As filed with the Securities and Exchange Commission on July 16, 2001
Registration Statement No. 333-62434
==================================================================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
Amendment No. 1
to
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SL GREEN REALTY CORP.
(Exact name of each registrant as specified in its charter)
Maryland 13-3956775
(State or other jurisdiction of incorporation or organization) (I.R.S. employer identification number)
------------------------
420 Lexington Avenue
New York, New York 10170
(212) 594-2700
(Address, including zip code, and telephone number, including area code, of each registrant's principal executive office)
------------------------
Stephen L. Green
Chairman and Chief Executive Officer
420 Lexington Avenue
New York, New York 10170
(212) 594-2700
(Name, address, including zip code, and telephone number, including area code, of agent for service)
------------------------
Copy to:
Edward F. Petrosky, Esq.
James O'Connor, Esq
Sidley Austin Brown & Wood LLP
One World Trade Center
New York, New York 10048
(213) 839-5300
------------------------
Approximate date of commencement of proposed sale to public: From time to time after this Registration Statement becomes
effective.
If the only securities being registered on this form are being offered pursuant to dividend or interest reinvestment
plans, please check the following box./X/
If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, as amended, other than securities offered only in connection with dividend or
interest reinvestment plans, please check the following box./X/
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act
of 1933, please check the following box and list the Securities Act of 1933 registration statement number of the earlier
effective registration statement for the same offering./ /
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act of 1933, check the
following box and list the Securities Act of 1933 registration statement number of the earlier effective registration
statement for the same offering./ /
If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box./X/
------------------------
CALCULATION OF REGISTRATION FEE
=================================================================================================================================
Proposed Maximum Proposed Maximum
Title of Class of Amount to be Aggregate Price per Aggregate Offering Amount of
Securities to be Registered Registered Share (1) Price (1) Registration Fee (2)
---------------------------------------------------------------------------------------------------------------------------------
Shares of Common Stock, $.01 par
value per share (2) ................. 284,787 $28.18 $8,025,297 $2,006(3)
=================================================================================================================================
(1) Estimated solely for purposes of calculating the registration fee.
(2) Pursuant to Rule 457(c) of the rules and regulations under the Securities Act of 1933, as amended, the registration fee
is calculated based on the average of the high and low sale prices of SL Green Realty Corp.'s common stock on the New
York Stock Exchange for June 1, 2001
(3) Previously paid.
------------------------
The Registrant hereby amends this Registration Statement on the date or dates as may be necessary to delay its
effective date until the Registrant shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective with Section 8(a) of the Securities Act of 1933 or until this Registration
Statement shall become effective on the date as the Commission, acting pursuant to said Section 8(a), may determine.
==============================================================================
The information contained in this 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
prospectus is not an offer to sell these securities and it is not soliciting
an offer to buy these securities in any State where the offer or sale is not
permitted.
SUBJECT TO COMPLETION,
PRELIMINARY PROSPECTUS DATED JULY 16, 2001
PROSPECTUS
284,787 Shares
SL GREEN
REALTY CORP.
Common Stock
--------------
This Prospectus relates to:
o the offer and sale from time to time by a selling shareholder of up to
44,772 shares of our common stock issued to that shareholder in exchange
for units of limited partnership interest in SL Green Operating
Partnership, L.P. and
o the offer and sale from time to time by certain shareholders of up to
240,015 shares of our common stock which may be offered from time to time
by the selling shareholders named in this prospectus.
The registration of the shares does not necessarily mean that any of the
unitholders will redeem their units or that any of the shares will be offered
or sold by any of the selling shareholders. We will receive no proceeds of any
sales of the shares, but will incur expenses in connection with the offering.
See "Selling Shareholders" and "Plan of Distribution"
We will acquire units from the redeeming unitholders in exchange for
shares of common stock that we issue. Upon any redemption, we may elect to pay
cash for the units tendered rather than common shares.
Our common stock is listed on the New York Stock Exchange under the
symbol SLG.
The selling shareholders from time to time may offer and sell the shares
held by them directly or through agents or broker-dealers on terms to be
determined at the time of sale. To the extent required, the names of any agent
or broker-dealer and applicable commissions or discounts and any other
required information with respect to any particular offer will be set forth in
the section of this prospectus entitled "Plan of Distribution" or in an
accompanying prospectus supplement. Each of the selling shareholders reserves
the sole right to accept or reject, in whole or in part, any proposed purchase
of the shares to be made directly or through agents.
See "Risk Factors" beginning on page 2 of this prospectus for a
description of factors that should be considered by purchasers of the
securities.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy of this prospectus. Any representation to the contrary is a criminal
offence.
July __, 2001
TABLE OF CONTENTS
Page
----
INFORMATION ABOUT SL GREEN........................................................................................1
RISK FACTORS......................................................................................................2
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE...................................................................8
NO PROCEEDS TO SL GREEN...........................................................................................8
SELLING SHAREHOLDERS..............................................................................................9
DESCRIPTION OF COMMON STOCK.......................................................................................9
RESTRICTIONS ON OWNERSHIP OF CAPITAL STOCK.......................................................................11
MATERIAL FEDERAL INCOME TAX CONSEQUENCES.........................................................................12
PLAN OF DISTRIBUTION.............................................................................................22
LEGAL MATTERS....................................................................................................23
EXPERTS..........................................................................................................23
WHERE YOU CAN FIND MORE INFORMATION..............................................................................23
i
INFORMATION ABOUT SL GREEN
SL Green is a self managed real estate investment trust, which we refer
to as a REIT, with in-house capabilities in property management, development,
construction and acquisitions. We are the first such REIT to own, manage,
lease, acquire and reposition only Class B office properties in Manhattan. We
own all of our assets and conduct substantially all of our business through
our operating partnership, SL Green Operating Partnership, L.P. We are the
managing general partner of the operating partnership and as of March 31,
2001, we owned 91.5% of the outstanding partnership interests in the operating
partnership.
The term "Class B" is generally used in the Manhattan office market to
describe office properties which are more than 25 years old but are in good
physical condition, enjoy widespread acceptance by high-quality tenants and
are situated in desirable locations in Manhattan. Class B office properties
can be distinguished from Class A properties in that Class A properties are
generally newer properties with higher finishes and obtain the highest rental
rates within their markets.
As of March 31, 2001, our wholly owned portfolio consisted of 20 Class B
commercial properties encompassing approximately 7.8 million rentable square
feet located primarily in midtown Manhattan, a borough of New York City
("Manhattan") (the "Properties") and one triple-net leased property located in
Shelton, Connecticut. As of March 31, 2001, the weighted average occupancy
(total occupied square feet divided by total available square feet) of the
Properties was 99%. Our portfolio also includes ownership interests in
unconsolidated joint ventures, which own five Class B commercial properties in
Manhattan, encompassing approximately 2.2 million rentable square feet (97%
occupied as of March 31, 2001). In addition, we continue to manage four office
properties owned by third-parties and affiliated companies encompassing
approximately 1.0 million rentable square feet.
A variety of tenants who do not require or desire or who cannot afford
Class A space are attracted to Class B office properties due to their prime
locations, excellent amenities, distinguished architecture and relatively less
expensive rental rates. Class B office space has historically attracted many
smaller growth-oriented firms and has played a critical role in satisfying the
space requirements of particular industry groups in Manhattan, such as the
advertising, apparel, business services, engineering, not-for-profit, "new
media" and publishing industries. By way of example, some of the tenants that
currently occupy space in our properties include The City of New York, BMW of
Manhattan, Inc., Metro North, New York Life Insurance Company, St. Luke's
Roosevelt Hospital, CBS, Inc., Parade Publications, Dow Jones, Crain
Communications, Ann Taylor, Escada, Cowles Business Media, Kallir, Philips,
Ross Inc., MCI International, New York Presbyterian Hospital, Ross Stores,
UNICEF, Gibbs & Co Inc. and Young Rubicam, Inc.
Our management team has developed a comprehensive knowledge of the
Manhattan Class B office market, an extensive network of tenant and other
business relationships and experience in acquiring underperforming office
properties and repositioning them into profitable Class B properties through
intensive full-service management and leasing efforts.
We were incorporated in the State of Maryland on June 10, 1997. Our
executive offices are located at 420 Lexington Avenue, New York, New York
10170 and our telephone number is (212) 594-2700. We also maintain a Web site
at www.slgreen.com.
1
RISK FACTORS
An investment in the shares of SL Green involves various risks.
o Future declines in the demand for office space in midtown
Manhattan could adversely affect our results of operations and, consequently,
our ability to make distributions to shareholders.
Most of our office properties are located in midtown Manhattan. As a
result, our business is largely dependent on the condition of the New York
City economy in general and the market for office space in midtown Manhattan,
in particular. The New York City economy may not continue to grow. The market
for office space in midtown Manhattan has experienced downturns, most recently
in the late 1980's and the early 1990's. A similar downturn could result in a
reduction of our revenue and thus adversely affect our ability to make
distributions to shareholders.
We may be unable to renew leases or relet space as leases expire. When
our tenants decide not to renew their leases upon their expiration, we may not
be able to relet the space. Even if tenants do renew or we can relet the
space, the terms of renewal or reletting, including the cost of required
renovations, may be less favorable than current lease terms. Over the next
five years, through the end of 2005, leases will expire on approximately 37.5%
and 36.1% of the rentable square feet at our wholly owned and joint venture
properties, respectively. As of March 31, 2001, approximately 2.9 million and
0.8 million square feet are scheduled to expire by December 31, 2005 at our
wholly owned and joint venture properties, respectively and these leases
currently have annualized escalated rental income totaling $85.8 million and
$20.6 million, respectively. If we are unable to promptly renew the leases or
relet this space at similar rates, our cash flow and ability to service debt
and make distributions to shareholders would be adversely affected.
The expiration of long term leases or operating sublease interests could
adversely affect our results of operation. Our interest in four of our
properties is through either long-term leasehold or operating sublease
interests in the land and the improvements, rather than by a fee interest in
the land. Unless we can purchase a fee interest in the underlying land or
extend the terms of these leases before their expiration, we will lose our
right to operate these properties and our interest in the improvements upon
expiration of the leases. These properties are 673 First Avenue, 420 Lexington
Avenue, 711 Third Avenue and 1140 Avenue of the Americas. The average term of
these long term leases, including our unilateral extension rights on two of
the properties, is 48 years. Pursuant to the operating sublease arrangements,
we, as tenant under the operating sublease, perform the functions
traditionally performed by landlords with respect to our subtenants. We are
responsible for not only collecting rent from our subtenants, but also
maintaining the property and paying expenses relating to the property. The
annualized escalated rents of these properties at March 31, 2001 totaled $74.4
million or 34.4% of SL Green's total annualized revenue.
Reliance on major tenants could adversely affect our results of
operations. Giving effect to signed leases in effect as of March 31, 2001 for
wholly owned properties as of that date, the five largest tenants, based on
annualized rent, accounted for approximately 10.2% of our total annualized
rental revenues and no one tenant accounted for more than 2.5% of that total.
Our business would be adversely affected if any of these tenants became
insolvent, declared bankruptcy or otherwise refused to pay rent in a timely
fashion or at all.
o Our dependence on smaller and growth-oriented businesses to rent class
b office space could adversely affect our cash flow.
Many of the tenants in our wholly owned properties are smaller,
growth-oriented businesses that may not have the financial strength of larger
corporate tenants. Smaller companies generally experience a higher rate of
failure than large businesses. Growth-oriented firms may seek other office
space, including Class A space, as they develop. Dependence on these companies
could create a higher risk of tenant defaults, turnover and bankruptcies,
which could adversely affect our distributable cash flow.
2
o Debt financing, financial covenants, degree of leverage, and increases
in interest rates could adversely affect our economic performance.
Scheduled debt payments could adversely affect our results of operation.
The total principal amount of our outstanding consolidated indebtedness was
$740.5 million as of March 31, 2001, $44.9 million of which was borrowings
under our secured credit facility, $167 million under our unsecured credit
facility and $528.6 million of which was non-recourse mortgage loans on 11 of
our properties. Cash flow could be insufficient to pay distributions at
expected levels and meet the payments of principal and interest required under
our current mortgage indebtedness and our credit facilities. Our secured
credit facility matures on December 22, 2001. Our unsecured credit facility
matures on June 27, 2003. The total principal amount of indebtedness
outstanding at the joint venture properties was $274.6 million, of which our
share was $128.4 million.
If we are unable to make payments under our secured or unsecured credit
facilities, all amounts due and owing at such time shall accrue interest at a
rate equal to 5% and 4%, respectively, higher than the rate at which each such
loan was made. If a property is mortgaged to secure payment of indebtedness
and we are unable to meet mortgage payments, the mortgagee could foreclose on
the property, resulting in loss of income and asset value. Foreclosure on
mortgaged properties or an inability to make scheduled payments under the
credit facility would likely have a negative impact on our financial condition
and results of operations.
We may not be able to refinance existing indebtedness, which in virtually
all cases requires substantial principal payments at maturity. In December
2003, $11.3 million of debt on one of our wholly owned buildings will have
matured and in 2004, $229 million of debt on other of our wholly owned
buildings will have matured. In 2002, $64.6 million, and in 2003, $58.0
million of debt on three of our joint venture properties will have matured. At
the present time we intend to refinance the debt associated with these
properties on or prior to their respective maturity dates. If any principal
payments due at maturity cannot be refinanced, extended or paid with proceeds
of other capital transactions, such as new equity capital, our cash flow will
not be sufficient in all years to repay all maturing debt. At the time of
refinancing, prevailing interest rates or other factors such as the possible
reluctance of lenders to make commercial real estate loans, may result in
higher interest rates. Increased interest expense on the refinanced debt would
adversely affect cash flow and our ability to service debt and make
distributions to shareholders.
Financial covenants could adversely affect our ability to conduct our
business. The mortgages on our properties contain negative covenants which
limit our ability to further mortgage the property, to enter into new leases
or materially modify existing leases, and to discontinue insurance coverage.
In addition, our secured and unsecured credit facilities contain restrictions
and requirements on our method of operations. Our secured and unsecured credit
facilities also have requirements that designate total debt to assets ratios,
debt service coverage ratios and minimum ratios of unencumbered assets to
unsecured debt are maintained. Restrictions on our ability to conduct business
could adversely affect our results of operations and our ability to make
distributions to shareholders.
Rising interest rates could adversely affect our cash flow. Advances
under our secured and unsecured credit facilities and certain property-level
mortgage debt will bear interest at a variable rate. These variable rate
borrowings totaled $361.9 million at March 31, 2001. Borrowings under our
unsecured credit facility bear interest at a spread equal to the London
Interbank Offered Rate ("LIBOR") plus from 137.5 basis points to 175 basis
points, depending on our leverage ratio. Borrowings under our secured credit
facility bear interest at a spread equal to the LIBOR plus 125 basis points.
As of March 31, 2001 borrowings under the secured and unsecured facilities
totaled $167.0 and $44.9 million and bore interest at 7.00% and 7.19%,
respectively. Additionally, certain advances under property-level mortgage
debt ($150.0 million) bear interest at a variable rate. We may incur
indebtedness in the future that also bears interest at a variable rate or may
be required to refinance our debt at higher rates. Accordingly, increases in
interest rates above that which we anticipated based upon historical trends
could adversely affect our ability to continue to make distributions to
shareholders. At March 31, 2001, a hypothetical 100 basis point adverse move
(increase) in interest rates along the entire interest rate curve would
adversely effect our interest costs by approximately $4.0 million annually.
3
Our policy of no limitation on debt could adversely affect our cash flow.
Our organizational documents do not contain any limitation on the amount of
indebtedness we may incur. As of March 31, 2001, assuming the conversion of
all outstanding units of the operating partnership into shares of our common
stock, our debt to market capitalization ratio, excluding our share of joint
venture debt of $128.4 million, was approximately 46%. However, our policy is
to incur debt only if upon this incurrence our debt to market capitalization
ratio would be 55% or less. Our board of directors can alter or eliminate this
policy and would do so if our board of directors determines that this action
is in the best interests of our business. If this policy is changed and we
become more highly leveraged, an increase in debt service that could adversely
affect cash available for distribution to shareholders and could increase the
risk of default on our indebtedness. In addition, any change that increases
our debt to market capitalization percentage could be viewed negatively by
investors. As a result, our share price could decrease.
We have established our debt policy relative to the total market
capitalization of our business rather than relative to the book value of our
assets. We use total market capitalization because we believe that the book
value of our assets, which to a large extent is the depreciated original cost
of our properties, our primary tangible assets, does not accurately reflect
our ability to borrow and to meet debt service requirements. Our market
capitalization, however, is more variable than book value, and does not
necessarily reflect the fair market value of our assets at all times. We also
will consider factors other than market capitalization in making decisions
regarding the incurrence of indebtedness, such as the purchase price of
properties to be acquired with debt financing, the estimated market value of
our properties upon refinancing and the ability of particular properties and
our business as a whole to generate cash flow to cover expected debt service.
Investments in mortgage loans could cause expenses which could adversely
affect our results of operations. We own mortgage interests in three
properties with an aggregate book value of $93.0 million at March 31, 2001. To
the extent we invest in mortgage loans and preferred equity, such investments
may or may not be recourse obligations of the borrower and generally will not
be insured or guaranteed by governmental agencies or otherwise. In the event
of a default under these obligations, we may have to foreclose our mortgages
or protect our investments by acquiring title to a property and thereafter
making substantial improvements or repairs in order to maximize the property's
investment potential. Borrowers may contest enforcement of foreclosure or
other remedies, seek bankruptcy protection against such enforcement and/or
bring claims for lender liability in response to actions to enforce mortgage
obligations. Relatively high loan-to-value ratios and declines in the value of
the property may prevent us from realizing an amount equal to its mortgage
loan upon foreclosure.
Joint investments could be adversely affected by our lack of sole
decision-making authority and reliance upon a co-venturer's financial
condition. We co-invest with third parties through partnerships, joint
ventures, co-tenancies or other entities, acquiring non-controlling interests
in, or sharing responsibility for managing the affairs of, a property,
partnership, joint venture, co-tenancy or other entity. Therefore, we will not
be in a position to exercise sole decision-making authority regarding that
property, partnership, joint venture or other entity. Investments in
partnerships, joint ventures, or other entities may involve risks not present
were a third party not involved, including the possibility that our partners,
co-tenants or co-venturers might become bankrupt or otherwise fail to fund
their share of required capital contributions. Additionally, our partners or
co-venturers might at any time have economic or other business interests or
goals which are inconsistent with our business interests or goals. These
investments may also have the potential risk of impasses on decisions such as
a sale, because neither we nor the partner, co-tenant or co-venturer would
have full control over the partnership or joint venture. Consequently, actions
by such partner, co-tenant or co-venturer might result in subjecting
properties owned by the partnership or joint venture to additional risk. In
addition, we may in specific circumstances be liable for the actions of our
third-party partners, co-tenants or co-venturers. As of March 31, 2001, SL
Green was participating in five unconsolidated joint ventures encompassing
five properties and had an aggregate cost basis in the joint ventures totaling
$72.7 million.
o Our shareholders' ability to effect changes in control of SL Green is
limited.
Provisions of our articles of incorporation and bylaws could inhibit
changes in control. A change of control of SL Green could benefit shareholders
by providing them with a premium over the then-prevailing market price of the
stock. However provisions contained in our articles of incorporation and
bylaws may delay or prevent a change in control of SL Green. These provisions,
discussed more fully below, are:
4
o staggered board of directors;
o ownership limitations for tax purposes;
o the board of directors ability to issue additional common stock and
preferred stock without shareholder approval; and
o shareholder rights plan.
o Our board of directors is staggered into three separate classes. The
board of directors of SL Green is divided into three classes. The terms of the
class I, class II and class III directors expire in 2004, 2002 and 2003,
respectively. Our classified board may deter changes in control because of the
increased time period necessary for a third party to acquire control of the
board.
o We have a share ownership limit for REIT tax purposes. To remain
qualified as a REIT for federal income tax purposes, not more than 50% in
value of our outstanding capital stock may be owned by five or fewer
individuals at any time during the last half of any year. For this purpose,
stock may be "owned" directly, as well as indirectly under certain
constructive ownership rules, including, for example, rules that attribute
stock held by one family member to another family member. To avoid violating
this rule regarding share ownership limitations and maintain our REIT
qualification, our articles of incorporation prohibit ownership by any single
shareholder of more than 9.0% in value or number of shares of any class or
series of our stock.
The board of directors has the discretion to raise or waive this
limitation on ownership for any shareholder if deemed to be in our best
interest. To obtain a waiver, a shareholder must present the board and our tax
counsel with evidence that ownership in excess of this limit will not affect
our present or future REIT status.
Absent any exemption or waiver, stock acquired or held in excess of the
limit on ownership will be transferred to a trust for the exclusive benefit of
a designated charitable beneficiary, and the shareholder's rights to
distributions and to vote would terminate. The shareholder would be entitled
to receive, from the proceeds of any subsequent sale of the shares transferred
to the charitable trust, the lesser of: the price paid for the stock or, if
the owner did not pay for the stock, the market price of the stock on the date
of the event causing the stock to be transferred to the charitable trust; and
the amount realized from the sale.
This limitation on ownership of stock could delay or prevent a change in
control.
o Future issuances of common stock and preferred stock could dilute
existing shareholders' interests. Our articles of incorporation authorize our
board of directors to issue additional shares of common stock and preferred
stock without shareholder approval. This issuance could dilute our existing
shareholders' interests. Also, any future series of preferred stock may have
voting provisions that could delay or prevent a change of control.
o We have a shareholder rights plans.
We adopted a shareholder rights plan which provides, among other things,
that when specified events occur, our shareholders will be entitled to
purchase from us a newly created series of junior preferred shares, subject to
our ownership limit described below. The preferred share purchase rights are
triggered by the earlier to occur of (1) ten days after the date of a public
announcement that a person or group acting in concert has acquired, or
obtained the right to acquire, beneficial ownership of 17% or more of our
outstanding shares of common stock or (2) ten business days after the
commencement of or announcement of an intention to make a tender offer or
exchange offer, the consummation of which would result in the acquiring person
becoming the beneficial owner of 17% or more of our outstanding common stock.
The preferred share purchase rights would cause substantial dilution to a
person or group that attempts to acquire us on terms not approved by our board
of directors.
5
o There are potential conflicts of interest between us and Messrs. Green
and Feldman.
There is a potential conflict of interest relating to the disposition of
the property contributed to us by Stephen L. Green, and his family and
Benjamin P. Feldman. Both Mr. Green and Mr. Feldman serve as members of the
board of directors and Mr. Green is the Chief Executive Officer. As part of
our formation, these individuals contributed appreciated property, with a net
book value of $73.4 million, to the operating partnership in exchange for
units of interest in the operating partnership. They did not recognize any
taxable gain as a result of the contribution. The operating partnership,
however, took a tax basis in the contributed property equal to that of the
contributing unitholder. The fair market value of the property contributed by
these individuals exceeded its tax basis by approximately $34.0 million at the
time of contribution. The difference between fair market value and tax basis
at the time of contribution represents a built-in gain. If we sell a property
in a transaction in which a taxable gain is recognized, for tax purposes the
built-in gain would be allocated solely to those individuals but not to us. As
a result, Messrs. Green and Feldman have a conflict of interest if the sale of
a property which they contributed is in our best interest but not theirs.
There is a potential conflict of interest relating to the refinancing of
indebtedness allocated to Messrs. Green and Feldman. These individuals would
recognize gain if they were to receive a distribution of cash from the
operating partnership in an amount that exceeds their tax basis in their
respective partnership units. Their tax basis includes their share of debt,
including mortgage indebtedness, owed by the operating partnership. If the
operating partnership were to retire such debt, then these individuals would
experience a decrease in their share of liabilities which, for tax purposes,
would be treated as a distribution of cash to them. To the extent the deemed
distribution of cash exceeded their tax basis, they would recognize gain.
o Limitations on ability to sell or reduce the indebtedness on specific
mortgaged properties could adversely affect the value of the stock.
We have agreed to restrictions relating to future transactions involving
673 First Avenue and 470 Park Avenue South. During the period of time that
these restrictions apply, our ability to manage or use these properties in a
manner that is in our overall best interests may be impaired. In particular,
these restrictions could preclude us from participating in major transactions
otherwise favorable to us if a disposition of these restricted assets is
required. These restrictions may also inhibit a change in control of SL Green
even though a disposition or change in control might be in the best interests
of the shareholders.
Specifically, we have agreed not to sell our interest in these properties
until August 20, 2009 without the approval of unit holders holding at least
75% of the units issued in consideration for these properties. The current
carrying value of the commercial real estate totaled $81.9 million at March
31, 2001. We have also agreed not to reduce the mortgage indebtedness ($20.9
million at March 31, 2001), other than pursuant to scheduled amortization, on
either property until one year prior to their respective maturity dates
without the same consent. In addition, we are obligated to use commercially
reasonable efforts to refinance these mortgages prior to their respective
maturity dates in amounts not less than the principal amount outstanding on
the maturity date. With respect to 673 First Avenue, Stephen Green controls at
least 75% of the units whose approval is necessary. With respect to 470 Park
Avenue South, Stephen Green controls at least 65% of the units whose approval
is necessary. Finally, during this period, we may not incur debt secured by
any of these properties if the amount of our new debt would exceed the greater
of 75% of the value of the property securing the debt or the amount of
existing debt being refinanced plus associated costs. The maturity date for
the mortgage loan for 673 First Avenue is December 12, 2003 and the maturity
date for the mortgage loan for 470 Park Avenue South is April 1, 2004.
In connection with future acquisitions of interests in properties, we may
agree to similar restrictions on our ability to sell or refinance the acquired
properties with similar potential adverse consequences.
Members of Management may have a conflict of interest over whether to
enforce terms of agreements with entities in which senior management, directly
or indirectly, has an interest. Two entities owned by one of Mr. Green's sons,
First Quality Maintenance, L.P. and Classic Security LLC, currently provide
cleaning and security services to all of our office properties, with the
exception of cleaning services at one property. SL Green and our
6
tenants account for approximately 37.5% of First Quality Maintenance, L.P.'s
2000 total revenue and 46.0% of Classic Security LLC's 2000 total revenue.
While the contracts pursuant to which these services are provided are reviewed
annually by the board of directors, they are not the result of arm's length
negotiations and, therefore, there can be no assurance that the terms and
conditions are not less favorable than those which could be obtained from
third parties providing comparable services.
Members of Management may have a conflict of interest over whether to
enforce terms of senior management's employment and noncompetition agreements.
Stephen Green, Marc Holliday, Michael Reid, Andrew Levine, Thomas Wirth and
Gerard Nocera entered into employment and noncompetition agreements with us
pursuant to which they have agreed not to engage in the acquisition,
development or operation of office real estate in the New York City
metropolitan area. However, Mr. Green has interests in two properties in
Manhattan which are exempt from the non-competition provisions of his
employment and non-competition agreement. For the most part these restrictions
apply to the executive both during their employment and for a period of time
thereafter. Each executive is also prohibited from otherwise disrupting or
interfering with our business through the solicitation of our employees or
clients or otherwise. To the extent that we choose to enforce our rights under
any of these agreements, we may determine to pursue available remedies, such
as actions for damages or injunctive relief, less vigorously than we otherwise
might because of our desire to maintain our ongoing relationship with the
individual involved. Additionally, the non-competition provisions of these
agreements despite being limited in scope and duration, could be difficult to
enforce, or may be subject to limited enforcement, should litigation arise
over them in the future.
o Failure of SL Green to qualify as a REIT would be costly
SL Green operates in a manner to qualify as a REIT for federal income tax
purposes. Many of these requirements, however, are highly technical and
complex. The determination that we are a REIT requires an analysis of factual
matters and circumstances. These matters, some of which may not be totally
within our control, can affect our qualification as a REIT. For example, to
qualify as a REIT, at least 95% of our gross income must come from designated
sources that are listed in the REIT tax laws. We are also required to
distribute to shareholders at least 90% of our REIT taxable income excluding
capital gains. The fact that we hold our assets through the operating
partnership and its subsidiaries further complicates the application of the
REIT requirements. Even a technical or inadvertent mistake could jeopardize
our REIT status. Furthermore, Congress and the Internal Revenue Service (the
"IRS") might make changes to the tax laws and regulations, and the courts
might issue new rulings that make it more difficult, or impossible for us to
remain qualified as a REIT.
If we fail to qualify as a REIT, we would be subject to federal income
tax at regular corporate rates. Also, unless the IRS grants us relief under
specific statutory provisions, we would remain disqualified as a REIT for four
years following the year we first failed to qualify. If we failed to qualify
as a REIT, we would have to pay significant income taxes and would therefore
have less money available for investments or for distributions to
shareholders. This would likely have a significant adverse affect of the value
of our securities. In addition, the REIT tax laws would no longer require us
to make any distributions to shareholders.
o We are dependent on external sources of capital
Because of distribution requirements imposed on us to qualify as a REIT,
it is not likely that we will be able to fund all future capital needs,
including acquisitions, from income from operations. We therefore will have to
rely on third-party sources of capital, which may or may not be available on
favorable terms or at all. Our access to third-party sources of capital
depends on a number of things, including the market's perception of our growth
potential and our current and potential future earnings. In addition, we
anticipate having to raise money in the public equity and debt markets with
some regularity, and our ability to do so will be dependent upon the general
conditions prevailing in these markets. Recent conditions have demonstrated
that conditions may exist which effectively prevent us, and REITs in general,
from accessing these markets. Moreover, additional equity offerings may result
in substantial dilution of our shareholders' interests, and additional debt
financing may substantially increase our leverage.
7
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
This document and the documents that are incorporated by reference
contain forward-looking statements that are subject to risks and
uncertainties. Forward-looking statements include information concerning
possible or assumed future results of our operations, including any forecasts,
projections and plans and objections for future operations. You can identify
forward looking statements by the use of forward looking expressions like
"may," "will," "should," "expect," "anticipate," "estimate," or "continue" or
any negative or other variations on the expressions. Many factors could affect
our actual financial results, and could cause actual results to differ
materially from those in the forward-looking statements. These factors include
the following:
o general economic or business conditions, either nationally or in New
York City, being less favorable than expected;
o demand for office space;
o risks of real estate acquisition;
o availability and creditworthiness of prospective tenants;
o adverse changes in the real estate markets;
o unanticipated increases occurring in financing and other costs;
o competition with other companies;
o legislative or regulatory changes adversely affecting real estate
investment trusts and the real estate business; and
o environmental and/or safety requirements.
We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks and uncertainties, the
forward-looking events and circumstances discussed in this prospectus might
not occur.
-----------
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not, and the underwriters have not,
authorized anyone to provide you with different information. If anyone
provides you with different or inconsistent information, you should not rely
on it. We are not, and the underwriters are not making an offer to sell these
securities in any jurisdiction where the offer or sale is not permitted. You
should not assume that the information contained or incorporated by reference
in this prospectus is accurate as of any date other than the date on the front
cover of this prospectus. Our business, financial condition, results of
operations and prospects may have changed since that date.
NO PROCEEDS TO SL GREEN
SL Green will not receive any of the proceeds from sales of shares by
the selling shareholders. All costs and expenses incurred in connection with
the registration under the Securities Act of 1933 of the offering made hereby
will be paid by SL Green, other than any brokerage fees and commissions, fees
and disbursements of legal counsel for the selling shareholders and share
transfer and other taxes attributable to the sale of the shares, which will be
paid by the selling shareholders.
8
SELLING SHAREHOLDERS
SL Green may issue the shares to selling shareholders holding up to an
aggregate of 44,772 units, if and to the extent that such selling shareholder
redeems its units and we issue them shares of common stock in exchange
therefor. SL Green may also issue shares to selling shareholders holding
options for up to an aggregate of 240,015 shares of common stock. The shares
were either originally issued, or upon redemption of units or exercise of the
underlying options, will be issued, by us in offerings exempt from the
registration requirements of the Securities Act of 1933. The shareholders in
those offerings or their pledgees, donees, transferees or other successors in
interest who we collectively refer to in this prospectus as selling
shareholders, may from time to time offer and sell any and all of the common
shares offered under this prospectus.
The following table sets forth information as of July 16, 2001 with
respect to shares covered by this prospectus. Because the selling shareholders
may offer all, some or none of the common shares that are covered by this
prospectus, no estimate can be made of the number of shares that will be
offered under this prospectus or the number of shares that will be owned by
any of the selling shareholders upon completion of the offering to which this
prospectus relates.
Number of Shares Owned
Name of Selling Stockholder and Offered Hereby
------------------------------------- -------------------------
Roger Kahn........................... 30,000
Andrew Levine........................ 80,000
Steven Marks......................... 28,000
Andrew Mathias....................... 12,500
David Nettina........................ 9,515
Michael Reid......................... 80,000
SWIG Investors....................... 44,772
--------
TOTAL....................... 284,787
=======
DESCRIPTION OF COMMON STOCK
General
SL Green's articles of incorporation provide that we may issue up to 100
million shares of common stock, $.01 par value per share. Subject to the
provisions of the articles of incorporation regarding excess stock, each
outstanding share of common stock entitles the holder to one vote on all
matters submitted to a vote of shareholders, including the election of
directors, and, except as provided with respect to any other class or series
of stock, the holders of this stock will possess the exclusive voting power.
There is no cumulative voting in the election of directors, which means that
the holders of a majority of the outstanding shares of common stock can elect
all of the directors then standing for election and the holders of the
remaining shares will not be able to elect any directors. On March 31, 2001,
there were 24,705,163 shares of common stock outstanding.
All shares of common stock offered hereby have been duly authorized, and
will be fully paid and nonassessable. Subject to the preferential rights of
any other shares or series of stock and to the provisions of the articles of
incorporation regarding excess stock, holders of shares of common stock are
entitled to receive dividends on this stock if, as and when authorized and
declared by the board of directors of SL Green out of assets legally available
therefor and to share ratably in the assets of SL Green legally available for
distribution to its shareholders in the event of its liquidation, dissolution
or winding up after payment of or adequate provision for all known debts and
liabilities of SL Green.
Holders of shares of common stock have no preference, conversion,
exchange, sinking fund, redemption or appraisal rights and have no preemptive
rights to subscribe for any securities of SL Green. Subject to the provisions
of the articles of incorporation regarding excess stock, shares of common
stock will have equal dividend, liquidation and other rights.
9
Provisions of SL Green's Articles of Incorporation
The articles of incorporation authorize the board of directors to
reclassify any unissued shares of common stock into other classes or series of
classes of stock and to establish the number of shares in each class or series
and to set the preferences, conversion and other rights, voting powers,
restrictions, limitations and restrictions on ownership, limitations as to
dividends or other distributions, qualifications and terms or conditions of
redemption for each class or series.
The board of directors is divided into three classes of directors, each
class constituting approximately one-third of the total number of directors,
with the classes serving staggered terms. At each annual meeting of
shareholders, the class of directors to be elected at the meeting will be
elected for a three-year term and the directors in the other two classes will
continue in office. We believe that classified directors will help to assure
the continuity and stability of the board of directors and our business
strategies and policies as determined by the board of directors. The use of a
staggered board may delay or defer a change in control of SL Green or removal
of incumbent management.
Restrictions on Ownership
For SL Green to qualify as a REIT under the Internal Revenue Code of
1986, as amended (the "Code"), not more than 50% in value of its outstanding
common stock may be owned, directly or indirectly, by five or fewer
individuals, according to the definition in the Code, during the last half of
a taxable year and the common stock must be beneficially owned by 100 or more
persons during at least 335 days of a taxable year of 12 months or during a
proportionate part of a shorter taxable year. To satisfy the above ownership
requirements and other requirements for qualification as a REIT, the board of
directors has adopted, and the shareholders prior to the initial public
offering approved, a provision in the articles of incorporation restricting
the ownership or acquisition of shares of common stock. See "Restrictions on
Ownership of Capital Stock."
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is The Bank of New
York.
10
RESTRICTIONS ON OWNERSHIP OF CAPITAL STOCK
Excess Stock
The articles of incorporation provide that SL Green may issue up to 75
million shares of excess stock, par value $.01 per share. For a description of
excess stock, see "Restrictions on Ownership" below.
Restrictions on Ownership
For SL Green to qualify as a REIT under the Code, among other things, not
more than 50% in value of its outstanding capital stock may be owned, directly
or indirectly, by five or fewer individuals during the last half of a taxable
year, other than the first year, and the shares of capital stock must be
beneficially owned by 100 or more persons during at least 335 days of a
taxable year of 12 months, other than the first year, or during a
proportionate part of a shorter taxable year. Pursuant to the Code, common
stock held by specific types of entities, such as pension trusts qualifying
under Section 401(a) of the Code, United States investment companies
registered under the Investment Company Act of 1940, partnerships, trusts and
corporations, will be attributed to the beneficial owners of these entities
for purposes of the five or fewer requirement: generally, the beneficial
owners of these entities will be counted as shareholders of SL Green.
In order to protect SL Green against the risk of losing its status as a
REIT due to a concentration of ownership among its shareholders, its articles
of incorporation, subject to exceptions, provide that no shareholder may own,
or be deemed to own by virtue of the attribution provisions of the Code, more
than 9.0% which we refer to as the "Ownership Limit," of the aggregate number
or value of SL Green's outstanding shares of common stock. Limitations on the
ownership of preferred stock may also be imposed by SL Green. Any direct or
indirect ownership of shares of stock in excess of the Ownership Limit or that
would result in the disqualification of SL Green as a REIT, including any
transfer that results in shares of capital stock being owned by fewer than 100
persons or results in SL Green being "closely held" within the meaning of
Section 856(h) of the Code, shall be null and void, and the intended
transferee will acquire no rights to the shares of capital stock. The
foregoing restrictions on transferability and ownership will not apply if the
board of directors determines that it is no longer in the best interests of SL
Green to attempt to qualify, or to continue to qualify, as a REIT. The board
of directors may, in its sole discretion, waive the Ownership Limit if
evidence satisfactory to the board of directors and SL Green's tax counsel is
presented that the changes in ownership will not then or in the future
jeopardize SL Green's REIT status and the board of directors otherwise decides
that this action is in the best interest of SL Green.
Shares of capital stock owned, or deemed to be owned, or transferred to a
shareholder in excess of the Ownership Limit will automatically be converted
into shares of excess stock that will be transferred, by operation of law, to
the trustee of a trust for the exclusive benefit of one or more charitable
organizations described in Section 170(b)(1)(A) and 170(c) of the Code. The
trustee of the trust will be deemed to own the excess stock for the benefit of
the charitable beneficiary on the date of the violative transfer to the
original transferee-shareholder. Any dividend or distribution paid to the
original transferee-shareholder of excess stock prior to the discovery by SL
Green that capital stock has been transferred in violation of the provisions
of SL Green's articles of incorporation shall be repaid to the trustee upon
demand. Any dividend or distribution authorized and declared but unpaid shall
be rescinded as void from the beginning with respect to the original
transferee-shareholder and shall instead be paid to the trustee of the trust
for the benefit of the charitable beneficiary. Any vote cast by an original
transferee-shareholder of shares of capital stock constituting excess stock
prior to the discovery by SL Green that shares of capital stock have been
transferred in violation of the provisions of the articles of incorporation
shall be rescinded as void from the beginning. While the excess stock is held
in trust, the original transferee-shareholder will be deemed to have given an
irrevocable proxy to the trustee to vote the capital stock for the benefit of
the charitable beneficiary. The trustee of the trust may transfer the interest
in the trust representing the excess stock to any person whose ownership of
the shares of capital stock converted into this excess stock would be
permitted under the Ownership Limit. If this transfer is made, the interest of
the charitable beneficiary shall terminate and the proceeds of the sale shall
be payable to the original transferee-shareholder and to the charitable
beneficiary as described herein. The original transferee-shareholder shall
receive the lesser of (a) the price paid by the original
transferee-shareholder for the shares of capital stock that were converted
into excess stock or, if the original
11
transferee-shareholder did not give value for the shares, the average closing
price for the class of shares from which the shares of capital stock were
converted for the ten trading days immediately preceding the sale or gift, and
(b) the price received by the trustee from the sale or other disposition of
the excess stock held in trust. The trustee may reduce the amount payable to
the original transferee-shareholder by the amount of dividends and
distributions relating to the shares of excess stock which have been paid to
the original transferee-shareholder and are owed by the original
transferee-shareholder to the trustee. Any proceeds in excess of the amount
payable to the original transferee-shareholder shall be paid by the trustee to
the charitable beneficiary. Any liquidation distributions relating to excess
stock shall be distributed in the same manner as proceeds of a sale of excess
stock. If the foregoing transfer restrictions are determined to be void or
invalid by virtue of any legal decision, statute, rule or regulations, then
the original transferee-shareholder of any shares of excess stock may be
deemed, at the option of SL Green, to have acted as an agent on behalf of SL
Green in acquiring the shares of excess stock and to hold the shares of excess
stock on behalf of SL Green.
In addition, SL Green will have the right, for a period of 90 days during
the time any shares of excess stock are held in trust, to purchase all or any
portion of the shares of excess stock at the lesser of (a) the price initially
paid for the shares by the original transferee-shareholder, or if the original
transferee-shareholder did not give value for the shares, the average closing
price for the class of stock from which the shares of excess stock were
converted for the ten trading days immediately preceding the sale or gift, and
(b) the average closing price for the class of stock from which the shares of
excess stock were converted for the ten trading days immediately preceding the
date SL Green elects to purchase the shares. SL Green may reduce the amount
payable to the original transferee-shareholder by the amount of dividends and
distributions relating to the shares of excess stock which have been paid to
the original transferee-shareholder and are owed by the original
transferee-shareholder to the trustee. SL Green may pay the amount of the
reductions to the trustee for the benefit of the charitable beneficiary. The
90-day period begins on the later date of which notice is received of the
violative transfer if the original transferee-shareholder gives notice to SL
Green of the transfer or, if no notice is given, the date the board of
directors determines that a violative transfer has been made.
These restrictions will not preclude settlement of transactions through
the New York Stock Exchange.
All certificates representing shares of stock will bear a legend
referring to the restrictions described above.
Each shareholder shall upon demand be required to disclose to SL Green in
writing any information with respect to the direct, indirect and constructive
ownership of capital stock of SL Green as the board of directors deems
necessary to comply with the provisions of the Code applicable to REITs, to
comply with the requirements of any taxing authority or governmental agency or
to determine any such compliance.
The Ownership Limit may have the effect of delaying, deferring or
preventing a change in control of SL Green unless the board of directors
determines that maintenance of REIT status is no longer in the best interest
of SL Green.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income tax
consequences that are generally applicable to prospective holders of the
offered securities. The specific tax consequences of owning the offered
securities will vary depending on the circumstances of a particular
stockholder. The discussion contained herein does not address all aspects of
federal income taxation that may be relevant to particular holders. Therefore,
we strongly recommend that stockholders review the following discussion and
then consult with a tax advisor to determine the anticipated tax consequences
of owning the offered securities.
The information in this section and the opinions of Sidley Austin Brown &
Wood LLP are based on the Code, existing and proposed Treasury Regulations
thereunder, current administrative interpretations and court decisions. We
cannot assume that future legislation, Treasury Regulations, administrative
interpretations and court decisions will not significantly change current law
or affect existing interpretations of current law in a manner which is adverse
to stockholders. Any such change could apply retroactively to transactions
preceding the date of change.
12
With the exception of the ruling below, SL Green and the operating partnership
do not plan to obtain any rulings from the IRS concerning any tax issue with
respect to SL Green other than that described below under Taxation of SL Green
"Requirements for Qualification" Income Tests. Thus, we cannot assume that the
opinions and statements set forth herein, which do not bind the IRS or the
courts, will not be challenged by the IRS or will be sustained by a court if
so challenged.
This summary does not discuss state, local or foreign tax considerations.
Except where indicated, the discussion below describes general federal income
tax considerations applicable to individuals who are U.S. persons for federal
income tax purposes and who hold the offered securities as "capital assets"
within the meaning of Section 1221 of the Code. Accordingly, the following
discussion has limited application to domestic corporations and persons
subject to specialized federal income tax treatment, such as foreign persons,
trusts, estates, tax-exempt entities, regulated investment companies and
insurance companies.
Under applicable Treasury regulations a provider of advice on specific
issues of law is not considered an income tax return preparer unless the
advice is (i) given with respect to events that have occurred at the time the
advice is rendered and is not given with respect to the consequences of
contemplated actions, and (ii) is directly relevant to the determination of an
entry on a tax return. Accordingly, prospective stockholders should consult
their respective tax advisors and tax return preparers regarding the
preparation of any item on a tax return, even where the anticipated tax
treatment has been discussed herein. IN ADDITION, PROSPECTIVE STOCKHOLDERS ARE
URGED TO CONSULT WITH THEIR OWN TAX ADVISORS WITH REGARD TO THE APPLICATION OF
THE FEDERAL INCOME TAX LAWS TO SUCH STOCKHOLDERS' RESPECTIVE PERSONAL TAX
SITUATIONS, AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY
STATE, LOCAL OR FOREIGN TAXING JURISDICTION.
Taxation of SL Green
We elected to be taxed as a REIT under Sections 856 through 860 of the
Code effective for our taxable year ending December 31, 1997. In the opinion
of Sidley Austin Brown & Wood LLP, commencing with our taxable year ended
December 31, 1997, we have been organized in conformity with the requirements
for qualification and taxation as a REIT under the Code and our method of
operation enables us to meet the requirements for qualification and taxation
as a REIT. This opinion is based on factual representations relating to the
organization and operation of SL Green, the operating partnership, their
respective subsidiaries, and factual representations relating to our continued
efforts to comply with the various REIT tests. Qualification and taxation as a
REIT depends upon our ability to meet on a continuing basis, through actual
annual operating results, the various qualification tests imposed under the
Code. Sidley Austin Brown & Wood LLP will not review compliance with these
tests on a continuing basis. See "Failure to Qualify" below.
The following is a general summary of the material Code provisions that
govern the federal income tax treatment of a REIT and its stockholders. These
provisions of the Code are highly technical and complex.
If we qualify for taxation as a REIT, we generally will not be subject to
Federal corporate income taxes on net income that we distribute currently to
stockholders. This treatment substantially eliminates the double taxation
(taxation at both the corporate and stockholder levels) that generally results
from investment in a corporation. However, we will be subject to Federal
income and excise tax in specific circumstances, including the following:
o we will be taxed at regular corporate rates on any undistributed
REIT taxable income, including undistributed net capital gains,
other than retained capital gains as discussed below.
o we may be subject to the alternative minimum tax on our items of tax
preference.
o if we have (a) net income from the sale or other disposition of
foreclosure property, which is, in general, property acquired by
foreclosure or otherwise on default of a loan secured by the
property, held primarily for sale to customers in the ordinary
course of business or (b) other nonqualifying
13
income from foreclosure property, we will be subject to tax at the
highest corporate rate on such income.
o if we have net income from prohibited transactions, which are, in
general, sales or other dispositions of property held primarily for
sale to customers in the ordinary course of business, such income
will be subject to a 100% tax.
o if we fail to satisfy either the 75% gross income test or the 95%
gross income test, but nonetheless maintain our qualification as a
REIT because other requirements have been met, we will be subject to
a 100% tax on the greater of the amount by which we fail the 75% or
95% test, multiplied by a fraction intended to reflect our
profitability.
o if we fail to distribute during each calendar year at least the sum
of (a) 85% of our REIT ordinary income for such year, (b) 95% of our
REIT capital gain net income for such year and (c) any undistributed
taxable income from prior years, we will be subject to a 4% excise
tax on the excess of such required distribution over the amounts
actually distributed,
o if we acquire any asset from a corporation generally subject to full
corporate level tax in a transaction in which the basis of the asset
in our hands is determined by reference to the basis of the asset in
the hands of the seller and we recognize gain on the disposition of
such asset during the ten-year period beginning on the date on which
such asset was acquired by us, then we will be subject to the
built-in gain rule. Built-in gain is the excess of the fair market
value of such property at the time of acquisition by SL Green over
the adjusted basis in such property at such time. Under the built-in
gain rule, such gain will be subject to tax at the highest regular
corporate rate applicable,
o if it is determined that amounts of certain income and expense were
not allocated between us and a Taxable REIT subsidiary (as defined
herein) on the basis of arm's length dealing, we will be subject to
a tax equal to 100% of those amounts.
Requirements for Qualification
The Code defines a REIT as a corporation, trust, or association
(a) that is managed by one or more trustees or directors;
(b) the beneficial ownership of which is evidenced by transferable
shares or by transferable certificates of beneficial interest;
(c) that would be taxable as a domestic corporation, but for Section 856
through 859 of the Code;
(d) that is neither a financial institution nor an insurance company
subject to specific provisions of the Code;
(e) the beneficial ownership of which is held by 100 or more persons;
(f) during the last half of each taxable year not more than 50% in value
of the outstanding stock of which is owned, directly or indirectly,
by five or fewer individuals; and
(g) that meets other tests, described below, regarding the nature of its
income and assets.
The Code provides that conditions (a) through (d), inclusive, must be met
during the entire taxable year and that condition (e) must be met during at
least 335 days of a taxable year of 12 months, or during a proportionate part
of a taxable year of less than 12 months. Conditions (e) and (f), however,
will not apply until after the first taxable year for which an election is
made to be taxed as a REIT. We believe we have issued and have outstanding
sufficient
14
shares of stock with sufficient diversity of ownership to allow us to satisfy
conditions (e) and (f). In addition, we intend to comply with Treasury
Regulations requiring us to ascertain the actual ownership of our outstanding
shares. Our articles of incorporation include restrictions regarding the
transfer of shares of capital stock that are intended to assist us in
continuing to satisfy the share ownership requirements described in (e) and
(f) above. See "Restrictions on Ownership of Capital Stock."
If a REIT owns a corporate subsidiary that is a qualified REIT
subsidiary, that subsidiary is disregarded for federal income tax purposes and
all assets, liabilities and items of income, deduction and credit of the
subsidiary are treated as assets, liabilities and items of the REIT itself.
Similarly, a single member limited liability company owned by the REIT or by
the operating partnership is disregarded as a separate entity for federal
income tax purposes.
In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that for purposes of the gross income tests and asset
tests, the REIT will be deemed to own its proportionate share, based on its
interest in partnership capital, of the assets of the partnership and will be
deemed to be entitled to the income of the partnership attributable to such
share. In addition, the assets and gross income of the partnership will retain
the same character in the hands of the REIT for purposes of Section 856 of the
Code, including satisfying the gross income tests and asset tests, that they
have in the hands of the partnership. Thus, our proportionate share of the
assets, liabilities and items of gross income of the operating partnership
will be treated as our assets, liabilities and items of gross income for
purposes of applying the requirements described herein.
Income Tests. In order to maintain qualification as a REIT, we must
annually satisfy gross income tests. First, at least 75% of the REIT's gross
income, excluding gross income from specific prohibited transactions, for each
taxable year must be derived directly or indirectly from investments relating
to real property or mortgages on real property, including rents from real
property and, in specific circumstances, from certain types of temporary
investments. Second, at least 95% of the REIT's gross income, excluding gross
income from prohibited transactions, for each taxable year must be derived
from such real property investments described above and from dividends,
interest and gain from the sale or disposition of stock or securities, or from
any combination of the foregoing. If we fail to satisfy one or both of the 75%
or the 95% gross income tests for any taxable year, we nevertheless may
qualify as a REIT for such year if we are entitled to relief under specific
provisions of the Code. These relief provisions generally are available if our
failure to meet any such tests was due to reasonable cause and not due to
willful neglect, we attach a schedule of the sources of our income to our
Federal corporate income tax return and any incorrect information on the
schedule was not due to fraud with intent to evade tax. It is not possible,
however, to state whether in all circumstances we would be entitled to the
benefit of these relief provisions. As discussed above, even if these relief
provisions were to apply, a tax would be imposed with respect to the excess
net income.
For purposes of the income test, rents received by a REIT will qualify as
rents from real property only if the following conditions are met:
o the amount of rent must not be based in whole or in part on the
income or profits of any person. However, an amount received or
accrued generally will not be excluded from rents from real property
solely by reason of being based on a fixed percentage or percentages
of receipts or sales.
o rents received from a tenant will not qualify as rents from real
property in satisfying the gross income tests if the REIT, or a
direct or indirect owner of 10% or more of the REIT, directly or
constructively, owns 10% or more of such tenant.
o if rent attributable to personal property, leased in connection with
a lease of real property, is greater than 15% of the total rent
received under the lease, then the portion of rent attributable to
such personal property will not qualify as rents from real property.
o the REIT generally must not operate or manage the property or
furnish or render services to tenants, except through a Taxable REIT
subsidiary (as defined herein) or through an independent contractor
who is adequately compensated and from whom the REIT derives no
income.
15
The independent contractor requirement, however, does not apply to the
extent the services provided by the REIT are usually or customarily rendered
in connection with the rental of space for occupancy only and are not
otherwise considered rendered to the occupant. However, under the de minimis
rule for noncustomary services, if the value of the noncustomary service
income with respect to a property, valued at no less than 150% of the REIT's
direct costs of performing such services, is 1% or less of the total income
derived from the property, then all rental income except the noncustomary
service income will qualify as rents from real property.
We have recently received a favorable ruling from the IRS with respect to
our provision of telecommunication services, including high-speed Internet
access, to our tenants. Under the ruling, providing these services to a
property will not disqualify rents received from the property. In addition,
amounts that we receive for providing these services will constitute rents
from real property.
Asset Tests. In order to maintain qualification as a REIT, we must also
satisfy, at the close of each quarter of our taxable year, the following tests
relating to the nature of our assets:
o at least 75% of the value of our total assets must be represented by
real estate assets, including (a) our allocable share of real estate
assets held by the operating partnership or any partnerships in
which the operating partnership owns an interest and (b) stock or
debt instruments held for not more than one year purchased with the
proceeds of a stock offering or long-term (i.e., at least five-year)
public debt offering of SL Green, cash, cash items and government
securities,
o no more than 20% of the value of our total assets may be securities
of one or more Taxable REIT subsidiaries; and
o except for securities in the 75% asset class, securities in a
Taxable REIT subsidiary or qualified REIT subsidiary, and certain
partnership interests and debt obligations;
o the value of any one issuer's securities owned by SL Green may
not exceed 5% of the value of our total assets;
o we may not own more than 10% of the total voting power of any
one issuer's outstanding securities; and
o we may not own more than 10% of the total value of any one
issuer's outstanding securities.
A "Taxable REIT subsidiary" is a corporation that may earn income that
would not be qualifying income if we earned it directly and may hold assets
that would not be qualifying assets if we held them directly. We may hold up
to 100% of the stock in a Taxable REIT subsidiary. To treat a subsidiary as a
Taxable REIT subsidiary, we and the subsidiary must make a joint election by
filing a Form 8875 with the IRS. A Taxable REIT subsidiary will be liable for
tax at corporate rates on any income it earns. Moreover, to prevent shifting
of income and expenses between us a Taxable REIT subsidiary, the Code imposes
on us a tax equal to 100% of certain items of income and expense that are not
allocated between us and the Taxable REIT subsidiary at arm's length.
After initially meeting an asset test at the close of any quarter, we
will not lose our status as a REIT for failure to satisfy that asset test at
the end of a later quarter solely by reason of changes in asset values. If the
failure to satisfy the asset test results from an acquisition of securities or
other property during a quarter, the failure can be cured by disposition of
sufficient nonqualifying assets within 30 days after the close of that
quarter.
Annual Distribution Requirements. In order to qualify as a REIT, we are
required to distribute dividends, other than capital gain dividends, to our
stockholders in an amount at least equal to (a) the sum of (A) 90% of our REIT
taxable income (computed without regard to the dividends paid deduction and
the REIT's net capital gain) and (B) 90% of the net income, after tax, if any,
from foreclosure property, minus (b) the sum of specific items of non-cash
income. We must pay the distribution during the taxable year to which the
distributions relate, or during the following taxable year, if declared before
we timely file our tax return for the preceding year and paid on or before
16
the first regular dividend payment after the declaration. In addition, a
dividend declared and payable to a stockholder of record in October, November
or December of any year may be treated as paid and received on December 31 of
such year even if paid in January of the following year. To the extent that we
do not distribute all of our net capital gain or distribute at least 90%, but
less than 100%, of our REIT ordinary taxable income, we will be subject to tax
on the undistributed amount at regular corporate capital gains rates and
ordinary income tax rates. Furthermore, if we fail to distribute during each
calendar year at least the sum of (a) 85% of our REIT ordinary income for such
year, (b) 95% of our REIT capital gain income for such year and (c) any
undistributed taxable income from prior periods, we will be subject to a 4%
excise tax on the excess of such amounts over the amounts actually
distributed.
We intend to make timely distributions sufficient to satisfy the annual
distribution requirements. In this regard, it is expected that our REIT
taxable income will be less than our cash flow due to the allowance of
depreciation and other non-cash charges in computing REIT taxable income.
Moreover, the partnership agreement of the operating partnership authorizes
us, as general partner, to take such steps as may be necessary to cause the
operating partnership to make distributions to its partners in amounts
sufficient to permit us to meet these distribution requirements. It is
possible, however, that we may not have sufficient cash or other liquid assets
to meet the 90% distribution requirement. In the event that such circumstances
do occur, then in order to meet the 90% distribution requirement, we may cause
the operating partnership to arrange for short-term, or possibly long-term,
borrowings to permit the payment of required distributions.
Under specific circumstances, we may rectify a failure to meet the
distribution requirement for a year by paying deficiency dividends to
stockholders in a later year that may be included in our deduction for
dividends paid for the earlier year. Thus, we may be able to avoid being taxed
on amounts distributed as deficiency dividends. However, we would be required
to pay to the IRS interest based upon the amount of any deduction taken for
deficiency dividends.
Failure to Qualify
If we fail to qualify for taxation as a REIT in any taxable year and
other relief provisions do not apply, we will be subject to tax, including any
applicable alternative minimum tax, on our taxable income at regular corporate
rates. Distributions to stockholders in any year in which we fail to qualify
as a REIT will not be deductible by us, nor will we be required to make
distributions. Unless entitled to relief under specific statutory provisions,
we also will be disqualified from taxation as a REIT for the four taxable
years following the year during which qualification was lost. It is not
possible to state whether in all circumstances we would be entitled to such
statutory relief.
Taxation of Stockholders
The discussion does not address all of the tax consequences that may be
relevant to particular stockholders in light of their particular
circumstances. Stockholders should consult their own tax adviser for a
complete description of the tax consequences of investing in the offered
stock.
U.S. Stockholders
As used herein, the term U.S. Stockholder means a stockholder who is a
U.S. Person. A U.S. Person is defined as a citizen or resident of the United
States, a corporation or partnership (including an entity treated as a
corporation or partnership for United States federal income tax purposes)
created or organized in or under the laws of the United States, any State of
the United States or the District of Columbia (other than a partnership that
is not treated as a U.S. Person under any applicable Treasury regulations) or
an estate whose income is subject to United States federal income tax
regardless of its source, or a trust if a court within the United States is
able to exercise primary supervision over the administration of the trust and
one or more U.S. Persons have the authority to control all substantial
decisions of the trust. Notwithstanding the preceding sentence, to the extent
provided in Treasury regulations, specific trusts in existence on August 20,
1996, and treated as U.S. Persons prior to such date, that elect to continue
to be treated as U.S. Persons, also will be U.S. Persons.
17
Distributions. As long as we qualify as a REIT, distributions made to our
taxable U.S. Stockholders out of current or accumulated earnings and profits
and not designated as capital gain dividends will be taken into account by
them as ordinary income. Corporate stockholders will not be eligible for the
dividends received deduction as to such amounts. Distributions that are
designated as capital gain dividends will be taxed as capital gains to the
extent they do not exceed our actual net capital gain for the taxable year
without regard to the period for which the stockholder has held our stock. If
we elect to retain and pay income tax on any net capital gain, U.S.
Stockholders would include in their income as capital gain their proportionate
share of such net capital gain. A U.S. Stockholder would also receive the
right to claim a refundable tax credit for such stockholder's proportionate
share of the tax paid by SL Green on such retained capital gains and an
increase in its basis in the stock of SL Green. This increase in basis will be
in an amount equal to the excess of the undistributed capital gains over the
amount of tax paid thereon by SL Green. Distributions in excess of current and
accumulated earnings and profits will not be taxable to a stockholder to the
extent that they do not exceed the adjusted basis of the stock, but rather
will reduce the adjusted basis of the stock. To the extent that such
distributions exceed a stockholder's adjusted basis in the stock, such
distribution will be included in income as capital gain, assuming the stock is
a capital asset in the hands of the stockholder.
Any dividend declared by us in October, November or December of any year
payable to a stockholder of record on a specific date in any such month shall
be treated as both paid by us and received by the stockholder on December 31
of such year, provided the dividend is actually paid by us during January of
the following calendar year.
Sale or Exchange. In general, a U.S. Stockholder realizes capital gain or
loss on the sale or exchange of the stock equal to the difference between (a)
the amount of cash and the fair market value of any property received on such
disposition, and (b) the stockholder's adjusted basis in the stock. To the
extent a U.S. Stockholder who is an individual, a trust or an estate holds the
stock for at least one year, any gain realized would be subject to a maximum
rate of 20%.
Backup Withholding. We will report to our U.S. Stockholders and the IRS
the amount of dividends paid during each calendar year and the amount of tax
withheld, if any, with respect thereto. Under the backup withholding rules, a
stockholder may be subject to backup withholding at the rate of 31% with
respect to dividends paid unless the holder (a) is a corporation or comes
within other exempt categories and, when required, demonstrates this fact, or
(b) provides a taxpayer identification number and certifies as to no loss of
exemption, and otherwise complies with the applicable requirements of the
backup withholding rules. In addition, we may be required to withhold a
portion of capital gain distributions made to any stockholders who fail to
certify their non-foreign status to us.
An individual who is a U.S. Stockholder may satisfy the requirements by
providing us with an appropriately prepared IRS Form W-9. If a U.S.
Stockholder does not provide us with their correct taxpayer identification
number, then the U.S. Stockholder may also be subject to penalties imposed by
the IRS.
Backup withholding tax is not an additional tax. Any amounts withheld
under the backup withholding tax rules will be refunded or credited against
the U.S. Stockholders federal income tax liability, provided the U.S.
Stockholder furnishes the required information to IRS.
Taxation of Tax-Exempt Stockholders
The IRS has ruled that amounts distributed as dividends by a qualified
REIT generally do not constitute unrelated business taxable income ("UBTI")
when received by a tax-exempt entity. Based on that ruling, the dividend
income will not be UBTI to a tax-exempt stockholder, provided that the
tax-exempt stockholder has not held stock as debt financed property within the
meaning of the Code and such stock is not otherwise used in a trade or
business unrelated to the tax-exempt stockholder's exempt purpose. Similarly,
income from the sale of the stock will not constitute UBTI unless such
tax-exempt stockholder has held such stock as debt financed property within
the meaning of the Code or has used the shares in a trade or business.
18
Notwithstanding the above paragraph, if we are a pension-held REIT, then
any qualified pension trust that holds more than 10% of our stock will have to
treat dividends as UBTI in the same proportion that our gross income would be
UBTI. A qualified pension trust is any trust described in Section 401(a) of
the Code that is exempt from tax under Section 501(a). In general, we will be
treated as a pension-held REIT if both (a) we are predominantly owned by
qualified pension trusts and (b) we would not be a REIT if we had to treat our
stock held by qualified pension trust as owned by the qualified pension trust
(instead of treating such stock as owned by the qualified pension trust's
multiple beneficiaries). Although we do not anticipate being classified as a
pension-held REIT, we cannot assume that this will always be the case.
In addition, if you are a tax-exempt stockholder described in Section
512(a)(3) of the Code, then distributions received from us may also constitute
UBTI. You are described in Section 512(a)(3) if you qualify for exemption
under Sections 501(c)(7), (9), (17), or (20).
Taxation of Non-U.S. Stockholders
The rules governing U.S. federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships and other foreign
stockholders, which refer to collectively as Non-U.S. Stockholders are complex
and no attempt will be made herein to provide more than a limited summary of
such rules. Non-U.S. Stockholders should consult with their own tax advisors
to determine the impact of U.S. Federal, state and local income tax laws with
regard to an investment in the stock, including any reporting requirements.
Ordinary Dividends. Distributions, other than distributions that are
treated as attributable to gain from sales or exchanges by us of U.S. real
property interests and other than distributions designated by us as capital
gain dividends, will be treated as ordinary income to the extent that they are
made out of our current or accumulated earnings and profits. Such
distributions to Non-U.S. Stockholders will ordinarily be subject to a
withholding tax equal to 30% of the gross amount of the distribution, unless
an applicable tax treaty reduces that tax rate. However, if income from the
investment in the shares of the stock is treated as effectively connected with
the Non-U.S. Stockholder's conduct of a U.S. trade or business, the Non-U.S.
Stockholder generally will be subject to a tax at graduated rates in the same
manner as U.S. stockholders are taxed with respect to such dividends and may
also be subject to the 30% branch profits tax if the stockholder is a foreign
corporation.
Pursuant to the Final Regulations generally effective for payments made
on or after January 1, 2001, dividends paid to an address in a country outside
the United States are no longer presumed to be paid to a resident of such
country for purposes of determining the applicability of withholding discussed
above and the applicability of a tax treaty rate. A Non-U.S. Stockholder who
wishes to claim the benefit of an applicable treaty rate may need to satisfy
certification and other requirements, such as providing IRS Form W-8BEN. A
Non-U.S. Stockholder who wishes to claim distributions are effectively
connected with a United States trade or business, may need to satisfy
certification and other requirements, such as providing IRS Form W-8ECI. Other
requirements may apply to Non-U.S. Stockholders that hold their shares through
a financial intermediary or foreign partnership.
Return of Capital. Distributions in excess of our current and accumulated
earnings and profits, which are not treated as attributable to the gain from
the disposition by us of a U.S. real property interest, will not be taxable to
a Non-U.S. Stockholder to the extent that they do not exceed the adjusted
basis of the stock, but rather will reduce the adjusted basis of such stock.
To the extent that such distributions exceed the adjusted basis of the stock,
they will give rise to tax liability if the Non-U.S. Stockholder otherwise
would be subject to tax on any gain from the sale or disposition of its stock,
as described below. If it cannot be determined at the time a distribution is
made whether such distribution will be in excess of current and accumulated
earnings and profits, the distribution will be subject to withholding at the
rate applicable to dividends. However, the Non-U.S. Stockholder may seek a
refund of such amounts from the IRS if it is subsequently determined that such
distribution was, in fact, in excess of our current and accumulated earnings
and profits.
Capital Gain Dividends. For any year in which we qualify as a REIT,
distributions that are attributable to gain from sales or exchanges by us of
U.S. real property interests will be taxed to a Non-U.S. Stockholder under the
provisions of the Foreign Investment in Real Property Tax Act of 1980, as
amended ("FIRPTA"). Under FIRPTA,
19
these distributions are taxed to a Non-U.S. Stockholder as if such gain were
effectively connected with a U.S. business. Thus, Non-U.S. Stockholders will
be taxed on such distributions at the same capital gain rates applicable to
U.S. stockholders, subject to any applicable alternative minimum tax and
special alternative minimum tax (in the case of nonresident alien
individuals), without regard to whether such distributions are designated by
us as capital gain dividends. Also, distributions subject to FIRPTA may be
subject to a 30% branch profits tax in the hands of a corporate Non-U.S.
Stockholder not entitled to treaty relief or exemption. We are required by
applicable Treasury Regulations under FIRPTA to withhold 35% of any
distribution that could be designated by us as a capital gain dividend.
Sale or Exchange of Stock. Gain recognized by a Non-U.S. Stockholder upon
a sale or exchange of stock, including a redemption that is treated as a sale,
generally will not be taxed under FIRPTA if we are a domestically controlled
REIT. A REIT is a "domestically controlled REIT" if at all times during a
specified testing period less than 50% in value of its stock is held directly
or indirectly by foreign persons. However, gain not subject to FIRPTA will be
taxable to a Non-U.S. Stockholder if (a) investment in the stock is treated as
effectively connected with the Non-U.S. Stockholder's U.S. trade or business,
in which case the Non-U.S. Stockholder will be subject to the same treatment
as U.S. stockholders with respect to such gain, or (b) the Non-U.S.
Stockholder is a nonresident alien individual who was present in the United
States for 183 days or more during the taxable year and has a tax home in the
United States, or maintains an office or fixed place of business in the United
States to which the gain is attributable, in which case the nonresident alien
individual will be subject to a 30% tax on the individual's capital gains. A
similar rule will apply to capital gain dividends not subject to FIRPTA.
Although we anticipate that we will qualify as a domestically controlled
REIT, we cannot assume that we will continue to so qualify. If we were not a
domestically controlled REIT, whether or not a Non-U.S. Stockholder's sale of
stock would be subject to tax under FIRPTA would depend on whether or not the
stock was regularly traded on an established securities market and on the size
of the selling Non-U.S. Stockholder's interest in us. If the gain on the sale
of the stock were to be subject to tax under FIRPTA, the Non-U.S. Stockholder
would be subject to the same treatment as U.S. stockholders with respect to
such gain, subject to any applicable alternative minimum tax and a special
alternative minimum tax (in the case of nonresident alien individuals) and the
purchaser of such stock may be required to withhold 10% of the gross purchase
price.
Other Tax Considerations
Effect of Tax Status of Operating Partnership and Other Entities on REIT
Qualification. All of our significant investments are held through the
operating partnership. The operating partnership may hold interests in
properties through property-owning entities. The operating partnership and the
property-owning entities, as well as SL Green Management LLC, involve special
tax considerations. These tax considerations include:
o allocations of income and expense items of the operating
partnership and the property-owning entities, which could
affect the computation of taxable income of SL Green,
o the status of the operating partnership, the property-owning
entities and SL Green Management LLC as partnerships or
entities that are disregarded as entities separate from their
owners as, opposed to associations taxable as corporations, for
income tax purposes and
o the taking of actions by the operating partnership or any of
the property-owning entities that could adversely affect our
qualification as a REIT.
In the opinion of Sidley Austin Brown & Wood LLP, based on the factual
representations by SL Green and the operating partnership, as set forth in the
first paragraph of this section, for federal income tax purposes, the
operating partnership will be treated as a partnership and neither SL Green
Management LLC nor any of the property-owning entities will be treated as an
association taxable as a corporation. If, however, the operating partnership
or any of such other entities were treated as an association taxable as a
corporation, we would fail to qualify as a REIT for a number of reasons.
20
The partnership agreement requires that the operating partnership be
operated in a manner that will enable us to satisfy the requirements for
classification as a REIT. In this regard, we will control the operation of the
operating partnership through its rights as the sole general partner of the
operating partnership.
Tax Allocations with Respect to the Properties. When property is
contributed to a partnership in exchange for an interest in the partnership,
the partnership generally takes a carryover basis in that property for tax
purposes. Therefore, the partnership's basis is equal to the adjusted basis of
the contributing partner in the property, rather than a basis equal to the
fair market value of the property at the time of contribution. Pursuant to
Section 704(c) of the Code, income, gain, loss and deductions attributable to
such contributed property must be allocated in a manner such that the
contributing partner is charged with, or benefits from, respectively, the
unrealized gain or unrealized loss associated with the property at the time of
the contribution. The amount of unrealized gain or unrealized loss is
generally equal to the difference between the fair market value of the
contributed property at the time of contribution and the adjusted tax basis of
such property at the time of contribution, which we refer to as a "Book-Tax
Difference". Such allocations are solely for federal income tax purposes and
do not affect the book capital accounts or other economic or legal
arrangements among the partners. The operating partnership was funded by way
of contributions of appreciated property to the operating partnership in the
transactions leading to its formation. Consequently, the partnership agreement
will require these allocations to be made in a manner consistent with Section
704(c) of the Code and the regulations thereunder, which we refer to as the
"Section 704(c) Regulations".
The Section 704(c) Regulations require partnerships to use a "reasonable
method" for allocation of items affected by Section 704(c) of the Code and
they outline three methods which may be considered reasonable for these
purposes. The operating partnership intends to use the "traditional method" of
Section 704(c) allocations, which is the least favorable method from our
perspective because of technical limitations. Under the traditional method,
depreciation with respect to a contributed property for which there is a
Book-Tax Difference first will be allocated to SL Green and other partners who
did not have an interest in the property until they have been allocated an
amount of depreciation equal to what they would have been allocated if the
operating partnership had purchased such property for its fair market value at
the time of contribution. In addition, if this property is sold, gain equal to
the Book-Tax Difference at the time of sale will be specially allocated to the
contributor of the property. These allocations will tend to eliminate the
Book-Tax Differences with respect to the contributed properties over the
depreciable lives of the contributed property. However, they may not always
entirely eliminate the Book-Tax Difference on an annual basis or with respect
to a specific taxable transaction such as a sale. This could cause us (a) to
be allocated lower depreciation deductions for tax purposes than would be
allocated to us if all properties were to have a tax basis equal to their fair
market value at the time of contribution and (b) to be allocated lower amounts
of taxable loss in the event of a sale of such contributed interests in the
properties at a book loss, than the economic or book loss allocated to us as a
result of such sale, with a corresponding benefit to the other partners in the
operating partnership. These allocations might adversely affect our ability to
comply with REIT distribution requirements, although we do not anticipate that
this will occur. These allocations may also affect our earnings and profits
for purposes of determining the portion of distributions taxable as a dividend
income. The application of these rules over time may result in a higher
portion of distributions being taxed as dividends than would have occurred had
we purchased our interests in the Properties at their agreed values.
Interests in the properties purchased by the operating partnership for
cash simultaneously with or subsequent to our admission to the operating
partnership initially will have a tax basis equal to their fair market value.
Thus, Section 704(c) of the Code will not apply to such interests.
Federal Estate Taxes
In general, if an individual who is not a citizen or resident (as defined
in the Code) of the United States owns (or is treated as owning) our stock at
the date of death, such stock will be included in the individual's estate for
United States Federal estate tax purposes, unless an applicable estate tax
treaty provides otherwise.
21
State and Local Tax
SL Green and our stockholders may be subject to state and local tax in
states and localities in which it does business or owns property. Our tax
treatment and the tax treatment of the stockholders in such jurisdictions may
differ from the federal income tax treatment described above.
PLAN OF DISTRIBUTION
Any of the selling shareholders may from time to time, in one or more
transactions, sell all or a portion of the offered shares on the NYSE, in the
over-the-counter market, on any other national securities exchange on which
the common shares are listed or traded, in negotiated transactions, in
underwritten transactions or otherwise, at prices then prevailing or related
to the then current market price or at negotiated prices. The offering price
of the offered shares from time to time will be determined by the selling
shareholders and, at the time of the determination, may be higher or lower
than the market price of the common shares on the New York Stock Exchange. In
connection with an underwritten offering, underwriters or agents may receive
compensation in the form of discounts, concessions or commissions from a
selling shareholder or from purchasers of offered shares for whom they may act
as agents, and underwriters may sell offered shares to or through dealers, and
such dealers may receive compensation in the form of discounts, concessions or
commissions from the underwriters and/or commissions from the purchasers for
whom they may act as agents. Under agreements that may be entered into by SL
Green, underwriters, dealers and agents who participate in the distribution of
offered shares may be entitled to indemnification by SL Green against specific
liabilities, including liabilities under the Securities Act, or to
contribution with respect to payments which such underwriters, dealers or
agents may be required to make in respect thereof. The offered shares may be
sold directly or through broker-dealers acting as principal or agent, or
pursuant to a distribution by one or more underwriters on a firm commitment or
best-efforts basis. The methods by which the offered shares may be sold
include: (a) a block trade in which the broker-dealer so engaged will attempt
to sell the offered shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction; (b) purchases by a
broker-dealer as principal and resale by such broker-dealer for its account
pursuant to this prospectus; (c) ordinary brokerage transactions and
transactions in which the broker solicits purchasers; (d) an exchange
distribution in accordance with the rules of the New York Stock Exchange; (e)
privately negotiated transactions; and (f) underwritten transactions. The
selling shareholders and any underwriters, dealers or agents participating in
the distribution of the offered shares may be deemed to be "underwriters"
within the meaning of the Securities Act of 1933, and any profit on the sale
of the offered shares by the selling shareholders and any commissions received
by an such broker-dealers may be deemed to be underwriting commissions under
the Securities Act.
When a selling shareholder elects to make a particular offer of offered
shares, a prospectus supplement, if required, will be distributed which will
identify any underwriters, dealers or agents and any discounts, commissions
and other terms constituting compensation from such selling shareholder and
any other required information.
In order to comply with state securities laws, if applicable, the offered
shares may be sold only through registered or licensed brokers or dealers. In
addition, in specific states, the offered shares may not be sold unless they
have been registered or qualified for sale in such state or an exemption from
such registration or qualification requirement is available and is complied
with.
SL Green has agreed to pay all costs and expenses incurred in connection
with the registration under the Securities Act of 1933 of the offered shares,
including, without limitation, all registration and filing fees, printing
expenses and fees and disbursements of counsel and accountants for SL Green.
The selling shareholders will pay any brokerage fees and commissions, fees and
disbursements of legal counsel for the selling shareholders and stock transfer
and other taxes attributable to the sale of the offered shares. SL Green also
has agreed to indemnify each of the selling shareholders and their respective
officers, directors and trustees and each person who controls, within the
meaning of the Securities Act of 1933, such selling shareholder against
specified losses, claims, damages, liabilities and expenses arising under the
securities laws in connection with this offering. Each of the selling
shareholders has agreed to indemnify SL Green, its officers and directors and
each person who controls, within the meaning of the Securities Act of 1933, SL
Green, and each of the other selling shareholders, against any losses, claims,
damages, liabilities and expenses arising under the securities laws in
connection with this offering with respect to written
22
information furnished to SL Green by such selling shareholder; provided,
however, that the indemnification obligation is several, not joint, as to each
selling shareholder.
LEGAL MATTERS
The validity of the issuance of the securities offered hereby and the
legal matters described under "Federal Income Tax Considerations" will be
passed upon for SL Green by Sidley Austin Brown & Wood LLP, New York, New
York.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule included in our Annual Report on Form 10-K
for the three years ended December 31, 2000, and the statement of revenues and
certain expenses for One Park Avenue included in our Current Report on Form
8-K/A dated January 10, 2001, for the year ended December 31, 2000, and the
statement of revenues and certain expenses for 317 Madison Avenue included in
our current report on Form 8-K/A, dated June 7, 2001, for the year ended
December 31, 2000, as set forth in their reports, which are incorporated by
reference in this prospectus and elsewhere in the registration statement. Our
financial statements and schedule are incorporated by reference in reliance on
Ernst & Young LLP's reports, given on their authority as experts in accounting
and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any reports, statements or other information we file at the SEC's public
reference rooms located at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, IL 60661 and 7 World Trade Center, Suite 1300, New York, NY 10048.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. Our SEC filings are also available to the public from
commercial document retrieval services and at the web site maintained by the
SEC at "http://www.sec.gov."
We have filed a registration statement on Form S-3, of which this
prospectus forms a part, to register the securities with the SEC. As allowed
by SEC rules, this prospectus does not contain all the information you can
find in the registration statement or the exhibits to the registration
statement.
The SEC allows us to "incorporate by reference" information into this
prospectus, which means that we can disclose important information to you by
referring you to another document filed separately with the SEC. The
information incorporated by reference is deemed to be part of this prospectus,
except for any information superseded by information in this prospectus. This
prospectus incorporates by reference the documents set forth below that we
have previously filed with the SEC. These documents contain important
information about us, our business and our finances.
23
Document Period
-------- ------
Annual Report on Form 10-K (File No. 1-13199)...................... Year ended December 31, 2000
Quarterly Report on Form 10-Q (File No. 1-13199)................... Quarter ended March 31, 2001
Dated Filed
----- -----
Current Reports on Form 8-K (File No. 1-13199)..................... January 10, 2001 January 25, 2001
February 7, 2001 February 8, 2001
February 8, 2001 February 8, 2001
May 29, 2001 June 6, 2001
June 7, 2001 June 18, 2001
Dated Filed
----- -----
Amendments to Current Reports on Form 8-K
(File No. 1-13199)................................................. January 10, 2001 March 26, 2001
January 10, 2001 March 27, 2001
January 10, 2001 March 29, 2001
June 7, 2001 July 13, 2001
Any documents which we file pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this prospectus but before the end
of any offering of securities made under this prospectus will also be
considered to be incorporated by reference.
If you request, either orally or in writing, we will provide you with a
copy of any or all documents which are incorporated by reference. Such
documents will be provided to you free of charge, but will not contain any
exhibits, unless those exhibits are incorporated by reference into the
document. Requests should be addressed to Andrew S. Levine, Esq., SL Green
Realty Corp., 420 Lexington Avenue, New York, NY 10170, telephone number (212)
594-2700.
24
284,787 SHARES
SL GREEN REALTY CORP.
SHARES OF COMMON STOCK
----------
PROSPECTUS
----------
July __, 2001
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following sets forth the estimated expenses in connection with our
securities being registered hereby, other than underwriting discounts and
commissions, all of which will be borne by SL Green:
Securities and Exchange Commission registration fee............ $ 2,006
Printing and engraving expenses................................ 10,000
Legal fees and expenses........................................ 20,000
Accounting fees and expenses................................... 20,000
Miscellaneous.................................................. 994
Total.......................................................... $53,000
Item 15. Indemnification of Directors and Officers.
The Maryland General Corporation Law, as amended from time to time,
permits a Maryland corporation to include in its charter a provision limiting
the liability of its directors and officers to the corporation and its
shareholders for money damages except for liability resulting from (a) actual
receipt of an improper benefit or profit in money, property or services, or
(b) active and deliberate dishonesty established by a final judgment as being
material to the cause of action. The articles of incorporation contain a
provision which eliminates such liability to the maximum extent permitted by
Maryland law.
The articles of incorporation authorize SL Green, to the maximum extent
permitted by Maryland law, to obligate itself to indemnify and to pay or
reimburse reasonable expenses in advance of final disposition of a proceeding
to (a) any present or former director or officer of (b) any individual who,
while a director of SL Green and at the request of SL Green, serves or has
served another corporation, partnership, joint venture, trust, employee
benefit plan or any other enterprise as a director, officer, partner or
trustee of the corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise. The bylaws of SL Green obligate it, to the
maximum extent permitted by Maryland law, to indemnify and to pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to (a) any
present or former director or officer who is made a party to the proceeding by
reason of his service in that capacity or (b) any individual who, while a
director of SL Green and at the request of SL Green, serves or has served
another corporation, partnership, joint venture, trust, employee benefit plan
or any other enterprise as a director, officer, partner or trustee of the
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise and who is made a party to the proceeding by reason of his service
in that capacity. The articles of incorporation and bylaws also permit SL
Green to indemnify and advance expenses to any person who served a predecessor
of SL Green in any of the capacities described above and to any employee or
agent of SL Green or a predecessor of SL Green.
The Maryland General Corporation Law requires a corporation to indemnify
a director or officer who has been successful, on the merits or otherwise, in
the defense of any proceeding to which he is made a party by reason of his
service in that capacity. The Maryland General Corporation Law permits a
corporation to indemnify its present and former directors and officers, among
others, against judgments, penalties, fines, settlements and reasonable
expenses actually incurred by them in connection with any proceeding to which
they may be made a party by reason of their service in those or other
capacities unless it is established that (a) the act or omission of the
director or officer was material to the matter giving rise to the proceeding
and (1) was committed in bad faith or (2) was the result of active and
deliberate dishonesty, (b) the director or officer actually received an
improper personal benefit in money, property or services or (c) in the case of
any criminal proceeding, the director or officer had reasonable cause to
believe that the act or omission was unlawful. However, a Maryland corporation
may not indemnify for an adverse judgment in a suit by or in the right of the
corporation. In addition, the Maryland General Corporation Law requires SL
Green, as a condition to advancing expenses, to obtain (a) a written
affirmation by the director or officer of his good faith belief that he has
met the standard of conduct necessary for indemnification by SL Green as
authorized by
II-1
the bylaws and (b) a written statement by or on his behalf to repay the amount
paid or reimbursed by SL Green if it shall ultimately be determined that the
standard of conduct was not met.
SL Green has entered into indemnification agreements with each of its
executive officers and directors. The indemnification agreements require,
among other matters, that SL Green indemnify its executive officers and
directors to the fullest extent permitted by law and advance to the executive
officers and directors all related expenses, subject to reimbursement if it is
subsequently determined that indemnification is not permitted. Under these
agreements, SL Green must also indemnify and advance all expenses incurred by
executive officers and directors seeking to enforce their rights under the
indemnification agreements and may cover executive officers and directors
under SL Green's directors' and officers' liability insurance. Although
indemnification agreements offer substantially the same scope of coverage
afforded the bylaws, they provide greater assurance to directors and executive
officers that indemnification will be available, because, as contracts, they
cannot be modified unilaterally in the future by the board of directors or the
shareholders to eliminate the rights they provide.
Item 16. Exhibits.
1.1 Form of Underwriting Agreement.(1)
4.1 Articles of Incorporation.(2)
4.2 By-Laws.(2)
4.3 Form of Common Share Certificate.(3)
5.1 Opinion of Sidley Austin Brown & Wood LLP as to the legality of
the securities.(4)
8.1 Opinion of Sidley Austin Brown & Wood LLP as to
tax matters.(4)
23.1 Consent of Sidley Austin Brown & Wood LLP (included in
Exhibit 5.1).
23.2 Consent of Ernst & Young LLP.
24.1 Power of attorney (included on signature page of registration
statement on Form S-3 (No. 333-62434)).
------------------
(1) Previously filed as an exhibit to Registration Statement on Form S-3 (No.
333-30394) and incorporated herein by reference.
(2) Previously filed as an exhibit to Registration Statement on Form S-11
(No. 333-29329) and incorporated herein by reference.
(3) Previously filed as an exhibit to Amendment No. 2 to Registration
Statement on Form S-11 (No. 333-50311) and incorporated herein by
reference.
(4) Previously filed as an exhibit to Registration Statement on Form S-3 (No.
333-62434) and incorporated herein by reference.
Item 17. Undertakings.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to the registration statement;
(A) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(B) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement, or the most
recent post-effective amendment thereof, which, individually or in
the aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered if the
total dollar value of securities offered would not exceed that which
was registered and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the
II-2
changes in volume and price represent no more than a 20% change in
the maximum offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(C) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
Provided, however, that paragraphs (1)(A) and (1)(B) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant
to Section 13 or 15(d) of the Exchange Act that are incorporated by reference
in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each of these post-effective amendments shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of the securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act, and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act, that is incorporated by
reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Commission the
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against these liabilities, other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding, is asserted by the director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
(d) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act of 1933 the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) under the Securities Act of 1933 shall be deemed to
be part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of the
securities at that time shall be deemed to be the initial bona fide
offering thereof.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, SL Green
Realty Corp. certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
amendment no. 1 to the registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in New York, on July 16, 2001.
SL GREEN REALTY CORP.
By: /s/ Thomas E. Wirth
-------------------------------
Thomas E. Wirth
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
Stephen L. Green* Chief Executive Officer and Chairman of the
-------------------------------
Stephen L. Green Board of Directors
Marc Holliday* President
-------------------------------
Marc Holliday
/s/ Thomas E. Wirth Executive Vice President and Chief Financial July 16, 2001
------------------------------- Officer (principal financial officer and
Thomas E. Wirth principal accounting officer)
Benjamin P. Feldman* Director
-------------------------------
Benjamin P. Feldman
John H. Alschuler* Director
-------------------------------
John H. Alschuler
Edwin Thomas Burton, III* Director
-------------------------------
Edwin Thomas Burton, III
John S. Levy* Director
-------------------------------
John S. Levy
*By: /s/ Thomas E. Wirth July 16, 2001
-------------------------
Attorney-in-Fact
Exhibit Index
Exhibits Description
-------- ----------------------------
23.2 ____ Consent of Ernst & Young LLP