-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, StK2GObk3S5vKHQAwS5g5XCrf3MM0dFJAfBT2jpNluG9PbTk31CnRIt24tOxXO5p FXwyo7mX3R25/8hQ3nZNVg== 0000912057-95-010186.txt : 19951121 0000912057-95-010186.hdr.sgml : 19951121 ACCESSION NUMBER: 0000912057-95-010186 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951117 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROCKEFELLER CENTER PROPERTIES INC CENTRAL INDEX KEY: 0000773652 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 133280472 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08971 FILM NUMBER: 95594721 BUSINESS ADDRESS: STREET 1: 1270 AVENUE OF THE AMERICAS STREET 2: STE 2410 CITY: NEW YORK STATE: NY ZIP: 10020 BUSINESS PHONE: 2128417760 10-Q 1 FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1995 ------------------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to -------- --------- Commission file number 1-8971 ------ Rockefeller Center Properties, Inc. -------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 13-3280472 - ---------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1270 Avenue of the Americas, New York, N.Y. 10020 ----------------------------------------------------- (Address of principal executive offices)(Zip Code) (212) 698-1440 ------------------------------------------------- (Registrant's telephone number, including area code) ------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at November 14, 1995 - -------------------------- -------------------------------- Common Stock, $.01 par value 38,260,704 ROCKEFELLER CENTER PROPERTIES, INC. INDEX PAGE PART I--FINANCIAL INFORMATION ITEM 1. Financial Statements The accompanying unaudited, interim financial statements have been prepared in accordance with the instructions to Form 10-Q. In the opinion of management, all adjustments (consisting only of normal recurring items except as described in Notes 1 and 2) necessary for a fair presentation have been included. Balance Sheets as of September 30, 1995 (unaudited) and December 31, 1994 3 Statements of Operations for the quarters and nine months ended September 30, 1995 and 1994 (unaudited) 4 Statements of Cash Flows for the nine months ended September 30, 1995 and 1994 (unaudited) 5 Notes to Financial Statements (unaudited) 6 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 Supplemental information provided by the Borrower 25 PART II--OTHER INFORMATION 28 SIGNATURES 30 PART I--FINANCIAL INFORMATION ITEM 1. Financial Statements ROCKEFELLER CENTER PROPERTIES, INC. BALANCE SHEETS ($ in thousands)
SEPTEMBER 30, 1995 DECEMBER 31, 1994 -------------------- -------------------- ASSETS (UNAUDITED) Loan receivable and interest receivable, net of valuation reserve of $74,000 and $0 $1,176,225 $1,300,220 Deferred debt issuance costs, net 13,393 16,709 Cash and cash equivalents 16,417 2,897 Other assets 312 169 --------------- --------------- $1,206,347 $1,319,995 --------------- --------------- --------------- --------------- LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Current coupon convertible debentures due 2000 $213,170 $213,170 Zero coupon convertible debentures due 2000 net of unamortized discount of $234,460 and $259,322 351,725 326,863 Floating rate notes due 2000 116,296 150,000 14% debentures due 2007, net of unamortized discount of $4,371 and $4,639 70,629 70,361 Working capital loan 10,000 Accrued interest payable 58,571 37,338 Stock appreciation rights 12,661 2,611 Accounts payable and accrued expenses 2,778 2,185 Accrued transaction costs and deal expenses 25,163 --------------- --------------- 860,993 802,528 --------------- --------------- Contingencies Stockholders' equity: Common stock $.01 par value: 150,000,000 shares authorized, 38,260,704 shares issued and outstanding 383 383 Additional paid-in capital 707,545 707,545 Distributions to stockholders in excess of net income (362,574) (190,461) --------------- --------------- Total stockholders' equity 345,354 517,467 --------------- --------------- $1,206,347 $1,319,995 --------------- --------------- --------------- ---------------
SEE NOTES TO FINANCIAL STATEMENTS -3- ROCKEFELLER CENTER PROPERTIES, INC. STATEMENTS OF OPERATIONS ($ in thousands except per share data) (UNAUDITED)
QUARTERS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1995 1994 1995 1994 ---------- ---------- ---------- ---------- Revenues: Loan interest income (1) $27,336 $20,339 (1) $81,396 Short term investment, portfolio, and other interest income $556 81 1,003 553 ---------- ---------- ---------- ---------- 556 27,417 21,342 81,949 ---------- ---------- ---------- ---------- Expenses: Interest expense: Current coupon convertible debentures 5,871 5,744 17,107 16,735 Zero coupon convertible debentures 8,558 7,764 24,862 22,555 14% debentures 2,751 8,252 Floating rate notes 4,457 13,984 Commercial paper and other interest 70 5,989 70 18,886 Charge for uncovered swaps 3,125 3,125 ---------- ---------- ---------- ---------- 21,707 22,622 64,275 61,301 General and administrative 2,902 1,328 6,112 3,611 Amortization of deferred debt issuance and letter of intent costs 6,384 177 8,116 529 Stock appreciation rights liability 11,478 10,050 Effects of the execution and delivery of the merger agreement 99,163 99,163 ---------- ---------- ---------- ---------- 141,634 24,127 187,716 65,441 Net (loss) income before non-recurring income (141,078) 3,290 (166,374) 16,508 Non-recurring income (gain on sales of portfolio securities) 31 31 ---------- ---------- ---------- ---------- Net (loss) income ($141,078) $3,321 ($166,374) $16,539 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net (loss) income per share ($3.69) $0.09 ($4.35) $0.43 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(1) Loan interest income for the quarter and nine months ended September 30, 1995 is presented on a cash basis, see Note 1. SEE NOTES TO FINANCIAL STATEMENTS -4- ROCKEFELLER CENTER PROPERTIES, INC. STATEMENTS OF CASH FLOWS ($ in thousands) (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1995 1994 ------------- ------------- Cash flows from operating activities: Loan interest received $20,339 $59,021 Short term investment, portfolio and other interest income received 998 998 Interest paid on floating rate notes (13,410) Interest paid on 14% debentures (4,521) Interest paid on commercial paper and other (18,422) Payments for accounts payable, accrued expenses and other assets (5,793) (3,238) ------------- ------------- Net cash (used in) provided by operating activities (2,387) 38,359 ------------- ------------- Cash flows from investing activities: Draw downs on letter of credit support 50,000 Portfolio maturities and redemptions 14,331 ------------- ------------- Net cash provided by investing activities 50,000 14,331 ------------- ------------- Cash flows from financing activities: Dividends paid (5,739) (13,391) Floating rate note principal repayment (33,704) Net proceeds from working capital loan 8,025 Letter of intent fee and other financing fees (2,675) Maturities of commercial paper, net (39,350) ------------- ------------- Net cash used in financing activities (34,093) (52,741) ------------- ------------- Net increase (decrease) in cash 13,520 (51) Cash and cash equivalents at the beginning of the period 2,897 252 ------------- ------------- Cash and cash equivalents at the end of the period $16,417 $201 ------------- ------------- ------------- ------------- Reconciliation of Net (Loss) Income to Net Cash Provided by Operating Activities: Net (loss) income ($166,374) $16,539 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Effects of the execution and delivery of the merger agreement 99,163 Gain on sale of portfolio securities (31) Amortization of discount: Zero coupon convertible debentures 24,862 22,556 14% debentures 268 Increase in interest receivable and amortization of loan receivable discount, net (5) (21,930) Increase in deferred debt issuance and letter of intent costs and other assets, net 7,823 745 Increase in accrued interest payable and amortized unpaid discount on commercial paper 21,233 17,203 Increase in stock appreciation rights liability 10,050 Increase in uncovered swap liability 3,125 Decrease in accounts payable and accrued expenses 593 152 ------------- ------------- Net cash (used in) provided by operating activities ($2,387) $38,359 ------------- ------------- ------------- -------------
SEE NOTES TO FINANCIAL STATEMENTS -5- ROCKEFELLER CENTER PROPERTIES, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. ORGANIZATION AND PURPOSE Rockefeller Center Properties, Inc. (the "Company") was formed to permit public investment in a portion of Rockefeller Center. From the proceeds of its offering of Common Stock and the offerings of its Current Coupon Convertible Debentures due 2000 and Zero Coupon Convertible Debentures due 2000 (collectively, the "Convertible Debentures"), the Company made a $1.3 billion convertible, participating mortgage loan to two partnerships, Rockefeller Center Properties and RCP Associates (collectively, the "Borrower"). The partners of the Borrower are Rockefeller Group, Inc. ("RGI") and Radio City Music Hall Productions, Inc. ("RCMHP"), a wholly owned subsidiary of RGI. Mitsubishi Estate Company, Ltd. controls an 80% equity interest in RGI, and Rockefeller Family Interests hold the remaining 20%. The Borrower owns the real property interests comprising most of the land and buildings known as Rockefeller Center (the "Property"). In December 1994 the Company issued floating rate notes ("Floating Rate Notes") due December 31, 2000 and 14% debentures ("14% Debentures") due December 31, 2007 and warrants ("Warrants") and stock appreciation rights ("SARs") expiring December 31, 2007, the proceeds from which were used to retire all of its commercial paper borrowings and certain of its interest rate swap agreements. STATUS OF THE BORROWER On May 11, 1995, the two partnerships comprising the Borrower filed for protection under Chapter 11 of the Federal Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York. The Company's only significant source of income is interest received on the mortgage loan from the Borrower. As a result of this filing and until such time as these Chapter 11 cases have been brought to a conclusion, the Company does not expect to receive interest payments from the Borrower and the Company's ability to enforce its rights under the mortgage loan has been and will be stayed unless and until the Court issues an order permitting the Company to take steps to enforce such rights. The Company cannot predict either the length of time it will take to conclude these proceedings or the ultimate outcome of these proceedings. However, the Borrower has advised the Bankruptcy Court that it intends to turn over ownership of the Property to the Company upon consummation of a confirmed reorganization plan. Due to the significant uncertainties created by the Borrower's Chapter 11 filings, the Company has limited recognition of income on the mortgage loan for the nine months ended September 30, 1995 to the cash actually received from the Borrower during this period. Similarly, as a result of the significant uncertainties caused by the Borrower's Chapter 11 filings, the Company intends, for accounting purposes, to apply future cash receipts, if any, from the Borrower to reduce the carrying value of the mortgage loan. The application of the cash receipts to reduce the carrying value of the mortgage loan occurred in the second quarter of 1995 when the Company drew down the $50 million under letters of credit and reduced the carrying value of the mortgage loan to $1.25 billion. For additional information related to the potential resolution of the significant uncertainties created by the Borrower's Chapter 11 filings, and the effects of this potential resolution on the carrying value of the mortgage loan, see Note 8 - Subsequent Events. 2. LOAN RECEIVABLE AND INTEREST INCOME The mortgage loan, which is in the face amount of $1.3 billion, was made pursuant to a Loan Agreement between the Company and the Borrower dated September 19, 1985 (as amended, the "Loan Agreement"), and is evidenced by two notes (collectively, as amended, the "Note"). Following the Borrower's failure to make the interest payment due on May 31, 1995, the Company drew down the full amount available under the $50 million of letters of credit which supported, among other things, payment of the Base Interest (as defined) on the mortgage loan. -6- ROCKEFELLER CENTER PROPERTIES, INC. NOTES TO FINANCIAL STATEMENTS (cont'd) (UNAUDITED) Due to the significant uncertainties caused by the Borrower's Chapter 11 filings and solely for accounting purposes, this $50 million had been applied to reduce the carrying value of the mortgage loan to $1.25 billion. Consummation of the transactions contemplated by the Merger Agreement (see Note 8) would resolve many of the significant uncertainties created by the Borrower's Chapter 11 filings. Accordingly, the Company has further reduced the carrying value of the mortgage loan by $74 million to reflect the economics of the transactions contemplated by the Merger Agreement. The mortgage loan and interest receivable on the mortgage loan are combined on the Balance Sheet as of September 30, 1995 and a reclassification has been made to the previously reported December 31, 1994 Balance Sheet to combine these items. See Note 1 for a discussion of the status of the Borrower. Payment of the mortgage loan is secured by leasehold mortgages in the aggregate amount of approximately $44.8 million which were assigned to the Company, consolidated, spread and recorded as a first mortgage lien against the entire Property. Through September 6, 1994, the mortgage loan also was secured by an unrecorded mortgage in the amount of approximately $1,255.2 million. On September 6, 1994 the Company recorded this mortgage. The mortgage loan is further secured by a recorded assignment of rents pursuant to which the Borrower has assigned to the Company, as security for repayment of the mortgage loan, the Borrower's rights to collect certain rents with respect to the Property. Loan interest income of the Company for the nine months ended September 30, 1994 has been calculated on the basis of the average yield on the Note through December 31, 2000 (the "Equity Conversion Date" and the date at which the mortgage loan would have, if not converted, begun to bear floating rates of interest). Based on the scheduled principal and interest payments the average yield is 8.51% per annum and combines (using the interest method) differing coupon rates of base interest with the amortization of original issue discount applicable to the loan. 3. DEBT CONVERTIBLE DEBENTURES Interest expense recognized on the Convertible Debentures is based on the average yields to the maturity date, December 31, 2000. The average yields are computed (using the interest method with semiannual compounding) by (1) combining the differing coupon rates on the Current Coupon Convertible Debentures and (2) amortizing the original issue discount related to the Zero Coupon Convertible Debentures. The resulting effective annual interest rates are 9.23% and 10.23% for the Current Coupon and Zero Coupon Convertible Debentures, respectively. FLOATING RATE NOTES Interest expense on the Floating Rate Notes is based on the 90-day London Interbank Offered Rate ("LIBOR") plus 4%. At September 30, 1995, the interest rate in effect was 9.875%. The average interest rate for the nine months ended September 30, 1995 was 10.18%. In addition to this interest based upon LIBOR, interest expense on the Floating Rate Notes includes the financial effect associated with interest rate swap agreements used for hedging purposes (see below). Under the terms of the Floating Rate Notes, mandatory principal payments are required to be made of net cash flow ("Net Cash Flow") (calculated as of the most recent fiscal quarter), which is defined as all gross receipts minus actual operating expenses incurred; interest paid or accrued (on a straight line basis) on the Floating Rate -7- ROCKEFELLER CENTER PROPERTIES, INC. NOTES TO FINANCIAL STATEMENTS (cont'd) (UNAUDITED) Notes, 14% Debentures, Current Coupon Convertible Debentures, and other indebtedness (as defined) permitted under the agreements governing the Floating Rate Notes; dividends paid or accrued; and distributions paid or accrued on the Warrants and SARs. On September 1, 1995, due to the draw down on the letters of credit supporting the payment of Base Interest on the mortgage loan, the Company made a mandatory principal payment on the Floating Rate Notes of $33.7 million. 14% DEBENTURES Interest expense on the 14% Debentures also includes the straight line amortization of the original issue discount related to the Warrants and SARs through the expiration date of December 31, 2007. Under the terms of the 14% Debentures, to the extent that Net Cash Flow is insufficient to pay interest on the due date, the Company will not be obligated to pay interest on the 14% Debentures on such date and such interest will accrue. In connection with the issuance of the 14% Debentures in December 1994, the Company separately issued to Whitehall Street Real Estate Limited Partnership V ("Whitehall") 5,349,541 SARs which remain outstanding as of September 30, 1995. The SARs are exchangeable for 14% Debentures or, under certain circumstances, for Warrants on a one-for-one basis. Each stock appreciation right is exchangeable for a principal amount of 14% Debentures equal to the product of the average daily market prices of the common stock for the 30 consecutive trading days immediately preceding the date of exchange ($7.3667 at September 30, 1995) minus the exercise price per share of the Warrants into which the SARs are exchangeable ($5 per Warrant) times the number of Warrants into which the SARs are exchangeable (5,349,541 in aggregate). Under their current terms, the SARs would be automatically exchanged for Warrants on a one-for-one basis following adoption and filing of an amendment to the Certificate of Incorporation which would permit the holders of the SARs to own in excess of 9.8% of the outstanding shares of the Company's stock and adoption of any necessary Board resolutions. Upon any such exchange, the SARs liability would be reclassified to paid-in capital, requiring no further adjustments to future earnings. Due to the increase in the market price of the Company's stock during the nine months ended September 30, 1995, the Company was required to increase its SARs liability and record a current noncash charge to earnings of $10,050,000 in the first nine months of 1995. The Company is required to make adjustments to earnings for the difference between the aggregate principal amount of 14% Debentures issuable upon exchange of the SARs (SARs liability) and the value at which the SARs liability is carried by the Company. INTEREST RATE SWAP AGREEMENTS In connection with its issuance of commercial paper (subsequently replaced with Floating Rate Notes and 14% Debentures) and its portfolio of investment securities which was liquidated in 1993 and 1994, the Company entered into interest rate swap agreements with financial institutions that were intended either to fix a portion of the Company's interest rate risk on floating rate debt ("Liability Swaps"), or to fix the yield on its floating rate portfolio securities ("Asset Swaps"). Under the Liability Swaps, the Company pays a fixed rate of interest semi-annually and receives a variable rate of interest semi- annually based on 180-day LIBOR. Under the Asset Swaps, the Company received a fixed rate of interest semi-annually and paid a variable rate of interest quarterly based on 90-day LIBOR. In connection with the issuance of the Floating Rate Notes and 14% Debentures in December 1994, the Company retired all of its Asset Swaps and certain of its Liability Swaps. The amount to be paid or received from interest rate swap agreements is accrued as floating interest rates are reset semi-annually and, through the December 1994 retirement date of the commercial paper borrowings, is included as a component of -8- ROCKEFELLER CENTER PROPERTIES, INC. NOTES TO FINANCIAL STATEMENTS (cont'd) (UNAUDITED) interest expense on commercial paper and other. Since the retirement of the Company's commercial paper, the Company presents the financial effect of interest rate swaps as a component of interest expense on Floating Rate Notes. The $105,000,000 notional amount of Liability Swaps outstanding at September 30, 1995 represents three contracts each expiring during 1998. The net notional principal, weighted average interest rate of net swaps outstanding and annualized net payment relating to interest rate swap contracts, as of September 30, 1995 and 1994 are as follows: 1995 1994 -------------- -------------- Net notional principal $105,000,000 $245,000,000 -------------- -------------- -------------- -------------- Weighted average interest rate of net swaps outstanding 3.5599% 4.9032% -------------- -------------- -------------- -------------- Annualized net payment $3,738,000 $12,013,000 -------------- -------------- -------------- -------------- The current settlement value of all swaps outstanding at September 30, 1995, based on market quotes, was a liability for the Company of approximately $9.7 million as compared to approximately $25.3 million at September 30, 1994. Generally, the net settlement value would decrease with an increase in LIBOR rates and would increase as a result of a decrease in LIBOR rates. 4. NET (LOSS) INCOME PER SHARE AND DISTRIBUTIONS Net (loss) income per share is based upon 38,260,704 average shares of Common Stock outstanding during the quarters ended September 30, 1995 and 1994, respectively. For the quarters and nine months ended September 30, 1995 and 1994, fully diluted net (loss) income per share is not presented since the effect of the assumed conversion of the Convertible Debentures, Warrants and SARs would be anti-dilutive. On September 12, 1995, the Company announced that its Board of Directors had concluded that due to the significant uncertainties created by the Borrower's Chapter 11 filings, it would not be appropriate to pay a dividend for the quarter ended September 30, 1995. 5. LEGAL MATTERS On January 23, 1995, Bear, Stearns & Co., Inc. and Donaldson Lufkin & Jenrette Securities Corporation commenced an action against the Company in the Supreme Court of New York, County of New York. The plaintiffs allege that the Company breached a contract relating to the plaintiffs' provision of investment banking services to the Company. The plaintiffs seek $5,062,500, plus costs, attorneys' fees and interest. The Court denied the Company's motion to dismiss the complaint on September 21, 1995. On October 10, 1995, the Company filed an answer to the complaint which denied the plaintiffs' allegations and asserted numerous affirmative defenses. The Company intends to vigorously contest the plaintiffs' claims. The Company does not expect the outcome of this litigation to have a material effect on the financial condition of the Company. On May 11, 1995 the two partnerships comprising the Borrower filed for protection under Chapter 11 of the Federal Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York as described in Note 1. -9- ROCKEFELLER CENTER PROPERTIES, INC. NOTES TO FINANCIAL STATEMENTS (cont'd) (UNAUDITED) On May 24, 1995 Jerry Krim commenced an action encaptioned KRIM V. ROCKEFELLER CENTER PROPERTIES, INC. AND PETER D. LINNEMAN. On June 7, 1995, Kathy Knight and Moishe Malamud commenced an action encaptioned KNIGHT, ET AL. V. ROCKEFELLER CENTER PROPERTIES, INC. AND PETER D. LINNEMAN. Both actions were filed in the United States District Court for the Southern District of New York and purport to be brought on behalf of a class of plaintiffs comprised of all persons who purchased the Company's common stock between March 20, 1995 and May 10, 1995. The complaints allege that the Company and Dr. Linneman violated the federal securities laws by their purported failure to disclose prior to May 11, 1995 that the Borrower would file for bankruptcy protection. The cases have been consolidated. On July 28, 1995, the Company and Dr. Linneman filed answers to the complaints denying plaintiffs' substantive allegations and asserting numerous affirmative defenses. On September 22, 1995, plaintiffs served an Amended Class Action Complaint adding RCPI's remaining directors and its president as defendants. In addition to the foregoing claims, the Amended Complaint also asserts a cause of action for breach by RCPI's directors and its president of their fiduciary duties by approving the Combination Agreement (as defined in Note 6 - Agreements with EOH and Z/ML III). The plaintiffs are seeking damages in such amount as may be proved at trial. Plaintiffs are also seeking injunctive relief, plus costs, attorneys fees and interest. The Company believes that plaintiffs' allegations are without merit and intends to vigorously contest these actions. On July 6, 1995 Charal Investment Company, Inc. commenced a derivative action against certain of the Company's present and former directors in the Court of Chancery of the State of Delaware in and for New Castle County ("Delaware Court of Chancery"). The Company was named as a nominal defendant. The plaintiff alleges that the directors breached their fiduciary duties by: (1) using commercial paper proceeds to repurchase Convertible Debentures; (2) entering into interest rate swaps; and (3) making capital distributions to stockholders. Prior to the commencement of the action, the Company's Board of Directors appointed a special committee of the Board to review the plaintiff's pre-suit demand that it institute litigation on the Company's behalf with respect to such claims and recommend a course of action to the full board. Plaintiff nevertheless commenced the action, asserting that circumstances did not permit further delay. On November 7, 1995 the Court of Chancery dismissed this action without prejudice due to plaintiff's failure to comply with the requirements of the Court of Chancery Rule 23.1. On July 31, 1995, L.L. Capital Partners, L.P. commenced an action against the Company in the United States District Court in the Southern District of New York. The plaintiff alleges that, prior to December 1993, the Company failed to disclose its purported belief that the Rockefeller family and the Borrower's corporate parent would cease to fund the Borrower's cash flow shortfalls. The Company believes that plaintiff's allegations are without merit and intends to vigorously contest this action. In September 1995 counsel for the Company filed a motion to dismiss this action for failure to state a claim. On September 13 and 14, 1995, four class action complaints, captioned FAEGHEH MOEZINIA V. PETER D. LINNEMAN, BENJAMIN D. HOLLOWAY, PETER G. PETERSON, WILLIAM F. MURDOCH, JR. AND ROCKEFELLER CENTER PROPERTIES, INC.; MARTIN ZACHARIAS V. B.D. HOLLOWAY, P.G. PETERSON, W.F. MURDOCH, P.D. LINNEMAN AND ROCKEFELLER CENTER PROPERTIES, INC.; JAMES COSENTINO V. PETER D. LINNEMAN, BENJAMIN D. HOLLOWAY, PETER G. PETERSON, WILLIAM F. MURDOCH, JR. AND ROCKEFELLER CENTER PROPERTIES, INC.; and MARY MILLSTEIN V. PETER D. LINNEMAN, PETER G. PETERSON, BENJAMIN D. HOLLOWAY, WILLIAM F. MURDOCH, JR. AND ROCKEFELLER CENTER PROPERTIES, INC., were filed in the Delaware Court of Chancery. On October 3, 1995, an additional complaint captioned ROBERT MARKEWICH V. PETER D. LINNEMAN AND DANIEL M. NEIDICH, ET AL., was filed in the Delaware Court of Chancery. On October 11, 1995, an additional complaint captioned HUNTER HOGAN V. ROCKEFELLER CENTER PROPERTIES, INC., ET AL., was filed in the -10- ROCKEFELLER CENTER PROPERTIES, INC. NOTES TO FINANCIAL STATEMENTS (cont'd) (UNAUDITED) Delaware Court of Chancery. Each of the complaints purports to be brought on behalf of a class of plaintiffs comprised of shareholders of the Company who have been or will be adversely affected by the Combination Agreement. All of the complaints allege that RCPI's Directors breached their fiduciary duties by approving the Combination Agreement. The complaints seek damages in such amount as may be proved at trial. Plaintiffs also seek injunctive relief, plus costs, and attorneys fees. On November 8, 1995 the Court of Chancery entered an order consolidating these actions. The Company believes plaintiffs' allegations are without merit and intends to contest these actions vigorously. 6. AGREEMENTS WITH EOH AND Z/ML III In August 1995, the Company entered into a Letter of Intent (the "Letter of Intent") dated as of August 16, 1995 with Equity Office Holdings, L.L.C. ("EOH") with respect to a possible business combination between the Company and a group of investors described therein and, in connection therewith, paid to EOH a fee of $2.0 million. In the same month the Company entered into an Investment Agreement dated as of August 18, 1995 (the "Z/ML III Investment Agreement") with Zell/Merrill Lynch Opportunity Partners Limited Partnership III ("Z/ML III") pursuant to which Z/ML III made a $10 million working capital loan to the Company and, in connection therewith, the Company paid Z/ML III a fee of $1.9 million. The Company also paid Z/MLIII a fee of $.4 million upon execution of the Letter of Intent. In addition, the Company paid other financing fees associated with these transactions of $.3 million. In September 1995, the Company entered into an Agreement and Plan of Combination dated as of September 11, 1995 (the "Combination Agreement") with EOH. See Note 8 - Subsequent Events. 7. SUMMARIZED FINANCIAL INFORMATION CONCERNING THE BORROWER Summarized financial information concerning the results of operations of the Property provided by the Borrower is presented below. For additional information concerning the Borrower see Management's Discussion and Analysis of Financial Condition and Results of Operations - The Property. ($ in thousands) (unaudited) Quarters ended Nine Months ended September 30, September 30, 1995 1994 1995 1994 ---- ---- ---- ---- Gross Revenue $53,427 $57,680 $157,527 $168,713 ------------ ----------- ------------ ---------- Less: Operating expenses (32,653) (41,290) (110,133) (120,791) Interest expense, net (29,379) (45,038) (87,327) Reorganization items (10) (273) ------------ ----------- ------------ ---------- Net income (loss) $20,764 ($12,989) $2,083 ($39,405) ------------ ----------- ------------ ---------- ------------ ----------- ------------ ---------- 8. SUBSEQUENT EVENTS On November 7, 1995, the Company executed and delivered an Agreement and Plan of Merger dated as of November 7, 1995 (the "Merger Agreement") with a group of investors (the "Investor Group") including Exor Group S.A., David Rockefeller, Rockprop L.L.C., Troutlet Investments Corporation and Whitehall pursuant to -11- ROCKEFELLER CENTER PROPERTIES, INC. NOTES TO FINANCIAL STATEMENTS (cont'd) (UNAUDITED) which, subject to satisfaction of the conditions specified in the Merger Agreement, a corporation formed by the Investor Group would merge with the Company, the surviving company would be wholly owned by the Investor Group, and shareholders of the Company would receive $8.00 in cash for each of their shares of Company Common Stock. The Merger Agreement provides, among other things, that Goldman Sachs Mortgage Company ("GSMC"), which is a party to the Merger Agreement for this purpose, would make available to the Company up to $45 million of credit during the period between November 7, 1995 and the consummation of the merger contemplated by the Merger Agreement. Such credit would be secured on the same basis as the Floating Rate Notes and the 14% Debentures but would accrue interest at the rate of 10% per annum (compounded quarterly) and be prepayable at any time without penalty. If borrowings under this facility have not been repaid by the earlier of March 31, 1996 or any termination of the Merger Agreement in specified circumstances, including any exercise by the Company of its "fiduciary out," such borrowings would be subject to the same terms and conditions as those applicable to the Floating Rate Notes. On November 7, 1995 the Company borrowed $10.2 million from GSMC under this facility and terminated the Combination Agreement. On November 8, 1995, the Company paid Z/ML III the principal and interest on the $10 million working capital loan which had been made pursuant to the Z/ML III Investment Agreement. Consummation of the transactions contemplated by the Merger Agreement would resolve many of the significant uncertainties created by the Borrower's Chapter 11 filings. Prior to the execution and delivery of the Merger Agreement, the Company had based the value assigned to the Property on an independent appraisal at December 31, 1994, which was subject to a concurring review. The appraisal, at that time, gave the clearest indication as to the value of the Property. However, the terms of the Merger Agreement could be considered to indicate that the market value of the Property now may be less than the carrying value of the mortgage loan as reported in the June 30, 1995 interim financial statements. Accordingly, the Company has reflected in its September 30, 1995 interim financial statements a valuation reserve, totaling $74 million, to reduce the carrying value of its mortgage loan to reflect the economics of the transactions contemplated by the Merger Agreement. In addition, the Company has recorded certain deal expenses and transaction costs aggregating $25.2 million which reflect the breakup fee related to the termination of the Combination Agreement, professional fees, and certain liquidation expenses and other liabilities specifically provided for in the Merger Agreement. Finally, the Company has recognized as expense certain deferred debt issuance and Letter of Intent costs totaling $4.4 million related to the terminated Combination Agreement. -12- ROCKEFELLER CENTER PROPERTIES, INC. ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES--THE COMPANY The discussion below relates primarily to the Company's financial condition and results of operations for the first nine months of 1995. The primary source of liquidity for the Company has been interest income received on its mortgage loan to two partnerships (collectively, the "Borrower"). The mortgage loan is secured by leasehold mortgages in the aggregate amount of approximately $44.8 million which were assigned to the Company, consolidated, spread and recorded as a first mortgage lien against the entire property ("Property"). Until September 6, 1994, the mortgage loan also was secured by an unrecorded mortgage in the amount of approximately $1,255.2 million. On September 6, 1994, the Company recorded this mortgage. The mortgage loan is further secured by a recorded assignment of rents pursuant to which the Borrower has assigned to the Company, as security for repayment of the mortgage loan, the Borrower's rights to collect certain rents with respect to the Property. The credit facility extended by Goldman Sachs Mortgage Company ("GSMC") to the Company under the Merger Agreement, described in Note 8 of the Notes to Financial Statements is expected to provide sufficient liquidity for the Company until the earlier of the consummation of the merger contemplated by the Merger Agreement or March 31, 1996. If such merger has not been consummated by March 31, 1996, the Company will not have sufficient liquidity to service its debts and fund its operations after such date unless it is able to raise additional funds from GSMC or other sources. There can be no assurance that the Company would be able to do so on acceptable terms. STATUS OF THE BORROWER On May 11, 1995, the two partnerships comprising the Borrower filed for protection under Chapter 11 of the Federal Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York. The Company's only significant source of income has been interest received on the mortgage loan from the Borrower. As a result of this filing and until such time as these Chapter 11 cases have been brought to a conclusion, the Company does not expect to receive interest payments from the Borrower and the Company's ability to enforce its rights under the mortgage loan has been and will be stayed unless and until the Court issues an order permitting the Company to take steps to enforce such rights. The Company cannot predict either the length of time it will take to conclude these proceedings or the ultimate outcome of these proceedings. However, the Borrower has advised the Bankruptcy Court that it intends to turn over ownership of the Property to the Company pursuant to a confirmed reorganization plan. Due to the significant uncertainties created by the Borrower's Chapter 11 filings, the Company has limited recognition of income on the mortgage loan for the nine months ended September 30, 1995 to the cash actually received from the Borrower during this period. Similarly, as a result of the significant uncertainties caused by the Borrower's Chapter 11 filings, the Company intends, for accounting purposes, to continue to apply future cash receipts, if any, from the Borrower to reduce the carrying value of the mortgage loan. The application of the cash receipts to reduce the carrying value of the mortgage loan occurred in the second quarter of 1995 when the Company drew down the $50 million under letters of credit and reduced the carrying value of the mortgage loan to $1.25 billion. For additional information related to the potential resolution of the significant uncertainties created by the Borrower's Chapter 11 filings, and the effects of this potential resolution on the carrying value of the mortgage loan, see Note 8 of the Notes to Financial Statements. -13- ROCKEFELLER CENTER PROPERTIES, INC. ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (cont'd) MORTGAGE LOAN INTEREST INCOME Following the Borrower's failure to make the interest payment due on May 31, 1995, the Company drew down the full amount available under the $50 million of letters of credit which supported, among other things, payment of Base Interest (as defined) on the mortgage loan. Due to the significant uncertainties caused by the Borrower's Chapter 11 filings and solely for accounting purposes, this $50 million has been applied to reduce the carrying value of the mortgage loan. During the nine months ended September 30, 1995 and 1994, cash from the Borrower for payment of interest income on the mortgage loan was $20,339,000 and $59,021,000, respectively. The mortgage loan agreement, enforcement of which is stayed, unless and until the Court orders otherwise, during the pendency of the Borrower's Chapter 11 cases, provides for Base Interest to be paid by the Borrower in accordance with a schedule requiring the Borrower to pay on November 30 of each year that portion of the Base Interest payment due for the whole year equal to the interest that is payable during such year with respect to the Current Coupon Convertible Debentures of the Company due 2000 and the remainder quarterly on February 28, May 31, August 31 and November 30 of each such year. The mortgage loan also provides for Additional Interest (as defined) to be earned by the Company under certain circumstances. No Additional Interest has been earned by the Company to date. Based on present conditions in the Midtown Manhattan rental market, the Company does not currently expect that it would earn Additional Interest even if the Borrower's reorganization proceedings were terminated. SHORT TERM INVESTMENT, PORTFOLIO AND OTHER INTEREST INCOME Short term investment, portfolio and other interest income received during the nine months ended September 30, 1995 and 1994 totaled $998,000 and $998,000, respectively. During the first nine months of 1995, interest was received on invested funds. The Company's short term investments are highly liquid and have the highest credit rating with a maturity of less than three months. During the first nine months of 1994, interest was primarily received on the Company's portfolio of investment securities. DEBT On December 29, 1994, the Company issued $150,000,000 of floating rate notes ("Floating Rate Notes") and $75,000,000 of 14% debentures ("14% Debentures") and warrants ("Warrants") and stock appreciation rights ("SARs"). Interest payments on the Floating Rate Notes are made quarterly on March 1, June 1, September 1 and December 1 of each year. The Company paid $10,510,000 of interest on the Floating Rate Notes and $2,900,000 of interest on its swap agreements for a total of $13,410,000 paid in floating rate interest during the nine months ended September 30, 1995. Under the terms of the Floating Rate Notes mandatory principal payments are required to be made of net cash flow ("Net Cash Flow") (calculated as of the most recent fiscal quarter), which is defined as all gross receipts minus actual operating expenses incurred; interest paid or accrued (on a straight line basis) on the Floating Rate Notes, 14% Debentures, Current Coupon Convertible Debentures and other indebtedness (as defined) permitted under the agreements governing the Floating Rate Notes; dividends paid or accrued; and distributions paid or accrued on the Warrants and SARs. On September 1, 1995, due to the draw down on the letters of credit supporting the payment of base interest on the mortgage loan, the Company made a mandatory principal payment on the Floating Rate Notes of $33.7 million. Interest on the 14% Debentures is payable semi-annually on June 2 and December 2 of each year. The Company paid $4,521,000 of interest on the 14% Debentures during the nine months ended September 30, 1995. -14- ROCKEFELLER CENTER PROPERTIES, INC. ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (cont'd) As discussed in Note 3 of the Notes to the Financial Statements, the annualized payment relating to the $105,000,000 notional principal of the interest rate swaps outstanding at September 30, 1995 was $3,738,000. This amount may change during the remainder of 1995 and in subsequent years, as the floating rates receivable are periodically reset. Coupon payments on outstanding Current Coupon Convertible Debentures are made annually on December 31. The interest rate payable on the $213,170,000 Current Coupon Convertible Debentures outstanding as of September 30, 1995 is 13% per annum and, assuming no change in the amount of Current Coupon Convertible Debentures outstanding, the interest payment will total $27,712,000 on January 2, 1996. Prior to January 1, 1995, this interest rate was 8% per annum. The Company has not repurchased any of its Convertible Debentures since 1992 and, under the terms of the 14% Debentures and Floating Rate Notes, the Company is not permitted to repurchase any of its Convertible Debentures. The following schedule presents the components of commercial paper and other interest paid during the period shown. Nine Months Ended September 30, 1994 -------------------- Interest rate swap agreements $10,150,000 Commercial paper (including commercial paper fees and expenses) 8,272,000 -------------------- $18,422,000 -------------------- -------------------- NON-DISTURBANCE AGREEMENTS The Company has executed non-disturbance agreements with tenants that occupy at least a full floor in any of the buildings comprising a part of the Property and certain other tenants. Such agreements provide that in the event of a foreclosure of the mortgage loan, such tenant's possession of space within the Property will not be disturbed so long as such tenant is in compliance with the terms of its lease. In addition, certain of these tenants, under their leases, may offset fixed rent otherwise payable to the Borrower (up to specified maximum amounts) in the event that the Borrower has failed to pay for certain alterations to the leased property provided for in their leases. In the event the aggregate amount that all such tenants may offset (the "Rent Offset Amount") exceeds $37.5 million, an agreement with the Borrower (enforcement of which is stayed by the pendency of the Borrower's Chapter 11 cases) contemplates that the Borrower would maintain credit support facilities to provide additional security in an amount equal to at least 50% of the positive excess. As of September 30, 1995, the Company had executed seven rent offset agreements with tenants. The total Rent Offset Amount at such date was $15.7 million, which is below the $37.5 million threshold and, accordingly, the Borrower would not, in any event, be required to maintain credit support facilities for this Rent Offset Amount. RESULTS OF OPERATIONS--THE COMPANY The Company's principal source of revenue during each of the nine-month periods ended September 30, 1995 and 1994 was loan interest income recognized on the mortgage loan. As discussed in Note 1 of the Notes to Financial Statements, loan interest income was recognized only to the extent of loan interest actually received from the Borrower during the nine-month period ended September 30, 1995. Loan interest income exceeded loan interest received by $22,375,000 during the nine-month period ended September 30, 1994. The difference in the period ended September 30, 1994 is attributable partially to the aforementioned schedule of periodic interest payments, partially to the amortization of original issue discount applicable to the mortgage loan and partially to -15- ROCKEFELLER CENTER PROPERTIES, INC. ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (cont'd) the recognition of interest income on the mortgage loan according to the effective interest method by which interest is calculated on the basis of the average yield on the notes evidencing the mortgage loan through the Equity Conversion Date. Short term investment, portfolio and other interest income for the nine months ended September 30, 1995 increased by $450,000 or 81.4%, from that of the comparable prior year period as a result of increased interest earnings on short term investments due to the investing of funds received from the letter of credit proceeds discussed in Note 2 of the Notes to Financial Statements. Interest expense on Current Coupon Convertible Debentures for the nine months ended September 30, 1995 increased by $372,000 or 2.2%, over that of the comparable prior year period, principally as a result of the recognition of interest expense according to the effective interest method by which interest is calculated on the basis of the average interest expense on the Current Coupon Convertible Debentures through the maturity date, December 31, 2000. Interest expense on Zero Coupon Convertible Debentures for the nine months ended September 30, 1995 increased by $2,307,000 or 10.2%, over that of the comparable prior year period, principally as a result of accruals of interest on the increasing accretion of the principal amount of the Zero Coupon Convertible Debentures. Such accruals of interest grow at the annual rate of 10.2%. Interest expense on the 14% Debentures and Floating Rate Notes, which replaced commercial paper borrowings and retired a portion of the Company's interest rate swap agreements in December 1994, and other interest expense for the nine months ended September 30, 1995 increased by $3,420,000 or 18.1%, over that incurred on the commercial paper in the comparable prior year period principally due to the increase in interest rates between 1995 and 1994. Combined interest expense on all debt totaled $64,275,000 and $61,301,000 for each of the nine-month periods ended September 30, 1995 and 1994, respectively. These amounts accounted for 76.4% and 93.7% of total expenses in each of the respective periods. General and administrative expenses for the nine months ended September 30, 1995 increased by $2,501,000, or 69.3%, over that of the comparable prior year period, due to increased legal fees and investor relations related expenses principally due to actions taken as a result of the Borrower's Chapter 11 filings. Amortization of deferred debt issuance and letter of intent costs for the nine months ended September 30, 1995 increased by $7,584,000 due principally to the write off of deferred debt issuance and letter of intent costs totaling $4,431,000 relating to the termination of the working capital loan and the Combination Agreement. For additional information see Notes 6 and 8 of the Notes to Financial Statements. In addition, amortization of deferred debt issuance costs increased due to the issuance of the 14% Debentures and Floating Rate Notes in December 1994. The Company was required to record a charge to earnings of $10,050,000 for the nine months ended September 30, 1995 to increase the SARs liability to reflect the aggregate principal amount of 14% Debentures that would have been issuable upon exchange of the SARs on September 30, 1995. The Company will be required to make future adjustments to earnings to reflect the aggregate principal amount of 14% Debentures issuable upon -16- ROCKEFELLER CENTER PROPERTIES, INC. ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (cont'd) exchange of the SARs based upon the current market price of the Company's stock unless an amendment to the Company's Certificate of Incorporation is adopted and filed and any necessary Board resolutions are adopted which would result in an automatic exchange of SARs for Warrants (see Note 3 of the Notes to Financial Statements). Consummation of the transactions contemplated by the Merger Agreement would resolve many of the significant uncertainties created by the Borrower's Chapter 11 filings. Prior to the execution and delivery of the Merger Agreement, the Company had based the value assigned to the Property on an independent appraisal at December 31, 1994, which was subject to a concurring review. The appraisal, at that time, gave the clearest indication as to the value of the Property. However, the terms of the Merger Agreement could be considered to indicate that the market value of the Property now may be less than the carrying value of the mortgage loan as reported in the June 30, 1995 interim financial statements. Accordingly, the Company has reflected in its September 30, 1995 interim financial statements a valuation reserve, totaling $74,000,000, to reduce the carrying value of its mortgage loan to reflect the economics of the transactions contemplated by the Merger Agreement. In addition, the Company has recorded certain deal expenses and transaction costs aggregating $25,163,000 which reflect the breakup fee relating to the termination of the Combination Agreement, professional fees, and certain liquidation expenses and other liabilities specifically provided for in the Merger Agreement. See Note 8 of the Notes to Financial Statements relating to the transactions contemplated by the Merger Agreement. -17- ROCKEFELLER CENTER PROPERTIES, INC. ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (cont'd) THE PROPERTY The financial information and analysis included in the following discussions of the "Financial Condition and Outlook - The Property", "Results of Operations - The Property", and "Cash Flow - The Property" have been furnished to the Company by Rockefeller Center Properties and its affiliate, RCP Associates. PROCEEDINGS UNDER CHAPTER 11 On May 11, 1995 (the "Petition Date"), Rockefeller Center Properties ("RCP") and its affiliate, RCP Associates, (collectively, the "Debtors") filed voluntary petitions for reorganizations under Chapter 11 (the "Chapter 11 Cases"), title 11 of the United States Code, as amended (the "Bankruptcy Code"), in the United States Bankruptcy Court of the Southern District of New York (the "Bankruptcy Court"). The Chapter 11 Cases have been assigned case numbers 95 B 42089 and 95 B 42088 (PBA), respectively. The separate Chapter 11 Cases of the Debtors have been consolidated for procedural purposes and are being jointly administered pursuant to an order of the Bankruptcy Court. A statutory unsecured creditors' committee has been appointed for RCP. Subsequent to the Petition Date, the Debtors have continued in possession of their properties and are operating and managing their businesses as debtors-in- possession pursuant to Sections 1107 and 1108 of the Bankruptcy Code. The Debtors have sought and obtained orders from the Bankruptcy Court intended to continue to allow the Debtors to maintain operations and obtain new business and otherwise minimize the disruption caused by the Chapter 11 proceedings, including orders: (i) authorizing the Debtors to pay certain prepetition liabilities, wages, and other employee obligations and (ii) approving the use of cash collateral. On September 12, 1995, the Debtors reported to the Bankruptcy Court that they intended to transfer the Property to the mortgage holder, RCPI. The date of transfer is uncertain at this time. On October 30, 1995, the Bankruptcy Court approved an $80 million Debtor-in- Possession Revolving Credit Agreement (the "Facility") which may be used to fund tenant improvements, leasing commissions, required capital expenditures and other permitted working capital needs of the Debtors. The Facility is secured by a first mortgage on the Property which is senior to the existing mortgage held by RCPI. The Facility matures on the earlier of December 31, 1996 or upon the substantial consummation of a plan of reorganization. BASIS OF PRESENTATION For financial reporting purposes, the Debtors have applied the provisions of the American Institute of Certified Public Accountants Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7"), in preparing the unaudited combined financial statements as of and for the period May 11, 1995 through September 30, 1995. In accordance with SOP 90-7, those liabilities and obligations whose disposition is dependent upon the outcome of the Chapter 11 Cases have been segregated and classified as "Liabilities Subject to Compromise" in the unaudited combined balance sheet at September 30, 1995. In the opinion of the Debtors, the unaudited combined financial statements for the current reporting period include all operating adjustments, which comprise the normal accruals (exclusive of certain effects of bankruptcy) required to reflect the operations of the Debtors in the ordinary course, necessary for a fair presentation of the results for the period. -18- ROCKEFELLER CENTER PROPERTIES, INC. ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (cont'd) The unaudited combined financial statements have been prepared on a going concern basis, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the ordinary course of business. With the approval of the Bankruptcy Court, where necessary, the Debtors may sell or otherwise dispose of assets and liquidate or settle liabilities for amounts different from those reflected in the unaudited combined financial statements. Further, a plan of reorganization could materially change the amounts reported in the unaudited combined financial statements, which do not reflect any adjustments to the carrying value of assets or amounts and classifications of liabilities that might be necessary as a consequence of a plan of reorganization. In the event that a Plan of Reorganization is not filed, and as a result, the Property is liquidated, other adjustments might be required. In either case, any adjustments which result could be material. Certain items in the 1994 combined financial statements have been reclassified in the 1995 combined financial statements in accordance with SOP 90-7. RESULTS OF OPERATIONS - THE PROPERTY The operating results of the Property during the quarter and nine months ended September 30, 1995 and 1994 are presented in summary form in the table below: -19- ROCKEFELLER CENTER PROPERTIES, INC. ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (cont'd)
($ In Thousands) (UNAUDITED) Quarters Ended Nine Months Ended September 30, September 30, ------------------------------ ------------------------------ 1995 1994 1995 1994 -------------- -------------- -------------- -------------- Gross revenue: Fixed and percentage rents $44,252 $38,256 $132,073 $114,207 Operating and real estate tax escalation 4,043 11,961 11,509 36,724 Consideration revenues 35 1,144 948 3,157 Sales and service revenues 5,097 6,319 12,997 14,625 ---------- ---------- ---------- ---------- 53,427 57,680 157,527 168,713 ---------- ---------- ---------- ---------- Operating Expenses: Real estate taxes 8,780 9,837 25,703 30,953 Real estate tax refund (7,388) - (7,388) - Utilities 4,805 4,538 13,207 12,842 Maintenance and engineering 7,423 8,328 23,096 24,112 Other operating expenses 10,058 10,840 29,212 30,070 Depreciation and amortization 7,143 5,769 20,559 17,615 Management fee 679 657 2,036 1,971 General and administrative 1,153 1,321 3,708 3,228 ---------- ---------- ---------- ---------- 32,653 41,290 110,133 120,791 ---------- ---------- ---------- ---------- Earnings before interest and reorganization items 20,774 16,390 47,394 47,922 Interest expense, net - 29,379 45,038 87,327 ---------- ---------- ---------- ---------- Earnings before reorganization items 20,774 (12,989) 2,356 (39,405) Reorganization items: Professional fees and expenses 246 - 547 - Interest income (236) - (274) - ---------- ---------- ---------- ---------- Net income (loss) $20,764 ($12,989) $2,083 ($39,405) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
The gross revenue of the Property during the quarter and nine months ended September 30, 1995 decreased by $4.3 million and $11.2 million, respectively, when compared to the comparable prior-year periods. The reduction in gross revenue during the quarter and nine months ended September 30, 1995 was attributable to decreased operating and real estate tax escalation revenue, lower consideration revenue, and decreased sales and service revenues. These decreases were offset partially by increased fixed and percentage rents related to new leases and lease renewals. The decrease in operating and real estate tax escalation revenue reflected the establishment of new escalation base years in connection with new leases and lease renewals. Consideration revenue consists principally of one-time payments negotiated by tenants for the right to cancel their leases prior to scheduled termination dates. The decrease in sales and service revenues was a result of lower occupancy. -20- ROCKEFELLER CENTER PROPERTIES, INC. ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (cont'd) The following table shows the occupancy rates for the Property at specified dates: December 31, 1993 - 94.6% December 31, 1994 - 90.2% March 31, 1994 - 95.6% March 31, 1995 - 90.1% June 30, 1994 - 96.1% June 30, 1995 - 88.3% October 1, 1994 - 90.4% September 30, 1995 - 89.1% As of September 30, 1995, the occupancy rate was 89.1%. This occupancy level reflected a total of 677,000 square feet of vacant space resulting in large measure from the significant turnover of leases which expired on September 30, 1994. In addition, a total of 391,000 square feet will become available during the remainder of 1995. Releasing the space will represent a significant challenge which may involve high levels of expenditures for tenant work and concessions. During the nine months ended September 30, 1995, 146 leases covering approximately 502,000 square feet of office, retail, and storage space took effect, at net effective annual fixed rents averaging $33.71 per square foot. The net effective annual rental rates for office space, which accounted for approximately 424,000 square feet of the total area leased, averaged $31.14 per square foot. This amount compared to a net effective rental rate of $30.78 per square foot for office space leases which took effect during all of 1994. Net effective annual rental rates reflect the present value of base rental payments less the current and future expenditures for tenant improvements, concessions, and brokerage commissions. The gross rental rates for the office space leases that were concluded and took effect during the nine months ended September 30, 1995 averaged $36.46 per square foot (compared with $39.80 per square foot for office space leases which took effect during all of 1994). The actual rate at which each lease was executed depended upon its location within the Property, type of space leased, length of lease term, and other factors. Of the approximately 424,000 square feet of office space leased during the nine months ended September 30, 1995, approximately 216,000 square feet represented renewals of existing tenants at an average gross rental rate of $32.96 per square foot. The combined fixed rent and escalation payments prior to lease renewal for these renewing tenants had averaged $34.48 per square foot. The National Broadcasting Company, Inc. ("NBC") currently leases approximately 1.3 million square feet of space in three interconnected Rockefeller Center buildings (the GE Building, the Studio Building and the GE West Building). NBC will pay annual rent of approximately $27.7 million through September 1997 and its 1998 annual rent is projected to be $53.2 million. Most of the lease agreements call for NBC to pay rent on a "net" basis starting on October 1, 1997, that is, without including amounts normally payable with regard to real estate taxes and certain operating expenses, which NBC would pay directly; some space is currently being paid on a net basis. NBC's leases will expire by the year 2022. NBC has options for two renewal periods after 2022 through 2042. The following table shows selected lease expiration and vacant space information for the Property as of September 30, 1995 and has been furnished to the Company by the Debtors. Actual renewal rents and rental income will be affected significantly by market conditions at the time and by the terms at which the Debtors can then lease space. -21- ROCKEFELLER CENTER PROPERTIES, INC. ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (cont'd)
Number of Percentage of Year leases expiring Area (sq.ft.) total rentable area ---- --------------- ------------ ------------------- 1995 (October 1 to December 31) 61 390,904 6.32% 1996 73 145,061 2.34% 1997 45 83,936 1.36% 1998 70 217,692 3.52% 1999 58 159,922 2.59% 2000 50 320,484 5.18% 2001 13 35,956 0.58% 2002 22 136,725 2.21% 2003 25 93,617 1.51% 2004 72 393,664 6.36% 2005 23 287,351 4.64% 2006 23 151,264 2.45% 2007 9 72,688 1.18% 2008 10 165,608 2.68% 2009 47 488,979 7.91% 2010 8 123,912 2.00% 2012 3 256,045 4.14% 2013 2 51,598 0.83% 2014 6 300,068 4.85% 2015 1 14,015 0.23% 2019 1 2,266 0.04% 2020 2 94,595 1.53% 2022 4 1,293,083 20.91% Space under temporary occupancy N/A 141,635 2.29% Vacant space N/A 677,222 10.94% Space occupied by the Debtors N/A 87,245 1.41% --- --------- ----- 628 6,185,535 100.0% ------- ------------- --------- ------- ------------- ---------
During the quarter ended September 30, 1995 the operating expenses of the Property decreased by $8.6 million or 21% from the comparable prior-year period. This decrease was primarily the result of a reduction of real estate tax expense ($7.4 million) related to prior calendar years. In addition, the current year's real estate taxes ($1.1 million), maintenance and engineering costs ($.9 million), and other operating expenses ($.8 million) decreased. These decreases were offset partially by higher depreciation and amortization ($1.4 million) and increased utilities ($.3 million). The operating expenses of the Property decreased by $10.7 million, or 9%, during the nine months ended September 30, 1995, when compared to the comparable prior year period. This decrease was primarily the result of a reduction of real estate tax expense ($7.4 million) related to prior calendar years. In addition, the current year's real estate taxes ($5.3 million), maintenance and engineering costs ($1 million), and other operating expenses ($.9 million) decreased. These decreases were offset partially by higher depreciation and amortization ($2.9 million), increased costs for general and administrative expense ($.5 million), and increased utilities ($.4 million). -22- ROCKEFELLER CENTER PROPERTIES, INC. ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (cont'd) The reduction in real estate taxes resulted from a decrease in both the assessed valuation of the Property and New York City property tax rates. On June 29, 1995 the Bankruptcy Court approved a settlement between the Debtors and New York City that incorporated a reduction in the assessed valuation of the Property. The agreement covered the period from July 1, 1989 through June 30, 1995. The statement of operations as of September 30, 1995 reflects this reduction in assessed valuation. The reduction in maintenance and engineering expenses reflected decreased heating, ventilation and air-conditioning maintenance and decreased exterior building maintenance. Other operating expenses decreased as a result of decreased costs related to tenant sales and services. Depreciation and amortization charges increased as a result of a higher fixed asset base which included expenditures required by the Loan Agreement, other capital expenditures, and improvements to tenant spaces necessitated by lease commitments. The increase in general and administrative expense was attributable primarily to increases in legal fees related to collection efforts and an increase in the required provision for doubtful accounts. The higher utility costs were primarily a result of increased electric consumption and rates. As a result of the foregoing, operating income before interest and reorganization items for the quarter ended September 30, 1995 increased by $4.4 million or 27% and operating income before interest and reorganization items for the nine months ended September 30, 1995 decreased by $.5 million or 1%, from the comparable prior-year period. Interest expense, net during the quarter and nine months ended September 30, 1995 decreased $29.4 million, and $42.3 million, respectively. Interest expense accruals ceased on May 11, 1995 as a result of the bankruptcy proceedings. CASH FLOW-THE PROPERTY Because of the cessation of interest payments to the Company after May 11, 1995 as a result of the bankruptcy proceedings, for the nine months ended September 30, 1995, the Property experienced an operating cash surplus before reorganization items of $14 million, after payments of interest to the Company of $20 million. For the nine months ended September 30, 1994, the Property experienced an operating cash deficit of $17.6 million after payments of interest to the Company totaling $59 million. The increase of $31.6 million in the operating cash surplus primarily reflected a decrease in interest paid to the Company ($38.7 million) and lower levels of net working capital ($18.5 million). These factors were offset partially by an increase in lease incentives associated with new and renewal tenants ($25.1 million) and decreased earnings before interest ($.5 million). The Debtors also expended funds for capital improvements to the Property, tenant improvements, and leasing commissions as follows: (In thousands) Nine Months ended September 30 --------------------------- 1995 1994 ----------- ------------ Tenant improvements $34,223 $9,974 Capital improvements 6,434 7,943 Leasing commissions (including legal fees) 5,385 13,356 Cash held in escrow for lease obligations 3,299 - ----------- ---------- $49,341 $31,273 ----------- ---------- ----------- ---------- -23- ROCKEFELLER CENTER PROPERTIES, INC. ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (cont'd) The mortgage loan agreement provides for the establishment of loans for the cumulative portion of capital improvements made by the Debtors in excess of amounts specified in the mortgage loan agreement. The cumulative amounts of excess capital improvements totaled $126.7 million and $123 million at September 30, 1995 and 1994, respectively. These excess capital improvement loans are deemed to be made to the Debtors by its partners and bear interest at 80% of the prime rate (as defined), compounded quarterly. Interest charges on excess capital improvement loans are added to the loan principal at the end of each year. At September 30, 1995 and 1994, the amount of excess capital improvement loans (including accrued interest) totaled $160.7 million and $149.7 million, respectively. As a result of the Bankruptcy proceedings, interest has not been accrued since May 11, 1995. The letters of credit previously discussed under "Liquidity and Capital Resources-The Company", supported the payment of base interest (as defined) on the mortgage loan. In early June of 1995, RCPI received full payment of $50 million under the letters of credit. The $50 million payment was funded by Rockefeller Group, Inc. -24- Supplemental information provided by the Debtors. ROCKEFELLER CENTER PROPERTIES AND RCP ASSOCIATES DEBTORS-IN-POSSESSION COMBINED BALANCE SHEETS (In thousands)
ASSETS September 30, 1995 December 31, 1994 ------------------ ----------------- (UNAUDITED) Current assets: Cash $19,774 $3 Cash held in escrow for lease obligations 3,299 - Accounts receivable, less allowance for doubtful accounts of $2,496 and $2,833 4,428 4,027 Due from RGI affiliates 2,822 1,286 Prepaid real estate taxes 9,010 - Real estate tax refund receivable 9,701 - Other current assets 1,268 856 ------------ ------------ 50,302 6,172 Fixed assets, at cost: Land 402,419 402,419 Buildings 504,749 499,226 Furniture, fixtures and equipment 26,448 26,422 ------------ ------------ 933,616 928,067 Less accumulated depreciation (225,200) (214,035) ------------ ------------ 708,416 714,032 Deferred renting expenses, less accumulated amortization of $27,218 and $20,659 144,134 93,735 Lease incentives 62,996 31,327 Deferred financing expenses, less accumulated amortization of $150 and $1,285 100 30,094 Other assets 3,187 2,960 ------------ ------------ Total assets $969,135 $878,320 ------------ ------------ ------------ ------------
-25- Supplemental information provided by the Debtors. ROCKEFELLER CENTER PROPERTIES AND RCP ASSOCIATES DEBTORS-IN-POSSESSION COMBINED BALANCE SHEETS (In thousands)
LIABILITIES AND PARTNERS' CAPITAL DEFICIENCY Liabilities not subject to compromise: Accounts payable and accrued expenses $7,665 $26,848 Due to RGI affiliates 1,467 273,778 Mortgage payable, net of unamortized original issue discount of $36,101 - 1,263,899 Loans payable to RGI - 160,715 Non-current mortgage interest payable - 36,321 ------------- ------------- 9,132 1,761,561 Liabilities subject to compromise: 1,841,161 - Partners' capital deficiency (881,158) (883,241) ------------- ------------- Total liabilities and partner's capital deficiency $969,135 $878,320 ------------- ------------- ------------- -------------
-26- Supplemental information provided by the Debtors. ROCKEFELLER CENTER PROPERTIES AND RCP ASSOCIATES DEBTORS-IN-POSSESSION COMBINED STATEMENTS OF CASH FLOWS (In thousands) (UNAUDITED)
Quarters Ended Nine Months Ended September 30, September 30, ------------------------- ------------------------- 1995 1994 1995 1994 ---------- ---------- ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) before reorganization items $20,774 ($12,989) $2,356 ($39,405) Adjustments to reconcile net income (loss) before reorganization items to net cash provided by (used in) operating activities Depreciation and amortization 7,143 5,769 20,559 17,615 Real estate tax refund payable to tenants 15,470 - 15,470 - Decrease (increase) in other assets 2,285 (672) 983 (641) Decrease (increase) in accounts receivable 1,557 (1,252) (401) 1,166 Increase (decrease) in accounts payable and accrued expenses 1,186 (584) 662 (7,772) Non-current portion of interest expense - 8,231 21,475 24,564 Amortization of original issue discount and deferred financing expenses - 1,476 3,247 3,743 Increase in prepaid real estate taxes (9,010) (10,306) (9,010) (10,306) Increase in lease incentives (9,023) (2,297) (31,669) (6,545) Real estate tax refund receivable (9,701) - (9,701) - ---------- ---------- ---------- ---------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES BEFORE REORGANIZATION ITEMS 20,681 (12,624) 13,971 (17,581) OPERATING CASH USED IN REORGANIZATION ITEMS Professional fees paid (246) - (547) - Interest income 236 - 274 - ---------- ---------- ---------- ---------- (10) - (273) - NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 20,671 (12,624) 13,698 (17,581) ---------- ---------- ---------- ---------- CASH FLOWS (USED IN) INVESTING ACTIVITIES: Capital expenditures (1,343) (3,244) (6,434) (7,943) Deferred renting expenses paid (5,662) (6,342) (39,608) (23,330) Increase in cash held in escrow for tenant lease obligations (2,516) - (3,299) - Deferred financing expenses paid - - (250) - ---------- ---------- ---------- ---------- NET CASH (USED IN) INVESTING ACTIVITIES (9,521) (9,586) (49,591) (31,273) ---------- ---------- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Mortgage recording tax paid - (34,517) - (34,517) Cash received from RGI affiliates, principally cash management system, net 756 56,726 55,664 83,370 ---------- ---------- ---------- ---------- NET CASH PROVIDED BY FINANCING ACTIVITIES 756 22,209 55,664 48,853 ---------- ---------- ---------- ---------- NET CHANGE IN CASH 11,906 (1) 19,771 (1) CASH, BEGINNING OF PERIOD 7,868 4 3 4 ---------- ---------- ---------- ---------- CASH, END OF PERIOD $19,774 $3 $19,774 $3 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Supplemental disclosure of cash flow information: Cash paid during the period for interest expense - $19,673 $20,339 $59,021 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
-27- ROCKEFELLER CENTER PROPERTIES, INC. PART II.--OTHER INFORMATION ITEM 1. Legal Proceedings On January 23, 1995, Bear, Stearns & Co., Inc. and Donaldson Lufkin & Jenrette Securities Corporation commenced an action against the Company in the Supreme Court of New York, County of New York. The plaintiffs allege that the Company breached a contract relating to the plaintiffs' provision of investment banking services to the Company. The plaintiffs seek $5,062,500, plus costs, attorneys' fees and interest. The Court denied the Company's motion to dismiss the complaint on September 21, 1995. On October 10, 1995, the Company filed an answer to the complaint which denied the plaintiffs' allegations and asserted numerous affirmative defenses. The Company intends to vigorously contest the plaintiffs' claims. The Company does not expect the outcome of this litigation to have a material effect on the financial condition of the Company. On May 11, 1995 the two partnerships comprising the Borrower filed for protection under Chapter 11 of the Federal Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York as described in Note 1 of the Notes to Financial Statements. On May 24, 1995 Jerry Krim commenced an action encaptioned KRIM V. ROCKEFELLER CENTER PROPERTIES, INC. AND PETER D. LINNEMAN. On June 7, 1995, Kathy Knight and Moishe Malamud commenced an action encaptioned KNIGHT, ET AL. V. ROCKEFELLER CENTER PROPERTIES, INC. AND PETER D. LINNEMAN. Both actions were filed in the United States District Court for the Southern District of New York and purport to be brought on behalf of a class of plaintiffs comprised of all persons who purchased the Company's common stock between March 20, 1995 and May 10, 1995. The complaints allege that the Company and Dr. Linneman violated the federal securities laws by their purported failure to disclose prior to May 11, 1995 that the Borrower would file for bankruptcy protection. The cases have been consolidated. On July 28, 1995, the Company and Dr. Linneman filed answers to the complaints denying plaintiffs' substantive allegations and asserting numerous affirmative defenses. On September 22, 1995, plaintiffs served an Amended Class Action Complaint adding RCPI's remaining directors and its president as defendants. In addition to the foregoing claims, the Amended Complaint also asserts a cause of action for breach by RCPI's directors and its president of their fiduciary duties by approving the Combination Agreement. The plaintiffs are seeking damages in such amount as may be proved at trial. Plaintiffs are also seeking injunctive relief, plus costs, attorneys fees and interest. The Company believes that plaintiffs' allegations are without merit and intends to vigorously contest these actions. On July 6, 1995 Charal Investment Company, Inc. commenced a derivative action against certain of the Company's present and former directors in the Court of Chancery of the State of Delaware in and for New Castle County ("Delaware Court of Chancery"). The Company was named as a nominal defendant. The plaintiff alleges that the directors breached their fiduciary duties by: (1) using commercial paper proceeds to repurchase Convertible Debentures; (2) entering into interest rate swaps; and (3) making capital distributions to stockholders. Prior to the commencement of the action, the Company's Board of Directors appointed a special committee of the Board to review the plaintiff's pre-suit demand that it institute litigation on the Company's behalf with respect to such claims and recommend a course of action to the full board. Plaintiff nevertheless -28- ROCKEFELLER CENTER PROPERTIES, INC. PART II.--OTHER INFORMATION (cont'd) commenced the action, asserting that circumstances did not permit further delay. On November 7, 1995 the Court of Chancery dismissed this action without prejudice due to plaintiff's failure to comply with the requirements of Court of Chancery Rule 23.1. On July 31, 1995 L.L. Capital Partners, L.P. commenced an action against the Company in the United States District Court in the Southern District of New York. The plaintiff alleges that, prior to December 1993, the Company failed to disclose its purported belief that the Rockefeller family and the Borrower's corporate parent would cease to fund the Borrower's cash flow shortfalls. The Company believes that plaintiff's allegations are without merit and intends to vigorously contest this action. In September 1995 Counsel for the Company filed a motion to dismiss this action for failure to state a claim. On September 13 and 14, 1995 four class action complaints, captioned FAEGHEH MOEZINIA V. PETER D. LINNEMAN, BENJAMIN D. HOLLOWAY, PETER G. PETERSON, WILLIAM F. MURDOCH, JR. AND ROCKEFELLER CENTER PROPERTIES, INC.; MARTIN ZACHARIAS V. B.D. HOLLOWAY, P.G. PETERSON, W.F. MURDOCH, P.D. LINNEMAN AND ROCKEFELLER CENTER PROPERTIES, INC.; JAMES COSENTINO V. PETER D. LINNEMAN, BENJAMIN D. HOLLOWAY, PETER G. PETERSON, WILLIAM F. MURDOCH, JR. AND ROCKEFELLER CENTER PROPERTIES, INC.; and MARY MILLSTEIN V. PETER D. LINNEMAN, PETER G. PETERSON, BENJAMIN D. HOLLOWAY, WILLIAM F. MURDOCH, JR. AND ROCKEFELLER CENTER PROPERTIES, INC., were filed in the Delaware Court of Chancery. On October 3, 1995, an additional complaint captioned ROBERT MARKEWICH V. PETER D. LINNEMAN AND DANIEL M. NEIDICH, ET AL., was filed in the Delaware Court of Chancery. On October 11, 1995, an additional complaint captioned HUNTER HOGAN V. ROCKEFELLER CENTER PROPERTIES, INC., ET AL., was filed in the Delaware Court of Chancery. Each of the complaints purports to be brought on behalf of a class of plaintiffs comprised of shareholders of the Company who have been or will be adversely affected by the Combination Agreement. All of the complaints allege that RCPI's Directors breached their fiduciary duties by approving the Combination Agreement. The complaints seek damages in such amount as may be proved at trial. Plaintiffs also seek injunctive relief, plus costs, and attorneys fees. On November 8, 1995 the Court of Chancery entered an order consolidating these actions. The Company believes plaintiff's allegations are without merit and intends to contest these actions vigorously. Other than the actions described above, the Company is not a party to nor is any of its property the subject of any material legal proceedings or environmental litigation. ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits (10.4) Employment contract with Stevan A. Sandberg, Executive Vice President. (b) Reports on Form 8-K A report on Form 8-K was filed on August 22, 1995, reporting events under Item 1 and Item 7 of Form 8-K. A report on Form 8-K was filed on September 18, 1995, reporting events under Item 1 and Item 7 of Form 8-K. -29- ROCKEFELLER CENTER PROPERTIES, INC. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ROCKEFELLER CENTER PROPERTIES, INC. Date: November 17, 1995 By: /s/ Richard M. Scarlata Richard M. Scarlata President and Chief Executive Officer (Principal Financial Officer and Principal Accounting Officer) -30- EX-10.4 2 EXHIBIT 10.4 EXHIBIT 10.4 PERSONAL AND CONFIDENTIAL October 2, 1995 Stevan A. Sandberg Address Dear Steve: The Board of Directors (the "Board") of Rockefeller Center Properties, Inc. (the "Company") has determined that it is in the best interests of the Company and its shareholders to retain your services as an officer of the Company under the terms and provisions set forth in this letter agreement (this "Agreement"). You hereby confirm (1) that except as stated in Schedule 1 hereto you have terminated all business relationships between you and Rockefeller Group, Inc. ("RGI") and all affiliates of RGI, including any employment relationships, (2) that you have no understandings or agreements, formal or informal, with RGI or any affiliate of RGI with respect to any future business relationships, including any employment relationships and (3) that you will not enter into any relationships, understandings or agreements of the types described above without the express, prior written consent of the Board. During the term of this Agreement, the Company agrees to employ you, and you agree to be employed by the Company, as its Executive Vice President; PROVIDED, that the Board may remove you from such position or terminate your employment by the Company in any capacity with or without Cause (as defined in Schedule 2 hereto), at any time, with the consequences set forth below. As such, you agree that you shall use your best efforts and, except to the extent required for you to discharge the responsibilities described in Schedule 1 hereto, you shall devote your entire business time to diligently furthering the interests of the Company. In that regard, you agree to perform such duties and services, and to have such responsibilities, as may from time to time be assigned to you by the President and Chief Executive Officer of the Company, including, without limitation, at all times maintaining and improving, to the best of your ability, the relationship between the Company and its shareholders. The term of this Agreement shall commence as of October 16, 1995, and shall terminate on the earlier to occur of - your death or Disability (as defined in Schedule 2 hereto), 2 - any voluntary termination of your employment (which termination shall be effective upon ten days' prior notice), - April 16, 1996 unless prior to March 16, 1996 you and the Company have agreed to extend the period of your employment hereunder, or - any termination of your employment by the Company for Cause (as defined in Schedule 2 hereto) or otherwise. - any termination of your employment by the Company if the Company shall determine that your discharge of the responsibilities described in Schedule 1 hereto has made you unable to devote substantially all of your business time to the discharge of your duties to the Company hereunder. Subject to the provisions of the following sentence, in the event of any termination of the term of this Agreement pursuant to this paragraph the Company will pay to you all Salary earned through the date of such termination but shall have no liability to pay you any Salary or to provide you any Benefits or Perquisites of the nature described in Schedule 2 hereto, or any other benefits or perquisites after the date of such termination. In the event of any termination of your employment by the Company which is not for Cause (as defined in Schedule 2 hereto) or pursuant to the last bullet point above and in the event your employment hereunder is not extended beyond April 16, 1996 the Company will pay to you the sum of $120,000 on the date of termination or on April l6, 1996, as the case may be. During the term of this Agreement, you shall not, without the prior express written consent of the Board, buy, sell, lease, invest in, take an option on or otherwise directly or indirectly become involved with real property for your own account, except with respect to your personal residence and/or vacation home, nor shall you act as a principal, whether disclosed or undisclosed, in connection with any transaction that involves the Company. In consideration of your agreement to be employed by the Company under the terms and provisions of this Agreement, the Company agrees, during the term of this Agreement, to provide you with the compensation arrangements, Benefits and Perquisites listed on Schedule 2 hereto. You will be reimbursed by the Company for entertainment and similar business expenses reasonably incurred by you in performing your duties hereunder approve as in accordance with the usual policies of the Company. You acknowledge that you now have and will have access to and become acquainted with proprietary and confidential information regarding the Company and other 3 persons with whom the Company has business relationships that is not available to the public. You agree that you will not, at any time, directly or indirectly, (i) use or disclose such information, except as is necessary and appropriate in connection with the rendering by you of services to the Company under this Agreement, or (ii) make, or cause to be made, any statement or publication about or concerning the Company or its shareholders (or any fiduciary or beneficiary of any shareholder that is a trust or an estate), unless you reasonably believe it to be in the best interests of, or necessary for the proper conduct of the business of, the Company (or any fiduciary or beneficiary of any shareholder that is a trust or an estate), other than statements or publications that you reasonably believe to be necessary to protect and enforce your rights under this Agreement. You confirm that all confidential information is and shall remain the exclusive property of the Company. All business records, papers and documents kept or made by you relating to the business of the Company shall be and remain the property of the Company. You further agree that you will not, at any time, communicate or disclose to any person, news organization or other entity, either directly or indirectly, any information relating to transactions which the Company is actively pursuing with other parties or which the Company has at any time considered unless you have first obtained the consent of the Company to such communications or disclosures. You agree that you shall be reasonably available to assist the Company in any investigations or litigation matters engaged in by the Company. No provision in this Agreement may be amended or waived unless such amendment or waiver is agreed to in writing, signed by you and by a duly authorized officer of the Company. This Agreement shall be construed in accordance with and governed by the laws of the State of New York without regard to the principles of conflict of law and it contains the entire agreement and understanding between the parties, superseding any and all other prior agreements between you and the Company. The Company may withhold from any amounts payable to you hereunder any amounts which are required to be withheld for federal, state or local taxes. The respective rights and obligations of you and the Company under this Agreement shall survive the termination or expiration of this Agreement to the extent necessary to the intended preservation of such rights and obligations. This Agreement cannot be assigned by you. Without intending to limit the remedies available to the Company, you acknowledge that a breach of any of the provisions of this Agreement may result in material and irreparable injury to the Company for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of such a breach or threat thereof, the Company will be entitled to obtain a temporary restraining order and/or a preliminary or permanent injunction restraining you from engaging 4 in activities prohibited by this Agreement or such other relief as may be required specifically to enforce any of the covenants in this Agreement. All notices or communications under this Agreement shall be in writing, addressed as follows: To the Company: Rockefeller Center Properties, Inc. 1270 Avenue of the Americas New York, New York 10020 Attention: President and Chief Executive Officer To the Employee: Stevan A. Sandberg Address Any such notice or communication shall be delivered in person, or by certified or registered mail, return receipt requested, addressed as above (or to such other address as such party may designate in writing from time to time), and the actual date of receipt, as shown by the receipt therefor, will determine the time at which notice was given. Any disputes between the parties to this Agreement shall be settled by arbitration in New York, New York under the auspices of, and in accordance with the rules of, the American Arbitration Association. The decision in such arbitration shall be final and conclusive on the parties and judgment upon such decision may be entered in any court having jurisdiction thereof. Pending resolution of any dispute, any amounts payable pursuant to the terms of this Agreement shall be set aside by the Company in an escrow account. Upon resolution of the dispute, such amounts held in the escrow account shall be paid to the appropriate party. If a court of competent jurisdiction determines that any term or provision of this Agreement is invalid or unenforceable, (i) the remaining terms and provisions hereof shall be unimpaired and (ii) such court shall have the authority to replace such invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision. 5 If you are in agreement with the foregoing, please sign, date and return one copy of this Agreement, whereupon this letter will be an agreement between you and the Company, effective as of October 2, 1995. Sincerely, ROCKEFELLER CENTER PROPERTIES, INC. By: /s/ Richard M. Scarlata ------------------------------------------------ Title: President and Chief Executive Officer Agreed to and Accepted: /s/ Stevan A. Sandberg - ----------------------- Stevan A. Sandberg Dated: October 2, 1995 --------------------------------------------- SCHEDULE 1 The only ongoing business relationships between Stevan A. Sandberg and RGI and affiliates of RGI which shall be permitted are the following: Mr. Sandberg will be permitted to render legal services to Cushman & Wakefield, Inc. ("C&W"), an affiliate of RGI, in connection with C&W's real estate services business and internal operations, so long as such legal services do not relate to any matter affecting Rockefeller Center or the Company. SCHEDULE 2 SALARY (payable semi-monthly in arrears) $30,000/month BENEFIT PLANS - Participation in the following Company plans as in effect from time to time, in accordance with the terms of such plans and subject to any underwriting restrictions imposed upon the insurance carriers: (i) Life Insurance Plan, Long-term Disability Plan, (ii) Health and Dental Insurance Plans, (iii) Retirement Plan and (iv) Savings Plan. PERQUISITES - Selection of perquisites from among those generally available to senior executives of the Company, and an additional amount of cash representing any taxes assessed thereon, subject to such perquisite selections (i) not being unlawful, or (ii) as a result of a change in any law or the application thereof, not resulting in or having an adverse effect on the Company. The aggregate cost of such perquisites shall not exceed $9,000 during the original term of this Agreement. "CAUSE" means your dishonesty, fraud or wilful misrepresentation to the Company or any third person; your willful refusal or failure to comply with the terms of this Agreement or the substantive policies, rules or regulations of the Company; your willful gross misconduct or gross negligence that results in material harm to the Company; or your commission of an act or acts involving moral turpitude or a felony crime. "DISABILITY" means a physical or mental disability which causes you to be unable to render the services contemplated in this Agreement for as many as four weeks or more (whether or not consecutive) during the original term of this Agreement. EX-27 3 EXHIBIT 27
5 1,000 9-MOS DEC-31-1995 JAN-01-1995 SEP-30-1995 16,417 0 1,176,225 0 0 0 0 0 1,206,347 0 761,820 383 0 0 344,971 1,206,347 0 21,342 0 0 115,325 0 72,391 (166,374) 0 (166,374) 0 0 0 (166,374) (4.35) 0 Loan Receivable includes accrued interest. Classified Balance Sheet is not presented. Classified Balance Sheet is not presented.
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