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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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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, L.L.P.
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. |_|
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CALCULATION OF REGISTRATION FEE
- ---------------------- ----------------------- ----------------------- ------------------------ ----------------------
Title of Each Class of Proposed Maximum Proposed Maximum Amount of
Securities to be Offering Price Aggregate Offering Registration
Registered Amount to be Registered Per Unit Price Fee
- ---------------------- ----------------------- ----------------------- ------------------------ ----------------------
LLC Units 13,004,946 N/A N/A $68,586*
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* Since there is no current market value or book value for the LLC Units
of Metropolis Realty Holdings LLC, and the cash to be received in the sale
transaction is $745,500,000, the registration fee is calculated pursuant to Rule
457(f)(3) as follows: $92 per $1,000,000 of the cash to be received in the sale
transaction -- ($745,500,000 x .000092 = $68,586).
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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.
1
METROPOLIS REALTY TRUST, INC.
c/o Capital Trust, Inc.
410 Park Avenue
14th Floor
New York, New York 10022
July __, 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 $292.5 million in the aggregate, or approximately $22.50 per
share. Actual amounts distributed, 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, our
subsequent cash liquidation and to allow us to claim the amount of "dividends
paid deduction" necessary to eliminate our U.S. federal income tax with respect
to the gain on the sale of the 1290 property, 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 approximately 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 of
Metropolis Realty Trust, Inc., a Maryland corporation ("Metropolis"), 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 Metropolis of its
principal asset, the real property and 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, to Jamestown 1290, L.P.,
a Delaware limited partnership.
2. To consider and authorize Metropolis, 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 Metropolis ("Holdings"), with Metropolis as the
surviving entity of such 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.
Accompanying this information statement - prospectus is Metropolis' annual
report on Form 10-K/A for the year ended December 31, 2001 and quarterly report
on Form 10-Q for the quarter ended March 31, 2002. The annual report on Form
10-K/A and quarterly report on Form 10-Q contain important information and you
should read this information in connection with your review of this information
statement--prospectus.
Only stockholders of Metropolis 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 Metropolis
Class A Common Stock, par value $10.00 per share 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
Metropolis' assets. Following the consummation of the sale transaction,
Metropolis 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 Metropolis' largest stockholders,
representing approximately 10.3 million shares of common stock (approximately
79% of the outstanding shares of common stock), have entered into separate
agreements with Jamestown 1290 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, Metropolis is not asking you for a proxy and you are requested
not to send a proxy to Metropolis.
By Order of the Board of Directors,
----------------------------------------
John R.S. Jacobsson
Secretary
New York, New York
July [___], 2002
2
Subject to Completion, dated July 18, 2002
METROPOLIS REALTY TRUST, INC.
METROPOLIS REALTY HOLDINGS LLC
c/o Capital Trust, Inc.
410 Park Avenue
14th Floor
New York, New York 10022
INFORMATION STATEMENT - PROSPECTUS
Sale Transaction and Merger. Metropolis Realty Trust, Inc. ("Metropolis")
has entered into a purchase agreement with Jamestown 1290, L.P. pursuant to
which Metropolis agreed to sell its 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. In order to facilitate the consummation of the sale
transaction and subsequent cash liquidation, and to allow us to claim the amount
of "dividends paid deduction" necessary to eliminate our U.S. federal income tax
with respect to the gain on the sale of the 1290 property, Metropolis has formed
a wholly-owned limited liability company, Metropolis Realty Holdings LLC
("Holdings"), which in turn has created a wholly-owned limited liability company
subsidiary, Metropolis Realty Lower Tier LLC. Before the closing of the sale
transaction, Metropolis will merge with Lower Tier and Metropolis will be the
surviving entity of the merger. In the merger, Metropolis will issue an
aggregate of 13,004,946 limited liability company units of Holdings to the
holders of Metropolis common stock. No market will exist for the LLC units of
Holdings following the sale transaction and merger. Each holder of Metropolis
common stock will receive a number of LLC units of Holdings equal to the number
of shares of Metropolis common stock owned by such holder immediately prior to
the merger. As a result, following the merger, Metropolis stockholders will own
the same percentage of Holdings as they held in Metropolis immediately prior to
the merger.
Special Meeting. Stockholders of Metropolis are being asked at the special
meeting to approve the sale transaction and the merger. The date, time and place
of the special meeting is: [_____ __ ], , 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.
Seven of Metropolis' largest stockholders, representing approximately 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. Accordingly, the approval of both the sale transaction and the merger
is assured without the vote of any other stockholder.
Matters to Consider. Promptly following the consummation of the sale
transaction and the merger, Metropolis will liquidate and distribute
approximately $22.50 per share to each of its stockholders (indirectly though
Holdings), which amount may be reduced by increased expenses related to the sale
transaction and merger. The merger is being consummated and the LLC units are
being issued to facilitate the consummation of the sale transaction and
subsequent cash liquidation, and to allow us to claim the amount of "dividends
paid deduction" necessary to eliminate our U.S. federal income tax with respect
to the gain on the sale of the 1290 property. Following the sale transaction and
merger, Metropolis and Holdings will not conduct any operations. As a result of
the sale transaction and merger, stockholders of Metropolis will no longer
participate in the future results of operations of the 1290 property and will no
longer receive any dividends from Metropolis (other than a final distribution of
the net sale proceeds by Holdings in the sale transaction and any distribution
by Holdings of any remaining reserve amounts described herein). Management did
not obtain a third-party appraisal or valuation of the 1290 property nor did
management estimate or obtain a third-party estimate of the liquidation value of
the 1290 property. Depending on the amount of cash received and their respective
tax basis in the shares of Metropolis common stock (and Holdings' LLC units),
stockholders may recognize a taxable gain upon receipt of the distribution from
the liquidation of Metropolis. Several of Metropolis' directors indirectly
control an approximate 23% limited partnership interest in Jamestown 1290 and
will continue to have an interest in the 1290 property after the sale through
ongoing ownership interests in Jamestown 1290 and in affiliates that will
receive fees for managing, leasing and subsequently selling the 1290 property.
This information statement -- prospectus and the accompanying notice of special
meeting are first being mailed to stockholders on or about [___ __,] 2002.
For a discussion of the risks relating to the sale transaction and the
merger, see "Risk Factors" on page _____.
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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 information statement--prospectus is accurate or adequate. Any
representation to the contrary is a criminal offense.
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The information in this information statement--prospectus is not complete and
may be changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
information statement--prospectus is not an offer to sell these securities in
any state where the offer or sale is not permitted.
[Inside Cover page]
This information statement--prospectus incorporates important business and
financial information about Metropolis that is not included in or being
delivered with this information statement--prospectus. Upon the written or oral
request of any beneficial owner of the common stock, Metropolis 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 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.
Forward Looking Statements
This information statement--prospectus contains certain forward-looking
statements. To the extent that these statements are attributable to Metropolis,
these forward-looking statements are within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, and are subject to the safe harbor created by such sections. To the
extent that these statements are attributable to Holdings and/or the issuance
hereunder of the LLC units, however, these forward-looking statements are not
subject to the safe harbor created by such sections. Such statements include,
but are not limited to, statements relating to Metropolis' and Holdings'
operations, economic performance and financial condition and the likelihood of
the consummation of the sale transaction. Forward-looking statements in this
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 information statement--prospectus. Such factors
include, among others, general economic and business conditions and various
other factors referred to in this 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.
2
TABLE OF CONTENTS
SUMMARY TERM SHEET.............................................................3
PROPOSAL 1 - DESCRIPTION OF THE PROPOSED SALE TRANSACTION......................3
PROPOSAL 2 - THE MERGER.......................................................12
SELECTED METROPOLIS FINANCIAL DATA............................................18
PRO FORMA SOURCES AND USES OF PROCEEDS........................................20
METROPOLIS REALTY HOLDINGS LLC PRO FORMA BALANCE SHEET AS OF
MARCH 31, 2002.............................................................24
METROPOLIS REALTY HOLDINGS LLC PRO FORMA INCOME STATEMENT FOR
THE THREE MONTHS ENDING JANUARY 1, 2001....................................25
METROPOLIS REALTY HOLDINGS LLC PRO FORMA INCOME STATEMENT
JANUARY 1, 2001............................................................26
RISK FACTORS..................................................................27
SPECIAL MEETING...............................................................30
Matters to be Considered...................................................30
No Solicitation of Proxies.................................................31
Record Date and Voting Rights..............................................31
PROPOSAL 1 THE SALE TRANSACTION..............................................32
Background to the Sale Transaction.........................................32
Recommendation of the Special Committee, Reasons for the Proposed
Sale Transaction...........................................................40
Vote Required..............................................................42
Opinion of Houlihan Lokey..................................................42
Parties to the Sale Transaction............................................48
Material U.S. Federal Income Tax Consequences of the Sale
Transaction and Liquidation of Metropolis..................................49
Use of Purchase Price Proceeds.............................................50
Regulatory Approvals.......................................................51
Interests of Certain Persons in the Sale Transaction.......................52
Dissenters' Appraisal Rights...............................................55
Private Placement by AP-1290...............................................55
Termination of Metropolis' Registration under the Securities
Exchange Act of 1934.......................................................55
DESCRIPTION OF THE PURCHASE AGREEMENT.........................................55
Purchase Price.............................................................55
Closing Date...............................................................55
i
Representations and Warranties.............................................56
Conduct of Business Operations Prior to Closing Date.......................59
Superior Offers............................................................60
Break Up Fee...............................................................61
Indemnification............................................................61
Conditions to Closing......................................................62
Transaction Costs..........................................................63
Default by Purchaser or Metropolis.........................................64
Apportionments.............................................................65
Pre-Closing Loan, Payment of Purchase Price and Other Related
Transactions...............................................................65
Apollo Real Estate Investment Fund Note....................................66
DESCRIPTION OF THE VOTING AGREEMENTS..........................................67
DESCRIPTION OF THE AGREEMENT OF LIMITED PARTNERSHIP OF PURCHASER..............69
Partners...................................................................69
Purpose of Purchaser.......................................................69
Management.................................................................70
Major Matters..............................................................70
Initial Capital Contributions..............................................71
Additional Capital.........................................................71
Shortfall Loans............................................................71
Repayment of Non-Amortized Portion of The New Loan.........................71
Distributions..............................................................72
TI and Leasing Commissions Reserve.........................................73
Transaction Fee to Affiliates..............................................74
Removal of General Partner.................................................74
Dissolution................................................................74
PROPOSAL 2 THE MERGER.........................................................74
Introduction...............................................................74
Merger Effective Date......................................................74
The Merger Consideration...................................................75
Ownership Following the Merger.............................................75
Reasons for Merger.........................................................75
Material U.S. Federal Income Tax Consequences..............................75
Vote Required..............................................................77
Parties to the Merger......................................................77
Conditions to the Merger...................................................92
Accounting Treatment of Merger.............................................92
Appraisal Rights...........................................................93
Market Price Information...................................................94
Exchange of Certificates...................................................94
Material Differences in the Rights of Holders of Shares of
Common Stock and LLC Units.................................................95
ii
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...............101
INCORPORATION BY REFERENCE...................................................104
LEGAL MATTERS................................................................105
EXPERTS......................................................................105
COST OF INFORMATION STATEMENT--PROSPECTUS....................................106
SIGNATURES.....................................................................3
POWER OF ATTORNEY...............................................................
INDEX TO EXHIBITS..............................................................2
ANNEXES
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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: Metropolis Realty Trust, Inc. Financial Statements
Annex G: Agreement and Plan of Merger
Annex H: Letter of Transmittal
Annex I: Apollo Real Estate Investment Fund, L.P. Promissory Note
Annex J: Agreement of Limited Partnership of Jamestown 1290, L.P.
iii
SUMMARY TERM SHEET
The following is a summary of certain information contained elsewhere in
this 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 information statement--prospectus, the attached Annexes and
the information included with or incorporated by reference herein. Accompanying
this information statement - prospectus is Metropolis' annual report on Form
10-K/A for the year ended December 31, 2001 and quarterly report on Form 10-Q
for the quarter ended March 31, 2002. The annual report on Form 10-K/A and
quarterly report on Form 10-Q contain important information that you should read
together with your review of this information statement--prospectus. Unless
otherwise defined, capitalized terms used in this summary term sheet have the
meanings set forth elsewhere in this information statement--prospectus. You are
urged to read this information statement--prospectus, the documents annexed
hereto and the Form 10-K/A and Form 10-Q in their entirety. References in this
information statement--prospectus to "us", "our" and "Metropolis" are meant to
refer to Metropolis Realty Trust, Inc. References in this 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
Metropolis. 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 Metropolis 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 property, is
our indirect subsidiary. We are its sole limited partner. We also own 100% of
the common stock of 1290 GP Corp., a Delaware corporation which is the sole
general partner of 1290 Partners. 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. ("Purchaser") 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. Jamestown 1290 Partners
owns an approximately 77.21% limited partnership interest in Purchaser,
and JT 1290 Corp. owns a .00001% general partnership interest in
Purchaser. Jamestown 1290 Partners is a Georgia general partnership whose
general partners are Jamestown 23 kompakt L.P., Jamestown 23 classic L.P.
and Jamestown 23 Netherlands L.P., all of which are Georgia limited
partnerships, and Jamestown 23 U.S., LLC, a Delaware limited liability
company, each of which will be owned, directly or indirectly, 97%
initially by Stephen J. Zoukis as the initial limited partner or member,
and ultimately by unaffiliated outside investors, and 3% by Christoph A.
Kahl and Stephen J. Zoukis, both of
3
whom are partners in Jamestown. Jamestown is a real estate investment and
management company with offices in Atlanta and Cologne, Germany. JT 1290
Corp. is a Georgia corporation whose stockholders are Christoph A. Kahl
and Stephen J. Zoukis, both of whom are partners in Jamestown, a Georgia
general partnership. 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 Metropolis, holding approximately
38% of Metropolis' common stock. In addition, four of Metropolis'
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 Two
Manhattanville Road, Purchase, New York, 10577, and the telephone number
of AP-1290 at this location is (914) 698-8000. AP-1290 does not have any
operational history and has not conducted any business other than in
connection with the sale transaction.
Set forth below is an organizational chart showing the relationship between
Metropolis and its affiliates and Purchaser and its affiliates, including the
relationships between each group of affiliated companies:
Apollo Real Estate Advisors, L.P.
("AREA") General Partner
Apollo Real Estate Investment Fund, L.P.
Metropolis Realty Trust, Inc.
38%
stockholder
100% sole member
(prior to AP
offering)
Affiliates of AREA
99.8%
LP interest
100%
AP-1290 Partners, LLC
AP-1290 GP MANAGER LLC 77.21% LP Jamestown 1290 Partners
0.2% GP interest 100% sole member
22.79% LP
JT1290 Corp.
AP-1290 Manager LP AP Leasing, LLC
leasing fees Jamestown 1290 L.P.
("Purchaser")
property management 99.99999% LP interest
fee
Jamestown 1290
Management, L.P.
portion of management fees
portion of management fees
4
Purchase Agreement
On May 7, 2002, we entered into an amended and restated purchase agreement
with Purchaser, whereby Purchaser agreed to purchase the 1290 property. See
"PROPOSAL 1 - THE SALE TRANSACTION; Description of The Purchase Agreement;
Assets to be Sold and Liabilities to be Assumed."
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
Purchaser has agreed to pay us $745.5 million to purchase our interest in
the 1290 property.
We expect to distribute to our stockholders (through your interest in
Holdings) approximately $22.50 per share, which amount may be reduced by
increased expenses related to the sale transaction and the merger.
The 1290 property is our last and only significant asset and upon
consummation of the sale transaction, you will no longer participate in future
results of operations of the 1290 property and you will no longer receive any
distributions from either Metropolis or Holdings, other than a distribution of
the net sale proceeds by Holdings in the sale transaction by Holdings of any
remaining reserve amounts described herein. 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
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
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 attached hereto as
Annex A. See "PROPOSAL 1 - THE SALE TRANSACTION; Opinion of Houlihan Lokey."
Appointment of Special Committee
Because several 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.
The special committee was formed for the following purposes:
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o to explore the proposed transaction with Purchaser;
o if the special committee deemed it appropriate, to authorize
and to recommend to the board of directors, subject to
stockholder approval, that the board 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."
Recommendation of the Special Committee and Board of Directors
The special committee and the board of directors have unanimously approved
the sale transaction, and have determined that the sale transaction and the
terms of the purchase agreement are fair to and in the best interests of
Metropolis' stockholders and recommend that you vote for the sale transaction at
the special meeting. See "Recommendation of the Special Committee; Reasons for
the Proposed Sale Transaction."
Interests of Certain Persons in the Sale Transaction
Apollo Real Estate Advisors, L.P. Several 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 of Metropolis. Apollo Real Estate Advisors is the
general partner of Apollo Real Estate Investment Fund, which beneficially owns
approximately 38% of the outstanding shares of Metropolis common stock. These
additional interests of Apollo Real Estate Advisors and its affiliates in the
sale transaction include:
Officers and directors of Metropolis. William L. Mack, Lee S. Neibart,
Bruce H. Spector and John R.S. Jacobsson are partners of Apollo Real Estate
Advisors and officers of the general partner of Apollo Real Estate Advisors.
These persons serve as directors of Metropolis and Mr. Mack serves as Chairman
of the board of directors, Mr. Neibart serves as President of Metropolis, and
Mr. Jacobsson serves as a Vice President and Secretary of Metropolis. None of
these persons serve on the special committee that has approved the sale
transaction.
o Several of the members of our board of directors that are
affiliated with Apollo Real Estate Investment Fund indirectly
control AP-1290, an approximate 23% Limited Partner of
Purchaser. Apollo Real Estate Investment Fund currently owns
100% of the limited liability company interests of AP-1290.
Through AP-1290, Apollo Real Estate Investment Fund has agreed
to invest up to approximately $79 million of the amount that
it is entitled to receive as a stockholder of Metropolis from
the distribution of the net proceeds of the sale transaction
in consideration for a 22.79% limited partnership interest in
the Purchaser. This interest will entitle AP-1290 to a
subordinated preferred return on its invested capital and
43.75% of any remaining net cash flow from the 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 subordinated 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. As a result of this investment,
directors of Metropolis who are also partners of the general
partner of Apollo Real Estate Advisors will benefit as
indirect owners of AP-1290 because they will be entitled to
share in the economic benefit of their investment while
stockholders that elect not to participate in the AP-1290
offering will not be entitled to these benefits.
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o In addition, several of our directors will continue to have an
interest in the 1290 property after the sale through interests
in the Purchaser and interests in affiliates of Apollo Real
Estate Advisors that will receive fees for managing, leasing
and subsequently disposing of the 1290 property on behalf of
Purchaser:
o Manager of 1290 property. Purchaser appointed Jamestown
1290 Management L.P. as the manager of the 1290 property
following the closing of the sale transaction. Jamestown
1290 Management is owned 99.9% by the Purchaser and
0.00001% by JT 1290 Corp. Jamestown 1290 Management has,
in turn, appointed AP-1290 Manager, L.P., an affiliate
of Apollo Real Estate Advisors, and Jamestown 1290
Management to manage the 1290 property. AP-1290 Manager
and Jamestown 1290 Management have agreed to share
equally a management fee of 1.75% of the effective gross
rents received from the 1290 property in consideration
for providing management services to the 1290 property.
Jamestown 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 currently
expected to be approximately 1.0% of effective gross
rents per year. The members of the board of directors
that are affiliated with Apollo Real Estate Advisors
will benefit as indirect owners of AP-1290 Manager
because they will be entitled to share in the AP-1290
Manager's net income, if any, while our other
stockholders will not be entitled to this benefit.
o Post-Closing Transaction Fee. If the 1290 property is
sold by Purchaser, AP-1290 Manager will be entitled to a
sales fee equal to 1.2% of the gross sale price. A
subsequent sale of the 1290 property is not expected to
occur prior to 2009. The purpose of this fee is to
provide AP-1290 Manager additional compensation for its
management services and to compensate it as a
co-sponsor, with Jamestown, for finding a subsequent
purchaser of the 1290 property. The members of the board
of directors that are affiliated with Apollo Real Estate
Advisors will benefit as indirect owners of AP-1290
Manager because they will be entitled to share in the
AP-1290 Manager's net income, if any, while our other
stockholders will not be entitled to this benefit.
o Leasing Agent of 1290 property. Purchaser has agreed to
appoint AP Leasing to serve as the leasing agent for the
1290 property following the closing of the sale
transaction. AP Leasing is an affiliate of Apollo Real
Estate Advisors. In consideration for providing leasing
services, AP Leasing will be entitled to receive a
leasing commission if and when a lease relating to the
1290 property is entered into. Leasing commissions will
be computed by multiplying the fixed rent for such lease
by a scheduled percentage (ranging from 1% to 5%)
relating to a specified period of time during the term
of the lease. The members of the Metropolis board of
directors that are affiliated with Apollo Real Estate
Advisors will benefit as owners of AP Leasing because
they will share in the AP Leasing's net income, if any,
while their pro rata portion of the fees described
above, and the stockholders will not be entitled to this
benefit.
o Apollo Real Estate Investment Fund Note.
o We have agreed to accept a promissory note of Apollo
Real Estate Investment Fund in the amount of
approximately $79.725 million as a portion of the
purchase price to be paid by Purchaser in the sale
transaction. The promissory note is secured by the
shares of Metropolis common stock owned by Apollo Real
Estate Investment Fund.
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o The promissory note may be delivered by Purchaser to
Metropolis if AP-1290 fails to make its required capital
contribution under the Purchaser limited partnership
agreement. The principal amount of the promissory note
will be paid by Apollo Real Estate Investment Fund on
the date we make distributions to Apollo Real Estate
Investment Fund from the net proceeds of the sale
transaction. Overdue principal bears interest for each
day from the due date thereof until paid in full at a
rate per annum equal to 7%. 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 principal amount of the
promissory note. A copy of the Apollo Real Estate
Investment Fund promissory note is attached hereto as
Annex I and included as an exhibit to the registration
statement.
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 Compensation to Certain Metropolis Officers. On July 9, 2002,
the Metropolis board of directors authorized the payment of
$50,000 to each of Messrs. John Jacobsson, Vice President and
Secretary of Metropolis; Andrew Cohen, Vice President of
Metropolis; and Stuart Koenig, Treasurer of Metropolis, upon
the consummation of the sale transaction. This payment was
authorized in recognition of the contribution made by each of
these officers to the negotiation, structuring and
consummation of the sale transaction. These officers are also
officers of Apollo Real Estate Advisors.
o Purchaser will provide a pre-closing loan to Holdings
following the merger and prior to the closing of the sale
transaction. Immediately following the merger and prior to the
closing of the sale transaction, Holdings will borrow
approximately $150 million from Purchaser or a designee of
Purchaser. The amount borrowed will be repaid in full at the
closing of the sale transaction and will bear interest at the
rate of ____ percent (__%) per annum for so long as the
pre-closing loan is outstanding. Immediately upon receipt of
the proceeds of the loan, Holdings will contribute such
proceeds to Metropolis as capital. Metropolis will use this
capital contribution to repay a portion of its existing
indebtedness prior to the consummation of the sale
transaction. The loan will be secured by a pledge of Holdings'
99.9% equity interest in Metropolis. See "PROPOSAL 2 - THE
MERGER; Pre-Closing Loan, Payment of Purchase Price and Other
Related Transactions."
Capital Trust. Two 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 Metropolis
stockholders. Capital Trust owns 0.2% of the outstanding shares of Metropolis
common stock, is the asset manager of the 1290 property, and its Chief Executive
Officer, John R. Klopp serves on our board of directors. In addition, Mr. Klopp
serves as a Vice President of Metropolis and Jeremy FitzGerald, a Managing
Director of Capital Trust, serves as a Vice President and Assistant Secretary of
Metropolis. Mr. Klopp is also a stockholder of Metropolis. In addition, Craig M.
Hatkoff, a Director of Capital Trust, is also a stockholder of Metropolis.
Capital Trust is not affiliated with Purchaser, Apollo Real Estate Investment
Fund or any of their affiliated entities. 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 $2 million in consideration for the termination of
the asset management agreement and for services rendered to Metropolis in
connection with the sale transaction. "PROPOSAL 1 - THE SALE TRANSACTION;
Interests of Certain Persons in the Sale Transaction." As a result of receiving
this fee, Capital Trust will receive a benefit in the sale transaction that the
other stockholders of Metropolis will not be entitled to receive. In addition,
on July 9, 2002, the Metropolis board of directors resolved to award $50,000 to
Ms. FitzGerald upon the consummation of the sale transaction for services
rendered by her in her capacity as an officer of Metropolis in connection with
the sale transaction.
Tishman Speyer. Tishman Speyer Properties, L.P. currently serves as
property manager/leasing agent of the 1290 property whereby it manages the
day-to-day operations of the 1290 property. NYPROP, L.L.C., an affiliate of
Tishman Speyer, owns 545,707 shares of Metropolis common stock (or approximately
4.2% of the outstanding shares). Upon the consummation of the sale transaction,
the
8
leasing agreement with Tishman Speyer will be terminated and Tishman Speyer will
be entitled to receive, on an accelerated basis, approximately $800,000 of
leasing commissions due to Tishman Speyer under its leasing agreement. This
amount relates to leasing commissions due to Tishman Speyer with respect to five
tenants. Such leasing commissions were originally scheduled to be paid no sooner
than December 2002 and as late as April 2004. The payment of this amount is an
obligation of Purchaser under the purchase agreement. As a result of receiving
this fee on an accelerated basis, Tishman Speyer will receive a benefit in the
sale transaction that the other stockholders of Metropolis will not be entitled
to receive.
Private Placement by AP-1290
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) and who own more
than twenty or more shares of Metropolis common stock, 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 investors
contemporaneously with the delivery of this information statement--prospectus.
AP-1290 owns a 22.79% limited partnership interest in Purchaser, which following
the closing of the sale transaction, will own the 1290 property. AP-1290 intends
to close its private placement offering simultaneously with the closing of the
sale transaction. The terms and conditions 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 sale transaction or the merger. This 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."
Our Principal Reasons for the Sale Transaction
In reaching its decision to approve the sale transaction, the special
committee and the board of directors of Metropolis considered a variety of
reasons for consummating the sale transaction, including the following:
o The 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 opinion of Houlihan Lokey that the consideration to be received
by Metropolis 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 Metropolis' stockholders who are not
affiliated with Apollo Real Estate Investment Fund;
o Both Equity Office Properties Trust and Purchaser had an opportunity
to submit several bids to the special committee and Purchaser's
final offer was the product of an active bidding procedure between
two qualified purchasers;
o Purchaser had made an earnest money deposit of $25 million; and
9
o Purchaser had delivered to us a 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. See "PROPOSAL 1 - THE SALE TRANSACTION - Recommendation
of the Special Committee, Reasons for the Proposed Sale
Transaction."
Purchaser's Principal Reasons for the Sale Transaction
o Purchaser is engaging in the sale transaction primarily as a means of
expanding Jamestown's operations of investing in "Class A" commercial
office buildings located in central business districts. The acquisition of
the 1290 property geographically complements Jamestown's existing
operations.
Principal Risks Relating to the Sale Transaction
There are certain risks associated with the sale transaction. These include:
If our estimated adjustments to the sale transaction proceeds are
inaccurate, there may be less than $292.5 million or $22.50 per LLC unit to
distribute to stockholders.
As a result of the sale transaction and merger, you will no longer
participate in the future results of the 1290 property.
As a result of the sale transaction, you will no longer receive any
dividends from Metropolis (other than a distribution of the net sale proceeds
from Holdings and any distribution of any remaining reserve amounts). Pursuant
to the terms of the purchase agreement, Holdings is required to retain $10
million in order to satisfy any indemnification claims made by Purchaser prior
to December 31, 2002 under the purchase agreement. In addition, management has
determined to establish a $2 million reserve to cover expenses associated with
the sale transaction and liquidation. There is no assurance that any amounts
will be available at the end of the indemnification period for distribution to
you.
Some of our directors and officers may have interests and arrangements
that could have affected their decision to support the sale transaction.
Management did not obtain any third-party appraisal or valuation of the
1290 property nor did management estimate or obtain a third-party estimate of
the liquidation value of the 1290 property.
Depending on the amount of cash received and your tax basis in our common
stock (and Holdings' LLC units), you may recognize a taxable gain upon receipt
of cash proceeds from our liquidation. See "Risk Factors."
Closing of the Sale Transaction and Distribution of Sale Proceeds
We expect the sale transaction to close on or about [September __, 2002].
We expect to distribute the net sale proceeds to Holdings and for Holdings to
distribute your pro rata share of such proceeds to you at the time of closing or
as soon as practicable thereafter, but in no event later than thirty days
following the closing.
Holdings intends to distribute your pro rata share of the $10 million
indemnification reserve and $2 million expense reserve (plus interest) held by
Holdings on or prior to January 31, 2003, less any amounts that may have been
paid or set aside to satisfy indemnification claims made by Purchaser by
December 31, 2002. Upon the settlement or satisfaction of such claim, Holdings
will distribute the remaining amount, if any, within thirty days following such
satisfaction and/or settlement.
10
Voting Agreements
Seven of our largest stockholders, representing approximately 10.3 million
shares of our common stock (approximately 79% of the outstanding shares of our
common stock), have entered into separate agreements with Purchaser to vote
their shares in favor of the sale transaction and the merger. These stockholders
have also agreed to vote against any matter that could reasonably be expected to
prevent or delay the consummation of the sale transaction. A form of these
voting agreements is attached hereto as Annex C to this information
statement--prospectus. Accordingly, approval of the sale transaction and the
merger are assured without the vote of any other stockholder.
The voting agreements are terminable upon the earlier of the closing of
the sale transaction and the date that the purchase agreement is terminated in
accordance with its terms. The voting agreements may also be terminated by a
stockholder if changes are made to the purchase agreement that would have a
material adverse effect on the economic benefits to be realized by such
stockholder pursuant to the purchase agreement. See "DESCRIPTION OF THE VOTING
AGREEMENTS."
Limited Partnership Agreement of Purchaser
Purchaser's governing documents consist of a certificate of limited
partnership filed with the Secretary of State of the State of Delaware on
April 12, 2002, and its agreement of limited partnership between JT 1290
Corp., Jamestown 1290 Partners and AP-1290. This agreement provides that
Purchaser's general partner is JT 1290 Corp., an affiliate of Jamestown, and the
limited partners are AP-1290 and Jamestown 1290 Partners. Purchaser was formed
to acquire the 1290 property in the sale transaction. Jamestown 1290 Partners
owns a 77.21% limited partnership interest in Purchaser, and JT 1290 Corp. owns
a .00001% general partnership interest in Purchaser. AP-1290 owns a 22.79%
limited partnership interest in Purchaser.
The limited partnership agreement also provides that the business, affairs
and assets of Purchaser will be managed, arranged and caused to be coordinated
by the general partner, who will have, except with respect to specified major
matters, full, exclusive and complete discretion with respect thereto. Except
for specified major matters and specified actions, none of the partners other
than the general partner has any right or will have any right to approve, vote
on or otherwise consent to any matter relating to the business, affairs or
assets of Purchaser. For a description of the specified actions and major
matters, as well as the distributions of net cash flow and proceeds from capital
transactions and liquidation events, and other material terms of this agreement,
see "DESCRIPTION OF THE AGREEMENT OF LIMITED PARTNERSHIP OF PURCHASER." A copy
of this agreement is attached hereto as Annex J to this information
statement--prospectus.
Material Income Tax Consequences of the Sale Transaction and Liquidation of
Metropolis
We will recognize a gain for federal income tax purposes generally equal
to the amount received for the 1290 property over our adjusted tax basis in the
1290 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 that generally are not taxable to stockholders, 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.
o Upon the receipt of net cash proceeds from our liquidation, Holdings will
report a gain equal to the excess of the cash received over its adjusted
tax basis in our common stock. As a partnership for federal income tax
purposes, Holdings will have no federal income tax liability with respect
to such gain. Instead, each member of Holdings (each formerly our
stockholder) will recognize its
11
distributive share of such gain, allocated based on its percentage
interest in Holdings to the extent consistent with the principles of
section 704(c) of the Internal Revenue Code.
Upon receipt of cash distributions from Holdings, each member of Holdings
should recognize gain or loss equal to the excess of the cash received over its
adjusted basis in the Holdings LLC units (which includes such member's former
adjusted tax basis in our common stock prior to the merger and its distributive
share of Holdings' gain from the sale transaction). In general, such gain or
loss will be capital in nature and will be long-term if the member's holding
period (which includes the holding period in our common stock surrendered in the
merger) is more than one year at the time of the liquidating distribution by
Holdings.
Depending on the amount of cash received and your tax basis in our common
stock (and Holdings' LLC units), you may recognize a taxable gain upon receipt
of cash proceeds from our liquidation. See "PROPOSAL 1 - THE SALE TRANSACTION;
Material U.S. Income Tax Consequences of the Sale Transaction and Liquidation of
Metropolis" and "PROPOSAL 2 - THE MERGER; Material U.S. Federal Income Tax
Consequences."
Termination of Registration under the Securities Act of 1934
Following the closing of the sale transaction and the merger, we will
terminate our registration under the Exchange Act. As a result, we will no
longer be under any obligation to deliver to you annual or quarterly reports.
The issuance of the LLC units you receive from Holdings in the merger, however,
will be registered under the Securities Act, and Holdings will be required to
comply with the reporting obligations under the Exchange Act. 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
Metropolis. 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; Metropolis."
Metropolis Realty Lower Tier LLC. 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 with
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."
Holdings. Holdings is a newly-formed Delaware limited liability company
which is a wholly-owned subsidiary of Metropolis 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 - SALE TRANSACTION; Material U.S. Federal Income Tax Consequences of
the Sale Transaction and Liquidation of Metropolis." 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."
12
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' LLC
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 LLC units.
o Assignability and Transferability of Holdings' LLC 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 LLC units, other than
restrictions in Holdings' operating agreement to ensure that
Holdings is not treated as a publicly traded partnership for
federal income tax purposes. Until such time as we are
liquidated, the holders of Holdings' LLC units will continue
to be subject to certain restrictions on the number of LLC
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 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 and information available regarding the
prevailing market prices for the LLC units.
o Registered with the Commission. The issuance of the LLC units
are being registered under this information
statement-prospectus with the Commission under the Securities
Act. 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 Exchange Act.
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 $12 million
reserves, including any interest earned thereon, after
the final settlement of any indemnification claims that
may have arisen during the indemnification period and
payment of all expenses and costs, will be distributed
pro rata to the holders of Holdings LLC units as soon as
practicable following expiration of the indemnification
period and the settlement of all such claims. See
"PROPOSAL 2 - THE
13
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 of cash reserved to satisfy
Purchaser indemnification claims, plus a cash reserve of $2
million in order to pay any professional expenses or other
costs that may arise. Other than these reserve amounts,
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 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 LLC units upon the closing
of the sale transaction (less the $10 million indemnification
reserve and the $2 million expense reserve), Holdings does not
intend to distribute any of its assets until the expiration of
its indemnification obligations and the settlement of all such
claims at which time it intends to distribute the remaining
portion of the $10 million indemnification reserve, plus
interest, if any.
The Merger and Related Transactions
Holdings is our wholly-owned subsidiary. Holdings has, in turn, formed
Metropolis Lower Tier, a Delaware limited liability company, a wholly-owned
subsidiary of Holdings and our indirect wholly-owned subsidiary.
Prior to the consummation of the sale transaction, we will merge with
Metropolis Lower Tier and we will be the surviving entity of the merger.
Following the merger, Holdings will own 13,004,946 shares of Metropolis common
stock (or approximately 99.9% of its outstanding shares); the remaining 1,100
shares of common stock (or approximately 0.1% of all outstanding shares) will be
given to 110 persons comprised of affiliates of existing stockholders and their
professionals (i.e., accountants and legal counsel). See "PROPOSAL 2 - THE
MERGER; Introduction."
A copy of the merger agreement between us, Holdings and Lower Tier is
attached hereto as Annex G. You are urged to read the merger agreement carefully
and in its entirety.
Immediately following the merger and prior to the closing of the sale
transaction, Holdings will borrow approximately $150 million from Purchaser or a
designee of Purchaser. Immediately thereafter, Holdings will contribute the
proceeds of that pre-closing loan to our capital. We intend to use this capital
contribution to repay a portion of our existing indebtedness before the
consummation of the sale transaction.
The pre-closing loan will be secured by the 13,004946 shares of Metropolis
common stock owned by Holdings following the merger and is expected to be repaid
upon the closing of the sale transaction at which time we will liquidate and the
net proceeds of the sale transaction will be distributed to Holdings. Following
the payment of our remaining existing indebtedness, the costs associated with
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 holders of LLC units 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
14
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."
Reasons for the Merger and Related Transactions
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 will enable us to facilitate the consummation of the sale transaction, our
subsequent cash liquidation and to allow us to claim the amount of "dividends
paid deduction" which will permit us to eliminate our U.S. federal income tax
with respect to the gain on the sale of the 1290 property.
Merger Consideration
In the merger, each of our stockholders will receive a certificate
representing a number of LLC 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
Immediately following the merger, each of our stockholders will own the
same number of LLC 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 our merger with Metropolis Lower Tier. These
risks include:
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,
holders of LLC units may not receive the full $10 million indemnification
reserve and the $2 million expense reserve. See "PROPOSAL 2 - THE MERGER;
Parties to the Merger; Holdings; Assumption of Metropolis Indemnification
Obligations to Purchaser."
That there is a lack of a market for the LLC units to be issued by
Holdings in the merger and the LLC units will not be traded on any established
trading market, and we do not expect that an active trading market for the LLC
units will develop or be sustained.
That Holdings has a lack of operating history.
That although Holdings expects to distribute approximately $292.5 million
or $22.50 per LLC 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 $292.5 million to distribute to its members.
As a result of the merger, you will no longer receive any dividends from
Metropolis (other than a distribution of the net sale proceeds from Holdings and
any remaining portion of the indemnification reserve and expense reserve).
You may continue to hold LLC units in Holdings after the time in which it
ceases to be a reporting company under the Securities Exchange Act of 1934.
15
That Holdings will have no assets other than the $10 million
indemnification reserve and the $2 million expense reserve following
distribution of the net sale transaction proceeds to its holders of LLC units.
See "RISK FACTORS".
Special Committee and Board of Directors Approval
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
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 LLC units. After the merger, aside from shares of common stock that we
will 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.
No gain or loss will be recognized by stockholders upon receipt of
Holdings' LLC units in exchange for their shares of common stock. Each of our
stockholder's adjusted tax basis in its respective Holdings' LLC 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 LLC units received in the merger
will include the holding period of the common stock surrendered in the merger.
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.
Holdings will be considered a partnership and each stockholder receiving
Holdings LLC units will be considered a partner of Holdings for federal income
tax purposes. Each holder of LLC units will be deemed to be a member of Holdings
and will receive an Internal Revenue Service Form K-1 annually from Holdings
showing the amount of Holdings' income, gains, losses, deductions or credits
allocable to each such member of Holdings. Because Holdings is not expected to
conduct any operations after the sale transaction and our liquidation, but will
remain in existence merely to administer the orderly distributions of the $10
million indemnification reserve and the $2 million expense reserve, it is not
expected that members that are not otherwise required to file New York state and
city income tax returns would be required to do so as a result of their
ownership of membership interests in Holdings. See "PROPOSAL 2 - THE MERGER;
Certain U.S. Federal Income Tax Consequences."
Material Differences in the Rights of Owning Stock and Limited Liability Company
Interests
The rights of our stockholders are governed by the Maryland General
Corporation Law, our charter and by-laws. Following the merger, our stockholders
will be members of Holdings and hold LLC 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.
16
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 Stock Certificates for Certificates representing LLC units
We have appointed Continental Stock Transfer & Trust Company to act as
exchange agent in the merger. See "PROPOSAL 2 - THE MERGER; Exchange of
Certificates."
17
SELECTED METROPOLIS 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 and 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 F. This
financial data includes information relating not only to the 1290 property, but
also the 237 Park Avenue property that was owned by us during this period and
sold in November 1999. Our annual financial statements 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)
--------- --------- --------- --------- --------- --------- ---------
(in thousands, except share amounts)
(unaudited)
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 -- --
Miscellaneous
income ................ 1,071 692 2,936 5,245 4,669 4,889 1,190
--------- --------- --------- --------- --------- --------- ---------
Total revenues .......... 23,129 22,787 93,966 95,318 157,558 139,643 130,807
--------- --------- --------- --------- --------- --------- ---------
OPERATING EXPENSES
Real estate taxes ....... 4,495 4,363 17,821 18,266 27,414 27,733 26,813
Operating and ........... 1,363 1,175 5,518 5,173 6,756 7,119 7,224
maintenance
Utilities ............... 1,611 2,384 9,450 8,186 6,991 6,674 6,870
Payroll ................. 925 848 3,480 3,091 4,323 4,430 4,332
Management fees ......... 481 470 1,820 1,770 2,198 2,298 2,121
Professional fees ....... 119 109 524 932 1,960 3,451 2,055
General and
administrative ........ 38 55 328 430 980 562 1,032
Bad debt expense ........ -- -- 1,301 -- 585 -- 329
Depreciation and
amortization .......... 2,950 3,060 11,981 11,680 16,245 14,466 13,347
--------- --------- --------- --------- --------- --------- ---------
Total operating ......... 11,982 52,223 49,528 67,452 66,733 64,123
--------- --------- --------- --------- --------- ---------
expenses ............. 12,464
---------
OTHER ITEMS
Interest income ......... 90 326 973 2,917 3,759 3,293 3,676
Interest expense ........ (10,046) (10,054) (41,400) (41,464) (33,582) (35,800) (36,233)
Write-off of note
receivable ........... -- -- (1,088) -- --
(continued)
18
Three Months
Ended March 31, Years Ended December 31,
2002 2001 2001 2000 1999(1) 1998(1) 1997(1)
------------ ------------ ------------ ------------ ------------ ------------ ------------
(unaudited)
Write-off of -- -- -- -- (2,307) -- --
deferred
financing
costs .............
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.
19
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 - Metropolis
- --------------------
Purchase price $745,500
Holdings capital contribution 150,000
Cash on hand 23,750
--------
Total Sources $919,250
========
Uses - Metropolis
- -----------------
Existing indebtedness - principal $425,000
Existing indebtedness - accrued interest 3,020
Swap agreement termination costs(a) 10,000
Indemnification reserve 10,000
Transaction fees and expenses(b) 4,000
Transfer taxes(c) 22,551
Cash reserves for Metropolis 2,000
Distribution to Holdings(d) 442,679
--------
Total Uses $919,250
========
Sources - Holdings
- ------------------
Distribution from Metropolis $442,579
Pre-Closing Loan $150 million 150,000
--------
Total Sources $592,579
========
Uses - Holdings
- ---------------
Capital contribution to Metropolis $150,000
Repayment of Pre-Closing Loan 150,000
Distributions to Members (pro rata) 292,679
--------
Total Uses $592,679
========
- --------------------------------------------
(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 connection in the transaction, including, without limitation,
attorneys' and accountants fees, as well as Commission filing fees,
printing and other miscellaneous expenses. Also includes a $2 million fee
payable to Capital Trust and $200,000, in the aggregate, representing
amounts to be paid to certain officers of Metropolis upon the consummation
of the sale transaction for services rendered in connection with the sale
transaction.
(c) Transfer taxes are 3.025% of the purchase price.
(d) Calculated as the difference between the Total Metropolis Sources
($919,250) and Total Metropolis Uses other than distribution to Holdings
($476,571).
20
Comparative Per Share Data (Unaudited)
The following table presents historical and pro forma per share data for
Metropolis and its subsidiaries and Holdings. The following tables should be
read in conjunction with the historical consolidated financial statements of
Metropolis 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 information statement--prospectus or in the accompanying annual report on
Form 10-K/A.
As of As of
March 31, December 31,
2002 2001
------------ ------------
Book Value Per Common Share/LLC Unit
Historical:
Metropolis (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 For the Year
Months Ended Ended December
March 31, 2002 31, 2001
-------------- --------------
Income from Continuing Operations Per Common
Share/LLC Unit:
Basic and Diluted Earnings per Share:
Historical:
Metropolis ............................................. $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
LLC Units .............................................. 0 0
Pro forma common stock ................................. 0 0
Pro forma 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 Metropolis 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 LLC units outstanding immediately
following the merger and sale transaction (13,004,946). The number of LLC
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
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 indemnification reserve and
the $2 million expense reserve, it is uncertain how much, if any 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 LLC unit basis would not be meaningful.
21
INDEPENDENT AUDITORS' REPORT
To the Members of
Metropolis Realty Holdings LLC
We have audited the accompanying balance sheet of Metropolis Realty Holdings LLC
as of May 6, 2002. The balance sheet is the responsibility of the Holdings'
management. Our responsibility is to express an opinion on the balance sheet
based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the balance sheet
is free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the balance sheet. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation of the balance sheet. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such balance sheet presents fairly, in all material respects,
the financial position of Holdings at May 6, 2002 in conformity with accounting
principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
May 23, 2002
22
METROPOLIS REALTY HOLDINGS LLC
BALANCE SHEET
As of May 6, 2002
TOTAL ASSETS $ --
TOTAL LIABILITIES $ --
MEMBERS' CAPITAL
Member's Capital 100
Receivable from Founding Member (100)
-----
Total Members' Capital $ --
=====
TOTAL LIABILITIES AND MEMBERS' CAPITAL $ --
Notes to Balance Sheet
MAY 6, 2002
- --------------------------------------------------------------------------------
1. Organization
Metropolis Realty Holdings LLC ("Holdings") was formed on May 6, 2002 pursuant
to a limited liability company 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 Holdings at that date.
23
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. The
merger has been presented as a reverse acquisition for accounting purposes with
Metropolis as the acquiror and Holdings as the acquiree. The historical
financial statements are those of Metropolis. This balance sheet has assumed
that the pre-closing loan will be in an amount equal to $150 million.
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
(in thousands)
Rental property $ 356,142 $(356,142) (B) $ --
Cash and cash equivalents 15,859 150,000 (A) 12,000
299,845 (B)
(150,000) (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) --
150,000 (A)
(150,000) (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 $150 million pre-closing
loan.
(B) To record the sale transaction.
(C) To record repayment of pre-closing loan.
(D) To record distribution to stockholders.
24
METROPOLIS REALTY HOLDINGS LLC
PRO FORMA INCOME STATEMENT
FOR THE THREE MONTHS ENDING JANUARY 1, 2001
The following unaudited pro forma income statement has been presented as if the
merger and sale transaction were consummated as of January 1, 2001. The merger
has been presented as a reverse acquisition for accounting purposes with
Metropolis as the acquiror and Holdings as the acquiree. The historical
financial statements are those of Metropolis.
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
(in thousands)
(unaudited)
REVENUES
$(20,749) (E) --
Rental Income $ 20,749 (1,309) (E) --
Lease termination income 1,309 (1,071) (E) --
-------- --------
Miscellaneous income 1,071 (23,129) --
-------- ======== ========
Total Revenues 23,129
========
OPERATING EXPENSES
(4,495) (E) --
Real estate taxes 4,495 (1,363) (E) --
Operating and maintenance 1,363 (1,611) (E) --
Utilities 1,611 (925) (E) --
Payroll 925 (481) (E) --
Management fees 481 (119) (E) --
Professional fees 119 (38) (E) --
G&A 38 (2,950) (E) --
-------- --------
Depreciation and Amortization 2,950 (11,982) --
--------
Total operating expenses 11,982
OTHER ITEMS (51) (E)(F) 39
Interest income 90 10,046 (E) --
-------- --------
Interest expense (10,046) 9,995 39
--------
Total other items (9,956)
(1,152) 39
NET INCOME 1,191
(5,463) (E) --
OTHER COMPREHENSIVE INCOME 5,463
-------- --------
$ (6,615) $ 39
-------- ======== ========
COMPREHENSIVE INCOME $ (6,654)
========
(E) To record removal of operations of the 1290 property.
(F) To record interest income on cash held for the quarter based on a 1.5%
average interest rate during the quarter.
25
METROPOLIS REALTY HOLDINGS LLC
PRO FORMA INCOME STATEMENT
JANUARY 1, 2001
The following unaudited pro forma income statement has been presented as if the
merger and sale transaction were consummated as of December 31, 2001. The merger
has been presented as a reverse acquisition for accounting purposes. The
historical financial statements are those of Metropolis.
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
(in thousands)
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 13,009 (13,009) (E) --
-------- -------- --------
MINORITY INTEREST
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 property.
(F) To record interest income on cash held for the year based on a 2.5%
average interest rate.
26
RISK FACTORS
In addition to other information in this 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 LLC 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, 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 Metropolis, this $10 million indemnification reserve, the $2
million expense reserve described below, plus the interest earned thereon, will
be Holdings' sole asset following the closing of the sale transaction.
This $10 million indemnification reserve 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 is uncertain, but generally relates 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 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 fees.
Following the expiration of the indemnification period, Holdings will
distribute the remaining portion of the $10 million indemnification reserve and
the $2 million expense reserve amount pro rata to the holders of Holdings LLC
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 indemnification reserve, or any
portion thereof, will be remaining after the satisfaction or settlement of any
claims to distribute to the members of holders of Holdings LLC 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 expense reserve, or any portion thereof, will be remaining at
the end of the indemnification period.
There will not be a market for the LLC units to be issued by Holdings in the
merger.
The LLC 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
27
limited information available regarding the prevailing market prices and limited
liquidity for the LLC units. See "PROPOSAL 2 - THE MERGER; Parties to the
Merger; Holdings."
Holdings has a lack of operating history and, following the merger and sale
transaction, will not conduct any operations. Holdings will have no assets other
than the $10 million indemnification reserve and $2 million expense reserve
following distribution of the net sale proceeds to holders of LLC units.
Holdings is a newly formed company without any operating history. The LLC
units are being issued to enable us to facilitate the consummation of the sale
transaction, our subsequent cash liquidation and to allow us to claim the amount
of "dividends paid deduction" which will permit us to eliminate our U.S. federal
income tax with respect to the gain on the sale of the 1290 property. Following
the closing of the merger and sale transaction, Holdings will not generate any
income other than interest earned on the $10 million indemnification reserve and
$2 million expense reserve, and will not conduct and does not intend to conduct
any 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.
If our estimated adjustments to the sale transaction proceeds are inaccurate,
there may be less than $292.5 million or $22.50 per LLC unit to distribute.
Based on our good faith estimates, we believe that approximately $292.5
million or $22.50 per LLC 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 "Cash on Hand" amount
that we have estimated as set forth in the section "PRO FORMA SOURCES AND USES
OF PROCEEDS", may also be inaccurate because such amount is dependent upon the
timing of the closing of the sale transaction. If the closing date is delayed
for unforseen reasons, then this amount may increase because the amount of
undistributed earnings are expected to increase over time. For every $3.2
million that swap termination costs are increased, you will receive
approximately $0.25 less than our estimated $22.50 per share amount. For every
$3.2 million that the "Cash on Hand" amount is increased, you will receive
approximately $0.25 more than our estimated $22.50 per share amount.
Accordingly, because of these uncertainties, there is no assurance that you will
receive exactly $22.50 for each LLC unit that you receive in the merger, and you
may receive more or less than that amount.
You may continue to hold LLC units 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 may continue
to hold LLC units in Holdings after the time in which it ceases to be a
reporting company under the Exchange Act.
28
Management did not obtain a third-party appraisal or valuation of the property,
nor did management estimate or obtain a third-party estimate of the liquidation
value of the property.
Because management did not obtain a third-party appraisal or valuation of
the property, or estimate of its liquidation value of the property, there is no
assurance that the purchase price to be paid by Purchaser in the sale
transaction would not have been equal to or in excess of such appraisal or
valuations or estimates, if one had been obtained.
As a result of the sale transaction and merger, you will no longer receive any
dividends from us.
The 1290 property is our last and only significant asset. Following the
sale transaction, we will no longer own the 1290 property nor any other income
producing assets. Following the merger, you will cease to be a stockholder of
us, and following the distribution of the net sale proceeds that we receive in
the sale transaction, we will liquidate. As a result, you will no longer receive
any dividends from us, nor will you participate in the future results of the
1290 property.
Several of Metropolis' directors and officers may have interests and
arrangements that could have affected their decision to support the sale
transaction.
Apollo Real Estate Advisors. 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. The interests
of Apollo Real Estate Advisors and its affiliates in the sale transaction which
are described below may have affected their decision to support the sale
transaction:
o Certain of Metropolis' existing directors and 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. None of these
directors or officers, however, serve on the special committee that
has approved the sale transaction.
o Four of Metropolis' eight directors indirectly control, through
AP-1290, an approximate 23% limited partnership interest in
Purchaser.
o In addition, several of Metropolis' directors will continue to have
an interest in the 1290 property after the sale through interests in
the Purchaser and interests in affiliates that will receive fees for
managing or selling the 1290 property.
o AP-1290 Manager, an affiliate of Apollo Real Estate Advisors,
will be entitled to receive a portion of the property
management fees that will be paid with respect to the 1290
property following the closing of the sale transaction.
o If, after the closing of the sale transaction, the 1290
property is sold by Purchaser, AP-1290 Manager, will be
entitled to a sales fee equal to 1.2% of the gross sale price,
which is not expected to occur until on or after 2009.
o AP Leasing LLC, an affiliate of Apollo Real Estate Advisors,
will serve as the leasing agent for the property following the
closing of the sale transaction and will be entitled to
receive a leasing commission if and when a lease relating to
the 1290 property is executed.
o On July 9, 2002, the Metropolis board of directors authorized
the payment of $50,000 to each of Messrs. John Jacobsson, Vice
President and Secretary of Metropolis; Andrew Cohen, Vice
President of Metropolis; and Stuart Koenig, Treasurer of
Metropolis, upon the consummation of the sale transaction.
This payment was authorized in recognition of the contribution
made by each of these officers to the negotiation, structuring
and consummation of the sale transaction. These officers are
also officers of the Apollo Real Estate Advisors.
o Metropolis has agreed to accept a promissory note from Apollo Real
Estate Investment Fund in the amount of approximately $79.725
million in satisfaction of a portion of the purchase
29
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 Apollo Real Estate Investment Fund executed a voting agreement with
Purchaser pursuant to which it has agreed to vote in favor of the
sale transaction and the merger.
Capital Trust. Capital Trust is the asset manager of the 1290 property,
and its Chief Executive Officer, John R. Klopp serves on Metropolis' board of
directors. Upon the closing of the sale transaction, Capital Trust will be paid
a fee in the amount of $2 million in consideration for the termination of the
asset management agreement and for services rendered to Metropolis in connection
with the sale transaction. "PROPOSAL 1 - THE SALE TRANSACTION; Interests of
Certain Persons in the Sale Transaction." In addition, on July 9, 2002, the
Metropolis board of directors resolved to award $50,000 to Ms. Jeremy
FitzGerald, Vice President and Assistant Secretary of Metropolis, upon the
consummation of the sale transaction for services rendered by her in her
capacity as an officer of Metropolis in connection with the sale transaction.
Tishman Speyer. Tishman Speyer Properties, L.P. currently serves as
property manager/leasing agent of the 1290 property. Its affiliate, NYPROP,
L.L.C., owns 545,707 shares of Metropolis common stock (or approximately 4.2% of
the outstanding shares). Upon the consummation of the sale transaction, the
leasing agreement with Tishman Speyer will be terminated, and Tishman Speyer
will be entitled to receive, on an accelerated basis, approximately $800,000 of
leasing commissions due to Tishman Speyer under its leasing agreement. This
amount relates to leasing commissions due to Tishman Speyer with respect to five
tenants. Such leasing commissions were originally scheduled to be paid no sooner
than December 2002 and as late as April 2004. The payment of this amount is an
obligation of Purchaser under the purchase agreement. This payment is an
obligation of Purchaser under the purchase agreement, and as such, on the
closing date, the purchase price will be adjusted accordingly. For a more
complete description of these interests and arrangements, See "PROPOSAL 1 - THE
SALE TRANSACTION; Interests of Certain Persons In The Sale Transaction -
Description of Voting Agreement." Our stockholders may recognize gain or loss
upon our liquidation subsequent to the sale transaction.
Upon our complete liquidation after the sale transaction, we will
distribute the net purchase price proceeds to Holdings, which will in turn
distribute to you your pro rata share of such proceeds less the $10 million
indemnification reserve and $2 million expense reserve. Upon our liquidation,
Holdings will report gain equal to the excess of the cash distribution received
over its adjusted tax basis in our common stock. As a partnership for federal
income tax purposes, Holdings will have no federal income tax liability with
respect to such gain. Instead, each member of Holdings (each formerly our
stockholder) will recognize its distributive share of such gain, allocated based
on its percentage interest in Holdings to the extent consistent with the
principles of section 704(c) of the Internal Revenue Code.
Upon distribution of the net proceeds by Holdings to its members, each
member should recognize gain or loss equal to the excess of the cash received in
such distribution over its adjusted basis in the Holdings LLC units (which
includes such member's former adjusted tax basis in our common stock prior to
the merger and its distributive share of Holdings' gain from the sale
transaction).
SPECIAL MEETING
Matters to be Considered
At the Metropolis special meeting, Metropolis stockholders will be asked:
30
1. To consider and approve the sale transaction pursuant to which
Metropolis will sell the 1290 property to Purchaser for a purchase
price of $745.5 million, subject to certain adjustments and
customary prorations.
2. To consider and authorize Metropolis, prior to the consummation of
the sale transaction, to merge into Metropolis Lower Tier, a
Delaware limited liability company and a wholly-owned subsidiary of
Holdings, with Metropolis as the surviving entity of such merger.
Metropolis stockholders may also be asked to vote upon a proposal to
adjourn or postpone the special meeting. Management of Metropolis knows of no
other matter to be brought before the Metropolis special meeting other than as
referred to in this document.
No Solicitation of Proxies
Approval of the sale transaction and merger are assured because
stockholders representing approximately 10.3 million shares of Metropolis common
stock (approximately 79% of the outstanding shares of common stock) have agreed
to vote their shares of Metropolis common stock in favor of the sale transaction
and merger. Accordingly, Metropolis is not soliciting proxies in connection with
the special meeting
Record Date and Voting Rights
The Metropolis 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. Only holders of record
of Metropolis 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 Metropolis 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.
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 Metropolis
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
Metropolis' assets. Following the sale transaction, Metropolis will no longer
own any assets, other than the net proceeds from the sale transaction which will
be distributed to Holdings in connection with the liquidation of Metropolis. The
affirmative vote of 66 2/3% of the issued and outstanding shares of Metropolis
common stock is required to approve the sale transaction. The affirmative vote
of holders of at least 66 2/3% of the issued and outstanding shares of
Metropolis common stock is also required in order to approve the merger.
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
approximately 10.3 million shares of Metropolis common stock (approximately 79%
of the outstanding shares of common stock) have agreed 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 Metropolis will not have any effect on
the result of the stockholder vote at the special meeting.
31
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
Metropolis and Metropolis' and special committee's outside advisors, including
its financial advisor and their respective legal counsel.
During the period from approximately early 1998 to the end of 2001, Mr.
Fred Van Wagenen, director of acquisitions of the Jamestown companies,
periodically telephoned or visited the offices of Apollo Real Estate Advisors in
New York City to meet with Mr. Lee Neibart, President of Metropolis and a
partner of the general partner of Apollo Real Estate Investment Fund, to
determine whether Apollo had interest in selling any of its portfolio assets to
Jamestown, including the 1290 property. Mr. Van Wagenen, in his capacity as
director of acquisitions, frequently corresponds with his contacts in New York
City and other major cities to determine whether they or any of their partners
are interested in selling or otherwise repositioning their assets.
In June 1998, the Metropolis board of directors approved the retention of
Victor Capital Group and Eastdil Realty Company to explore strategic
alternatives for Metropolis, including a possible sale of Metropolis' interests
in the 1290 property and another property that Metropolis then owned at 237 Park
Avenue, New York, New York. During its marketing process, Victor Capital and
Eastdil Realty contacted Jamestown as a potential purchaser of the 1290 property
and/or 237 Park Avenue property. Jamestown executed a confidentiality agreement
with Metropolis on or about July 16, 1998 and following its execution,
Metropolis subsequently delivered information regarding both of the properties
to Jamestown. Jamestown, however, did not submit a bid for either the 1290
property or 237 Park Avenue property at such time. Metropolis did receive
approximately eight bids from other bidders, 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 Metropolis or its stockholders to pursue any of the
offers received up to that time, but that Metropolis would continue to explore
strategic alternatives as appropriate.
In July 1999, the board of directors again approved the retention of
Victor Capital and Eastdil Realty to explore strategic alternatives for
Metropolis, including a possible sale of Metropolis' interests in the 237 Park
Avenue property. Victor Capital and Eastdil Realty commenced formal marketing of
the 237 Park Avenue property on or about July 20, 1999. During September and
early October of 1999, Metropolis and 237 Park Investors, L.L.C. negotiated a
definitive purchase agreement, which was approved by Metropolis' board of
directors in October 1999 and by Metropolis' stockholders on November 19, 1999.
The sale of the 237 Park Avenue property was consummated on November 22, 1999.
In the summer of 1999, Christoph A. Kahl, one of two partners in
Jamestown, met with Mr. Neibart in New York City to discuss whether any Apollo
Real Estate Advisors' properties, including the 1290 property, were available
for acquisition by Purchaser. Mr. Neibart informed Mr. Kahl that no property
other than the 237 property was currently available.
32
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
Metropolis declared, a special dividend of $15.00 per share, which was paid on
December 27, 1999 to Metropolis stockholders of record as of December 23, 1999.
Since December 1999, the board of directors has periodically reviewed
various strategic alternatives with respect to Metropolis' remaining asset, the
1290 property. Since 2000 and through 2001, Metropolis entered into
confidentiality agreements and preliminary discussions with four parties that
expressed an interest in acquiring the 1290 property. None of these preliminary
discussions resulted in Metropolis receiving any definitive proposals with
respect to the sale of the 1290 property.
In early December 2001, Mr. Van Wagenen contacted Mr. Neibart by telephone
to determine whether Metropolis might be interested in selling the 1290
property. Mr. Neibart replied that there may be some interest in selling the
1290 property at that time.
On December 10, 2001, Metropolis executed a confidentiality agreement with
Jamestown.
On December 13, 2001, Metropolis received an unsolicited letter from Mr.
Stephen Zoukis, one of two partners of Jamestown, notifying Metropolis that
Jamestown was prepared to purchase the entire 1290 property for $700 million, or
alternatively, a 49.9% interest in the 1290 property (based upon its $700
million valuation). The letter also stated that Jamestown would deliver a $5
million earnest money deposit if an agreement were executed prior to December
25, 2001 (the "Initial Offer").
On December 14, 2001, Mr. Neibart telephoned Messrs. Zoukis, Van Wagenen
and Bronfman, general counsel and Vice President of Jamestown, to notify them
that a $700 million valuation of the property was insufficient, that Apollo Real
Estate Investment Fund and other Metropolis stockholders may be interested in
pursuing a potential partnership arrangement to jointly acquire the 1290
property, but that a 49.9% interest in the 1290 property was too low. Later that
same day, Metropolis' 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 Metropolis to pursue discussions with Jamestown
regarding their interest in purchasing the 1290 property. Following the Board
meeting, Mr. Neibart received a revised written offer via facsimile from Mr. Van
Wagenen, pursuant to which Jamestown offered a cash purchase price of $725
million for the 1290 property, less approximately $8.7 million for leasing
commissions, tenant improvements and "free rent." The offer specified that
Jamestown would fund 75% of the purchase price and obtain a senior interest, and
that Apollo and other Metropolis stockholders electing to participate would fund
25% of the purchase price and obtain a subordinated interest.
On or about December 15, 2001, Metropolis delivered information concerning
the 1290 property to Jamestown subject to the confidentiality agreement.
On December 17, 2001, Messrs. Zoukis, Bronfman, and Van Wagenen met with
Messrs. William Mack and John Jacobsson, both partners of the general partner of
Apollo Real Estate Investment Fund and executive officers of Metropolis. At this
meeting, the parties discussed, but did not agree upon, an increased purchase
price for the 1290 property. In addition, the parties discussed the timing to
close the transaction, as well as the ownership structure of Metropolis, and
based upon such discussion, the parties concluded that the transaction could not
be closed by the end of 2001. The parties also discussed the terms of a
partnership arrangement under which Apollo Real Estate Investment Fund, through
certain of its affiliates, would provide property management and leasing agent
services for the 1290 property. Following this meeting, the parties toured the
1290 property.
33
On December 18, 2001, Jamestown delivered to Metropolis a term sheet
outlining the material terms of the offer that Jamestown delivered to Mr.
Neibart on December 14, 2001. The term sheet provided for a $725 million cash
purchase price (less $8.7 million for leasing commissions, tenant improvements
and "free rent"), a 75% senior interest to be owned by Jamestown and a 25%
subordinated interest owned by Apollo Real Estate Investment Fund and other
stockholders of Metropolis, Jamestown's proposed due diligence timetable, its
conditions to closing (such as obtaining the necessary financing), and a 3%
disposition fee to be paid to Jamestown upon the subsequent re-sale of the 1290
property.
On December 19, 2001, Messrs. Zoukis, Bronfman and Van Wagenen met with
Messrs. Neibart, Jacobsson and Andrew Cohen, an officer of the general partner
of Apollo Real Estate Investment Fund, to discuss the term sheet and the timing
and process necessary to consummate the transaction. At this meeting, based upon
Jamestown's ongoing due diligence, Jamestown proposed increasing the deductions
for leasing commissions, tenant improvements and "free rent" to $14 million.
Jamestown also indicated that it would only pay $685 million for the entire 1290
property, but that if a joint venturer would be willing to subordinate its 25%
interest to Jamestown's 75% interest, then Jamestown would increase its purchase
price to $725 million. Apollo stated it would purchase the entire 25% portion
and offer the other existing stockholders of Metropolis the opportunity to
participate as investors in the transaction. Apollo also proposed that it serve
as a co-general partner of the purchaser with Jamestown, or in the alternative,
that Apollo be entitled to a share of the 3% disposition fee and to serve as the
asset manager of the 1290 property following the closing.
Throughout January and February 2002, Jamestown continued its due
diligence investigation of the 1290 property.
On January 22, 2002, Messrs. Zoukis, Bronfman, Van Wagenen and Kahl, met
with Messrs. William Mack, Chairman of the board of directors of Metropolis and
a partner of Apollo, Neibart, Jacobsson and Cohen to discuss a timetable
pursuant to which a term sheet would be executed and the likelihood of
Metropolis board of directors approval. At this meeting, Mr. Zoukis stated he
did not want to engage in discussions with prospective lenders until there was
approval from the Metropolis Board as to the sale transaction. Mr. Zoukis
discussed the timetable to arrange its financing and expressed the difficulty of
obtaining terrorist insurance coverage on major real estate properties.
On February 4, 2002, Metropolis' board of directors held a special meeting
to discuss the proposed terms of the revised Jamestown offer (the "Revised
Offer"). The Revised Offer contemplated that entities affiliated with Apollo
Real Estate Investment Fund would serve as the leasing agent and asset manager
of the 1290 property, indirectly own an approximate 25% subordinated limited
partnership interest in the Purchaser and be entitled to 1.2% of the gross sale
price of the 1290 property upon its subsequent re-sale. The officers of
Metropolis provided the members of the board of directors with a memorandum and
term sheet outlining the proposed Revised Offer. The members of the Metropolis
board of directors that are affiliated with Apollo Real Estate Investment Fund
notified the board of directors at this meeting that Apollo Real Estate
Investment Fund may have interests in the sale transaction relating to the
Revised Offer that are in addition to Apollo Real Estate Investment Fund's
interests as a stockholder of Metropolis. Mr. Jacobsson explained to the Board
that stockholders of Metropolis would be provided an opportunity to invest all
or a portion of the proceeds that they receive in the sale transaction in the
25% subordinated limited partnership interest. At this meeting, the payment of a
fee to Capital Trust for services rendered and to be rendered in connection with
the proposed sale transaction was also discussed, but the determination of the
amount of such fees was postponed. Immediately, following this discussion, a
special committee of the board of directors was formed and 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
34
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 Metropolis and its stockholders.
On February 8, 2002, Jamestown delivered a preliminary draft of the
purchase agreement to Metropolis.
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
Jamestown 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.
On March 5, 2002, Messrs. Jacobsson and Neibart and Messrs. Zoukis, Kahl
and Bronfman held a telephonic conference call to discuss a potential schedule
for negotiation of the proposed purchase agreement and the sequence of events
required to consummate the sale transaction.
On March 10, 2002, Metropolis' counsel delivered a list of open business
and legal issues raised by Jamestown's February 8th draft purchase agreement.
The open issues included: Jamestown's timing with respect to completion of due
diligence, the necessity for a "fiduciary-out" in the event of a superior third
party offer, and a break-up fee, indemnification obligations, closing
conditions, timing and process.
On March 19 and March 20, 2002, Messrs. Zoukis and Bronfman of Jamestown
and its counsel met with Messrs. Klopp, Jacobsson, Cohen, and Ms. Jeremy
FitzGerald, Vice President of Metropolis and Managing Director of Capital Trust,
and its counsel. At this meeting, Mr. Klopp stated that it was necessary for
Jamestown to minimize any financing contingencies before Metropolis would engage
a financial advisor to render a fairness opinion. In response, Jamestown
explained that it would attempt to obtain a debt commitment letter, needed some
protection against Metropolis entering into an agreement to sell the 1290
property to any third party bidder. At this meeting, the March 10th issues list
was discussed and Metropolis (subject to special committee approval) and
Jamestown agreed that:
o Metropolis would enter into an exclusivity agreement with Jamestown
for a limited two week period;
o Metropolis would be able to terminate the purchase agreement and
pursue an unsolicited third party offer if its board of directors in
the exercise of its fiduciary duties determined that such offer was
superior to the Jamestown offer;
o If Metropolis terminated the purchase agreement to pursue an
unsolicited superior third party offer, Metropolis would pay a $20
million break-up fee to Jamestown;
o Metropolis' indemnification obligations set forth in the purchase
agreement would survive until December 30, 2002; and
o Metropolis' maximum indemnification obligations to Jamestown under
the purchase agreement would be $10 million.
35
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 Metropolis 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 Metropolis to
enter into an exclusivity agreement with Purchaser, pursuant to which Metropolis
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 Metropolis, until
April 5, 2002, the date on which the Exclusivity Agreement expired.
Also on March 21, 2002, Jamestown delivered a revised draft of the
purchase agreement to Metropolis.
On April 3, 2002 and April 4, 2002, Messrs. Zoukis and Bronfman of
Jamestown and their counsel met with Messrs. Jacobsson and Cohen, and their
counsel to discuss the revised draft of the purchase agreement. At this meeting,
Mr. Zoukis explained that the difficulty in obtaining terrorism insurance was
impeding the financing process and that Jamestown would be able to obtain its
financing more readily if it could deliver an executed purchase agreement to its
lenders. Mr. Jacobsson stated Metropolis could not execute a purchase agreement
until it received a fairness opinion from Houlihan Lokey and that Houlihan Lokey
would not be able to complete its analysis for at least three weeks. It was
agreed that the purchase agreement would be revised to provide for an interim
period during which (x) Metropolis could terminate the agreement without having
to pay any break-up fee or other expenses if it could not obtain the fairness
opinion or if Jamestown did not deliver its debt commitment letter; and (y)
Jamestown could terminate the agreement, recover its deposit and not be required
to pay any expenses if it could not obtain its debt commitment letter or it was
not satisfied with its remaining limited due diligence.
On April 8, 2002, Jamestown delivered a revised draft of the purchase
agreement.
On or about April 10th, 2002, Jamestown received draft commitment letters
of intent from several potential lenders regarding financing the purchase of the
1290 property. Mr. Zoukis telephoned Mr. Jacobsson on such date to notify him of
the receipt of such draft commitment letters of intent.
On April 11, 2002, Metropolis received separate expressions of interest
from two real estate investment companies (the "Preliminary Bidders") in
acquiring the 1290 property. On the same date, Metropolis entered into separate
confidentiality letters with these two companies and delivered information
concerning Metropolis and the 1290 property to each Preliminary Bidder.
On April 12, 2002, Mr. Zoukis met with Mr. Jacobsson to finalize the draft
purchase agreement between Purchaser and Metropolis and to propose revising the
purchase agreement to allow Metropolis to continue to provide confidential
information and to negotiate separate transactions with the two Preliminary
Bidders while under agreement with Purchaser. It was agreed that Metropolis
would be expressly permitted to negotiate with the Preliminary Bidders and that
if Metropolis terminated the purchase agreement with Purchaser in order to
pursue a transaction with one of the Preliminary Bidders, Metropolis would not
be required to pay any break-up fee or other expenses to Jamestown.
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 Metropolis (the "Original Purchase Agreement"), which provided
for, among other things, a purchase price of $725 million, an earnest money
deposit of $5 million (which was to increase to $20 million as provided below),
and which was subject to several conditions, as discussed more fully below. At
this meeting, the
36
special committee also reviewed the expressions 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. 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.
Between April 11, 2002 and April 16, 2002, each of the Preliminary Bidders
conducted due diligence but neither bidder submitted any offer or proposal
during that time period beyond the initial expression of interest received on
April 11, 2002.
On April 16, 2002, the special committee met again to consider authorizing
Metropolis to enter into the Original Purchase Agreement. The special committee
was informed of Purchaser's desire to enter into an agreement for the purchase
of the 1290 property. Purchaser had indicated to Metropolis that it intended to
pursue the purchase of other properties unless an agreement was finalized with
Metropolis. The special committee believed that maintaining Purchaser's
involvement in the transaction was necessary to ensure the success of the
bidding process. The special committee also recognized that any press release
issued upon entering into an agreement with Purchaser would correct inaccuracies
with respect to the price of the 1290 property reported in the trade press as
well as alert any other potential bidders about the contemplated sale of the
1290 property. Additionally, the terms of the Original Purchase Agreement did
not preclude Metropolis from pursuing negotiations with or accepting, without
the payment of any break-up fee, a Superior Offer (as hereinafter defined) from
either of the Preliminary Bidders prior to May 8, 2002. After careful
consideration of the foregoing and 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 Metropolis, 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 Metropolis 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 Metropolis 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 it would be binding and
effective as against either Metropolis and Purchaser. These conditions included,
among others:
o Purchaser's satisfactory completion of its due diligence;
o receipt by Metropolis of a debt commitment letter from Purchaser's
lenders satisfactory to Metropolis;
o receipt by Metropolis 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 (at the time
of the execution of the Original Purchase Agreement, Houlihan Lokey
had not yet issued a fairness opinion); and
37
o the additional earnest money deposit of $15 million by Purchaser.
The Original Purchase Agreement also provided that Metropolis 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 Metropolis 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, Metropolis would not be required to pay the $20
million break up fee contemplated in the purchase agreement.
Under the terms of the Original Purchase Agreement, Metropolis was
permitted to participate in discussions and negotiations and furnish information
concerning Metropolis in connection with an unsolicited written inquiry,
proposal or offer by an unaffiliated third party that the special committee
reasonably believed (after having received sufficient preliminary information
upon which to make such determination) would result in Metropolis stockholders
realizing more value for their shares than they would in the sale transaction (a
"Superior Offer"); provided that it was in the good faith opinion of the special
committee that failure to participate in discussions and negotiations and
furnish information would likely be inconsistent with the special committee's
duties to Metropolis stockholders under applicable law. Notwithstanding the
foregoing, under the terms of the Original Purchase Agreement, from April 16,
2002 until prior to May 8, 2002, Metropolis was expressly permitted to
participate in discussions and negotiations with Equity Office Properties Trust,
or "EOP," and the other Preliminary Bidder and to furnish information to each of
them concerning Metropolis and the 1290 property.
The Original Purchase Agreement also provided that Metropolis was required
to promptly notify Purchaser and keep Purchaser informed on a current basis of
the status and material terms of the discussions and negotiations with EOP and
the other Preliminary Bidder, as well any other unsolicited offer that
Metropolis may receive after April 16, 2002. If Metropolis received a Superior
Offer from either EOP or the other Preliminary Bidder before May 8, 2002,
Metropolis was not required to provide Purchaser an opportunity to submit an
equal or higher offer before it could accept such Superior Offer. However, if
Metropolis received a Superior Offer from any other unsolicited bidder after
April 16, 2002, Metropolis could not accept such Superior Offer before first
providing Purchaser a period of five business days to submit an equal or higher
offer. Prior to May 8, 2002, Metropolis was entitled to pursue a Superior Offer
(including a transaction with EOP and the other Preliminary Bidder) and
terminate the Original Purchase Agreement by providing written notice to
Purchaser without having to pay any break-up fee to Purchaser. In addition,
Metropolis was also entitled to terminate the Original Purchase Agreement prior
to May 8, 2002, and not pay any break-up fee if Metropolis did not receive the
fairness opinion from Houlihan Lokey or the special committee was unable to
recommend the sale transaction contemplated by the Original Purchase Agreement
in discharging its duties under applicable law. Under the terms of the Original
Purchase Agreement, the amount of the break-up fee payable to purchaser was $20
million.
On April 17, 2002, Metropolis issued a press release announcing the
execution of the Original Purchase Agreement. Later that same day, Metropolis
requested that the two Preliminary Bidders submit preliminary proposals to
Metropolis on April 19, 2002, and final proposals on April 24, 2002.
On April 19, 2002, Metropolis received a preliminary written proposal from
one of the Preliminary Bidders, EOP, to purchase the 1290 property for a
purchase price of $740 million (the "Initial Unsolicited Proposal"). EOP also
agreed to assume certain identified tenant improvements and leasing commissions
in an amount equal to approximately $11 million. On the same date, the other
Preliminary Bidder notified Metropolis in writing that it would not submit any
preliminary proposal to Metropolis, but that it expected to submit a final bid
on April 24, 2002. Later that day, Metropolis, in accordance with the terms of
the Original Purchase Agreement, notified Purchaser orally and in writing of the
Initial Unsolicited Proposal.
38
On April 24, 2002, Metropolis received a letter from EOP confirming its
offer to purchase the 1290 property consistent with the terms of the Initial
Unsolicited Proposal, and increasing the amount of the earnest money deposit
from $10 million to $25 million. On the same date, Metropolis received notice
from the other Preliminary Bidder that it would not proceed with a proposal.
Later that day, Metropolis, 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 EOP.
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 EOP may also have been considered an
affiliate of Capital Trust, of which Mr. Klopp is the Chief Executive Officer.
Samuel Zell, who is chairman of the board of directors of Capital Trust, also
serves as chairman of the board of trustees of EOP. Thomas E. Dobrowski and
Sheli Z. Rosenberg, who are members of Capital Trust's board of directors, also
serve on the board of trustees of Equity Office Properties. EOP Operating
Limited Partnership, through which EOP operates, holds $29,914,000 of Capital
Trust's convertible trust preferred securities which are convertible into
4,273,428 shares of Capital Trust's class A common stock and which would
represent upon conversion approximately 18.5% of such outstanding shares of
class A common stock. EOP Operating Limited Partnership also owns $20,086,000 of
Capital Trust's non-convertible trust preferred securities. Mr. Klopp is also a
stockholder of Metropolis. Craig M. Hatkoff, a Director of Capital Trust, is
also a stockholder of Metropolis. Capital Trust is not affiliated with
Purchaser, Apollo Real Estate Investment Fund or any of their affiliated
entities. After consideration of various factors, including (a) the superior
price of the Initial Unsolicited Proposal; (b) EOP'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 Metropolis should pursue a definitive agreement with
EOP, while at the same time encouraging further discussions with Purchaser.
During the period from April 24, 2002 until May 2, 2002, Metropolis
negotiated the terms of a purchase and sale agreement with EOP.
On May 3, 2002, Metropolis received a letter from EOP with an attached
purchase and sale agreement executed by EOP (the "EOP Purchase Agreement")
stating that EOP was prepared to execute the attached draft and confirming its
commitment to purchase the 1290 property for $740 million. Later that day,
Metropolis, 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 EOP Purchase Agreement that it had received earlier that
day from EOP.
On May 6, 2002, Metropolis 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 EOP Purchase Agreement ("Purchaser's Revised Offer"). Also on
May 6, 2002, Metropolis 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 EOP. Following the special committee's
meeting, Metropolis received a revised written proposal from EOP increasing its
proposal to purchase the 1290 property to $745 million and stating that such
proposal was EOP's "best and final offer" (the "Final Unsolicited Offer"). Later
that day, Metropolis, in accordance with the terms of the Original Purchase
Agreement, notified Purchaser orally and in writing of the Final Unsolicited
Offer.
39
On May 7, 2002, Metropolis 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 EOP Purchase Agreement. The only
material difference between the final Purchase Agreement with Purchaser and the
EOP Purchase Agreement was that Purchaser's final agreement reflected a purchase
price that was $500,000 greater than that set forth in the EOP 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 Metropolis 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 Metropolis' stockholders
who are not affiliated with Apollo Real Estate Investment Fund. 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 amended and
restated Purchase Agreement be approved and submitted to Metropolis'
stockholders. The members of Metropolis' 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 Metropolis' stockholders for their
consideration. Following the special committee's meeting and Board of Director
action, Metropolis 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, Metropolis issued a press release announcing
the execution of the amended and restated purchase agreement and the revised
purchase price.
On July 9, 2002, the Metropolis board of directors resolved by unanimous
written consent to authorize the payment upon the consummation of the sale
transaction to Capital Trust of $2 million in consideration for the termination
of the asset management agreement and for services rendered to Metropolis in
connection with the sale transaction, and $50,000 to each of Messrs. John
Jacobsson, Vice President and Secretary; Andrew Cohen, Vice President; Stuart
Koenig, Treasurer; and Ms. Jeremy FitzGerald, Vice President and Assistant
Secretary, in recognition of the contribution made by each of these officers to
the negotiation, structuring and consummation of the sale transaction.
Recommendation of the Special Committee, Reasons for the Proposed Sale
Transaction
The special committee believes that the sale transaction is in the
stockholders' and Metropolis' 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 Metropolis' management and
Houlihan Lokey, as well as its legal and accounting advisors and considered a
variety of reasons, 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 amended and restated 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
Metropolis 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 Metropolis' stockholders who are not
affiliated with Apollo Real Estate Investment Fund. The full text of
Houlihan Lokey's written opinion, which sets forth the assumptions
made, matters considered and limitations on
40
the review undertaken by Houlihan Lokey, is attached hereto as Annex
A. See "- Opinion of Houlihan Lokey";
o Both EOP and Purchaser had an opportunity to submit several bids to
the special committee and the Purchaser's final 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; and
o On May 6, 2002, Purchaser had delivered to Metropolis 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 Metropolis' stockholders vote for the sale transaction, the special
committee also considered the following potentially negative reasons:
o A more favorable transaction might be available from a third-party
purchaser of the 1290 property in the future;
o Following the sale transaction, Metropolis stockholders will no
longer participate in the future results of operations of 1290
property and will no longer receive any dividends (other than a
final distribution from Holdings of the net sale proceeds received
by Holdings in the sale transaction and any distribution by Holdings
of any remaining portion of the $12 million reserves);
o That although Metropolis stockholders are expected to receive $22.50
per share in cash upon the closing of the sale transaction, this
amount may be reduced by increased expenses;
o That the LLC units to be exchanged for Metropolis common stock are
being issued to facilitate the consummation of the sale transaction,
and to allow Metropolis to claim the amount of "dividends paid
deduction" necessary to eliminate its U.S. federal income tax with
respect to the gain on the sale of the 1290 property, and that
following the merger and sale transaction, Holdings will not conduct
any operations;
o Depending on the amount of cash received and a stockholder's
respective tax basis in Metropolis common stock (and Holdings' LLC
units), a Metropolis stockholder may recognize a taxable gain upon
receipt of cash proceeds from Metropolis' liquidation;
o Management did not obtain any third-party appraisal or valuation of
the 1290 property nor did management estimate or obtain a
third-party estimate of the liquidation value of the 1290 property;
o That four of Metropolis' eight directors indirectly control an
approximate 23% limited partnership interest of Purchaser; and
o That these same four Metropolis directors will continue to have an
interest in the 1290 property after the sale transaction through
interests in the Purchaser and interests in affiliates that will
receive fees for managing, leasing and selling the 1290 property.
See "PROPOSAL
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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.
Purchaser Reasons for the Proposed Sale Transaction
Purchaser is engaging in the sale transaction as a means of expanding
Jamestown's operations of investing in "Class A" commercial office buildings
located in central business districts. The acquisition of the 1290 property
geographically complements Jamestown's existing operations.
Vote Required
In order to effect the sale transaction, Metropolis 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 Metropolis' largest stockholders,
representing approximately 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 Metropolis' 13,004,946 shares of common stock issued and outstanding,
approximately 8,658,193 shares are held by affiliates of Metropolis 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 Metropolis in connection with the sale
transaction is fair from a financial point of view to Metropolis 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.
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
sale transaction, Metropolis 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. Metropolis 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. Following
the sale of the 1290 property and the satisfaction its outstanding liabilities,
Metropolis intends to liquidate and distribute the net purchase price proceeds
to Holdings. As a result, there will be no entity continuing in existence to
satisfy any claims for indemnification by Houlihan Lokey arising out of its
engagement by Metropolis. Metropolis therefore agreed to establish an escrow in
the amount of $150,000 which could be used by Houlihan Lokey to
42
satisfy any indemnification claims against Metropolis. The actual fee earned by
Houlihan Lokey will vary, in part, depending on the length of time during which
the escrow remains in full force and effect. If the escrow remains funded for a
period of at least 24 months, the actual fee paid to Houlihan Lokey will be
between $300,000 and $350,000. If the escrow is funded for a period of at least
five months but less than 24 months, the actual fee will range between $350,000
and $400,000. If the escrow is funded for a period of less than five months, the
actual fee will be in the range of $400,000 to $450,000. In each case, the exact
amount of the fee within any range will be agreed upon by Metropolis and
Houlihan Lokey. The fees payable to Houlihan Lokey were agreed upon on this
basis to take into account the increased exposure of Houlihan Lokey if the
escrow is terminated within a shorter period of time than is customary to cover
indemnification obligations similar to those of Metropolis to Houlihan Lokey.
The Houlihan Lokey fee is otherwise fixed except with respect to any adjustments
relating to the escrow. No portion of Houlihan Lokey's fee is contingent upon
the conclusions reached by Houlihan Lokey.
In arriving at its fairness opinion, among other things, Houlihan Lokey
did the following:
1. reviewed Metropolis' audited financial data for the years ended December
31, 1999, 2000 and 2001;
2. reviewed Metropolis' 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 and officers
of Metropolis;
5. conducted a site-visit of the 1290 property, meeting with representatives
of Metropolis' 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;
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 EOP, dated April 19, 2002;
10. reviewed a draft dated April 29, 2002 of a purchase agreement between
Metropolis and EOP (which Houlihan Lokey understood is substantially the
same agreement that would constitute the purchase agreement for the sale
transaction);
11. reviewed correspondence from EOP to Metropolis dated May 6, 2002;
12. reviewed correspondence from Purchaser to Metropolis 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
Eastdil and Victor Capital; and
43
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 Metropolis 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 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:
o a review of the process preceding the sale transaction,
o an analysis to determine the estimated fair market value of the 1290
property,
o a comparison of (a) the estimated fair market value of the 1290
property and (b) the consideration to be received by Metropolis in
connection with the sale transaction; and
o an evaluation of the opportunity for certain stockholders of
Metropolis to reinvest a portion of the stockholder's consideration
to be received in the sale transaction in Purchaser, which we refer
to as 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 Metropolis 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 Metropolis 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 Metropolis' 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
Metropolis' negotiations with Purchaser, EOP and a third qualified potential
buyer who declined to provide an offer after indicating some interest in the
1290 property. As a result of its review, Houlihan Lokey determined that,
although a formal auction for the 1290 property had not been conducted, the
process preceding the sale transaction involved active, third party, competitive
bidding that was similar to a more formal auction process.
Estimation of Fair Market Value
Houlihan Lokey performed the following analyses in order to determine the
estimated fair market value of the 1290 property:
44
Direct Capitalization Approach: In conducting the direct capitalization rate
approach, Houlihan Lokey applied capitalization rates of 7.0% to 8.0% to the
1290 property's net operating income for the calendar year 2001 of $55.3 million
and applied capitalization rates of 7.5% to 8.5% to the 1290 property's
forecasted net operating income for calendar year 2002 of $55.7 million.
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.
Discounted Cash Flow Approach: In conducting the discounted cash flow
approach, Houlihan Lokey applied a discount rate to the projections 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.
Such financial information projected net operating income to be:
$59.6 million in 2003;
$61.8 million in 2004;
$68.0 million in 2005;
$67.8 million in 2006;
$73.4 million in 2007;
$76.0 million in 2008;
$78.8 million in 2009;
$82.2 million in 2010;
$84.9 million in 2011;
$101.0 million in 2012; and
$137.4 million in 2013.
The projected financial information also reflected expected leasing and
capital costs for the 1290 property which are deducted from the projected
operating income to arrive at projected cash flow of approximately $56.4 million
in 2003 growing to $135.6 million in 2013. 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
45
reflect risks of ownership of the 1290 property and the associated risks of
realizing the stream of projected future cash flows. The discount rates utilized
by Houlihan Lokey in its analysis ranged from 11.0% to 15.0%. 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 of 1,972,818 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, and decided upon price per square
foot multipliers of $350 to $375. 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.
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 Metropolis. Houlihan
Lokey noted that the consideration of $745.5 million in cash is above the
midpoint of all of the estimates of fair market value resulting from the
valuation methodologies described above.
Evaluation of the Reinvestment Opportunity: Houlihan Lokey evaluated the
reinvestment opportunity, pursuant to which AP-1290 intends to offer to all of
Metropolis' stockholders that are "accredited investors" the right to purchase
membership interests in AP-1290 in a private placement. In evaluating the
reinvestment opportunity, Houlihan Lokey noted that, based on the analyses
described above, the consideration to be paid to Metropolis ($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 Purchaser of the 1290
property is not buying the asset at less than fair market value. As such, any of
Metropolis' stockholders that participate in 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. Houlihan Lokey was not
asked to evaluate and did not evaluate any tax consequences of the reinvestment
opportunity.
Conclusion
46
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 Metropolis in connection with the
sale transaction is fair to Metropolis from a financial point of view; and the
sale transaction is fair, from a financial point of view, to Metropolis'
stockholders who are not affiliated with Apollo Real Estate Investment Fund.
As a matter of course, Metropolis 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 of the 1290 property on behalf of
Metropolis. The financial projections were prepared under market conditions as
they existed as of approximately December 2001 and Metropolis 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 Metropolis,
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 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 Metropolis;
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 Metropolis 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
Metropolis other than the 1290 property.
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 Metropolis 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 Metropolis or any other person to, solicit third
party indications of interest in acquiring all or any part of Metropolis 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
47
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 Metropolis, 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
Metropolis 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 information statement--prospectus as Annex A and is
incorporated herein by reference. The summary of the Houlihan Lokey opinion in
this 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
Metropolis. Metropolis' principal executive offices are located at 410
Park Avenue, 14th Floor, New York, New York 10022, and the telephone number of
Metropolis at this location is (212) 655-0220. Metropolis' principal asset
consists of its general and limited partnership interests in 1290 Partners,
through which Metropolis owns the 1290 property. Metropolis' 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 Metropolis, see
"PROPOSAL 2 - THE MERGER; Parties to the Merger; Metropolis."
1290 Partners, L.P. 1290 Partners is an indirect subsidiary of Metropolis.
Metropolis is its sole limited partner. Metropolis 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, 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. 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
48
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 Metropolis
The following summary of the anticipated material U.S. federal income tax
consequences to Metropolis 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 subsequent liquidation of Metropolis. This summary is based
upon the Internal Revenue Code of 1986, as amended, which we refer to as 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, which
we refer to as 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, or tax-exempt or foreign stockholders.
Metropolis will recognize a gain on the sale of the 1290 property equal to
the excess of the amount realized over its adjusted tax basis in the property.
However, because Metropolis has elected to be taxed as a real estate investment
trust, or a "REIT", for U.S. federal income tax purposes, Metropolis 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, Metropolis' 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
Metropolis equals or exceeds the gain recognized by Metropolis from the sale
transaction, Metropolis will not be subject to federal income tax.
As described under the caption "PROPOSAL 2- THE MERGER; Reasons for Merger
and Related Transactions", Metropolis will consummate the merger and become a
subsidiary of Holdings. Holdings will borrow the pre-closing loan from Purchaser
or its designee and contribute the pre-closing loan proceeds to Metropolis to
repay a portion of Metropolis' existing debt held by GE Capital. See "PROPOSAL 2
- - THE MERGER; 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, Metropolis will liquidate and distribute all remaining
net sale transaction proceeds to Holdings. As a result of the liquidating
distribution, Metropolis 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
49
Metropolis. Instead, each member of Holdings will be required to include its
distributive share of gain from the liquidation of Metropolis based on the
principles of Section 704(c) of the Code. In general, under Section 704(c) of
the Code, each member of Holdings will recognize taxable gain or loss up to the
amount of the built-in gain or loss in the Metropolis common stock deemed to
have been contributed to Holdings by such member. The amount of gain reported by
Holdings from the liquidation of Metropolis 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 Metropolis).
Immediately after the liquidation of Metropolis, Holdings will repay the
pre-closing loan and distribute to holders of its LLC units all remaining cash
proceeds less the $10 million indemnification reserve and $2 million expense
reserve to pay any additional expenses Holdings may incur, whether as successor
to Metropolis 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 or loss
from the liquidation of Metropolis. 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
indemnification reserve and the $2 million expense 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,
merger 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, Purchaser has
also agreed to assume and become responsible for certain of Metropolis' tenant
improvement obligations and leasing commissions in an aggregate amount of
approximately $11.1 million. See "PRO FORMA SOURCES AND USES OF PROCEEDS." See
also "--Interests of Certain Persons in the Sale Transaction; Apollo Real Estate
Investment Fund Note."
Distribution to Stockholders. Metropolis expects that its net proceeds
from the purchase price will be approximately $275 million (which amount
includes approximately $23 million of cash on hand) after payment for the
following amounts:
o prepayment of Metropolis' existing debt, consisting of $425 million
in principal, plus approximately $3 million in accrued interest;
o the retention of the $10 million indemnification reserve to satisfy
indemnification claims and certain post-closing costs (such as
Metropolis' pro rata portion of the building's operating expenses
and prepaid real estate expenses);
o the $2 million expense reserve amount;
50
o the payment of approximately $22.5 million in transfer taxes;
o the payment of an estimated $10 million in swap termination costs,
based on a breakage as of June 30, 2002; and
o $4 million in transaction costs representing an estimate of fees and
expenses to be paid in the sale transaction and merger, including,
without limitation, attorneys' and accountants' fees, as well as
Commission filing fees, printing and other miscellaneous expenses.
As soon as practicable following the closing date of the sale transaction, this
amount will be distributed by Metropolis to Holdings which in turn will repay
the pre-closing loan and distribute the net proceeds of approximately $292.5
million or $22.50 per LLC unit to all of the holders of LLC units on a pro rata
basis. Actual distributed amounts, however, may differ, if Metropolis' estimates
of its costs and expenses and swap breakage fees are incorrect. See "Risk
Factors."
Prepayment of Existing Indebtedness and Swap Agreement Termination Costs.
Metropolis intends to use the proceeds from the sale transaction and the
pre-closing loan to repay its 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., which we refer to as the "swap agreement." The current amount of
Metropolis' 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, Metropolis has
agreed to indemnify Purchaser for all claims asserted during the indemnification
period which expires on December 30, 2002 for the breach of certain of its
representations and warranties made in the Purchase Agreement. Metropolis'
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 of the sale transaction, Metropolis 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 made during the indemnification period,
if any, Holdings will retain $10 million of the net purchase price proceeds,
less any amounts paid in connection with certain post-closing costs related to
the sale transaction, 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 remaining amount pro
rata to holders of its LLC units.
Expense 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, Metropolis has determined that Holdings retain the $2 million expense
reserve 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 $10 million indemnification
reserve to the members of Holdings, Holdings will also distribute pro rata to
holders of its LLC units, the remaining portion of the $2 million expense
reserve.
Regulatory Approvals
51
Other than obtaining the requisite vote of Metropolis' stockholders at the
special meeting, the filing of this information statement--prospectus with the
Commission, its distribution in accordance with federal securities laws and
Maryland General Corporation Law, and having the registration statement under
which this 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. Several members of Metropolis'
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 of Metropolis. Apollo Real Estate
Advisors is the general partner of Apollo Real Estate Investment Fund, which
beneficially owns approximately 38% of the outstanding shares of Metropolis
common stock. The following is a description of the additional interests of
certain of Metropolis' stockholders in the sale transaction:
Officers and Directors of Metropolis. William L. Mack, Lee S. Neibart, Bruce
H. Spector and John R.S. Jacobsson are partners of Apollo Real Estate Advisors
and officers of the general partner of Apollo Real Estate Advisors. These
persons serve as directors of Metropolis and Mr. Mack serves as Chairman of the
board of directors, Mr. Neibart serves as President of Metropolis, and Mr.
Jacobsson serves as a Vice President and Secretary of Metropolis. None of these
persons serve on the special committee that has approved the sale transaction.
Several of the member of Metropolis' Board of Directors that are affiliated
with Apollo Real Estate Investment Fund indirectly control AP-1290, an
approximate 23% Limited Partner of Purchaser. Apollo Real Estate Investment
Fund currently owns 100% of the limited liability company interests of
AP-1290. Through AP-1290, Apollo Real Estate Investment Fund has agreed to
invest up to approximately $79 million of the amount that it is entitled to
receive as a stockholder of Metropolis from the distribution of the net
proceeds of the sale transaction in consideration for a 22.79% limited
partnership interest in the Purchaser. This interest will entitle AP-1290 to
a subordinated preferred return on its invested capital and 43.75% of any
remaining net cash flow from the 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 subordinated 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. As a result of this investment, directors of
Metropolis who are also partners of the general partner of Apollo Real Estate
Advisors will benefit as indirect owners of AP-1290 because they will be
entitled to share in the economic benefit of their investment while
stockholders that elect not to participate in the AP-1290 offering will not
be entitled to these benefits.
Manager of 1290 Property. Purchaser appointed Jamestown 1290 Management L.P.
as the manager of the 1290 property following the closing of the sale
transaction. Jamestown 1290 Management is owned 99.9% by the Purchaser and
0.00001% by JT 1290 Corp. Jamestown 1290 Management has, in turn, appointed
AP-1290 Manager, L.P., an affiliate of Apollo Real Estate Advisors, and
Jamestown 1290 Management to manage the 1290 property. AP-1290 Manager and
Jamestown 1290 Management have agreed to share equally a management fee of
1.75% of the effective gross rents received from the 1290 property in
consideration for providing management services to the 1290 property.
Jamestown 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
52
management firm. This subcontracted property management fee is currently
expected to be approximately 1.0% of effective gross rents per year. The
members of the board of directors that are affiliated with Apollo Real Estate
Advisors will benefit as indirect owners of AP-1290 Manager because they will
be entitled to share in the AP-1290 Manager's net income, if any, while our
other stockholders will not be entitled to this benefit.
Post-Closing Transaction Fee. If the 1290 property is sold by Purchaser,
AP-1290 Manager will be entitled to a sales fee equal to 1.2% of the gross
sale price. A subsequent sale of the 1290 property is not expected to occur
prior to 2009. The purpose of this fee is to provide AP-1290 Manager
additional compensation for its management services and to compensate it as a
co-sponsor, with Jamestown, for finding a subsequent purchaser of the 1290
property. The members of the board of directors that are affiliated with
Apollo Real Estate Advisors will benefit as indirect owners of AP-1290
Manager because they will be entitled to share in the AP-1290 Manager's net
income, if any, while our other stockholders will not be entitled to this
benefit.
Leasing Agent of 1290 Property. Purchaser has agreed to appoint AP Leasing
LLC to serve as the leasing agent for the 1290 property following the closing
of the sale transaction. AP Leasing is an affiliate of Apollo Real Estate
Advisors. In consideration for providing leasing services, AP Leasing will be
entitled to receive a leasing commission if and when a lease relating to the
1290 property is entered into. Leasing commissions will be computed by
multiplying the fixed rent for such lease by a scheduled percentage (ranging
from 1% to 5%) relating to a specified period of time during the term of the
lease. The members of the Metropolis board of directors that are affiliated
with Apollo Real Estate Advisors will benefit as owners of AP Leasing because
they will share in the AP Leasing's net income, if any, while their pro rata
portion of the fees described above, and the stockholders will not be
entitled to this benefit.
Compensation to Certain Metropolis Officers. On July 9, 2002, the
Metropolis board of directors resolved to award $50,000 to each of Messrs.
John Jacobsson, Vice President and Secretary of Metropolis; Andrew Cohen,
Vice President of Metropolis; and Stuart Koenig, Treasurer of Metropolis,
upon the consummation of the sale transaction for services rendered by
such officers in connection with the sale transaction. These officers are
also officers of Apollo Real Estate Advisors.
Apollo Real Estate Investment Fund Note.
o Under the terms of the limited partnership agreement of Purchaser, dated
as of April 16, 2002, among JT 1290 Corp., Jamestown 1290 Partners, and
AP-1290, AP-1290 is obligated to (i) make a $78.625 million initial
capital contribution to Purchaser and (ii) pay $1.1 million to Purchaser
for its portion of the closing costs for a new loan for the 1290 property.
Apollo Real Estate Investment Fund has executed a promissory note in favor
of Metropolis, dated as of July ____, 2002, in the principal amount of
$79.725 million and delivered such note to an escrow agent to be held by
the escrow agent until the closing date of the sale transaction.
o The promissory note provides that Apollo Real Estate Investment Fund will
pay to Metropolis the principal amount of such note on the closing date of
the sale transaction if AP-1290 fails to satisfy its payment obligations
under the Purchaser's limited partnership agreement. Overdue principal
bears interest for each day from the due date thereof until paid in full
at a rate per annum equal to 7%, such interest to be payable upon demand.
o The promissory note is secured by the 4,936,060 shares of common stock
owned by Apollo Real Estate Investment Fund and will be repaid from
distributions Apollo Real Estate Investment Fund 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 Apollo Real
Estate Investment Fund as a stockholder of Metropolis is expected to
exceed the amount of the promissory note.
o If AP-1290 fails to satisfy all or any portion of its payment obligations
under the Purchaser's limited partnership agreement on the closing date of
the sale transaction, then the promissory note will be released to the
Purchaser, and the Purchaser will have the right to deliver the promissory
53
note to Metropolis as payment of a portion of the purchase price (equal to
the amount of the note to be paid in the sale transaction). If AP-1290
satisfies all of its payment obligations under the Purchaser's limited
partnership agreement, then the promissory note will be released by the
escrow agent to Apollo Real Estate Investment Fund on the closing date of
the sale transaction. A copy of the promissory note is attached as Annex I
to this information statement--prospectus.
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."
Purchaser will provide a pre-closing loan to Holdings following the merger
and prior to the closing of the sale transaction. Immediately following the
merger and prior to the closing of the sale transaction, Holdings will borrow
approximately $150 million from Purchaser or a designee of Purchaser. The
amount borrowed will be repaid in full at the closing of the sale transaction
and will bear interest at the rate of ____ percent (__%) per annum for so
long as the pre-closing loan is outstanding. Immediately upon receipt of the
proceeds of the pre-closing loan, Holdings will contribute such proceeds to
Metropolis as capital. Metropolis will use this capital contribution to repay
a portion of its existing indebtedness prior to the consummation of the sale
transaction. The loan will be secured by a pledge of Holdings' 99.9% equity
interest in Metropolis. See "PROPOSAL 2 - THE MERGER; Pre-Closing Loan,
Payment of Purchase Price and Other Related Transactions."
Capital Trust. Two 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 owns approximately 0.2% of the outstanding shares of Metropolis
common stock, is the asset manager of the 1290 property, and its Chief Executive
Officer, John R. Klopp serves on Metropolis' board of directors. In addition,
Mr. Klopp serves as Metropolis' Vice President and Jeremy FitzGerald, a Managing
Director of Capital Trust, serves as Metropolis' Vice President and Assistant
Secretary. Mr. Klopp is also a stockholder of Metropolis. In addition, Craig M.
Hatkoff, a Director of Capital Trust, is also a stockholder of Metropolis.
Capital Trust is not affiliated with Purchaser, Apollo Real Estate Investment
Fund or any of their affiliated entities. 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 $2 million in consideration for the termination of
the asset management agreement and for services rendered to Metropolis in
connection with the sale transaction. As a result of receiving this fee, Capital
Trust will receive a benefit in the sale transaction that the other stockholders
of Metropolis will not be entitled to receive. In addition, on July 9, 2002,
the Metropolis board of directors resolved to award $50,000 to Ms. Jeremy
FitzGerald, Vice President and Assistant Secretary of Metropolis, upon the
consummation of the sale transaction for services rendered by her in her
capacity as an officer of Metropolis in connection with the sale transaction.
Tishman Speyer. Tishman Speyer Properties, L.P. currently serves as property
manager/leasing agent of the 1290 property whereby it manages the day-to-day
operations of the 1290 property. NYPROP, L.L.C., an affiliate of Tishman Speyer,
owns 545,707 shares of Metropolis common stock (or approximately 4.2% of the
outstanding shares). Upon the consummation of the sale transaction, the leasing
agreement with Tishman Speyer will be terminated, and Tishman Speyer will be
entitled to receive, on an accelerated basis, approximately $800,000 of leasing
commissions due to Tishman Speyer under its leasing agreement. This amount
relates to leasing commissions due to Tishman Speyer with respect to five
tenants. Such leasing commissions were originally scheduled to be paid no sooner
than December 2002 and as late as April 2004. This payment is an obligation of
Purchaser under the purchase agreement, and as such, on the closing date. As a
result of receiving this fee on an accelerated basis, Tishman Speyer will
receive a benefit in the sale transaction the other stockholders of Metropolis
will not be entitled to receive.
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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 rights in connection with the approval of the merger. See
"PROPOSAL 2 - THE MERGER; Appraisal Rights."
Private Placement by AP-1290
AP-1290 has notified Metropolis that it intends to offer to all of the
stockholders of Metropolis who are "accredited investors" (as such term is
defined under the rules promulgated under the Securities Act of 1933, as
amended) and who own more than twenty shares of Metropolis common stock,
pursuant to a private placement memorandum, the right to purchase membership
interests in AP-1290 at a price and on the terms to be set forth in a
confidential 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 Metropolis' Registration under the Securities Exchange Act of
1934
Following the closing of the sale transaction and the merger, Metropolis
will terminate its registration under the Exchange Act, and accordingly
Metropolis will no longer be required to 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, and Holdings will be required to comply with the reporting
obligations under the Exchange Act. See "PROPOSAL 2 - THE MERGER; Parties to
Merger; Holdings."
DESCRIPTION OF THE PURCHASE AGREEMENT
Although Metropolis 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 information
statement--prospectus and is incorporated herein by reference.
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
Metropolis' 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.
Closing Date
Scheduled Closing Date. The transactions contemplated by the Purchase
Agreement shall occur on a date selected by Purchaser by giving no fewer than
three business days notice to Metropolis, which date will 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: (x) July 15, 2002 if the Commission has notified
Metropolis that it will not review and comment upon the information
statement--prospectus; or (y) August 28, 2002, if the Commission has notified
55
Metropolis that it will review and comment upon the information
statement--prospectus. Each of Purchaser and Metropolis 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 shall have the right to
extend the deadline for the closing date to August 31, 2002 if the Commission
has notified Metropolis that it will not review and comment upon the information
statement - prospectus, by giving written notice to Metropolis within three
business days following delivery by Metropolis of written notice to Purchaser
that the Commission has determined not to review and comment upon the
information statement - prospectus, and, simultaneously with the delivery of
such Purchaser extension notice, Purchaser shall deliver the sum of
($15,000,000) Fifteen Million Dollars to the escrow agent, as an addition to the
deposit.
Metropolis' Right to Extend Closing. Metropolis shall have the right to
extend the deadline for the closing date:
o to July 22, 2002, if the Commission shall have notified Metropolis
that it will not review and comment upon the information statement -
prospectus, by giving written notice to Purchaser on or before June
27, 2002; and
o to a date not later than October 7, 2002, on a day-for-day
corresponding basis to the extent it shall take the Commission more
than fifty (50) days after it has notified Metropolis that it
intends to review and comment upon the information statement -
prospectus.
Representations and Warranties
The material representations and warranties of Metropolis in the Purchase
Agreement are customary for transactions similar to the sale transaction and
relate to the following matters:
o The due formation and organization of Metropolis and 1290 Partners,
and that each has the full power and authority and all licenses,
permits, and authorizations necessary to carry on their respective
businesses in which it is engaged and to own and use the properties
owned and used by it in all other jurisdictions in which Metropolis
and 1290 Partners is transacting business except where the failure
to have such licenses, permits and authorizations would not have a
material adverse effect on the operation of the 1290 property.
o Metropolis owns all of the outstanding shares of 1290 GP Corp., the
general partner of 1290 Partners.
o The Purchase Agreement and all documents executed by Metropolis, or
its affiliates, which are to be delivered to Purchaser at the
closing are, and at the time of the closing, will be, duly
authorized, executed and delivered by Metropolis or its affiliates,
as the case may be, and at the time of the closing, will be the
legal, valid and binding obligations of Metropolis or its
affiliates, as the case may be, enforceable against Metropolis or
such affiliates in accordance with their terms subject to the
approval of the stockholders of the Metropolis, and except as such
enforcement may be limited by applicable bankruptcy, insolvency,
moratorium or other similar laws affecting the rights of creditors
generally, and do not and, at the time of the closing, will not,
constitute a default under any written obligation of Metropolis or
violate any judicial order to which Metropolis is subject or bound,
except where such default or violation would not have a material
adverse effect on Metropolis' ability to perform its obligations
thereunder.
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o To Metropolis' knowledge (A) no tenant under a lease is in default
under its lease beyond the applicable cure period except for
defaults that, individually or in the aggregate, do not have a
material adverse effect on the operation of the 1290 property; (B)
no tenant under any lease has alleged, in writing or otherwise, and
such allegation remains outstanding or remains uncured, that the
landlord under its lease is in default thereunder beyond the
applicable cure period, or that such tenant has an existing valid
counterclaim or a right of offset against any base rent or
additional rent payable under its lease, except for defaults that,
individually or in the aggregate, do not have a material adverse
effect on the operation of the 1290 property; and (C) no tenant
under any lease has alleged, in writing or otherwise, and such
allegation remains outstanding or remains uncured, that there is any
dispute in the amount of base rent payable under its lease, except
for such allegations that, individually or in the aggregate, do not
have a material adverse effect on the operation of the 1290
property.
o No consents are required under any leases in connection with the
consummation of the transactions contemplated by the Purchase
Agreement. To Metropolis' knowledge, there are no parties in
possession of any portion or the 1290 property, whether as lessees,
tenants at sufferance, trespassers or otherwise, except for the
tenants under the leases or their assignees or subtenants under
written assignments or subleases which have been delivered to
Purchaser. For purposes of the Purchase Agreement, "Metropolis'
knowledge" means the actual knowledge of the following individuals:
John Jacobsson, Jeremy Fitzgerald, Andrew Cohen and Steven McGann,
who are the individuals most likely to know of the matters to which
such knowledge is referenced.
o Metropolis delivered or made available to Purchaser true and
complete copies of all service, maintenance, supply and other
material agreements relating to the operation of the 1290 property.
o Metropolis delivered to Purchaser is a true, correct and complete
list of the security deposits, including cash, certificates of
deposit, and letters of credit, currently held by Metropolis under
the leases in effect as of the date of the Purchase Agreement.
o Metropolis delivered to Purchaser a true, correct and complete
tenant arrearage schedule and such schedule is in all material
respects as of the date of the Purchase Agreement.
o There are no actions, suits, litigations, hearings or administrative
proceedings to which the 1290 property or Metropolis is a party
pending before any court or other governmental authority or to
Metropolis' knowledge, threatened with respect to all or any portion
of the 1290 property or Metropolis, except for such actions pending
or threatened that, individually or in the aggregate, do not have a
material adverse effect on the operation of the 1290 property.
o There are no condemnation or eminent domain proceedings pending, or
to the best of Metropolis' knowledge, threatened against the 1290
property.
o Except for the 2001 Engineer Agreement, Local 94-94A-94B, and 1999
Commercial Building Agreement, Local 32B-32J, there are no
collective bargaining agreements or other employment agreements to
which Metropolis is a party (or by which Metropolis is bound) and
relating to the 1290 property.
o Except as otherwise disclosed to Purchaser, neither Metropolis nor
the managing agent of the 1290 property employs any union employees
at the 1290 property.
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o To Metropolis' knowledge no zoning, building, or other law,
ordinance, regulation, or restriction is, or as of the closing will
be, violated by the continued maintenance, operation, or use of the
1290 property in its present manner, except where such violation
would not have a material adverse effect on the operation of the
1290 property.
o Metropolis delivered to Purchaser a true, correct and complete list
of all brokerage agreements in effect as of the date of the Purchase
Agreement and which will be effective after the closing of the sale
transaction relating to the leases.
o The copies of insurance certificates setting forth casualty and rent
loss coverage maintained with respect to the 1290 property that were
delivered to Purchaser by Metropolis evidenced by such certificates
are in full force and effect and premiums on said policies have been
paid through September 30, 2002.
o The environmental report which Metropolis delivered to Purchaser is
true, correct and complete, and to Metropolis' knowledge is the only
such report relating to the environmental condition of the 1290
property that has been issued or published in the past two years.
Metropolis has not received any written warning, notice, notice of
violation, administrative complaint, judicial complaint or other
formal or informal written notice alleging that conditions on the
1290 property are in violation of any environmental laws,
regulations, ordinances or rules.
o Except as disclosed to Purchaser in writing, each tenant under the
leases on the 1290 property has commenced payment of the base rent
payable under its lease.
o The existing loan documents relating to the 1290 property have not
been amended or modified except as disclosed to Purchaser in writing
by Metropolis and true, correct and complete copies of the existing
loan documents have been delivered or made available to Purchaser.
o 1290 Partners has fee simple title to the 1290 property, free and
clear of all encumbrances, except for the permitted encumbrances.
o To Metropolis' knowledge, Metropolis holds, and there are presently
in effect, all zoning, building, or other licenses, permits,
authorizations and approvals required for the operation of the
building by all governmental authorities having jurisdiction, except
where the failure to have such licenses, permits, authorizations and
approvals would not have a material adverse effect on the operation
of the building.
o Metropolis has not received any written notice of any special
assessments contemplated being imposed against the 1290 property
after the date of the Purchase Agreement, except for such special
assessments that, individually or in the aggregate, do not have a
material adverse effect on the operation of the 1290 property.
o Metropolis has not received written notice that it is not in
compliance in all material respects with all applicable laws, and to
Metropolis' knowledge, no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand, or written notice
has been filed with or commenced before any governmental authority
against it alleging any failure so to comply.
o The special committee has been duly authorized by Metropolis to act
with all authority of the board of directors of Metropolis with
respect to the negotiation of the Purchase Agreement on
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behalf of such board of directors and to recommend the Purchase
Agreement to the board of directors.
o Except for the existing loan, the swap agreement, the contracts and
the tenant improvements and leasing commissions, or as set forth on
Metropolis' consolidated financial statements filed with the
Commission, neither Metropolis nor 1290 Partners have any financial
liabilities or obligations other than trade debt incurred in the
ordinary course of operating the 1290 property, all of which
obligations and liabilities shall be paid, liquidated and/or
discharged promptly after the closing.
o No capital improvements are currently being made at the 1290
property.
o As of the date of the Purchase Agreement, there are no pending rent
audits, and to Metropolis' knowledge no threatened rent audits.
o To Metropolis' knowledge, none of the information delivered to
Purchaser and prepared by third parties contains any material
misstatements or omissions or is misleading in any material manner.
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 Metropolis' 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 Metropolis receives written
notices of any claimed material default or material non-performance
received or given by Metropolis 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
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
59
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, Metropolis and the
special committee will be permitted to participate in discussions and
negotiations, and to furnish information concerning Metropolis and/or the 1290
property in connection with an unsolicited written inquiry, proposal or 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
Metropolis' stockholders realizing more value for their shares than they would
in connection with the transactions contemplated by the Purchase Agreement,
which superior offer involves:
o the purchase of all or substantially all of the equity interests in
Metropolis;
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 Metropolis;
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 Metropolis' stockholders
under applicable law.
Metropolis 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
Metropolis vote to approve the sale transaction. However, the special committee
may withdraw or modify its recommendation that the stockholders of Metropolis
vote to approve the sale transaction, or may recommend that Metropolis'
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 Metropolis'
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 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
60
o Metropolis has complied with its obligations described in the
section "PROPOSAL 1 - THE SALE TRANSACTION; Description of the
Purchase Agreement; Superior Offers."
Metropolis has agreed that it will not accept or enter into any agreement
concerning a superior offer for a period of at least five business days after
Purchaser's receipt of the initial notification of the unsolicited offer, during
which period Metropolis 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 Metropolis elects not to consummate the transactions contemplated by
the Purchase Agreement and instead elects to pursue its rights described above
in the section "PROPOSAL 1 - THE SALE TRANSACTION; Description of the Purchase
Agreement; Superior Offers," then Metropolis 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 "PROPOSAL 1 - THE
SALE TRANSACTION; Description of the Purchase Agreement; Default by Purchaser or
Metropolis;" provided, however, that (A) until 11:59 p.m. on the date that
Metropolis files this information statement--prospectus with the Commission, but
in no event later than June 1, 2002, if Metropolis shall terminate the Purchase
Agreement pursuant to its rights set forth in Section 8(c) thereof, then
Metropolis will pay to Purchaser a fee equal to $15 million; and (B) from and
after 12:00 a.m. on the date immediately following the date upon which
Metropolis files the information statement--prospectus with the Commission, but
in no event later than June 2, 2002, if Metropolis terminates the Purchase
Agreement pursuant to its rights set forth in Section 8(c) thereof, then
Metropolis will pay to Purchaser a fee equal to $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 shall be payable to Purchaser upon the earlier of: (i)
five business days following the consummation of the superior offer; (ii)
December 31, 2002; and (iii) ninety 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 Metropolis is
required to pay the break up fee, Metropolis 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 Metropolis on or prior to June 30, 2003.
Indemnification
The representations and warranties of Metropolis contained in the Purchase
Agreement will survive the closing of the sale transaction until December 30,
2002. Metropolis' 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 indemnification period unless,
prior to the last day of the indemnification period, Purchaser shall in good
faith have provided Metropolis with a written notice alleging that Metropolis
will be in breach of such representation, warranty or obligation, and specifying
in reasonable detail the nature of such breach. Purchaser will allow Metropolis
thirty days after its notice within which to cure such breach. If Metropolis
fails to cure such breach after written notice thereof, Purchaser's sole remedy
shall be to commence a legal proceeding for damages against Metropolis alleging
that Metropolis will be in breach of such representation, warranty or obligation
and that Purchaser shall have suffered actual damages as a result thereof, which
proceeding must be commenced,
61
if at all, within thirty days after the expiration of the indemnification
period; provided, however, that Metropolis 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 the sale transaction 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. Moreover,
Metropolis 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 Metropolis in accordance with the terms of the Purchase Agreement
following the closing date).
In consideration for such limitation on liability, Metropolis agreed that
following the closing, Metropolis (or any successor entity) will maintain a
tangible net worth of at least $10 million (less any amounts paid or payable by
Metropolis 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 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, Metropolis is relieved of any
liability under the purchase agreement with respect to representations made by
Metropolis 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 Metropolis 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 Metropolis 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 Metropolis 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, in respect of
the existing debt.
o Metropolis' 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.
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o No provision of any applicable law or regulation and no judgment,
injunctions then enforceable against Purchaser, order or decree will
prohibit the transactions contemplated by the Purchase Agreement.
Purchaser has 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 has the right to terminate the Purchase
Agreement by providing written notice of such termination to Metropolis at any
time through and including the closing date of the sale transaction, in which
event the deposit will be returned to Purchaser.
Conditions to the Obligations of Metropolis. The obligation of Metropolis
to effect the closing is subject to the fulfillment or written waiver by
Metropolis at or prior to the closing date of the following conditions:
o Purchaser will 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 Metropolis, 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 Metropolis' 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
Metropolis is responsible for:
o payment in full of all of Metropolis' 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 Metropolis' 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.
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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
Metropolis with respect to preparing and finalizing the information
statement--prospectus, including, without limitation, revisions
thereto required in order to respond to any review by, and comments
of, the Commission but only to the extent such additional fees and
costs relate to AP-1290 being a partner of Purchaser.
Default by Purchaser or Metropolis
Default by Purchaser. If, other than as a result of Metropolis' 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, Metropolis' sole remedy by reason thereof shall be to
terminate the Purchase Agreement and, upon such termination, Metropolis, 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 Metropolis. 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, Metropolis 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 business days after written notice to Metropolis, 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 Metropolis' obligations thereunder. Any action for
specific performance must be commenced within thirty days after such default,
and if Purchaser prevails thereunder, Metropolis will reimburse Purchaser for
all reasonable legal fees, court costs and other reasonable out-of-pocket costs
arising from such default. If a court of competent jurisdiction determines in a
non-appealable order that specific performance against Metropolis 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 Metropolis is not an
available remedy to Purchaser as a direct result of the willful misconduct or
bad faith of Metropolis, to pursue a claim against Metropolis for actual damages
incurred by Purchaser as a result of such default.
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In no event will the failure of Metropolis to consummate the transactions
contemplated herein as a result of the failure of one or more conditions to
Metropolis' obligation to close described above in the section "PROPOSAL 1 -THE
SALE TRANSACTION; Description of Purchase Agreement; Conditions to Closing"
constitute a default by Metropolis under the Purchase Agreement.
Apportionments
The items listed below will be apportioned between Purchaser and
Metropolis as of 11:59 p.m. on the day immediately preceding the closing date of
the sale transaction 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 to
be agreed upon by Purchaser and Metropolis and executed at closing.
No later than December 1, 2002, Purchaser shall prepare and deliver to
Metropolis a final reconciliation of the closing statement reasonably
satisfactory to Metropolis in form and substance 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). Metropolis and Purchaser shall use good faith efforts to agree upon
such reconciliation statement by December 15, 2002 which includes the following:
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;
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;
fuel, if any, as reasonably estimated by Metropolis' supplier, at Metropolis'
cost, together with any sales taxes payable in connection therewith, if any (a
letter from Metropolis' fuel supplier shall be conclusive evidence as to the
quantity of fuel on hand and Metropolis' cost therefor);
prepaid fees, if any, for licenses and other permits which will be
transferred by Metropolis to Purchaser on the closing date;
any amounts prepaid or payable by Metropolis under Metropolis' contracts in
effect as of the closing date;
business improvement district dues, if any; and
such other items as are customarily apportioned between sellers and
purchasers of real property of a type similar to the 1290 property 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 Metropolis'
capital stock which includes the formation of Holdings, the merger of Metropolis
with Lower Tier, and the pre-closing loan.
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The merger, together with the formation of Holdings, and the pre-closing loan
are expected to allow Metropolis to claim the amount of "dividends paid
deduction" necessary to eliminate its U.S. federal income tax with respect to
the gain on the sale of the 1290 property.
Immediately following the merger and prior to the closing of the sale
transaction, Holdings will borrow the pre-closing loan from Purchaser or a
designee of Purchaser in an amount equal to approximately $150 million bearing
interest at the rate of ____ percent (__%) per annum which will be due and
payable in full at the closing of the sale transaction. The loan will be secured
by a pledge of Holdings' 99.9% equity interest in Metropolis and 100% by
Metropolis' equity interest in a wholly-owned subsidiary of Metropolis,
newly-created in connection with the pre-closing loan. Immediately thereafter,
Holdings will contribute the proceeds of the pre-closing loan to Metropolis'
capital. Metropolis 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 Metropolis common stock owned
by Holdings following the merger and is expected to be repaid upon the closing
of the sale transaction at which time Metropolis will be liquidated and the net
proceeds of the sale transaction will be distributed to Holdings. Following the
payment of Metropolis' remaining existing debt, the costs associated with the
termination of the 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 sale
transaction to holders of LLC units in proportion to their respective ownership
interests in Holdings. The contribution of the pre-closing loan proceeds to the
capital of Metropolis should permit Metropolis 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 Metropolis."
Apollo Real Estate Investment Fund Note
Under the terms of Purchaser's limited partnership agreement, AP-1290 is
obligated to: (i) make a $78.625 million initial capital contribution and (ii)
pay $1.1 million for its portion of the closing costs for a new loan for the
1290 property.
Apollo Real Estate Investment Fund has executed a promissory note in favor
of Metropolis, dated as of July ____, 2002, in the principal amount of $79.725
million. This note provides that Apollo Real Estate Investment Fund will pay to
Metropolis the principal amount on the closing date of the sale transaction if
AP-1290 fails to satisfy its payment obligations under the limited partnership
agreement. Overdue principal bears interest for each day from the due date
thereof until paid in full at a rate per annum equal to 7%, such interest to be
payable upon demand.
The promissory note is secured by the 4,936,060 shares of common stock
owned by Apollo Real Estate Investment Fund and will be repaid from
distributions Apollo Real Estate Investment Fund 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 Apollo Real Estate
Investment Fund as a stockholder of Metropolis is expected to exceed the amount
of the promissory note.
The promissory note has been delivered to an escrow agent to be held until
the closing date of the sale transaction. If AP-1290 fails to satisfy all or any
portion of its payment obligations on the closing date, then the promissory note
will be released to the Purchaser, and the Purchaser will have the right to
deliver the promissory note to Metropolis as payment of a portion of the
purchase price (equal to the principal amount of the note) to be paid in the
sale transaction. If AP-1290 satisfies all of its payment obligations, then the
promissory note will be released by the escrow agent to Apollo Real Estate
Investment Fund on the closing date of the sale transaction. A copy of the
promissory note is attached as Annex I to this information
statement--prospectus.
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DESCRIPTION OF THE VOTING AGREEMENTS
On May 23, 2002 or May 24, 2002, each of the following stockholders of
Metropolis entered into separate voting agreements with Purchaser with respect
to the following number of shares of Metropolis common stock:
o Oaktree Capital Management, LLC, individually and as agent and on
behalf of certain funds and accounts (330,649 shares);
o TCW Asset Management Company, as agent and on behalf of certain
funds and accounts (1,586,814 shares);
o TCW Special Credits, on behalf of and as agent or nominee for
certain funds and accounts (667,527 shares);
o Apollo Real Estate Investment Fund (4,936,060 shares);
o Angelo, Gordon & Co., L.P. (1,094,143 shares);
o WSB Realty, L.L.C. (1,122,421 shares); and
o NYPROP, L.L.C. (an affiliate of Tishman Speyer, Metropolis' property
manager) (545,707 shares).
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 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 Metropolis 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 Metropolis
with respect to any of the following, each stockholder party to such agreement
will vote or cause (including by the Proxy, as hereinafter defined) to be voted
its shares of common stock and any new shares (as described 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
Metropolis, any reclassification or recapitalization of the capital
stock of Metropolis or any sale of assets, change of control, or
acquisition of Metropolis 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, or any consolidation or merger of Metropolis with
or into any of the foregoing 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 economic
benefits to be realized by such stockholder pursuant to the Purchase
Agreement as in effect on the date thereof;
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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 such 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 stockholder that is a party to a voting agreement will not, from the
voting agreement effective date until the expiration date (as hereinafter
described), 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 stockholder that is a party to a voting agreement 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; and
o Each stockholder that is a party to a voting agreement 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 stockholder.
Special Committee. If, prior to a stockholder that is a party to a voting
agreement casting its vote at a meeting of the stockholders, (i) such
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 stockholder pursuant to the Purchase
Agreement as in effect on the date thereof, then such 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 Metropolis' 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 stockholder that is a party to a voting agreement has
agreed that any shares of Metropolis capital stock (or LLC units) that such
stockholder (A) holds of record and owns beneficially as of the voting agreement
effective date; or (B) purchases or with respect to which such stockholder
otherwise acquires record or beneficial ownership after the execution of the
voting agreement and prior to the expiration date, which we refer to as "new
shares", will be subject to the terms and conditions of the voting agreement to
the same extent as if they constituted existing shares. From the voting
agreement effective date until the expiration date, each such 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 stockholder acquires or
discovers beneficial ownership, and such stockholder will promptly notify
Purchaser upon acquiring or discovering beneficial ownership of any additional
securities of Metropolis.
No Disposition or Encumbrance of Shares. Each stockholder that is a party
to a voting agreement 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,
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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
stockholder's beneficial ownership of, interest in or risk relating to any of
its shares of common stock.
Transfer of Voting Rights. Each stockholder that is a party to a voting
agreement has also agreed that, from the voting agreement effective date until
the expiration date, such 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 stockholder that is a party to a voting
agreement irrevocably and unconditionally waived any rights of appraisal,
dissenters' rights or similar rights that such 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.
No Restraint on Director Action. The voting agreement is intended to bind
each stockholder that is a party to a voting agreement only with respect to the
specific matters set forth in the voting agreement, and does not prohibit any
such stockholder from acting in accordance with his or her duties as an officer
or director of Metropolis.
DESCRIPTION OF THE AGREEMENT OF
LIMITED PARTNERSHIP OF PURCHASER
The following is a summary of the material terms and conditions of the
Purchaser's limited partnership agreement, dated as of May 16, 2002, between
Jamestown 1290, JT 1290 Corp. and AP-1290. pursuant to which Apollo Real Estate
Investment Fund will invest a portion of the proceeds that it receives in the
sale transaction in Purchaser. The following summary of the material terms and
provisions of the Limited Partnership Agreement is qualified in its entirety by
reference to the Limited Partnership Agreement attached as Annex J to this
information statement--prospectus and is incorporated herein by reference.
Partners
The general partner of Purchaser is JT 1290 Corp., an affiliate of
Jamestown. Except as expressly provided in the partnership agreement, no other
person will be admitted as an additional or substitute general partner of
Purchaser. The limited partners of Purchaser are AP-1290 and Jamestown 1290
Partners. Except as expressly provided in the partnership agreement, no other
person will be admitted as an additional or substitute limited partner of
Purchaser.
Purpose of Purchaser
Purchaser was formed to acquire the 1290 property in the sale transaction.
The sole purpose of Purchaser is to acquire, own, manage, develop,
condominiumize, operate, improve, build upon, rehabilitate, alter, lease,
license, repair, finance or refinance, securitize, sell and otherwise deal with
and dispose of the 1290 property and to engage in any and all activities
necessary, appropriate or advisable thereto, including entering into a new loan
relating to the 1290 property. Purchaser will not engage in any
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business or own any assets other than those related to the 1290 property or
otherwise in furtherance of the purpose of Purchaser. So long as the new loan
remains outstanding, Purchaser will not incur any indebtedness other than the
new loan or any refinancing thereof and debt incurred in the ordinary course of
the Purchaser's business in connection with the operation of the 1290 property.
Management
The business, affairs and assets of Purchaser will be managed, arranged
and caused to be coordinated by the general partner, who will have, except with
respect to major matters (described below), full, exclusive and complete
discretion with respect thereto. Except for the major matters listed below, none
of the partners other than the general partner will participate in the
management or control of Purchaser or have any right to approve, vote on or
otherwise consent to any matter relating to the business, affairs or assets of
Purchaser; provided, however,
o Jamestown 1290 Partners will have the right on behalf of Purchaser
to enter into mezzanine lending agreements with lenders providing
funds to Jamestown 1290 Partners, including lockbox arrangements
which pledge a portion of the net cash flow of Purchaser to such
mezzanine lenders, provided that such agreements and arrangements do
not affect in any respect distributions to AP-1290; and
o AP-1290 will have the authority to enforce on behalf of Purchaser
any agreement Purchaser may have with affiliates of the general
partner or Jamestown 1290 Partners.
Major Matters
The general partner will not take any action with respect to any of the
following matters, unless authorized in writing by AP-1290 and Jamestown 1290
Partners; it being understood and agreed that the limited partners will not
unreasonably withhold, condition or delay their approval of a major matter. The
following is a list of the major matters:
o except with respect to the right of first offer described below, the sale
of all or any substantial portion of the 1290 property;
o the approval of any financing or refinancing by Purchaser in excess of
$2,500,000, except the new loan, and any and all borrowings under the new
loan, and the shortfall loans (as hereinafter described);
o the approval of the merger or consolidation of Purchaser with any other
entity;
o a change or amendment in the purpose of Purchaser;
o affiliate transactions by the general partner and/or Jamestown 1290
Partners, other than as specifically contemplated in the partnership
agreement;
o the issuance of additional partnership interests, equity interests in
Purchaser or options, rights, warrants or other securities exchangeable or
convertible into equity interests in Purchaser;
o the liquidation, dissolution or bankruptcy of Purchaser;
o the approval of any "major matter" under the management agreement between
Purchaser and Jamestown 1290 Management;
o the termination of such management agreement;
o the approval of partnership budgets; or
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o the removal of the general partner.
Initial Capital Contributions
Subject to the conditions described below, upon the closing of the sale
transaction, the partners of Purchaser will make or be deemed to have made
initial capital contributions to Purchaser in the following amounts and in
consideration for the following percentage interests in Purchaser:
Partner Initial Capital Percentage Interest
- ------- --------------- -------------------
Contributions
--------------
Jamestown 1290 Partners $ 266,374,900 77.21%
JT 1290 Corp. 100 0.00001
AP-1290(1) 78,625,000 22.79%
============== ===================
Total $ 345,000,000 100.00%
(1) AP-1290 has also agreed to pay $1.1 million for its portion of the closing
costs for the new loan for the 1290 property, and such amount will not
constitute a capital contribution.
The obligation of each partner to make such capital contribution is
contingent upon the closing and funding of the new loan, the closing of the sale
transaction and the payment by each other partner of its initial capital
hereunder.
Additional Capital
If at any time, and from time to time, Purchaser is in need of additional
funds for operational and/or capital needs or to otherwise meet its obligations
and, in the good faith determination of the general partner, Purchaser is unable
to obtain such additional funds from institutional third party lenders, then the
general partner shall deliver to the other partners a written notice of
Purchaser's need for such funds. Each partner, upon receipt of such notice from
the general partner, shall thereupon have the right, but not the obligation, to
contribute an amount equal to their respective percentage interest in Purchaser.
Shortfall Loans
If any partner fails or elects not to contribute any portion of its pro
rata share of any additional capital contributions requested by the general
partner in a call notice, then each contributing partner may, but will not be
required to, provide a loan to Purchaser for all or part of the amount of the
additional capital contributions which any non-contributing partner has failed
or elected not to contribute.
Repayment of Non-Amortized Portion of The New Loan
Jamestown 1290 Partners will have the right, at any time and from time to
time, to make additional capital contributions to Purchaser (which capital we
refer to as "replacement capital") up to the maximum non-amortized portion of
the new loan amount ($55,000,000) to enable Purchaser to reduce the outstanding
principal balance of the new loan in the amount so contributed. Jamestown 1290
Partners will have the right, at any time and from time to time, to request that
Purchaser distribute to Jamestown 1290 Partners all or part of its unrecovered
replacement capital, and the general partner will make such distribution to the
Jamestown 1290 Partners within 10 days after each such request is made;
provided, however, that Purchaser will borrow additional amounts under the new
loan (up to the maximum non-amortized portion amount) to enable Purchaser to
make such distribution or distributions.
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Distributions
Net Cash Flow. Net cash flow will be distributed to the partners of
Purchaser not less frequently than on a quarterly basis in the following order
of priority:
o First, to Jamestown 1290 Partners until Purchaser has distributed to
Jamestown 1290 Partners, on an annual cumulative basis, an 8.26% per annum
preferred return on all unrecovered replacement capital contributed by
Jamestown 1290 Partners to Purchaser;
o Second, to each partner of Purchaser who has made a shortfall loan to
Purchaser, until Purchaser has distributed to each such partner the then
outstanding principal balance of such partner's shortfall loan, plus all
interest accrued and unpaid thereon;
o Third, to the partners of Purchaser, pari passu based on their respective
percentage interests, until Purchaser has distributed to each partner, on
an annual cumulative basis, a 10% per annum preferred return on all
unrecovered additional capital contributed by such partner to Purchaser;
o Fourth, to the general partner and Jamestown 1290 Partners, pari passu
based on their respective percentage interests, until Purchaser has
distributed to the general partner and Jamestown 1290 Partners, on an
annual cumulative basis, a $23,975,000 per annum (in the aggregate)
preferred return on all initial capital contributed by the general partner
and Jamestown 1290 Partners to Purchaser; provided, however, the amount of
this distribution will be reduced or increased to the -------- -------
extent the interest rates under the new loan are above (distribution will
be reduced in the amount of the annual increased interest costs resulting
from the portion of the interest rates in excess of the target rates) or
below (distribution will be increased in the amount of the annual interest
savings resulting from the portion of the interest rates below the target
rates) target rates of 6.82% for the amortizing portion of the new loan
and 8.26% for the non-amortizing portion of the new loan;
o Fifth, to AP-1290, until Purchaser has distributed to AP-1290, on an
annual cumulative basis, a $6,925,000 per annum preferred return on all
initial capital contributed by AP-1290 to Purchaser; and
o Sixth, to the general partner and Jamestown 1290 Partners, pari passu
based on their respective percentage interests, 56.25% (in the aggregate),
and to AP-1290, 43.75%.
Capital Transactions. Net proceeds from capital transactions (e.g., sale
of all or a portion of the 1290 property, financing, refinancing, easement,
insurance award and/or partial condemnation) and liquidation events will be
distributed in the following order of priority:
o First, to Jamestown 1290 Partners, until Purchaser has distributed to
Jamestown 1290 Partners, on an annual cumulative basis, an 8.26% per annum
preferred return on all unrecovered replacement capital contributed by
Jamestown 1290 Partners to Purchaser (to the extent not previously
distributed from net cash flow as described above) plus a return of all
unreturned replacement capital contributed by Jamestown 1290 Partners to
Purchaser;
o Second, to each partner of Purchaser who has made a shortfall loan to
Purchaser, until Purchaser has distributed to each such partner the then
outstanding principal balance of such partner's shortfall loan, plus all
interest accrued and unpaid thereon;
o Third, to the partners of Purchaser, pari passu based on their respective
percentage interests, until Purchaser has distributed to each partner, on
an annual cumulative basis, a 10% per annum preferred
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return on all unrecovered additional capital contributed by such partner
to Purchaser (to the extent not previously distributed from net cash flow
as described above);
o Fourth, to the general partner and Jamestown 1290 Partners, pari passu
based on their respective percentage interests, until Purchaser has
distributed to the general partner and Jamestown 1290 Partners on an
annual cumulative basis, a $23,975,000 per annum (in the aggregate)
preferred return on all initial capital contributed by the general partner
and Jamestown 1290 Partners to Purchaser (to the extent not previously
distributed from net cash flow as described above), plus a return of all
unreturned initial capital contributed by the general partner and
Jamestown 1290 Partners to Purchaser (to the extent not previously
returned); provided, however, the amount of the preferred return portion
of this distribution will be reduced or increased to the extent the
interest rates under the new loan are above (distribution will be reduced
in the amount of the annual increased interest costs resulting from the
portion of the interest rates in excess of the target rates) or below
(distribution will be increased in the amount of the annual interest
savings resulting from the portion of the interest rates below the target
rates) target rates of 6.82% for the amortizing portion of the new loan
and 8.26% for the non-amortizing portion of the new loan;
o Fifth, to the general partner and Jamestown 1290 Partners, pari passu,
based on their respective percentage interests, until Purchaser has
distributed to the general partner and Jamestown 1290 Partners an amount
equal to 77.21% (in the aggregate) of the amount set forth on Annex B to
the limited partnership agreement of Purchaser for the year in which the
relevant capital transaction occurs, less the amount of any previous
distributions pursuant to this bullet and the seventh bullet below;
o Sixth, to AP-1290 until Purchaser has distributed to AP-1290, on an annual
cumulative basis, a $6,925,000 per annum preferred return on all initial
capital contributed by AP-1290 to Purchaser (to the extent not previously
distributed from net cash flow as described above), plus a return of all
unreturned initial capital contributed by AP-1290 to Purchaser;
o Seventh, to AP-1290 until Purchaser has distributed to it AP-1290 an
amount equal to 22.79% of the amount set forth on Annex B to the limited
partnership agreement of Purchaser for the year in which the relevant
capital transaction occurs, less the amount of any previous distributions
pursuant to the fifth bullet above and this bullet;
o Eighth, to the general partner and Jamestown 1290 Partners, pari passu,
based on their respective percentage interests, 62.5% (in the aggregate),
and to AP-1290, 37.5% until Purchaser has distributed to the partners an
aggregate amount equal to $250 million (after December 2009, such amount
shall be increased by $25 million on January 1 of each succeeding calendar
year) pursuant to this bullet, less any amounts already distributed to
Purchaser's partners pursuant to this bullet; and
o Thereafter, to the general partner and Jamestown 1290 Partners pari passu
based on their respective percentage interests, 50% (in the aggregate),
and to AP-1290, 50%.
TI and Leasing Commissions Reserve
Upon the closing of the sale transaction, Purchaser will establish a
reserve in the amount of $10,000,000 from the initial capital contributions made
by the partners to Purchaser, which amount will be used by Purchaser to pay the
amounts related to leasing commissions, tenant improvements, landlords' work and
rent abatements relating to the 1290 property, including without limitation,
certain specified amounts, and such other obligations of Purchaser that may
arise.
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Transaction Fee to Affiliates
Upon a sale of the 1290 property, which is not expected to occur until on
or after 2009, Purchaser will pay a sales fee in an amount equal to 3% of the
gross sales price of the 1290 property. AP-1290 Manager or one of its affiliates
will be entitled to receive 40% of the sales fee, and Jamestown 1290 Partners or
one of its affiliates will be entitled to receive 60% of the sales fee. Each of
AP-1290 Manager (or its affiliate) and Jamestown 1290 Partners (or its
affiliate) will be responsible for its pro rata share of any outside broker's
fees or commissions on such sale.
Removal of General Partner
The general partner may be removed as a general partner of Purchaser by:
o AP-1290 if, in connection with the furtherance of its obligations
and duties as the general partner, the general partner will have
been liable or guilty of embezzlement, fraud, willful misconduct, or
criminal conviction, or
o the vote of partners holding at least a majority of percentage
interests of Purchaser.
Dissolution
Purchaser will be dissolved upon the earliest to occur of the following:
o on a date mutually agreed upon by the general and limited partners;
o the sale by Purchaser of all or substantially all of its assets
(unless the general partner will elect to continue the existence of
Purchaser pending collection of the deferred balance of any sales
proceeds);
o December 31, 2022; or
o in the event of the removal of the general partner, unless, within
90 days following the occurrence of such event, a replacement
general partner is named.
PROPOSAL 2
THE MERGER
Introduction
On May 7, 2002, the special committee approved and recommended to the
board of directors the merger of Metropolis with Lower Tier, with Metropolis as
the surviving entity in the merger. The members of Metropolis' 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
Metropolis' stockholders for their consideration. A copy of the Agreement and
Plan of Merger, dated as of May 22, 2002, by and between Metropolis, Holdings
and Lower Tier, is attached hereto as Annex G and incorporated herein by
reference. Stockholders are urged to read the merger agreement carefully and in
its entirety.
Merger Effective Date
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As soon as practicable following the special meeting, but in no event more
than three days prior to the consummation of the sale transaction, Metropolis
will consummate the merger. The merger will become effective upon the filing by
Metropolis of Articles of Merger with the State Department of Assessments and
Taxation of Maryland and the Certificate of Merger with the Secretary of State
of the State of Delaware.
Following the consummation of the merger and at least two days prior to
the consummation of the sale transaction, Holdings will borrow approximately
$150 million from Purchaser or a designee of Purchaser and contribute the cash
proceeds of such loan to the capital of Metropolis. Metropolis intends to use
all of the capital contributed by Holdings to repay a portion of Metropolis'
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
Metropolis. Holdings' tax basis in the common stock will be increased by the
amount of the capital contribution. The merger should permit Metropolis to
minimize any federal income tax liabilities associated with the sale transaction
and liquidation.
The Merger Consideration
In the merger, each stockholder of Metropolis will receive a certificate
representing a number of LLC units of Holdings equal to the number of shares of
Metropolis common stock held by such stockholder immediately prior to the
merger. The issuance of the LLC units is being registered under this information
statement--prospectus with the Commission under the Securities Act. 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 Metropolis will own
the same percentage interest in Holdings as it held in Metropolis 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 and Related Transactions
The merger is being consummated as part of a restructuring of Metropolis'
capital stock which includes the formation of Holdings and Lower Tier, the
merger, and the pre-closing loan. The merger, together with the formation of
Holdings and Lower Tier, and the pre-closing loan allow us to claim the amount
of "dividends paid deduction" necessary to eliminate Metropolis' U.S. federal
income tax with respect to the gain on the sale of the 1290 property. 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 Metropolis 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
75
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 stockholder 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.
Classification of Holdings
Akin, Gump, Strauss, Hauer & Feld L.L.P., counsel to Metropolis, has
advised Metropolis 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, which we refer to as 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, under Section 704(c) of the Code, a member
who contributes property other than cash to Holdings (such as Metropolis common
stock deemed to have been contributed to Holdings in the merger) 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
Akin, Gump, Strauss, Hauer & Feld L.L.P., counsel to Metropolis, has
delivered an opinion concluding that, for U.S. federal income tax purposes,
Lower Tier will be disregarded and that the merger of Lower Tier LLC into
Metropolis should be treated as a contribution by Metropolis stockholders of
their common stock to Holdings in exchange for LLC units. A copy of this opinion
has been filed as an exhibit to the registration statement of which this
information statement - prospectus is a part. After the merger, aside from 1,100
shares issued by Metropolis to comply with the 100 shareholder requirement for
qualification as a REIT, approximately 99.9% of the common stock will be held by
Holdings. Accordingly, Metropolis (as the surviving entity of the merger) will
become a subsidiary of Holdings.
No gain or loss will be recognized by Metropolis stockholders upon receipt
of LLC units in exchange for their common stock. Each Metropolis 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 Metropolis 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
76
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 Metropolis 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
Metropolis' 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.
Each member of Holdings will receive annually an IRS Form K-1 from
Holdings showing the amount of Holdings' income, gains, losses, deductions or
credits allocable to each such member of Holdings. Because Holdings is not
expected to conduct any operations after the sale transaction and Metropolis'
liquidation, but will remain in existence merely to administer the orderly
distributions of the $10 million indemnification reserve and the $2 million
expense reserve, it is not expected that members that are not otherwise required
to file New York state and city income tax returns would be required to do so as
a result of their ownership of LLC units in Holdings.
Vote Required
In order to effect the merger, Metropolis is required to obtain the
affirmative vote of the holders of at least 66 2/3% of its issued and
outstanding shares of common stock. Seven of Metropolis' largest stockholders,
representing approximately 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 Metropolis' 13,004,946 shares of common stock issued and outstanding,
approximately 8,658,193 shares are held by affiliates of Metropolis and
approximately 4,346,753 shares are held by non-affiliates.
Parties to the Merger
Metropolis.
Description of Business. Metropolis is a REIT, which was formed on May 13,
1996. Metropolis' principal assets consist of its interests in 1290 Partners,
through which it owns the 1290 property. Metropolis' 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.
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 Metropolis' 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.
Employees. Metropolis 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. Metropolis believes
77
that there are no unfunded retiree benefits liabilities under the pension plans
established pursuant to the labor agreements referred to above.
Qualification as a REIT. Metropolis 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, Metropolis (subject to certain exceptions)
generally will not be subject to federal income taxation on income it
distributes to stockholders. For any year in which Metropolis does not meet the
requirements for qualifying to be taxed as a REIT, it will be taxed as a
corporation. Although Metropolis 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 Metropolis'
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, Metropolis
generally is required each year to distribute to its stockholders at least
90% of its taxable income. Metropolis is subject 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, Metropolis 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 Metropolis' income consists of the income of
the 1290 property and Metropolis' cash flow consists primarily of
distributions from the 1290 property.
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). In addition to Equitable, the building houses a variety of
tenants, including financial institutions, entertainment companies and law
firms.
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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)
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. Metropolis 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.
79
(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 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 & Foerster 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.
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.
80
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
Expiration Leases Expiring Leases Expiring Leases by 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.
Legal Proceedings. There are no material pending legal proceedings, other
than ordinary routine litigation incidental to the business of Metropolis,
against or involving Metropolis, 1290 Partners or the 1290 property.
Market For Registrant's Common Equity and Related Stockholder Matters. The
common stock is not listed on any exchange, Metropolis 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 Metropolis' 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 March 15, 2002, there were approximately 111 holders
of record of Metropolis' Class A Common Stock.
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,
Metropolis' 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
81
directors deems relevant. Metropolis intends to make distributions to comply
with the REIT distribution requirements. In order to maintain its qualification
as a REIT, Metropolis must make annual distributions to stockholders of at least
90% of its taxable income (excluding capital gains). Metropolis 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
On July 9, 2002, the Metropolis board of directors declared a cash dividend of
$.25 per share to be paid to its stockholders of record on July 19, 2002, and
that such dividend would be paid on August 15, 2002.
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 Metropolis' selected financial
data and the financial statements included in "SUMMARY TERMS SHEET; SELECTED
METROPOLIS FINANCIAL DATA;" and Metropolis' Financial Statements and
Supplementary Data attached hereto as Annex F.
o Overview. Prior to November 22, 1999, Metropolis owned and operated
the real property and office building located at 237 Park Avenue,
New York, New York and the 1290 property. On November 22, 1999,
Metropolis sold its interests in the 237 Park Avenue property.
Consequently, Metropolis' 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 of
the 1290 property. Metropolis 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 Metropolis is not listed on any exchange, and
Metropolis 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
Metropolis using the consolidation method of accounting.
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
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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, Metropolis 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 Metropolis to the Upper Tier LP
and a gain to Metropolis of $13,009.
Liquidity and Capital Resources. During the three months ended March
31, 2002, cash flow from operations totaled $4,978. Metropolis 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, Metropolis 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
Metropolis' common stock on March 29, 2002. Metropolis 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 directly. This decrease is
offset by an increase in tenant submetered electric charges of $629
during 2001.
83
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 Metropolis' 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 Park Avenue 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, Metropolis exercised its right to repurchase the
4.95% limited partnership interest in the 1290 Partners (the
"Subordinated Minority Interest") that was owned by 237/1290 Upper
Tier Associates, L.P., 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 Metropolis to
the Upper Tier LP and a gain to Metropolis 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 Park Avenue 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 Park Avenue
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.
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 Park
Avenue property on November 22, 1999, and a reduction in cash held
by Metropolis, offset by approximately $1,700 of interest income
that was recognized in
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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, Metropolis generated
cash flows from operations of approximately $13,747. Metropolis 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, Metropolis had unrestricted cash on hand of approximately
$11,012. At December 31, 2000, Metropolis had unrestricted cash on
hand of approximately $15,066. In December 1999, 1290 Partners
refinanced mortgage indebtedness secured by the 1290 property of
approximately $224,900, and obtained Metropolis' existing loan.
Interest on Metropolis' existing loan 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.
Metropolis' 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 Metropolis 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, Metropolis 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 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
85
disposed of or is classified as held for sale. Implementation of
this standard did not have a material impact on Metropolis'
consolidated 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, Metropolis 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. Metropolis has no employees and none of its
executive officers, including Metropolis' president (who acts in a
capacity similar to that of a chief executive offer), receives any
salary, bonus, stock awards, stock options, perquisites or any other
compensation (whether cash or non-cash) 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 Metropolis' Amended and
Restated 1996 Directors' 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 Directors' 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
Metropolis' 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." Metropolis
has purchased a directors' and officers' liability insurance policy
in the amount of $10,000,000.
o Information concerning Metropolis' Board of Directors:
William L. Mack (age 61) has served as the Chairman of the board of
directors of Metropolis since 1996. Mr. Mack is the managing partner
of Apollo Real Estate Advisors, 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
86
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 Apollo Real Estate Advisors,
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 Apollo Real Estate
Advisors, 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 Apollo Real Estate
Advisors, with which he has been associated since its founding in
1993. Mr. Jacobsson is responsible for investments, investment
management and capital raising at Apollo Real Estate Advisors and
co-heads Apollo Real Estate Advisors' 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. from
1989 until the acquisition of Victor Capital by Capital Trust in
July 1997. From 1982 to 1989, Mr. Klopp was a Managing Director and
co-head of Chemical Realty Corporation, 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, 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
Director of
87
Trust Company of the West, or 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, 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., 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.
Information concerning Metropolis' Executive Officers:
The following discussion sets forth the names, ages and business
histories of the executive officers of Metropolis. Each of the
following individuals has served as an executive officer of
Metropolis 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 each of the fiscal years
of Metropolis ended December 31, 2001, 2000 and 1999 and (ii) for the
three months ended March 31, 2002.
Sale of 237 Park Avenue Property/Refinancing of 1290 Property. John R.
Klopp, one of Metropolis' Directors and an officer and a stockholder of
Metropolis, is the Chief Executive Officer of Capital Trust, the parent
company of Victor Capital Group. Victor Capital acted as one of
Metropolis'
88
representatives in connection with the sale of the 237 Park Avenue
property in November 1999. Pursuant to the terms of the retention
agreement between Victor Capital and Metropolis, Victor Capital was paid a
fee equal to $930,000 (0.25% of the total transaction value). In addition,
Victor Capital was paid approximately $1,594,000 by Metropolis in December
1999 as a finder's fee in connection with the refinancing of the debt
pertaining to the 1290 property.
Asset Management. On October 10, 1996, Metropolis retained 970 Management,
LLC, an affiliate of Victor Capital Group, to serve as Metropolis' asset
manager pursuant to an asset management agreement, dated as of such date.
The terms of the original asset management agreement were substantially
the same as those contained in the current asset management agreement. As
noted above, Mr. Klopp is the Chief Executive Officer of Capital Trust,
the parent company of Victor Capital Group. Pursuant to the original asset
management agreement, 970 Management acted as Metropolis' advisor and
consultant with respect to the management of the 1290 property and
Metropolis' interest in 1290 Partners. Asset management fees incurred for
the year ended December 31, 1999 aggregated approximately $300,000.
For Metropolis' fiscal year 2000, Capital Trust, as successor-in-interest
to 970 Management, served as Metropolis' asset manager pursuant to the
original asset management agreement. Asset management fees incurred for
the year ended December 31, 2000 aggregated approximately $300,000.
On December 22, 2000, Metropolis entered into a new asset management
agreement with Capital Trust, dated as of such date. Pursuant to the
current asset management agreement, the asset manager serves as
Metropolis' advisor and consultant with respect to the management of the
1290 property and Metropolis' interests in 1290 Partners. The current
asset management agreement had an initial term of one year. The term is
automatically extended for consecutive one-year periods thereafter unless
Metropolis 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. Metropolis may terminate the current 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 current 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 current asset management agreement if Metropolis
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 Metropolis of such default. Either party may terminate the
current 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 current asset management agreement,
Metropolis pays the asset manager an asset management fee of $25,000 per
month. Asset management fees incurred for the year ended December 31, 2001
aggregated approximately $300,000 and for the three months ended March 31,
2002 aggregated approximately $75,000. In addition to the payment of the
asset management fee, Metropolis 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, with Tishman Speyer
Properties, L.P. Nyprop, LLC, a stockholder of Metropolis, is an affiliate
of the Tishman Speyer. Pursuant to the property management agreement, the
Tishman Speyer performed all supervisory, management and leasing services
and functions reasonably necessary or incidental to the leasing,
management and operations of the 1290 property for the years ended
December 31, 2001, 2000 and 1999 and for the 237 Park Avenue property for
the year ended December 31, 1999. Fees under the property management
agreement for the years ended December 31, 2001, 2000 and 1999 were
approximately $2,071,000, $2,295,000 and $5,528,000, respectively. Tishman
Speyer currently acts as such for the 1290
89
property. Fees incurred under the property management agreement for the
three months ended March 31, 2002 aggregated approximately $374,000. An
affiliate of the property manager/leasing agent provided cleaning services
for the 1290 property for the months January through February of 2001 and
for the years ended December 31, 2000 and 1999 and for the 237 Park Avenue
property for the year ended December 31, 1999. Fees paid for cleaning
services for the years ended December 31, 2001, 2000 and 1999 totaled
$405,000, $2,499,000, and $3680,000, respectively. 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 Tishman Speyer 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 1290 Partners or refinanced
by 1290 Partners 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
Tishman Speyer if Tishman Speyer breaches a material term of the property
management agreement, and (ii) immediately upon notice to Tishman Speyer
if (x) Tishman Speyer or any principal of the Tishman Speyer intentionally
misappropriates funds of 1290 Partners or commits fraud against the 1290
Partners or (y) there is a change in control of Tishman Speyer. Tishman
Speyer 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 1290 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
Tishman Speyer a fee in an amount equal to 1.5% of gross revenues from the
1290 property, which fee is paid monthly, and (ii) reimburses Tishman
Speyer for all reasonable out-of-pocket expenses incurred by Tishman
Speyer related to the performance of its responsibilities under the
property management agreement, to the extent set forth in the annual
budget. In addition, Tishman Speyer is entitled to receive commissions in
connection with the leasing of space at the 1290 property and renewals and
extensions of leases. Metropolis entered into a REIT Management Agreement
with the Tishman Speyer. 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 years ended December 31, 2001,
2000 and 1999 were $126,000, $137,000 and $125,000, respectively, and for
the three months ended March 31, 2002 were approximately $31,000.
90
Tax Certiorari Proceedings and Tenant Reimbursement Claims. Tax certiorari
proceedings have been commenced which remain outstanding against the City of New
York for over-assessment of property taxes for the tax years ending June 30,
1997 through June 30, 2001 with respect to the 1290 property. The Purchase
Agreement provides that any refunds relating to such tax certiorari proceedings
belonging in whole or in part to Metropolis will be paid to Metropolis after
first deducting therefrom any payments owed to tenants on account thereof or, if
such payment is made directly to Metropolis or 1290 Partners, Metropolis will
pay to Purchaser such amounts (if any) owed to tenants on account thereof within
ten days after receipt of such refund.
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
Metropolis. Upon the consummation of the merger, Holdings will issue
to each stockholder of Metropolis 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 Metropolis 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 Metropolis. In addition, its initial
officers will be the existing officers of Metropolis. Except as
otherwise described below, Holdings' operating agreement will have
similar terms to Metropolis' 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 E.
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 information
statement--prospectus and, accordingly, Holdings will
91
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 Metropolis Indemnification Obligations to Purchaser.
Metropolis has agreed to indemnify Purchaser for the breach of
certain of Metropolis' representations and warranties in the
Purchase Agreement up to the $10 million indemnification reserve.
These indemnification obligations expire on December 30, 2002 unless
claims are asserted prior to such time. Since Metropolis 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 expense reserve.
Following the expiration of the indemnification period, the
remaining proceeds of the $10 million indemnification reserve,
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 Metropolis will consist of the $10 million
indemnification reserve and the $2 million expense reserve. Other
than the $12 million reserves, 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 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 indemnification reserve
and $2 million expense reserve, 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.
Lower Tier LLC. Lower Tier is a wholly-owned subsidiary of Holdings and indirect
wholly-owned subsidiary of Metropolis. Lower Tier 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 Metropolis, and Lower Tier will cease to exist.
Conditions to the Merger
If, for any reason, the Purchase Agreement is terminated on or prior to
the effective date of the merger, the merger will not be consummated.
Accounting Treatment of Merger
92
The merger will be treated as a purchase of the Lower Tier LLC by
Metropolis for accounting purposes and accounted in a manner similar to the
pooling of interests method for entities under common control.
Appraisal Rights
Stockholders of Metropolis are entitled to appraisal rights under the
Maryland General Corporation Law (the "MGCL") in connection with the merger. A
stockholder's vote with respect to the sale transaction will have no effect on
the appraisal rights in connection with the merger under the MGCL. 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 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 Metropolis desiring to exercise
their appraisal rights.
Under the MGCL, a stockholder of Metropolis will be entitled to demand and
receive payment of the fair value of its shares of common stock from Metropolis
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 Metropolis a written objection to the merger;
(b) not vote in favor of the merger (i.e., either vote against the
merger or abstain from voting with respect to the merger); and
(c) make written demand on Metropolis, within 20 days after the Articles
of Merger relating to the 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.
Metropolis 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. Metropolis may send a written offer to each objecting stockholder to pay
for its shares at what Metropolis considers to be the fair value thereof. Within
50 days after the SDAT accepts the Articles of Merger for record, either
Metropolis 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.
Metropolis does not presently intend to file an appraisal petition and
stockholders seeking to exercise appraisal rights should not assume that
Metropolis will file such a petition or that Metropolis will initiate any
negotiations with respect to the fair value of such shares. Accordingly,
stockholders of Metropolis 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
93
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 Metropolis 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 Metropolis 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, Metropolis 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
Metropolis has appointed Continental Stock Transfer & Trust Company to act
as exchange agent in the merger. Before the merger, Metropolis 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 to
the merger.
Enclosed herein as Annex H is a form of letter of transmittal instructing
each holder of common stock to complete such form and to deliver their
respective certificates representing shares of common stock to the exchange
agent. The instructions in the letter of transmittal 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 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 information
statement--prospectus and should not be forwarded to the exchange agent until
following the effective date of the merger. We will notify you in writing the
time that the merger becomes effective and will mail to you at such time a
duplicate copy of the form of letter of transmittal enclosed herein.
94
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
Metropolis 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 Metropolis are governed by Metropolis' Amended and Restated
Certificate of Incorporation and Amended and Restated By-laws. Upon consummation
of the merger, stockholders of Metropolis will receive LLC units in exchange for
their shares of common stock and will become members of Holdings and, at the
effective time of the merger, their rights as a member of Holdings will be
determined by Holdings' certificate of formation, Limited Liability Company
Operating Agreement and the DLLCA.
The following is a summary of the material differences in the rights of
stockholders of Metropolis under its certificate of incorporation, the by-laws
and the MGCL, on the one hand, and the rights of members of Holdings under its
certificate of formation and 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,
Metropolis' certificate of incorporation and the by-laws, and Holdings'
certificate of formation and operating agreement.
Holdings is a limited liability company. As a result, Holdings'
organizational and governing documents consist of its certificate of formation
and operating agreement, instead of Metropolis' certificate of incorporation and
by-laws. In general, Holdings' operating agreement was drafted to mirror the
terms, conditions and procedures of Metropolis' certificate of incorporation and
by-laws and to provide holders of LLC units with rights similar to those of
Metropolis' stockholders. However, in certain instances and as a result of the
differences of applicable law, the rights set forth in Holdings' operating
agreement are not identical to those of Metropolis' 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:
Common Stock LLC Units
----------------------- -----------------------
95
Common Stock LLC Units
----------------------- -----------------------
Voting Rights o One vote per share o One vote per LLC
on all matters voted Unit on all matters
upon by voted upon by the
stockholders. No members. No
cumulative voting in cumulative voting in
the election of the election of
directors. Directors members of the Board
are elected by a of Managers.
plurality of the Election of managers
votes cast in the and other matters
election of submitted to members
directors. The generally require
approval of any approval by members
other routine matter holding a majority
submitted to of the outstanding
stockholders LLC units.
requires the
affirmative vote of
a majority of the
votes cast on the
matter.
Number and Composition of o Eight. The number of o Holdings' Board of
Board Members directors may be Managers immediately
changed in the following the merger
manner provided in will be comprised of
the Bylaws, but may the same eight
not be more than members of
nine. The charter Metropolis' board of
requires Metropolis directors
to have at all times immediately prior to
at least two the merger. There is
directors who are no requirement that
not affiliates of any managers be
Apollo Real Estate unaffiliated with
Investment Fund, any Apollo Real Estate
transferee of Apollo Investment Fund
Real Estate
Investment Fund or
any stockholder
holding 10% or more
of the stock of
Metropolis.
Number and Composition of o Seven. o Officers of Holdings
Officers immediately
following the merger
will be the same
officers of
Metropolis
immediately prior to
the merger.
96
Common Stock LLC Units
----------------------- -----------------------
Transfer Restrictions o Contains REIT o Until the
related restrictions liquidation of
and limitations. In Metropolis, the LLC
addition, the common units will be
stock has been subject to the REIT
registered pursuant related restrictions
to the Securities and limitations
Act, but is not currently contained
listed on any in Metropolis'
national exchange. charter.
o Following the
liquidation of
Metropolis, 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 Metropolis has o Holdings has
authority to issue authority to issue
50,000,000 shares of 50,000,000 LLC units
common stock, par of which 13,004,946
value $10.00 per LLC units will be
share, and issued to the
10,000,000 shares of stockholders of
preferred stock, par Metropolis in the
value $10.00 per merger.
share. The 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.
97
Common Stock LLC Units
----------------------- -----------------------
Limitation of Liability o Under Maryland law o Under Holdings'
and the charter, no operating agreement,
director or officer except as prohibited
shall be liable to by law, neither the
Metropolis for money managers nor their
damages, except for affiliates shall be
liability resulting liable to Holdings
from (a) actual or to any member or
receipt of an any affiliate
improper benefit or thereof for any
profit in money, losses, claims,
property or services damages, liabilities
or (b) active and or expenses asserted
deliberate against, suffered or
dishonesty incurred by any of
established by a them arising out of,
final judgment and relating to or in
which is material to connection with any
the cause of action. 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 Metropolis has the o Holdings' managers
power under its and officers will be
charter and bylaws indemnified to the
to indemnify fullest extent
directors and permitted under the
officers to the DLLCA.
fullest extent
permitted under the
MGCL.
Advance Notice Provisions o Under its bylaws, o Members are not
stockholders of subject to any
Metropolis must advance notice
comply with advance procedures for
notice procedures annual or special
relating to meetings of members.
stockholder nominees
for director or
other stockholder
proposals at annual
or special meetings
of the stockholders.
98
Common Stock LLC Units
----------------------- -----------------------
Special Meetings o Under its bylaws, o Under Holdings'
special meetings of operating agreement,
the stockholders may the president, the
be called by the chairman or 25% of
president, the the members of the
chairman of the Board of Managers
Board or the board may call special
of directors. 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 o Except as otherwise
certain required by the
extraordinary DLLCA, all matters
actions, such as a to be voted on by
merger or a the members will
dissolution of require the
Metropolis, requires affirmative vote of
the affirmative vote a majority of the
of holders of outstanding LLC
66-2/3% of the units. A majority of
outstanding shares the entire Board of
of common stock. Managers may approve
the dissolution of
Holdings without any
action by the
members.
99
Common Stock LLC Units
----------------------- -----------------------
Amendments o Amendments to o Amendments to
Metropolis' charter Holdings' operating
must be approved by agreement require
the board of the majority vote of
directors and the Board of
generally approved Managers, except for
by the affirmative amendments that
vote of holders of would (i) adversely
66-2/3% of the affect the limited
outstanding shares liability of the
of common stock. members under the
DLLCA or under
o Amendments to applicable law, or
Metropolis' bylaws (ii) cause Holdings
may generally be to cease to be
approved by the treated as a
affirmative vote of partnership for
holders of 66-2/3% federal or state
of the outstanding income tax purposes,
shares of common which will require
stock or by the the affirmative vote
board of directors. of a majority of the
Amendments to outstanding LLC
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 o Metropolis elected o There are no
Interested Stockholder not to be governed restrictions
by Section 3-602 of contained in
the MGCL, which Holdings' operating
would otherwise agreement
provide certain prohibiting Holdings
restrictions on from engaging in any
Metropolis entering business combination
into any Business with any interested
Combination with any member and Holdings
Interested is not prohibited by
Stockholder (as such law from engaging in
terms are defined in such transactions.
the MGCL).
o Under Metropolis'
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.
100
Common Stock LLC Units
----------------------- -----------------------
Federal Income Tax o Metropolis is o Holdings is treated
Classification treated as a REIT as a partnership and
and its stockholders its members are
are generally taxed on their
subject to tax upon distributive share
receipt of dividend of Holdings' capital
distributions. gain net of ordinary
income and
deductions and
credits, without
regard to whether
such members receive
any distributions.
Distributions and Dividends o Required to o Holdings will not be
distribute 90% of a REIT. Accordingly,
taxable income to Holdings' managers
stockholders in will determine,
order to maintain subject to the
status as a REIT. requirements of the
DLLCA, when and on
o Distributions must what terms to make
be authorized by the any distributions;
board of directors provided that no
in accordance with portion of the $10
the requirements of million
the MGCL. indemnification
reserve and $2
million expense
reserve 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 Metropolis to be
the beneficial owner of more than 5% of any class of Metropolis' voting
securities, and as to those shares of Metropolis' 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 the date of this 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%
TCW Asset Management Company (2) 2,254,341 17.3%
Oaktree Capital Management, LLC (3) 1,917,463 14.7%
The Goldman Sachs Group, Inc. (4) 1,127,021 8.7%
WSB Realty, L.L.C. (5) 1,122,421 8.6%
Goldman, Sachs & Co. (5) 1,122,421 8.6%
Whitehall Street Real Estate Limited Partnership V( 5) 1,122,421 8.6%
WH Advisors, L.L.C. V (5) 1,122,421 8.6%
Angelo, Gordon & Co., L.P. (6) 1,094,143 8.4%
101
John M. Angelo (6) 1,094,143 8.4%
Michael L. Gordon (6) 1,094,143 8.4%
Intermarket Corp. (7) 931,000 7.2%
Directors and Executive Officers
William L. Mack (8) 4,940,660 38.0%
Lee S. Neibart (9) 4,940,660 38.0%
John R.S. Jacobsson (10) 4,940,660 38.0%
Bruce H. Spector (11) 4,940,660 38.0%
John R. Klopp (12) 24,600 *
Russel S. Bernard (13) 1,917,463 14.7%
David A. Strumwasser (14) 294,103 2.3%
David Roberts (15) 0 *
---------
Directors and Executive Officers as a group (9 persons) (16) 7,190,626 55.3%
=========
- ---------------------
* 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. Apollo Real Estate Advisors is the
managing general partner of Apollo Real Estate Investment Fund and a joint
reporting person with respect to beneficial ownership of these shares of
common stock according to Apollo Real Estate Investment Fund's Schedule
13G filed with the Commission on February 13, 1998. Apollo Real Estate
Investment Fund is located at Two Manhattanville Road, Purchase, New York
10577.
(2) Includes 1,586,814 shares as to which voting and dispositive power is
shared with Oaktree Capital Management, LLC 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. The TCW Group, Inc. is the parent
company of TCW Asset Management Company. 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; TCW
Asset Management Company is the managing general partner of TCW Special
Credits. 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., TCW Asset Management
Company, and Robert Day hereby disclaim beneficial ownership of such
shares. The TCW Group, Inc. and TCW Asset Management Company are located
at 865 South Figueroa Street, Suite 1800, Los Angeles, CA 90017.
(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
(176,049 shares); and (ii) Cede & Co., 55 Water Street, New York, New York
10041 (150,000 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. Oaktree is located at 333
South Grand Avenue, 28th Floor, Los Angeles, California 90071.
(4) According to Amendment No. 3 to the Schedule 13G filed by The Goldman
Sachs Group, Inc. with the Commission on February 13, 2001, includes
1,122,421 shares with respect to which voting and dispositive power is
shared with (i) Goldman, Sachs & Co., (ii) WSB Realty, L.L.C., (iii)
Whitehall Street Real Estate Limited Partnership V and (iv) WH Advisors,
L.L.C. V. The Goldman Sachs Group, Inc. is located at 85 Broad Street, New
York, NY 10004.
102
(5) Does not include 4,600 shares owned by The Goldman Sachs Group, Inc.
According to Amendment No. 3 to the Schedule 13G filed by The Goldman
Sachs Group, Inc. with the Commission on February 13, 2001, voting and
dispositive power with respect to these shares is held among: (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. Each of these entities is located at 85 Broad Street,
New York, New York 10004.
(6) The address of Angelo, Gordon & Co., L.P., John M. Angelo and Michael L.
Gordon is 245 Park Avenue, New York, NY 10167. According to Amendment No.
3 to the Schedule 13G filed by Angelo, Gordon with the Commission on
February 8, 2002, these 1,094,143 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.
(7) Intermarket Corp.'s address is 667 Madison Avenue, New York, NY 10021.
(8) Includes 4,936,060 shares owned by Apollo Real Estate Investment Fund. Mr.
Mack is the managing partner of Apollo Real Estate Advisors, the general
partner of Apollo Real Estate Investment Fund, and the President of Apollo
Real Estate Advisors' corporate general partner. 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 Metropolis'
stock plan. Mr. Mack disclaims beneficial ownership of the shares of
common stock owned by Apollo Real Estate Investment Fund.
(9) Includes 4,936,060 shares owned by Apollo Real Estate Investment Fund. Mr.
Neibart is a partner of Apollo Real Estate Advisors. 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
Metropolis' stock plan. Mr. Neibart disclaims beneficial ownership of the
shares of common stock owned by Apollo Real Estate Investment Fund.
(10) Includes 4,936,060 shares owned by Apollo Real Estate Investment Fund. Mr.
Jacobsson is a partner of Apollo Real Estate Advisors. 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 Metropolis' stock plan. Mr. Jacobsson disclaims
beneficial ownership of the shares of common stock owned by Apollo Real
Estate Investment Fund.
(11) Includes 4,936,060 shares owned by Apollo Real Estate Investment Fund. Mr.
Spector is a partner of Apollo Real Estate Advisors. 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
Metropolis' stock plan. Mr. Spector disclaims beneficial ownership of the
shares of common stock owned by Apollo Real Estate Investment Fund.
(12) 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 Metropolis' stock plan.
(13) Includes 1,912,863 shares owned by (i) funds and accounts managed by
Oaktree, and (ii) limited partnerships of which Oaktree serves as a
general partner. Includes 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 Metropolis' stock plan, all of which
shares were transferred by Mr. Bernard to Oaktree. 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, the
shares of common stock owned by limited partnerships of which Oaktree
serves as a general partner, and the shares of common stock owned directly
by Oaktree.
103
(14) Includes 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. Includes 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 Metropolis' stock plan, all of which shares were
transferred by Mr. Strumwasser to Whippoorwill pursuant to the terms of
his employment with Whippoorwill. Mr. Strumwasser is a Principal, Managing
Director and General Counsel of Whippoorwill. Mr. Strumwasser disclaims
beneficial ownership of the shares of common stock owned by discretionary
accounts or trusts managed by Whippoorwill, the shares of common stock
owned by limited partnerships of which Whippoorwill serves as general
partner, and the shares of common stock owned by Whippoorwill directly as
set forth above.
(15) 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 Metropolis' stock plan, all of which shares were transferred by Mr.
Roberts to Angelo, Gordon pursuant to the terms of his employment with
Angelo, Gordon. Mr. Roberts is a Managing Director of Angelo, Gordon. Mr.
Roberts disclaims beneficial ownership of the shares of common stock owned
by Angelo, Gordon.
(16) See notes 8 through 15 above with respect to the nature of the ownership
of Directors and Executive Officers as a group, including disclaimers of
beneficial ownership described therein.
INCORPORATION BY REFERENCE
The Commission allows us to incorporate by reference information into this
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 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 Metropolis with the Commission
(File No. 0-21849) under the Exchange Act are incorporated herein by reference:
o Annual Report on Form 10-K/A 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 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 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
information statement--prospectus. All information appearing in this 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.
104
All documents and reports filed by us pursuant to Section 13 or 15(d) of
the Exchange Act, after the date of this information statement--prospectus and
until the date of the special meeting, shall also be deemed to be incorporated
by reference into this 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 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 information
statement--prospectus modifies or supersedes such statement.
This information statement--prospectus incorporates important business and
financial information about us that is not included or being delivered with this
information statement--prospectus. Upon the written or oral request of any
beneficial owner of the common stock, we 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 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.
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, and that for federal income tax purposes, Lower Tier will be disregarded
and that the merger of Lower Tier into Metropolis should be treated as a
contribution by Metropolis stockholders of their common stock to Holdings in
exchange for LLC units, will each be passed upon by Akin, Gump, Strauss, Hauer &
Feld, L.L.P.
EXPERTS
The consolidated financial statements of Metropolis and its subsidiaries
incorporated or included in this information statement - prospectus from
Metropolis' Annual Report on Form 10-K/A 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 balance sheet of Holdings at May 6, 2002 included in this 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.
105
COST OF INFORMATION STATEMENT--PROSPECTUS
This information statement--prospectus has been prepared by Metropolis and
its board of directors. Metropolis will bear the costs of distributing this
information statement--prospectus to stockholders, including the expense of
preparing assembling, printing and mailing the information
statement--prospectus. Although there is no formal agreement to do so,
Metropolis may reimburse banks, brokerage houses and other custodians, nominees
and fiduciaries for their reasonable expenses in forwarding this information
statement--prospectus and related materials to stockholders. Metropolis may pay
for and use the services of other individuals or companies not regularly
employed by Metropolis in connection with the distribution of this information
statement--prospectus if the board of directors of Metropolis determines that
this is advisable.
By Order of the Board of Directors,
----------------------------------------
John R.S. Jacobsson
Secretary
New York, New York
July __, 2002
106
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.
Metropolis' 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 Metropolis for money damages. Metropolis
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 Metropolis: (a) present or former managers of Metropolis; (b) present or
former officers of Metropolis; (c) present or former agents and/or employees of
Metropolis; and (d) persons serving or who have served at the request of
Metropolis 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., Metropolis Realty Lower Tier LLC 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, L.L.P.
8.1 Tax opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
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, L.L.P. (included in Exhibits 5.1 and 8.1)
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of Houlihan, Lokey, Howard & Zukin Financial Advisors, Inc.
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 Maryland General Corporation Law
1
99.3 Metropolis Realty Trust, Inc. Financial Statements
99.4 Amended and Restated Agreement of Limited Partnership of Jamestown 1290, L.P., dated
as of May 16, 2002
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
Metropolis being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
2
SIGNATURES
Pursuant to the requirements of the Securities Act, Holdings has duly
caused this amendment no. 1 to 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 July 18, 2002.
METROPOLIS REALTY HOLDINGS LLC
By: /s/ Lee S. Neibart
-------------------------------------
Name: Lee S. Neibart
Title: President
3
Pursuant to the requirements of the Securities Act of 1933, this amendment
no. 1 to registration statement has been signed by the following persons in the
capacities indicated on July 18, 2002.
Signature Title
--------- -----
*
- -----------------------------
William L. Mack Chairman of the Board of Managers and Manager
/s/ Lee S. Neibart
- -----------------------------
Lee S. Neibart President and Manager
*
- -----------------------------
Bruce H. Spector Manager
*
- -----------------------------
John R.S. Jacobsson Vice President, Secretary and Manager
*
- -----------------------------
John R. Klopp Vice President and Manager
*
- -----------------------------
Russel S. Bernard Manager
*
- -----------------------------
David A. Strumwasser Manager
*
- -----------------------------
David Roberts Manager
*
- -----------------------------
Stuart Koenig Treasurer
*By: /s/ Lee S. Neibart
-------------------------
Lee S. Neibart
Attorney-in-Fact
*By: /s/ Russel S. Bernard
-------------------------
Russel S. Bernard
Attorney-in-Fact
1
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., Metropolis Realty Lower Tier LLC 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, L.L.P.
8.1 Tax opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
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, L.L.P. (included in Exhibits 5.1 and
8.1)
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of Houlihan, Lokey, Howard & Zukin Financial Advisors, Inc.
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 Maryland General Corporation Law
99.3 Metropolis Realty Trust, Inc. Financial Statements
99.4 Amended and Restated Agreement of Limited Partnership of Jamestown 1290, L.P., dated
as of May 16, 2002
99.5 Letter of Transmittal
2