10-K/A 1 d51421_10-ka.txt FORM 10-K/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K/A (AMENDMENT NO. 1) |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2001 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from ______ to ______ Commission File Number 0-21849 METROPOLIS REALTY TRUST, INC. (Exact name of registrant as specified in its charter) MARYLAND 13-3910684 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 410 Park Avenue 14th Floor New York, New York 10022 (Address of principal executive offices, including zip code) (212) 655-0220 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Title of Class Class A Common Stock, par value $10.00 per share Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (ss.229.405 of this chapter) 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. |X| As of March 15, 2002, there were 13,004,946 shares of the registrant's Common Stock issued and outstanding. Of the registrant's 13,004,946 shares of Common Stock issued and outstanding, approximately 8,658,193 shares are held by affiliates of the registrant and approximately 4,346,753 shares are held by non-affiliates of the registrant. The Common Stock is not listed on any exchange; the Company does not intend to list the Common Stock on any exchange in the near term; there is not currently a public market for the Common Stock; and there can be no assurance that an active trading market for the Common Stock will develop or be sustained. DOCUMENTS INCORPORATED BY REFERENCE: The Exhibits to (i) the Company's Registration Statement on Form 10, as amended, (ii) the Company's definitive Information Statement on Schedule 14C, filed with the Commission on October 29, 1999, and (iii) the Company's Annual Report on Form 10-K filed with the Commission on March 30, 2000 are hereby incorporated by reference in Part IV of this Annual Report on Form 10-K. i TABLE OF CONTENTS PART I ...................................................................... 1 ITEM 1. BUSINESS ........................................................ 1 ITEM 2. PROPERTY ........................................................ 9 ITEM 3. LEGAL PROCEEDINGS ............................................... 14 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ............. 14 PART II ..................................................................... 14 ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS ......................................................... 14 ITEM 6. SELECTED FINANCIAL DATA ......................................... 16 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ....................................... 17 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ...... 20 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ..................... 21 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE ........................................ 33 PART III .................................................................... 34 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT .............. 34 ITEM 11. EXECUTIVE COMPENSATION .......................................... 36 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT .. 39 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS .................. 42 PART IV ..................................................................... 45 ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K ........................................................ 45 CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE SECURITIES LITIGATION REFORM ACT OF 1995 WHEN USED IN THIS ANNUAL REPORT ON FORM 10-K, THE WORDS "BELIEVES," "ANTICIPATES," "EXPECTS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. STATEMENTS LOOKING FORWARD IN TIME ARE INCLUDED IN THIS ANNUAL REPORT ON FORM 10-K PURSUANT TO THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY, INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS -- QUALIFICATION AS A REIT". READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF OR THEREOF. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY REVISE THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES OCCURRING AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS. THE COMPANY'S ACTUAL RESULTS OR OUTCOMES MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED. ii PART I ITEM 1. BUSINESS Business Metropolis Realty Trust, Inc., a Maryland corporation (the "Company"), is a real estate investment trust (a "REIT"), which was formed on May 13, 1996. The Company's principal assets consist of its interests in 1290 Partners, L.P., a Delaware limited partnership (the "1290 Property Owning Partnership") through which it owns 1290 Avenue of the Americas (the "1290 Property"), as described below under "ITEM 2. -- PROPERTY." The Company's principal business objective is to operate the 1290 Property in a manner that will maximize the 1290 Property's revenues and value and in turn maximize funds from operations and stockholder value. As further described under "ITEM 13. -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -- Asset Manager" and " -- Management and Leasing Agreements," the 1290 Property Owning Partnership has retained Capital Trust, Inc. (the "Asset Manager") to serve as asset manager and Tishman Speyer Properties, L.P. (the "Property Manager/Leasing Agent") to serve as property manager/leasing agent to manage the day-to-day operations of the 1290 Property. Competition Numerous office building properties in New York City compete with the 1290 Property in attracting tenants to lease space. Some of these competing properties are newer or better located than the 1290 Property. The amount of space available in competitive commercial properties in the New York City area could have a material effect on the 1290 Property Owning Partnership's ability to lease space in the 1290 Property and on the rents charged. However, the 1290 Property is currently approximately 99% leased. Over the next five years, approximately 28% of the total rentable square feet of the building is subject to expiring leases, of which 7% has been leased to an existing tenant as expansion space at the 1290 Property. See "Item 2 -- Property." Employees The Company does not have any employees. The 1290 Property Owning Partnership is a party to labor agreements with respect to union employees employed at the 1290 Property. The Property Manager/Leasing Agent has employed such union employees on behalf of the 1290 Property Owning Partnership. The Company believes that there are no unfunded retiree benefits liabilities under the pension plans established pursuant to the labor agreements referred to above. Qualification as a REIT The Company has elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), commencing with its taxable year ended December 31, 1996. As a REIT, the Company (subject to certain exceptions) generally will not be subject to federal income taxation on income it distributes to stockholders. For any year in which the Company does not meet the requirements for qualifying to be taxed as a REIT, it will be taxed as a corporation. Although the Company believes that it will operate in such a manner so as to qualify to be taxed as a REIT, qualification as a REIT involves the application of highly technical and complex Internal Revenue Code provisions for which there are only limited judicial or administrative interpretations. The determination of various factual matters and circumstances not entirely within the Company's control may affect its ability to qualify and to continue to qualify as a REIT. Moreover, no assurance can be given that legislation, new regulations, administrative interpretations or court decisions will not change the tax laws with respect to qualification as a REIT or the Federal income tax consequences of such qualification. To obtain the tax treatment accorded to a REIT under the Internal Revenue Code, the Company generally will be required each year to distribute to its stockholders at least 90% of its taxable income. The Company will be subject to income tax on any of its undistributed taxable income and net capital gains, and to a 4% nondeductible excise tax on the amount, if any, by which certain distributions paid by it with respect to any calendar year are less than the sum of 85% of its ordinary income plus 95% of its capital gain net income for the calendar year, plus 100% of its undistributed income from prior years. The Company intends to make distributions to its stockholders to comply with the distribution provisions of the Internal Revenue Code and to avoid Federal income taxes and the nondeductible 4% excise tax. A substantial portion of the Company's income will consist of the income of the 1290 Property Owning Partnership and the Company's cash flow will consist primarily of distributions from the 1290 Property Owning Partnership. Differences in timing between the receipt of income and the payment of expenses in arriving at taxable income of the Company or the 1290 Property Owning Partnership, the effect of nondeductible capital expenditures, the creation of reserves or required debt amortization payments could require the Company to borrow funds on a short-term or long-term basis to meet the distribution requirements that are necessary to continue to qualify as a REIT. In such circumstances, the Company might need to borrow funds to avoid adverse tax consequences even if the Company's management believes that the then prevailing market conditions generally are not favorable for such borrowings or that such borrowings are not advisable in the absence of such tax considerations. There is no assurance that the Company will be able to continue to satisfy the annual distribution requirement so as to qualify as a REIT. In order for the Company to qualify as a REIT under the Internal Revenue Code, not more than 50% in value of its outstanding stock may be owned, directly or indirectly, by five or fewer individuals (defined in the Internal Revenue Code to include certain entities) during the last half of a taxable year (other than the first year) (the "Five or Fewer Requirement"), and such shares of stock must be beneficially owned by 100 or more persons during at least 335 days of a taxable year of 12 months (other than the first year) or during a proportionate part of a shorter taxable year. In order to protect the Company against the risk of losing its status as a REIT on account of a concentration of ownership among its stockholders, the Company's Amended and Restated Articles of Incorporation (the "Charter"), subject to certain exceptions, provides that no Person (as defined in the Charter) may beneficially own, or be deemed to own by virtue of the attribution provisions of the Internal Revenue Code, more than 7.9% (the "Ownership Limit") of the aggregate value of the Company's shares of stock. The restrictions contained in the Charter, however, may not ensure that the Company will be able to satisfy the Five or Fewer Requirement in all cases. If the Company fails to satisfy such requirement, the Company's status as a REIT will terminate, and the Company will not be able to prevent such termination. If the Company were to fail to qualify as a REIT in any taxable year, the Company would be subject to Federal income tax (including any applicable alternative minimum tax) on its taxable income at regular corporate rates, and would not be allowed a deduction in computing its taxable income for amounts distributed to its stockholders. Moreover, unless entitled to relief under certain statutory provisions, the Company also would be ineligible for qualification as a REIT for the four taxable years following the year during which qualification was lost. Such disqualification would reduce the net earnings of the Company available for investment or distribution to its stockholders due to the additional tax liability of the Company for the years involved. 2 Subject to certain exceptions, the Charter does not permit any person to acquire or own (either actually or constructively under the applicable attribution rules of the Code) more than the Ownership Limit. In addition, no holder may own or acquire (either actually or constructively under the applicable attribution rules of the Code) shares of any class of the Company's common stock, par value $10.00 per share (the "Common Stock"), if such ownership or acquisition (i) would cause more than 50% in value of the outstanding Common Stock to be owned by five or fewer individuals or (ii) would otherwise result in the Company failing to qualify as a REIT. The Charter provides that the foregoing ownership restrictions will not apply to persons designated by Apollo Real Estate Investment Fund, L.P. ("Apollo") provided that the aggregate percentage by which all individuals permitted, by designation, to exceed the Ownership Limit will not be greater than 10%. Any attempted acquisition (actual or constructive) of Common Stock by a person who, as a result of such acquisition, would violate certain of the limitations set forth in the Charter will cause the Common Stock purportedly transferred to be automatically transferred to the trustee of a trust for the benefit of a charitable beneficiary and such shares will not be entitled to voting rights or rights to distributions and the transfer resulting in such violation may be deemed void ab initio. Violations of the ownership limitations may result in a repurchase by the Company of shares in excess of the Ownership Limit. Certain Federal Income Tax Considerations for Stockholders The following is a summary of the principal United States federal income tax considerations regarding the ownership and disposition of the Common Stock and is for general information only. This summary does not address all tax consequences that may be applicable to a beneficial owner of the Common Stock, including tax considerations that arise from rules of general application to all taxpayers or to certain classes of investors or that are generally assumed to be known by investors. The discussion below is addressed to holders that acquire the Common Stock as capital assets. It does not discuss state, local or foreign tax consequences and does not address o persons that may be subject to special treatment or special circumstances under United States federal income tax law, such as banks and other financial institutions, insurance companies, thrift institutions, regulated investment companies, real estate investment trusts, tax-exempt entities, dealers in securities or currencies, or traders in securities that elect mark to market treatment; o persons that will hold the Common Stock as part of a position in a "straddle" or as part of a "hedging", "conversion" or other integrated investment transaction for United States federal income tax purposes; or o persons whose functional currency is not the U.S. dollar. If an entity treated as a partnership for United States federal income tax purposes holds the Common Stock, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. If you are a partner of a partnership holding the Common Stock, you should consult your own tax advisors. For the purposes of this discussion, the term "U.S. Holder" means a holder that is (1) a citizen or resident of the United States; (2) a corporation or other entity taxable as a corporation created or organized under the laws of the United States or any of its political subdivisions; (3) an estate the income of which is subject to U.S. federal income taxation regardless of its source; or (4) a trust if a U.S. court is able to exercise primary supervision over administration of the trust and one or more United States persons (as defined in section 7701(a)(30) of the Code) have authority to control all substantial decisions of the trust. 3 The discussion below is based on the Code, Treasury Regulations, Internal Revenue Service rulings and pronouncements and judicial decisions as of the date hereof, all of which are subject to change (possibly with retroactive effect). EACH PROSPECTIVE PURCHASER IS ENCOURAGED TO CONSULT ITS OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES OF THE OWNERSHIP, AND SALE OR OTHER DISPOSITION OF THE COMMON STOCK, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH OWNERSHIP, DISPOSITION AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS. Taxation of U.S. Holders Distributions In any year in which the Company qualifies to be taxed as a REIT, distributions made to a U.S. Holder from current or accumulated earnings and profits will be taxed to the U.S. Holder as ordinary income, except that distributions of net capital gains designated by the Company as capital gain distributions will be taxed to holders of Common Stock as long-term capital gains. Distributions distributed by the Company are not eligible for the dividends-received deduction. To the extent that distributions are not made out of current or accumulated earnings and profits, they will constitute a return of capital, rather than distribution or capital gain income, and will reduce the tax basis in the U.S. Holder's Common Stock with respect to which the distribution is paid or, to the extent that they exceed the basis, will be taxed in the same manner as gain from the sale of such Common Stock. The Company may elect to retain long-term capital gains and pay corporate-level income tax on them and treat the retained gains as if they had been distributed to holders of the Common Stock. In this case, each U.S. Holder would include in income, as long-term capital gain, its proportionate share of the undistributed gains and would be deemed to have paid its proportionate share of the tax paid by the Company with respect thereto. In addition, the basis for a U.S. Holder's Common Stock would be increased by the amount of the undistributed long-term capital gain included in its income, less the amount of the tax it is deemed to have paid with respect thereto. Sale, Exchange or Redemption of the Common Stock Gain or loss upon a sale or exchange of the Common Stock generally will be treated as long-term capital gain or loss, if such Common Stock has been held as a capital asset for more than one year. If the Common Stock is redeemed, such redemption will be a taxable event to U.S. Holders. Generally, redemption of the Common Stock for cash will be treated as a sale or exchange if the redemption: o results in a "complete termination" of the holder's interest in the Company under Section 302(b)(3) of the Code; o is "substantially disproportionate" with respect to the holder under Section 302(b)(2) of the Code; or o is "not essentially equivalent to a distribution" with respect to the holder under Section 302(b)(l) of the Code. If the redemption of the Common Stock satisfies any of the foregoing tests with respect to a holder, such holder will recognize gain or loss based on the difference between the amount of cash or fair market value of property received and the U.S. Holder's tax basis in the redeemed Common Stock. If 4 the redemption does not satisfy any of the foregoing tests, the gross proceeds will be treated as a distribution taxable as ordinary income or capital gain to the extent of the Company's current or accumulated earnings and profits and any excess will be treated first as a return of capital to the extent of the holder's tax basis in the redeemed Common Stock and then as a gain from the sale or exchange of such Common Stock, as described above under "-- Taxation of U.S. Holders". Information Reporting Requirements and Backup Withholding Tax The Company will report to its stockholders and the Internal Revenue Service the amount of ordinary and capital gains distributions paid or deemed paid during each calendar year, and the amount of tax withheld or deemed paid, if any. Under certain circumstances, a U.S. Holder of the Common Stock may be subject to backup withholding on payments made with respect to, or cash proceeds of a sale or exchange of, the Common Stock. Backup withholding will apply only if the holder: o fails to furnish the person required to withhold with its Taxpayer Identification Number ("TIN") which, for an individual, would be his or her Social Security Number; o furnishes an incorrect TIN; o is notified by the IRS that it has failed properly to report payments of interest and distributions; or o under certain circumstances, fails to certify, under penalty of perjury, that it has furnished a correct TIN and has not been notified by the IRS that it is subject to backup withholding for failure to report interest and distribution payments. Backup withholding will not apply with respect to payments made to certain exempt recipients, such as corporations and tax-exempt organizations. A U.S. Holder should consult with a tax advisor regarding qualification for exemption from backup withholding and the procedure for obtaining such an exemption. Backup withholding is not an additional tax. Rather, the amount of any backup withholding with respect to a payment to a U.S. Holder will be allowed as a credit against such U.S. Holder's U.S. federal income tax liability and may entitle such U.S. Holder to a refund, provided that the required information is furnished to the IRS. Taxation of Non-U.S. Holders The rules governing U.S. federal income taxation of a nonresident alien individual or a non-U.S. corporation (a "Non-U.S. Holder") are complex and no attempt will be made herein to provide more than a limited summary of such rules. Prospective Non-U.S. Holders should consult with their own tax advisors to determine the impact of U.S. federal, state and local income tax laws with regard to an investment in Common Stock, including any reporting requirements. Distributions Distributions, other than distributions that are treated as attributable to gain from sales or exchanges by the Company of U.S. real property interests (discussed below) and other than distributions designated by the Company as capital gain dividends, will be treated as ordinary income to the extent that they are made out of current or accumulated earnings and profits of the Company. Such distributions to 5 Non-U.S. Holders will ordinarily be subject to a withholding tax equal to 30% of the gross amount of the distribution, unless an applicable tax treaty reduces that tax. However, if income from the investment in the Common Stock is treated as effectively connected with the Non-U.S. Holder's conduct of a U.S. trade or business, the Non-U.S. Holder generally will be subject to tax at graduated rates in the same manner as U.S. Holders are taxed with respect to such dividends (and may also be subject to the 30% branch profits tax if the stockholder is a foreign corporation). The Company expects to withhold U.S. tax at the rate of 30% on the gross amount of any dividends, other than dividends treated as attributable to gain from sales or exchanges of U.S. real property interests and capital gain dividends, paid to a Non-U.S. Holder, unless (i) a lower treaty rate applies and the required form evidencing eligibility for that reduced rate is filed with the Company or the appropriate withholding agent or (ii) the Non-U.S. Holder files an IRS Form W-8ECI (or a successor form) with the Company or the appropriate withholding agent claiming that the distributions are "effectively connected" income. Capital Gain Dividends For any year in which the Company qualifies as a REIT, distributions that are attributable to gain from sales or exchanges by the Company of U.S. real property interests will be taxed to a Non-U.S. Holder under the provisions of the Foreign Investment in Real Property Tax Act of 1980, as amended ("FIRPTA"). Under FIRPTA, these distributions are taxed to a Non-U.S. Holder as if such gain were effectively connected with a U.S. business. Thus, subject to any applicable alternative minimum tax (and special alternative minimum tax in the case of nonresident alien individuals), Non-U.S. Holders will be taxed on such distributions at a maximum of 20% U.S. federal capital gains tax rate (or 25% to the extent such dividends are attributable to certain "depreciation recapture" with respect to real properties). The Company generally is required by applicable Treasury Regulations under FIRPTA to withhold at a rate of 35% (or possibly a lower rate under certain circumstances) on any distribution that could be designated by the Company as a capital gain dividend. The amount withheld is creditable against the Non-U.S. Holder's U.S. tax liability. Sales of Common Stock Gain recognized by a Non-U.S. Holder upon a sale or exchange of Common Stock generally will not be taxed under FIRPTA if the Company is a "domestically controlled REIT," defined generally as a REIT in respect of which at all times during a specified testing period less than 50% in value of the Company's shares is and was held directly or indirectly by foreign persons. It is currently anticipated that the Company will continue to be a "domestically controlled REIT," and, therefore, that the sale of Common Stock will not be subject to taxation under FIRPTA. However, gain not subject to FIRPTA will be taxable to a Non-U.S. Holder if (i) investment in the Common Stock is treated as "effectively connected" with the Non-U.S. Holder's U.S. trade or business, in which case the Non-U.S. Holder will be subject to the same treatment as U.S. Holders with respect to such gain, or (ii) the Non-U.S. Holder is a nonresident alien individual who was present in the United States for 183 days or more during the taxable year and has a "tax home" in the United States, or maintains an office or a fixed place of business in the United States to which the gain is attributable, in which case the nonresident alien individual will be subject to a 30% tax on the individual's capital gains. A similar rule will apply to capital gain dividends not subject to FIRPTA. 6 Policy with Respect to Certain Activities Investments As indicated above, the Company's principal asset consists of its interest in the 1290 Property Owning Partnership through which it owns the 1290 Property. The Company's principal business objective is to operate the 1290 Property in a manner that will maximize the 1290 Property's revenues and value and in turn maximize funds from operations and stockholder value. The Company has not made any investments during the last three fiscal years other than its investment in the 1290 Property and the 237 Property (as defined below), and does not anticipate that it will make any additional investments of any nature (including investments in real estate) in the future. On November 23, 1999, the Company sold all of its interests in the property located at 237 Park Avenue (the "237 Property") for an aggregate purchase price of $372,000,000, subject to customary prorations and certain adjustments. Such prorations and adjustments reduced the aggregate purchase price to approximately $357,862,000. The Charter provides that the Company may not sell the 1290 Property or consummate any acquisition of any asset in excess of $25 million which is unrelated to the 1290 Property without the affirmative vote of the Company's stockholders holding at least 66 2/3% of the outstanding shares of the Company's Common Stock. This provision of the Charter may not be amended without the affirmative vote of the Company's stockholders holding at least 66 2/3% of the outstanding shares of the Company's Common Stock. Issuance of Senior Securities Pursuant to the Company's Charter, the Board of Directors has the right, without the consent of the Company's stockholders, to issue Preferred Stock in one or more series consisting of such number of shares and having such preferences, conversion and other rights, voting powers, restrictions and limitations as to dividends, qualifications and terms and conditions of redemption as the Board of Directors may from time to time determine. The Company has not made any issuance of Preferred Stock during the last three fiscal years, and does not anticipate that it will do so in the future. Borrowing The Company does not presently have any policy with respect to the amounts that the Company may borrow. In December 1999, the 1290 Property Owning Partnership refinanced mortgage indebtedness secured by the 1290 Property of approximately $224,900,000 and obtained a $425,000,000 mortgage loan (the "1290 Mortgage Loan"). Interest on the 1290 Mortgage Loan is based on LIBOR plus 2% and requires interest only payments through maturity on January 2, 2003. The Company does not anticipate that it will borrow any additional amounts in the future. Lending The Company does not presently have any policy pertaining to the Company's ability to make loans to third parties. The Company has not made any loans to third parties during the last three fiscal years, and does not anticipate that it will do so in the future. 7 Underwriting The Company does not presently have any policy pertaining to the Company's ability to underwrite the securities of other issuers. The Company has not underwritten the securities of any issuer during the last three fiscal years, and does not anticipate that it will do so in the future. Issuance of Securities in Exchange for Property In accordance with the Company's Charter, the Board of Directors has the right, without the consent of the Company's stockholders, to issue from time to time shares of the Company's stock of any class or series, or securities or rights convertible into shares of the Company's stock, for such consideration as the Board of Directors deems advisable in its sole discretion. The Company has not issued any shares of its Common Stock in exchange for any property during the last three fiscal years, and does not anticipate that it will do so in the future. Repurchasing of Shares In accordance with the Company's Charter, the Company has the right to repurchase or redeem shares of the Common Stock in order to preserve the Company's status as a REIT. This right may only be amended by the affirmative vote of the Company's stockholders holding at least 66 2/3% of the outstanding shares of the Company's Common Stock. The Company has not repurchased or redeemed any of its outstanding shares of Common Stock during the last three fiscal years, and does not anticipate that it will do so in the future. Reporting The Company files each year with the Securities and Exchange Commission quarterly reports on Form 10-Q and an annual report on Form 10-K. The Company's quarterly report on Form 10-Q contains unaudited financial statements of the Company for the fiscal quarter to which such quarterly report relates. The Company's annual report on Form 10-K contains audited financial statements of the Company for the fiscal year to which such annual report relates, and such audited financial statements are certified by an independent public accountant. Copies of the Company's Form 10-K for the prior fiscal year and Form 10-Q for the most recent fiscal quarter have been provided by the Company to its stockholders in connection with each annual meeting of the Company's stockholders. The Company intends to continue making such filings with the Securities and Exchange Commission and providing such reports to its stockholders in connection with annual stockholder meetings for so long as the Company is registered under the Securities Exchange Act of 1934, as amended. Recent Developments On April 16, 2002, the Company entered into an agreement to sell all of its interests in the 1290 Property to an affiliate of Jamestown ("Jamestown"), a real estate investment and management company with offices in Atlanta, Georgia and Cologne, Germany. On May 7, 2002, the Company entered into an amended and restated agreement to sell all of its interests in the 1290 Property to an affiliate of Jamestown. The purchase price under the amended and restated agreement is $745,500,000, subject to certain adjustments and customary prorations. The transaction is expected to close during the third quarter of 2002, although there can be no assurance that the sale will be consummated. If the transaction is consummated, the Company will no longer own any real estate assets and intends to dissolve and distribute its net assets to its stockholders. 8 ITEM 2. PROPERTY The 1290 Property The 1290 Property Owning Partnership holds the fee title to the 1290 Property and all improvements thereon. The 1290 Property, completed in 1963, is a 43-story, first class commercial office building with approximately 2,000,000 rentable square feet of space. The building is centrally located in midtown Manhattan and is connected to the famed "Rockefeller Center" complex via an underground passageway. The average occupancy rates for the 1290 Property for the years 1997 through 2001 were approximately 97%, 99%, 99%, 99% and 99%, respectively. As of December 31, 2001, the 1290 Property was approximately 99% leased and there were leases and license agreements with 31 tenants and 8 licensees covering approximately 1,960,000 rentable square feet of space. For the years ended December 31, 2001, 2000, 1999, 1998 and 1997, the annual average rent (including electricity and additional rent payable on account of operating expenses, porters wage, and real estate tax escalations) for office space leased in the building was approximately $45.86, $43.87, $43.02, $40.89 and $41.00 per square foot, respectively. For the year ended December 31, 2001, approximately 72,000 square feet of space was under lease to retail tenants, at an average annual rent (including electricity and additional rent payable on account of operating expenses, porters wage and real estate tax escalations) of approximately $82.58 per rentable square foot. As of December 31, 2001, approximately 5,000 rentable square feet of storage space was available for rent. The building serves as the corporate headquarters of The Equitable Life Assurance Society of the United States (also known as AXA Financial Advisors) ("Equitable"). In addition to Equitable, the building houses a variety of tenants, including financial institutions, entertainment companies and law firms. 9 The following table summarizes certain information regarding the largest leases at the 1290 Property as of December 31, 2001, including the leases of Equitable and Warner Communications, Inc. ("Warner") which each occupy in excess of ten percent (10%) of the rentable square footage at the Property:

(1) Leased square footage does not include approximately 7,700 square feet of vacant storage space and the building office. (2) Annual Base Rent means the amount contractually due (excluding adjustments related to recoveries from tenants for operating expenses, porters wage, real estate taxes, utilities or other items and rent concessions) for the year ended December 31, 2001. The Company believes that base rent is a conservative and appropriate measure for comparative purposes of commercial real estate rental revenue from office building properties that do not generate percentage rents based on sales. (3) Gross Rent means Annual Base Rent plus recoveries from tenants for operating expenses, porters wage, real estate taxes, utilities and other items. (4) Does not include 42,110 square feet leased in the basement at an Annual Base Rent of $28.01 per square foot and Gross Rent of $28.26 per square foot. (5) Leases with Equitable expire December 31, 2015 (with respect to 13,689 square feet), December 31, 2011 (with respect to 626,668 square feet and 38,454 square feet in the basement) and December 31, 2008 (with respect to 95,111 square feet and 3,656 square feet in the basement). (6) Does not include 2,615 square feet of space leased in the basement at an Annual Base Rent of $22.00 per square foot and Gross Rent of $24.50 per square foot. (7) Leases with Warner expire September 30, 2004 (with respect to 66,367 square feet) and June 30, 2012 (with respect to 157,391 square feet and 2,615 square feet in the basement). (8) Does not include 1,800 square feet of space leased in the basement at an Annual Base Rent of $24.00 per square foot and Gross Rent of $24.75 per square foot. 10 (9) Does not include 11,633 square feet of space leased in the basement at an Annual Base Rent and Gross Rent of $45.00 per square foot. (10) Leases with The Bank of New York expire April 30, 2003 (with respect to 31,402 square feet and 11,633 square feet in the basement) and December 31, 2010 (with respect to 64,413 square feet). (11) Does not include 2,456 square feet of space leased in the basement at an Annual Base Rent of $26.80 per square foot and Gross Rent of $30.84 per square foot. (12) Leases with EMI expire September 30, 2002 (with respect to 75,474 square feet and 923 square feet in the basement) and September 30, 2012 (with respect to 26,623 square feet and 1,533 square feet in the basement). Of the space expiring September 30, 2002, Morrison Foerster has leased 75,474 square feet through September 30, 2012. EMI has the option to terminate its lease effective September 30, 2007 by giving the 1290 Property Owning Partnership written notice on or before September 30, 2006 and by paying a termination fee of $1,258,000. (13) Does not include 879 square feet of space leased in the basement at an Annual Base Rent of $28.00 per square foot and Gross Rent of $30.36 per square foot. (14) Leases with Morrison & Forester expire on February 28, 2003 (with respect to 17,468 square feet) and September 30, 2012 (with respect to 75,259 square feet and 879 square feet in the basement). (15) Does not include 6,746 square feet of space leased in the basement at an Annual Base Rent and Gross Rent of $26.65 per square foot. The renewal provisions set forth in the leases of Equitable and Warner, the two tenants occupying in excess of 10% of the rentable square footage at the 1290 Property, are summarized below. Equitable has the option to renew its lease on an "as is" basis with respect to all or a specific portion of the space currently leased by it for one additional term of either five or ten years. In order to exercise the option, Equitable must occupy at least 50% of the total square footage originally leased by it. The option must be exercised by Equitable at least 18 months prior to the lease's expiration date of December 31, 2011. The renewal rent to be paid by Equitable would be an amount equal to the fair market rent for the space as determined on the date the renewal option is exercised, multiplied by a discount factor of either 97.5% (for a five-year option) or 95% (for a ten-year option). Warner has the option to renew its lease on the 4th floor of the 1290 Property on an "as is" basis for an additional term of five years. Warner must exercise the option at least 12 months prior to the lease's expiration date of September 30, 2004, and Warner must occupy all such space. The renewal rent to be paid by Warner would be the greater of (i) the fair market rent for the space as determined six months prior to the commencement date of the extension term, and (ii) the current fixed annual rent inclusive of taxes and operating escalation payments. Warner has the option to renew its lease for the 23rd through 29th floors of the 1290 Property on an "as is" basis for one additional term of five years. Warner must exercise the option at least 18 months prior to the lease's expiration date of June 30, 2012 and Warner must occupy at least 70% of the total space originally leased by it. The renewal option does not apply to any space on the 23rd through 29th floors surrendered by Warner prior to the option exercise date. The renewal rent to be paid by Warner would be the greater of (i) the discounted fair market rent (which is equal to (a) the fair market rent for such space determined on the date on which the renewal term begins, multiplied by (b) 95%, plus (c) taxes and operating escalation payments made in respect of such space), and (ii) (x) the current annual fixed rent, less (y) eighteen cents per square foot, plus (z) any additional charges for taxes and operating escalation payments due immediately prior to the expiration date of the lease. 11 Expenditures for capital projects for the 1290 Property in 2001 aggregated approximately $477,000 and related primarily to (i) the completion of the elevator modernization program; (ii) the completion of a 100-ton chiller installation for the lobby; (iii) the upgrade and modernization of the video surveillance system; and (iv) the modernization of the truck lift. Anticipated expenditures for capital projects for the 1290 Property in 2002 are approximately $75,000 (which amount shall be paid out of the Company's net cash flow) and relate to the completion of the modernization of the trucklift. Any assessment of additional taxes against the Company in respect of such improvement would be immaterial. As of December 31, 2001, the aggregate gross and adjusted tax basis of the building, improvements, furniture and equipment relating to the 1290 Property are, for federal income tax purposes, approximately $545,000,000 and $215,000,000, respectively. In general, the majority of the tax basis in the building is being depreciated over an 18 to 19 year period using the ACRS method of depreciation. Building and tenant improvements are generally depreciated over a 31 to 39 year period using the straight-line method of depreciation. 12 The following table shows anticipated lease expirations on an aggregate basis for each calendar year from 2002 through and including 2011. Such chart assumes that there will be no early terminations of leases and that leases expire without extension by existing tenants pursuant to lease options.

Annual real estate taxes assessed against the 1290 Property for the fiscal year ending June 30, 2002 and for each of the fiscal years ended June 30, 2001, 2000, and 1999 were $18,076,000, $17,442,000, $17,755,000, and $17,964,000, respectively, which amounts were calculated on assessed values of approximately $186,120,000, $178,560,000, $185,400,000, and $175,500,000, respectively. See -- Other Assets -- "Tax Certiorari Proceedings and Tenant Reimbursement Claims." In December 1999, the 1290 Property Owning Partnership refinanced mortgage indebtedness secured by the 1290 Property of approximately $224,900,000 and obtained the 1290 Mortgage Loan. Interest on the 1290 Mortgage Loan is based on LIBOR plus 2% and requires interest only payments through maturity on January 2, 2003. The principal amount owed under the 1290 Mortgage Loan as of December 31, 2001 was $425,000,000. The 1290 Property Owning Partnership has a one time right (subject to achieving certain conditions, including a debt service coverage ratio, loan to value ratio and the payment of a 25 basis point extension fee), at its option, to extend the maturity for a period of twelve months. The 1290 Mortgage Loan may be repaid in whole without penalty. In the opinion of the Company's management, the 1290 Property is adequately covered by insurance. The 237 Property A wholly-owned subsidiary of the Company owned the 237 Property and all improvements thereon through November 22, 1999. On November 22, 1999, the Company sold all of its interests in the 237 Property for an aggregate purchase price of $372,000,000, subject to customary prorations and certain adjustments. Such prorations and adjustments reduced the aggregate purchase price to approximately $357,862,000. 13 Other Assets Tax Certiorari Proceedings and Tenant Reimbursement Claims Tax certiorari proceedings have been settled with the City of New York for over-assessment of property taxes for the tax years ending June 30, 1991 through June 30, 1996 with respect to the 1290 Property. The Company received net proceeds of approximately $6,519,000 in December 2000 after payment of approximately $876,000 of fees and expenses incurred in connection with such proceedings. Of this amount, approximately $3,211,000 was expected to be reimbursed to tenants and was included in restricted cash as of December 31, 2000. During 2001, approximately $2,027,000 was reimbursed to tenants. The remaining balance of $1,184,000 is included in restricted cash as of December 31, 2001. The net proceeds were approximately $3,800,000 in excess of estimated net proceeds and were included in miscellaneous income in 2000. Tax certiorari proceedings have been commenced which remain outstanding against the City of New York for over-assessment of property taxes for the tax years ending June 30, 1997 through June 30, 2001 with respect to the 1290 Property. ITEM 3. LEGAL PROCEEDINGS There are no material pending legal proceedings, other than ordinary routine litigation incidental to the business of the Company, against or involving the Company, the 1290 Property Owning Partnership or the 1290 Property. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Annual Meeting of Stockholders for fiscal year 2001 was held on January 22, 2002. At such meeting, the stockholders of the Company (i) elected William L. Mack, Lee S. Neibart, Bruce H. Spector, John R.S. Jacobsson, John R. Klopp, Russel S. Bernard, David A. Strumwasser and David Roberts as directors of the Company, each of their terms to expire in 2002, and (ii) ratified Deloitte & Touche LLP as the Company's independent auditors for the year ended December 31, 2001. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Common Stock is not listed on any exchange, the Company does not intend to list the Common Stock on any exchange in the near term, there is not currently a public market for the Common Stock and there can be no assurance that an active trading market for the Common Stock will develop or be sustained. On October 10, 2001, the classification of the Common Stock into two classes of Common Stock terminated pursuant to the terms of the Charter. All shares of Class A and Class B Common Stock were automatically converted into a single class of Class A Common Stock. As of March 15, 2002, there were approximately 111 holders of record of the Company's Class A Common Stock. Distribution Policy On March 6, 1997, the Board of Directors adopted a distribution policy calling for regular quarterly distributions. The Board of Directors, in its sole discretion, determines the actual distribution rate based on a number of factors, including the amount of cash available for distribution, the Company's financial condition, capital expenditure requirements for the 1290 Property, the annual distribution requirements under the REIT provisions of the Internal Revenue Code and such other factors as the Board of Directors deems relevant. The Company intends to make distributions to comply with the REIT distribution requirements. In order to maintain its qualification as a REIT, the Company must make 14 annual distributions to stockholders of at least 90% of its taxable income (excluding capital gains). The Company has made the following distributions for its two most recent fiscal years: Amount of Distribution Date of Distribution Type of Distribution (Per Share) -------------------- -------------------- ---------------------- April 13, 2000 Regular $.15 July 13, 2000 Regular $.15 October 12, 2000 Regular $.15 December 14, 2000 Regular $.25 April 16, 2001 Regular $.25 July 16, 2001 Regular $.25 October 19, 2001 Regular $.25 December 28, 2001 Regular $.25 On March 20, 2002 the Company announced a regular quarterly dividend of $0.25 per share, which is payable on April 15, 2002 to stockholders of record as of March 29, 2002. 15 ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected historical financial data. CONSOLIDATED CONDENSED STATEMENTS OF INCOME (in thousands, except share amounts) --------------------------------------------------------------------------------

16 On November 22, 1999, the Company sold the 237 Property. The following represents the condensed results of operations for the 237 Property for the period January 1, 1999 through November 21, 1999: (In thousands) REVENUES: Rental income $ 43,618 Lease termination income 25,855 Miscellaneous income 495 -------- Total revenues 69,968 -------- OPERATING EXPENSES: Real estate taxes 9,324 Operating and maintenance 2,300 Utilities 572 Payroll 1,539 Management fees 635 Professional fees 515 General and administrative 285 Depreciation and amortization 5,624 -------- Total operating expenses 20,794 -------- OTHER ITEMS: Interest income 1,100 Interest expense (11,801) -------- Total other items (10,701) -------- NET INCOME $ 38,473 ======== ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with Selected Financial Data and the financial statements included in "ITEM 6. -- SELECTED FINANCIAL DATA" and "ITEM 8. -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA." Overview The Company was formed on May 13, 1996 and commenced operations on October 10, 1996. The Company is a Maryland corporation that qualifies as a REIT for tax purposes. Prior to November 22, 1999, the Company owned and operated the 237 Property and the 1290 Property. On November 22, 1999, the Company sold its interests in the 237 Property. Consequently, the Company's principal business objective is to operate the 1290 Property in a manner that will maximize the 1290 Property's revenues and value and in turn maximize funds from operations and stockholder value. The 1290 Property is a 43-story Class A commercial office building with approximately 2,000,000 rentable square feet of space. The building is centrally located in midtown Manhattan and is connected to the famed "Rockefeller Center" complex via an underground passageway. The 1290 Property serves as the corporate headquarters for Equitable and is currently approximately 99% leased. Over the next five years, approximately 28% of the total rentable area of the building is subject to expiring leases, of which 7% has been leased to an existing tenant as expansion space at the 1290 Property. 17 The 1290 Property Owning Partnership has retained Tishman Speyer Properties, L.P. to serve as the property manager and leasing agent, which is responsible for managing the daily operations of the 1290 Property, and Capital Trust, Inc. to serve as the Asset Manager. The Company has also entered into a REIT Management Agreement with Tishman Speyer Properties, L.P. to perform certain accounting, administrative and REIT compliance monitoring services. On October 10, 2001, the classification of the Common Stock into two classes of Common Stock terminated pursuant to the terms of the Charter. All shares of Class A and Class B Common Stock were automatically converted into a single class of Class A Common Stock. As of December 31, 2001, 13,001,346 shares of Class A Common Stock, par value $10.00 per share, were issued and outstanding. The Common Stock of the Company is not listed on any exchange, and the Company does not intend to list the Common Stock on any exchange in the near term. The assets and results of operations of the 1290 Property are reported in the consolidated financial statements of the Company using the consolidation method of accounting. Historical Consolidated Statement of Income, year ended December 31, 2001 Rental income for the year ended December 31, 2001 increased by approximately $1,036, an increase of 1.2% from the year ended December 31, 2000. This increase is primarily due to the commencement of new leases at higher market rents and scheduled rent increases in existing leases. Miscellaneous income for the year ended December 31, 2001 decreased by approximately $2,309, a decrease of 44.0% from the year ended December 31, 2000. This decrease is primarily due to: (i) $2,100 that was recognized in December 2000 related to real estate tax refunds received for the tax years ending June 30, 1991 through June 30, 1996 and (ii) $1,000 that was received in June 2000 from a tenant at the 1290 Property in connection with the occupancy of space that the tenant was previously subleasing and now leases directly. This decrease is offset by an increase in tenant submetered electric charges of $629 during 2001. Operating expenses for the year ended December 31, 2001 were $52,223, an increase of 5.4% from the year ended December 31, 2000. This increase is primarily attributable to increases in (i) bad debt expense resulting from the write-off of certain tenant receivables acquired from the Company's predecessors, (ii) utility expense, (iii) payroll expense resulting from annual wage increases and (iv) depreciation and amortization related to additions to building and tenant improvements in 2000 and 2001. These increases were offset by a decrease in professional fees as 2000 includes amounts incurred related to the sale of the 237 Property. Operating expenses as a percentage of base rental income and escalation income increased to 57.4% for the year ended December 31, 2001 as compared to 55% for the year ended December 31, 2000. Interest income for the year ended December 31, 2001 decreased by approximately $1,944, a decrease of 66.7% from the year ended December 31, 2000. This decrease was due to approximately $1,700 of interest income that was recognized in December 2000 related to the receipt of real estate tax refunds received in 2000. In addition, interest income decreased due to a decline in interest rates during 2001 as compared to 2000. On March 23, 2001, the Company exercised its right to repurchase the 4.95% limited partnership interest in the 1290 Property Owning Partnership (the "Subordinated Minority Interest") that was owned by 237/1290 Upper Tier Associates, L.P. (the "Upper Tier LP"), in accordance with the Agreement of Limited Partnership of the 1290 Property Owning Partnership. The exercise of such repurchase right resulted in a payment of approximately $1,400 by the Company to the Upper Tier LP and a gain to the Company of $13,009. 18 Historical Consolidated Statement of Income, year ended December 31, 2000 Rental income for the year ended December 31, 2000 decreased by approximately $36,361, a decrease of 28.8% from the year ended December 31, 1999. This decrease was the result of the sale of the 237 Property on November 22, 1999. This decrease is offset by an increase in base rents at the 1290 Property associated with new leases, and an increase in operating escalations at the 1290 Property, which was primarily the result of an increase in utility expense in 2000. Miscellaneous income in 1999 includes approximately $2,900 related to the reversal of a reserve for utility tax claims settled during 1999. Miscellaneous income in 2000 includes $2,100 that was recognized in December 2000 related to the real estate tax refunds received for the tax years ending June 30, 1991 through June 30, 1996. Miscellaneous income in 2000 also included $1,000 that was received in June 2000 from a tenant at the 1290 Property in connection with the occupancy of space that the tenant was previously subleasing and now leases directly. Operating expenses for the year ended December 31, 2000 were $49,528, a decrease of 26.6% from the year ended December 31, 1999. This decrease was the result of the sale of the 237 Property on November 22, 1999. This decrease is partially offset by increases in utilities, repairs and maintenance, payroll and management fees at the 1290 Property and an increase in depreciation and amortization related to additions to building and tenant improvements in 1999 and 2000. Operating expenses as a percentage of base rental income and escalation income is 55.0% in 2000 versus 53.3% in 1999. Interest income for the year ended December 31, 2000 decreased by approximately $842, a decrease of 22.4% from the year ended December 31, 1999. This decrease was the result of the sale of the 237 Property on November 22, 1999, and a reduction in cash held by the Company, offset by approximately $1,700 of interest income that was recognized in December 2000 related to the real estate tax refunds received for the tax years ending June 30, 1991 through June 30, 1996. Interest expense for the year ended December 31, 2000 increased by approximately $7,882, an increase of 23.5% from the year ended December 31, 1999. This increase is due to a higher level of mortgage indebtedness, a higher interest rate on such indebtedness and an increase in the amortization of deferred financing costs associated with such indebtedness. Liquidity and Capital Resources During 2001, the Company generated cash flows from operations of approximately $13,747. The Company used this cash and cash on hand to pay dividends in the amount of $13,001, pay leasing commissions of approximately $2,069 and fund building and tenant improvements of approximately $614. At December 31, 2001, the Company had unrestricted cash on hand of approximately $11,012. At December 31, 2000, the Company had unrestricted cash on hand of approximately $15,066. In December 1999, the 1290 Property Owning Partnership refinanced mortgage indebtedness secured by the 1290 Property of approximately $224,900, and obtained the 1290 Mortgage Loan. Interest on the 1290 Mortgage Loan is based on LIBOR plus 2% and requires interest only payments through maturity on January 2, 2003. The 1290 Property Owning Partnership has a one time right (subject to achieving certain conditions, including a debt service coverage ratio, loan to value ratio and the payment of a 25 basis point extension fee), at its option, to extend the maturity for a period of twelve months. The 1290 Mortgage Loan may be repaid in whole without penalty. 19 Recent Pronouncements Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities, was implemented by the Company on January 1, 2001. SFAS No. 133, as amended and interpreted, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. All derivatives, whether designated as hedging relationships or not, are required to be recorded on the balance sheet at fair value. If the derivative is designated as a fair-value hedge, the changes in the fair value of the derivative and the hedged item are recognized in earnings. If the derivative is designated as a cash-flow hedge, the effective portion of changes in the fair value of the derivative is recorded in other comprehensive (loss) income and will be recognized in the income statement when the hedged item affects earnings. The ineffective portion of changes in the fair value of the derivative designated as a cash flow hedge is recognized in the income statement. SFAS No. 133 defines new requirements for designation and documentation of hedging relationships as well as ongoing effectiveness assessments in order to use hedge accounting. For a derivative that does not qualify as a hedge, changes in fair value are recognized in earnings. On January 1, 2001, the Company recorded approximately $6,900 in other comprehensive loss as a cumulative transition adjustment, to record its interest rate swap agreement (see Note 4 to the Company's financial statements included in response to Item 8 hereof) at its estimated fair value as of that date. In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long Lived Assets (effective January 1, 2002). SFAS No. 144 supersedes existing accounting literature dealing with impairment and disposal of long-lived assets, including discontinued operations. It addresses financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to be disposed of, and expands current reporting for discontinued operations to include disposals of a "component" of an entity that has been disposed of or is classified as held for sale. The Company is in the process of evaluating the financial statement impact of the adoption of this standard. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The 1290 Property Owning Partnership and Morgan Stanley Derivative Products, Inc. entered into an Interest Rate Exchange Agreement effective December 13, 1999 (the "1290 Swap Agreement"). The 1290 Swap Agreement provides that the 1290 Property Owning Partnership will pay interest at an effective rate of 8.4995% per annum on the notional amount of $425,000. Management believes that the risk of incurring losses related to the credit risk is remote and that any losses would be immaterial. The maturity date of the 1290 Mortgage Loan and the termination date of the 1290 Swap Agreement are identical. The estimate of the cost to unwind the 1290 Swap Agreement is approximately $19,439 at December 31, 2001. The Company has no intention of unwinding the 1290 Swap Agreement. 20 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA METROPOLIS REALTY TRUST, INC. INDEX TO FINANCIAL STATEMENTS Page ---- HISTORICAL FINANCIAL STATEMENTS Independent Auditors' Report ........................................... 22 Consolidated Balance Sheets as of December 31, 2001 and 2000 ........... 23 Consolidated Statements of Income and Comprehensive Loss for the years ended December 31, 2001, 2000 and 1999 ....................... 24 Consolidated Statements of Stockholders' Equity for years ended December 31, 2001, 2000, and 1999 ...................................... 25 Consolidated Statements of Cash Flows for years ended December 31, 2001, 2000 and 1999 .................................................... 26 Notes to Consolidated Financial Statements ............................. 27 21 INDEPENDENT AUDITORS' REPORT To the Stockholders of Metropolis Realty Trust, Inc. We have audited the accompanying consolidated balance sheets of Metropolis Realty Trust, Inc. and Subsidiaries as of December 31, 2001 and 2000 and the related consolidated statements of income and comprehensive loss, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements 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, such consolidated financial statements present fairly, in all material respects, the financial position of Metropolis Realty Trust, Inc. and Subsidiaries as of December 31, 2001 and 2000 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. Deloitte & Touche LLP New York, New York January 18, 2002 22 METROPOLIS REALTY TRUST, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts) --------------------------------------------------------------------------------

See notes to consolidated financial statements. 23 METROPOLIS REALTY TRUST, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE LOSS (in thousands, except share amounts) --------------------------------------------------------------------------------

See notes to consolidated financial statements. 24 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands) --------------------------------------------------------------------------------

See notes to consolidated financial statements. 25 METROPOLIS REALTY TRUST, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) --------------------------------------------------------------------------------

See notes to consolidated financial statements. 26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999 (in thousands, except share amounts) -------------------------------------------------------------------------------- 1. BACKGROUND, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization - Metropolis Realty Trust, Inc., a Maryland corporation ("Metropolis" or the "Company"), was formed on May 13, 1996 to facilitate the consummation of the Second Amended Joint Plan of Reorganization of 237 Park Avenue Associates, L.L.C. ("237 LLC") and 1290 Associates, L.L.C. ("1290 LLC" and together with 237 LLC, the "Predecessors"), dated September 20, 1996 (the "Plan"). Pursuant to the Plan, on October 10, 1996, the date operations commenced ("Effective Date"), the Company acquired the interests of 237 LLC and 1290 LLC in the properties located at 237 Park Avenue (the "237 Property") and 1290 Avenue of the Americas (the "1290 Property," and together with the 237 Property, the "Properties"). On November 22, 1999, the Company sold all of its interests in the 237 Property. Following such sale and as of December 31, 2000, the Company owned a 94.05% partnership interest, as limited partner, in 1290 Partners, L.P., a Delaware limited partnership (the "1290 Property Owning Partnership"). The 1290 Property Owning Partnership owns the 1290 Property. A wholly-owned subsidiary of the Company ("1290 GP Corp.") owns a 1% interest, as general partner, in the 1290 Property Owning Partnership. The remaining 4.95% interest in the 1290 Property Owning Partnership was owned by 237/1290 Upper Tier Associates, L.P., a Delaware limited partnership (the "Upper Tier LP"). On March 23, 2001, the Company acquired the limited partnership interest held by the Upper Tier LP for $1,400 in accordance with the Agreement of Limited Partnership of the 1290 Property Owning Partnership. Upon consummation of such transaction, as of December 31, 2001, the Company directly and indirectly owns 100% of the 1290 Property Owning Partnership. Basis of Presentation - The consolidated financial statements include Metropolis and each of the entities through which Metropolis indirectly owns the Properties. All significant intercompany accounts and transactions have been eliminated in consolidation. Actual results could differ from those estimates. Certain 2000 and 1999 amounts have been reclassified to conform with the 2001 presentation. Rental Property - Rental property is carried at cost, net of accumulated depreciation and amortization, and includes land, building, tenant improvements and building improvements. Land is carried at $63,500, as of December 31, 2001 and 2000. Building, tenant improvements and building improvements are carried at $343,286 and $342,253 as of December 31, 2001 and December 31, 2000, respectively. If a property is determined to be impaired, it must be written down to its estimated fair value. Fair value is defined as the amount for which the asset could be bought or sold in a current transaction, that is, other than a forced or liquidation sale. No impairment of the 1290 Property exists as of December 31, 2001 and 2000. Cash and Cash Equivalents - Cash and cash equivalents includes investments purchased with an original maturity of three months or less. Depreciation and Amortization - Building and building improvements are depreciated over their useful lives of 40 years using the straight-line method. Furniture and fixtures are depreciated over their useful lives, ranging from 5 to 7 years. Tenant improvements are amortized on a straight-line basis over the terms of the respective leases. 27 Deferred Charges - Deferred financing costs are amortized over the term of the related loan. Direct costs related to leasing are amortized over the related lease term. Rental Income - Rental income is recognized on a straight-line basis over the terms of the related leases. Differences between actual base amounts due from tenant leases and the straight-line basis are included in deferred rent receivable. Escrow Deposits and Restricted Cash - Escrow deposits and restricted cash for the years ended December 31, 2001 and 2000 includes reserves for tenant improvements, leasing commissions, insurance, real estate taxes and real estate tax refunds. Recent Pronouncement - Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities, was implemented by the Company on January 1, 2001. SFAS No. 133, as amended and interpreted, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. All derivatives, whether designated as hedging relationships or not, are required to be recorded on the balance sheet at fair value. If the derivative is designated as a fair-value hedge, the changes in the fair value of the derivative and the hedged item are recognized in earnings. If the derivative is designated as a cash-flow hedge, the effective portion of changes in the fair value of the derivative is recorded in other comprehensive (loss) income and will be recognized in the income statement when the hedged item affects earnings. The ineffective portion of changes in the fair value of the derivative designated as a cash flow hedge is recognized in the income statement. SFAS No. 133 defines new requirements for designation and documentation of hedging relationships as well as ongoing effectiveness assessments in order to use hedge accounting. For a derivative that does not qualify as a hedge, changes in fair value are recognized in earnings. At January 1, 2001 the Company recorded approximately $6,900 in other comprehensive loss as a cumulative transition adjustment to record the 1290 Swap Agreement (See Note 4) at its estimated fair value as of that date. In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long Lived Assets (effective January 1, 2002). SFAS No. 144 supersedes existing accounting literature dealing with impairment and disposal of long-lived assets, including discontinued operations. It addresses financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to be disposed of, and expands current reporting for discontinued operations to include disposals of a "component" of an entity that has been disposed of or is classified as held for sale. The Company is in the process of evaluating the financial statement impact of the adoption of this standard. Use of Estimates - The presentation of the financial statements requires estimates and assumptions that affect the reported amounts of assets and liabilities as of December 31, 2001 and 2000 and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Fair Value of Financial Instruments - The carrying amount of cash and cash equivalents, escrow deposits and restricted cash, tenant security deposits, accounts receivable and accounts payable are a reasonable estimate of their fair value due to their short-term nature. Management believes the fair market value of the mortgage loan payable approximates the carrying value at December 31, 2001 and 2000. The fair value estimates presented herein are based on pertinent information available to management as of December 31, 2001 and 2000. 28 Income Taxes - The Company qualifies as a REIT under the Internal Revenue Code, as amended, and will generally not be taxed at the corporate level on income it currently distributes to its stockholders so long as it, among other things, distributes at least 90% of its REIT taxable income. 2. SALE OF PROPERTY On September 23, 1999, the Company entered into an Interest Purchase Agreement with 237 Park Investors, L.L.C., pursuant to which the Company agreed to sell all of its interests in the 237 Property for an aggregate purchase price of $372,000, subject to customary prorations and certain adjustments (the "237 Property Sale"). On November 22, 1999, the Company consummated the 237 Property Sale and recognized a gain of $50,445. Net assets as of the date of sale were $293,814. The following represents the results of operations for the 237 Property for the period January 1, 1999 through November 21, 1999: REVENUES: Base rental income $ 34,261 Lease termination income 25,855 Operating escalation income 9,357 Miscellaneous income 495 -------- Total revenues 69,968 -------- OPERATING EXPENSES: Real estate taxes 9,324 Operating and maintenance 2,300 Utilities 572 Payroll 1,539 Management fees 635 Professional fees 515 General and administrative 285 Depreciation and amortization 5,624 -------- Total operating expenses 20,794 -------- OTHER ITEMS: Interest income 1,100 Interest expense (11,801) -------- Total other items (10,701) -------- NET INCOME $ 38,473 ======== 3. REAL ESTATE TAX REFUNDS Tax certiorari proceedings have been settled with the City of New York for over-assessment of property taxes for the tax years ending June 30, 1991 through June 30, 1996 with respect to the 1290 Property. The Company received net proceeds of approximately $6,519 in December 2000 after payment of approximately $876 of fees and expenses incurred in connection with such proceedings. Of this amount, approximately $3,211 was expected to be reimbursed to tenants and was included in escrow deposits and restricted cash at December 31, 2000. During 2001, approximately $2,027 was reimbursed to tenants. The remaining balance to be reimbursed of approximately $1,184 is included in escrow deposits and restricted cash as of December 31, 2001. Such net proceeds were approximately $3,800 in excess of estimated net proceeds and are included in miscellaneous income in 2000. 29 Tax certiorari proceedings have been commenced which remain outstanding against the City of New York for over-assessment of property taxes for the tax years ending June 30, 1997 through June 30, 2001 with respect to the 1290 Property. The outcome of these proceedings cannot be presently estimated. 4. MORTGAGE LOAN In December 1999, the 1290 Property Owning Partnership refinanced mortgage indebtedness secured by the 1290 Property of approximately $224,900,000 and obtained a $425,000 mortgage loan (the "1290 Mortgage Loan"). Interest on the 1290 Mortgage Loan is based on LIBOR plus 2% and requires interest only payments through maturity on January 2, 2003. The 1290 Property Owning Partnership has a one time right (subject to achieving certain conditions, including a debt service coverage ratio, loan to value ratio and the payment of a 25 basis point extension fee), at its option, to extend the maturity for a period of twelve months. The 1290 Mortgage Loan may be repaid in whole without penalty. The costs associated with securing the 1290 Mortgage Loan of approximately $12,916 are included in deferred financing costs and are amortized over the term of the 1290 Mortgage Loan as a component of interest expense. Unamortized costs associated with the prior mortgage indebtedness of approximately $2,307 were written off in 1999. The 1290 Property Owning Partnership and Morgan Stanley Derivative Products, Inc. entered into an Interest Rate Exchange Agreement effective December 13, 1999 (the "1290 Swap Agreement"). The 1290 Swap Agreement provides that the 1290 Property Owning Partnership will pay interest at an effective rate of 8.4995% per annum on the notional amount of $425,000. Management believes that the risk of incurring losses related to the credit risk is remote and that any losses would be immaterial. The 1290 Swap Agreement has been designated as a cash flow hedge and was deemed to be perfectly effective during 2001. As such, changes in the fair value of the 1290 Swap Agreement during the year ended December 31, 2001 have been reflected as other comprehensive loss in the accompanying statement of income and comprehensive loss. The difference between accrued interest expense calculated at the effective rate under the 1290 Swap Agreement and accrued interest expense calculated at the interest rate under the 1290 Mortgage Loan is recognized currently in earnings as interest. The maturity date of the 1290 Mortgage Loan and the termination date of the 1290 Swap Agreement are identical. The estimate of the cost to unwind the 1290 Swap Agreement is approximately $19,439 at December 31, 2001. The Company has no intention of unwinding the 1290 Swap Agreement. The Company estimates that approximately $18,254 of net derivative loss included in accumulated other comprehensive loss will be reclassified into earnings within the next 12 months. 5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses as of December 31, 2001 and 2000 include property operating expenses payable and tenant claims against real estate tax proceeds. 6. SUBORDINATED MINORITY INTEREST The Subordinated Minority Interest represented the 99% limited partnership interest that JMB/NYC Office Building Associates, L.P. owned of the Upper Tier LP which in turn owned a subordinated 4.95% limited partnership interest in the 1290 Property Owning Partnership (the "Subordinated Minority Interest"). On March 23, 2001, the Company exercised its right to acquire the Subordinated Minority Interest held by the Upper Tier LP for $1,400 in accordance with the Agreement of Limited Partnership of the 1290 Property Ownership Partnership. 30 7. STOCKHOLDERS' EQUITY The Company has the authority to issue 50,000,000 shares of common stock, par value $10 per share (the "Common Stock"), and 10,000,000 shares of Preferred Stock, par value $10 per share. On October 10, 2001, the classification of the Common Stock into two classes of Common Stock terminated pursuant to the terms of the Charter. All shares of Class A and Class B Common Stock were automatically converted into a single class of Class A Common Stock. As of December 31, 2001, there were 13,001,346 shares of the Company's Class A Common Stock issued and outstanding. 8. STOCK PLAN AND REGISTRATION RIGHTS The Board of Directors of the Company adopted a Directors' Stock Plan effective October 10, 1996. Pursuant to the Stock Plan, the Board of Directors of the Company has the authority to issue to members of the Company's Board of Directors options to purchase, in the aggregate, 100,000 shares of Common Stock. On the Effective Date, the initial members of the Company's Board of Directors were granted options entitling each director to purchase an aggregate of 3,000 shares of Common Stock at an exercise price of $25 per share. Pursuant to the Stock Plan, each Director received 400 shares of Common Stock at the annual meetings in 1997, 1998 and 2000 in consideration for services rendered to the Company during such years. The value of such shares was based upon the most recent price at which shares of the Company's Common Stock were traded prior to such grant of shares and is included as an operating expense. As of December 31, 2001, there were outstanding options to acquire an aggregate of 3,000 shares of Common Stock at an exercise price of $12.50 per share. The Company has entered into a Registration Rights Agreement between the Company and certain holders of Common Stock. The Registration Rights Agreement permits such stockholders to demand, subject to certain conditions, that the Company register their Common Stock for sale and provides all of the Company's stockholders with the right to participate proportionally in any public offering of the Company's securities. 9. RELATED PARTY TRANSACTIONS Sale of 237 Property/Refinancing of 1290 Property - John R. Klopp, a director, officer and stockholder of the Company, is employed by Capital Trust, Inc., the parent company of Victor Capital Group L.P. ("VCG"). VCG acted as one of the Company's representatives in connection with the sale of the 237 Property in November 1999. Pursuant to the terms of the retention agreement between VCG and the Company, VCG was paid a fee equal to $930 (0.25% of the total transaction value). In addition, VCG was paid approximately $1,594 by the Company in December 1999 as a fee in connection with the refinancing of the debt pertaining to the 1290 Property. Asset Management - The Company has entered into an Asset Management Agreement with a company ("Asset Manager") that is directly affiliated with two of Metropolis' stockholders. One of these stockholders is also a Director and Officer of the Company. The Asset Manager provides asset advisory, consultation and management services for the Company. Fees for such services are payable in arrears, at a rate of $25 per month. The Asset Management Agreement also provides for reimbursement for costs and expenses for contractors and professional fees, payable as incurred. Asset management fees incurred for the years ended December 31, 2001, 2000, and 1999 were approximately $300 each year. 31 Property Management - The Company has also entered into a Management and Leasing Agreement with a company ("Property Manager/Leasing Agent") that is an affiliate of a stockholder. The Property Manager/Leasing Agent managed, operated and provided all supervisory, management and leasing services for the 1290 Property for the years ended December 31, 2001, 2000 and 1999 and for the 237 Property for the year ended December 31, 1999. The Management and Leasing Agreement provides for a fee of 1.5% of gross revenues, payable monthly, and reimbursement for overhead and all reasonable out-of-pocket expenses incurred. The Management and Leasing Agreement also provides for leasing commissions to be calculated on a sliding scale percentage basis of the lease's base rent. Fees incurred under the Management and Leasing Agreement for the years ended December 31, 2001, 2000, and 1999 totaled approximately $2,071, $2,295, and $5,528, respectively. An affiliate of the Property Manager/Leasing Agent provided the cleaning services for the 1290 Property for the months January through February of 2001 and the years ended December 31, 2000 and 1999 and for the 237 Property for the year ended December 31, 1999. Fees incurred for cleaning services for the years ended December 31, 2001, 2000, and 1999 totaled $405, $2,499, and $3,680, respectively. REIT Management - The Company has entered into a REIT Management Agreement with the Property Manager/Leasing Agent ("REIT Manager"). The REIT Manager performs certain accounting, administrative and monitoring services. The REIT Management Agreement provides for compensation to the REIT Manager of a monthly fee and reimbursement of documented out-of-pocket expenses. Fees incurred under the REIT Management Agreement for the years ended December 31, 2001, 2000, and 1999 were $126, $137, and $125, respectively. 10. LEASES Minimum future rents (excluding escalation rentals) due to the Company under noncancellable leases as of December 31, 2001 are as follows: 2002 $ 82,256 2003 84,260 2004 77,837 2005 72,567 2006 69,135 Thereafter 360,736 -------- $746,791 ======== 32 11. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (In Thousands, Except Per Share Amounts) Fiscal Quarters Ended

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 33 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The directors and executive officers of the Company as of December 31, 2001 are as follows: Name Age Position ---- --- -------- William L. Mack................ 62 Director and Chairman of the Board Lee S. Neibart................. 51 Director and President Bruce H. Spector............... 59 Director John R.S. Jacobsson............ 33 Director, Vice President and Secretary John R. Klopp.................. 48 Director and Vice President Russel S. Bernard.............. 44 Director David A. Strumwasser........... 50 Director David Roberts.................. 39 Director Each of the officers and directors listed above, other than John R. Klopp and John R.S. Jacobsson, has served in the positions listed for the Company since September 1996. Mr. Klopp has served as a Director since September 1996 and as an officer since December 1996. Mr. Jacobsson has served as a Director since October 1997 and as an officer since December 1996. William L. Mack has served as the Chairman of the Board of Directors of the Company since 1996. Mr. Mack is the managing partner of Apollo Real Estate Advisors, L.P. ("AREA"), the manager of five opportunistic real estate investment funds, which he co-founded in 1993, and serves as President of its corporate general partner. Beginning in 1969, Mr. Mack served as Managing Partner of the Mack Company, where he oversaw the dynamic growth of the Mack Company's office, industrial, retail and hotel facilities. Mr. Mack has served as a director of Mack-Cali Realty Corporation ("Mack-Cali") since the 1997 merger of the Mack Company's office portfolio into Mack-Cali and has served as Chairman of Mack-Cali since June 2000. Mr. Mack is also a director of The Bear Stearns Companies, Inc., an investment banking firm, Vail Resorts, Inc., an owner and operator of Colorado ski resorts, and Wyndham International, Inc., an owner and operator of a national chain of hotel properties. Mr. Mack attended the Wharton School of Business and Finance at the University of Pennsylvania and received a B.S. degree in business administration, finance and real estate from New York University. Lee S. Neibart is a partner of AREA with which he has been associated since 1993, and directs portfolio and asset management. From 1979 to 1993, he was Executive Vice President and Chief Operating Officer of the Robert Martin Company, a private real estate development and management firm. Mr. Neibart is a director of Atlantic Gulf Communities Corp., a land development company, Roland International Corporation, a land development company, Wyndham International, Inc., and Meadowbrook Golf Group, Inc., an owner and operator of golf courses. Mr. Neibart received a B.A. from the University of Wisconsin and an M.B.A. from New York University. Bruce H. Spector is a partner of AREA with which he has been associated since 1993, and has been responsible for advising on matters of reorganization strategy. From 1967 to 1992, Mr. Spector was a member of the law firm of Stutman, Treister and Glatt, spending a substantial amount of that time as a senior partner and head of the firm's executive committee. Mr. Spector is a director of Pacer International, Inc., a national intermodal and logistics company, Vail Resorts, Inc. and Park Media, 34 LLC, a firm specializing in bringing advertising revenue to the owners of parking venues. Mr. Spector received a B.A. from the University of Southern California and a J.D. from the UCLA School of Law. John R.S. Jacobsson is a partner of AREA with which he has been associated since its founding in 1993. Mr. Jacobsson is responsible for investments, investment management and capital raising at AREA and co-heads its Japanese investment program. Prior to 1993, Mr. Jacobsson was associated with the acquisitions group of Trammell Crow Ventures, a real estate investment firm. Mr. Jacobsson is a director of Koger Equity, Inc., Roland International Corporation and Oasis Car Wash, Inc., an owner and operator of car washes. Mr. Jacobsson received a B.A. from Harvard College in 1990. John R. Klopp has been a director of Capital Trust, Inc. ("Capital Trust"), an investment management and finance company focused on the commercial real estate industry, since January 1997, and the Chief Executive Officer, a Vice Chairman and the President of Capital Trust since February 1997, July 1997 and January 1999, respectively. Mr. Klopp was a founder and a Managing Partner of Victor Capital Group L.P. ("VCG") from 1989 until the acquisition of VCG by Capital Trust in July 1997. From 1982 to 1989 Mr. Klopp was a Managing Director and co-head of Chemical Realty Corporation ("Chemical Realty"), the real estate investment banking affiliate of Chemical Bank. Prior to founding Chemical Realty, Mr. Klopp held various positions with Chemical Bank's Real Estate Division, where he was responsible for originating, closing and monitoring portfolios of construction and interim loans. He received a B.A. from Tufts University in 1976 with a major in economics and an M.B.A. in 1978 from the Wharton School of Business and Finance at the University of Pennsylvania with a major in real estate and finance. Russel S. Bernard is a Principal of Oaktree Capital Management, LLC ("Oaktree"), with which he has been associated since 1995, and is the portfolio manager of Oaktree's real estate and mortgage funds. Prior to joining Oaktree in 1995, Mr. Bernard was a Managing Director of Trust Company of the West ("TCW"). Under subadvisory relationships with Oaktree, Mr. Bernard continues to serve as portfolio manager for the TCW Special Credits distressed mortgage funds. From 1986 to 1994, Mr. Bernard was a partner in Win Properties, Inc., a national real estate investment company, where he was responsible for the acquisition, financing and operation of a national real estate portfolio. Mr. Bernard holds a B.S. in Business Management and Marketing from Cornell University. David A. Strumwasser is a Principal of Whippoorwill Associates, Incorporated ("Whippoorwill"), an investment management firm, and has served as a Managing Director and General Counsel of Whippoorwill since 1993. From 1984 to 1993, Mr. Strumwasser was a Partner and co-head of the Bankruptcy and Reorganization Practice at the New York law firm of Berlack, Israels & Liberman LLP. Prior to that, he practiced bankruptcy law at Anderson Kill & Olick, LLP from 1981 to 1984, and at Weil, Gotshal & Manges LLP from 1976 to 1979. From 1979 to 1981, Mr. Strumwasser was an Assistant Vice President at Citicorp Industrial Credit, Inc. Mr. Strumwasser is a director of Barneys New York, Inc., a luxury retailer. Mr. Strumwasser received a B.A. in political science from the State University of New York at Buffalo in 1973 and a J.D. from Boston College Law School in 1976. David Roberts has been a Managing Director of Angelo, Gordon & Co., L.P. ("Angelo, Gordon"), an investment management firm, since 1993, where he oversees the firm's real estate and special situations investment activities. From 1988 until 1993, Mr. Roberts was a principal of Gordon Investment Corporation, a Canadian merchant bank, where he participated in a wide variety of principal transactions including investments in the real estate and mortgage banking industries. Prior to that, Mr. Roberts worked in the Corporate Finance Department of L.F. Rothschild & Co. Incorporated, an investment bank, as a Senior Vice President specializing in mergers and acquisitions. Mr. Roberts has a B.S. in Economics from the Wharton School of the University of Pennsylvania. 35 Prior to October 10, 2001, the Company's Board of Directors was divided into five classes. Each director in such class was elected by a specifically designated stockholder (or class of stockholders) in accordance with the Charter. The initial terms of the first, second, third and fourth classes expired in 1997, 1998, 1999 and 2000, respectively, after which time each such class of directors was elected for a term which expired at the annual meeting of stockholders for fiscal year 2001, which meeting was held in January 2002. The initial term of the fifth class of directors expired immediately prior to such annual meeting. On October 10, 2001, the classification of the Common Stock into two classes of Common Stock terminated pursuant to the terms of the Charter. All shares of Class A and Class B Common Stock were automatically converted into a single class of Class A Common Stock. Pursuant to the Charter, the Company's Board of Directors is no longer divided into classes and each director will be elected for one-year terms by the holders of the Class A Common Stock voting as a single class. The Charter does require, however, that the Company will at all times have at least two directors that are not affiliated with Apollo, any Transferee (as defined in the Charter) or any other stockholder of more than 10% of the stock of the Company. Compliance with Section 16(a) of the Exchange Act Section 16(a) of the Securities and Exchange Act of 1934 (the "Exchange Act") requires the Company's officers and directors, and persons who own more than 10% of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Officers, directors and 10% stockholders are required by regulation of the Securities and Exchange Commission to furnish the Company with copies of all Section 16(a) forms they file. Based solely on its review of Forms 3, 4 and 5 available to the Company and written representations from certain of the directors, officers and 10% stockholders that no form is required to be filed, the Company believes that no director, officer or beneficial owner of more than 10% of the Common Stock failed to file on a timely basis reports required pursuant to Section 16(a) of the Exchange Act with respect to 2001. ITEM 11. EXECUTIVE COMPENSATION The Company has no employees and none of its executive officers, including the Company's president (who acts in a capacity similar to that of a chief executive officer), receives any compensation in their capacities as executive officers. 36

(1) Represents annual retainer paid to Mr. Neibart in his capacity as a director of the Company in an amount of $15,000 for the years 2001 and 2000 and $20,000 for the year 1999. (2) Mr. Neibart also received 400 shares of Common Stock as compensation in his capacity as a director of the Company pursuant to the Company's 1996 Directors' Stock Option Plan for the years 2001 and 2000. Mr. Neibart did not receive any shares of Common Stock as compensation in the year 1999. There is not currently a public market for the shares of Common Stock, however, the Company has determined that the fair market value of these shares on the date they were granted to Mr. Neibart was approximately $16.00 per share for the shares granted to him in 2000 and approximately $20.00 per share for the shares granted to him in 2001. (3) Represents fees paid to Mr. Neibart in his capacity as a director of the Company for the attendance of the Company's Board of Directors meeting. Mr. Neibart was paid $750 for each meeting of the Company's Board of Directors that he attended in 2001, 2000 and 1999. There was one meeting of the Company's Board of Directors in each of 2001 and 2000, and four meetings in 1999. Mr. Neibart attended all such meetings. On July 9, 2002, the Board of Directors authorized the payment of $50,000 to each of Messrs. Jacobsson, Vice President and Secretary of the Company; Andrew Cohen, Vice President of the Company; Stuart Koenig, Treasurer of the Company, and Ms. Jeremy FitzGerald, Vice President of the Company, upon the consummation of the sale transaction to Jamestown. This payment was authorized in recognition of the contribution made by each of these officers to the negotiation, structuring and consummation of the sale transaction. For fiscal year 2001, the members of the Board of Directors earned (i) $15,000 in cash as an annual retainer, (ii) 400 shares of Common Stock issued under the Company's 1996 Directors' Stock Option Plan (as amended, the "Stock Plan") and (iii) $750.00 per meeting of the Board of Directors attended by such member. Upon election to the Board of Directors, each initial Director received options (the "Options") to purchase 3,000 shares of the Company's Class A Common Stock which vested over two years. On December 13, 1999, the Board of Directors decreased the exercise price of all outstanding options by $15.00 per share in consideration of a special distribution to stockholders of $15.00 per share that was made on December 10, 1999. On December 23, 1999, each member of the Board of Directors (except Mr. Jacobsson) exercised his Options. On December 28, 1999, the Board of Directors decreased the exercise price of Mr. Jacobsson's options by another $15.00 per share to $12.50 per share in consideration of a second special distribution to stockholders of $15.00 per share that was made on December 27, 1999. See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT -- Description of Stock Plan." 37 The Company has purchased a directors' and officers' liability insurance policy in the amount of $10,000,000. John R.S. Jacobsson, Lee S. Neibart and John R. Klopp are also the directors of a wholly-owned subsidiary of the Company ("1290 GP Corp.") which owns a 1% interest, as general partner, in the 1290 Property Owning Partnership. The officers of the Company and 1290 GP Corp. are identical. The officers of the Company will not receive any compensation from the Company other than any compensation they may receive as directors. The directors and officers of 1290 GP Corp. will not receive any compensation from 1290 GP Corp. In January 2000, the directors of the Company appointed Lee S. Neibart, John R.S. Jacobsson and John R. Klopp to serve as the members of the Company's audit committee. Messrs. Neibart and Jacobsson are partners of AREA which is the general partner of Apollo Real Estate Investment Fund, L.P., a significant stockholder of the Company. Mr. Klopp is the Chief Executive Officer of Capital Trust, Inc. whose relationship to the Company is described under "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -- Asset Manager." The audit committee does not serve pursuant to a written charter. Its purposes are to (i) make recommendations concerning the engagement of the Company's independent public accountants, (ii) review with the Company's independent public accountants the policies, procedures and results of the audit engagement, (iii) approve professional services provided by the Company's independent public accountants, (iv) review the independence of the Company's independent public accountants, (v) consider the range of audit and non-audit fees, (vi) review the adequacy of the Company's internal accounting controls, and (vii) recommend information to be included in the Company's quarterly reports on Forms 10-Q and annual reports on Forms 10-K. 38 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information set forth in the following table is furnished as of March 15, 2002, with respect to any person (including any "group," as that term is used in Section 13(d)(3) of the Exchange Act) who is known to the Company to be the beneficial owner of more than 5% of any class of the Company's voting securities, and as to those shares of the Company's equity securities beneficially owned by each of its directors, its executive officers, and all of its executive officers and directors as a group. As of March 15, 2002, there were 13,004,946 shares of Common Stock outstanding.

* Less than 1% (1) Held of record by Atwell & Co., c/o The Chase Manhattan Bank, N.A., 4 New York Plaza, New York, NY 10004. Apollo Real Estate Advisors is the managing general partner of Apollo Real Estate Investment Fund and a joint reporting person with respect to beneficial ownership of these shares of common stock according to an executed certificate, dated as of August 4, 2002, of the Vice President and Treasurer of Apollo Real Estate Management, Inc., the general partner of Apollo Real Estate Advisors, and delivered to Holdings and Metropolis Trust. Apollo Real Estate Investment Fund is located at Two Manhattanville Road, Purchase, New York 10577. (2) Includes 1,586,814 shares as to which voting and dispositive power is shared with Oaktree Capital Management, LLC ("Oaktree") as an investment sub-adviser to TCW Asset Management Company for various limited partnerships, trusts and third party accounts for which TCW Asset Management Company 39 acts as general partner or investment manager. The TCW Group, Inc. is the parent company of TCW Asset Management Company. Also includes 667,527 shares held by various limited partnerships, trusts and third party accounts for which TCW Special Credits acts as general partner or investment manager; TCW Asset Management Company is the managing general partner of TCW Special Credits. The shares shown are held of record by (i) Hare & Co., c/o Investors Bank and Trust Company, 200 Clarendon Street, Boston, Massachusetts 02117-9130 (58,124 shares), and (ii) Cede & Co., 55 Water Street, New York, New York 10041 (2,196,217 shares). To the extent permitted by applicable law, The TCW Group Inc., TCW Asset Management Company and Robert Day hereby disclaim beneficial ownership of such shares. The TCW Group, Inc. and TCW Asset Management Company are located at 865 South Figueroa Street, Suite 1800, Los Angeles, CA 90017. (3) Includes 1,586,814 shares as to which voting and dispositive power is shared with TCW Asset Management Company, which acts as general partner or investment manager for certain funds and accounts for which Oaktree acts as an investment sub-adviser. Also includes 284,839 shares held by two limited partnerships of which Oaktree is general partner and 41,210 shares held by a third party account for which Oaktree acts as investment manager. The 326,049 shares as to which Oaktree has sole voting and dispositive power are held of record by (i) Cun & Co., c/o The Bank of New York, P.O. Box 1068, Wall Street Station, New York, NY 10005 (176,049 shares) and (ii) Cede & Co., 55 Water Street, New York, New York 10041 (150,000 shares). Also includes 4,600 shares held directly by Oaktree. To the extent permitted by applicable law, Oaktree hereby disclaims beneficial ownership of such shares. Oaktree is located at 333 South Grand Avenue, 28th Floor, Los Angeles, CA 90071. (4) According to Amendment No. 3 to the Schedule 13G filed by The Goldman Sachs Group, Inc. with the Securities and Exchange Commission on February 13, 2001, includes 1,122,421 shares with respect to which voting and dispositive power is shared with (i) Goldman, Sachs & Co., (ii) WSB Realty, L.L.C., (iii) Whitehall Street Real Estate Limited Partnership V and (iv) WH Advisors, L.L.C. V. The Goldman Sachs Group, Inc. is located at 85 Broad Street, New York, NY 10004. (5) Does not include 4,600 shares owned by The Goldman Sachs Group, Inc. According to Amendment No. 3 to the Schedule 13G filed by The Goldman Sachs Group, Inc. with the Securities and Exchange Commission on February 13, 2001, voting and dispositive power with respect to these shares is held among: (i) Goldman, Sachs & Co., (ii) The Goldman Sachs Group, Inc., (iii) WSB Realty, L.L.C., (iv) Whitehall Street Real Estate Limited Partnership V and (v) WH Advisors, L.L.C. V. Each of these entities is located at 85 Broad Street, New York, NY 10004. (6) The address of Angelo, Gordon & Co., L.P. ("Angelo, Gordon"), John M. Angelo and Michael L. Gordon is 245 Park Avenue, New York, NY 10167. According to Amendment No. 3 to the Schedule 13G filed by Angelo, Gordon with the Securities and Exchange Commission on February 8, 2002, these 1,094,143 shares are reported as beneficially owned by: (i) Angelo, Gordon, (ii) John M. Angelo, in his capacities as a general partner of AG Partners, L.P., the sole general partner of Angelo, Gordon, and the chief executive officer of Angelo, Gordon and (iii) Michael L. Gordon, in his capacities as the other general partner of AG Partners, L.P. and the chief operating officer of Angelo, Gordon. (7) Intermarket Corp.'s address is 667 Madison Avenue, New York, NY 10021. (8) Includes 4,936,060 shares owned by Apollo. Mr. Mack is the managing partner of AREA, the general partner of Apollo, and the President of AREA's corporate general partner. Includes 1,600 shares of Common Stock issued directly to Mr. Mack, and 3,000 shares of Common Stock issued upon the exercise of options granted to Mr. Mack, under the Company's Stock Plan. Mr. Mack disclaims beneficial ownership of the shares of Common Stock owned by Apollo. (9) Includes 4,936,060 shares owned by Apollo. Mr. Neibart is a partner of AREA. Includes 1,600 shares of Common Stock issued directly to Mr. Neibart, and 3,000 shares of Common Stock issued upon the exercise of options granted to Mr. Neibart, under the Company's Stock Plan. Mr. Neibart disclaims beneficial ownership of the shares of Common Stock owned by Apollo. 40 (10) Includes 4,936,060 shares owned by Apollo. Mr. Jacobsson is a partner of AREA. Includes 1,600 shares of Common Stock issued directly to Mr. Jacobsson, and 3,000 shares of Common Stock issuable upon the exercise of options granted to Mr. Jacobsson, under the Company's Stock Plan. Mr. Jacobsson disclaims beneficial ownership of the shares of Common Stock owned by Apollo. (11) Includes 4,936,060 shares owned by Apollo. Mr. Spector is a partner of AREA. Includes 1,600 shares of Common Stock issued directly to Mr. Spector, and 3,000 shares of Common Stock issued upon the exercise of options granted to Mr. Spector, under the Company's Stock Plan. Mr. Spector disclaims beneficial ownership of the shares of Common Stock owned by Apollo. (12) Includes 1,600 shares of Common Stock issued directly to Mr. Klopp, and 3,000 shares of Common Stock issued upon the exercise of options granted to Mr. Klopp, under the Company's Stock Plan. (13) Includes 1,912,863 shares owned by (i) funds and accounts managed by Oaktree and (ii) limited partnerships of which Oaktree serves as a general partner. Includes 1,600 shares of Common Stock issued directly to Mr. Bernard, and 3,000 shares of Common Stock issued upon the exercise of options granted to Mr. Bernard, under the Company's Stock Plan, all of which shares were transferred by Mr. Bernard to Oaktree. Mr. Bernard is a Principal of Oaktree. Mr. Bernard disclaims beneficial ownership of the shares of Common Stock owned by funds and accounts managed by Oaktree, the shares of Common Stock owned by limited partnerships of which Oaktree serves as a general partner, and the shares of Common Stock owned directly by Oaktree. (14) Includes 289,503 shares held by various limited partnerships, a trust and third party accounts for which Whippoorwill has discretionary authority and acts as general partner or investment manager. Includes 1,600 shares of Common Stock issued directly to Mr. Strumwasser, and 3,000 shares of Common Stock issued upon the exercise of options granted to Mr. Strumwasser, under the Company's Stock Plan, all of which shares were transferred by Mr. Strumwasser to Whippoorwill pursuant to the terms of his employment with Whippoorwill. Mr. Strumwasser is a Principal, Managing Director and the General Counsel of Whippoorwill. Mr. Strumwasser disclaims beneficial ownership of the shares of Common Stock owned by discretionary accounts or trusts managed by Whippoorwill, the shares of common stock owned by limited partnerships of which Whippoorwill serves as general partner, and the shares of common stock owned by Whippoorwill directly as set forth above. (15) Does not include shares owned by Angelo, Gordon. Does not include 1,600 shares of Common Stock issued directly to Mr. Roberts, and 3,000 shares of Common Stock issued upon the exercise of options granted to Mr. Roberts, under the Company's Stock Plan, all of which shares were transferred by Mr. Roberts to Angelo, Gordon pursuant to the terms of his employment with Angelo, Gordon. Mr. Roberts is a Managing Director of Angelo, Gordon. Mr. Roberts disclaims beneficial ownership of the shares of Common Stock owned by Angelo, Gordon. (16) See notes 8 through 15 above with respect to the nature of the ownership of Directors and Executive Officers as a group, including disclaimers of beneficial ownership described therein. Description of Stock Plan The following is a summary of the material terms of the Stock Plan, as amended. Such summary does not purport to be complete and is qualified in its entirety by reference to the Stock Plan, a copy of which has been filed as Exhibit 10.5 hereto. The Board of Directors adopted the Stock Plan on October 10, 1996 (the "Effective Date"), and amended the Stock Plan on December 13, 1999. The purpose of the Stock Plan is to attract and retain qualified persons as Directors. Pursuant to the Stock Plan, the Board of Directors of the Company has the authority to issue to members of the Company's Board of Directors options to purchase, in the aggregate, 100,000 shares of Class A Common Stock. Pursuant to the Plan of Reorganization of 41 the Company's predecessors and the Stock Plan, on the Effective Date, the initial members of the Company's Board of Directors were each granted 3,000 Options. After the adjustment of the Options' exercise prices, each such Director exercised his Options on December 23, 1999, as more particularly described under "EXECUTIVE COMPENSATION." In March 1998, John R.S. Jacobsson was granted options entitling him to purchase an aggregate of 3,000 shares of Class A Common Stock at an exercise price of $42.50 per share. Such options were issued in July 1998, and are fully exercisable as of December 31, 2000. The exercise price of Mr. Jacobsson's options was adjusted to $27.50 and to $12.50 on December 13, 1999 and December 28, 1999, respectively, as more particularly described under "EXECUTIVE COMPENSATION." Each Director who is elected or appointed after the Effective Date will be granted options to purchase 3,000 shares of Class A Common Stock on the date of the meeting of the Company's stockholders at which such Director is first elected to the Board of Directors or the date of the Board of Directors meeting at which such Director is first appointed to the Board of Directors to fill a vacancy on the Board of Directors. Each holder of an option issued under the Stock Plan will be entitled to exercise the option to purchase one-third of the shares of Common Stock covered by such option on the date of original issuance thereof, one-third on the first anniversary of such date and one-third on the second anniversary of such date, in each case, any time prior to the tenth anniversary of the date of grant. If the holder of an option ceases to serve as a Director of the Company for any reason, options that have been previously granted to such holder and that have not been vested will be forfeited and options that are vested as of the date of such cessation may be exercised by such holder in accordance with and subject to the Stock Plan. If the holder of an option dies while serving as a Director of the Company, options that have been previously granted to such holder and that are vested as of the date of such holder's death may be exercised by such holder's legal representative in accordance with and subject to the Stock Plan. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Asset Manager The Company has retained Capital Trust to serve as the Company's Asset Manager pursuant to an Asset Management Agreement, dated as of December 22, 2000 (the "Asset Management Agreement"). John R. Klopp, one of the Company's Directors and an officer and a stockholder of the Company, is the Chief Executive Officer of Capital Trust. Pursuant to the Asset Management Agreement, the Asset Manager serves as the Company's advisor and consultant with respect to the management of the 1290 Property and the Company's interests in the 1290 Property Owning Partnership. The Asset Management Agreement had an initial term of one year, which term is automatically extended for consecutive one-year periods thereafter unless the Company or the Asset Manager notifies the other at least 30 days before the then current term would otherwise terminate of its election not to extend the term. The Company may terminate the Asset Management Agreement (i) after the expiration of a cure period, by notice to the Asset Manager if the Asset Manager defaults in any material respect in its performance under the Asset Management Agreement, and (ii) immediately upon notice to the Asset Manager if the 1290 Property is sold or if there is a change in control of the Asset Manager. The Asset Manager may terminate the Asset Management Agreement if the Company defaults in the payment of any amount due and payable to the Asset Manager and such default continues for 30 days after the Asset Manager's written notice to the Company of such default. Either party may terminate the Asset 42 Management Agreement by giving notice to the other upon the occurrence of certain events relating to the bankruptcy or insolvency of the other party. Pursuant to the Asset Management Agreement, the Company pays the Asset Manager a fee (the "Asset Management Fee") in an amount equal to $25,000 per month. Asset management fees incurred for each of the years ended December 31, 2001, 2000, and 1999 aggregated approximately $300,000. In addition to the payment of the Asset Management Fee, the Company reimburses the Asset Manager for certain expenses. If the Company believes that the Asset Management Fee should be reduced and the parties are unable in good faith to agree upon a reduced fee, the Asset Management Agreement will be terminable by either party upon 90 days' notice to the other. Management and Leasing Agreements The 1290 Property Owning Partnership entered into a management and leasing agreement, dated as of the Effective Date (the "Property Management Agreement"), with the Property Manager/Leasing Agent. Nyprop, LLC, a stockholder of the Company, is an affiliate of the Property Manager/Leasing Agent. Pursuant to the Property Management Agreement, the Property Manager/Leasing Agent performed all supervisory, management and leasing services and functions reasonably necessary or incidental to the leasing, management and operations of the 1290 Property for the years ended December 31, 2001, 2000, and 1999 and for the 237 Property for the year ended December 31, 1999. Fees under the Property Management Agreement for the years ended December 31, 2001, 2000, and 1999 totaled approximately $2,071,000, $2,295,000, and $5,528,000, respectively. An affiliate of the Property Manager/Leasing Agent provided cleaning services for the 1290 Property for the months January through February of 2001 and for the years ended December 31, 2000 and 1999 and for the 237 Property for the year ended December 31, 1999. Fees incurred for cleaning services for the years ended December 31, 2001, 2000, and 1999 totaled $405,000, $2,499,000, and $3,680,000, respectively. The Property Management Agreement had an initial term of two years, which term is automatically extended for additional consecutive 90-day terms until such time as the 1290 Property Owning Partnership notifies the Property Manager/Leasing Agent in writing, at least 30 days before the then current term would otherwise terminate, of its election not to extend the term of the Property Management Agreement. The 1290 Property Owning Partnership may terminate the Property Management Agreement on 60 days notice if the 1290 Property is either sold by the 1290 Property Owning Partnership or refinanced by the 1290 Property Owning Partnership pursuant to a securitized financing of the 1290 Property; provided that termination of the Property Management Agreement as a result of such financing will only be effective if the Property Manager/Leasing Agent is not approved by the rating agency participating in such financing. In addition, the 1290 Property Owning Partnership may terminate the Property Management Agreement (i) after a certain cure period, upon notice to the Property Manager/Leasing Agent if the Property Manager/Leasing Agent breaches a material term of the Property Management Agreement, and (ii) immediately upon notice to the Property Manager/Leasing Agent if (x) the Property Manager/Leasing Agent or any principal of the Property Manager/Leasing Agent intentionally misappropriates funds of the 1290 Property Owning Partnership or commits fraud against the 1290 Property Owning Partnership or (y) there is a change in control of the Property Manager/Leasing Agent. The Property Manager/Leasing Agent may terminate the Property Management Agreement (i) after a certain cure period, upon notice to the 1290 Property Owning Partnership if the 1290 Property Owning Partnership breaches a material term of the Property Management Agreement, and (ii) upon 60 days notice to the 1290 Property Owning Partnership if the 1290 Property Owning Partnership fails to 43 provide funds on a consistent basis to operate and maintain the 1290 Property. Either party may terminate the Property Management Agreement upon notice to the other party if (x) a petition in bankruptcy is filed against the other party and is not dismissed within 60 days, (y) a trustee, receiver or other custodian is appointed for a substantial portion of the other party's assets and is not vacated within 60 days or (z) the other party makes an assignment for the benefit of its creditors. Pursuant to the Property Management Agreement, the 1290 Property Owning Partnership (i) pays the Property Manager/Leasing Agent a fee in an amount equal to 1.5% of gross revenues from the 1290 Property, which fee is paid monthly, and (ii) reimburses the Property Manager/Leasing Agent for all reasonable out-of-pocket expenses incurred by the Property Manager/Leasing Agent related to the performance of its responsibilities under the Property Management Agreement, to the extent set forth in the annual budget. In addition, the Property Manager/Leasing Agent is entitled to receive commissions in connection with the leasing of space at the 1290 Property and renewals and extensions of leases. The Company has entered into a REIT Management Agreement with the Property Manager/Leasing Agent ("REIT Manager"). The REIT Manager performs certain accounting, administrative and monitoring services. The REIT Management Agreement provides for compensation to the REIT Manager of monthly fees of approximately $10,500 per month, and reimbursement of documented out-of-pocket expenses. Fees incurred under the REIT Management Agreement for the years ended December 31, 2001, 2000, and 1999 were $126,000, $137,000, and $125,000, respectively. 44 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a)(1) Financial Statements are included in response to Item 8 hereof. (a)(2) Financial Statement Schedules have been omitted because they are inapplicable, not required, or the information is included in the financial statements or notes thereto. (a)(3) Exhibits 2.1 Second Amended Joint Plan of Reorganization of 237 Park Avenue Associates, L.L.C. and 1290 Associates, L.L.C.* 2.2 Technical Amendment to Second Amended Joint Plan of Reorganization of 237 Park Avenue Associates, L.L.C. and 1290 Associates, L.L.C. * 2.3 Second Technical Amendment to Second Amended Joint Plan of Reorganization of 237 Park Avenue Associates, L.L.C. and 1290 Associates, L.L.C. * 3.1 Articles of Amendment and Restatement of Metropolis Realty Trust, Inc., dated October 7, 1996. * 3.2 Amended and Restated By-Laws of Metropolis Realty Trust, Inc. * 10.1 Agreement and Plan of Merger among 1290 Associates, L.L.C., 237 Park Avenue Associates, L.L.C. and 237/1290 Upper Tier Associates, L.P., as of October 10, 1996. * 10.2 Amended and Restated Partnership Agreement of 1290 Partners, L.P., dated November 22, 1999.*** 10.3 Third Amended and Restated Limited Partnership Agreement of 237/1290 Upper Tier Associates, L.P., dated November 19, 1999.*** 10.4 Redemption and Substitution Agreement among JMB/NYC Office Building Associates, L.P., O&Y Equity Company, L.P., O&Y NY Building Corp., 237/1290 Upper Tier GP Corp., and 237/1290 Upper Tier Associates, L.P., dated October 10, 1996. * 10.5 Amended and Restated Metropolis Realty Trust, Inc. 1996 Directors' Stock Plan. *** 10.6 Form of Metropolis Realty Trust, Inc. Stock Option Agreement for Directors.* 10.7 Form of Indemnification Agreement, dated as of October 10, 1996. * 10.8 Registration Rights Agreement, dated as of October 10, 1996. * 10.9 Indemnification Agreement given by Property Partners, L.P., Carlyle-XIII Associates, L.P., and Carlyle-XIV Associates, L.P. to Metropolis Realty Trust, Inc., dated as of October 10, 1996. * 10.10 Modification of Operating Agreement of 237 Park Avenue Associates, L.L.C., dated as of October 10, 1996. * 10.11 Debt Contribution Agreement, dated as of October 10, 1996, among Metropolis Realty Trust, Inc., 237/1290 Lower Tier Associates, L.P., 237 Park Partners, L.P., and 1290 Partners, L.P. * 10.12 Debt Assumption, Release and Security Agreement (237 Excess amount) dated October 10, 1996. * 45 10.13 Debt Assumption, Release and Security Agreement (1290 Excess amount) dated October 10, 1996. * 10.14 Release of Assumed Debt and Termination of Security Interest by Bankers Trust Company for the benefit of O&Y NY Building Corp. and O&Y Equity Company, L.P., dated as of October 10, 1996. * 10.15 237 Property Contribution Agreement between 237/1290 Upper Tier Associates, L.P., 237/1290 Lower Tier Associates, L.P. and 237 Park Partners, L.P., dated as of October 10, 1996. * 10.16 1290 Property Contribution Agreement among 237/1290 Upper Tier Associates, L.P., 237/1290 Lower Tier Associates, L.P. and 1290 Partners, L.P., dated as of October 10, 1996.* 10.17 Loan Agreement among 1290 Partners, L.P., Lenders Party thereto and General Electric Capital Corporation, dated December 13, 1999.*** 10.18 Amended, Restated and Consolidated Promissory Note, made by 1290 Partners, L.P. in favor of General Electric Capital Corporation, dated December 13, 1999.*** 10.19 Amended, Restated and Consolidated Mortgage and Security Agreement, between 1290 Partners, L.P. and General Electric Capital Corporation, dated December 13, 1999.*** 10.20 Indemnification and Pledge Agreement between 1290 Partners, L.P. and Apollo Real Estate Investment Fund, L.P., dated December 13, 1999.*** 10.21 Management and Leasing Agreement between 237 Park Partners, L.P. and Tishman Speyer Properties, L.P. * 10.22 Management and Leasing Agreement between 1290 Partners, L.P. and Tishman Speyer Properties, L.P. * 10.23 Asset Management Agreement between Metropolis Realty Trust, Inc. and 970 Management, L.L.C., dated as of October 10, 1996. * 10.24 Interest Purchase Agreement between Metropolis Realty Trust, Inc., 237 GP Corp., 237 Park Investors, L.L.C. and Escrow Agent, dated as of September 23, 1999. ** 10.25 Restructuring Agreement between Metropolis Realty Trust, Inc., 237 GP Corp., JMB/NYC Office Building Associates, L.P., certain other holders of indirect interests in 237 Park Avenue and certain affiliates of 237 Park Investors, L.L.C., dated as of October 28, 1999. ** (b) Reports on Form 8-K incorporated by reference. None. (c) Exhibits. Refer to paragraph (a)(3) under this Item 14. (d) Not applicable. ---------- * Incorporated by reference to the registrant's Registration Statement on Form 10 (File No. 0-21849) and any amendments thereto. ** Incorporated by reference to the registrant's definitive Information Statement on Schedule 14C filed with the Securities and Exchange Commission on October 29, 1999. *** Incorporated by reference to the Registrant's Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 30, 2000. 46 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. METROPOLIS REALTY TRUST, INC. By: /s/ Lee S. Neibart ------------------------------------- Name: Lee S. Neibart Title: President and Director By: /s/ Stuart Koenig ------------------------------------- Name: Stuart Koenig Title: Principal Financial Officer Date: August 12, 2002 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- /s/ Lee S. Neibart President and Director August 12, 2002 ------------------------- Lee S. Neibart /s/ William L. Mack Chairman of the Board and Director August 12, 2002 ------------------------- William L. Mack /s/ John R.S. Jacobsson Vice President, Secretary and August 12, 2002 ------------------------- Director John R.S. Jacobsson /s/ John R. Klopp Vice President and Director August 12, 2002 ------------------------- John R. Klopp /s/ Bruce H. Spector Director August 12, 2002 ------------------------- Bruce H. Spector /s/ Russel S. Bernard Director August 12, 2002 ------------------------- Russel S. Bernard /s/ David A. Strumwasser Director August 12, 2002 ------------------------- David A. Strumwasser /s/ David Roberts Director August 12, 2002 ------------------------- David Roberts 47

METROPOLIS REALTY TRUST INC 10-K/A