-----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, WxHL1AG96LBDJSAFVxHdK1uhIrusIw0pHK3PaqQHLKPvCUkIj0iIoZrZB1iRqkqw J2K/oU9EzxOhy9/aqOi5cQ== 0000090794-03-000004.txt : 20030415 0000090794-03-000004.hdr.sgml : 20030415 20030415143843 ACCESSION NUMBER: 0000090794-03-000004 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030415 FILER: COMPANY DATA: COMPANY CONFORMED NAME: 60 EAST 42ND STREET ASSOCIATES CENTRAL INDEX KEY: 0000090794 STANDARD INDUSTRIAL CLASSIFICATION: OPERATORS OF NONRESIDENTIAL BUILDINGS [6512] IRS NUMBER: 136077181 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-02670 FILM NUMBER: 03650310 BUSINESS ADDRESS: STREET 1: C/O WIEN & MALKIN LLP STREET 2: 60 EAST 42ND STREET CITY: NEW YORK STATE: NY ZIP: 10165 BUSINESS PHONE: 2126878700 MAIL ADDRESS: STREET 1: C/O WIEN & MALKIN LLP STREET 2: 60 EAST 42ND STREET CITY: NEW YORK STATE: NY ZIP: 10165 10-K 1 east10ka.txt 10K DOCUMENT FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2002 [] 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 0-2670 60 EAST 42ND ST. ASSOCIATES L.L.C. (Exact name of registrant as specified in its charter) New York 13-6077181 State or other jurisdiction of (I.R.S. Employer incorporation or organization Identification No.) 60 East 42nd Street, New York, New York 10165 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (212) 687-8700 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to section 12(g) of the Act: $7,000,000 of Participations in LLC Member Interests 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 reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No The aggregate market of the voting stock held by non-affiliates of the Registrant: Not applicable, but see Items 5 and 10 of this report. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ___ An Exhibit Index is located on pages 27 through 28 of this Report. Number of pages (including exhibits) in this filing: 46 PART I FORWARD_LOOKING STATEMENTS Certain information included in this Annual Report contains or may contain forward-looking statements within the meaning of Section 27A of the Securities Exchange Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Registrant cautions readers that forward-looking statements, including, without limitation, those relating to the Registrant's investment policies and objectives; the financial performance of the Registrant; the ability of the Registrant to service its debt; the competitive conditions which affect the Registrant's business; and the Registrant's liquidity and capital resources, are subject to certain risks and uncertanties. Actual results or outcomes may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors, including, without limitation, the Registrant's future financial performance; the availability of capital; general market conditions; national and local economic conditions, particularly long-term interest rates; Federal, state and local governmental regulations that affect the Registrant; and the competitive environment in which the Registrant operates, including, the availability of commercial space in the area where the Registrant's property is located. The forward-looking statements are made as of the date of this Annual Report and the Registrant assumes no obligation to update the forward-looking statements or to update the reasons actual results could differ from those projected in such forward-looking statements. Item 1. Business. (a) General Registrant was originally organized as a partnership on September 25, 1958. On October 1, 1958, Registrant acquired fee title to the Lincoln Building (the "Building") and the land thereunder, located at 60 East 42nd Street, New York, New York (the "Property"). On November 28, 2001, Registrant converted to a limited liability company under New York law and is now known as 60 East 42nd St. Associates L.L.C. The conversion does not change any aspect of the assets and operations of Registrant other than to protect its participants from any future liability to a third party. Registrant's members are Peter L. Malkin, Anthony E. Malkin, Scott D. Malkin, Thomas N. Keltner, Jr.,Jack K. Feirman, Mark Labell, and Fred C. Posniak (individually, a "Member" and, -1- collectively, the "Members"), each of whom also acts as an agent for holders of participations in the Registrant ( individually, a "Participant" and, collectively, "Participants"). Registrant leases the Property to Lincoln Building Associates L.L.C.("Lessee") under a long-term net operating lease (the "Lease") the current term of which expires on September 30, 2008. There is one additional 25-year renewal term which, if exercised, will extend the Lease until September 30, 2033. See Item 2 below in connection with the granting of additional lease extensions. Lessee is a limited liability company whose members consist of, among others, entities for the benefit of members of Peter L. Malkin's family. Six of the seven members in Registrant are at Wien & Malkin LLP, 60 East 42nd Street, New York, New York, which provides supervisory and other services to Registrant and to Lessee (the "Supervisor"). See Items 10, 11, 12 and 13 hereof for a description of the ongoing services rendered by, and compensation paid to, Supervisor and for a discussion of certain relationships which may pose actual or potential conflicts of interest among Registrant, Lessee and certain of their respective affiliates. As of December 31, 2002, the Building was approximately 91% occupied by approximately 551 tenants who engage principally in the practice of law, accounting, real estate, engineering and advertising. Registrant does not maintain a full-time staff. See Item 2 hereof for additional information concerning the Property. (b) The Mortgages A first mortgage loan on the Property was closed on October 6, 1994 (the "Mortgage Loan"). The material terms of the Mortgage Loan are as follows: (i) A principal amount of $12,020,814; (ii) Annual charges of $1,063,842, payable in equal monthly installments of $88,654, representing interest only at the rate of 8.85% per annum; (iii) A term of ten years; and (iv) A maturity date of October 31, 2004. The Mortgage Loan is prepayable in whole after October 6, 1995, with a penalty providing certain interest protection to the mortgagee. The Mortgage Loan is prepayable in whole without penalty during the 90-day period prior to its maturity date. The refinancing costs were capitalized by Registrant and are being expensed ratably during the period of the mortgage extension from October 6, 1994 to October 31, 2004. -2- (v) A second mortgage loan with Emigrant Savings Bank in the amount of $27,979,186 was closed on March 8, 2000 and all proceeds have been advanced as of December 31, 2002. Monthly payments of interest only at the rate of 8.21% per annum apply to the advances of $7,000,000 made through September 30, 2000. Amounts advanced from October 1, 2000 through September 30, 2002 in the amount of $20,979,186 are now at the fixed interest rate of 3.39% commencing with the November 2002 payment. Maturity is October 31, 2004. During the prepayment period, Borrower has the option to prepay the second mortgage note in whole only, on the first day of any month upon (i) prior written notice given by prepaid registered or certified mail at least sixty (60) days prior to the date fixed for prepayment and (ii) the payment of the prepayment premium plus accrued interest. There shall be no prepayment premium after October 1, 2004 to and including the Maturity Date. (c) The Lease The Lease, as modified March 1, 2000, provides that Lessee is required to pay Registrant: (i) annual basic rent (the "Basic Rent") equal to the sum of $24,000 for supervisory services payable to Supervisor plus the constant installment payments of interest and amortization (excluding any balloon principal due at maturity) payable during such year under all mortgages to which the Lease is subordinate, provided that the aggregate principal balance of all mortgages now or hereafter placed on the Property does not exceed $40,000,000 plus refinancing costs. (ii) (A) additional rent (the "Additional Rent") equal to the lesser of (x) Lessee's net operating income for the lease year or (y) $1,053,800 and (B) further additional rent ("Further Additional Rent") equal to 50% of any remaining balance of Lessee's net operating income for such lease year. (Lessee has no obligation to make any payment of Additional Rent or Further Additional Rent until after Lessee has recouped any cumulative operating loss accruing from and after September 30, 1977. There is currently no accumulated operating loss against which to offset payment of Additional Rent or Further Additional Rent.) (iii) An advance against Additional Rent equal to the lesser of (x) Lessee's net operating income for the preceding lease year or (y) $1,053,800, which, in the latter amount, will permit basic distributions to Participants at an annual rate of approximately 14.95% per annum on their remaining cash investment in Registrant; provided, however, if such advances exceed Lessee's net operating income for any Lease year, advances otherwise re- quired during the subsequent lease year shall be reduced by an -3- amount equal to such excess until Lessee shall have recovered, through retention of net operating income, the full amount of such excess. After the participants have received distributions equal to a return of 14% per annum, $7,380 is paid to Supervisor from the advances against Additional Rent. Further Additional Rent income is recognized when earned from the Lessee, at the close of the lease year ending September 30. Such income is not determinable until the Lessee, pursuant to the Lease, renders to Registrant a report on the operation of the Property. Further Additional Rent for the lease year ended September 30, 2002 was $6,944,789. After deducting fees of $16,480 relating to Registrant's conversion to a limited liability company and payment of $692,831 to Supervisor as an additional payment for supervisory services, the balance of $6,235,478 was distributed to the Participants on November 29, 2002. If the Mortgage is modified, the Basic Rent shall be equal to the Wien & Malkin LLP annual supervisory fee of $24,000 plus an amount equal to the annual debt service payments under the refinanced mortgage ( not including any balloon principal payment due at maturity). (d) Competition Pursuant to tenant space leases at the Building, the average base rent payable to Lessee is approximately $33.82 per square foot (exclusive of electricity charges and escalation) and current deals range from $32 to $48. (e) Tenant Leases Lessee operates the Building free from any federal, state or local government restrictions involving rent control or other similar rent regulations which may be imposed upon residential real estate in New York City. Any increase or decrease in the amount of rent payable by a tenant is governed by the provisions of the tenant's lease, or, if a new tenant, by then existing trends in the rental market for office space. Item 2. Property. Registrant owns the Building located at 60 East 42nd Street, New York, New York, known as the "Lincoln Building," and the land thereunder. See Item 1. Registrant's fee title to the Property is encumbered by Mortgage Loans with an unpaid principal balances of $40,000,000 at December 31, 2002. For a description of the terms of the Mortgage Loans, see Item 1 of Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2002 and Note 3 of the Notes thereto. The Building, erected in 1930, has 55 floors, a concourse and a lower lobby. It is located diagonally opposite Grand Central Terminal, on 42nd Street between Park Avenue and Madison Avenue. The Building is net leased to Lessee. See Item 1 hereof and Note 4 of the Notes for additional information concerning the Lease. -4- In 1999, the Participants of Associates and the Lessee consented to a building improvements program (the "Program") estimated to cost approximately $22,800,000 and expected to take approximately three years to complete. In 2000 the participants of the Lessee approved an increase to the program from $22,800,000 to approximately $28,000,000 under substantially the same conditions as had previously been approved. The increased amount had previously been authorized by the Participants of Registrant. Such increase would extend the lease beyond 2083, based on the net present benefit to Associates of the improvements made. The Lessee is currently financing the Program and billing Associates for the costs incurred. The Program (1) grants the ownership of the improvements to Registrant and acknowledges its intention to finance them through a fee mortgage increase, and (2) allows for the increased mortgage charges to be paid by Associates from an equivalent increase in the basic rent paid by the Lessee to Associates. Since any overage rent will be decreased by one-half of that amount, the net effect of the lease modification is to have Associates and the Lessee share the costs of the Program equally, assuming overage rent continues to be earned. To induce the Lessee to approve the Program, Associates agreed to grant to the Lessee, upon the completion of the Program, an extension of the lease for an additional 50 years to 2083. Item 3. Legal Proceedings. The property of Registrant is the subject of the following material pending litigation: Wien & Malkin LLP, et. al. v. Helmsley-Spear, Inc., et. al. On June 19, 1997 Wien & Malkin LLP and Peter L. Malkin filed an action in the Supreme Court of the State of New York, against Helmsley-Spear, Inc. and Leona Helmsley concerning various partnerships which own, lease or operate buildings managed by Helmsley-Spear, Inc., including Registrant's property. In their complaint, plaintiffs sought the removal of Helmsley-Spear, Inc. as managing and leasing agent for all of the buildings. Plaintiffs also sought an order precluding Leona Helmsley from exercising any partner management powers in the partnerships. In August, 1997, -5- the Supreme Court directed that the foregoing claims proceed to arbitration. As a result, Mr. Malkin and Wien & Malkin LLP filed an arbitration complaint against Helmsley-Spear, Inc. and Mrs. Helmsley before the American Arbitration Association. Helmsley- Spear, Inc. and Mrs. Helmsley served answers denying liability and asserting various affirmative defenses and counterclaims; and Mr. Malkin and Wien & Malkin LLP filed a reply denying the counterclaims. By agreement dated December 16, 1997, Mr. Malkin and Wien & Malkin LLP (each for their own account and not in any representative capacity) reached a settlement with Mrs. Helmsley of the claims and counterclaims in the arbitration and litigation between them. Mr. Malkin and Wien & Malkin LLP then continued their prosecution of claims in the arbitration for relief against Helmsley-Spear, Inc., including its termination as the leasing and managing agent for various entities and properties, including the Registrant's Lessee. The arbitration hearings were concluded in June 2000, and the arbitrators issued their decision on March 30, 2001, ordering that the termination of Helmsley-Spear, Inc. would require a new vote by the partners in the Lessee, setting forth procedures for such a vote, and denying the other claims of all parties. Following the decision, Helmsley-Spear, Inc. applied to the court for confirmation of the decision, and Mr. Malkin and Wien & Malkin LLP applied to the court for an order setting aside that part of the decision regarding the procedure for partnership voting to terminate Helmsley-Spear, Inc. and various other parts of the decision on legal grounds. The court granted the motion to confirm the arbitrators' decision and denied the application to set aside part of the arbitrators' decision. The parts of the decision under appeal were affirmed by the Appellate Division on December 5, 2002, and were further appealed by Wien & Malkin LLP and Mr. Malkin on January 13, 2003. At its May 20, 2002 special meeting, Lessee approved by the requisite vote the removal of Helmsley-Spear, Inc. as managing and leasing agent and its replacement by one or a combination of designated independent firms (Cushman & Wakefield, Insignia/ESG and Newmark & Company Real Estate). On May 21, 2002, Peter L. Malkin and Wien & Malkin LLP filed a court application to confirm the vote and to set the final date for Helmsley-Spear, Inc's. termination. Helmsley-Spear, Inc. filed objections. On September 10, 2002 the court confirmed such votes and ruled that Helmsley-Spear, Inc. has been discharged and must effect an orderly transition and departure within 60 days. Helmsley-Spear, Inc.'s September 27, 2002 motion in the Apellate Division to stay the court's ruling pending an appeal was denied on October 31, 2002. Helmsley-Spear, Inc.'s appeal was rejected by the Appellate Division in its February 20, 2003 decision, which affirmed the court's confirmation of the votes and Helmsley-Spear, Inc.'s termination. Since November 20, 2002, Helmsley-Spear, Inc. has not been the managing and leasing agent and has been replaced by Newmark & Company Real Estate. Helmsley- Spear, Inc. continues to pursue its appeal. In accord with the Lessee's approval, the expenses for the preparation of the solicitation statement, the solicitation of votes, and the implementation of the new program are being paid by the Lessee. Such payments have totaled $ 241,587 from inception to date (including $ 72,052 plus disbursements of $6,850 to Wien & Malkin LLP). -6- Item 4. Submission of Matters to a Vote of Participants. No matters were submitted to the Participants during the period covered by this report. PART II Item 5. Market for the Registrant's Common Equity and Related Security Holder Matters. Registrant, a limited liability company, was organized on September 25, 1958. The securities registered by it under the Securities Exchange Act of 1934, as amended, consist of participations in the partnership interests of the Partners in Registrant (the "Participations") and are not shares of common stock or the equivalent. The Participations represent each Participant's fractional share in a Partner's undivided interest in Registrant. One full unit of the Participations was offered at an original purchase price of $10,000; fractional units were also offered for proportionate purchase prices. Registrant has not repurchased Participations in the past and is not likely to change its policy in the future. (a) The Participations neither are traded on an established securities market nor are readily tradable on a secondary market or the equivalent thereof. Based on Registrant's transfer records, Participations are sold by the holders thereof from time to time in privately negotiated transactions and, in many instances, Registrant is not aware of the prices at which such transactions occur. During 2002, Registrant was advised of 56 transfers of Participations. In one instance, the indicated purchase price was equal to 5.45 times the face amount of the Participation transferred, i.e., $27,250 for a $5,000 participation. In one instance, the indicated purchase price was equal to 4.8 times the face amount of the Participation transferred. In two instances, the indicated purchase price was equal to two times the face amount of the Participation transferred. In all other cases, no consideration was indicated. (b) As of December 31, 2002, there were 773 holders of Participations of record. (c) Registrant does not pay dividends. During each of the years ended December 31, 2002 and 2001, Registrant made regular monthly distributions of $124.57 for each $10,000 Participation. On November 29, 2002 and November 30, 2001, Registrant made additional distributions for each $10,000 Participation of $8,907.83 and $10,359.89, respectively. Such distributions repre- sents Further Additional Rent payable by Lessee in accordance with the terms of the Lease after the Additional Payment to Supervisor and fees to convert Registrant to a limited liability company. See Item 1 hereof. There are no restrictions on Registrant's present or future ability to make distributions; however, the amount of such distributions, particularly distributions of Additional Rent and Further Additional Rent, depends on the ability of Lessee to make payments of Basic Rent, Additional Rent and Further Additional Rent to Registrant. See Item 1 hereof. Registrant expects to make distributions so long as it receives the payments provided for under the Lease. See Item 7 hereof. -7- [SELECTED FINANCIAL DATA] Item 6. 60 EAST 42nd ST. ASSOCIATES L.L.C. (A Limited Liability Company) SELECTED FINANCIAL DATA
Year ended December 31, 2002 2001 2000 1999 1998 Basic rent income $ 2,043,396 $ 1,545,186 $ 1,194,968 $ 1,087,842 $ 1,087,842 Advance of additional rent income 1,053,800 1,053,800 1,053,800 1,053,800 1,053,800 Further additional rent income 6,944,789 8,057,690 6,173,375 3,091,366 1,529,651 Interest income 68,212 142,019 92,422 - 0 - - 0 - Total revenues $10,110,197 $10,798,695 $ 8,514,565 $ 5,233,008 $ 3,671,293 Net income $ 6,557,108 $ 7,814,714 $ 6,296,724 $ 3,758,620 $ 2,390,776 Earnings per $10,000 participation unit, based on 700 participation units outstanding during the year $ 9,367 $ 11,164 $ 8,995 $ 5,369 $ 3,415 Total assets $35,600,016 $22,040,811 $17,435,023 $ 8,510,184 $ 7,472,392 Long-term obligations $40,000,000 $25,020,814 $19,020,814 $12,020,814 $12,020,814 Distributions per $10,000 participation unit, based on 700 participation units outstanding during the year: Income $ 9,367 $ 11,164 $ 8,995 $ 5,369 $ 3,415 Return of capital 1,036 691 437 100 35 Total distributions$ 10,403 $ 11,855 $ 9,432 $ 5,469 $ 3,450
-8- Item 7. 60 EAST 42nd ST. ASSOCIATES L.L.C. (A Limited Liability Company) QUARTERLY RESULTS OF OPERATIONS The following table presents the Company's operating results for each of the eight fiscal quarters in the period ended December 31, 2002. The information for each of these quarters is unaudited and has been prepared on the same basis as the audited financial statements included in this Annual Report on Form 10-K. In the opinion of management, all necessary adjustments, which consist only of normal and recurring accruals, have been included to present fairly the unaudited quarterly results. This data should be read together with the financial statements and the notes thereto included in this Annual Report on Form 10-K. Three Months Ended March 31, June 30, September 30, December 31, 2001 2001 2001 2001 Statement of Income Data: Basic rent income $339,610 $372,834 $ 400,520 $432,222 Advance of additional income 263,450 263,450 263,450 263,450 Further additional rent income - - 8,057,690 - Interest income 76,026 44,398 18,309 3,286 Total revenues 679,086 680,682 8,739,969 698,958 Interest on mortgages 409,636 411,232 412,829 429,508 Supervisory services 7,845 7,845 813,614 7,845 Amortization of mortgage refinancing costs 66,020 66,020 66,021 66,021 Depreciation of building improvements and equipment 10,828 10,828 10,828 173,770 Professional fees - - 2,791 10,500 Total expenses 494,329 495,925 1,306,083 687,644 Net income $184,757 $184,757 $7,433,886 $11,314 Earnings per $10,000 participation unit, based on 700 participation units outstanding during each period $ 264 $ 264 $ 10,620 $ 16 -9- Item 7. 60 EAST 42nd ST. ASSOCIATES L.L.C. (A Limited Liability Company) QUARTERLY RESULTS OF OPERATIONS (Continued) Three Months Ended March 31, June 30, September 30, December 31, 2002 2002 2002 2002 Statement of Income Data: Basic rent income $468,261 $471,992 $ 542,095 $561,048 Advance of additional income 263,450 263,450 263,450 263,450 Further additional rent income - - 6,944,789 - Interest income 2,226 731 25,906 39,349 Total revenues 733,937 736,173 7,776,240 863,847 Interest on mortgages 464,487 466,723 561,821 594,577 Supervisory services 7,845 7,845 700,676 7,845 Amortization of mortgage refinancing costs 66,020 66,020 66,021 66,021 Depreciation of building improvements and equipment 93,508 119,152 131,586 114,078 Professional fees - 325 1,892 16,647 Total expenses 631,860 660,065 1,461,996 799,168 Net income $102,077 $ 76,108 $6,314,244 $ 64,679 Earnings per $10,000 participation unit, based on 700 participation units outstanding during each period $ 146 $ 109 $ 9,020 $ 92 -10- Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation. Cautionary Statement Identifying Important Factors That Could Cause Registrant Actual Results to Differ From Those Projected in Forward-Looking Statements. Readers of this discussion are advised that the discussion should be read in conjunction with the financial statements of Registrant (including related notes thereto) appearing elsewhere in this Form 10-K. Certain statements in this discussion may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect Registrant's current expectations regarding future results of operations, economic performance, financial condition and achievements of Registrant, and do not relate strictly to historical or current facts. Registrant has tried, wherever possible, to identify these forward- looking statements by using words such as "believe", "expect", "anticipate", "intend", "plan", "estimate" or words of similar meaning. Although Registrant believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, such statements are subject to risks and uncertainties, which may cause the actual results to differ materially from those projected. Such factors include, but are not limited to, the following: general economic and business conditions, which will, among other things, affect demand for rental space, the availability of prospective tenants, lease rents and the availability of financing; adverse changes in Registrant's real estate market, including, among other things, competition with other real estate owners, risks of real estate development and acquisitions; governmental actions and initiatives; and environmental/safety requirements. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES The Securities and Exchange Commission ("SEC") recently issued disclosure guidance for "Critical Accounting Policies". The SEC defines Critical Accounting Policies as those that require the application of Management's most difficult, subjective, or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. The discussion and analysis of Registrant's financial condition and results of operations are based upon its financial -11- statements, the preparation of which takes into account estimates based on judgments and assumptions that affect certain amounts and disclosures. Accordingly, actual results could differ from these estimates. The accounting policies and estimates used and outlined in Note 2 to Registrant's financial statements, which are presented elsewhere in this annual report, have been applied consistently as at December 31, 2002 and 2001, and for the years ended December 31, 2002, 2001 and 2000. Registrant's representatives who are involved in the preparation of its financial statements and this report believe that the following accounting policies or estimates require the application of Management's most difficult, subjective, or complex judgments: Valuation of Long-Lived Assets: Registrant periodically assesses the carrying value of long-lived assets whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. When Registrant determines that the carrying value of long-lived assets may be impaired, the measurement of any impairment is based on a projected discounted cash flows method determined by Registrant's advisers. While Registrant's representatives who are involved in the preparation of its financial statements and this report believe that such discounted cash flow methods are reasonable, different assumptions regarding such cash flows may significantly affect the measurement of impairment. Revenue Recognition: Basic rent and additional rent, which is based on the lessee's annual net income as defined in the lease, are recognized when earned. Before Registrant can recognize revenue, it is required to assess, among other things, its collectibility. If the collectibility of revenue is incorrectly determined, Registrant's net income and assets could be overstated. Registrant was organized solely for the purpose of acquiring the Property subject to a net operating lease held by Lessee. Registrant is required to pay, from Basic Rent under the Lease, mortgage charges and amounts for supervisory services. Registrant is required to pay from Additional Rent and Further Additional Rent additional amounts for supervisory services and then to distribute the balance of such Additional Rent and Further Additional Rent to the Participants. Under the Lease, Lessee has assumed sole responsibility for the condition, operation, repair, maintenance and management of the Property. Registrant is not required to maintain substantial reserves or otherwise maintain liquid assets to defray any operating expenses of the Property. The following summarizes the material factors affecting Registrant's results of operations for the three years ended December 31, 2002: -12- (a) Total income decreased for the year ended December 31, 2002 as compared with the year ended December 31, 2001. Such decrease is the net result of an increased amount of basic rent income and a decreased amount of interest income and Further Additional Rent received by Registrant in 2002. Total income increased for the year ended December 31, 2001 as compared with the year ended December 31, 2000. Such increase is attributable to the payment of an increased amount of Further Additional Rent to Registrant in 2001 and interest income. See Note 4 of the Notes. (b) Total expenses increased for the year ended December 31, 2002 as compared with the year ended December 31, 2001. Such increase is the net result of an increase in mortgage interest and depreciation of assets and a decrease in the additional payment for supervisory services payable with respect to Further Additional Rent received by Registrant in 2002. Total expenses increased for the year ended December 31, 2001 as compared with the year ended December 31, 2000. Such increase resulted from an increase in mortgage interest, additional payment for supervisory services payable with respect to Further Additional Rent received by Registrant in 2001, amortization of second mortgage refinancing costs and depreciation of assets placed in service in 2001. Registrant's results of operations are affected primarily by the amount of rent payable to it under the Lease. The amount of Overage Rent payable to Registrant is affected by the New York City economy and real estate rental market. It is difficult for management to forecast the New York City real estate market. Liquidity and Capital Resources Registrant's liquidity has increased significantly due to the receipt of $14,979,186 from the second mortgage at December 31, 2002 as compared to December 31, 2001. Costs relating to the improvement program are funded from proceeds of a second mortgage of $27,979,186, of which all has been drawn down at December 31, 2002. Registrant may from time to time establish a reserve for contingent or unforeseen liabilities. No amortization payments are due under the Mortgages to fully satisfy the outstanding principal balance at maturity, and furthermore, Registrant does not maintain any reserve to cover the payment of such Mortgage indebtedness at maturity. Therefore, repayment of the Mortgage will depend on Registrant's ability to arrange a refinancing. Assuming that the Property continues to -13- generate an annual net profit in future years comparable to that in past years, and assuming further that current real estate trends continue in the geographic area in which the Property is located, Registrant anticipates that the value of the Property would be well in excess of the amount of the mortgage balance at maturity. Registrant anticipates that funds for working capital for the Property will be provided by rental payments received from Lessee and, to the extent necessary, from additional capital investment by the partners in Lessee and/or external financing. However, as noted above, Registrant has no requirement to maintain substantial reserves to defray any operating expenses of the Property. Inflation Inflationary trends in the economy do not directly affect Registrant's operations since, as noted above, Registrant does not actively engage in the operation of the Property. Inflation may impact the operations of Lessee. Lessee is required to pay Basic Rent, regardless of the results of its operations. Inflation and other operating factors affect the amount of Additional Rent and Further Additional Rent payable by Lessee, which is based on Lessee's net operating profit. Item 8. Financial Statements and Supplementary Data. The financial statements, together with the accompanying report by J.H. Cohn LLP immediately following, are being filed in response to this item. Item 9. Disagreement on Accounting and Financial Disclosure. Not applicable. -14- PART III Item 10. Directors and Executive Officers of the Registrant. Registrant has no directors or officers or any other centralization of management. There is no specific term of office for any Member. The table below sets forth as to each Member as of December 31, 2002 the following: name, age, nature of any family relationship with any other Member, business experience during the past five years and principal occupation and employment during such period, including the name and principal business of any corporation or any organization in which such occupation and employment was carried on and the date such individual became a Member: Nature Principal Date of Family Occupation Individual Relation- Business and became a Name Age ship Experience Employment Member Anthony E. Malkin 40 son of Real estate Senior Director 1997 Peter L. Supervision of Supervisory Malkin, and Services of brother management Wien & Malkin LLP Scott D. and President of Malkin W&M Properties, L.L.C. Scott D. Malkin 44 son of Chairman and CEO of 1997 Peter L. CEO of real S.D. Malkin Malkin, estate Properties, brother development Inc. of company Anthony E. Malkin Mark Labell 50 None Real Estate Partner 1998 Supervision Wien & Malkin LLP Thomas N. Keltner, Jr. 56 None Real Estate Partner 1996 Supervision Wien & Malkin LLP Jack K. Feirman 57 None Real Estate Partner 1998 Supervision Wien & Malkin LLP Peter L. Malkin 69 Father Real Estate Senior Partner 1970 of Supervision and Chairman Anthony E. Wien & Malkin and LLP Scott D. Malkin Fred C. Posniak 57 None Real Estate Director 2001 Supervision W & M Properties, L.L.C. -15- As stated above, six of the seven members hold senior positions at Supervisor. See Items 11, 12 and 13 hereof for a description of the services rendered by, and the compensation paid to, Supervisor and for a discussion of certain relationships which may pose actual or potential conflicts of interest among Regis- trant, Lessee and certain of their respective affiliates. The names of entities which have a class of securities registered pursuant to Section 12 of the Securities Exchange Act of 1934 or are subject to the requirements of Section 15(d) of that Act, and in which the Members are either a director, member or general partner are as follows: Peter L. Malkin is a member in 250 West 57th St. Associates L.L.C. and a member in Empire State Building Associates L.L.C.; and a general partner in Navarre-500 Building Associates and Garment Capitol Associates. Anthony E. Malkin is a member in 250 West 57th Street Associates L.L.C. and a member in Empire State Building Associates L.L.C. Thomas N. Keltner, Jr. is a member in Empire State Building Associates L.L.C. and a general partner in Navarre-500 Building Associates and Garment Capitol Associates. Item 11. Executive Compensation. As stated in Item 10 hereof, Registrant has no directors or officers or any other centralization of management. No remuneration was paid during the current fiscal year ended December 31, 2002 by Registrant to any of the Members as such. Registrant pays Supervisor for special services at hourly rates and for supervisory services and disbursements. The supervisory fees are $24,000 per annum plus an additional payment of 10% of all distributions to Participants in Registrant in any year in excess of the amount representing an annual return of 14% on the Participants' remaining cash investment in Registrant (which remaining cash investment, at December 31, 2002, was equal to the Participant's original cash investment of $7,000,000). Pursuant to such fee arrangements, Registrant paid Supervisor a total of $724,211 (consisting of $24,000 as an annual basic payment for supervisory services and $700,211 as an additional payment for supervisory services) during the fiscal year ended December 31, 2002. The supervisory services provided to Registrant by Supervisor -16- include, but are not limited to, providing or coordinating counsel services to Registrant, maintaining all of its entity and Participant records, performing physical inspections of the Building, reviewing insurance coverage and conducting annual supervisory review meetings, receipt of monthly rent from Lessee, payment of monthly and additional distributions to the Participants, payment of all other disbursements, confirmation of the payment of real estate taxes, and active review of financial statements submitted to Registrant by Lessee and financial statements audited by and tax information prepared by Registrant's independent certified public accountant, and distribution of such materials to the Participants. Supervisor also prepares quarterly, annual and other periodic filings with the Securities and Exchange Commission and applicable state authorities. As noted in Items 1 and 10 of this report, six of the seven members hold senior positions at Supervisor. Registrant also pays Supervisor for other services at hourly rates. Item 12. Security Ownership of Certain Beneficial Owners and Management. (a) Registrant has no voting securities. See Item 5 hereof. At December 31, 2002, no person owned of record or was known by Registrant to own beneficially more than 5% of the outstanding Participations. (b) At December 31, 2002, the Member (see Item 10 hereof) beneficially owned, directly or indirectly, the following Participations: Name and Address Amount of Percent of Beneficial Beneficial of Title of Class Owners Ownership Class Participations Anthony E. Malkin $40,833 .583% 60 East 42nd Street New York, NY 10165 Thomas N. Keltner, Jr. $ 2,500 .036% 60 East 42nd Street New York, NY 10165 Scott D. Malkin $33,334 .476% 27 Hereford Square SW7 4NB London, England -17- At such date, certain of the Members (or their respective spouses) held additional Participations as follows: Peter L. Malkin owned of record as trustee or co-trustee an aggregate of $55,714 of Participations. Peter L. Malkin disclaims any beneficial ownership of such Participations. Entities for the benefit of members of Peter L. Malkin's family owned of record and beneficially $107,500 of Participations. Peter L. Malkin disclaims any beneficial ownership of such Participations, except that related trusts are required to complete scheduled payments to him. Anthony E. Malkin owned of record as co-trustee an aggregate of $10,000 of Participations. Anthony E. Malkin disclaims any beneficial ownership of such Participations. (c) Not applicable. Item 13. Certain Relationships and Related Transactions. (a) As stated in Items 1 and 10 hereof, Messrs. Feirman, Keltner, Labell, Anthony E. Malkin, Peter L. Malkin, Scott D. Malkin and Posniak are the seven members in Registrant and also act as agents for Participants in their respective membership interests therein. Mr. Peter Malkin is also among the members in Lessee. As a consequence of one of the seven members being a member in Lessee and six of the seven members holding senior positions at Supervisor (which supervises Registrant and Lessee), certain actual or potential conflicts of interest may arise with respect to the management and administration of the business of Registrant. However, under the respective Participating Agreements pursuant to which the members act as agents for the Participants, certain transactions require the prior consent from Participants owning a specified interest under the Agreements in order for the agents to act on the Participants' behalf. Such transactions, among others, include modification and extension of the Lease or the Mortgage Loan, or a sale or other disposition of the Property or -18- substantially all of Registrant's other assets. See Items 1 and 2 hereof for a description of the terms of the Lease. As of December 31, 2002, Mr. Peter Malkin owned a member interest in Lessee. The respective interests, if any, of the members in Registrant and Lessee arise solely from ownership of their respective Participations, and, in the case of Mr. Peter Malkin, his individual ownership of a member interest in Lessee. The members as such receive no extra or special benefit not shared on a pro rata basis with all other Participants in Registrant or members in Lessee. However, each of the six members who hold senior positions at Supervisor, by reason of his interests in Supervisor, may receive income attributable to supervisory or other remuneration paid to Supervisor for services rendered to Registrant and Lessee. See Item 11 hereof for a description of the remuneration arrangements between Registrant and Supervisor relating to supervisory services provided by Supervisor. Reference is also made to Items 1 and 10 hereof for a description of the relationship between Registrant and Supervisor. The respective interests of the member in any remuneration paid or given by Registrant to Supervisor arises solely from such member's ownership of an interest in Supervisor. See Item 11 hereof for a description of the remuneration arrangements between Registrant and Supervisor relating to supervisory services provided by Supervisor. (b) Reference is made to paragraph (a) above. (c) Not applicable. (d) Not applicable. Item 14. Evaluation of Disclosure Controls and Internal Control Procedures. (a) Evaluation of disclosure controls and procedures. Our Supervisor, after evaluating the effectiveness of our "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a-14(c) and 15d-14(c)) as of a date (the "Evaluation Date") within 90 days before the filing date of this annual report, has concluded that, as of the Evaluation Date, our disclosure controls and procedures were adequate and designed to ensure that information required to be disclosed in the reports filed or submitted by us under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the required time periods. (b) Changes in internal controls. There were no significant changes in our internal controls or in other factors that could significantly affect our internal controls subsequent to the date of their evaluation. -19- PART IV Item 15. Exhibits, Financial Statement Schedules and Reports on Form 10-K. (a)(1) Financial Statements: Independent Accountant's Report of J. H. Cohn LLP, dated March 3, 2003. Balance Sheets at December 31, 2002 and at December 31, 2001 (Exhibit A). Statements of Income for the fiscal years ended December 31, 2002, 2001 and 2000. (Exhibit B). Statement of Members' Deficiency for the fiscal year ended December 31, 2002 (Exhibit C-1). Statement of Members' Deficiency for the fiscal year ended December 31, 2001 (Exhibit C-2). Statement of Members' Deficiency for the fiscal year ended December 31, 2000 (Exhibit C-3). Statements of Cash Flows for the fiscal years ended December 31, 2002, 2001 and 2000 (Exhibit D). Notes to Financial Statements for the fiscal years ended December 31, 2002, 2001 and 2000. (2) Financial Statement Schedules: List of Omitted Schedules. Real Estate and Accumulated Depreciation - December 31, 2002 (Schedule III). (3) Exhibits: See Exhibit Index. (b) No report on Form 8-K was filed by Registrant during the last quarter of the period covered by this report. -20- SIGNATURE Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The individual signing this report on behalf of Registrant is Attorney-in-Fact for Registrant and each of the Members in Registrant, pursuant to Powers of Attorney, dated March 18, 1998, March 20, 1998 and May 14, 1998 (the "Power"). 60 EAST 42ND ST. ASSOCIATES L.L.C. (Registrant) By /s/ Stanley Katzman Stanley Katzman, Attorney-in-Fact* Date: April 15, 2003 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the undersigned as Attorney-in- Fact for each of the Members in Registrant, pursuant to the Power, on behalf of Registrant and as a Member in Registrant on the date indicated. By /s/ Stanley Katzman Stanley Katzman, Attorney-in-Fact* Date: April 15, 2003 ________________________ - - Mr. Katzman supervises accounting functions for Registrant. -21- CERTIFICATIONS I, Stanley Katzman, certify that: (1) I have reviewed this annual report on Form 10-K of 60 East 42nd St. Associates L.L.C.; (2) Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; (3) Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; (4) The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a- 14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, is made known to us by others within those entities particularly during the period in which this annual report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and (c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; (5) The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and -22- (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and (6) The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: April 15, 2003 By /s/ Stanley Katzman Name: Stanley Katzman Title: Member of Wien & Malkin LLP, Supervisor of 60 East 42nd St. Associates L.L.C. -23- CERTIFICATIONS I, Stanley Katzman, certify that: 1. I have reviewed this annual report on Form 10-K of 60 East 42nd St. Associates L.L.C.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, is made known to us by others within those entities particularly during the period in which this annual report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c. presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and -24- b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: April 15, 2003 By /s/ Stanley Katzman Name: Stanley Katzman Title: Senior Member of Financial/Accounting Staff of Wien & Malkin LLP, Supervisor of 60 East 42nd St. Associates L.L.C. -25- Exhibit Index Number Document Page* 3(a) Partnership Agreement, dated September 25, 1958, which was filed by letter dated March 31, 1981 (Commission File No. 0-2670) as Exhibit No. 3 to Registrant's Form 10-K for the fiscal year ended December 31, 1980, is incorporated by reference as an exhibit hereto. 3(b) Amended Business Certificate of Registrant filed with the Clerk of New York County on November 28, 1997, reflecting a change in the Partners of Registrant, which was filed as Exhibit 3(b) to Registrant's 10-Q for the period ended March 31, 1998 and is incorporated by reference as an exhibit hereto. 3(c) Registrant's Consent and Operating Agreement dated as of November 28, 2001 3(d) Certificate of Conversion of Registrant to a limited liability company dated November 28, 2001 filed with the New York Secretary of State on December 3, 2001. 4 Form of Participating Agreement, which was filed as Exhibit No. 4 to Registrant's Form S-1 Registration Statement, as amended (the "Registration Statement") by letter dated June 28, 1954 and assigned File No. 2- 10981, is incorporated by reference as an exhibit hereto. 10(a) Deed of Lincoln Building to WLKP Realty Corp., which was filed as Exhibit No. 5 to Registrant's Registration Statement by letter dated June 28, 1954 and assigned File No. 2-10981, is incorporated by reference as an exhibit hereto. -26- Exhibit Index Number Document Page* 10(b) First Mortgage evidenced by a Modification, Extension & Consolidation Agreement, dated March 31, 1954, between WLKP Realty Corp. and The Prudential Insurance Company of America ("Prudential"), which was filed as Exhibit No. 6 to Registrant's Registration Statement by letter dated June 28, 1954 and assigned File No. 2-10981, is incorporated by reference as an exhibit hereto. 10(c) Form of Net Lease between Registrant and Lincoln Building Associates, which was filed as Exhibit No. 9 to Registrant's Registration Statement by letter dated June 28, 1954 and assigned File No. 2-10981, is incorporated by reference as an exhibit hereto. 10(d) Deed from Lincoln Building Associates to Registrant, dated October 1, 1958, which was filed by letter dated March 31, 1981 (Commission File No. 0-2670) as Exhibit No. 10(d) to Registrant's Form 10-K for the fiscal year ended December 31, 1980, is incorporated by reference, as an exhibit hereto. 10(e) Second Modification of Lease Agreement, dated January 1, 1977, which was filed by letter dated March 28, 1980 (Commission File No. 0-2670) as Exhibit II under Item 10(b) of Registrant's Form 10-K for the fiscal year ended December 31, 1979, is incorporated by reference as an exhibit hereto. 10(f) Third Modification of Lease Agreement, which was filed by letter dated March 28, 1980 (Commission File No. 0-2670) as Exhibit II under Item 10(b) of Registrant's Form 10- K for the fiscal -27- Exhibit Index Number Document Page* year ended December 31, 1979, is incorporated by reference as an exhibit hereto. 13(b) Letter to Participants, dated November 29, 2002 and accompanying financial reports for the lease year ended September 30, 2002. The foregoing material shall not be deemed to be "filed" with the Commission or otherwise subject to the liabilities of Section 18 of the Securities Exchange Act of 1934. 24 Powers of Attorney dated March 18, 1998, March 20, 1998 and May 14, 1998 between the Partners of Registrant and Stanley Katzman and Richard A. Shapiro, which was filed as Exhibit 24 to Registrant's 10-Q for the period ended March 31, 1998 and is incorporated by reference as an exhibit hereto. 99 (1) Chief Executive Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 99 (2) Chief Financial Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 _______________________ - - Page references are based on a sequential numbering system. -28- Exhibit 99(1) 60 East 42nd St. Associates L.L.C. Chief Executive Officer Certification Pursuant to Section 906 of Sarbanes - Oxley Act of 2002 The undersigned, Stanley Katzman, is signing this Chief Executive Officer certification as a member of Wien & Malkin LLP, the supervisor* of 60 East 42nd St. Associates L.L.C. ("Registrant") to certify that: (1) the Annual Report on Form 10-K of Registrant for the period ended December 31, 2002 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C.78m or 78o(d)); and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Registrant. Dated: April 15, 2003 By /s/ Stanley Katzman Stanley Katzman Wien & Malkin LLP, Supervisor *Registrant's organizational documents do not provide for a Chief Executive Officer or other officer with equivalent rights and duties. As described in the Report, Registrant is a limited liability company which is supervised by Wien & Malkin LLP. Accordingly, this Chief Executive Officer certification is being signed by a member of Registrant's supervisor. -29- Exhibit 99(2) 60 East 42nd St. Associates L.L.C. Chief Financial Officer Certification Pursuant to Section 906 of Sarbanes - Oxley Act of 2002 The undersigned, Stanley Katzman, is signing this Chief Financial Officer certification as a senior member of the financial/accounting staff of Wien & Malkin LLP, the supervisor* of 60 East 42nd St. Associates L.L.C.("Registrant"), to certify that: (1) the Annual Report on Form 10-K of Registrant for the period ended December 31, 2002 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C.78m or 78o(d)); and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Registrant. Dated: April 15, 2003 By /s/ Stanley Katzman Stanley Katzman Wien & Malkin LLP, Supervisor *Registrant's organizational documents do not provide for a Chief Financial Officer or other officer with equivalent rights and duties. As described in the Report, Registrant is a limited liability company which is supervised by Wien & Malkin LLP. Accordingly, this Chief Financial Officer certification is being signed by a senior member of the financial/accounting staff of Registrant's supervisor. -30- [J.H. COHN LLP] INDEPENDENT ACCOUNTANTS' REPORT To the participants in 60 East 42nd St. Associates L.L.C. (a Limited Liability Company) New York, N. Y. We have audited the accompanying balance sheets of 60 East 42nd St. Associates L.L.C. as of December 31, 2002 and 2001, and the related statements of income, members' deficiency and cash flows for each of the three years in the period ended December 31, 2002, and the supporting financial statement schedule as contained in Item 15(a)(2) of this Form 10-K. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of 60 East 42nd St. Associates L.L.C. as of December 31, 2002 and 2001, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America, and the related financial statement schedule, when considered in relation to the basic financial statements, presents fairly, in all material respects, the information set forth therein. J.H. Cohn LLP New York, N. Y. March 3, 2003 -31- EXHIBIT A 60 EAST 42nd ST. ASSOCIATES L.L.C. (A Limited Liability Company) BALANCE SHEETS
A S S E T S December 31, 2002 2001 Current Assets: Cash in banks $ 120,904 $ 1,863,548 Cash in distribution account held by Wien & Malkin LLP (Note 10) 87,202 87,202 TOTAL CURRENT ASSETS 208,106 1,950,750 Real Estate (Notes 2a, 3 and 12): Land 7,240,000 7,240,000 Buildings $16,960,000 $16,960,000 Less: Accumulated depreciation 16,960,000 - 16,960,000 - Building improvements and equipment 21,396,388 13,882,233 Less: Accumulated depreciation 2,238,713 19,157,675 1,780,389 12,101,844 Other Assets: Cash segregated for payment of building improvement costs 8,510,100 - Mortgage refinancing costs, less accumulated amortization of $876,961 in 2002 and $612,879 in 2001 (Note 2b) 484,135 748,217 TOTAL ASSETS $35,600,016 $22,040,811 LIABILITIES AND MEMBERS' DEFICIENCY Current Liabilities: Due to lessee, a related party (Note 12) $ 571,695 $ 2,372,779 Building improvement costs payable 1,050,193 55,030 Accrued expenses 110,730 - TOTAL CURRENT LIABILITIES 1,732,618 2,427,809 Long-term Liabilities: Bonds, mortgages and similar debt: First and second mortgages payable (Note 3) 40,000,000 25,020,814 TOTAL LIABILITIES 41,732,618 27,448,623 Commitments and contingencies (Notes 11 and 12) Members' Deficiency (Exhibit C) (6,132,602) (5,407,812) TOTAL LIABILITIES AND MEMBERS' DEFICIENCY $35,600,016 $22,040,811
See accompanying notes to financial statements. -32- EXHIBIT B 60 EAST 42nd ST. ASSOCIATES L.L.C. (A Limited Liability Company) STATEMENTS OF INCOME
Year ended December 31, 2002 2001 2000 Revenues: Rent income, from a related party (Note 4) $10,041,985 $10,656,676 $8,422,143 Interest income 68,212 142,019 92,422 TOTAL REVENUES 10,110,197 10,798,695 8,514,565 Expenses: Interest on mortgages (Note 3) 2,087,608 1,663,205 1,263,391 Supervisory services, to a related party (Note 5) 724,211 837,149 648,717 Amortization of mortgage refinancing costs (Note 2b) 264,082 264,082 219,012 Depreciation of building improvements and equipment (Note 2a) 458,324 206,254 - Professional fees, including amounts paid to a related party (Note 6) 18,864 13,291 86,721 TOTAL EXPENSES 3,553,089 2,983,981 2,217,841 NET INCOME, CARRIED TO MEMBERS' DEFICIENCY (NOTE 9) $6,557,108 $ 7,814,714 $6,296,724 Earnings per $10,000 participation unit, based on 700 participation units outstanding during each year $ 9,367 $ 11,164 $ 8,995
See accompanying notes to financial statements. -33- EXHIBIT C-3 60 EAST 42nd ST. ASSOCIATES L.L.C. (A Limited Liability Company) STATEMENT OF MEMBERS' DEFICIENCY YEAR ENDED DECEMBER 31, 2000
Members' Members' deficiency deficiency Share of December 31, January 1, 2000 net income Distributions 2000 Jack Feirman Group.......... $ (659,779) $ 899,532 $ 943,208 $ (703,455) Mark Labell Group........... (659,779) 899,532 943,208 (703,455) Richard A. Shapiro Group.... (659,779) 899,532 943,208 (703,455) Anthony E. Malkin Group..... (659,779) 899,532 943,208 (703,455) Peter L. Malkin Group....... (659,778) 899,532 943,209 (703,455) Scott D. Malkin Group....... (659,778) 899,532 943,209 (703,455) Thomas N. Keltner Jr. Group. (659,779) 899,532 943,208 (703,455) $(4,618,451) $6,296,724 $6,602,458 $(4,924,185)
See accompanying notes to financial statements. -34- EXHIBIT C-1 60 EAST 42nd ST. ASSOCIATES L.L.C. (A Limited Liability Company) STATEMENT OF MEMBERS' DEFICIENCY YEAR ENDED DECEMBER 31, 2002
Members' Members' deficiency deficiency Share of December 31, January 1, 2002 net income Distributions 2002 Jack Feirman Group.......... $ (772,545) $ 936,730 $1,040,271 $ (876,086) Mark Labell Group........... (772,545) 936,730 1,040,271 (876,086) Fred Posniak Group.... (772,544) 936,730 1,040,272 (876,086) Anthony E. Malkin Group..... (772,544) 936,730 1,040,271 (876,085) Peter L. Malkin Group....... (772,544) 936,729 1,040,271 (876,086) Scott D. Malkin Group....... (772,545) 936,730 1,040,271 (876,086) Thomas N. Keltner Jr. Group. (772,545) 936,729 1,040,271 (876,087) $(5,407,812) $6,557,108 $7,281,898 $(6,132,602)
See accompanying notes to financial statements. -35- EXHIBIT C-2 60 EAST 42nd ST. ASSOCIATES L.L.C. (A Limited Liability Company) STATEMENT OF MEMBERS' DEFICIENCY YEAR ENDED DECEMBER 31, 2001
Members' Members' deficiency deficiency Share of December 31, January 1, 2001 net income Distributions 2001 Jack Feirman Group.......... $ (703,455) $1,116,388 $1,185,478 $ (772,545) Mark Labell Group........... (703,455) 1,116,388 1,185,478 (772,545) Fred Posniak Group (formerly Richard A. Shapiro Group). (703,455) 1,116,388 1,185,477 (772,544) Anthony E. Malkin Group..... (703,455) 1,116,388 1,185,477 (772,544) Peter L. Malkin Group....... (703,455) 1,116,388 1,185,477 (772,544) Scott D. Malkin Group....... (703,455) 1,116,387 1,185,477 (772,545) Thomas N. Keltner Jr. Group. (703,455) 1,116,387 1,185,477 (772,545) $(4,924,185) $7,814,714 $8,298,341 $(5,407,812)
See accompanying notes to financial statements. -36- EXHIBIT D 60 EAST 42nd ST. ASSOCIATES L.L.C. (A Limited Liability Company) STATEMENTS OF CASH FLOWS
Year ended December 31, 2002 2001 2000 Cash flows from operating activities: Net income $ 6,557,108 $7,814,714 $ 6,296,724 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation of building improvements and equipment 458,324 206,254 - Amortization of mortgage refinancing costs 264,082 264,082 219,012 Change in accrued expenses 55,700 5,542 4,235 Change in due to lessee - - 93,791 Net cash provided by operating activities 7,335,214 8,290,592 6,613,762 Cash flows from investing activities: Purchase of building improvements and equipment (6,463,962) (9,112,983) - Cash segregated for payment of building improvement costs (8,510,100) - - Net cash used in investing activities (14,974,062) (9,112,983) - Cash flows from financing activities: Proceeds from second mortgage loan 14,979,186 6,000,000 7,000,000 Payment of mortgage refinancing costs - - (1,111,574) Cash distributions (7,281,898) (8,298,341) (6,602,458) Change in amounts due to lessee (1,801,084) (916,127) - Net cash provided by (used in) financing activities 5,896,204 (3,214,468) (714,032) Net change in cash (1,742,644) (4,036,859) 5,899,730 Cash, beginning of year 1,950,750 5,987,609 87,879 CASH, END OF YEAR $ 208,106 $1,950,750 $ 5,987,609 Supplemental disclosure of cash flow information: 2002 2001 2000 Cash paid for: Interest $ 2,031,908 $1,657,663 $ 1,213,903 Supplemental disclosure of noncash investing and financing activities: In 2002 and 2000 Associates purchased certain building improvements by means of a financing agreement with the lessee, as follows $ 1,050,193 $ - $ 2,132,547
See accompanying notes to financial statements. -37- 60 EAST 42nd ST. ASSOCIATES L.L.C. (A Limited Liability Company) NOTES TO FINANCIAL STATEMENTS 1. Business Activity And Reorganization 60 East 42nd St. Associates L.L.C. ("Associates") owns commercial property situated at 60 East 42nd Street and 301 Madison Avenue, New York, New York. The property, known as "The Lincoln Building", is net leased to Lincoln Building Associates (the "Lessee"). Associates operated as a general partnership, 60 East 42nd Street Associates, until November 28, 2001, when it converted to a limited liability company and changed its name. Ownership percentages in Associates were unchanged by the conversion. Associates continues to be treated as a partnership for tax purposes, and the partnership's income tax basis of the assets and liabilities carried over to the limited liability company. 2. Summary of Significant Accounting Policies a. Real Estate and Depreciation: Real estate, consisting of land, buildings and building improvements and equipment, is stated at cost. The buildings, and building improvements costing $1,574,135, have been fully depreciated, using a straight-line method over their estimated useful lives ranging from 20 to 26 years. In connection with the building improvements program which began in 1999 (see Note 12), costs totaling $19,822,253 have been incurred through December 31, 2002 for new building improvements and equipment which have been put into service. Depreciation of these assets is provided primarily using the straight-line method over an estimated useful life of 39 years for building improvements and 7 years for equipment. b. Mortgage Refinancing Costs, Amortization and Related Party Transactions: Mortgage refinancing costs of $249,522, incurred in connection with the October 6, 1994 refinancing of the first mortgage payable (see Note 3), are being charged to income ratably over the 10 year and 26 day term of the mortgage, from October 6, 1994 through October 31, 2004. Mortgage refinancing costs of $1,111,574, incurred in connection with the March 8, 2000 financing of the second mortgage payable, are being charged to income ratably over the term of the mortgage, from March 8, 2000 through October 31, 2004. Included in the refinancing costs applicable to the second mortgage are payments of $70,071 made to the firm of Wien & Malkin LLP, a related party. c. Valuation of Long-Lived Assets: Associates periodically assesses the carrying value of long-lived assets whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. When Associates determines that the carrying value of long-lived assets may be impaired, the measurement of any impairment is based on a projected discounted cash flows method. -38- 60 EAST 42nd ST. ASSOCIATES L.L.C. (A Limited Liability Company) NOTES TO FINANCIAL STATEMENTS (continued) 2. Summary of Significant Accounting Policies (continued) d. Revenue Recognition: Basic rent and overage rent, which is based on the Lessee's annual net income, as defined in the lease, are recognized when earned. e. Use of Estimates: In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 3. First and Second Mortgages Payable On October 6, 1994, a first mortgage was placed on the property with Morgan Guaranty Trust Company of New York, as trustee of a pension trust, to refinance an existing first mortgage in the amount of $12,020,814. Annual charges on the first mortgage are $1,063,842, payable in equal monthly installments, for interest only at the rate on the first mortgage of 8.85% per annum. The first mortgage matures on October 31, 2004. In connection with the building improvements program referred to in Note 12, a second mortgage loan was placed on the property on March 8, 2000, with Emigrant Savings Bank. The principal amount of the second mortgage note is $27,979,186, to be drawn down as payments for the building improvements were needed. The first $7,000,000 was drawn down by September 30, 2000. The loan agreement permitted additional advances to be made through September 1, 2002, and by August 15, 2002 Associates had drawn all available funds against this loan. The second mortgage calls for the first $7,000,000 of loan proceeds advanced through September 30, 2000 to bear interest at the rate of 8.21% per annum through the term of the loan. All loan proceeds advanced after September 30, 2000 initially bore interest at a Floating Rate, defined to be either the prime rate, a U.S. Treasury based rate or a LIBO-based rate, as selected by Associates. At December 31, 2001 the Floating Rate interest on $6,000,000 of second mortgage debt, drawn down since September 30, 2000, was calculated at a rate of approximately 3.7%. On October 1, 2002, in accordance with the terms of the mortgage, the Floating Rate interest on the second mortgage was converted to a fixed rate of 3.39%. Monthly payments for debt service on the second mortgage loan are for interest only. The second mortgage also matures on October 31, 2004. As of December 31, 2002 Associates had set aside approximately $8,500,000 of loan proceeds from the second mortgage loan to pay for the Program. -39- 60 EAST 42nd ST. ASSOCIATES L.L.C. (A Limited Liability Company) NOTES TO FINANCIAL STATEMENTS (continued) 3. First and Second Mortgages Payable (continued) The real estate is pledged as collateral for the first and second mortgages. The estimated fair value of Associates' mortgage debt, based on available market information or other appropriate valuation methodologies, was $41,300,000 and $26,000,000 at December 31, 2002 and 2001, respectively, 4. Related Party Transactions - Rent Income Rent income for the years ended December 31, 2002, 2001 and 2000, totaling $10,041,985, $10,656,676 and $8,422,143, respectively, as provided under an operating lease with the Lessee dated October 1, 1958, as modified, consisted of the following: 2002 2001 2000 Basic rent income.............$ 2,043,396 $ 1,545,186 $1,194,968 Advance of additional rent.... 1,053,800 1,053,800 1,053,800 Further additional rent. 6,944,789 8,057,690 6,173,375 $10,041,985 $10,656,676 $8,422,143 The lease, as modified, provides for an annual basic rent equal to the sum of the constant annual mortgage charges on all mortgages, plus $24,000. The modified lease also provides for payments of additional rent, as follows: 1. Advances of additional rent are payable in equal monthly installments totaling an amount equal to the lesser of $1,053,800 or the defined net operating income of the Lessee during the preceding fiscal year ended September 30th (the "lease year"); and 2. Further additional rent is payable in an amount equal to 50% of the Lessee's remaining net operating income, as defined, in each lease year. The modified lease further provides for changes to be made in the basic rent paid in the event of a refinancing of the first mortgage (Note 3). In such case, unless there is an increase in the mortgage balance, the annual basic rent will be modified and will be equal to the sum of $24,000 plus an amount equal to the revised mortgage charges. In the event such mortgage refinancing results in an increase in the amount of outstanding principal balance of the mortgage, the basic rent shall be equal to the sum of $24,000 plus an amount equal to the product of the new debt service percentage rate under the refinanced mortgage multiplied by the principal balance of the mortgage immediately prior to the refinancing. -40- 60 EAST 42nd ST. ASSOCIATES L.L.C. (A Limited Liability Company) NOTES TO FINANCIAL STATEMENTS (continued) 4. Related Party Transactions - Rent Income (continued) Additional rent is billed to and advanced by the Lessee in equal monthly installments of $87,817. While it is not practicable to estimate that portion of additional rent for the lease year ending on the ensuing September 30th which would be allocable to the current three month period ending December 31st, Associates' policy is to include in its income each year the advances of additional rent income received from October 1st to December 31st. No other additional rent is accrued by Associates for the period between the end of the Lessee's lease year ending September 30th and the end of Associates' fiscal year ending December 31st. The lease had an initial term expiring on September 30, 1983, with renewal options for two additional periods of 25 years each. In 1982, the first lease renewal option was exercised for the period from October 1, 1983 through September 30, 2008. The Lessee may surrender the lease at the end of any month, upon sixty days' prior written notice; the liability of the Lessee will end on the effective date of such surrender. Peter L. Malkin, a member of Wien & Malkin LLP, is a member in Associates. Beneficial interests in the Lessee are held by one or more persons at Wien & Malkin LLP (see Note 5), their family members, and/or trusts, limited liability companies, or similar entities owned for their family members. 5. Related Party Transactions - Supervisory Services Fees for supervisory services (including disbursements and costs of accounting services) for the years ended December 31, 2002, 2001 and 2000, totaling $724,211, $837,149 and $648,717, respectively, were paid to the firm of Wien & Malkin LLP. Some members of that firm are members in Associates. Basic fees for supervisory services are $24,000 per annum. Wien & Malkin LLP receives an additional supervisory fee each year equal to 10% of distributions to participants for any year in excess of 14% of their cash investment of $7,000,000. 6. Related Party Transactions - Professional Fees Professional fees for the years ended December 31, 2002, 2001 and 2000 include $17,222, $2,791 and $70,054, respectively, inclusive of disbursements, paid or accrued to the firm of Wien & Malkin LLP, a related party. -41- 60 EAST 42nd ST. ASSOCIATES L.L.C. (A Limited Liability Company) NOTES TO FINANCIAL STATEMENTS (continued) 7. Number of Participants There were approximately 760 participants in the participating groups at December 31, 2002, 2001 and 2000. 8. Determination of Distributions to Participants Distributions to participants during each year represent mainly the excess of rent income over the mortgage requirements and cash expenses. 9. Distributions and Amount of Income per $10,000 Participation Unit Distributions and amount of income per $10,000 participation unit during the years ended December 31, 2002, 2001 and 2000, based on 700 participation units outstanding during each year, consisted of the following: Year ended December 31, 2002 2001 2000 Income........................ $ 9,367 $11,164 $8,995 Return of capital............. 1,036 691 437 TOTAL DISTRIBUTIONS..... $10,403 $11,855 $9,432 Net income is computed without regard to income tax expense since Associates does not pay a tax on its income; instead, any such taxes are paid by the participants in their individual capacities. 10. Concentration of Credit Risk Associates maintains cash balances in two banks and in a distribution account held by Wien & Malkin LLP. The bank balances are insured by the Federal Deposit Insurance Corporation up to $100,000 each, and at December 31, 2002 approximately $8,431,000 was not insured. The distribution account held by Wien & Malkin is not insured. The funds held in the distribution account were paid to the participants on January 1, 2003. 11. Contingencies Wien & Malkin LLP and Peter L. Malkin, a member in Associates, have been engaged in a dispute proceeding with Helmsley-Spear, Inc. commenced in 1997 concerning the management, leasing and supervision of the property subject to the net lease, in which Wien & Malkin and Mr. Malkin have sought an order removing Helmsley-Spear. In this connection, certain costs for legal and professional fees and other expenses have been paid and incurred by Wien & Malkin and Mr. Malkin, and additional costs are expected to be incurred. Wien & Malkin and Mr. Malkin have represented that such costs will be recovered only to the extent that (a) a competent tribunal authorizes payment or (b) an investor voluntarily agrees that his or her proportionate share be paid. Accordingly, Associates' allocable share of such costs is as yet undetermined, and Associates has not provided for the expense and related liability with respect to such costs in these financial statements. -42- 60 EAST 42nd ST. ASSOCIATES L.L.C. (A Limited Liability Company) NOTES TO FINANCIAL STATEMENTS (continued) 11. Contingencies (continued) The original action was commenced in June 1997 and was referred to arbitration. The March 30, 2001 decision of the arbitrators, which was confirmed by the court, (i) reaffirms the right of the investors in the Lessee to vote to terminate Helmsley-Spear without cause, (ii) dismisses Helmsley- Spear's claims against Wien & Malkin and Peter L. Malkin, and (iii) rejects the termination of Helmsley-Spear for cause. The parts of the decision under appeal were affirmed by the Appellate Division on December 5, 2002, and were further appealed by Wien & Malkin and Mr. Malkin on January 13, 2003. In January 1998, Irving Schneider, who is one of the controlling principals of Helmsley-Spear and has no record or beneficial interest in Associates or the Lessee, brought litigation against Associates' supervisor, Wien & Malkin and Peter L. Malkin (or his affiliate), claiming misconduct and seeking damages and disqualification from performing services for the Lessee. In March 2002, the court dismissed Mr. Schneider's claims. Mr. Schneider has appealed this dismissal. Wien & Malkin and Mr. Malkin are defending against these claims. At the Lessee's May 20, 2002 special meeting, a vote of the investors was conducted on proposals for the removal without cause of Helmsley-Spear as managing and leasing agent and its replacement by one or a combination of designated independent firms (Cushman & Wakefield, Insignia/ESG, and Newmark Realty), including payment by the Lessee of the expenses for the preparation of the solicitation statement, the solicitation of votes, and the implementation of the new program. On May 21, 2002, the proponents of the proposals, Peter L. Malkin and Wien & Malkin, filed a court application to determine and confirm all investors' votes for removal without cause and replacement and to set the final date for Helmsley-Spear's termination. Helmsley-Spear filed objections, and on September 10, 2002 the court confirmed such votes and ruled that Helmsley-Spear has been discharged and must effect an orderly transition and departure within 60 days. As of November 20, 2002, Helmsley-Spear is no longer the managing and leasing agent and has been replaced by Newmark & Company. Helmsley-Spear continues to pursue its appeal. In accordance with the Lessee's May 20, 2002 vote, the expenses for the preparation of the solicitation statement, the solicitation of votes and the implementation of the new program are being paid by the Lessee. Such payments have totaled $241,587 to December 31, 2002, including $72,052 to Wien & Malkin plus disbursements of $6,850. 12. Building Improvements Program and Agreement to Extend Lease In 1999 the participants of Associates and the Lessee consented to a building improvements program (the "Program") estimated to cost approximately $22,800,000 and expected to take two to three years to complete. In 2000 the participants of the Lessee approved an increase to the Program from $22,800,000 to approximately $28,000,000 under substantially the same conditions as had previously been approved. The increased amount had previously been authorized by the participants of Associates. -43- 60 EAST 42nd ST. ASSOCIATES L.L.C. (A Limited Liability Company) NOTES TO FINANCIAL STATEMENTS (continued) 12. Building Improvements Program and Agreement to Extend Lease (continued) The Lessee is financing the Program and billing Associates for the costs incurred. The Program (1) grants the ownership of the improvements to Associates and acknowledges its intention to finance them through an increase in the fee mortgage (Note 3), and (2) allows for the increased mortgage charges to be paid by Associates from an equivalent increase in the basic rent paid by the Lessee to Associates. Since any overage rent will be decreased by one-half of that amount, the net effect of the lease modification is to have Associates and the Lessee share the costs of the Program equally, assuming overage rent continues to be earned. The 1999 consent authorized the members of 60 East 42nd St. Associates L.L.C. who act as agents for the participant investors (the "Agents") to give additional extension rights to the Lessee beyond the September 30, 2033 expiration date (Note 4) to September 30, 2083 upon completion of the Program, and to later date(s) for consideration and upon such terms as the Agents deem appropriate for the benefit of Associates. 13. Receipt of Warrants and Stock in Telecommunications Companies In 2000, Associates received shares of common stock and warrants from certain unrelated companies in exchange for permission for those companies to provide high speed internet access and other telecommunication services to the buildings. The Lessee received an equal amount of shares and warrants. There are restrictions as to the transfer of stock, and neither the warrants nor the stock have an ascertainable value as of either balance sheet date. Accordingly, the accompanying financial statements do not reflect any value for these securities. 14. Reclassifications As a result of the conversion of Associates in 2001 to a limited liability company (Note 1), certain accounts in the 2000 financial statements have been reclassified for comparative purposes to conform with subsequent year presentation. -44- 60 EAST 42nd ST. ASSOCIATES L.L.C. (A Limited Liability Company) OMITTED SCHEDULES The following schedules have been omitted as not applicable in the present instance: SCHEDULE I - Condensed financial information of registrant. SCHEDULE II - Valuation and qualifying accounts. SCHEDULE IV - Mortgage loans on real estate. -45- 60 EAST 42nd ST. ASSOCIATES L.L.C. SCHEDULE III (A Limited Liability Company) Real Estate and Accumulated Depreciation December 31, 2002 Column A Description Land, buildings and building improvements and equipment situated at 60 East 42nd Street and 301 Madison Avenue, New York, N.Y. B Encumbrances - Morgan Guaranty Trust Company of New York, as trustee of a pension trust Balance at December 31, 2002 $12,020,814 Emigrant Savings Bank Balance at December 31, 2002 $27,979,186 C Initial cost to company Land $ 7,240,000 Buildings $16,960,000 D Cost capitalized subsequent to acquisition Building improvements and equipment $21,396,388 Carrying costs $ None E Gross amount at which carried at close of period Land $ 7,240,000 Buildings, building improvements and equipment 38,356,388 Total $45,596,388(a) F Accumulated depreciation $19,198,713(b) G Date of construction 1930 H Date acquired October 1, 1958 I Life on which depreciation in latest income statements is computed 39 years for building improvements and 7 years for equipment (a) Gross amount of real estate Balance at January 1, 2000 $26,836,703 Purchase of building improvements and equipment and construction in progress (expenditures advanced by Lessee, a related party, and recorded by Associates): F/Y/E 12/31/00 $ 2,132,547 12/31/01 9,112,983 12/31/02 7,514,155 18,759,685 Balance at December 31, 2002 $45,596,388 The costs for federal income tax purposes are the same as for financial statement purposes. (b) Accumulated depreciation Balance at January 1, 2000 $18,534,135 Depreciation: F/Y/E 12/31/00 None 12/31/01 206,254 12/31/02 458,324 664,578 lance at December 31, 2002 $19,198,713 -46- EX-13 3 annrep.txt EXHIBIT 13A [LETTERHEAD OF WIEN & MALKIN LLP] March 14, 2003 To Members and Participants in 60 East 42nd St. Associates L.L.C. Federal Identification Number 13-6077181 We enclose the annual report of 60 East 42nd St. Associates L.L.C. ("Associates") for the year 2002. The limited liability company owns the premises at 60 East 42nd Street (the Lincoln Building), and at 301 Madison Avenue, New York City. Associates was converted from a general partnership to a limited liability company on November 28, 2001. Costs for the conversion totaled $16,480, including $13,430 paid to Wien & Malkin LLP for its time charges. The reported income for 2002 was $6,557,108 which was less than distributions of $7,281,898. The difference is treated as a return of capital investment, rather than as taxable income. It results partly from depreciation and amortization of mortgage refinancing costs. Taking into account that a portion of prior distributions constituted a return of capital, the book value on December 31, 2002 of an original cash investment of $10,000 was a deficit balance of $8,761. Monthly distributions during 2002 totaled $1,046,420, or about 14.9% per annum on the original cash investment of $7,000,000. The distributions were made possible by advances from the lessee totalling $1,053,800 against additional rent. Additional rent for the lease year ended September 30, 2002 was $7,998,589, or an excess of $6,944,789 over the advances of $1,053,800. Wien & Malkin LLP received $692,831, $16,480 was deducted for fees and costs relating to the conversion of 60 East 42nd St. Associates to a limited liability company and the balance of the excess rent of $6,235,478 was distributed to the participants on November 29, 2002. The additional distribution of $6,235,478 represented an annual return of about 89.1% on the cash investment of $7,000,000, so that total distributions for 2002 were at the rate of about 104% per annum. Also enclosed is Schedule K-1 form(s) (Form 1065), containing 2002 tax information which must be reviewed in detail by your accountant. Please retain this letter and the enclosed Schedule K-1 form(s) for the preparation of your income tax returns for the year 2002. If you have any question about the enclosed material please communicate with our office. Cordially yours, WIEN & MALKIN LLP By: Stanley Katzman SK:fm Encs. [J.H. COHN, LLP] INDEPENDENT ACCOUNTANTS' REPORT To the participants in 60 East 42nd St. Associates L.L.C. (a limited liability company): We have audited the accompanying balance sheet of 60 East 42nd St. Associates L.L.C. ("Associates") as of December 31, 2002, and the related statements of income, members' deficiency and cash flows for the year then ended. These financial statements are the responsibility of Associates' management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of 60 East 42nd Street Associates L.L.C. as of December 31, 2002, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. New York, N.Y. March 3, 2003 60 EAST 42ND ST. ASSOCIATES L.L.C. (A Limited Liability Company) BALANCE SHEET DECEMBER 31, 2002 Assets Cash available for operations: Cash in banks $ 120,904 Distribution account held by Wien & Malkin LLP 87,202 208,106 Cash segregated for payment of building improvement costs 8,510,100 Real estate at 60 East 42nd Street and 301 Madison Avenue, New York City: Buildings $16,960,000 Less: Accumulated depreciation 16,960,000 - Building improvements and equipment 21,396,388 Less: Accumulated depreciation 2,238,713 19,157,675 Land 7,240,000 Mortgage refinancing costs 1,361,096 Less: Accumulated amortization 876,961 484,135 Total assets $35,600,016 Liabilities and members' deficiency Liabilities: First mortgage $12,020,814 Second mortgage 27,979,186 Due to lessee 571,695 Building improvement costs payable and accrued expenses 1,160,923 Total liabilities 41,732,618 Commitments and contingencies Members' deficiency (6,132,602) Total liabilities and members' deficiency $35,600,016 See accompanying notes to financial statements. 60 EAST 42ND ST. ASSOCIATES L.L.C. (A Limited Liability Company) STATEMENT OF INCOME YEAR ENDED DECEMBER 31, 2002 Income: Basic rent income $2,043,396 Additional rent income 7,998,589 Interest income 68,212 Total income 10,110,197 Expenses: Interest on mortgages $2,087,608 Supervisory services 724,211 Amortization of mortgage refinancing costs 264,082 Professional fees 18,864 Total expenses 3,094,765 Income before depreciation 7,015,432 Depreciation of building improvements and equipment 458,324 Net income $6,557,108 See accompanying notes to financial statements. 60 EAST 42ND ST. ASSOCIATES L.L.C. (A Limited Liability Company) STATEMENT OF MEMBERS' DEFICIENCY YEAR ENDED DECEMBER 31, 2002 Members' deficiency, January 1, 2002 $(5,407,812) Add, Net income for the year ended December 31, 2002 6.557,108 1,149,296 Less, Distributions: Monthly distributions, January 1, 2002 through December 31, 2002 $1,046,420 Distribution on November 29, 2002 of balance of additional rent for the lease year ended September 30, 2002 6,235,478 7,281,898 Members' deficiency, December 31, 2002 $(6,132,602) See accompanying notes to financial statements. 60 EAST 42ND ST. ASSOCIATES L.L.C. (A Limited Liability Company) STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 2002 Cash flows from operating activities Net income $ 6,557,108 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation of building improvements and equipment 458,324 Amortization of mortgage refinancing costs 264,082 Change in accrued expenses 55,700 Net cash provided by operating activities 7,335,214 Cash flows from investing activities Purchase of building improvements and equipment (6,463,962) Cash segregated for payment of building improvement costs (8,510,100) Net cash used in investing activities (14,974,062) Cash flows from financing activities Proceeds from second mortgage loan 14,979,186 Changes in amounts due to lessee (1,801,084) Monthly distributions to participants (1,046,420) Distribution on November 29, 2002 of balance of additional rent for the lease year ended September 30, 2002 (6,235,478) Net cash provided by financing activities 5,896,204 Net change in cash (1,742,644) Cash at beginning of year 1,950,750 Cash at end of year $ 208,106 Supplemental disclosure of cash flows information Cash paid in 2002 for interest $ 2,031,908 Supplemental disclosure of noncash investing activities Building improvement costs payable $ 1,050,193 See accompanying notes to financial statements. 60 EAST 42ND ST. ASSOCIATES L.L.C. (A Limited Liability Company) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2002 1. Business Activity and Reorganization 60 East 42nd St. Associates L.L.C. ("Associates") is a limited liability company owning commercial property at 60 East 42nd Street and 301 Madison Avenue, New York, N.Y. The property, known as the "The Lincoln Building", is net leased to Lincoln Building Associates L.L.C. (the "Lessee"). On November 28, 2001, 60 East 42nd St. Associates converted from a general partnership to a limited liability company and changed its name to 60 East 42nd St. Associates L.L.C. Ownership percentages in Associates were unchanged by the conversion, and the partnership's income tax basis in its assets and liabilities carried over to the limited liability company. 2. Summary of Significant Accounting Policies Use of estimates In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Land, buildings, building improvements, equipment and depreciation: Land, buildings, building improvements and equipment are stated at cost. The buildings, and building improvements costing $1,574,135, have been fully depreciated, using a straight-line method over their estimated useful lives ranging from 20 to 26 years. In connection with the building improvements program which began in 1999 (see Note 9), costs totaling $19,822,253 at December 31, 2002 have been incurred for new building improvements ($19,692,253) and equipment ($130,000) which have been put into service. Depreciation on these assets is provided primarily using the straight-line method over an estimated useful life of 39 years for building improvements and 7 years for equipment. Mortgage refinancing costs and amortization: Mortgage refinancing costs are being amortized ratably over the respective terms of the first and second mortgages (see Note 3), through October 31, 2004. 3. First and Second Mortgages Payable On October 6, 1994, a first mortgage was placed on the property with Morgan Guaranty Trust Company of New York, as trustee of a pension trust, in the amount of $12,020,814. The first mortgage requires constant equal monthly payments totaling $1,063,842 per annum for interest only, at the rate of 8.85% per annum, and matures on October 31, 2004. 60 EAST 42ND ST. ASSOCIATES L.L.C. (A Limited Liability Company) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2002 3. First and Second Mortgages Payable (concluded) In connection with the building improvements program referred to in Note 9, a second mortgage loan was placed on the property on March 8, 2000, with Emigrant Savings Bank. The principal amount of the second mortgage note is $27,979,186, with proceeds to be drawn down as payments for the building improvements were needed. By August 15, 2002, Associates had drawn down all funds available against this loan. The second mortgage called for the first $7,000,000 of loan proceeds advanced through September 30, 2000 to bear interest at the rate of 8.21% per annum through the term of the loan. All loan proceeds advanced after September 30, 2000 initially bore interest at a Floating Rate, defined to be either the prime rate, a U.S. Treasury based rate or a LIBO-based rate, as selected by Associates. On October 1, 2002, in accordance with the terms of the mortgage, the Floating Rate interest on the entire $20,979,186 balance of second mortgage loan was converted to a fixed rate of 3.39%. Monthly payments for debt service on the entire second mortgage are interest only. The second mortgage also matures on October 31, 2004. As of December 31, 2002, Associates had set aside approximately $8,500,000 of loan proceeds from the second mortgage loan to pay for the Program. The real estate is pledged as collateral for the first and second mortgages. 4. Rent Income On January 4, 1982, the Lessee exercised its option to renew the lease for an additional period of 25 years, and the lease period now extends through September 30, 2008. The lease includes an option to renew for one additional period of 25 years through September 30, 2033. See Note 9. The lease as modified provides for an annual basic rent equal to the sum of the constant annual mortgage charges on all mortgages, plus $24,000. In the event of a mortgage refinancing, unless there is an increase in the mortgage balance, the annual basic rent will be modified and will be equal to the sum of $24,000 plus an amount equal to the revised mortgage charges. In the event that such mortgage refinancing results in an increase in the amount of outstanding principal balance of the mortgage, the basic rent shall be equal to $24,000 plus an amount equal to the product of the new debt service percentage rate under the refinanced mortgage multiplied by the principal balance of the mortgage immediately prior to the refinancing. The lease, as modified, also provides for additional rent, as follows: 1. Additional rent equal to the first $1,053,800 of the Lessee's net operating income, as defined, in each lease year. 2. Further additional rent equal to 50% of the Lessee's remaining net operating income, as defined, in each lease year. For the lease year ended September 30, 2002 the Lessee reported additional rent of $7,998,589, based on an operating profit of $14,943,378 subject to additional rent. 60 EAST 42ND ST. ASSOCIATES L.L.C. (A Limited Liability Company) NOTES TO FINANCIAL STATEMENTS (Continued) 4. Rent Income (concluded) Additional rent is billed to and advanced by the Lessee in equal monthly installments of $87,817. While it is not practicable to estimate that portion of additional rent of the lease year ending on the ensuing September 30th which would be allocable to the current three month period ending December 31st, Associates' policy is to include in its income each year the advances of additional rent income received from October 1st to December 31st. No other additional rent is accrued by Associates for the period between the end of the Lessee's lease year ending September 30th and the end of Associates' fiscal year ending December 31st. 5. Related Party Transactions a) Rent income All rent income is received by Associates from the Lessee, a related party. Beneficial interests in the Lessee are held by one or more persons at Wien & Malkin LLP ("Wien & Malkin"), their family members, and/or trusts, limited liability companies, or similar entities owned for their family members. b) Supervisory and other services Supervisory and other services are provided to Associates by its supervisor, Wien & Malkin, a related party in which Peter L. Malkin, a member in Associates, has an interest. Beneficial interests in Associates are held by one or more persons at Wien & Malkin, their family members, and/or trust, limited liability companies or similar entities owned for their family members. Transactions in 2002 with Wien & Malkin were as follows: Basic supervisory fee $ 24,000 Additional supervisory fee* 700,211 Other fees and disbursements 17,222 $ 741,433 *Wien & Malkin receives an additional payment from Associates equal to 10% of distributions to participants for any year in excess of 14% on their cash investment of $7,000,000. 6. Income Taxes Net income is computed without regard to income tax expense since Associates does not pay a tax on its income; instead, any such taxes are paid by the participants in their individual capacities. 60 EAST 42ND ST. ASSOCIATES L.L.C. (A Limited Liability Company) NOTES TO FINANCIAL STATEMENTS (Continued) 7. Concentration of Credit Risk Associates maintains cash balances in two banks, including cash segregated for payment of building improvement costs, and in a distribution account held by Wien & Malkin. The bank balances are insured by the Federal Deposit Insurance Corporation up to $100,000 each, and at December 31, 2002 approximately $8,431,000 was not insured. The distribution account held by Wien & Malkin is not insured. The funds held in the distribution account were paid to the participants on January 1, 2003. 8. Contingencies Wien & Malkin and Peter L. Malkin, a member in Associates, have been engaged in a dispute proceeding with Helmsley-Spear, Inc. commenced in 1997 concerning the management, leasing and supervision of the property subject to the net lease, in which Wien & Malkin and Mr. Malkin have sought an order removing Helmsley-Spear. In this connection, certain costs for legal and professional fees and other expenses have been paid and incurred by Wien & Malkin and Mr. Malkin, and additional costs are expected to be incurred. Wien & Malkin and Mr. Malkin have represented that such costs will be recovered only to the extent that (a) a competent tribunal authorizes payment or (b) an investor voluntarily agrees that his or her proportionate share be paid. Accordingly, Associates' allocable share of such costs is as yet undetermined, and Associates has not provided for the expense and related liability with respect to such costs in these financial statements. The original action was commenced in June 1997 and was referred to arbitration. The March 30, 2001 decision of the arbitrators, which was confirmed by the court, (i) reaffirms the right of the investors in the Lessee to vote to terminate Helmsley-Spear without cause, (ii) dismisses Helmsley-Spear's claims against Wien & Malkin and Peter L. Malkin, and (iii) rejects the termination of Helmsley-Spear for cause. The parts of the decision under appeal were affirmed by the Appellate Division on December 5, 2002, and were further appealed by Wien & Malkin and Mr. Malkin on January 13, 2003. In January 1998, Irving Schneider, who is one of the controlling principals of Helmsley-Spear and has no record or beneficial interest in Associates or the Lessee, brought litigation against Associates' supervisor, Wien & Malkin and Peter L. Malkin (or his affiliate), claiming misconduct and seeking damages and disqualification from performing services for the Lessee. In March 2002, the court dismissed Mr. Schneider's claims. Mr. Schneider has appealed this dismissal. Wien & Malkin and Mr. Malkin are defending against these claims. At the Lessee's May 20, 2002 special meeting, a vote of the investors was conducted on proposals for the removal without cause of Helmsley-Spear as managing and leasing agent and its replacement by one or a combination of designated independent firms (Cushman & Wakefield, Insignia/ESG, and Newmark Realty), including payment by the Lessee of the expenses for the preparation of the solicitation statement, the solicitation of votes, and the implementat- ion of the new program. On May 21, 2002, the proponents of the proposals, Peter L. Malkin and Wien & Malkin, filed a court application to determine and confirm all investors' votes for removal without cause and replacement and to set the final date for Helmsley-Spear's termination. Helmsley-Spear filed objections, and on September 10, 2002 the court confirmed such votes and ruled that Helmsley-Spear has been discharged and must effect an orderly transition and departure within 60 days. As of November 20, 2002, Helmsley- Spear is no longer the managing and leasing agent and has been replaced by Newmark & Company. Helmsley-Spear continues to pursue its appeal. 60 EAST 42ND ST. ASSOCIATES L.L.C. (A Limited Liability Company) NOTES TO FINANCIAL STATEMENTS (Continued) 8. Contingencies (continued) In accordance with the Lessee's May 20, 2002 vote, the expenses for the preparation of the solicitation statement, the solicitation of votes and the implementation of the new program are being paid by the Lessee. Such payments have totaled $241,587 to December 31, 2002, including $72,052 to Wien & Malkin plus disbursements of $6,850. 9. Building Improvements Program and Agreement to Extend Lease In 1999 the participants of Associates and the Lessee consented to a building improvements program (the "Program") estimated to cost approximately $22,800,000 and expected to take two to three years to complete. In 2000 the participants of the Lessee approved an increase to the Program from $22,800,000 to approximately $28,000,000 under substantially the same conditions as had previously been approved. The increased amount had previously been authorized by the participants of Associates. The Lessee is financing the Program and billing Associates for the costs incurred. The Program (1) grants the ownership of the improvements to Associates and acknowledges its intention to finance them through an increase in the fee mortgage (Note 3), and (2) allows for the increased mortgage charges to be paid by Associates from an equivalent increase in the basic rent paid by the Lessee to Associates. Since any overage rent will be decreased by one-half of that amount, the net effect of the lease modification is to have Associates and the Lessee share the costs of the Program equally, assuming overage rent continues to be earned. The 1999 consent authorized the members of 60 East 42nd St. Associates L.L.C. who act as agents for the participant investors (the "Agents") to give additional extension rights to the Lessee beyond the September 30, 2033 expiration date (Note 4) to September 30, 2083 upon completion of the Program, and to later date(s) for consideration and upon such terms as the Agents deem appropriate for the benefit of Associates. 10. Receipt of Warrants and Stock in Telecommunications Companies In 2000, the Lessee received shares of common stock and warrants from certain unrelated companies in exchange for permission for those companies to provide high speed internet access and other telecommunication services to the building. Associates received an equal amount of shares and warrants. The Lessee will receive from 5% to 10% of the revenues generated by such services from advertising and subscriptions with tenants of the building. There are restrictions as to the transfer of the stock, and neither the warrants nor the stock have an ascertainable value as of the balance sheet date. Accordingly, the accompanying financial statements do not reflect any value for these securities. EX-13 4 exh13b.txt EXHIBIT 13B [LETTERHEAD OF WIEN & MALKN LLP] November 29, 2002 TO PARTICIPANTS IN 60 EAST 42nd ST. ASSOCIATES L.L.C.: We enclose the operating report of the lessee, Lincoln Building Associa- tes, for the fiscal year of the lease ended September 30, 2002. The lessee reported profit of $13,889,578 subject to additional rent for the lease year ended September 30, 2002, as against profit of $16,115,379 subject to additional rent for the lease year ended September 30, 2001. Additional rent for the lease year ended September 30, 2002 was $7,998,589. $1,053,800 at $87,817 per month was advanced against additional rent so that the balance of additional rent is $6,944,789. Although total income of the lessee this lease year increased by approximately $1,200,000 over last year, additional costs, primarily attribut- able to insurance, basic rent, tenant installations and leasing commissions, resulted in a reduction in this year's additional rent distribution. Wien & Malkin LLP receives an additional payment for supervisory services of 10% of distributions in excess of 14% per annum on the cash investment. After deducting $16,480 for fees and costs relating to the conversion of 60 East 42nd St. Associates to a limited liability company, including $15,330 to Wien & Malkin LLP, as approved by the participants, $6,928,309 is available for distribution. Accordingly, Wien & Malkin LLP received $692,831 of the additional rent and the balance of $6,235,478 is being distributed to the participants. A check for your share of the additional distribution and the computation of the additional payment to Wien & Malkin LLP and distribution are enclosed. The additional distribution of $6,235,478 represents a return of about 89.1% on the cash investment of $7,000,000. Regular monthly distribut- ions are at the rate of about 14.9% a year, so that distributions for the year ending December 31, 2002 will be about 104.0% per annum. If you have any question about the enclosed material, please communi- cate with the undersigned. Cordially yours, WIEN & MALKIN LLP By: Stanley Katzman SK:fm Encs. 60 East 42nd St. Associates L.L.C. Computation of Additional Payment for Supervisory Services and Distribution For the Lease Year Ended September 30, 2002 Secondary additional rent $6,944,789 Primary additional rent, 2002 Monthly distributions at about 14.9% per annum on $7,000,000 original investment $1,046,420 Additional monthly payment to Wien & Malkin LLP 7,380 1,053,800 7,998,589 Less: Fees and costs relating to the conversion of 60 East 42nd St. Associates to a limited liability company, including $15,330 to Wien & Malkin LLP, as approved by the participants 16,480 Total rent to be distributed 7,982,109 Less: 14% return on $7,000,000 investment 980,000 Subject to additional payment at 10% to Wien & Malkin LLP $ 7,002,109 Additional payment at 10% $ 700,211 Paid to Wien & Malkin LLP as advance for additional payment 7,380 Balance of additional payment to Wien & Malkin LLP $ 692,831 Summary: Additional distribution to participants $ 6,235,478 Payment to Wien & Malkin LLP, as above 692,831 Total secondary additional rent available for distribution to participants and payment to Wien & Malkin LLP $ 6,928,309 [LETTERHEAD OF ROGOFF & COMPANY, P.C. CERTIFITED PUBLIC ACCOUNTANTS] Lincoln Building Associates 60 East 42nd Street New York, New York 10165 We have compiled a special-purpose statement of income and expense of Lincoln Building Associates for the lease year ended September 30, 2002 for the determination of additional rent due to 60 East 42nd St. Associates L.L.C. in accordance with paragraph 2(B) of the lease, as modified, between Lincoln Building Associates and 60 East 42nd St. Associates L.L.C. Such report is not intended to be a presentation in conformity with generally accepted accounting principles. Our engagement was conducted in accordance with Statements for Accounting and Review Services issued by the American Institute of Certified Public Accountants. A compilation is limited to presenting, in the form of financial statements, information that is representation of management. We have not audited or reviewed the accompanying special-purpose financial statement and , accordingly, do not express an opinion or any other form of assurance on it. This report is intended solely for the information and use of the managements of Lincoln Building Associates and 60 East 42nd St. Associates L.L.C., and should not be used for any other purpose. New York, New York October 31, 2002 Lincoln Building Associates Special Purpose Statement of Income and Expense October 1,2001 through September 30, 2002 Income: Rent income $ 35,940,039 Net electric income 1,021,173 Other income 1,371,471 Total Income $ 38,332,683 Expenses: Basic rent expense 1,912,979 Real estate taxes 5,652,924 Labor costs 6,724,889 Repairs, supplies and improvements 5,143,605 Steam 664,167 Management and leasing 1,481,707 Professional fees 691,651 Insurance 343,885 Water and sewer charges 120,453 Miscellaneous 653,045 Total Expenses 23,389,305 Net Income subject to additional rent 14,943,378 Less, Net income subject to primary additional rent 1,053,800 Net Income Subject to secondary additional rent $13,889,578 Secondary additional rent at 50% $ 6,944,789 Computation of Additional Rent due Landlord: Primary additional rent $ 1,053,800 Secondary additional rent 6,944,789 Total Additional rent 7,998,589 Less, Advances against additional rent 1,053,800 Additional rent due landlord $ 6,944,789 See accompanying Accountants' Compilation Report and Selected Information. Lincoln Building Associates Selected Information Note 1 - The lease as modified effective January 1, 1977 provides for additional rent, as follows: Additional rent equal to the first $1,053,800 of the Lessee's net operating income, as defined, in each lease year. Further additional rent equal to 50% of the Lessee's remaining net operating income, as defined, in each lease year. EX-3 5 exhi3c.txt EXHIBIT 3C CONSENT AND OPERATING AGREEMENT FOR 60 EAST 42ND ST. ASSOCIATES L.L.C. Reference is made to 60 East 42nd St. Associates ("Associates"), a partnership existing under a September 25, 1958 Agreement among Lawrence A. Wien and others (the "Agreement"). It is the intent of the undersigned partners in Associates to convert Associates to a limited liability company on the basis that, after such conversion, Associates will as specified in the applicable New York statute be the same entity with the same assets and that Associates' partners and participants will have the same rights and duties, except that such partners and participants will hereafter receive the benefit of the resulting insulat- ion from liability to third parties. To effect the matters herein, the undersigned partners in Associates hereby irrevocably consent and agree (i) to convert Associates to a New York limited liability company with the name "60 East 42nd St. Associates L.L.C.", (ii) to continue at all times to have the same rights and obligations in relation to the other members of such company as the undersigned would have under applicable law as if such company were a partnership, (iii) to cause Associates to continue to be treated as a partnership for income tax purposes, (iv) to instruct and authorize Wien & Malkin LLP, as Associates' Supervisor, to effect the conversion (including, without limitation, acting as agent for Associates and its members in executing and filing any necessary certificate) with such changes in the Agreement as may be deemed necessary by Wien & Malkin LLP under New York law, so long as such changes do not substantively change the rights and responsibilities among the parties to the Agreement or the effect of such conversion as described herein, and (v) to adopt all terms of the Agreement as Associates' limited liability company operating agreement with only the following modifications: 1. Throughout the Agreement, "partnership" shall be amended to read "limited liability company"; "partner" shall be amended to read "member"; and "60 East 42nd St. Associates" shall be amended to read "60 East 42nd St. Associates L.L.C." 2. The following shall be added as a new last sentence of Paragraph 6 of the Agreement: "No member shall have the right to withdraw and receive cash for his or her interest from the limited liability company prior to dissolution and liquidat- ion of the company, but this provision shall not affect a member's right to sell, assign, pledge, or otherwise dispose of such interest hereunder." As amended hereunder, all terms of the Agreement are hereby confirmed and remain fully in effect as Associate's limited liability company operating agreement. By signing below, the undersigned irrevocably consent and become a party to the Agreement as amended hereunder, which shall be binding on the undersigned and their respective heirs, representatives, successors and assigns. The terms of Associates' participating agreements under which the undersigned serve as agents for participants are hereby confirmed and remain fully in effect without change. To confirm the foregoing, the undersigned have signed below as of the date indicated. Date: As of November 27, 2001 Peter L. Malkin Anthony E. Malkin Scott D. Malkin Thomas N. Keltner, Jr. Mark Labell Jack K. Feirman Fred C. Posniak 9227 EX-3 6 exh3d.txt EXHIBIT 3D CERTIFICATE OF CONVERSION OF 60 EAST 42ND ST. ASSOCIATES TO 60 EAST 42ND ST. ASSOCIATES L.L.C. UNDER SECTION 1006 OF THE LIMITED LIABILITY COMPANY LAW FIRST: The partnership was, in accordance with the provisions of the Limited Liability Company Law, duly converted to a limited liability company. SECOND: The name of the partnership was: 60 EAST 42ND ST. ASSOCIATES. THIRD: The name of the limited liability company is: 60 EAST 42ND ST. ASSOCIATES L.L.C. FOURTH: The county within this state in which the office of the limited liability company is to be located is: New York. FIFTH: The Secretary of State is designated as the agent of the limited liability company upon whom process against it may be served. The post office address within or without this state to which the Secretary of State shall mail a copy of process against the limited liability company served upon him or her is: Wien & Malkin LLP, 60 East 42nd Street, New York, New York 10165, Attn: Thomas N. Keltner, Jr. SIXTH: The limited liability company is to be managed by (check the appropriate box): x 1 or more members A class or classes of members 1 or more managers A class or classes of managers IN WITNESS WHEREOF, this certificate has been subscribed this 27th day of November 2001, by the undersigned who affirms that the statements made herein are true under the penalties of perjury. By /s/ Peter L. Malkin Peter L. Malkin, Authorized Person (signature) (name and capacity of signer) 8841 -----END PRIVACY-ENHANCED MESSAGE-----