mack, under the Company's
Stock Plan. Mr. Mack is the managing partner of AREA, the general partner
of Apollo, and the President of AREA's corporate general partner. Mr. Mack
disclaims beneficial ownership of the shares of Common Stock owned by
AREIF.
(8) Does not include shares owned by AREIF. Includes 1,600 shares of Common
Stock issued directly to Mr. Neibart, and 3,000 shares of Common Stock
issued upon the exercise of options granted to Mr. Neibart, under the
Company's Stock Plan. Mr. Neibart is a partner of AREA. Mr. Neibart
disclaims beneficial ownership of the shares of Common Stock owned by
AREIF.
(9) Does not include shares owned by AREIF. Includes 1,600 shares of Common
Stock issued directly to Mr. Jacobsson, and 3,000 shares of Common Stock
issuable upon the exercise of options granted to Mr. Jacobsson, under the
Company's Stock Plan. Mr. Jacobsson is a partner of AREA. Mr. Jacobsson
disclaims beneficial ownership of the shares of Common Stock owned by
AREIF.
(10) Does not include shares owned by Apollo. Includes 1,600 shares of Common
Stock issued directly to Mr. Spector, and 3,000 shares of Common Stock
issued upon the exercise of options granted to Mr. Spector, under the
Company's Stock Plan. Mr. Spector is a partner of AREA. Mr. Spector
disclaims beneficial ownership of the shares of Common Stock owned by
Apollo.
(11) Includes 1,600 shares of Common Stock issued directly to Mr. Klopp, and
3,000 shares of Common Stock issued upon the exercise of options granted
to Mr. Klopp under the Company's Stock Plan.
(12) Does not include shares owned by funds and accounts managed by Oaktree or
shares owned directly by Oaktree. Does not include 1,600 shares of Common
Stock issued directly to Mr. Bernard, and 3,000 shares of Common Stock
issued upon the exercise of options granted to Mr. Bernard, under the
Company's Stock Plan. Mr. Bernard disclaims beneficial ownership of the
shares of Common Stock owned by funds and accounts managed by Oaktree and
the shares of common stock owned directly by Oaktree. Mr. Bernard is
required to transfer to Oaktree any shares of Common Stock he either
receives directly under the Company's Stock Plan or purchases upon an
exercise of options granted under the Company's Stock Plan. Mr. Bernard is
a Principal of Oaktree. Mr. Bernard disclaims beneficial ownership of the
shares of Common Stock owned by funds and accounts managed by Oaktree and
the shares of Common Stock owned directly by Oaktree.
(13) Does not include 289,503 shares held by various limited partnerships, a
trust and third party accounts for which Whippoorwill has discretionary
authority and acts as general partner or investment manager. Does not
include 1,600 shares of Common Stock issued directly to Mr. Strumwasser,
and 3,000 shares of Common Stock issued upon the exercise of options
granted to Mr. Strumwasser, under the Company's Stock Plan. Mr.
Strumwasser is a Principal, Managing Director and General Counsel of
Whippoorwill. Mr. Strumwasser is required to transfer to Whippoorwill any
shares of Common Stock he receives directly under the Company's Stock Plan
or purchases upon an exercise of options granted under the Stock Plan. Mr.
Strumwasser disclaims beneficial ownership of the shares of Common Stock
owned by discretionary accounts managed by Whippoorwill as set forth
above.
(14) Does not include shares owned by Angelo, Gordon. Does not include 1,600
shares of Common Stock issued directly to Mr. Roberts, and 3,000 shares of
Common Stock issued upon the exercise of options granted to Mr. Roberts,
under the Company's Stock Plan. Mr. Roberts is required to transfer to
Angelo, Gordon any shares of Common Stock he receives directly under the
Company's Stock Plan or purchases upon an exercise of options granted
under the Stock Plan. Mr. Roberts is a Managing Director of Angelo,
Gordon. Mr. Roberts disclaims beneficial ownership of the shares of Common
Stock owned by Angelo, Gordon.
(15) See notes 7 through 14 above with respect to the nature of the ownership
of Directors and Executive Officers as a group, including disclaimers of
beneficial ownership described therein.
75
INCORPORATION BY REFERENCE
The Commission allows us to incorporate by reference information
into this joint information statement--prospectus. This means that we can
disclose important information to you by referring you to another document filed
separately with the Commission. The information incorporated by reference is
considered to be a part of this joint information statement--prospectus, except
for any information that is superseded by information that is included directly
in this document.
The following documents previously filed by us with the Commission
(File No. 0-21849) under the Exchange Act are incorporated herein by reference:
o Annual Report on Form 10-K for the year ended December 31,
2001;
o Proxy Statement on Schedule 14A filed on January 4, 2002;
o Quarterly Report on Form 10-Q for the quarter ended March 31,
2002;
o Current Report on Form 8-K filed on April 18, 2002; and
o Current Report on Form 8-K filed on May 8, 2002.
Any statement contained in a document incorporated by reference
shall be deemed to be modified or superseded for purposes of this joint
information statement--prospectus to the extent that a statement contained
herein or in another document incorporated by reference that is filed thereafter
and on or before the date of this joint information statement--prospectus
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this joint information statement--prospectus. All
information appearing in this joint information statement--prospectus is
qualified in its entirety by the information and financial statements (including
notes thereto) appearing in the documents incorporated by reference, except to
the extent set forth in the immediately preceding sentence.
All documents and reports filed by us pursuant to Section 13 or
15(d) of the Exchange Act, after the date of this joint information
statement--prospectus and until the date of the Special Meeting, shall also be
deemed to be incorporated by reference into this joint information
statement--prospectus and to be a part hereof from the date of the filing of
such documents and reports. Any statement contained in this joint information
statement--prospectus or incorporated herein by reference shall be deemed to be
modified or superseded to the extent that a statement contained in any documents
and reports filed by us pursuant to Section 13 or 15(d) of the Exchange Act
after the date of this joint information statement--prospectus modifies or
supersedes such statement.
This joint information statement--prospectus incorporates important
business and financial information about us that is not included or being
delivered with this joint information statement--prospectus. Upon the written
request of any beneficial owner of the Common Stock, the Company will provide,
without charge, by first class mail or other equally prompt means within one
business day of receipt of such requests, a copy of any and all of the
information that has been incorporated by reference in this joint information
statement--prospectus. A list of exhibits to these documents will also be
provided, and copies of such exhibits will be furnished upon request. Requests
should be directed to Jeremy Fitzgerald, Metropolis Realty Trust, Inc., Vice
President and Assistant Secretary, c/o Capital Trust, Inc., 410 Park Avenue,
14th floor, New York , New York 10022 or by phone (212) 655-0220. To obtain
timely deliveries, stockholders must request such information no later than
___________, 2002.
76
You may read and get copies of these reports, proxy statements and
other information at the Commission's public reference facilities at Judiciary
Plaza, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and as well as
the Commission's Regional Offices. You may also call the Commission at
1-800-SEC-0330 for more information about the public reference room as well as
how to obtain copies of documents by mail. You can also view these filings at
the Commission's web site at http://www.sec.gov.
LEGAL MATTERS
The validity of the Holdings LLC Units to be issued in connection
with the Merger will be passed upon by Akin, Gump, Strauss, Hauer & Feld, L.L.P.
EXPERTS
The consolidated financial statements of the Company and its
subsidiaries incorporated in this joint information statement - prospectus from
the Company's Annual Report on Form 10-K for the year ended December 31, 2001
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report, included herein, and have been so included in reliance on the
report of such firm given upon their authority as experts in accounting and
auditing.
The financial statements of 1290 Partners as of December 31, 2001
and 2000 and for the years then ended included in this joint information
statement - prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report, included herein, and have been so included
in reliance on the report of such firm given upon their authority as experts in
accounting and auditing.
The balance sheet of Holdings at May 6, 2002 included in this joint
information statement - prospectus has been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report, included herein, and have been
so included in reliance on the report of such firm given upon their authority as
experts in accounting and auditing.
Representatives of Deloitte & Touche LLP will be present at the
Special Meeting. These representatives will have the opportunity to make a
statement if they desire to do so and are expected to be available to respond to
appropriate questions.
COST OF JOINT INFORMATION STATEMENT--PROSPECTUS
This joint information statement--prospectus has been prepared by
the Company and its Board of Directors. The Company will bear the costs of
distributing this joint information statement--prospectus to stockholders,
including the expense of preparing assembling, printing and mailing the joint
information statement--prospectus. Although there is no formal agreement to do
so, the Company may reimburse banks, brokerage houses and other custodians,
nominees and fiduciaries for their reasonable expenses in forwarding this joint
information statement--prospectus and related materials to stockholders. The
Company may pay for and use the services of other individuals or companies not
regularly employed by the Company in connection with the distribution of this
joint information statement--prospectus if the Board of Directors of the Company
determines that this is advisable.
77
By Order of the Board of Directors,
----------------------------------------
John R.S. Jacobsson
Secretary
New York, New York
June __, 2002
78
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
20. Indemnification of Managers and Officers.
Section 18-108 of the Delaware Limited Liability Company Act, as
amended, provides that subject to such standards and restrictions, if any, as
are set forth in its limited liability company agreement, a limited liability
company may, and shall have power to, indemnify and hold harmless any member or
manager or other person from and against any and all claims and demands
whatsoever.
The Company's Operating Agreement provides that to the fullest
extent permitted under the Delaware Limited Liability Company Act, as amended,
no manager or officer shall be liable to the Company for money damages. The
Company has the power by majority vote of the disinterested members of the Board
of Managers to indemnify, and to pay or reimburse reasonable expenses in advance
of final disposition of a proceeding to, any one or more of the following
classes of individuals from and against any claim or liability to which such
person may become subject or which such person may incur by reason of his or her
position with the Company: (a) present or former managers of the Company; (b)
present or former officers of the Company; (c) present or former agents and/or
employees of the Company; and (d) persons serving or who have served at the
request of the Company in any of these capacities for any other corporation,
limited liability company, partnership, joint venture, trust or other enterprise
who is made a party to any proceeding by reason of service in that capacity.
21. Exhibits and Financial Statement Schedules.
Exhibit
Number Description of Exhibit
------ ----------------------
2.1 Agreement and Plan of Merger, dated as of May 22,
2002, by and between Metropolis Realty Trust, Inc.
and Metropolis Realty Holdings LLC
3.1 Certificate of Formation of Metropolis Realty
Holdings LLC dated May 6, 2002
3.2 Limited Liability Company Agreement of Metropolis
Realty Holdings LLC dated as of May 6, 2002
5.1 Opinion of Akin, Gump, Strauss, Hauer & Feld, LLP
9.1 Form of Voting Agreement
10.1 Amended and Restated Purchase Agreement dated May
7, 2002 between Metropolis Realty Trust, Inc. and
Jamestown 1290, L.P.
21.1 Subsidiaries of Metropolis Realty Holdings LLC
23.1 Consent of Akin, Gump, Strauss, Hauer & Feld, LLP
(included in Exhibit 5.1)
23.2 Consent of Deloitte & Touche LLP
24.1 Power of Attorney (included on the signature page
of Metropolis Realty Holdings LLC)
99.1 Fairness Opinion of Houlihan, Lokey, Howard & Zukin
Financial Advisors, Inc.
99.2 Dissenters' Rights of Appraisal under the MGCL
99.3 Metropolis Realty Trust, Inc. Financial Statements
II-1
99.4 1290 Partners, L.P. Financial Statements
99.5 Letter of Transmittal
22. Undertakings
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 Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) 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 such securities at that time shall be deemed to be
the initial bona fide offering thereof.
1. (1) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(2) The registrant undertakes that every prospectus: (i) that is
filed pursuant to paragraph (a) immediately proceeding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part of
an amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to managers, 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 expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a manager, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
manager, 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 the controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-2
SIGNATURES
Pursuant to the requirements of the Securities Act, the Company has
duly caused this registration statement on Form S-4 to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of New York, State of
New York on May 23, 2002.
METROPOLIS REALTY HOLDINGS LLC
By: /s/ Lee S. Neibart
--------------------------------------
Name: Lee S. Neibart
Title: President
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Lee S. Neibart and Russel S. Bernard, and
each of them individually, as such person's true and lawful attorneys-in-fact
and agents with full power of substitution and resubstitution, for such person
and in such person's name, place and stead, in any and all capacities to sign
the registration statement filed herewith and any or all amendments to said
registration statement (including post-effective amendments and registration
statements filed pursuant to Rule 462(b) under the Securities Act of 1933, as
amended and otherwise), and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission granting unto said attorneys-in-fact and agents the full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the foregoing, as fully to all intents and purposes as
such person might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them, or their substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on May 23, 2002.
Signature Title
--------- -----
/s/ William L. Mack
- --------------------------------
William L. Mack Chairman of the Board of Managers and Manager
/s/ Lee S. Neibart
- --------------------------------
Lee S. Neibart President and Manager
/s/ Bruce H. Spector
- --------------------------------
Bruce H. Spector Manager
/s/ John R.S. Jacobsson
- --------------------------------
John R.S. Jacobsson Vice President, Secretary and Manager
/s/ John R. Klopp
- --------------------------------
John R. Klopp Vice President and Manager
/s/ Russel S. Bernard
- --------------------------------
Russel S. Bernard Manager
/s/ David A. Strumwasser
- --------------------------------
David A. Strumwasser Manager
/s/ David Roberts
- --------------------------------
David Roberts Manager
/s/ Stuart Koenig
- --------------------------------
Stuart Koenig Treasurer
*By: /s/ Lee S. Niebart
-------------------------
Lee S. Neibart
Attorney-in-Fact
*By: /s/ Russel S. Bernard
-------------------------
Russel S. Bernard
Attorney-in-Fact
INDEX TO EXHIBITS
Exhibit Page
Number Description of Exhibit Number
------ ---------------------- ------
2.1 Agreement and Plan of Merger, dated as of May 22, 2002, by and
between Metropolis Realty Trust, Inc. and Metropolis Realty
Holdings LLC
3.1 Certificate of Formation of Metropolis Realty Holdings LLC
dated May 6, 2002
3.2 Limited Liability Company Agreement of Metropolis Realty
Holdings LLC dated as of May 6, 2002
5.1 Opinion of Akin, Gump, Strauss, Hauer & Feld, LLP
9.1 Form of Voting Agreement
10.1 Amended and Restated Purchase Agreement dated May 7, 2002
between Metropolis Realty Trust, Inc. and Jamestown 1290, L.P.
21.1 Subsidiaries of Metropolis Realty Holdings LLC
23.1 Consent of Akin, Gump, Strauss, Hauer & Feld, LLP (included in
Exhibit 5.1)
23.2 Consent of Deloitte & Touche LLP
24.1 Power of Attorney (included on the signature page of
Metropolis Realty Holdings LLC)
99.1 Fairness Opinion of Houlihan, Lokey, Howard & Zukin Financial
Advisors, Inc.
99.2 Dissenters' Rights of Appraisal under the MGCL
99.3 Metropolis Realty Trust, Inc. Financial Statements
99.4 1290 Partners, L.P. Financial Statements
99.5 Letter of Transmittal
II-5