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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
[] 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 0-827
EMPIRE STATE BUILDING ASSOCIATES
(Exact name of registrant as specified in its charter)
New York 13-6084254
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
60 East 42nd Street, New York, New York 10165
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 687-8700
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to section 12(g) of the Act:
$33,000,000 of Participations in Partnership Interests
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [x] No [ ]
The aggregate market of the voting stock held by non-affiliates of
the Registrant: Not applicable, but see Items 5 and 10 of this
report.
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ___
An Exhibit Index is located on pages 36 through 37 of this report.
Number of pages (including exhibits) in this filing: 39
PART I
Item 1. Business.
(a) General
Registrant is a partnership which was organized on July
11, 1961. Registrant holds the tenant's interest in a master
operating leasehold of the Empire State Building (the "Building")
and of the land thereunder, located at 350 Fifth Avenue, New York,
New York (collectively, the "Property"). The fee owner of the
Property is Trump Empire State Partners.
The master lease (the "Master Lease"), which commenced
on December 27, 1961, currently expires on January 5, 2013. The
Lease contains three 21-year renewal options, which have not been
exercised. If all of the options are exercised, the Lease will
expire on January 5, 2076. Registrant previously exercised an
option to renew the Lease for the term ending January 5, 2013.
Registrant does not operate the Property. It subleases
the Building to Empire State Building Company (the "Sublessee")
pursuant to a net operating sublease (the "Sublease") with a term
and renewal options essentially coextensive with those contained
in the Master Lease. On January 30, 1989, Sublessee exercised its
option to renew the Sublease for the first renewal term from
January 4, 1992 to January 4, 2013.
Registrant's partners are Peter L. Malkin, Thomas N.
Keltner, Jr. and Richard A. Shapiro (individually, a "Partner"
and, collectively, the "Partners") each of whom also acts as an
agent for holders of participations in their respective partner-
ship interests in Registrant (each holder of a participation,
individually, a "Participant" and, collectively, the
"Participants").
Sublessee is a partnership in which Peter L. Malkin is a
partner. The partners in Registrant are also members of the law
firm of Wien & Malkin LLP, 60 East 42nd Street, New York, New
York, counsel to Registrant and to Sublessee (the "Counsel"). See
Items 10, 11, 12 and 13 hereof for a description of the ongoing
services rendered by, and compensation paid to, Counsel and for a
discussion of certain relationships which may pose potential
conflicts of interest among Registrant, Sublessee and certain of
their respective affiliates.
As of December 31, 1998, the Building was 94.15%
occupied by approximately 750 tenants who engage in various
businesses, including the Boy Scouts, the YMCA, the practice of
law and accounting, ladies' and men's apparel, and ladies' and
men's shoes. Registrant does not maintain a full-time staff. See
Item 2 hereof for additional information concerning the Property.
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(b) The Lease and Sublease
The annual rent payable by Registrant under the Lease is
$1,970,000 from January 5, 1992 through January 5, 2013 and
$1,723,750 annually during the term of each renewal period
thereafter.
Sublessee is required to pay annual basic rent (the
"Basic Rent") equal to $6,018,750 from January 5, 1992 through
January 4, 2013, and $5,895,625 from January 5, 2013 through the
expiration of all renewal terms. Sublessee is also required to
pay overage rent (the "Overage Rent") equal to 50% of its net
operating profit in excess of $1,000,000 in any year.
Overage Rent income is recognized when earned from the
Sublessee, at the close of the year ending December 31; such
income is not determinable until the Sublessee, pursuant to the
Sublease, renders to Registrant a certified report on the
Sublessee's operation of the Property. The Sublease requires that
this report be delivered to Registrant annually within 60 days
after the end of each such fiscal year. Accordingly, all Overage
Rent income and certain supervisory services expense are reflected
in the fourth quarter of each year. The Sublease does not provide
for the Sublessee to render interim reports to Registrant. See
Note 3 of Notes to Financial Statements filed under Item 8 hereof
(the "Notes") regarding Overage Rent payments by Sublessee for the
fiscal years ended December 31, 1998, 1997 and 1996. There was
Overage Rent of $4,109,852 for the year ended December 31, 1998.
(c) Competition
Pursuant to tenant space leases at the Building, the
average annual base rental payable to Sublessee is approximately
$33.85 per square foot (exclusive of electricity charges and
escalation). Registrant has been advised that the average rental
rate is approximately $31 per square foot at both 358 Fifth Avenue
and 362 Fifth Avenue, which are neighboring office buildings
(containing 15 and 12 stories, respectively) containing upgraded
standard installations, but lacking comparable views and window
space. The average rental rate at 3 Park Avenue, which contains
approximately 41 stories, is approximately $40 per square foot,
and the average rental rate at 1350 Broadway, which contains 25
stories, is approximately $25 per square foot.
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In the overall rental market for commercial space in
Manhattan, rents range from approximately $51 per square foot for
prime office space to approximately $25 per square foot in less
developed industrial and/or secondary commercial areas.
(d) Tenant Leases
Sublessee operates the Building free from any federal,
state or local government restrictions involving rent control or
other similar rent regulations which may be imposed upon
residential real estate in Manhattan. Any increase or decrease in
the amount of rent payable by a tenant is governed by the
provisions of the tenant's lease.
Item 2. Property.
Registrant owns the tenant's interest in a master
operating leasehold on the Building known as the Empire State
Building and on the land thereunder located at 350 Fifth Avenue in
New York City. See Item 1 hereof. The Building, erected in 1931
and containing 102 stories, a concourse and a lower lobby,
occupies the entire blockfront from 33rd Street to 34th Street on
Fifth Avenue. The Building has 72 passenger elevators and 4
freight elevators and is equipped with air conditioning and
individual air handling units. The Building is subleased to
Sublessee under the Sublease which expires on January 4, 2013 and
contains three 21-year renewal options. See Item 1 hereof for a
description of the terms of the Lease and Sublease.
Item 3. Legal Proceedings.
The Property of Registrant is the subject of the
following pending litigation:
Studley v. Empire State Building Associates: On October
21, 1991, in an action entitled Studley v. Empire State Building
Associates et al., the holder of a $20,000 original participation
in Registrant brought suit in New York Supreme Court, New York
County against the Agents for Registrant (Peter L. Malkin, Donald
A. Bettex and Alvin Silverman), in their individual capacities and
Wien, Malkin & Bettex (currently "Wien & Malkin LLP") counsel to
Registrant. The suit claimed that the defendants had engaged in
breaches of fiduciary duty and acts of self-dealing in relation to
the Agents' solicitation of consents and authorizations from the
participants in Registrant in September 1991 and in relation to
other unrelated acts of the Agents and the sublessee. By order
dated July 14, 1997, and entered July 29, 1997, the Court granted
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defendants' motion for summary judgment and dismissal of the
action. The Plaintiff filed an appeal with respect to the
foregoing order. By decision and order entered April 2, 1998, the
Appellate Court unanimously affirmed the order dismissing the
action. The Plaintiff has been denied permission to appeal to the
New York Court of Appeals. The Plaintiff has filed a further
Complaint alleging similar claims, purportedly as a class action.
Defendant's counsel has filed a motion to dismiss the new
complaint based upon the Court's prior rulings and on other
grounds.
Proceedings Involving Trump Empire State Partners: In
December 1994, Registrant received a notice of default from Trump.
The Trump default notice to Registrant claimed that Registrant was
in violation of its master lease because of extensive work which
Sublessee had undertaken as part of an improvement program that
commenced before Trump reportedly acquired its interest in the
property in 1994. Trump's notice also complained that the
Building was in need of repairs. On February 14, 1995, Registrant
and Sublessee filed an action ("Action No. 1") in New York State
Supreme Court against Trump for a declaratory judgment that none
of the matters set forth in the notice of default constitutes a
violation of the master lease or sublease, and that the notice of
default is entirely without merit. Registrant's and Sublessee's
suit also seeks an injunction to prevent Trump from implementing
the notice of default. On March 24, 1995, the Court granted
Registrant a preliminary injunction against Trump. In 1996 the
Court granted two additional preliminary injunctions against Trump
with respect to two additional default notices. The preliminary
injunctions prohibit Trump from acting on its notices of default
to Registrant at any time, pending the prosecution of claims by
Registrant and Sublessee for a final declaratory judgment and an
injunction and other relief against the Trump defendants. The
Appellate Court has upheld and affirmed the granting of such
preliminary injunctions against the Trump defendants.
On February 15, 1995, Trump filed an action ("Action No.
2") against Registrant, Sublessee, Counsel, Harry B. Helmsley, a
partner in Sublessee, Helmsley-Spear, Inc. (the management company
of the Empire State Building), and the Agents for Registrant in
New York State Supreme Court, alleging that the notice of default
is valid and seeking damages and related relief based thereon. On
October 24, 1996 the Court dismissed all of Trump's claims in
their entirety against all defendants in Action No. 2. Trump
appealed this Order. The Appellate Court has unanimously affirmed
the dismissal of Trump's claims.
In May, 1995, Registrant and Sublessee filed a separate
legal action ("Action No. 3") against Trump and various affiliated
persons for breach of the master lease and sublease, and
disparagement of the property in violation of Registrant' and
Sublessee's leasehold rights. The action was amended to include
additional claims by Registrant and Sublessee (the "Ownership
Claim") seeking a declaratory judgment that they may act as an
owner of the Property for purposes of making applications and
related activities pursuant to the New York City Building Code.
By decision and order dated October 24, 1996, the Court sustained
Registrant's and Sublessee's claims concerning the parties who may
act as owner of the Property under the Building Code, but
dismissed Registrant's and Sublessee's claims against Trump and
co-defendants for money damages. Registrant and Sublessee
appealed that portion of the Court's order dismissing their claims
for money damages. The Appellate Court has affirmed that part of
the Court's order dismissing the claims for money damages.
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On March 16, 1999, the New York Supreme Court granted
summary judgment in Action Nos. 1 and 3 in favor of Registrant and
the Sublessee and against the Trump defendants as to most of the
alleged lease defaults set forth in the Trump default notice of
December 1994, and as to the two additional Trump default notices
in their entirety and the Ownership Claim.
New York Skyline Inc.: Registrant is a defendant in an
action instituted in the Supreme Court of the State of New York,
County of New York, entitled New York Skyline Inc. v. Empire State
Building Company, Empire State Building Associates, Nell H.
Kessner, Helmsley-Spear, Inc. and Stephen A. Tole. This lawsuit,
which was brought by a tenant in the Building and was filed on
December 23, 1997, seeks at least $205,000,000 in damages. In its
complaint, plaintiff-tenant asserts thirteen causes of action
(twelve of which are against Sublessee) in connection with its
leases and license agreements of space in the Building and alleges
that it is entitled to, among other things, specific performance
as to its alleged rights under its leases and licensing agreements
with Sublessee, a declaratory judgment as to the rights of the
parties under the leases and licensing agreements, any monies
allegedly due plaintiff under those agreements, as well as
injunctive relief and additional money damages. While the
complaint includes Registrant as a named defendant, it does not
allege or identify any agreement between plaintiff and Registrant
or any other basis of liability on Registrant's part to plaintiff.
On or about February 5, 1998, plaintiff served an
amended complaint which, among other things, added Kessner &
Cyruli, f/k/a Nell H. Kessner & Associates, former landlord-tenant
counsel for the Building, and Eileen Aluska, a former Helmsley-
Spear, Inc. employee, as party defendants. The amended complaint
asserts eleven causes of action, similar to those asserted in the
original complaint.
On March 16, 1998, Registrant filed an answer to the
amended complaint denying all allegations of liability.
Registrant intends to contest the case vigorously.
Because the action is still in the pleading stage and
pre-trial discovery has not yet started, counsel for Registrant
has not formed a professional conclusion that an adverse outcome
is either probable or remote.
Wien & Malkin LLP, et. al. v. Helmsley-Spear, Inc., et.
al. On June 19, 1997 Wien & Malkin LLP and Peter L. Malkin filed
an action in the Supreme Court of the State of New York, against
Helmsley-Spear, Inc. and Leona Helmsley concerning various
partnerships which own, lease or operate buildings managed by
Helmsley-Spear, Inc., including Registrant's property. In their
complaint, plaintiffs sought the removal of Helmsley-Spear, Inc.
as managing and leasing agent for all of the buildings.
-5-
Plaintiffs also sought an order precluding Leona Helmsley from
exercising any partner management powers in the partnerships. In
August, 1997, the Supreme Court directed that the foregoing claims
proceed to arbitration. As a result, Mr. Malkin and Wien & Malkin
LLP filed an arbitration complaint against Helmsley-Spear, Inc.
and Mrs. Helmsley before the American Arbitration Association.
Helmsley-Spear, Inc. and Mrs. Helmsley served answers denying
liability and asserting various affirmative defenses and
counterclaims; and Mr. Malkin and Wien & Malkin LLP filed a reply
denying the counterclaims. By agreement dated December 16, 1997,
Mr. Malkin and Wien & Malkin LLP (each for their own account and
not in any representative capacity) reached a settlement with Mrs.
Helmsley of the claims and counterclaims in the arbitration and
litigation between them. Mr. Malkin and Wien & Malkin LLP are
continuing their prosecution of claims in the arbitration for
relief against Helmsley-Spear, Inc., including its termination as
the leasing and managing agent for various entities and
properties, including the Registrant's Sublessee.
Item 4. Submission of Matters to a Vote of Participants.
On November 2, 1998, the Partners mailed to the
Participants a STATEMENT ISSUED BY THE AGENTS IN CONNECTION WITH
THE SOLICITATION OF CONSENTS OF THE PARTICIPANTS (the "Statement")
requesting their authorization for the designation of new
Successor Agents. The details of the Partners' proposal are
provided in the Definitive Proxy Statement which was filed with
the Securities and Exchange Commission as Schedule 14-A on October
28, 1998, and is incorporated herein by reference.
-6-
PART II
Item 5. Market for Registrant's Common Equity
and Related Security Holder Matters.
Registrant is a partnership organized pursuant to a
partnership agreement dated as of July 11, 1961.
Registrant has not issued any common stock. The securi-
ties registered by it under the Securities Exchange Act of 1934,
as amended, consist of participations in the partnership interests
of the Partners in Registrant (the "Participations") and are not
shares of common stock nor their equivalent. The Participations
represent each Participant's fractional share in a Partner's
undivided interest in Registrant and are divided approximately
equally among the Partners. A full unit of the Participations was
offered originally at a purchase price of $10,000; fractional
units were also offered at proportionate purchase prices.
Registrant has not repurchased Participations in the past and is
not likely to change that policy in the future.
(a) The Participations neither are traded on an
established securities market nor are readily tradable on a
secondary market or the substantial equivalent thereof. Based on
Registrant's transfer records, Participations are sold by the
holders thereof from time to time in privately negotiated
transactions and, in many instances, Registrant is not aware of
the prices at which such transactions occur. During the past year
there were 577 transfers. In thirty seven instances, the indicated
purchase price was equal to 2.25 times the face amount of the
Participation transferred. In all other cases, no consideration
was indicated.
(b) As of December 31, 1998, there were 2,625 holders
of Participations of record.
(c) Registrant does not pay dividends. During the year
ended December 31, 1998, Registrant made regular monthly
distributions of $98.21 for each $10,000 Participation. There was
Overage Rent payable of $4,109,852 for the year ended December 31,
1998 and Registrant made additional distributions for each $10,000
Participation of $854.55 on March 5, 1999. See Item 1 hereof.
There are no restrictions on Registrant's present or future
ability to make distributions; however, the amount of such distri-
butions, particularly distributions of Overage Rent, depends
solely on Sublessee's ability to make payments of Basic Rent and
Overage Rent to Registrant. See Item 1 hereof. Registrant
expects to make monthly distributions in the future so long as it
receives the payments provided for under the Sublease. See Item 7
hereof.
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[SELECTED FINANCIAL DATA]
Item 6.
EMPIRE STATE BUILDING ASSOCIATES
SELECTED FINANCIAL DATA
Year ended December 31,
1998 1997 1996 1995 1994
Basic rent income.... $ 6,018,750 $6,018,750 $6,018,750 $6,018,750 $6,018,750
Overage rent income... 4,109,852 2,401,300 0 0 3,597,887
Dividend income....... 84,615 10,377 8,647 35,556 39,667
Total revenues.....$10,213,217 $8,430,427 $6,027,397 6,054,306 $9,656,304
Net income........... $ 7,507,228 $4,752,560 $3,689,511 $3,716,420 $7,100,005
Earnings per $10,000
participation unit,
based on 3,300
participation units
outstanding during
the year........... .$ 2,275 $ 1,440 $ 1,118 $ 1,126 $ 2,152
Total assets..........$ 8,787,638 $5,930,702 $3,727,494 $3,927,316 $7,527,783
Long-term obligations.$ - 0 - $ -0- $ -0- $ -0- $ -0-
Distributions per $10,000
participation unit, based
on 3,300 participation
units outstanding
during the year:
Income............. $ 1,500 $ 1,179 $ 1,118 $ 1,126 $ 2,152
Return of capital..... - 0 - -0- 61 1,089 1,241
Total distributions.$ 1,500 $ 1,179 $ 1,179 $ 2,215 $ 3,393
-8-
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Registrant was organized solely for the purposes of
owning the Property described in Item 2 hereof subject to the
Sublease. Registrant is required to pay from Basic Rent the
amounts due for supervisory services and to distribute the balance
of such rental payments to Participants. Registrant is required
to pay from Overage Rent additional amounts for supervisory
services and then to distribute the balance of such Overage Rent
to the Participants. Pursuant to the Sublease, Sublessee has
assumed sole responsibility for the condition, operation, repair,
maintenance and management of the Building. Registrant need not
maintain substantial reserves or otherwise maintain liquid assets
to defray any operating expenses of the Property.
The supervisory services provided to Registrant by
Counsel include legal, administrative services and financial
services. The legal and administrative services include acting as
general counsel to Registrant, maintaining all of its partnership
records, performing physical inspections of the Building,
reviewing insurance coverage and conducting annual partnership
meetings. Financial services include monthly receipt of rent from
the Sublessee, payment of monthly rent to the fee owner, payment
of monthly and additional distributions to the Participants,
payment of all other disbursements, confirmation of the payment of
real estate taxes, and active review of financial statements
submitted to Registrant by the Sublessee and financial statements
audited by and tax information prepared by Registrants'
independent certified public accountant, and distribution of such
materials to the Participants. Counsel also prepares quarterly,
annual and other periodic filings with the Securities and Exchange
Commission and applicable state authorities and distributes to the
Participants quarterly source of distribution reports.
Registrant's results of operations are affected
primarily by the amount of rent payable to it under the Sublease.
The amount of Overage Rent payable to Registrant is affected by
(i) the cycles in the New York City economy and real estate rental
market and (ii) the cost of the Property improvement program
described herein under Other Information. It is difficult for
management to forecast the New York City real estate market over
the next few years.
A decrease as compared with a prior year or the absence
of Overage Rent results in a reduction as against such prior year
in the dollar amount of distributions made to the Participants and
a reduction in the expenditure for supervisory services.
Reductions in the amount of Overage Rent paid to Registrant in the
future will not have any other impact on Registrant. See
paragraph 1 of Item 7 hereof and Notes 3, 4, 5, and 7 of the
Notes.
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The following summarizes the material factors affecting
Registrant's results of operations for the three preceding years:
(a) Total income increased for the year ended December 31, 1998
as compared with the year ended December 31, 1997. Such
increase resulted from an increase in Overage Rent in the
year 1998 and an increase in dividend income earned as
compared with the year ended December 31, 1997. Total income
increased for the year ended December 31, 1997 as compared
with the year ended December 31, 1996 because of the receipt
of Overage Rent in the year 1997 and an increase in dividend
income earned as compared with the year ended December 31,
1996. See Note 3 of the Notes.
(b) Total expenses decreased for the year ended December 31, 1998
as compared with the year ended December 31, 1997. Such
decrease is the net result of an increase in additional
payment for supervisory services and a decrease in legal
fees. Total expenses increased for the year ended December
31, 1997 as compared with the year ended December 31, 1996.
Such increase was the result of an increase in additional
payment for supervisory services because of the receipt of
Overage Rent and the incurrence of legal fees during the year
ended December 31, 1997. See Notes 3, 5 and 9 of the Notes.
The State of New York has asserted utility tax
deficiencies through December 31, 1992 in connection with water,
steam and non-metered electricity rent inclusion charges to
tenants, plus estimated accrued interest. The Supreme Court, New
York County, granted summary judgment in favor of the State, which
ruling was affirmed by the Appellate Division, First Department,
holding that the State utility tax applies to such inclusion
charges. Pursuant to the terms of the settlement agreement,
Sublessee agreed to pay the State's assessed tax in the sum of
$979,109, plus interest of approximately $605,000 through July 31,
1996. The State has agreed to payment of the aforesaid liability
over a period of four years, commencing August, 1996, in equal
monthly installments of $40,000, including interest on the unpaid
balance at the statutory rate. The State has asserted additional
tax for the years 1993 through 1995 of $636,404 plus accrued
interest of $249,521 through December 31, 1998. It is anticipated
that New York State will seek to impose liability on Sublessee for
State utility tax for periods after December 31, 1995 through
December 31, 1997. The amount of such additional tax has yet to
be determined. The imposition of both New York state and New York
City utility taxes on non-metered electricity rent inclusion
charges was repealed effective January 1, 1998. The City of New
York has asserted a utility tax deficiency in the amount of
$277,125 against Sublessee, through December 31, 1994 in
connection with water, steam and non-metered electricity rent
inclusion charges to tenants, plus accrued interest of
approximately $233,390 through December 31, 1998. Sublessee is
contesting the calculation of the City's proposed utility tax
deficiency before the New York City Tax Appeals Tribunal. The
final outcome of Sublessee's appeal cannot presently be
determined. It is anticipated that New York City will seek to
impose liability on Sublessee for additional New York City utility
tax for periods after December 31, 1994 through December 31, 1997.
The amount of such additional tax has yet to be determined.
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Liquidity and Capital Resources
There has been no significant change in Registrant's
liquidity or capital resources for the fiscal year ended December
31, 1998 as compared with the fiscal year ended December 31, 1997.
Inflation
Inflationary trends in the economy do not directly
impact Registrant's operations. As noted above, Registrant does
not actively engage in the operation of the Property. Inflation
may impact the operations of the Sublessee. The Sublessee is
required to pay the Basic Rent regardless of the results of its
operations. Inflation and other operating factors affect only the
amount of Overage Rent payable by the Sublessee, which is based on
the Sublessee's net operating profit.
Other Information
The Sublessee maintains the Building as a high-class
office building as required by the terms of the Sublease.
In 1990, the Sublessee commenced its latest improvement
program which is estimated to be completed in 1999 at a total cost
of approximately $68,000,000. Under this program, approximately
6,400 windows are being replaced and this portion of the program
is completed. In addition, the elevators have been upgraded
through installation of a computerized control system and the
replacement of all electrical and mechanical equipment. The
elevator modernization program has increased elevator speed from
800 to 950 feet per minute to 1200 feet per minute. Also included
is waterproofing the Building's exterior, resetting and repairing
the limestone facade, upgrading the Building's security system,
upgrading and replacing the Building's fire safety system and
making substantial further improvement to the air-conditioning,
domestic pump and water systems, waterproofing the mooring mast
and installing a new observation deck ticket office.
-11-
The Sublessee anticipates that the costs of improvements
to be incurred will reduce Overage Rent during the year 1999, but
should have no effect on the payment of Basic Rent in those years.
Under Sublessee's management, the Building recently won
three awards from the Building Owners and Management Association
("BOMA") (BOMA/NY Award 1989; BOMA Middle Atlantic Region Award
1990/91 and the BOMA International Award for excellence 1992/93).
The New York Landmarks Conservancy recently awarded a Merit
Citation to the Building. In 1994, Metaloptics recognized the
Building for excellence in lighting efficiency. In December 1994,
Energy User News, a national publication, awarded a Certificate of
Merit in the lighting category for excellence and innovation in
energy efficiency and management of the Building.
Item 8. Financial Statements and Supplementary Data.
The financial statements, together with the accompanying
report by, and the consent to the use thereof by Jacobs Evall &
Blumenfeld LLP, immediately following, are being filed in response
to this item.
Item 9. Disagreements on Accounting and Financial Disclosure.
Not applicable.
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PART III
Item 10. Directors and Executive Officers of Registrant.
Registrant has no directors or officers or any other
centralization of management. There is no specific term of office
for any Partner. The table below sets forth as to each Partner as
of December 31, 1998 the following: name, age, nature of any
family relationship with any other Partner, business experience
during the past five years and principal occupation and employment
during such period, including the name and principal business of
any corporation or any organization in which such occupation and
employment was carried on and the date such individual became a
Partner:
Principal Date
Nature of Occupation Individual
Family Business and became
Name Age Relationship Experience Employment Partner
Peter L. Malkin 65 None Attorney-at-Law; Senior Partner 1961
Real Estate and Chairman
Wien & Malkin
LLP
Thomas N. Keltner,
Jr. 52 None Attorney-at-Law; Partner 1998
Real Estate Wien & Malkin
LLP
Richard A. Shapiro 53 None Attorney-at-Law; Partner 1998
Real Estate Wien & Malkin
LLP
As stated above, all three of the Partners are members
of Counsel. See Items 1, 11, 12 and 13 hereof for a description
of the services rendered by, and the compensation paid to, Counsel
and for a discussion of certain relationships which may pose
actual or potential conflicts of interest among Registrant,
Sublessee and certain of their respective affiliates.
The names of entities which have a class of securities
registered pursuant to Section 12 of the Securities Exchange Act
of 1934 or are subject to the requirements of Section 15(d) of
that Act, and in which the Partners are either a director, joint
venturer or general partner are as follows:
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Peter L. Malkin is a joint venturer in 250 West 57th St.
Associates and Navarre-500 Building Associates and a
general partner in Garment Capitol Associates and 60
East 42nd St. Associates.
Thomas N. Keltner, Jr. is a joint venturer in Navarre-
500 Building Associates; and a general partner in
Garment Capitol Associates and 60 East 42nd St.
Associates.
Richard A. Shapiro is a general partner in Garment
Capitol Associates and 60 East 42nd St. Associates.
Item 11. Executive Compensation.
As stated in Item 10 hereof, Registrant has no directors
or officers or any other centralization of management.
No remuneration was paid during the current fiscal year
ended December 31, 1998 by Registrant to any of the Partners as
such. Registrant pays Counsel, for supervisory services and
disbursements, fees of $100,000 per annum plus 6% of all sums
distributed to the Participants in excess of 9% per annum on their
original cash investment. Pursuant to such arrangements described
herein, Registrant paid Counsel a total of $339,417 (consisting of
$100,000 as an annual basic payment for supervisory services and
$239,417 as an additional payment for supervisory services) for
supervisory services rendered during the fiscal year ended
December 31, 1998. The supervisory services include, among other
items, the preparation of reports and related documentation
required by the Securities and Exchange Commission, the monitoring
of all areas of federal and local securities law compliance, the
preparation of certain financial reports, as well as the
supervision of accounting and other documentation related to the
administration of Registrant's business. See Item 7 hereof. Out
of its fees, Counsel paid all disbursements and costs of regular
accounting services. As noted in Items 1 and 10 of this report,
the Partners are also members of Counsel.
Item 12. Security Ownership of Certain Beneficial Owners
and Management.
(a) Registrant has no voting securities. See Item
5 hereof. At December 31, 1998, no person owned of record or was
known by Registrant to own beneficially more than 5% of the
outstanding Participations.
-14-
(b) At December 31, 1998, the Partners (see Item
10 hereof) beneficially owned, directly or indirectly, the
following Participations:
Name & Address Amount of
of Beneficial Beneficial Percent
Title of Class Owners Ownership of Class
Participations Peter L. Malkin $236,250 .7159%
in Partnership 60 East 42nd Street
Interests New York, NY 10165
Thomas N. Keltner, Jr. $ 5,000 .0152%
60 East 42nd Street
New York, NY 10165
Richard A. Shapiro $ 5,000 .0152%
60 East 42nd Street
New York, NY 10165
At such date, certain of the Partners (or their
respective spouses) held additional Participations as follows:
Richard A. Shapiro owned of record as custodian but
not beneficially $12,500 of Participations. Mr. Shapiro
disclaims any beneficial ownership of such
Participations.
Peter L. Malkin owned of record as trustee or co-
trustee but not beneficially, $195,000 of
Participations. Mr. Malkin disclaims any beneficial
ownership of such Participations.
Isabel W. Malkin, the wife of Peter L. Malkin,
owned of record and beneficially, $158,333.34 of
Participations. Mr. Malkin disclaims any beneficial
ownership of such Participations.
(c) Not applicable.
Item 13. Certain Relationships and Related Transactions.
(a) As stated in Item 1 hereof, Mr. Peter L.
Malkin, Mr. Keltner and Mr. Shapiro are the three Partners of
Registrant and also act as agents for the Participants in their
respective partnership interests. Mr. Malkin is also a partner in
Sublessee. As a consequence of one of the three Partners being a
partner in Sublessee, and all of the Partners being current
members of Counsel (which represents Registrant and Sublessee),
certain actual and potential conflicts of interest may arise with
respect to the management and administration of the business of
Registrant. However, under the respective participating
agreements pursuant to which the Partners act as agents for the
Participants, certain transactions require the prior consent from
Participants owning a specified interest under the agreement in
order for the agents to act on their behalf. Such transactions
include modifications and extensions of the Sublease, or a sale or
other disposition of the Property or substantially all of
Registrant's other assets.
-15-
Reference is made to Items 1 and 2 hereof for a
description of the terms of the Sublease between Registrant and
Sublessee. The respective interests of the Partners in Registrant
and in the Sublease arise solely from ownership of their
respective participations in Registrant and, in the case of Mr.
Malkin, his ownership of a partnership interest in Sublessee. The
Partners receive no extra or special benefit not shared on a pro
rata basis with all other security holders of Registrant or
partners in Sublessee. However, the Partners, by reason of their
respective interest in Counsel, are entitled to receive their pro
rata share of any legal fees or other remuneration paid to Counsel
for professional services rendered to Registrant and Sublessee.
See Item 11 hereof for a description of the remuneration
arrangements between Registrant and Counsel relating to
supervisory services provided by Counsel.
Reference is also made to Items 1 and 10 hereof for
a description of the relationship between Registrant and Counsel,
of which two of the Partners are among its current members. The
interest of each Partner in any remuneration paid or given by
Registrant to Counsel arise solely from the ownership of such
Partner's interest in Counsel. See Item 11 hereof for a
description of the remuneration arrangements between Registrant
and Counsel relating to supervisory services provided by Counsel.
(b) Reference is made to Paragraph (a) above.
(c) Not applicable.
(d) Not applicable.
-16-
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K.
(a)(1) Financial Statements:
Consent of Jacobs Evall & Blumenfeld LLP, Certified
Public Accountants, dated March 12, 1999.
Accountant's Report of Jacobs Evall & Blumenfeld LLP,
Certified Public Accountants, dated March 4, 1999.
Balance Sheets at December 31, 1998 and at December 31,
1997 (Exhibit A).
Statements of Income for the fiscal years ended December
31, 1998, 1997 and 1996 (Exhibit B).
Statement of Partners' Capital for the fiscal year ended
December 31, 1998 (Exhibit C-1).
Statement of Partners' Capital for the fiscal year ended
December 31, 1997 (Exhibit C-2).
Statement of Partners' Capital for the fiscal year ended
December 31, 1996 (Exhibit C-3).
Statements of Cash Flows for the fiscal years ended
December 31, 1998, 1997 and 1996 (Exhibit D).
Notes to Financial Statements for the fiscal years ended
December 31, 1998, 1997 and 1996.
(2) Financial Statement Schedules:
List of Omitted Schedules.
Real Estate and Accumulated Depreciation - December
31, 1998 (Schedule III).
(3) Exhibits: See Exhibit Index.
(b) No Form 8-K was filed by Registrant for the final
quarter of 1998.
-17-
[LETTERHEARD OF
JACOBS EVALL & BLUMENFELD LLP]
April 13, 1999
Empire State Building Associates
New York, N. Y.
We consent to the use of our independent
accountants' report dated March 31, 1999
covering our audits of the accompanying
financial statements of Empire State Building
Associates in connection with and as part of
your December 31, 1998 annual report (Form
10-K) to the Securities and Exchange
Commission.
Jacobs Evall & Blumenfeld LLP
Certified Public Accountants
-18-
INDEPENDENT ACCOUNTANTS' REPORT
To the participants in Empire State Building Associates
(a Partnership)
New York, N. Y.
We have audited the accompanying balance sheets of Empire State
Building Associates ("Associates") as of December 31, 1998 and
1997, and the related statements of income, partners' capital
and cash flows for each of the three years in the period ended
December 31, 1998, and the supporting financial statement
schedule as contained in Item 14(a)(2) of this Form 10-K.
These financial statements and schedule are the responsibility
of Associates' management. Our responsibility is to express
an opinion on these financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of
Empire State Building Associates as of December 31, 1998 and 1997,
and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1998 in conformity with
generally accepted accounting principles, and the related financial
statement schedule, when considered in relation to the basic financial
statements, presents fairly, in all material respects, the information
set forth therein.
As discussed in Note 9 to the financial statements, Associates has
been included as a defendant in actions with other related parties,
including the Agents for Associates and Empire State Building Company,
the sublessee.
Jacobs Evall & Blumenfeld LLP
Certified Public Accountants
New York, N. Y.
March 31, 1999
-19-
EXHIBIT A
EMPIRE STATE BUILDING ASSOCIATES
BALANCE SHEETS
A S S E T S
December 31,
1998 1997
Current Assets:
Cash and cash equivalents (Note 11):
The Chase Manhattan Bank.....................$ 4,525 $ 2,988
Distribution account held by
Wien & Malkin LLP........................... 324,111 324,111
Fidelity U.S. Treasury Income Portfolio...... 4,906,745 51,430
Additional rent advance account
held by Wien & Malkin LLP................... - 2,400,000
5,235,381 2,778,529
Additional rent due from Empire State
Building Company, a related party................. 609,852 1,300
Prepaid rent....................................... 23,831 23,831
TOTAL CURRENT ASSETS........................ 5,869,064 2,803,660
Real Estate (Note 2):
Leasehold on Empire State Building,
350 Fifth Avenue, New York, N. Y.................39,000,000 39,000,000
Less: Accumulated amortization.................36,081,426 35,872,958
2,918,574 3,127,042
TOTAL ASSETS............................. $ 8,787,638 $ 5,930,702
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accrued legal fees, to a related party (Note 10).$ 1,460,341 $ 1,272,237
Accrued supervisory services, to a related
party (Note 5) ............................... 180,000 67,744
TOTAL LIABILITIES.......................... 1,640,341 1,339,981
Contingencies (Notes 9 and 11).......................
Partners' Capital (Exhibit C)........................7,147,297 4,590,721
TOTAL LIABILITIES AND PARTNERS' CAPITAL....$ 8,787,638 $ 5,930,702
See accompanying notes to financial statements.
-20-
EXHIBIT B
EMPIRE STATE BUILDING ASSOCIATES
STATEMENTS OF INCOME
Year ended December 31,
1998 1997 1996
Revenues:
Rent income, from a related party
(Note 3)........................ $10,128,602 $8,420,050 $6,018,750
Dividend income................... 84,615 10,377 8,647
10,213,217 8,430,427 6,027,397
Expenses:
Leasehold rent (Note 4)......... 1,970,000 1,970,000 1,970,000
Supervisory services, to a related
party (Note 5)................... 339,417 227,161 159,417
Legal fees, to a related party
(Note 10)....................... 188,104 1,272,237 -
Amortization of leasehold (Note 2).. 208,468 208,469 208,469
2,705,989 3,677,867 2,337,886
NET INCOME, CARRIED TO PARTNERS'
CAPITAL, (NOTE 8)........... $ 7,507,228 $4,752,560 $3,689,511
Earnings per $10,000 participation unit, based
on 3,300 participation units outstanding
during each year............ $ 2,275 $ 1,440 $ 1,118
See accompanying notes to financial statements.
-21-
EXHIBIT C-1
EMPIRE STATE BUILDING ASSOCIATES
STATEMENT OF PARTNERS' CAPITAL
YEAR ENDED DECEMBER 31, 1998
Capital Capital
January 1, Share of December 31,
1998 net income Distributions 1998
Richard A. Shapiro Group
(formerly
John L. Loehr Group).. $1,530,241 $2,502,409 $1,650,217 $2,382,433
Thomas N. Keltner Group
(formerly Stanley
Katzman Group).... 1,530,240 2,502,410 1,650,218 2,382,432
Peter L. Malkin Group... 1,530,240 2,502,409 1,650,217 2,382,432
$4,590,721 $7,507,228 $4,950,652 $7,147,297
See accompanying notes to financial statements.
-22-
EXHIBIT C-2
EMPIRE STATE BUILDING ASSOCIATES
STATEMENT OF PARTNERS' CAPITAL
YEAR ENDED DECEMBER 31, 1997
Capital Capital
January 1, Share of December 31,
1997 net income Distributions 1997
John L. Loehr Group.. $1,242,498 $1,584,187 $1,296,444 $1,530,241
Stanley Katzman Group. 1,242,498 1,584,187 1,296,445 1,530,240
Peter L. Malkin Group. 1,242,498 1,584,186 1,296,444 1,530,240
$3,727,494 $4,752,560 $3,889,333 $4,590,721
See accompanying notes to financial statements.
-23-
EXHIBIT C-3
EMPIRE STATE BUILDING ASSOCIATES
STATEMENT OF PARTNERS' CAPITAL
YEAR ENDED DECEMBER 31, 1996
Capital Capital
January 1, Share of December 31,
1996 net income Distributions 1996
John L. Loehr Group
(formerly Donald A.
Bettex Group)..... $1,309,105 $1,229,837 $1,296,444 $ 1,242,498
Stanley Katzman Group
(formerly C. Michael
Spero Group)... 1,309,106 1,229,837 1,296,445 1,242,498
Peter L. Malkin Group.1,309,105 1,229,837 1,296,444 1,242,498
$3,927,316 $3,689,511 $3,889,333 $3,727,494
See accompanying notes to financial statements.
-24-
EXHIBIT D
EMPIRE STATE BUILDING ASSOCIATES
STATEMENTS OF CASH FLOWS
Year ended December 31,
1998 1997 1996
Cash flows from operating activities:
Net income............................. $ 7,507,228 $ 4,752,560 $ 3,689,511
Adjustments to reconcile net income to
cash provided by operating activities:
Amortization of leasehold............ 208,468 208,469 208,469
Changes in operating assets
and liabilities:
Additional rent due from Empire State
Building Company, a related party.. (608,552) (1,300) -
Accrued supervisory services,
to a related party............... 112,256 67,744 -
Accrued legal fees, to a related
party........................... 188,104 1,272,237 -
Net cash provided by
operating activities.......... 7,407,504 6,299,710 3,897,980
Cash flows from financing activities:
Cash distributions................... (4,950,652) (3,889,333) (3,889,333)
Net cash used in financing
activities...................... (4,950,652) (3,889,333) (3,889,333)
Net increase in cash
and cash equivalents............ 2,456,852 2,410,377 8,647
Cash and cash equivalents, beginning of
year........................... 2,778,529 368,152 359,505
CASH AND CASH EQUIVALENTS,
END OF YEAR.............. $ 5,235,381 $ 2,778,529 $ 368,152
See accompanying notes to financial statements.
-25-
EMPIRE STATE BUILDING ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
1. Business Activity
Empire State Building Associates ("Associates") is a general
partnership which holds the tenant's position in the master
leasehold of the Empire State Building, located at 350 Fifth
Avenue, New York City. Associates subleases the property to
Empire State Building Company ("Company").
2. Summary of Significant Accounting Policies
a. Cash and Cash Equivalents:
Cash and cash equivalents include investments in money market
funds and all highly liquid debt instruments purchased with a
maturity of three months or less.
b. Real Estate and Amortization of Leasehold:
Real estate, consisting of a leasehold, is stated at cost.
Amortization of the leasehold is being computed through its
first renewal term by the straight-line method over its
estimated useful life of 25 years, from January 1, 1988 to
January 5, 2013 (see Note 4).
c. Use of Estimates:
In preparing financial statements in conformity with generally
accepted accounting principles, management often makes
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets
and liabilities at the date of the financial statements, as
well as the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
3. Related Party Transactions - Rent Income
Rent income for the years ended December 31, 1998, 1997 and 1996
totalling $10,128,602, $8,420,050 and $6,018,750, respectively,
consists of the minimum annual rent plus additional rent under an
operating sublease dated December 27, 1961, as modified February
15, 1965, with Company (the "Sublessee"), as follows:
Year ended December 31,
1998 1997 1996
Minimum net basic rent.... $ 6,018,750 $6,018,750 $ 6,018,750
Additional rent earned.... 4,109,852 2,401,300 -
$10,128,602 $8,420,050 $ 6,018,750
-26-
EMPIRE STATE BUILDING ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
(Continued)
3. Related Party Transactions - Rent Income (continued)
The sublease provides for the same initial term and renewal
options as the leasehold (see Note 4), less one day. In January
1989, the Sublessee exercised its option to renew the sublease for
the first renewal period from January 4, 1992 to January 4, 2013.
The annual minimum net basic rent during the first renewal term
was reduced to $6,018,750, and is to be further reduced to
$5,895,625 during each of three remaining renewal terms.
Additional rent earned is equal to fifty percent of the
sublessee's annual net income (as defined in the sublease) in
excess of $1,000,000.
A partner in Associates is also a partner in the Sublessee.
4. Leasehold Rent
Leasehold rent represents the net basic rent of $1,970,000 per
annum under an operating lease dated December 27, 1961, as
modified February 15, 1965, with The Prudential Insurance Company
of America ("Prudential"). Associates exercised its first renewal
option in 1988, and the current leasehold rent remains unchanged
throughout the first renewal term of the lease, which ends on
January 5, 2013.
The lease contains options for Associates to renew the leasehold
for an additional 3 successive periods of 21 years each. The
basic rent is to be further reduced to $1,723,750 per annum during
each of the remaining three renewal terms.
On November 27, 1991, Prudential sold the property to E.G. Holding
Co., Inc. which, through merger and conveyance, transferred its
interest as lessor to Trump Empire State Partners (see Note 9b).
Associates' rights under the master leasehold remain unchanged.
5. Related Party Transactions - Supervisory Services
Supervisory services (including disbursements and cost of regular
accounting services) during the years ended December 31, 1998,
1997 and 1996, totalling $339,417, $227,161 and $159,417,
respectively, represent fees incurred by the firm of Wien & Malkin
LLP. Some members of that firm are partners in Associates.
Fees for supervisory services are paid pursuant to an agreement,
which amount is based on a rate of return of investment achieved
by the participants in Associates each year.
-27-
EMPIRE STATE BUILDING ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
(Continued)
6. Number of Participants
There were approximately 2,620 participants in the participating
groups at December 31, 1998, 1997 and 1996.
7. Determination of Distributions to Participants
Distributions to participants in 1998, 1997 and 1996 of $4,950,652,
$3,889,333 and $3,889,333, respectively, represented the following:
1998 1997 1996
Minimum annual rent.. $6,018,750 $6,018,750 $6,018,750
Additional rent,
earned in
previous year,
distributed in
current year...... 2,401,300 - -
Dividend income
earned in previous
year, distributed
in current year...... - - -
8,420,050 6,018,750 6,018,750
Less:
Leasehold rent
expense....... $1,970,000 $1,970,000 $1,970,000
Supervisory
services paid. 227,161 159,417 159,417
Legal fees incurred
in previous
year.......... 1,272,237 - -
3,469,398 2,129,417 2,129,417
Distributions
to participants..... $4,950,652 $ 3,889,333 $3,889,333
-28-
EMPIRE STATE BUILDING ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
(Continued)
8. Distributions and Amount of Income per $10,000 Participation Unit
Distributions per $10,000 participation unit during the years
1998, 1997 and 1996 based on 3,300 participation units
outstanding during each year, consisted of the following:
Year ended December 31,
1998 1997 1996
Income........................ $1,500 $1,179 $1,118
Return of capital............. - - 61
TOTAL DISTRIBUTIONS....... $1,500 $1,179 $1,179
Net income is computed without regard to income tax expense since
Associates does not itself pay a tax on its income; instead, any
such taxes are paid by the participants in their individual
capacities.
9. Litigation and Subsequent Events
a. On October 21, 1991, in an action entitled Studley v. Empire
State Building Associates et al., the holder of a $20,000
original participation in Associates brought suit in New York
Supreme Court, New York County against the Agents for
Associates (Peter L. Malkin, Donald A. Bettex and Alvin
Silverman), in their individual capacities and Wien, Malkin &
Bettex (currently "Wien & Malkin LLP"), counsel to Associates.
The suit claims that the defendants had engaged in breaches
of fiduciary duty and acts of self-dealing in relation to the
Agents' solicitation of consents and authorizations from the
participants in Associates in September 1991 and in relation
to other unrelated acts of the Agents and the sublessee. By
order dated July 14, 1997, the Court granted defendants'
application for summary judgment and dismissal of the action.
The Plaintiff applied for permission to appeal the Appellate
Division's determination to the New York Court of Appeals, and
that application was denied by both the Appellate Division and
the Court of Appeals. The Plaintiff has filed a new
complaint, which alleges claims similar to those asserted in
the previously dismissed complaint. The defendants have
applied for dismissal of the new complaint based on the prior
dismissal orders and on other grounds. That application is
pending and awaiting decision by the Court. It is not
possible at this time to predict the outcome or range of
potential loss, if any, which might result from this action.
No provision for any liability that may result upon
adjudication has been made in the accompanying financial
statements.
-29-
EMPIRE STATE BUILDING ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
(Continued)
9. Litigation and Subsequent Events (continued)
b. In December 1994, Associates received a notice of default from
Trump Empire State Partners ("Trump"). The Trump default
notice to Associates claims that Associates was in violation
of its master lease because of extensive work which the
sublessee, Empire State Building Company ("Company"), had
undertaken as part of an improvement program that commenced
before Trump reportedly acquired its interest in the property
in 1994. Trump's notice also complains that the building is
in need of repairs. On February 14, 1995, Associates and
Company filed an action in New York State Supreme Court
against Trump for a declaratory judgment that none of the
matters set forth in the notice of default constitutes a
violation of the master lease or sublease, and that the notice
of default is entirely without merit. Associates' and
Company's suit also seeks an injunction to prevent Trump from
implementing the notice of default ("Notice I"). On March 24,
1995, the Court granted Associates a preliminary injunction
against Trump. In 1996 the Court granted two additional
injunctions against Trump with respect to two additional
default notices ("Notices II and III"). The preliminary
injunctions prohibit Trump from acting on its notices of
default to Associates at any time, pending the prosecution of
claims by Associates and Company for a final declaratory
judgment and an injunction and other relief against the Trump
defendants. The Appellate Court has upheld and affirmed the
granting of such preliminary injunctions against the Trump
defendants.
On June 5, 1998 the Company and Associates filed a motion for
summary judgment in the Action in a companion action (the
"Companion Action") entitled Empire State Building Associates
and Empire State Building Company v. Donald Trump et. al., in
which plaintiffs seek related declaratory and injunctive
relief against Trump and its affiliates with respect to
plaintiffs' rights to act as owner of the Building in dealings
with the New York City Department of Buildings.
In a decision and order dated March 10, 1999, the Court
awarded partial summary judgment to Associates and Company in
the Action, declaring that Notices II and III were invalid and
of no force and effect, and further declaring that there was
no legal or factual basis for many of the defaults alleged in
Notice I. The Court also awarded summary judgment to
Associates in the Companion Action, declaring that Associates
is entitled to act as "owner" of the Building for purposes of
dealing with the Buildings Department and enjoining Trump from
interfering with such right.
Plaintiffs intend to challenge any future claims of default by
Trump and, if appropriate, to renew their motion for summary
judgment. No provision for any liability that may result upon
adjudication has been made in the accompanying financial
statements.
c. Associates is a defendant in an action instituted in the
Supreme Court of the State of New York, County of New York,
entitled New York Skyline Inc. v. Empire State Building
Company, Empire State Building Associates, Neil H. Kessner,
Helmsley-Spear, Inc. and Stephen A. Tole. This lawsuit, which
was brought by a tenant in the Building and was filed on
December 23, 1997, seeks at least $205,000,000 in damages. In
its complaint, plaintiff-tenant asserts thirteen causes of action
(twelve of which are against Company) in connection with its leases
-30-
EMPIRE STATE BUILDING ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
(Continued)
9. Litigation and Subsequent Events (continued)
and license agreements of space in the Building and alleges
that it is entitled to, among other things, specific
performance as to its alleged rights under its leases and
licensing agreements with Company, a declaratory judgment as
to the rights of the parties under the leases and licensing
agreements, any monies allegedly due plaintiff under those
agreements, as well as injunctive relief and additional money
damages. While the complaint includes Associates as a named
defendant, it does not allege or identify any agreement
between plaintiff and Associates or any other basis of
liability on Associates' part to plaintiff.
On or about February 5, 1998, plaintiff served an amended
complaint which, among other things, added Kessner & Cyruli,
f/n/a Nell H. Kessner & Associates, former landlord-tenant
counsel for the Building, and Eileen Aluska, a former
Helmsley-Spear, Inc. employee, as party defendants. The
amended complaint asserts eleven causes of action, similar to
those asserted in the original complaint.
Associates served an answer to plaintiff-tenant's complaint,
denying all material allegations of liability and damage.
Associates is not a party to the leases and license agreements
between plaintiff-tenant and Company.
Counsel for Associates has not formed a professional
conclusion that an adverse outcome is either probable or
remote, although it notes that all causes of action asserted
against Associates have already been dismissed as against
Company and the Helmsley-Spear defendants. It is not possible
at this time to predict the outcome or range of potential
loss, if any, which might result from this action.
10. Related Party Transactions - Legal Fees
The accompanying statement of income reflects the accrual of legal
expense of $188,104, consisting of $179,979 for advances by Wien &
Malkin LLP for expenses of the Agents relating to the Studley suit
for 1998 and $8,125 to Wien & Malkin LLP relating to an Agent
succession program. The accompanying balance sheet reflects an
accrued liability of $1,460,341 through December 31, 1998,
consisting of an accrued liability for reimbursement owing to
Agents of $1,272,237 at December 31, 1997 of their legal and
accounting expenses relating to the Studley and Trump suits, plus
the 1998 accrued expenses of $188,104. Through December 31, 1998
legal and accounting expenses in connection with the Studley suit
amounted to $1,140,044, of which $827,740 has been advanced by
Wien & Malkin LLP, counsel (a related party), to third party
professional firms and $312,304 represents accumulated
professional time of Wien & Malkin LLP. Counsel has advised that
its records at December 31, 1998 also indicate $312,172 in
accumulated professional time related to the Trump suits.
Substantial additional legal and accounting costs may be incurred
in both suits.
-31-
EMPIRE STATE BUILDING ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
(Continued)
10. Related Party Transactions - Legal Fees (continued)
The determination of the allocable share of the net legal and
accounting costs and disbursements accrued by Associates that are
chargeable to Company involve complex issues of fact and law.
Therefore, although Associates may be entitled to indemnification
from Company, because of uncertainties concerning these issues,
amounts for professional fees to be reimbursed to Associates
cannot be estimated, and consequently, have not been provided for
in the accompanying financial statements.
11. Concentration of Credit Risk
Associates maintains cash balances in a bank, money market funds
(Fidelity U.S. Treasury Income Portfolio) and a distribution
account held by Wien & Malkin LLP. The bank balance is insured by
the Federal Deposit Insurance Corporation up to $100,000, and at
December 31, 1998 was completely insured. The cash in the money
market funds and the account held by Wien & Malkin LLP are not
insured. The funds held in the distribution account were paid to
the participants on January 1, 1999.
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EMPIRE STATE BUILDING ASSOCIATES
OMITTED SCHEDULES
The following schedules have been omitted as not applicable in the
present instance:
SCHEDULE I - Condensed financial information of registrant.
SCHEDULE II - Valuation and qualifying accounts.
SCHEDULE IV - Mortgage loans on real estate.
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SCHEDULE III
EMPIRE STATE BUILDING ASSOCIATES
Real Estate and Accumulated Depreciation
December 31, 1998
Column
A Description Leasehold on Empire State Building
located at 350 Fifth Avenue,
New York, New York.
B Encumbrances............................................ None
C Initial cost to company
Leasehold.............................................$39,000,000
D Cost capitalized subsequent to acquisition............ None
E Gross amount at which carried at
close of period
Leasehold.......................................... $39,000,000(a)
F Accumulated amortization............................... $36,081,426(b)
G Date of construction 1931
H Date acquired December 27, 1961
I Life on which leasehold amortization in
latest income statements is computed 25 years from January 1,
1988 (see Note 2 of Notes to
Financial Statements).
(a) There have been no changes in the carrying values of real
estate for the years ended December 31, 1998, December 31, 1997
and December 31, 1996. The costs for federal income tax
purposes are the same as for financial statement purposes.
(b) Accumulated amortization
Balance at January 1, 1996 $35,456,020
Amortization:
F/Y/E 12/31/96 $208,469
12/31/97 208,469
12/31/98 208,468 625,406
Balance at December 31, 1998 $36,081,426
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SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
The individual signing this report on behalf of
Registrant is Attorney-in-Fact for Registrant and each of the
Partners in Registrant, pursuant to Powers of Attorney, dated
August 6, 1996 and May 14, 1998 (collectively, the "Power").
EMPIRE STATE BUILDING REGISTRANT (Registrant)
By /s/Stanley Katzman
Stanley Katzman, Attorney-in-Fact
Date: April 15, 1999
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following
person as Attorney-in-Fact for each of the Partners in Registrant,
pursuant to the Power, on behalf of Registrant and as a Partner in
Registrant on the date indicated.
By /s/ Stanley Katzman
Stanley Katzman, Attorney-in-Fact*
Date: April 15, 1999
_________________________________
* Mr. Katzman supervises accounting functions for Registrant.
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EXHIBIT INDEX
Number Document Page*
2(a) Proxy statement issued by the Partners in
connection with the solicitation of consents
of the Participants, which was filed on
Schedule 14A by Registrant on October 28, 1998
and is incorporated by reference.
3(a) Registrant's Partnership Agreement dated July
11, 1961, filed as Exhibit No. 1 to
Registrant's Registration Statement on Form
S-1 as amended (the "Registration Statement")
by letter dated August 8, 1962 and assigned
File No. 2-18741, is incorporated by reference
as an exhibit hereto.
3(b) Amended Business Certificate of Registrant
filed with the Clerk of New York County on
August 7, 1998 reflecting a change in the
Partners of Registrant which was filed as
Exhibit 3(b) to Registrant's 10-Q-A for the
quarter ended September 30, 1998 and is
incorporated by reference as an exhibit
hereto.
4 Registrant's form of Participating Agreement,
filed as Exhibit No. 6 to the Registration
Statement by letter dated August 8, 1962 and
assigned File No. 2-18741, is incorporated by
reference as an exhibit hereto.
10(a) Mortgage dated December 21, 1951 from Imperium
Corporation to Prudential Insurance Company of
America ("Prudential"), filed by letter dated
March 31, 1981 (Commission File No. 0-827) as
Exhibit 10(a) to Registrant's Form 10-K for
the fiscal year ended December 31, 1980, is
incorporated by reference as an exhibit
hereto.
10(b) Modification of Indenture of Lease dated
December 27, 1961 between Prudential and
Registrant filed by letter dated March 31,
1981 (Commission File No. 0-827) as Exhibit
10(b) to Registrant's Form 10-K for the fiscal
year ended December 31, 1980, is incorporated
by reference as an exhibit hereto.
____________________________________________
* Page references are based on sequential numbering system.
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Number Document Page*
10(e) Modification and Extension Agreement, dated
October 26, 1964 between The Bowery Savings
Bank and Celeritas Realty Corp., filed by
letter dated March 31, 1981 (Commission File
No. 0-827) as Exhibit 10(e) to Registrant's
Form 10-K for the fiscal year ended December
31, 1980, is incorporated by reference as an
exhibit hereto.
24 Powers of Attorney dated August 6,1996 and May
14, 1998, between the Partners of Registrant
and Richard A. Shapiro and Stanley Katzman,
filed as Exhibit 24 to Registrant's 10-Q for
the quarter ended March 31, 1998 and is
incorporated by reference as an exhibit
hereto.
27 Financial Data Schedule of Registrant for
the fiscal year ended December 31, 1998.
____________________________________________
* Page references are based on sequential numbering system.
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