<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 3, 1997.
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PHILIPS INTERNATIONAL REALTY CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 13-3963667
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
------------------------
417 FIFTH AVENUE
NEW YORK, NEW YORK 10016
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
(212) 545-1100
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
------------------------
MR. PHILIP PILEVSKY
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
PHILIPS INTERNATIONAL REALTY CORP.
417 FIFTH AVENUE
NEW YORK, NEW YORK 10016
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
with a copy to:
JONATHAN A. BERNSTEIN, ESQ.
BLAKE HORNICK, ESQ.
PRYOR, CASHMAN, SHERMAN & FLYNN
410 PARK AVENUE
NEW YORK, NEW YORK 10022
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE
PUBLIC: Upon consummation of the transactions described in the enclosed Proxy
Statement/Prospectus.
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM OFFERING PROPOSED
TITLE OF EACH CLASS AMOUNT TO BE PRICE PER MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per
share................................ 32,000 $50.00 $1,600,000 $484.85
</TABLE>
(1) Based upon the maximum number of shares expected to be issued in connection
with the transaction described herein.
(2) Estimated solely for the purpose of determining the registration fee in
accordance with Rule 457(f)(2). The registration fee has been calculated on
the basis of the pro forma net asset value as of August 8, 1997 of the
aggregate number of shares of common stock of Philips International Realty
Corp., $.01 par value per share, to be received by National Properties
Investment Trust and its shareholders upon consummation of the Formation
Transactions (as defined herein). The proposed maximum offering price per
share is based upon the proposed maximum aggregate offering price divided by
the amount to be registered.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PHILIPS INTERNATIONAL REALTY CORP.
FORM S-4
REGISTRATION STATEMENT
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
FORM S-4 PROXY STATEMENT/PROSPECTUS
ITEM NUMBER AND CAPTION CAPTION OR LOCATION
----------------------- --------------------------
<S> <C>
A. INFORMATION ABOUT THE TRANSACTION
Item 1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus................ Outside Front Cover Page
Item 2. Inside Front and Outside Back Cover Pages of
Prospectus.................................... Inside Front Cover; Available Information; Table
of Contents
Item 3. Risk Factors, Ratio of Earnings to Fixed Charges
and Other Information......................... Summary; Risk Factors; Selected Financial Data
Item 4. Terms of the Transactions....................... Formation Transactions and Structure of the
Company; Description of Capital Stock of the
Company; Comparison of Shareholders' Rights;
Federal Income Tax Considerations
Item 5. Pro Forma Financial Information................. Historical and Pro Forma Unaudited
Capitalization; Pro Forma Unaudited Financial
Information
Item 6. Material Contracts with Company Being
Acquired...................................... Formation Transactions and Structure of the
Company--Formation Transactions; --Background
of the Formation Transactions; --Description
of the Contribution and Exchange Agreement
Item 7. Additional Information Required for Reoffering
by Persons and Parties Deemed to be
Underwriters.................................. *
Item 8. Interests of Named Experts and Counsel.......... *
Item 9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................... Certain Provisions of Maryland Law and of the
Company's Charter and By-Laws
B. INFORMATION ABOUT THE REGISTRANT
Item 10. Information with Respect to S-3 Registrants..... *
Item 11. Incorporation of Certain Information by
Reference..................................... *
Item 12. Information with respect to S-2 or S-3
Registrants................................... *
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Item 13. Incorporation of Certain Information by
Reference..................................... *
Item 14. Information with Respect to Registrants Other
Than S-2 or S-3 Registrants................... Summary; The Companies; The Company's Strategy
for Growth; Business and Properties; Policies
with Respect to Certain Activities;
Distribution Policy; Shares Available For
Future Sale; Financial Statement Schedules;
Selected Financial Data; Combined Financial
Statements and Other Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of Operations
C. INFORMATION ABOUT COMPANY BEING ACQUIRED
Item 15. Information with Respect to S-3 Companies....... *
Item 16. Information with Respect to S-2 or S-3
Companies..................................... *
Item 17. Information with Respect to Companies Other Than
S-2 or S-3 Companies.......................... Summary; The Companies--National, Business and
Properties; Selected Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of Operations;
Combined Financial Statements and Other
Financial Data; Financial Statement Schedules
D. VOTING AND MANAGEMENT INFORMATION
Item 18. Information if Proxies, Contents or
Authorizations are to be Solicited............ The Meeting; Formation Transactions and
Structure of the Company--Benefits of the
Formation Transactions to the Philips Group;
--Benefits of the Formation Transactions to
the Trustees; --Benefits of the Formation
Transactions to the National Shareholders;
--Interests of the Trustees in the Formation
Transactions; --Solicitation Agent; --Fees and
Expenses; Management; Principal Shareholders;
Certain Relationships and Related Transactions
Item 19. Information if Proxies, Consents or
Authorizations are not to be Solicited in an
Exchange Offer................................ *
</TABLE>
- ------------------
* Omitted since the answer is negative or the Item is not applicable.
ii
<PAGE>
NATIONAL PROPERTIES INVESTMENT TRUST
32 Hanson Road
Canton Center, CT 06020
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 30, 1997
------------------------
TO OUR SHAREHOLDERS:
A Meeting of Shareholders (the 'Meeting') of National Properties Investment
Trust ('National') will be held on December 30, 1997, at the offices of Pryor,
Cashman, Sherman & Flynn, 410 Park Avenue, New York, New York 10022, at 3:00
p.m. (local time), for the following purposes:
1. To consider and act upon a proposal to approve, pursuant to the
Contribution and Exchange Agreement hereinafter described, the sale of
National's sole real estate asset to a newly-formed real estate investment
trust company, which will indirectly own ten shopping center properties in
the New England, Mid-Atlantic and Southeast regions of the United States,
in exchange for shares of common stock of such company, a portion of which
shares will be distributed as a dividend to the National shareholders on a
pro-rata basis in calendar year 1997, and a further portion to be
distributed as a dividend in January 1998 (representing in the aggregate
not less than 75% of such shares received by National), and the related
formation transactions, including the consideration to be received by
certain members of the Board of Trustees of National.
2. To consider and act upon a proposal to approve the amendment of
certain provisions of the Restated Declaration of Trust of National to
permit the above transactions.
3. To transact such other business as may properly be brought before
the Meeting or any adjournment or postponement thereof.
Pursuant to action taken by the Board of Trustees of National, the close of
business on December 4, 1997 has been fixed as the record date for the
determination of the shareholders entitled to notice and to vote at the Meeting
and any adjournment thereof.
You are cordially invited to attend the Meeting. In any event, in order
that we may be assured of a quorum, we request that you complete, sign, date and
return the enclosed proxy as soon as possible. Proxies may be returned to The
Herman Group, Inc., the Solicitation Agent, by facsimile at (214) 999-9323 or in
the enclosed postage paid envelope. Proxies may be revoked at any time prior to
the Meeting by giving written notice of revocation to the Solicitation Agent, by
giving a later dated proxy, or by attending the Meeting and voting in person. If
you have any questions, please call The Herman Group, Inc. at (800) 582-1313.
Your vote is important regardless of the number of shares you own.
By order of the Board of Trustees,
/s/ PETER STEIN
PETER STEIN
Trustee
December , 1997
YOUR VOTE IS IMPORTANT
PLEASE SIGN, DATE AND RETURN YOUR PROXY
<PAGE>
PROXY STATEMENT
NATIONAL PROPERTIES INVESTMENT TRUST
MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 30, 1997
------------------------
PROSPECTUS
PHILIPS INTERNATIONAL REALTY CORP.
32,000 SHARES OF COMMON STOCK
------------------------
This Proxy Statement and Prospectus (the 'Proxy Statement/Prospectus') is
being furnished to holders (each a 'Holder') of shares of beneficial interest
('National Shares') of National Properties Investment Trust, a Massachusetts
business trust, f/k/a Richard Roberts Real Estate Growth Trust I ('National'),
in connection with the solicitation of proxies by the Board of Trustees of
National (the 'Board of Trustees' or 'Board') for use at the Meeting of
Shareholders (the 'Meeting') to be held on December 30, 1997, at the offices of
Pryor, Cashman, Sherman & Flynn, 410 Park Avenue, New York, New York 10022, at
3:00 p.m., local time, and at any adjournment thereof. This document also serves
as a prospectus of Philips International Realty Corp. (the 'Company'), a
Maryland corporation (which expects to qualify as a real estate investment trust
for federal income tax purposes), with respect to the common stock, $.01 par
value per share (the 'Common Stock'), of the Company to be issued in connection
with its purchase of a retail shopping center property from National. This Proxy
Statement/Prospectus and the enclosed form of proxy are first being mailed to
shareholders of National on or about December , 1997.
At the Meeting, the shareholders of National will be asked to consider and
act upon proposals to approve (i) pursuant to the Contribution and Exchange
Agreement, dated as of August 11, 1997 (the 'Contribution and Exchange
Agreement'), among National, the members of the Board of Trustees, the Company,
Philips International Realty, L.P., a Delaware limited partnership (the
'Operating Partnership'), and certain contributing partnerships or limited
liability companies (collectively, the 'Contributing Partnerships') associated
with a private real estate firm controlled by Philip Pilevsky ('Philips Private
Company') and certain partners and members thereof, the sale of National's sole
real estate asset to the Company in exchange for 32,000 shares of Common Stock,
of which approximately 3,744 shares will be distributed as a dividend in
calendar 1997 and approximately 20,256 shares will be distributed as a dividend
in January 1998 to the National shareholders on a pro-rata basis (representing
in the aggregate not less than 75% of such shares received by National, with the
remaining shares of Common Stock retained by National for working capital
purposes), and the related formation transactions (the 'Formation
Transactions'), including the consideration to be received by certain members of
the Board of Trustees of National ('Proposal 1'), and (ii) the amendment of
certain provisions of the Restated Declaration of Trust of National to permit
such transactions ('Proposal 2') ((i) and (ii) collectively, the 'Transaction
Agreements'). The adoption of each proposal is conditioned upon the approval of
the other proposal. As a result of these Formation Transactions, National and
its shareholders (excluding certain additional securities described below to be
received by certain members of the Board of Trustees in connection with the
Formation Transactions) will collectively hold approximately 2.1% of the
outstanding shares of Common Stock of the Company (including in such outstanding
shares, interests redeemable or convertible therefor and shares of Common Stock
issuable upon exercise of outstanding warrants) and the Company will own ten
shopping center properties in the New England, Mid-Atlantic and Southeast
regions of the United States, thereby representing an investment for National
shareholders in an enterprise with a significantly larger and more diversified
portfolio than National's.
SEE 'RISK FACTORS' COMMENCING AT PAGE 27 FOR A DISCUSSION OF CERTAIN FACTORS
RELEVANT TO AN INVESTMENT IN COMMON STOCK WHICH SHOULD BE CONSIDERED BY HOLDERS
OF NATIONAL SHARES, INCLUDING THE FOLLOWING:
o control of the business of the Company by Mr. Pilevsky, as Chairman of
the Board and Chief Executive Officer of the Company and as sole
member of the interim managing general partner of the Operating
Partnership, which will control the Operating Partnership until such
time as the Company completes public or private equity offerings of
its securities aggregating in excess of $25 million (subject to
certain limitations, including limitations with respect to
transactions between the Company and Mr. Pilevsky and his affiliates),
and whose interests may not be consistent with the interests of other
shareholders of the Company;
o control by Mr. Pilevsky, as sole member of the interim managing
general partner, as to whether shareholders will receive a
distribution, until such time as the Company completes public or
private equity offerings of its securities aggregating in excess of
$25 million (subject to certain federal tax requirements to maintain
REIT status);
o substantial influence over the affairs of the Company and the
Operating Partnership by Mr. Pilevsky and Sheila Levine, as directors
and executive officers of the Company and as holders of Common Stock
and units of limited partnership interest in the Operating Partnership
representing approximately 70.6% of the outstanding shares of Common
Stock of the Company (including interests redeemable or convertible
therefor and shares of Common Stock issuable upon exercise of
outstanding warrants);
o conflicts of interest associated with the engagement of, and
dependence of the Company on, third-party management affiliated with
Philips Private Company, including conflicts with certain executive
officers and personnel of the management company, who will continue to
spend a material amount of their time and effort managing the business
and properties of Philips Private Company;
o possible conflicts of interest with, and material benefits to, certain
members of the Board of Trustees, including receipt of certain
compensation upon completion of the Formation Transactions;
o conflicts of interests with Mr. Pilevsky who will continue to hold,
through Philips Private Company or otherwise, significant interests in
income producing real property not contributed to the Company and who
may continue to spend a material amount of his time and effort
managing these interests;
o possible adverse consequences of the Company's negative cash
position on a pro forma basis as of September 30, 1997, particularly
in light of the Company's significantly leveraged capital structure;
and
o material differences between the rights of shareholders of National as
compared to the rights of shareholders of the Company, including the
absence from the Company's charter documents of certain provisions
protective of shareholders' rights currently applicable to National
shareholders, such as restrictions on corporate investment and
financing policies and limitations on certain corporate transactions.
NEITHER THIS TRANSACTION NOR THESE SECURITIES HAVE BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS PASSED UPON THE FAIRNESS OR MERITS OF THIS TRANSACTION
OR UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
(Cover continued on next page)
The date of this Proxy Statement/Prospectus is December , 1997.
<PAGE>
(Cover continued from previous page)
The Company will be the general partner of the Operating Partnership, which
will hold certain properties and assets contributed to it pursuant to the
Transaction Agreements. Pursuant to the Transaction Agreements, the Operating
Partnership will issue (i) units of general partnership interest to the Company,
as general partner, (ii) units of limited partnership interest ('Units') to the
Contributing Partnerships (or, in certain cases, the partners or members of the
Contributing Partnerships), as limited partners and (iii) units of general
partnership interest to Philips International Realty, LLC, a Delaware limited
liability company (the 'Interim Managing General Partner') which will control
the Operating Partnership until such time as the Company completes public or
private equity offerings of its securities aggregating in excess of $25 million
(collectively, an 'Offering'). The Units are redeemable on a one-for-one basis
for shares of Common Stock, upon the terms and conditions set forth in the
Agreement of Limited Partnership of the Operating Partnership (the 'Partnership
Agreement'). The sole member of the Interim Managing General Partner will be Mr.
Pilevsky, who, together with those persons (collectively, the 'Philips Group')
who receive Units in connection with the contribution of properties of, or
partnership or membership interests in, the Contributing Partnerships upon
consummation of the transactions contemplated by the Transaction Agreements,
will own Units and Common Stock representing approximately 94.6% of the
outstanding shares of Common Stock (including interests redeemable or
convertible therefor and shares of Common Stock issuable upon exercise of
outstanding warrants). The Interim Managing General Partner will have full and
exclusive power under the Partnership Agreement, subject to certain limitations
set forth therein, to manage the business and affairs of the Operating
Partnership until such time, among other things, as the Company completes an
Offering. Upon completion of an Offering, the Interim Managing General Partner
will be deemed to have withdrawn from the Operating Partnership and the Company
will be entitled to exercise in full the rights and responsibilities to manage
the business and affairs of the Operating Partnership as sole general partner
under the Partnership Agreement.
The Management Company will be engaged to provide certain property level
services and accounting services to the Company.
Upon consummation of the Formation Transactions described in this Proxy
Statement/Prospectus, including the amendment of the terms of the Restated
Declaration of Trust of National (the 'Declaration of Trust') to permit such
transactions, (i) National and its shareholders will receive an aggregate of
approximately 2.1% of the outstanding Common Stock of the Company (including
interests redeemable or convertible therefor and shares of Common Stock issuable
upon exercise of outstanding warrants); (ii) the Trustees will receive an
aggregate of approximately 0.3% of the outstanding shares of Common Stock and
warrants to purchase an additional 0.5% of the outstanding shares of Common
Stock (in each case, including interests redeemable or convertible therefor and
shares of Common Stock issuable upon exercise of outstanding warrants); (iii)
Mr. Pilevsky will beneficially own approximately 0.7% of the outstanding Common
Stock of the Company (including interests redeemable or convertible therefor and
shares of Common Stock issuable upon exercise of outstanding warrants); (iv) the
Philips Group (of which Mr. Pilevsky will hold a majority interest) will
beneficially own 1,450,000 Units redeemable for shares of Common Stock of the
Company, which Units represent approximately 93.9% of the outstanding shares of
Common Stock of the Company (including interests redeemable or convertible
therefor and shares of Common Stock issuable upon exercise of outstanding
warrants) and (v) Prudential Securities Incorporated ('Prudential Securities')
will receive, in lieu of the financial advisory fee payable by National upon
consummation of the Formation Transactions and assumed by the Company under the
Contribution and Exchange Agreement, 1,940 shares of Series A Preferred Stock,
liquidation preference $1,000 per share (the 'Series A Preferred Stock'),
convertible into 38,800 shares of Common Stock, which Series A Preferred Stock
represents approximately 2.5% of the outstanding shares of Common Stock of the
Company (including interests redeemable or convertible therefor and shares of
Common Stock issuable upon exercise of outstanding warrants). National's
shareholders will also continue to hold their National Shares.
The Formation Transactions are subject to the satisfaction or waiver of
certain conditions, including certain conditions set forth in the Transaction
Agreements and the receipt of the requisite National shareholder approval of the
Transaction Agreements, which includes the amendment of the terms of the
Declaration of Trust to permit the Formation Transactions. See 'The Formation
Transactions--Description of the Transaction Agreements--Conditions to the
Consummation of the Formation Transactions.'
ii
<PAGE>
This Proxy Statement/Prospectus serves as the Proxy Statement of National
for the Meeting and as the Prospectus of the Company with respect to the Common
Stock to be issued to National and its shareholders in the Formation
Transactions. The information contained in this Proxy Statement/Prospectus
relating to National was furnished by National. All other information was
furnished by the Company.
There is currently no public market for the Common Stock. The Company's
articles of incorporation contains limitations on the transfer or accumulation
of Common Stock in order to protect the status of the Company as a real estate
investment trust for federal income tax purposes. See 'Description of Capital
Stock of the Company--Restrictions on Transfer--Ownership Limits.'
On December 4, 1997, the issued and outstanding voting capital stock of
National consisted of 748,738 National Shares held by approximately 1,770
holders of record.
The accompanying proxy is solicited on behalf of the Board of Trustees of
National.
VOTING RIGHTS AND PROXY INFORMATION
The Board of Trustees has fixed the close of business on December 4, 1997,
as the record date (the 'Record Date') for the determination of shareholders
entitled to notice of and to vote at the Meeting. Each holder of National Shares
on the Record Date is entitled to cast one vote per National Share. Approval of
each proposal requires the affirmative vote of the holders of a majority of the
issued and outstanding National Shares entitled to vote at the Meeting. In
addition, the Contribution and Exchange Agreement requires the affirmative vote
of a plurality of votes cast by the shareholders of National who are not
Affiliates of National (as such term is defined below) (the 'Unaffiliated
Shareholders') for the approval of Proposal 1. The adoption of each proposal is
conditioned upon the approval of the other proposal.
'Affiliate' means (i) any person directly or indirectly controlling,
controlled by or under common control with another person, (ii) any person
owning or controlling 5% or more of the outstanding voting securities or
beneficial interests of such other person, (iii) any officer, retired officer,
director, trustee, employee or general partner of such person and (iv) if such
other person is an officer, director, trustee or partner of another entity, then
the entity for which that person acts in any such capacity.
All National Shares represented at the Meeting by properly executed proxies
received prior to or at the Meeting, and not revoked, will be voted at the
Meeting in accordance with the instructions thereon. If no instructions are
indicated, proxies will be voted in favor of the Transaction Agreements.
Abstentions and broker non-votes will have the effect of a vote against all
proposals. Proxies that are voted against either Proposal 1 or Proposal 2 will
not be voted in favor of an adjournment or postponement of the Meeting.
National does not know of any matters, other than as described in the
Notice of Meeting, which are to come before the Meeting. If any other matters
are properly presented at the Meeting for action, the persons named in the
enclosed form of proxy and acting thereunder will have the discretion to vote on
such matters in accordance with their best judgment.
Proxies may be returned to the Solicitation Agent by facsimile at (214)
999-9323 or in the enclosed postage paid envelope. If returning a proxy by
facsimile, both sides of the proxy card should be transmitted. A proxy given
pursuant to this solicitation may be revoked at any time before it is voted.
Proxies may be revoked (i) by filing with the Solicitation Agent at or before
the Meeting a written notice of revocation bearing a later date than the proxy,
(ii) by duly executing a subsequent proxy relating to the same National Shares
and delivering it to the Solicitation Agent at or before the Meeting or (iii) by
attending the Meeting and voting in person (although attendance at the Meeting
will not in and of itself constitute revocation of a proxy). Any written notice
revoking a proxy should be delivered to the Solicitation Agent, The Herman
Group, Inc., 2121 San Jacinto Street, 26th Floor, Dallas Texas, 75201-6705 or by
facsimile to (214) 999-9323. If you have any questions, please call The Herman
Group, Inc. at (800) 582-1313.
AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form S-4 (the
'Registration Statement') with the Securities and Exchange Commission (the
'Commission') under the Securities Act of 1933, as amended (the 'Securities
Act'), with respect to the securities offered hereby. As permitted by the rules
and regulations of the
iii
<PAGE>
Commission, this Proxy Statement/Prospectus omits certain information, exhibits
and undertakings contained (or to be contained) in the Registration Statement.
Such additional information, exhibits and undertakings can be inspected at and
obtained from the Commission in the manner set forth below. For further
information with respect to the securities offered hereby and the Company,
reference is made to the Registration Statement and the financial schedules and
exhibits filed as a part thereof. Statements contained in this Proxy
Statement/Prospectus as to the terms of any contract or other document are not
necessarily complete, and, in each case, reference is made to the copy of each
such contract or other document that has been filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
National is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the 'Exchange Act'), and, in accordance
therewith, files periodic reports and other information with the Commission.
Such reports and other information filed with the Commission, as well as the
Registration Statement, can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and should also be available at the Commission's regional offices
located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511, and 7 World Trade Center, 13th Floor, New York, New York
10048. Copies of such material can also be obtained by mail from the Public
Reference Section of the Commission at Room 1024, 450 Fifth Street, N.W.
Washington, D.C. 20549 at prescribed rates, or at the Commission's Web site at
http://www.sec.gov.
No person has been authorized to give any information or to make any
representations, other than those contained in this Proxy Statement/Prospectus.
If given or made, such information or representation may not be relied upon as
having been authorized by National. National is not aware of any jurisdiction in
which the making of the proxy solicitation is not in compliance with applicable
law. If National becomes aware of any jurisdiction in which the making of the
proxy solicitation would not be in compliance with applicable law, National will
make a good faith effort to comply with such law. If, after such good faith
effort, National cannot comply with any such law, the proxy solicitation will
not be solicited from shareholders residing in such jurisdictions. In any
jurisdiction where the securities, blue sky or other laws require the proxy
solicitation to be made by a licensed broker or dealer, the proxy solicitation
will be deemed to be made on behalf of National by the Solicitation Agent or one
or more registered brokers or dealers licensed under the laws of such
jurisdiction. Neither the delivery of this Proxy Statement/Prospectus nor any
distribution of securities hereunder shall under any circumstances create any
implication that the information contained herein is correct as of any time
subsequent to the date hereof or that there has been no change in the
information set forth herein or in the affairs of National, the Company or their
respective subsidiaries since the date hereof.
iv
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
SUMMARY................................................................................................. 1
The Company........................................................................................... 1
Risk Factors.......................................................................................... 3
Formation Transactions................................................................................ 5
Benefits of the Formation Transactions to the Philips Group........................................... 10
Benefits of the Formation Transactions to National Shareholders....................................... 10
Background of the Formation Transactions and Alternatives to the Formation Transactions............... 11
Conflicts of Interest................................................................................. 13
Management............................................................................................ 14
Growth Strategy....................................................................................... 14
Properties............................................................................................ 15
Financing Policy...................................................................................... 18
Distribution Policy................................................................................... 18
Comparison of Shareholders' Rights.................................................................... 18
Restrictions on Common Stock Ownership................................................................ 19
Tax Status of the Company............................................................................. 19
Certain Aspects of the Contribution and Exchange Agreement............................................ 19
The Meeting........................................................................................... 21
Market Information.................................................................................... 22
Summary Selected Financial Data....................................................................... 22
RISK FACTORS............................................................................................ 27
Control by the Interim Managing General Partner....................................................... 27
Control by the Philips Group.......................................................................... 27
Conflicts of Interest with and Dependence on the Management Company................................... 27
Conflicts of Interest................................................................................. 27
Board of Trustees.................................................................................. 27
The Philips Group.................................................................................. 27
The Interim Managing General Partner............................................................... 28
Philips Private Company/Excluded Properties........................................................ 28
Potential Conflict of Interests with Prudential Securities......................................... 28
Benefits to the Philips Group, the Founders and Philips Private Company from the Formation
Transactions...................................................................................... 29
Benefits to the Trustees from the Formation Transactions.............................................. 29
Certain Consequences of the Formation Transactions: Distributions of Common Stock: Federal Income Tax
Consequences: National's REIT Status............................................................... 29
Dependence on Key Management Personnel................................................................ 30
Changes in Shareholders' Rights; Elimination of Restrictions on Corporate Activities.................. 30
High Level of Debt; No Limitation on Debt; Uncertainty of Ability to Refinance Debt................... 30
High Level of Debt................................................................................. 30
No Limitation on Debt.............................................................................. 30
Inability to Pay Debt Service; Effect of Cross-Collateralization................................... 30
Variable Rate Debt................................................................................. 31
Refinancing Risks.................................................................................. 31
Lack of Acquisition Funding........................................................................... 31
Inability to Make Required Distributions to Shareholders Could Affect REIT Status; Potential
Requirement to Borrow.............................................................................. 31
Lack of Appraisals.................................................................................... 32
Possible Adverse Effects on Common Stock Price Arising From Shares Available for Future Sale.......... 32
Changes in Investment and Financing Policies Without Shareholder Vote................................. 33
Issuance of Additional Securities.................................................................. 33
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Risks Involved in Acquisitions Through Partnerships or Joint Ventures.............................. 33
Risks Involved in Investments in Securities Related to Real Estate................................. 33
Certain Anti-Takeover Provisions May Inhibit a Change of Control...................................... 34
New Classes and Series of Stock.................................................................... 34
Staggered Board of Directors....................................................................... 34
Ownership Limit.................................................................................... 34
Consent of Limited Partners........................................................................ 34
Adverse Effect of Increasing Market Interest Rate Levels on Price of Common Stock..................... 35
Absence of Public Market for Common Stock; Market Price of Common Stock............................... 35
Odd-lot Shares........................................................................................ 35
Risks of Equity Real Estate Investment; Adverse Impact on Ability to Make Distributions; Effect on
Value of Properties................................................................................ 35
General............................................................................................ 35
Dependence on Certain Properties................................................................... 36
Competition........................................................................................ 36
Risks of Acquisition, Renovation and Development Activities........................................ 36
Possible Environmental Liabilities................................................................. 36
General Uninsured Losses........................................................................... 37
Bankruptcy of Tenants.............................................................................. 37
Regulation......................................................................................... 37
Degree of Leverage................................................................................. 38
Tax Risks............................................................................................. 38
Adverse Tax Consequences of Failure to Qualify as a REIT........................................... 38
Other Tax Liabilities.............................................................................. 38
Necessity to Maintain Ownership Limit Required to Maintain REIT Qualification; Anti-Takeover Effect... 38
Computer Systems and Year 2000 Issues................................................................. 39
Forward--Looking Statements........................................................................... 39
FORMATION TRANSACTIONS AND STRUCTURE OF THE COMPANY..................................................... 40
Formation Transactions................................................................................ 40
Calculation of Net Asset Value........................................................................ 42
Benefits of the Formation Transactions to the Philips Group........................................... 42
Benefits of the Formation Transactions to the Trustees................................................ 43
Benefits of the Formation Transactions to the National Shareholders................................... 43
Background of the Formation Transactions.............................................................. 44
Reasons for the Formation Transactions; Recommendations of the Board of Trustees...................... 46
Interests of the Trustees in the Formation Transactions............................................... 51
Opinion of Financial Advisor.......................................................................... 51
Description of the Contribution and Exchange Agreement................................................ 54
Representations and Warranties..................................................................... 54
Conduct of Business................................................................................ 54
No Solicitation of Competing Transactions.......................................................... 54
Conditions to the Formation Transactions........................................................... 54
Indemnification and Insurance...................................................................... 55
Agreement to Vote.................................................................................. 55
Fees and Expenses.................................................................................. 55
Termination........................................................................................ 55
Certain Federal Income Tax Consequences............................................................... 56
Solicitation Agent.................................................................................... 57
THE MEETING............................................................................................. 57
Purpose of the Meeting................................................................................ 57
General............................................................................................ 57
Record Date; Shareholders Entitled to Vote and Required Vote....................................... 58
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Solicitation, Revocation and Use of Proxies........................................................ 58
Appraisal Rights; Shareholders List................................................................ 58
Approval of the Transaction Agreements................................................................ 59
Other Business; Adjournment or Postponement of Meeting................................................ 59
Principal Holders of National Shares.................................................................. 59
THE COMPANIES........................................................................................... 61
Philips International Realty Corp. ................................................................... 61
Affiliates of the Company.......................................................................... 61
The Holding Partnerships, the Interim Managing General Partner and Philips Subs....................... 61
The Operating Partnership............................................................................. 62
National.............................................................................................. 62
MANAGEMENT AGREEMENT AND NON-COMPETITION AGREEMENT...................................................... 63
Management Agreement.................................................................................. 63
Non-Competition Agreement............................................................................. 63
PARTNERSHIP AGREEMENT OF OPERATING PARTNERSHIP.......................................................... 64
Management............................................................................................ 64
Control by Interim Managing General Partner........................................................... 64
Rights of the Limited Partners........................................................................ 65
Indemnification and Fiduciary Standards............................................................... 65
Transferability of Interests.......................................................................... 66
Capital Contributions................................................................................. 67
Additional Classes of Units........................................................................... 67
Awards Under Stock Option Plans....................................................................... 67
Redemption Rights..................................................................................... 67
Registration Rights................................................................................... 67
Tax Matters........................................................................................... 67
Operations............................................................................................ 68
Duties and Conflicts.................................................................................. 68
Term.................................................................................................. 68
COMPARISON OF SHAREHOLDERS' RIGHTS...................................................................... 69
Board of Trustees and Board of Directors.............................................................. 69
Issuance of Capital Stock............................................................................. 69
Distributions to Shareholders......................................................................... 70
Shareholder Meetings.................................................................................. 70
Shareholder Approval of Certain Actions............................................................... 70
Restrictions on Corporate Activities.................................................................. 70
Interested Party Transactions......................................................................... 71
Ownership Limit....................................................................................... 71
Anti-takeover Provisions.............................................................................. 72
Indemnification....................................................................................... 72
Nomination of Trustees/Directors by Shareholders...................................................... 72
CAPITALIZATION.......................................................................................... 73
THE COMPANY'S STRATEGY FOR GROWTH....................................................................... 73
Internal Growth....................................................................................... 73
Operations......................................................................................... 73
Balance Sheet Management and Cost Control.......................................................... 74
Self-Management.................................................................................... 74
External Growth....................................................................................... 74
Acquisitions....................................................................................... 74
Referrals of Potential Shopping Center Acquisitions................................................ 74
Development........................................................................................ 75
Geographic Expansion............................................................................... 75
DISTRIBUTION POLICY..................................................................................... 75
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SELECTED FINANCIAL DATA................................................................................. 76
Selected Combined Financial Data of The Philips Company and
Merrick/Mill Basin Properties...................................................................... 77
Selected Financial Data of National................................................................... 78
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE PHILIPS
COMPANY............................................................................................... 81
Overview.............................................................................................. 81
Results of Operations................................................................................. 81
Pro Forma Operating Results........................................................................... 83
Liquidity and Capital Resources....................................................................... 83
Funds from Operations................................................................................. 84
Inflation............................................................................................. 85
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF NATIONAL....... 86
Liquidity and Capital Resources....................................................................... 86
Inflation............................................................................................. 86
Competition........................................................................................... 86
Results of Operations................................................................................. 86
BUSINESS AND PROPERTIES................................................................................. 88
General............................................................................................... 88
Shopping Center Properties............................................................................ 88
Geographic Markets................................................................................. 88
Rentals and Major Tenants.......................................................................... 89
Property Data...................................................................................... 90
Occupancy and Average Rentals...................................................................... 90
Leasing Activity................................................................................... 91
Lease Expirations.................................................................................. 91
Tax Basis and Real Estate Taxes.................................................................... 91
Government Regulations................................................................................ 93
Employees............................................................................................. 94
Legal Proceedings..................................................................................... 94
SIGNIFICANT PROPERTIES.................................................................................. 94
Palm Springs Mile..................................................................................... 94
Forest Avenue Shoppers Town........................................................................... 96
Meadowbrook Commons................................................................................... 99
EXCLUDED PROPERTIES..................................................................................... 101
ASSUMED INDEBTEDNESS.................................................................................... 102
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES............................................................. 104
Investment Objectives and Policies.................................................................... 104
Real Estate Investment Policies and Criteria.......................................................... 104
Dispositions.......................................................................................... 104
Other Investments..................................................................................... 104
Financing............................................................................................. 105
Equity Capital........................................................................................ 106
Working Capital Reserves.............................................................................. 106
Annual Reports........................................................................................ 106
Other Policies........................................................................................ 106
MANAGEMENT.............................................................................................. 107
Board of Trustees of National......................................................................... 107
Directors and Executive Officers of the Company....................................................... 107
Compensation of Directors............................................................................. 109
Committees of the Board of Directors.................................................................. 109
Audit Committee.................................................................................... 109
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Compensation Committee............................................................................. 109
Executive Compensation................................................................................ 109
Employment Agreements................................................................................. 110
Stock Option Plan..................................................................................... 111
The 401(k) Plan....................................................................................... 112
Indemnification....................................................................................... 112
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................................................... 113
Terms of Transfers.................................................................................... 113
Registration Rights................................................................................... 113
Non-Competition Agreement............................................................................. 113
Partnership Agreement................................................................................. 113
Management Agreement.................................................................................. 113
Miscellaneous......................................................................................... 113
Benefits of the Formation Transactions to Certain Executive Officers and the Philips Group............ 113
PRINCIPAL SHAREHOLDERS.................................................................................. 114
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY............................................................. 115
General............................................................................................... 115
Series A Preferred Stock.............................................................................. 115
Restrictions on Transfer.............................................................................. 116
Ownership Limits................................................................................... 116
Transfer Agent and Registrar.......................................................................... 118
CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE COMPANY'S CHARTER
AND BY-LAWS........................................................................................... 118
Board of Directors.................................................................................... 118
Removal of Directors.................................................................................. 118
Business Combinations................................................................................. 118
Control Share Acquisitions............................................................................ 119
Amendment to the Articles of Incorporation............................................................ 120
Advance Notice of Director Nominations and New Business............................................... 120
Limitation of Directors' and Officers' Liability...................................................... 120
SHARES AVAILABLE FOR FUTURE SALE........................................................................ 121
General............................................................................................... 121
Registration Rights................................................................................... 122
FEDERAL INCOME TAX CONSIDERATIONS....................................................................... 122
Taxation of the Company............................................................................... 122
Taxation of Shareholders.............................................................................. 127
Other Tax Considerations.............................................................................. 130
ERISA CONSIDERATIONS.................................................................................... 131
Employee Benefit Plans, Tax-Qualified Retirement Plans and IRAs....................................... 132
Status of the Company, the Operating Partnership and the Holding Partnerships Under ERISA............. 132
OTHER BUSINESS.......................................................................................... 133
EXPERTS................................................................................................. 133
LEGAL MATTERS........................................................................................... 133
GLOSSARY OF CERTAIN DEFINED TERMS....................................................................... 134
INDEX TO FINANCIAL INFORMATION.......................................................................... F-1
APPENDIX A--Opinion of Prudential Securities Incorporated............................................... A-1
</TABLE>
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SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Proxy
Statement/Prospectus. Unless otherwise indicated, the information contained in
this Proxy Statement/Prospectus assumes the completion of the transactions
resulting in the formation of the Company and the Operating Partnership,
including the acquisition of the nine properties owned by the Philips Group and
the acquisition of the one property from National. Unless the context otherwise
requires, the 'Company' shall mean Philips International Realty Corp., its
subsidiaries, and those entities controlled by it, including the Operating
Partnership, on a combined basis after giving effect to the Formation
Transactions. All references to 'this Proxy Statement/Prospectus' shall mean the
Proxy Statement/Prospectus being furnished to the shareholders of National in
connection with the solicitation of proxies by the Board of Trustees of
National. Additional capitalized terms shall have the meanings set forth in the
Glossary.
THE COMPANY
Philips International Realty Corp. (the 'Company') has been formed to
continue and expand the Philips Group business of acquiring, developing and
redeveloping community and neighborhood shopping centers. As part of the
Formation Transactions, the Company will acquire the interests and/or assets of
certain partnerships, limited liability companies and affiliates of the Philips
Group in a portfolio of nine shopping center properties (collectively, the
'Partnership Properties') and, upon consummation of the Formation Transactions,
the Company will acquire a shopping center property located in Lake Mary,
Florida, owned by National (the 'National Property'). Upon consummation of the
Formation Transactions, the Company will be a self-advised real estate company
with expertise, through its directors and executive officers and the Management
Company, in all aspects of acquisition, development, construction, leasing,
management, operation and financing of shopping center properties in the New
England, Mid-Atlantic and Southeast regions of the United States. The Company
intends to qualify as a real estate investment trust (a 'REIT') for federal
income tax purposes commencing with the taxable year ending December 31, 1998,
but may elect to qualify as a REIT for federal income tax purposes as early as
the taxable year ending December 31, 1997.
Philips Private Company and the Management Company were founded in 1982 by
Philip Pilevsky, Chairman of the Board and Chief Executive Officer of the
Company, and Sheila Levine, Chief Operating Officer and Executive Vice President
of the Company (the 'Founders'). The Founders have been involved in the
development, leasing, financing, management, operation, acquisition and
disposition of commercial properties in a diversity of markets for over 20 years
and have been focusing primarily on retail shopping center properties in the New
England, Mid-Atlantic and Southeast regions of the United States. Mr. Pilevsky
and Ms. Levine, along with the Management Company, will conduct all of their
future retail shopping center activities, including acquisition, development,
leasing and management, exclusively through the Company, subject to certain
limited exceptions.
The Partnership Properties are located in suburban and metropolitan markets
in five states along the East Coast, including New York, Florida, Connecticut,
New Jersey and Massachusetts. The Partnership Properties are well established
community and neighborhood shopping centers strategically located in densely
populated middle and upper income markets and are easily accessible from major
transportation arteries. The Partnership Properties contain approximately 2.3
million square feet of GLA, representing approximately 98.4% of the Company's
total GLA, and were approximately 96.4% leased at September 30, 1997. The
National Property consists of a two-story shopping center and office facility
and is located in Lake Mary, Florida. The National Property contains
approximately 38,000 square feet of GLA, representing approximately 1.6% of the
Company's total GLA, and was 100% leased at September 30, 1997.
The Company's ten properties (collectively, the 'Properties') are leased to
more than 260 tenants representing a diverse group of local, regional, national
and international companies. Such leases, generally ranging from 5 to 10 years
for non-anchor tenants and 15 to 25 years for anchor tenants, provide for
minimum rentals that are generally either subject to scheduled fixed increases
or upward adjustments based upon certain inflation indices. The leases generally
also provide for the recovery of operating costs through either full pass-
through to tenants or the recovery of increases over a stated cost base. As of
September 30, 1997, no one tenant represented more than 6.1% of the Company's
total annualized contractual base rental revenues. All of the
<PAGE>
Partnership Properties are anchored by national or regional tenants such as
Pergament Home Centers, Inc., APW Supermarkets, Inc. (Waldbaum's), Toys 'R' Us
Inc., Giant Food Stores, Inc., Mervyn's, United Artists Communications, Inc.,
Walgreen Co., The TJX Companies Inc. (TJ Maxx), Winn Dixie Stores Inc. and
Michaels Stores Inc. See 'Business and Properties.'
The Company's senior management will include the Founders, Mr. Louis J.
Petra, President, and Mr. Brian J. Gallagher, Chief Financial Officer.
Collectively, the senior management has an average of 20 years of real estate
experience. The Company believes that its ability to grow will be driven by
senior management's market and industry knowledge and their significant
experience in the acquisition, development, management and leasing of shopping
centers. Management believes, based on the real estate investment experience of
senior management, coupled with an extensive network of relationships
established by Mr. Pilevsky and other members of senior management, that the
Company will have a competitive advantage in the operation of retail shopping
centers and in the identification of attractive retail property investments.
Under the direction of senior management of the Company, the leasing,
management, construction and day-to-day operations of the Properties will be
conducted primarily through the Management Company. The Company initially
intends to utilize the Management Company to provide certain services to the
Company, such as property management, leasing and construction management, that
are currently uneconomic for the Company to provide internally. Any such
services provided by the Management Company will be provided at market level
fees.
The Company's business strategy involves three fundamental practices: (i)
developing, acquiring, expanding and redeveloping shopping centers in select
markets with strong economic and demographic characteristics in order to
establish and maintain a portfolio of real estate assets with stable income and
the potential for long-term growth; (ii) continuing to develop its local and
regional market expertise through the involvement and direction of senior
management in the property operations and leasing of the properties in order to
capitalize on the prevailing market and retailing trends; and (iii) establishing
and maintaining a diversified and complementary tenant mix with an emphasis on
national and regional tenants that provide day-to-day consumer necessities in
order to produce consistent rental revenues. The Company has a proven track
record of enhancing the value of its properties through increases in occupancy
rates and rental revenues.
The Company's goal is to maximize the long-term value of the Company and
the total return to its shareholders through the acquisition, development,
expansion and redevelopment of additional community and neighborhood shopping
center properties and through intensive asset and portfolio management. The
Company intends to expand its presence in the targeted geographic regions to
realize economies of scale in the Company's operations. The Company also intends
to maximize the opportunities to expand, relocate and build-to-suit for its
numerous tenants.
The Company's executive offices are located at 417 Fifth Avenue, New York,
New York, 10016, and its telephone number is (212) 545-1100. National's
executive offices are located at the offices of its managing trustee at 32
Hanson Road, Canton Center, Connecticut 06020, and its telephone number is (888)
678-1109.
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RISK FACTORS
The holders of National Shares should carefully consider the matters
discussed under 'Risk Factors' prior to voting on the Transaction Agreements.
Such considerations include, among others:
o control of the business of the Company by Mr. Pilevsky as Chairman of the
Board and Chief Executive Officer of the Company and as sole member of
the Interim Managing General Partner (which will control the Operating
Partnership until completion of an Offering), subject to certain
limitations with respect to transactions between the Company and Mr.
Pilevsky and his affiliates; Mr. Pilevsky's interests may not be
consistent with the interests of the other shareholders of the Company;
o control by Mr. Pilevsky, as sole member of the Interim Managing General
Partner, as to whether shareholders will receive a distribution, until
such time as the Company completes an Offering (subject to certain
federal tax requirements to maintain REIT status);
o substantial influence over the affairs of the Company and the Operating
Partnership by the Founders as directors and executive officers of the
Company and as holders initially of Units and Common Stock representing
approximately 70.6% of the outstanding shares of Common Stock of the
Company (including interests redeemable or convertible therefor and
shares of Common Stock issuable upon exercise of outstanding warrants);
o conflicts of interest with the Founders and other members of the Philips
Group in connection with the operation of the Company's ongoing business,
including conflicts associated with the tax consequences of sales and
refinancings of certain of the Properties. In particular, the Founders
and other members of the Philips Group may suffer different and/or more
adverse tax consequences than the Company and its shareholders upon the
sale or refinancing of certain of the Properties, including a reduction
of indebtedness on such properties. Thus, the Founders, as directors and
executive officers, on the one hand, and the shareholders, on the other
hand, may have different objectives regarding the appropriate pricing and
timing of any sale or refinancing of certain Properties, and such
directors and executive officers will be in a position to influence the
Company not to sell or refinance a Property, even though such sale might
otherwise be financially advantageous to the Company, and will be in a
position to influence the Company to refinance a Property with a higher
level of debt (which could be more advantageous from a tax standpoint to
such directors and executive officers due to their existing holdings in
the Properties) than would be in the best interests of the Company;
o material benefits to the Philips Group in connection with the Formation
Transactions, including improved liquidity and diversification of their
investment in the Properties and the deferral of certain tax consequences
in connection with the contribution of the Properties to the Operating
Partnership in exchange for Units;
o material benefits to the Founders in connection with the Formation
Transactions, including the receipt by Mr. Pilevsky of stock options and
the receipt by Ms. Levine of salary and stock options, each as an
executive officer of the Company;
o conflicts of interest associated with the engagement of third-party
management affiliated with Philips Private Company, including conflicts
with certain personnel of the Management Company who will continue to
spend a material amount of their time and effort managing the business
and properties of Philips Private Company;
o dependence of the Company on such third-party management in the
management, acquisition, development, leasing and operations of the
Properties;
o possible conflicts of interest due to the fact that two members of the
Board of Trustees of National, Messrs. Stein and Goldman, have interests
in and will receive certain benefits from the Formation Transactions that
are in addition to the interests and benefits of shareholders of National
generally, including receipt by Messrs. Stein and Goldman of 5,000 shares
of Common Stock (the 'Trustees Stock') with an aggregate pro forma net
asset value of $250,000 and warrants (the 'Trustees Warrants' and,
together with the Trustees Stock, the 'Trustees Securities') to purchase
an aggregate of 8,000 shares of Common Stock at an exercise price of
$25.00 per share. See 'The Formation Transactions and
3
<PAGE>
Structure of the Company--Calculation of Net Asset Value' for a
description of the net asset value of the Company ('Net Asset Value').
o conflicts of interests with certain members of the Philips Group,
including the Founders, who will continue to hold through Philips Private
Company significant interests in income producing real property not
contributed to the Company, including conflicts with one of the Founders
who may continue to spend a material amount of his time and effort
managing these interests;
o lack of any limitation on the amount or percentage of debt the Company
may incur, which could lead to an increase in the Company's indebtedness
and adversely affect the ability of the Company to repay its indebtedness
or make distributions to shareholders;
o following completion of the Formation Transactions, the Company will have
a Debt-to-Total Capitalization Ratio (as defined below) of approximately
70% (assuming a Net Asset Value of $50.00 per share of Common Stock) and
will need to complete a public or private equity offering in order to
decrease its level of indebtedness and obtain funds for expansion.
'Debt-to-Total Capitalization Ratio' is defined as the ratio of total
debt of the Company to the sum of the aggregate Net Asset Value plus the
total debt of the Company;
o risks associated with debt financing, which could adversely affect the
Company's ability to make distributions to shareholders and its ability
to qualify as a REIT, including the possibility that (i) interest on the
Company's floating rate mortgage debt (initially approximately $96.8
million, with a weighted average interest rate of approximately 8.0% per
annum) may increase; and (ii) the Company will not have sufficient funds
from operating activities available to make balloon payments of principal
upon maturity (assuming exercise of extension options by the Company) of
its mortgage debt, including approximately $63.5 million of debt maturing
within one year, and therefore, the Company may have to refinance its
debt obligations on less favorable terms, raise equity or lose the
Company's interest in the applicable Properties if it cannot refinance
such obligations;
o possible adverse consequences of the Company's negative cash position
of approximately $1.1 million on a pro forma basis as of September 30,
1997, which could adversely affect the Company's ability to repay its
obligations or make distributions to shareholders; although no assurances
can be given, the Company expects that its net cash flow from operations
during the period subsequent to September 30, 1997 and preceding
consummation of the Formation Transactions will be sufficient to
substantially, if not fully, fund the related transaction costs and
eliminate such pro forma cash deficiency. Alternatively, the Company may
arrange short-term debt financing to eliminate such cash deficiency; such
financing could be more difficult as a result of the Company's highly
leveraged capital structure;
o the valuation of the Properties, including the National Property, was not
based on third-party appraisals; the consideration to be paid by the
Company for the Properties and other assets to be acquired by it may
exceed their aggregate fair market value and the consideration to be paid
by the Company for any individual property, including the National
Property, may be less than its fair market value;
o material differences in the rights of shareholders of National as
compared to the rights of shareholders of the Company, including the
absence from the Company's charter documents of provisions protective of
shareholders' rights currently applicable to National shareholders, such
as restrictions on corporate investment and financing policies and
limitations on certain corporate transactions, as well as differences in
the ability to remove and replace directors and request meetings of
shareholders;
o real estate investment risks, including: a general lack of liquidity of
investments in real estate; the dependence of income and cash flow on
certain significant Properties and on the economic conditions and
continued demand for shopping centers and retail space in the New
England, Mid-Atlantic and Southeast regions of the United States; the
ability of the Company to attract and retain tenants; factors that may
adversely affect the value of the Properties, such as potential unknown
or future environmental liabilities and potential losses in the event of
an uninsurable casualty and uninsured losses from title defects;
4
<PAGE>
o taxation of the Company as a corporation if it fails to qualify as a
REIT, and the resulting decrease in funds available to make
distributions; failure of the Company to quality as a REIT could affect
National's REIT status if the principal assets held by National are
shares of Common Stock of the Company;
o potential anti-takeover effects of provisions generally limiting the
actual or constructive ownership of capital stock of the Company by any
one person or entity to 6.5% of the outstanding shares, a classified
board of directors and other charter and statutory provisions and
provisions in the Partnership Agreement that may have the effect of
inhibiting a change of control of the Company or making it more difficult
to effect a change in management or limiting the opportunity for
shareholders to receive a premium over the market price for the Common
Stock;
o no prior public market for the shares of Common Stock, including the risk
that an active trading market might not develop, or if developed might
not be maintained, which may negatively impact the price at which shares
of Common Stock may be resold; no assurances can be made that the shares
of Common Stock will trade at or above $50.00 per share, the Net Asset
Value per share of Common Stock; see 'Formation Transactions and
Structure of the Company--Calculation of Net Asset Value.'
o in connection with the dividend of shares of Common Stock by National,
certain shareholders may receive fractional shares or 'odd-lot' shares
(fewer than 100 shares), which in turn could affect the liquidity of such
shares and the transaction costs of a sale of such shares;
o potential adverse effects on the value of the shares of Common Stock of
fluctuations in interest rates or equity markets, which may negatively
impact the price at which shares of Common Stock may be resold and may
limit the Company's ability to raise additional equity to finance future
development; and
o the possible issuance of additional shares of Common Stock (or Common
Stock equivalents), including 1,450,000 shares of Common Stock issuable
upon redemption of the Units, 38,800 shares of Common Stock issuable upon
conversion of the Series A Preferred Stock and 269,600 shares of Common
Stock issuable pursuant to outstanding warrants and stock options, which
may adversely affect the market price of the shares of Common Stock or
result in dilution on a per share basis of cash available for
distribution.
FORMATION TRANSACTIONS
The Formation Transactions are as follows:
o Pursuant to the Contribution and Exchange Agreement, the partners of the
Contributing Partnerships will transfer their partnership or membership
interests, as the case may be, in the Partnership Properties, or, in
certain cases, the Contributing Partnerships will transfer their
properties directly, to the Operating Partnership and/or its wholly-owned
subsidiaries in exchange for an aggregate of 1,450,000 Units in the
Operating Partnership, which Units represent approximately 93.9% of the
outstanding Common Stock of the Company (including interests redeemable
or convertible therefor and shares of Common Stock issuable upon exercise
of outstanding warrants). In connection with such transfers, the
Operating Partnership will assume approximately $176.8 million of
indebtedness encumbering the contributed assets and partnership and
membership interests.
o The Company will purchase the National Property in exchange for 32,000
shares of Common Stock and the assumption of approximately $550 million
of debt.
o National will distribute as a dividend approximately 3,744 of such shares
of Common Stock by the end of calendar year 1997 and approximately 20,256
of such shares of Common Stock by the end of January 1998 (representing
in the aggregate not less than 75% of the Common Stock received by
National) to its shareholders on a pro-rata basis and retain 8,000 shares
of Common Stock; distributions received, if any, on account of the
retained shares, or the net proceeds from the sale of any such shares,
will be available to National for working capital purposes.
o Messrs. Stein and Goldman, Trustees of National, will receive the
Trustees Securities in consideration of their efforts on behalf of
National to arrange and carry out the Formation Transactions and their
agreement to vote their National Shares in favor of the Transaction
Agreements.
5
<PAGE>
o Mr. Pilevsky will purchase 10,660 shares of Common Stock (approximately
22.4% of the outstanding shares of Common Stock of the Company, excluding
interests redeemable or convertible therefor and shares of Common Stock
issuable upon exercise of outstanding warrants) at $50.00 per share, for
a total purchase price of $533,000.
o Prudential Securities will receive, in lieu of the financial advisory fee
payable by National upon consummation of the Formation Transactions and
assumed by the Company under the Contribution and Exchange Agreement,
1,940 shares of Series A Preferred Stock, convertible into 38,800 shares
of Common Stock, which Series A Preferred Stock represents approximately
2.5% of the outstanding shares of Common Stock of the Company (including
interests redeemable or convertible therefor and shares of Common Stock
issuable upon exercise of outstanding warrants).
o The Company will enter into a three-year employment agreement with Ms.
Levine as Chief Operating Officer and Executive Vice President, which
will be effective as of the consummation of the Formation Transactions.
Mr. Pilevsky, who will serve as Chief Executive Officer of the Company,
Ms. Levine and the Management Company will enter into a non-competition
agreement with the Company.
o The Company will enter into employment agreements with Messrs. Louis J.
Petra as President and Brian J. Gallagher as Chief Financial Officer,
which will be effective upon consummation of the Formation Transactions.
o The Company will contribute its fee title interest in the National
Property (together with the cash received from Mr. Pilevsky in connection
with his purchase of Common Stock) to the Operating Partnership in
exchange for its initial approximately 3.2% general partnership interest
therein (increasing to approximately 6.1% upon exercise of the Trustee
Warrants and conversion of the Series A Preferred Stock). The Company
will also acquire 1,940 preferred units of the Operating Partnership,
which will have financial terms substantially identical to the financial
terms of the Series A Preferred Stock.
o Until the completion of an Offering, the Interim Managing General Partner
will have full and exclusive control over the business and affairs of the
Operating Partnership, subject to certain rights of the limited partners
and certain limitations with respect to transactions with Mr. Pilevsky or
his affiliates.
o The Management Company will be engaged to provide certain property level
services and accounting services to the Company.
6
<PAGE>
The following diagram illustrates certain aspects of the Formation
Transactions.
----------------------------------
----------------------- Palm Springs Mile Associates, Ltd.
National Properties Forest Avenue Shopping Associates
Investment Trust Philips Freeport Associates, L.P.
----------------------- Merrick Shopping Associates
| ^ SP Avenue U Associates, L.P.
| | Foxborough Shopping L.L.C.
| ---------- | Enfield Shopping L.L.C.
| National | 32,000 shares Delran Shopping L.L.C.
| Trustees | of Common Stock Branhaven Plaza L.L.C.
| ---------- | ----------------------------------
1 ^ | ^ |
Property | ----------- | |
| ------------- | | |
| Trustees Securities | | | |
| ---------------------- L.P. | |
| Philips International interest | |9 Properties
| Realty Corp. | |
| ---------------------- | |
| 1,940 shares | ^ | | |
| of Preferred Stock | | | | |
| -------------| $| |10,660 shares | |
| | | | |of Common Stock | |
| \/ | | | | |
| ----------- | | \/ | |
| Prudential | ----------------- | |
| Securities | Philip Pilevsky | |
| ----------- GP | ----------------- | |
| interest| | |
| \/ | |
| ----------------------- | |
| Philips International ------------- |
---------------\ Realty, L.P. /--------------
/-----------------------\
See 'Structure and Formation of the Company', 'Partnership Agreement of the
Operating Partnership', and 'Risk Factors' for additional information regarding
the Formation Transactions.
7
<PAGE>
As a result of the Formation Transactions, the structure and ownership of
the Company will be as shown in the following diagram:
---------------------------------------------------------
Philips International Realty Corp.
("Company")(l)
33.9% owned by National and its shareholders (Common Stock)
11.3% owned by Mr. Pilevsky (Common Stock)
---- 13.7% owned by the Trustees (Common Stock and Warrants)
| 41.1% owned by Prudential Securities(2) (Preferred Stock
| convertible into Common Stock, on an as-converted basis)
| ---------------------------------------------------------
| | -----------------
| \/ Philips
| ------------------------------------------------------- International
| Philips International Realty, L.P. Realty, LLC
| ("Operating Partnership") ("Interim
| 6.1% owned by the Company, as non-managing general / Managing General
| partner(3) \--- Partner")(4)
| 0.001% owned by the Interim Managing General Partner, 100% owned by
| as managing general partner Mr. Pilevsky
| 93.899% owned by the Philips Group, as limited partners -----------------
| ------------------------------------------------------- / |
| | | / |
- --------------- | | / |
Philips Subs | | / |
100% owned by ------+---------------------------- | / |
the Company | -----------+-----+----------- |
- --------------- | | | | |
| \/ \/ \/ \/ \/
| ------------------------------------ ---------------------------------
| 4 Contributing Partnerships(5) 6 Holding Partnerships (6)
| (Owner of fee title to 4 (Owner of fee title to 6
| of the 10 Properties) of the 10 Properties)
| 99.989% owned by the Operating 99.989% owned by the Operating
| Partnership, as limited partner Partnership, as limited
--\ or non-managing member partner
/ 0.01% owned by the Philips Subs, 0.01% owned by the Philips Subs,
as non-managing partner or as non-managing general
non-managing member partner
0.001% by the Interim Managing 0.001% by the Interim Managing
General Partner, as managing General Partner as managing
general partner or managing general partner
member
------------------------------------ ---------------------------------
(1) If all Units of the Operating Partnership were redeemed by the Company for
Common Stock, all of the Trustees Warrants were exercised for Common Stock
and all the Series A Preferred Stock was converted into Common Stock, the
Company would be owned approximately 2.1% by National and its shareholders,
approximately 0.7% by Mr. Pilevsky, approximately 0.8% by the Trustees,
approximately 2.5% by Prudential Securities and approximately 93.9% by
members of the Philips Group (of which Mr. Pilevsky will hold a majority
interest). Units are redeemable beginning on the first anniversary of the
consummation of the Formation Transactions, at the holder's request, for
shares of Common Stock on a one-for-one basis (subject to certain
anti-dilution adjustments and exceptions) and/or cash (based on the fair
market value of an
(Footnotes continued on next page)
8
<PAGE>
(Footnotes continued from previous page)
equivalent number of shares of Common Stock at the time of redemption) or, at
the Company's option, for shares of Common Stock and/or cash, in its sole
discretion. See 'Partnership Agreement of Operating Partnership--Redemption
Rights.' Officers, directors, employees and consultants of the Company will
be granted stock options to acquire an aggregate of 261,600 shares of Common
Stock, which could reduce the percentage owned by public stockholders to 1.8%
(on a fully-diluted basis).
(2) Prudential Securities will receive, in lieu of the financial advisory fee
payable by National upon consummation of the Formation Transactions and
assumed by the Company under the Contribution and Exchange Agreement, 1,940
shares of Series A Preferred Stock, which are convertible into 38,800 shares
of Common Stock. Upon consummation of an Offering, the Company will have the
right, subject to the holder's right to convert, to redeem all (but not less
than all) of the Series A Preferred Stock for $1,940,000 in cash, plus any
accrued and unpaid dividends.
(3) Assumes exercise of the Trustee Warrants and conversion of the Series A
Preferred Stock, but not redemption of outstanding Units since such Units
may not be redeemed until the first anniversary of the consummation of the
Formation Transactions.
(4) The Interim Managing General Partner will have full and exclusive power
under the Partnership Agreement to manage the business and affairs of the
Operating Partnership, the Contributing Partnerships and the Holding
Partnerships until such time as the Company completes an Offering, subject
to certain limitations set forth therein, including limitations on
transactions with Mr. Pilevsky or any other member of the Philips Group and
subject to certain federal tax requirements to maintain REIT status.
(5) The Contributing Partnerships for 4 of the 10 Properties initially will be
owned 0.01% by a Philips Sub, as non-managing general partner or
non-managing member, as the case may be, 0.001% by the Interim Managing
General Partner, as managing general partner or managing member, and 99.989%
by the Operating Partnership, as limited partner or non-managing member, as
the case may be. Upon completion of an Offering, the interests of the
Interim Managing General Partner will be redeemed and the Philips Subs will
become managing general partners or managing members, as the case may be.
The balance of the Contributing Partnerships will transfer their respective
properties to the Holding Partnerships.
(6) The Holding Partnerships for 6 of the 10 Properties initially will be owned
0.01% by a Philips Sub, as non-managing general partner, 0.001% by the
Interim Managing General Partner as managing general partner and 99.989% by
the Operating Partnership, as limited partner. Upon completion of an
Offering, the interests of the Interim Managing General Partner will be
redeemed and the Philips Subs will become managing general partners.
9
<PAGE>
BENEFITS OF THE FORMATION TRANSACTIONS TO THE PHILIPS GROUP
The Founders proposed the Formation Transactions to the Philips Group
because they believe that the benefits of the organization of the Company for
the Philips Group outweigh the detriments to them. Benefits to members of the
Philips Group, including the Founders, include:
o improved liquidity of their interests in the Properties, increased
diversification of investment and deferral of the tax consequences
of the contribution of their interests in the Partnership Properties
to the Operating Partnership;
o the Company will own and manage ten shopping center properties
throughout the New England, Mid-Atlantic and the Southeast regions
of the United States, thereby representing an investment in an
enterprise with a significantly larger and more diversified
portfolio, which, although no assurances can be given, should
provide the Company greater access to the capital markets and result
in economies of scale in its operations;
o the release and/or indemnification by the Company of various members
of the Philips Group, including Mr. Pilevsky, with respect to the
assumed indebtedness and certain guarantees and indemnities in
connection with such indebtedness;
o receipt by the Founders of options to purchase Common Stock, each as
an executive officer of the Company, and the employment agreement
entered into with Ms. Levine providing for an annual salary, bonus
and other benefits for her services; and
o the Management Agreement, which will provide a fee to the Management
Company, an affiliate of the Founders, in connection with management
of the Properties. In addition, the Management Company or its
designees will receive options to purchase Common Stock.
BENEFITS OF THE FORMATION TRANSACTIONS TO NATIONAL SHAREHOLDERS
The Board of Trustees has unanimously approved the Transaction Agreements
and recommends that National shareholders approve the Transaction Agreements. In
making its recommendation, the Board of Trustees considered a number of factors,
including the following benefits to National shareholders:
o the Formation Transactions will result in a diversified real estate
company with expertise, through the Company's executive officers and
directors and the Management Company, in acquisition, development,
financing, construction, leasing and other tenant-related services,
enabling the Company to benefit from an effective management team with
substantial real estate experience;
o the Company will own ten shopping center properties throughout the New
England, Mid-Atlantic and Southeast regions of the United States,
compared with National's ownership of one property in Lake Mary, Florida,
thereby representing an investment for National shareholders in an
enterprise with a significantly larger and more diversified portfolio,
which, although no assurances can be given, should provide the Company
greater access to the capital markets and result in economies of scale in
its operations; and
o National does not expect to make cash distributions to shareholders in
the near future except as required to maintain its REIT status, but the
Company intends to make periodic distributions at least annually to its
shareholders in order to maintain its REIT status.
In making its recommendation, the Board of Trustees also considered the
written opinion of Prudential Securities, dated August 7, 1997, that, as of the
date of such opinion and based upon and subject to certain matters stated
therein, the consideration to be received by National for the National Property
pursuant to the Contribution and Exchange Agreement is fair to National from a
financial point of view, and the requirement under the Contribution and Exchange
Agreement of the approval of the Transaction Agreements by a plurality of
Unaffiliated Shareholders. The Board of Trustees also considered the effect of
the controlling ownership of the Philips Group, the reliance upon the Management
Company for the day-to-day management of the Properties and other factors
referred to above under 'Risk Factors'.
10
<PAGE>
In the process of reviewing the proposed Formation Transactions, the Board
examined the benefits to be received by insiders and affiliates of National and
the Company from the Formation Transactions. With respect to the additional
consideration in the form of the Trustees Securities to be received from the
Company by the National Trustees, Messrs. Stein and Goldman, the Board
acknowledged the effort, mostly uncompensated, that had been made by the
Trustees over a three year period to enhance shareholder value in National by,
among other things, making improvements to National's real property and
exploring alternative investment opportunities for National. The Board also took
note of the substantial time and effort expended by each of the Trustees in
performing due diligence and negotiating the Formation Transactions opportunity
for National shareholders. Based on these efforts and the ongoing effort of
managing National, the Board determined that the additional consideration to be
received by Messrs. Stein and Goldman, when viewed as part of the Formation
Transactions, was fair to and in the best interest of the National shareholders.
The Board also considered the conflicts of interest and control issues
presented by the role of Mr. Pilevsky and the Philips Group and their insiders
and affiliates in the Formation Transactions. In particular, the Board noted
that Mr. Pilevsky and the other officers and directors of the Company and the
members of the Philips Group initially will control Units and Common Stock
representing approximately 94.6% of the outstanding shares of Common Stock of
the Company (including interests redeemable or convertible therefor and shares
of Common Stock issuable upon exercise of outstanding warrants) compared to the
2.1% that it is contemplated that the National shareholders will own and the
0.8% to be owned by the Trustees. Despite the foregoing negative factors, the
Board determined that the opportunities and value to the shareholders presented
by the Formation Transactions outweighed the risks posed by the control and
conflicts of interest issues raised by the role of insiders and affiliates of
the Philips Group in the Formation Transactions and concluded that the Formation
Transactions were both fair to, and in the best interests of, shareholders.
As of the Record Date, the Trustees of National had the right to vote
96,789 National Shares, or approximately 12.9% of the outstanding National
Shares.
BACKGROUND OF THE FORMATION TRANSACTIONS AND ALTERNATIVES TO THE FORMATION
TRANSACTIONS
National was organized on January 16, 1985, as a Massachusetts business
trust. On July 23, 1993, National changed its name from Richard Roberts Real
Estate Growth Trust I to its current name. Since electing its REIT status in
1985, National has filed as a REIT under the provisions of the Code and intends
to maintain this status as long as it will benefit National's shareholders.
From inception, National invested directly in equity interests in five
commercial properties in the United States which had income-producing
capabilities. Four of these properties were lost to foreclosure in 1990 and
1992. National has experienced a loss of $18,598, income of $33,452 and a loss
of $272,220 for fiscal years ended December 31, 1996, 1995 and 1994,
respectively. The Shoppes at Lake Mary, a shopping center located in Lake Mary,
Florida, is National's sole remaining property.
Over the past several years, the Board of Trustees of National,
specifically Messrs. Stein and Goldman, has spent a considerable amount of time
investigating various alternatives in order to enhance shareholder value and
return on equity. The Board of Trustees has received various proposals, and has
performed extensive due diligence in assessing all of these proposals.
In spring of 1994, National retained a securities firm to assist in
locating a merger or joint venture partner that would be interested in operating
within a public real estate investment trust structure. Different properties
were reviewed, and preliminary discussions were held with one party. In July
1994, discussions were held with an owner's representative of a portfolio
comprising 56 small retail shopping properties in the Chicago area, Northern
Indiana and Southern Wisconsin. Most of the sites were visited by the Trustees,
and they received and evaluated detailed financial data on each property.
Discussions and meetings were held with the attorneys for the seller, but no
definitive proposal was made by either party. In January 1995, the Trustees
entered into negotiations with the general partner for a portfolio of 4,700
multi-family units located primarily in Michigan and Ohio. All the sites were
visited by the Trustees, some financial data was exchanged and various meetings
between principals were held. The limited partners of such general partner
elected not to proceed with a transaction. In spring of 1995, the Trustees
entered into detailed discussions with the general partner of a portfolio of
more than 100,000 multi-family units, mostly government-subsidized properties.
The Trustees
11
<PAGE>
entered into contract negotiations to acquire numerous properties, the largest
being a 230 unit high-rise in Cincinnati, Ohio. The parties were unable to agree
on the terms of a definitive agreement. In January through March of 1996, the
Trustees held discussions with a group owning more than 1,000 manufactured
housing units in the Phoenix, Arizona area. Included in this portfolio was land
and plans to develop an additional 900 units. The parties were unable to agree
on the terms of a definitive agreement. In May 1996, the Trustees held
discussions with both principals and attorneys for a portfolio of multi-family
units, located in the upper Midwest. Preliminary meetings were held in New York
with potential securities firms to raise the necessary capital for a
transaction. However, the parties were unable to agree on the terms of a
definitive agreement.
Prudential Securities' initial meeting with National was on December 30,
1996. There was a general discussion concerning the Trustees' goals for National
and potential candidates for a consolidation with National. Included among the
attributes deemed by the Board of Trustees to be of critical importance were:
(i) the financial strength of the strategic partner; (ii) the compatibility of
investment objectives and policies; and (iii) the potential for expansion by the
combined entity. On January 12, 1997, National engaged Prudential Securities to
serve as National's financial advisor. Prudential Securities had preliminary
conversations with several private real estate owners to obtain indications of
interest concerning a possible consolidation transaction with National. On
February 12, 1997, Philips and another private real estate owner made
presentations to National to introduce themselves to National and to describe
their respective businesses and organizations. Following the meeting, National
advised Prudential Securities that it would prefer to pursue a possible
transaction with Philips because Philips' property type was a better fit with
National, Philips had a Florida presence like National and National favored
Philips' development-oriented growth plans. The other party did not make a
proposal for a consolidation transaction with National.
Representatives of National and representatives of the Philips Group, and
their respective advisors, held numerous meetings and telephone conference calls
to discuss in conceptual terms the parameters of a possible transaction, to
refine the structure of the transaction and to negotiate the terms of a proposed
acquisition agreement. See 'Formation Transactions and Structure of the
Company--Background of the Formation Transactions.'
During the course of negotiations, the structure of the transaction was
established as a taxable transfer of the National Property for Common Stock
rather than as a tax-free merger transaction to ensure that the Company is not
deemed to assume the liabilities of National, and the parties further discussed
the compensation that would be paid to the Trustees. The Company sought a
distribution by National of Common Stock to shareholders in 1997, (so that the
Company would achieve an immediate public distribution), which distribution was
expected to be taxable to the National shareholders. The Board agreed to this
distribution, since it concluded that it would minimize the adverse tax
consequences to National shareholders by limiting the 1997 distribution to
approximately 18% of the Common Stock to be received by National. National also
agreed to maintain its REIT status and corporate existence for at least one year
following the closing of the Formation Transactions. During this period the
Trustees intend to pursue new opportunities for investment by the REIT and to
continue National as a REIT thereafter so long as, in the Board's determination,
reasonable avenues for enhancing shareholder value remain available.
On August 7, 1997, a special meeting of the Board of Trustees of National
was held in the offices of Bingham Dana LLP in Boston, Massachusetts to consider
the proposed Formation Transactions. After consideration of the positive and
negative factors involved, based on the totality of the facts and circumstances,
the Board resolved to approve National's entering into the Contribution and
Exchange Agreement and the consummation of the Formation Transactions as being
fair and in the best interest of the shareholders, and recommended shareholder
approval of the Transaction Agreements following a proxy solicitation. See
'Formation Transactions and Structure of the Company--Reasons for the Formation
Transactions; Recommendation of the Board of Trustees.'
12
<PAGE>
CONFLICTS OF INTEREST
Board of Trustees. As a result of certain benefits to be received by two
of the members of the National Board of Trustees, Messrs. Stein and Goldman,
upon consummation of the Formation Transactions, such individuals may have
conflicts of interest with respect to their obligations to National in
determining whether it should consummate the Formation Transactions. These
benefits are described in 'Risk Factors--Benefits to Trustees from the Formation
Transactions' and in 'The Formation Transactions--Interests of Certain Persons
in the Formation Transactions.'
The Philips Group. The Philips Group, including the Founders, has
interests that conflict with the interests of others participating in the
Formation Transactions, including the shareholders of National. The Company and
the Philips Group have been represented by the same legal counsel and,
therefore, the Company has not been advised by separate legal counsel in
connection with the Formation Transactions. See 'Risk Factors--Benefits to the
Philips Group from the Formation Transactions' and 'The Formation
Transactions--Interests of Certain Persons in the Formation Transactions.'
Mr. Pilevsky and Ms. Levine, who will be directors and executive officers
of the Company, will own Units in the Operating Partnership. As a result of
their status as holders of Units, such persons may have interests that conflict
with shareholders with respect to business decisions affecting the Company and
the Operating Partnership. In particular, such principals of the Philips Group
may suffer different and/or more adverse tax consequences than the Company and
its shareholders upon the sale or refinancing of certain of the Properties,
including a reduction of indebtedness on such properties. Thus, these executive
officers, on the one hand, and the shareholders, on the other hand, may have
different objectives regarding the appropriate pricing and timing of any sale or
refinancing of certain Properties, and such executive officers will be in a
position to influence the Company not to sell or refinance a Property, even
though such sale might otherwise be financially advantageous to the Company, and
will be in a position to influence the Company to refinance a Property with a
higher level of debt (which could be more advantageous from a tax standpoint to
such persons due to their existing holdings in the Properties) than would be in
the best interests of the Company.
The Interim Managing General Partner. The Partnership Agreement provides
that the Interim Managing General Partner will have full, exclusive and complete
responsibility in the management and control of the business and affairs of the
Operating Partnership (subject to the rights accorded to the limited partners,
of which Mr. Pilevsky will hold a majority of the Units), the Contributing
Partnerships and the Holding Partnerships, and that the Company shall have no
such rights until the completion of an Offering. Thus, until completion of an
Offering, the business and affairs of the Company, conducted through the
Operating Partnership, will be exclusively controlled by Mr. Pilevsky, as sole
member of the Interim Managing General Partner, subject to certain limitations
with respect to transactions between the Company and Mr. Pilevsky or his
affiliates. Since distributions to shareholders require a distribution from the
Operating Partnership to the Company, Mr. Pilevsky will also control any
decision regarding distributions to shareholders (subject to certain federal tax
requirements to maintain REIT status). See 'Partnership Agreement of Operating
Partnership' and 'Risk Factors--Control by the Interim Managing General
Partner.'
Philips Private Company/Excluded Properties. The Philips Group has
directly or indirectly contributed all of the Partnership Properties to the
Operating Partnership. However, certain members of the Philips Group, including
the Founders, will continue to hold through Philips Private Company significant
interests in income producing real property, including certain retail
properties, which will not be contributed to the Company as part of the
Formation Transactions. Neither the Philips Group nor any of its affiliates will
be limited in any manner with respect to such income producing real property
other than pursuant to a non-competition agreement (which places certain
restrictions on the ability of Mr. Pilevsky, Ms. Levine, the Management Company
and their respective affiliates to acquire, operate, manage or develop retail
shopping center properties, other than through the Company, subject to certain
exceptions) and they may therefore engage in real estate activities which could
be directly competitive with the business of the Company. See 'Excluded
Properties,' '--Conflicts of Interest with and Dependence on the Management
Company' and 'Management Agreement and Non-Competition Agreement.'
The Management Company. The day-to-day leasing, development, acquisition,
property and portfolio management and related administrative functions of the
Company will be performed jointly by the Company and
13
<PAGE>
the Management Company, including certain executive officers and employees of
the Management Company who currently manage the Partnership Properties, pursuant
to the terms of the Management Agreement. Management Company personnel will not
devote their efforts full-time to the management of the business and properties
of the Company, but will in fact devote a material amount of their time to the
management of the business and properties of Philips Private Company, which
could be directly competitive with the business of the Company. The failure of
the Management Company personnel to adequately perform services for the Company
could adversely effect the business of the Company. See 'Risk Factors--Conflicts
of Interests--Philips Private Company/Excluded Properties.'
MANAGEMENT
The Company's day-to-day leasing, development, acquisition, property and
portfolio management and related administrative functions will be performed
jointly by the Company and the Management Company. The Management Company
initially will be engaged to manage the Partnership Properties, pursuant to a
management agreement (the 'Management Agreement'), for a fee equal to 3% of
annual gross rental collections (which, based upon estimated gross rental
collections for 1996, would have been approximately $930,000), plus certain
leasing commissions (not to exceed local current market rates, determined based
upon an analysis derived from contacts with local brokers), construction
supervisory fees (ranging from 10-20% of the cost of a project, determined based
upon the level of difficulty of such project) and other fees not to exceed
current market rates. The Management Agreement may be terminated at any time, in
whole or in part, upon thirty days' written notice, by the Company in the event
it elects to perform one or more of such management functions on an 'in-house'
basis, and at the Company's option upon certain other conditions. See
'Management Agreement and Non-Competition Agreement--Management Agreement.'
The Company's executive officers will include Mr. Pilevsky, Chairman of the
Board and Chief Executive Officer of the Company, who will devote in excess of
50% of his professional time to overseeing the management of the Properties and
the growth of the Company as well as a significant amount of his time to the
management of the business and properties of Philips Private Company, including
non-retail real estate activities and certain properties not contributed to the
Company in the Formation Transactions. Ms. Levine, Chief Operating Officer and
Executive Vice President of the Company, will devote in excess of 90% of her
professional time to overseeing the management of the Properties and the growth
of the Company, and will have limited involvement with certain properties not
contributed to the Company in the Formation Transactions. See 'Risk
Factors--Conflicts of Interests--Philips Private Company/Excluded Properties.'
Pursuant to the terms of a non-competition agreement, Mr. Pilevsky, Ms. Levine
and the Management Company have agreed to conduct all of their future
management, operations, acquisitions or development of retail shopping center
properties, with certain exceptions, through the Company. See 'Management
Agreement and Non-Competition Agreement--Non-Competition Agreement.' In
addition, prior to the consummation of the Formation Transactions, the Company
will enter into employment agreements with Messrs. Petra and Gallagher, who will
devote all of their professional time overseeing the management of the
Properties and the growth of the Company. Ms. Levine and Messrs. Pilevsky, Petra
and Gallagher (the 'Executive Officers') have an average of 20 years' experience
in all aspects of the real estate industry, and have developed many long-term
relationships with tenants, brokers, property owners, lenders, contractors,
suppliers and others in the real estate industry throughout the New England,
Mid-Atlantic and Southeast regions of the United States. In addition, Mr. Petra
has 13 years of prior experience as a senior executive with a publicly-traded
real estate company that focused on the retail shopping center business.
GROWTH STRATEGY
The Company will seek to maximize shareholder value through aggressive
growth of its cash flow per share to be accomplished through an integrated,
multi-faceted strategy capitalizing on the Company's existing strengths and
substantial expertise in the real estate industry.
The Company will continue to utilize its aggressive asset and property
management style to maximize cash flow from its Properties. The Company, through
management's extensive knowledge of retail demand and shopping center operations
accumulated in over 20 years of shopping center ownership and development
14
<PAGE>
throughout the United States, and through its extensive, direct relationships
with the tenant community, will continue its program of (a) seeking optimal
tenant mix at the most favorable rental structure, (b) maximizing occupancy, (c)
minimizing property operating expenses, and (d) superior physical maintenance.
The Company also will continue to selectively engage in property expansion,
re-leasing and redevelopment where the economics of such are favorable to
shareholder value.
The Company intends to aggressively manage its capital and cost structures
so as to maximize total return to shareholders. The Company intends to
restructure its balance sheet to reduce leverage, appropriately match assets and
liabilities and to continuously seek more favorable forms of capital with which
to fulfill its business objectives and enhance its cash flow per share.
Consistent with this strategy, the Company intends, subject to market
conditions, to complete a public or private equity offering, at such time as it
deems it advantageous to do so, and, simultaneously therewith, to obtain a
revolving credit facility to fund acquisitions and for working capital purposes.
The Company, in order to more appropriately match its overhead to the size of
its portfolio, initially will utilize the services of the Management Company for
certain non-executive functions, but intends as the portfolio grows to hire
directly a significant number of those individuals providing such services.
The Company initially will focus its activities in the New England,
Mid-Atlantic and Southeast regions of the United States, utilizing the initial
Properies as a foundation for the Company's anticipated geographic expansion.
The Company, upon closing of the Formation Transactions, will have two offices,
one located at the midpoint of the New England and Mid-Atlantic regions, in New
York, New York, and one located in the Southeast region in Hialeah, Florida. The
Company intends to utilize its existing presence in these regions for expansion
throughout the major markets of the eastern United States.
The Company intends to acquire additional properties at initially
attractive returns which are capable of being further enhanced through the use
of management's proven, value-added expertise, including opportunities to expand
or redevelop properties to attract tenants at higher rent levels. The Company
will seek to acquire properties at below replacement cost in markets with strong
demographics, emphasizing locations where retail demand exceeds supply and the
creation of new supply is hindered. As a result, it is anticipated that most new
acquisitions will occur in major urban-suburban markets. The Company, through
its management team, will apply the same asset and property management
philosophy which it has successfully used for over 20 years, embodied in the
assets to be contributed by the Contributing Partnership upon the closing of the
Formation Transactions. The Company may acquire properties, in whole or in part,
through the issuance of Units, which will enable sellers to defer the payment of
taxes on properties contributed to the Operating Partnership until such time as
the Units are redeemed for Common Stock.
The Philips Group's long-standing relationships in the real estate
brokerage community should give the Company a competitive advantage in
identifying potential acquisition candidates which fit the Company's investment
objectives. Furthermore, the numerous individuals and institutions who have
invested with the members of the Philips Group in past and present real estate
projects should also provide a referral source of potential future retail
shopping center acquisition candidates. In addition, certain members of the
Philips Group, including Mr. Pilevsky, have significant equity interests in
retail shopping center properties which may over time become desirable
acquisition targets for the Company. Such properties were not included in the
Formation Transactions for various reasons, including (i) the asset size, type,
quality or geographic location was not consistent with the Company's acquisition
criteria, (ii) the required valuation of such property would be economically
undesirable from the Company's standpoint, and (iii) partnership and lender
consent issues precluded including certain property in the Company's property
portfolio. Any acquisition of properties owned in part or in whole by Mr.
Pilevsky or any other member of the Philips Group must be approved by the
Company's independent directors.The Company has no agreement with respect to the
acquisition of any of these excluded properties, and, therefore, no assurance
can be made that any such acquisitions will be consummated.
PROPERTIES
The Company initially will own and operate ten shopping center properties
located in metropolitan and suburban areas in the New England, Mid-Atlantic and
Southeast regions of the United States. The Partnerships Properties consist of
shopping centers located in Merrick, Brooklyn, Staten Island, and Freeport, New
York;
15
<PAGE>
Hialeah, Florida; Enfield and Branford, Connecticut; Delran, New Jersey; and
Foxborough, Massachusetts. The National Property consists of one shopping center
in Lake Mary, Florida.
The Properties are well established community and neighborhood shopping
centers strategically located in densely populated, generally middle and upper
income markets and are conveniently located and easily accessible from major
transportation arterials. The Properties contain a total of approximately 2.4
million square feet of GLA, with the individual properties ranging from
approximately 38,000 square feet to approximately 1.2 million square feet of
GLA. As of September 30, 1997, the Properties were approximately 96.4% leased to
over 260 tenants. The Company's principal tenants include major national and
regional retailers, such as Pergament Home Centers, Inc., APW Supermarkets, Inc.
(Waldbaum's), Toys 'R' Us Inc., Giant Food Stores, Inc., Walgreen Co., Mervyn's,
United Artists Communications, Inc., The TJX Companies (TJ Maxx), Winn-Dixie
Stores Inc. and Michaels Stores Inc. The Company believes, based in part on
recent engineering reports, that all of its Properties are well-maintained and
do not require significant capital improvements.
For the year ended December 31, 1996, the Partnership Properties and the
National Property accounted for 98.4% and 1.6%, respectively, of the Company's
approximately 2.4 million square feet of pro forma GLA and approximately 99.6%
and 0.4%, respectively of the Company's approximately $5.3 million of pro forma
Funds from Operations.
16
<PAGE>
Property Data. The following table sets forth certain information relating
to each of the Properties as of September 30, 1997. All of the Properties will
be 100% owned by the Company after completion of the Formation Transactions.
<TABLE>
<CAPTION>
TOTAL PERCENTAGE TOTAL
YEAR TOTAL ANNUALIZED OF TOTAL ANNUALIZED PERCENT
BUILT/ GLA PERCENT OF BASE RENT ANNUALIZED BASE RENT/ LEASED
PROPERTY LOCATION RENOVATED (SQ. FT.) TOTAL GLA(%) ($000)(1) BASE RENT(%) SQ. FT.($)(2) (3)(%)
- ---------------------------------------- --------- ------------ ---------- ------------ ------------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Forest Avenue 1957/1996 177,002 7.4 3,071 12.8 17.51 99.1
Shoppers Town,
Staten Island, NY
Meadowbrook Commons 1990 173,027 7.3 3,029 12.7 17.50 100.0
Sunrise Highway,
Freeport, NY
Merrick Commons 1960/1994 106,393 4.5 1,737 7.3 16.38 99.7
Merrick Road
Merrick, NY
Mill Basin Plaza 1991 80,708 3.4 2,104 8.8 26.07 100.0
5700-5716 Avenue U
Brooklyn, NY
Palm Springs Mile 1958/1985 - 1,175,346 49.3 10,491 43.9 9.47 94.3
419 West 49th St. 1997
Hialeah, FL
The Shoppes at Lake Mary 1985 38,125 1.6 309 1.3 8.44 100.0
101 N. Country Club Rd.
Lake Mary, FL 32746
Branhaven Plaza 1971/1996 187,829 7.9 1,319 5.5 7.04 99.8
1060 West Main St.
Branhaven, CT
Elm Plaza 1973/1995 168,852 7.1 582 2.4 3.53 97.6
95 Elm Street
Enfield, CT
Millside Plaza 1977 161,128 6.8 761 3.2 4.81 98.3
Route 130 & Haines Mill Rd.
Delran, NJ
Foxboro Plaza 1982 117,831 4.9 513 2.1 4.77 91.2
Route 140 &
Commercial St.
Foxborough, MA
--------- ----- ---------- ----- ----- -------
2,386,241 100.0 23,916 100.0 10.41 96.4
--------- ----- ---------- ----- ----- -------
--------- ----- ---------- ----- ----- -------
<CAPTION>
ANCHOR TENANTS (.25,000 SQ.
FT.) (YEAR OF LEASE
EXPIRATION; PRIMARY/OPTION
PROPERTY LOCATION TERM)
- ---------------------------- ----------------------------
<S> <C>
Forest Avenue The TJX Companies
Shoppers Town, (TJ Maxx) (2005, 2020)
Staten Island, NY APW Supermarkets, Inc.
(Waldbaum's) (2001, 2011)
Meadowbrook Commons Giant Food Stores, Inc. (2025)
Sunrise Highway, Toys 'R' Us, Inc. (2020, 2040)
Freeport, NY Marshall's (2001, 2016)
Merrick Commons APW Supermarkets, Inc.
Merrick Road (Waldbaum's) (2013, 2041)
Merrick, NY
Mill Basin Plaza Pergament Home Centers, Inc.
5700-5716 Avenue U (2011, 2021)
Brooklyn, NY
Palm Springs Mile United Artists Theaters
419 West 49th St. (2010, 2030)
Hialeah, FL Mervyn's (2011, 2031)
Publix (2002)
Kids 'R' Us (2016, 2026)
Burlington Co. (2002, 2022)
Toys 'R' Us, Inc. (2002, 2033)
Circuit City Stores, Inc.
(2009, 2029)
RTG Furniture (2000, 2005)
The Shoppes at Lake Mary
101 N. Country Club Rd.
Lake Mary, FL 32746
Branhaven Plaza Caldor, Inc. (2002, 2022)
1060 West Main St. APW Supermarkets, Inc.
Branhaven, CT (Waldbaum's) (2016, 2038)
Elm Plaza Caldor Inc. (2001, 2021)
95 Elm Street APW Supermarkets, Inc.
Enfield, CT (Waldbaum's) (2014, 2034)
Millside Plaza Kmart Corp. (2002, 2017)
Route 130 & Haines Mill Rd. Shop Rite (2001, 2016)
Delran, NJ
Foxboro Plaza Bradlees (Stop N Shop)
Route 140 & (2002, 2022)
Commercial St.
Foxborough, MA
</TABLE>
- ------------------
(1) Total annualized contractual base rent as of September 30, 1997, excluding
(i) percentage rent, (ii) additional rent payable by tenants such as common
area maintenance, real estate taxes and other expense reimbursements, and
(iii) future contractual rent escalations and cost of living increases.
(2) Total annualized contractual base rent divided by total GLA leased as of
September 30, 1997.
(3) Percent of GLA leased as of September 30, 1997.
17
<PAGE>
FINANCING POLICY
The Company's Board of Directors has not set any limit on the amount or
percentage of debt the Company may incur. Subject to existing market conditions,
the Company intends to raise additional debt and/or equity capital consistent
with its objective to maximize shareholder value. See 'Management's Discussion
and Analysis of Financial Condition and Results of Operations--The Company (Pro
Forma)--Liquidity and Capital Resources.'
DISTRIBUTION POLICY
The Company currently intends to make periodic distributions to comply with
REIT distribution requirements. See 'Management's Discussion and Analysis of
Financial Condition and Results of Operations--The Company (Pro
Forma)--Liquidity and Capital Resources.' In order to maintain its qualification
as a REIT, the Company must make annual distributions to shareholders of at
least 95% of its REIT taxable income (excluding capital gains). Under certain
circumstances, the Company may be required to make distributions in excess of
cash available for distribution in order to meet such distribution requirements.
COMPARISON OF SHAREHOLDERS' RIGHTS
The following provisions are applicable to National shareholders through
the Declaration of Trust, the trustees regulations adopted by the Board of
Trustees (the 'Trustees Regulations') or the Massachusetts Business Corporation
Law (the 'MBCL'), but will not be applicable to shareholders of the Company
(which will be governed by the Company's Amended and Restated Articles of
Incorporation (the 'Charter'), its Amended and Restated By-Laws (the 'By-Laws')
and the Maryland General Corporation Law (the 'MGCL') following completion of
the Formation Transactions:
o National's Declaration of Trust restricts investment and financing
activities and certain extraordinary transactions, whereas the Company's
Charter and By-Laws do not contain similar restrictions;
o a trustee of National may be removed without cause by the
affirmative vote of the holders of a majority of the outstanding National
Shares entitled to vote or with cause by the remaining trustees, whereas a
director of the Company may be removed only for cause by the affirmative
vote of the holders of two-thirds of the total outstanding shares of Common
Stock;
o the holders of 10% of the outstanding National Shares or a majority
of the Board of Trustees may require that a special meeting of National
shareholders be called, whereas a majority of the Board of Directors, the
Chief Executive Officer, the President, or the holders of a majority of
outstanding shares of Common Stock may request a special meeting of the
Company's shareholders;
o there are no Massachusetts anti-takeover statutes currently
applicable to National and there will be no MGCL anti-takeover statutes
applicable to the Company upon consummation of the Formation Transactions
due to the election by the Company to opt out of such provisions; however,
certain provisions of the Company's Charter and By-Laws may have the effect
of discouraging a third party from making an acquisition proposal for the
Company and may thereby inhibit a change of control of the Company.
In addition, certain provisions of the Operating Partnership's partnership
agreement further provide that the Company may not engage in any merger,
consolidation or other combination with or into another person, the sale of all
or substantially all of its assets or any reclassification, recapitalization or
change of its outstanding equity interests (each a 'Termination Transaction')
unless all limited partners either will receive, or will have the right to elect
to receive, for each Unit an amount of cash, securities or other property equal
to the product of (i) the number of shares of Common Stock into which each Unit
is convertible and (ii) the greatest amount of cash, securities or other
property paid to the holder of one share of Common Stock in consideration of one
share of Common Stock pursuant to the terms of the Termination Transaction. If,
in connection with the Termination Transaction, a purchase, tender or exchange
offer shall have been made to and accepted by the holders of the outstanding
shares of Common Stock, each holder of Units will receive, or will have the
right to elect to receive, the greatest amount of cash, securities or other
property which such holder would have received had it exercised its right to
redemption and received shares of Common Stock in exchange for its Units
immediately prior to the
18
<PAGE>
expiration of such purchase, tender or exchange offer and had thereupon accepted
such purchase, tender or exchange offer. See 'Comparison of Shareholders'
Rights' and 'Partnership Agreement of Operating Partnership--Rights of Limited
Partners'.
RESTRICTIONS ON COMMON STOCK OWNERSHIP
Because of limitations imposed by the Internal Revenue Code of 1986, as
amended (the 'Code'), on the concentrations of ownership of stock of a REIT, the
Charter generally prohibits any stockholder, directly or through attribution,
from owning more than 6.5% (by number of shares or value, whichever is more
restrictive) of the outstanding capital stock of the Company, which percentage
may be increased up to 9.8% upon resolution of the Board of Directors of the
Company. The Board of Directors has waived the ownership limitation with respect
to Mr. Pilevsky and has permitted Mr. Pilevsky and his affiliates to actually or
constructively own up to 25% of the outstanding capital stock of the Company
(excluding interests redeemable or convertible therefor and shares issuable upon
exercise of outstanding warrants; the 'Philips 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 capital stock
if such ownership or acquisition (i) would cause more than 50% in value of the
outstanding capital stock to be owned by five or fewer individuals or (ii) would
otherwise result in the Company's failing to qualify as a REIT. See 'Description
of Capital Stock,' 'Certain Provisions of Maryland Law and of the Company's
Charter and By-laws' and 'Federal Income Tax Considerations'.
TAX STATUS OF THE COMPANY
The Company intends to make an election to be taxed as a REIT under
Sections 856 through 860 of the Code, commencing with taxable year ending
December 31, 1998, but may elect to qualify as a REIT as early as the taxable
year ending December 31, 1997. The Company will elect REIT status for the year
ending December 31, 1997, if the failure to so elect would adversely affect
National's REIT status. As a REIT, the Company generally will not be subject to
federal income tax on taxable income that it distributes to its shareholders,
and is subject to a number of organizational and operational requirements,
including a requirement that it currently distribute at least 95% of its REIT
taxable income (determined without regard to the dividends paid deduction and by
excluding net capital gains) to its shareholders. If the Company fails to
qualify as a REIT in any taxable year, the Company will be subject to federal
income tax (including any applicable alternative minimum tax) on its taxable
income at regular corporate rates. See 'Federal Income Tax Considerations--
Failure to Qualify as a REIT' for a more detailed discussion of the consequences
of a failure of the Company to qualify as a REIT. Even if the Company qualifies
for taxation as a REIT, the Company may be subject to certain state and local
taxes on it income and property and to federal income tax and excise taxes on
its undistributed income. See 'Federal Income Tax Considerations--Taxation of
the Company.'
In the opinion of Pryor, Cashman, Sherman & Flynn, tax counsel to the
Company, the discussion contained in the section entitled 'Federal Income Tax
Considerations' fairly summarizes the federal income tax considerations that are
likely to be material to a holder of Common Stock, and commencing with the
Company's taxable year in which it timely elects to be taxed as a REIT, the
Company will be organized in conformity with the requirements for qualification
as a REIT and its proposed method of operation will enable it to meet the
requirements for qualification and taxation as a REIT under the Code. The
opinion of Pryor, Cashman, Sherman & Flynn is based upon current law, the
Company's ability to satisfy certain Code requirements, and certain
representations made by the Company as to certain factual matters; such opinion
is not binding upon the IRS and no assurance can be given that the Internal
Revenue Service will not challenge the Company's eligibility for taxation as a
REIT.
CERTAIN ASPECTS OF THE CONTRIBUTION AND EXCHANGE AGREEMENT
Conduct of Business. Until the closing of the Formation Transactions
contemplated by the Contribution and Exchange Agreement (the 'Closing'), or
earlier termination of the Contribution and Exchange Agreement, National, the
Company, its subsidiaries and the Contributing Partnerships will each conduct
their operations in the ordinary course of business consistent with past
practice. In addition, unless agreed in writing or except as
19
<PAGE>
otherwise permitted by the Transaction Agreements, none of National, the
Company, any of its subsidiaries or any of the Contributing Partnerships is
permitted to engage in any of a number of actions specified in the Transaction
Agreements. Additionally, National has agreed to maintain its existence and not
adopt any plan of liquidation or dissolution for a period of at least one year
following the Closing. See 'The Formation Transactions--Description of the
Contribution and Exchange Agreement--Conduct of Business.'
No Solicitation. Prior to the Closing or earlier termination of the
Contribution and Exchange Agreement, neither National nor any of its trustees,
advisors, officers, employees, agents, affiliates, or any investment banker or
financial advisor acting on its behalf, will, directly or indirectly, solicit,
initiate or encourage any person to pursue a Competing Offer (as defined in
'Formation Transactions and Structure of the Company--Description of the
Contribution and Exchange Agreement'), except as may be required by the exercise
of their fiduciary duties under applicable law. See 'The Formation
Transactions--Description of the Contribution and Exchange Agreement--No
Solicitation of Competing Transactions.'
Additional Conditions of the Formation Transactions. The consummation of
the Formation Transactions is conditioned upon the satisfaction or waiver of
certain additional conditions set forth in the Contribution and Exchange
Agreement, including the condition that the requisite approval of the National
shareholders shall have been obtained. See 'The Formation
Transactions--Description of the Contribution and Exchange Agreement--
Conditions to the Consummation of the Formation Transactions.'
Certain Federal Income Tax Consequences. National and the Company consider
the Formation Transactions to be taxable transactions for federal income tax
purposes, in which National will recognize gain to the extent that the fair
market value of the Common Stock received by National pursuant to the
Contribution and Exchange Agreement exceeds National's adjusted tax basis in the
National Property. It is estimated that for federal tax purposes a gain of
approximately $1.1 million will be recognized by National as a result of the
Formation Transactions and all such gain and substantial portion of state tax
gain will be offset by carry-over net operating losses of National. National and
the Company intend to file federal, state and local income tax returns
consistent with such treatment.
Generally, as a result of the distribution in 1997 of 3,744 shares of
Common Stock to the National shareholders, gain for federal tax purposes will be
recognized by the shareholders of National of approximately $0.25 per Share, and
the distribution of 20,256 shares of Common Stock in 1998 will be considered a
reduction in basis of the National Shares held by each holder and will be
taxable as capital gain only to the extent it exceeds a shareholder's basis in
the National Shares held by such shareholder. Holders of National Shares are
urged to consult their own tax advisors as to the specific tax consequences to
them of the Formation Transactions. See 'The Formation Transactions--Certain
Federal Income Tax Consequences.'
In the opinion of Bingham Dana LLP, tax counsel to National, the discussion
contained in the section entitled 'The Formation Transactions--Certain Federal
Income Tax Consequences' fairly summarizes the federal income tax consequences
that are likely to be material to a holder of National Shares.
Termination. The Contribution and Exchange Agreement may be terminated (i)
by mutual consent of the parties, (ii) by either National or the Contributing
Partnerships if the Formation Transactions have not been consummated by December
31, 1997 and (iii) under certain other circumstances. In addition, National will
be obligated to pay to the Company certain termination fees under certain
circumstances. See 'The Formation Transactions--Description of the Contribution
and Exchange Agreement--Termination.'
Indemnification. The Company will indemnify, defend and hold harmless the
Board of Trustees for any damages suffered in the event any suits (other than
suits that relate to actions or inactions on the part of Messrs. Stein, Goldman
or Reibstein taken or not taken, as the case may be, which are unrelated to the
negotiation and execution of the Contribution and Exchange Agreement and
consummation of the Formation Transactions) are brought against them as a result
of the transactions contemplated by the Contribution and Exchange Agreement.
These indemnification obligations of the parties survive the consummation of the
Formation Transactions. See 'The Formation Transactions--Description of the
Contribution and Exchange Agreement--Indemnification and Insurance.'
20
<PAGE>
Agreement to Vote. Pursuant to the Contribution and Exchange Agreement,
Messrs. Stein, Goldman and Reibstein agreed to vote all National Shares held by
them, and to cause their respective affiliates to vote all National Shares held
by such affiliates, in favor of the Transaction Agreements.
Expenses. In general, the Company will bear its expenses and those of
National incurred in connection with the Formation Transactions. See 'The
Formation Transactions--Description of the Contribution and Exchange
Agreement--Expenses.'
THE MEETING
Date, Time and Place. The Meeting will be held at 3:00 p.m., local time,
on Tuesday, December 30, 1997, at the offices of Pryor, Cashman, Sherman &
Flynn, 410 Park Avenue, New York, New York 10022. See 'The Meeting--Purpose of
the Meeting.'
Record Date. Only holders of record of National Shares at the close of
business on December 4, 1997, the Record Date, are entitled to notice of, and to
vote at, the Meeting. See 'The Meeting--Purpose of the Meeting--Record Date;
Shareholders Entitled to Vote and Required Vote.'
Other Matters. In addition to considering and acting upon Proposal 1 and
Proposal 2, the shareholders of National will consider and act upon such other
business as may properly be brought before the Meeting.
Vote Required. The presence of a majority of the outstanding National
Shares, either in person or by proxy, is necessary to constitute a quorum at the
Meeting. Abstentions and broker non-votes are counted as shares present for
purposes of determining the presence of a quorum at the Meeting, but broker
non-votes are not counted as votes on any matter to which they relate. Approval
of each of the proposals requires the affirmative vote of the holders of a
majority of the outstanding National Shares entitled to vote at the Meeting.
Accordingly, abstentions and broker non-votes will have the effect of a vote
against the approval of a proposal. In addition, the Contribution and Exchange
Agreement requires the affirmative vote of a plurality of the votes cast by
Unaffiliated Shareholders for approval of Proposal 1. The adoption of each
proposal is conditioned upon the approval of the other proposal. As of the
Record Date, the Trustees of National (or their affiliates) had the right to
vote 96,789 National Shares, or approximately 12.9% of the outstanding National
Shares. Such persons have agreed to vote their National Shares in favor of the
Transaction Agreements. See 'Formation Transactions and Structure of the
Company--Reasons for the Formation Transactions; Recommendation of the Board of
Trustees' and '--Description of the Contribution and Exchange
Agreement--Agreement to Vote.'
Proxies. All holders of National Shares represented at the Meeting by
properly executed proxies received by National prior to or at the Meeting,
unless such proxies previously have been revoked, will be voted at the Meeting
in accordance with the instructions on the proxies. IF NO CONTRARY INSTRUCTIONS
ARE INDICATED, SUCH PROXIES WILL BE VOTED FOR THE APPROVAL OF EACH OF PROPOSAL 1
AND PROPOSAL 2. PROXIES THAT ARE VOTED AGAINST EITHER PROPOSAL 1 OR PROPOSAL 2
WILL NOT BE VOTED IN FAVOR OF AN ADJOURNMENT OR POSTPONEMENT OF THE MEETING.
PLEASE MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY PROMPTLY USING THE
ENCLOSED PRE-PAID ENVELOPE OR DELIVER TO: THE HERMAN GROUP, INC., 2121 SAN
JACINTO STREET, 26TH FLOOR, DALLAS, TEXAS 75201. FACSIMILE COPIES OF THE PROXY,
PROPERLY COMPLETED AND DULY EXECUTED, WILL BE ACCEPTED AT (214) 999-9323 OR
(214) 999-9348. IF YOU HAVE ANY QUESTIONS, PLEASE CALL THE HERMAN GROUP, INC. AT
(800) 582-1313.
Recommendation of the National Board of Trustees. The Board of Trustees of
National has unanimously approved the Transaction Agreements, and unanimously
recommends that the shareholders of National approve each of Proposal 1 and
Proposal 2. In making its recommendation, the Board of Trustees evaluated a
number of factors. See 'The Formation Transactions--Reasons for the Formation
Transactions; Recommendation of the Board of Trustees.'
Opinion of Financial Advisor. National engaged Prudential Securities as
its financial advisor in connection with the Board of Trustees' review of
strategic alternatives for National and its shareholders. On August 7, 1997,
Prudential Securities delivered its written opinion to the Board of Trustees
that, as of such date and subject to certain matters stated therein, the
consideration to be received by National for the National Property pursuant to
the Contribution and Exchange Agreement is fair to National from a financial
point of view. Prudential Securities confirmed its prior opinion as of the date
of this Proxy Statement/Prospectus. The opinion of Prudential Securities does
not constitute a recommendation as to how any shareholder should vote at the
Meeting. See 'The Formation Transactions--Opinion of Financial Advisor.'
21
<PAGE>
Appraisal Rights; Shareholders List. The shareholders of National have no
appraisal rights or dissenters' rights with respect to the Formation
Transactions under the Declaration of Trust or Massachusetts business trust law.
The Declaration of Trust provides that shareholders of National have the right,
for proper purposes, to inspect a list of the names and addresses of the
shareholders of National in the manner and to the extent provided under
Massachussetts business corporation law. Such request for inspection should be
delivered to the Board of Trustees of National at 32 Hanson Road, Canton Center,
Connecticut, 06020, or by facsimile to (888) 678-7642.
MARKET INFORMATION
The National Shares are not actively traded and, therefore, there is no
available information concerning historical stock prices for the National
Shares.
As of the Record Date, 1997, there were approximately 1,770 holders of
record of National Shares.
National declared and paid cash distributions on a monthly basis from
February 1987 through July 1988 and in September 1988 and February 1989. On
April 11, 1989, the Trustees voted to suspend the monthly shareholders' dividend
indefinitely, effective with the scheduled distribution for the third month of
1989. This decision was predicated upon the desire to direct all available funds
into property operations. A one-time dividend of $0.05 per share was declared in
January 1996 and paid in February 1996 to shareholders of record as of September
30, 1995. This dividend was a return of capital to the shareholders. The
dividend was declared by the sole vote of the managing trustee at such time.
SUMMARY SELECTED FINANCIAL DATA
The following table sets forth selected financial and operating information
for (i) Philips International Realty Corp. (the 'Company'), on a pro forma
basis, (ii) for The Philips Company ('Philips') on a combined historical basis,
(iii) for the Merrick Commons and Mill Basin Plaza Properties ('Merrick/Mill
Basin') on a combined historical basis, (iv) for National on a historical basis,
(v) for Philips, Merrick/Mill Basin and National, all on a combined historical
basis and as modified for the pro forma adjustments (collectively, the 'Equity
Investees') and (vi) for Philips International Realty, L.P. (the 'Operating
Partnership') on a pro forma basis. This information should be read in
conjunction with all of the financial statements and the notes thereto included
elsewhere in this Proxy Statement/Prospectus. The unaudited historical financial
information presented herein is based upon the separate historical financial
statements of the respective entities and the notes thereto which appear
elsewhere in this Proxy Statement/Prospectus and should be read in conjunction
with such financial statements. The unaudited pro forma financial information
presented herein is based upon the pro forma financial statements of Philips
International Realty Corp., the Equity Investees, the Operating Partnership and
the notes thereto which appear elsewhere in this Proxy Statement/Prospectus and
should be read in conjunction with such financial statements. Reference should
also be made to 'Management's Discussion and Analysis of Financial Condition and
Results of Operations' in conjunction with the review of all historical and pro
forma financial and operating information set forth herein.
Upon completion of the Formation Transactions, Philips International Realty
LLC will become the 'Interim Managing General Partner' of the Operating
Partnership and each of the property partnerships with a .001% interest in each
and the Company will have directly or indirectly a non-managing general
partnership interest and therefore will record its investment in the Operating
Partnership on the equity method. The Interim Managing General Partner's
interests will be redeemed by the respective partnerships upon consummation of a
future equity offering of at least $25 million. The Company's pro forma
adjustments are derived from the pro forma financial statements of the Equity
Investees' property partnerships as set forth in the notes to the pro forma
financial statements.
The unaudited pro forma operating information for the Company, the Equity
Investees and the Operating Partnership has been presented as if the Formation
Transactions had occurred as of January 1, 1996, and as if the Company had
qualified as a REIT, distributed all of its taxable income and, therefore,
incurred no federal income tax expense during the period. The unaudited pro
forma balance sheets for the Company, the Equity Investees and the Operating
Partnership as of September 30, 1997 are presented as if the Formation
Transactions had occurred on September 30, 1997. The unaudited pro forma balance
sheet of the Equity Investees combines the respective balance sheets of the
property partnerships as of September 30, 1997, subject to certain pro forma
adjustments. The pro forma balance sheet of the Operating Partnership reflects
its equity interest in the Equity Investees and the pro forma balance sheet of
the Company reflects its equity interest in the Operating Partnership.
The pro forma financial information is not necessarily indicative of what
the Company's, the Equity Investees' or the Operating Partnership's actual
financial position and results of operations would have been as of and for the
period indicated, nor does it purport to represent the future financial position
or results of operations of the Company, the Equity Investees or the Operating
Partnership.
22
<PAGE>
PHILIPS INTERNATIONAL REALTY CORP., PHILIPS INTERNATIONAL REALTY L.P.,
EQUITY INVESTEES, THE PHILIPS COMPANY AND
THE MERRICK COMMONS AND MILL BASIN PLAZA PROPERTIES
SUMMARY SELECTED COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------------------------------------------
PRO FORMA HISTORICAL
------------------------------------- ----------------------------------------
1997 1997 1996
------------------------------------- ------------------- -------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
PHILIPS INT. EQUITY MERRICK/ MERRICK/
PHILIPS INT. L.P. INVESTEES PHILIPS MILL BASIN PHILIPS MILL BASIN
------------ ------------ --------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA: (1)
Revenues from rental
property................ $ -- $ -- $23,865 $19,508 $ 3,725 $19,338 $3,531
------ ------ --------- ------- -------- ------- ------
Property operating
expenses................ -- -- 3,919 3,618 436 3,646 559
Real estate taxes........ -- -- 3,432 2,792 612 2,742 552
Interest................. -- -- 11,936 9,766 1,581 8,584 2,570
Depreciation and
amortization............ -- -- 3,946 2,867 422 2,480 470
General and
administrative.......... -- 14 1,364 206 47 230 38
------ ------ --------- ------- -------- ------- ------
Total expenses........... -- 14 24,597 19,249 3,098 17,682 4,189
------ ------ --------- ------- -------- ------- ------
(732) 259 627 1,656 (658)
Equity in income (loss)
of investees............ (27) (709) -- 285 -- 15 --
Allocation of income on
Preferred Units......... 131 -- -- -- -- -- --
Other income............. -- -- 23 22 1 17 949
------ ------ --------- ------- -------- ------- ------
Income (loss) before
extraordinary items .... 104 (723) $ (709) $ 566 $ 628 $ 1,688 $ 291
--------- ------- -------- ------- ------
--------- ------- -------- ------- ------
Preferred Stock unit
distribution .......... 131 (131)
------ ------
Net loss attributable to
General and Limited
Partners................ $ 854
------
Net loss attributable to ------
common shares .......... $ (27)
------
------
Net loss available to
General partners........ -- $ (27)
Net loss available to
Limited partners........ -- $ (827)
Loss per share before
extraordinary
items(2)................ $ (.57)
------
------
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
PRO FORMA
--------------------------------------
1996
--------------------------------------
(UNAUDITED)
PHILIPS PHILIPS INT. EQUITY
INT. L.P. INVESTEES
----------- ------------ -----------
<S> <C> <C> <C>
OPERATING DATA: (1)
Revenues from rental
property................ $ -- $ -- $33,230
----- ------ -------
Property operating
expenses................ -- -- 5,677
Real estate taxes........ -- -- 4,451
Interest................. -- -- 16,168
Depreciation and
amortization............ -- -- 5,134
General and
administrative.......... -- -- 1,847
----- ------ -------
Total expenses........... -- -- 33,277
----- ------ -------
(38)
Equity in income (loss)
of investees............ (6) (15) --
Allocation of income on
Preferred Units......... 175 -- --
Other income............. -- -- 23
----- ------ -------
Income (loss) before
extraordinary items .... 169 (15) $ (15)
-------
Preferred Stock unit -------
distribution .......... (175) (175)
----- ------
Net loss attributable to
General and Limited
Partners................ $ (190)
------
Net loss attributable to ------
common shares .......... $ (6)
-----
-----
Net loss available to
General partners........ -- $ (6)
Net loss available to
Limited partners........ -- $ (184)
Loss per share before
extraordinary
items(2)................ $(.13)
-----
-----
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------------------
HISTORICAL
--------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------------ ------------------- ------------------- -------------------- --------------------
(UNAUDITED) (UNAUDITED)
MERRICK/ MERRICK/ MERRICK/ (*)MERRICK/ (*)MERRICK/
PHILIPS MILL BASIN PHILIPS MILL BASIN PHILIPS MILL BASIN PHILIPS MILL BASIN PHILIPS MILL BASIN
------- ---------- ------- ---------- ------- ---------- ------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues from rental
property................ $25,947 $4,949 $23,187 $4,810 $22,192 $2,308 $22,337 $ 503 $22,622 $ 799
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Property operating
expenses................ 5,054 710 5,008 712 4,834 553 4,218 198 3,805 580
Real estate taxes........ 3,671 744 3,591 671 3,554 370 3,446 199 3,393 374
Interest................. 11,728 3,496 11,097 2,054 9,695 873 9,524 337 10,044 484
Depreciation and
amortization............ 3,417 576 3,072 540 2,896 322 2,738 44 2,724 117
General and
administrative.......... 306 38 201 53 222 20 270 23 192 8
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total expenses........... 24,176 5,564 22,969 4,030 21,201 2,138 20,196 801 20,158 1,563
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
1,771 (615) 218 780 991 170 2,141 (298) 2,464 (764)
Equity in income (loss)
of investees............ 95 -- 54 -- 6 -- (89) -- (225) --
Allocation of income on
Preferred Units......... -- -- -- -- -- -- -- -- -- --
Other income............. 22 1,307 35 3 48 2 46 1 23 14
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Income (loss) before
extraordinary items .... $ 1,888 $ 692 $ 307 $ 783 $ 1,045 $ 172 $ 2,098 $ (297) $ 2,262 $ (750)
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
-----------------------------------------------------------------------
PRO FORMA HISTORICAL
------------------------------------------- -----------------------
(UNAUDITED) (UNAUDITED)
PHILIPS INT. EQUITY MERRICK/
PHILIPS INT. L.P. INVESTEES PHILIPS MILL BASIN
------------ ------------ --------- -------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Rental properties,
at cost before
accumulated
depreciation...... $ -- $ -- $198,700 $165,066 $ 26,341
Investment in
Equity
Investees......... 2,315 11,208
Total assets....... 2,317 13,681 197,125 154,036 27,661
Mortgage notes
payable........... -- -- 177,022 151,494 25,854
Stockholders/Owners'
equity (deficit)... 2,302 13,681 11,209 (5,389) 1,094
OTHER DATA:
Funds from
operations(4)..... 99 3,092 3,237 3,592 --
Net cash provided
by (used in)
operating
activities........ (27) (723) 3,237 85 --
Net cash provided
by (used in)
financing
activities........ 131 (131) (1,324) 18,623 --
Net cash (used in)
investing
activities........ -- -- (2,635) (19,369) --
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------------------------------------------------------------
1996 1995 1994 1993
---------------------- ----------------------- ----------------------- -----------------------
(UNAUDITED)
MERRICK/ MERRICK/ MERRICK/ MERRICK/
PHILIPS MILL BASIN PHILIPS MILL BASIN PHILIPS MILL BASIN PHILIPS MILL BASIN
-------- ---------- -------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Rental properties,
at cost before
accumulated
depreciation...... $137,399 $ 26,161 $124,892 $ 25,783 $118,307 $ 25,509 $114,953 $ 11,468
Total assets....... 129,841 27,575 116,856 31,813 108,188 25,957 109,474 11,186
Mortgage notes
payable........... 133,609 26,049 131,740 24,075 131,187 19,606 132,125 5,967
Stockholders/Owners
equity (deficit).. (11,166) 586 (22,091) 6,011 (24,611) 5,056 (25,771) 3,555
OTHER DATA:
Funds from
operations(4)..... 5,574 -- 3,590 -- 4,050 -- -- --
Net cash provided
by (used in)
operating
activities........ 3,567 -- 3,535 -- 3,639 -- -- --
Net cash provided
by (used in)
financing
activities........ 6,086 -- 2,160 -- (876) -- -- --
Net cash (used in)
investing
activities........ (9,359) -- (6,604) -- (3,354) -- -- --
<CAPTION>
AS OF DECEMBER 31,
----------------------
1992
-----------------------
(UNAUDITED)
MERRICK/
PHILIPS MILL BASIN
-------- ----------
<S> <C> <C>
BALANCE SHEET DATA:
Rental properties,
at cost before
accumulated
depreciation...... $113,748 $6,791
Total assets....... 108,770 6,833
Mortgage notes
payable........... 133,541 5,967
Stockholders/Owners
equity (deficit).. (26,071) 1,429
OTHER DATA:
Funds from
operations(4)..... -- --
Net cash provided
by (used in)
operating
activities........ -- --
Net cash provided
by (used in)
financing
activities........ -- --
Net cash (used in)
investing
activities........ -- --
</TABLE>
- ------------------
(*) In 1992 and 1993, Merrick/Mill Basin consisted of only the Merrick Commons
Property. During this period such Property was undergoing significant
renovations.
23
<PAGE>
NATIONAL PROPERTIES INVESTMENT TRUST
SUMMARY SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------------- ----------------------------------------------
1997 1996 1996 1995 1994 1993 1992
----------- ----------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
OPERATING DATA:
Revenues from rental property.............. $ 268 $ 260 $ 341 $ 311 $ 294 $ 307 $ 422
----------- ----------- ------ ------ ------ ------ ------
Property operating expenses................ 70 77 96 90 105 111 282
Real estate taxes.......................... 28 23 36 33 31 29 33
Interest................................... 43 47 60 46 32 47 61
Depreciation and amortization.............. 41 37 50 46 45 50 --
General and administrative................. 75 73 119 64 353 323 30
----------- ----------- ------ ------ ------ ------ ------
Total expenses............................. 257 257 361 279 566 560 406
----------- ----------- ------ ------ ------ ------ ------
Operating income........................... 11 3 (20) 32 (272) (253) 16
Other income expenses), net................ 1 1 1 1 -- 92 (24)
----------- ----------- ------ ------ ------ ------ ------
Net income (loss).......................... $ 12 $ 4 $ (19) $ 33 $ (272) $ (161) $ (8)
----------- ----------- ------ ------ ------ ------ ------
----------- ----------- ------ ------ ------ ------ ------
Net income (loss) per share(3)............. $0.02 $ 0.01 $(0.03) $ 0.05 $(0.39) $(0.24) $(0.01)
----------- ----------- ------ ------ ------ ------ ------
----------- ----------- ------ ------ ------ ------ ------
</TABLE>
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, AS OF DECEMBER 31,
------------- ----------------------------------------------
1997 1996 1995 1994 1993 1992
------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
BALANCE SHEET DATA:
Rental properties, at cost before accumulated
depreciation........................................ $ 1,700 $1,608 $1,548 $1,518 $1,510 $1,486
Total assets.......................................... 1,068 1,051 1,102 1,014 1,210 1,067
Mortgage notes payable................................ 550 571 598 399 400 --
Shareholders' equity.................................. 455 406 461 387 629 790
OTHER DATA:
Funds from operations(4).............................. 51 23 72 (230) (111) (8)
Net cash provided by (used in) operating activities... 47 60 (65) (54) (344) (11)
Net cash provided by (used in) financing activities... 15 (63) 200 19 360 --
Net cash (used in) investing activities............... (92) (60) (30) (7) (24) (15)
</TABLE>
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, AS OF DECEMBER 31,
------------- ----------------------------------------------
1997 1996 1995 1994 1993 1992
------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
OTHER DATA (IN THOUSANDS):
Cash and cash equivalents............................. $ 14 $ 44 $ 108 $ 3 $ 45 $ 53
Total assets at book value............................ 1,068 1,051 1,102 1,014 1,210 1,067
Total assets at the value assigned for purposes of the
Formation Transactions.............................. 2,211 -- -- -- -- --
Total liabilities..................................... 613 645 642 628 581 277
Shareholders' equity.................................. 455 406 461 387 629 790
Net increase (decrease) in cash and cash
equivalents......................................... (30) (64) 105 (42) (344) (11)
Net cash provided by (used in) operating activities... 47 60 (65) (54) (8) (26)
Dividends............................................. 0 36 0 0 0 0
OTHER DATA:
Ratio of earnings to fixed charges.................... 1.24 0.73 1.99 (6.69) (2.40) 0.87
Earnings (loss) per Share............................. 0.02 (0.03) 0.05 (0.39) (0.24) (0.01)
Book value per Share.................................. 0.61 0.56 0.64 0.54 0.92 1.15
Value assigned for the purposes of the Formation
Transactions per Share.............................. 2.13 -- -- -- -- --
Dividends per Share - return of capital............... 0.00 0.05 0.00 0.00 0.00 0.00
</TABLE>
24
<PAGE>
(Footnotes from previous pages)
- ------------------
(1) The following is a reconciliation of historical operating results to pro
forma results for the Equity Investees:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
<S> <C> <C>
Historical income (loss) before minority interest and extraordinary
item:
The Philips Company, less equity in income of
the Merrick/Mill Basin Properties................................ $ 281 $ 1,793
The Merrick/Mill Basin Properties.................................. 628 692
National Properties Investment Trust............................... 12 (19)
-------- --------
921 2,466
Adjustments relating to the purchase of the non-sponsor interests in
exchange for cash and Units:
Increase in depreciation related to purchase accounting............ (616) (1,090)
Increase in interest cost associated with financings of the
purchase of partners' interests and transaction fees............. (546) (884)
Increase in rental revenue related to partners' interests
purchased........................................................ 364 695
-------- --------
Combined historical, as adjusted..................................... 123 1,187
Pro forma changes in operating expenses due to organizational
changes:
Reduction in management fees....................................... 241 228
Increase in general and administrative expenses to support future
operations....................................................... (1,073) (1,430)
-------- --------
Pro forma loss before minority interests and extraordinary items..... $ (709) $ (15)
-------- --------
-------- --------
</TABLE>
(2) Pro forma net loss attributable to common shares items is calculated based
upon 47,660 shares of Common Stock assumed to be outstanding for the nine
months ended September 30, 1997 and the year ended December 31, 1996. The
anti-dilutive effect of the Warrants has not been considered in the
calculation for either period. In February 1997 the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 128
('FAS 128') which is effective for periods ending after December 15, 1997.
Had FAS 128 been adopted there would be no effect on the pro forma net loss
attributable to common shares.
(3) Net income (loss) per share is based upon 742,000, 719,000, 718,000,
719,000, 693,000, 671,000 and 684,000 weighted average numbers of shares of
beneficial interest outstanding for the nine months ended September 30, 1997
and 1996 (unaudited) and the years ended December 31, 1996, 1995, 1994, 1993
and 1992, respectively.
(4) The White Paper on Funds from Operations approved by the Board of Governors
of NAREIT in March 1995 defines Funds from Operations as net income (loss)
(computed in accordance with GAAP), excluding gains (or losses) from debt
restructuring and sales of properties, plus real estate related depreciation
and amortization and after adjustments for unconsolidated partnerships and
joint ventures. The Company believes that Funds from Operations is helpful
to investors as a measure of the performance of an equity REIT because,
along with cash flow from operating activities, financing activities and
investing activities, it provides investors with an indication of the
ability of the Company to incur and service debt, to make capital
expenditures and to fund other cash needs. The Company computes Funds from
Operations in accordance with standards established by NAREIT which may not
be comparable to Funds from Operations reported by other REITs that do not
define the term in accordance with the current NAREIT definition or that
interpret the current NAREIT definition differently than the Company. Funds
from Operations does not represent cash generated from operating activities
in accordance with GAAP and should not be considered as an alternative to
net income (determined in accordance with GAAP) as an indication of the
Company's financial performance or to cash flow from operating activities
(determined in accordance with GAAP) as a measure of the Company's
liquidity, nor is it indicative of funds available to fund the Company's
cash needs, including its ability to make cash distributions.
25
<PAGE>
Funds from Operations was calculated as follows:
<TABLE>
<CAPTION>
PHILIPS INTERNATIONAL PHILIPS INTERNATIONAL EQUITY
REALTY CORP. REALTY L.P. INVESTEES
PRO FORMA PRO FORMA PRO FORMA
---------------------------- ---------------------------- -------------
NINE MONTHS NINE MONTHS NINE MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED ENDED
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1997 1996 1997 1996 1997
------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Net loss attributable to common shares........ $ (27) $ (6)
Income (loss) before minority interest and
extraordinary items......................... $ (723) $ (15) $ (709)
Depreciation and amortization................. -- -- 3,946
Allocation of income to preferred units....... -- -- (131) (175) --
Adjustment for unconsolidated joint
ventures.................................... 126 164 3,946 5,134 --
------------- ------------ ------------- ------------ -------------
Funds from Operations......................... $ 99 $ 158 $ 3,092 $4,944 $ 3,237
------------- ------------ ------------- ------------ -------------
------------- ------------ ------------- ------------ -------------
<CAPTION>
EQUITY
INVESTEES
PRO FORMA THE PHILIPS COMPANY HISTORICAL
------------ ----------------------------------------
NINE MONTHS
YEAR ENDED ENDED YEARS ENDED DECEMBER 31,
DECEMBER 31, SEPTEMBER 30, ------------------------
1996 1997 1996 1995 1994
------------ ------------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net loss attributable to common shares........
Income (loss) before minority interest and
extraordinary items......................... $ (15) $ 566 $1,888 $ 307 $1,045
Depreciation and amortization................. 5,134 2,867 3,417 3,072 2,896
Allocation of income to preferred units....... -- -- -- -- --
Adjustment for unconsolidated joint
ventures.................................... -- 159 269 211 109
------------ ------------- ------ ------ ------
Funds from Operations......................... $5,119 $ 3,592 $5,574 $3,590 $4,050
------------ ------------- ------ ------ ------
------------ ------------- ------ ------ ------
</TABLE>
26
<PAGE>
RISK FACTORS
An investment in Common Stock involves various risks. In evaluating their
vote on the Transaction Agreements and the proposed Formation Transactions
resulting therefrom, holders of National Shares should carefully consider the
following information in conjunction with the other information contained in
this Proxy Statement/Prospectus.
CONTROL BY THE INTERIM MANAGING GENERAL PARTNER
Subject to certain limitations set forth in the Partnership Agreement,
including limitations with respect to transactions between the Company and Mr.
Pilevsky or his affiliates, until such time as an Offering is completed Mr.
Pilevsky, as sole member of the Interim Managing General Partner, will have full
and exclusive power under the Partnership Agreement to manage the business and
affairs of the Company through the Operating Partnership, including investment
and financing policies, and to make any decision with respect to distributions
to shareholders. These management decisions might not be consistent with the
interests of other shareholders of the Company. See 'Partnership Agreement of
Operating Partnership--Interim Managing General Partner,' and '--Conflicts of
Interest--Philips International' and '--The Philips Group.'
CONTROL BY THE PHILIPS GROUP
Upon completion of the Formation Transactions, the Philips Group will own
1,450,000 Units of the Operating Partnership, representing approximately 93.9%
of the outstanding shares of Common Stock of the Company (including interests
redeemable or convertible therefor and shares of Common Stock issuable upon
exercise of outstanding warrants). Mr. Pilevsky will own a majority of such
Units held by the Philip Group and approximately 22.4% of the outstanding shares
of Common Stock of the Company (excluding interests redeemable or convertible
therefor and shares of Common Stock issuable upon exercise of outstanding
warrants). Three designees of the Philips Group will be directors and executive
officers of the Company. Mr. Pilevsky and the Philips Group will be in a
position to exercise control over the affairs of the Operating Partnership and
the Company, and may take actions in their own interest which might not be
consistent with the interests of other shareholders of the Company. See
'--Conflicts of Interest--Philips Private Company', '--The Interim Managing
General Partner,' '--The Philips Group' and 'Partnership Agreement of Operating
Partnership.'
CONFLICTS OF INTEREST WITH AND DEPENDENCE ON THE MANAGEMENT COMPANY
The day-to-day leasing, development, acquisition, property and portfolio
management and related administrative functions of the Company will be performed
jointly by the Company and the Management Company, including certain executive
officers and employees of the Management Company who currently manage the
Partnership Properties, pursuant to the terms of the Management Agreement.
Management Company personnel will not devote their efforts full-time to the
management of the business and properties of the Company, but will in fact
devote a material amount of their time to the management of the business and
properties of Philips Private Company, which could be directly competitive with
the business of the Company. The failure of the Management Company personnel to
adequately perform services for the Company could adversely effect the business
of the Company. See '--Conflicts of Interests--Philips Private Company.'
CONFLICTS OF INTEREST
Board of Trustees. As a result of certain benefits to be received by two
of the members of the National Board of Trustees, Messrs. Stein and Goldman,
upon consummation of the Formation Transactions, such individuals may have
conflicts of interest with respect to their obligations to National in
determining whether it should consummate the Formation Transactions. These
benefits are described below in '--Benefits to Trustees from the Formation
Transactions' and in 'The Formation Transactions--Interests of Certain Persons
in the Formation Transactions.'
The Philips Group. The Philips Group, including the Founders, has
interests that conflict with the interests of others participating in the
Formation Transactions, including the shareholders of National. The Company and
the Philips Group have been represented by the same legal counsel and,
therefore, the Company has not been advised by separate legal counsel in
connection with the Formation Transactions. See '--Benefits to the Philips
27
<PAGE>
Group from the Formation Transactions' below and 'The Formation
Transactions--Interests of Certain Persons in the Formation Transactions.'
Mr. Pilevsky and Ms. Levine, who will be directors and executive officers
of the Company, will own Units in the Operating Partnership. As a result of
their status as holders of Units, such persons may have interests that conflict
with shareholders with respect to business decisions affecting the Company and
the Operating Partnership. In particular, such principals of the Philips Group
may suffer different and/or more adverse tax consequences than the Company and
its shareholders upon the sale or refinancing of certain of the Properties,
including a reduction of indebtedness on such properties. Thus, these executive
officers, on the one hand, and the shareholders, on the other hand, may have
different objectives regarding the appropriate pricing and timing of any sale or
refinancing of certain Properties, and such executive officers will be in a
position to influence the Company not to sell or refinance a Property, even
though such sale might otherwise be financially advantageous to the Company, and
will be in a position to influence the Company to refinance a Property with a
higher level of debt (which could be more advantageous from a tax standpoint to
such persons due to their existing holdings in the Properties) than would be in
the best interests of the Company. See '--Benefits to the Philips Group, the
Founders and Philips Private Company from the Formation Transactions' and
'Partnership of Operating Partnership.'
The Interim Managing General Partner. The Partnership Agreement provides
that the Interim Managing General Partner will have full, exclusive and complete
responsibility in the management and control of the business and affairs of the
Operating Partnership (subject to the rights accorded to the limited partners,
of which Mr. Pilevsky will hold a majority of the Units) and that the Company
shall have no such rights until the completion of an Offering. Thus, until
completion of an Offering, the business and affairs of the Company, which are
conducted through the Operating Partnership, will be exclusively controlled by
Mr. Pilevsky, as sole member of the Interim Managing General Partner, subject to
certain limitations with respect to transactions between the Company and Mr.
Pilevsky or his affiliates. Since distributions to shareholders will require a
distribution from the Operating Partnership to the Company, Mr. Pilevsky will
also control any decision whether to make distributions to shareholders (subject
to certain federal tax requirements to maintain REIT status). The Interim
Managing General Partner will also have complete responsibility in the
management and control of the Holding Partnerships and Contributing Partnerships
until the completion of an Offering. Mr. Pilevsky will continue to hold
significant interests in other income producing real property through Philips
Private Company which could be directly competitive with the business of the
Company, and it is anticipated that Mr. Pilevsky will spend a material amount of
his time managing these competing interests. See 'Partnership Agreement of
Operating Partnership' and '--Control by the Interim Managing General Partner.'
Philips Private Company/Excluded Properties. The Philips Group has
directly or indirectly contributed all of the Partnership Properties to the
Operating Partnership. However, certain members of the Philips Group, including
the Founders, will continue to hold through Philips Private Company significant
interests in income producing real property, including certain retail
properties, which will not be contributed to the Company as part of the
Formation Transactions. Neither the Philips Group nor any of its affiliates will
be limited in any manner with respect to such income producing real property
other than pursuant to a non-competition agreement (which places certain
restrictions on the ability of Mr. Pilevsky, Ms. Levine, the Management Company
and their respective affiliates to acquire, operate, manage or develop retail
shopping center properties, other than through the Company, subject to certain
exceptions) and they may therefore engage in real estate activities which could
be directly competitive with the business of the Company. See 'Excluded
Properties,' '--Conflicts of Interest with and Dependence on the Management
Company' and 'Management Agreement and Non-Competition Agreement.'
Potential Conflict of Interests with Prudential Securities. Prudential
Securities was retained by National to render financial advisory services.
Pursuant to the Contribution and Exchange Agreement, the Company will assume
National's payment and indemnification obligations under National's engagement
letter with Prudential Securities, and will issue to Prudential Securities the
Series A Preferred Stock, with an aggregate liquidation preference of
$1,940,000. The Series A Preferred Stock is convertible into Common Stock after
six months at a conversion price of $50.00 per share of Common Stock and is
redeemable by the Company (subject to the holder's right to convert) upon the
conclusion of an Offering for $1,940,000 in cash plus accrued and unpaid
dividends. Dividends accrue on the Series A Preferred Stock at an annual rate of
9%. The Company has also
28
<PAGE>
agreed that Prudential Securities shall have the right to act as lead manager of
the Company's first public offering or as the exclusive sales agent for its
first private offering, in either case with proceeds in excess of $25 million,
on terms to be agreed upon.
BENEFITS TO THE PHILIPS GROUP, THE FOUNDERS AND PHILIPS PRIVATE COMPANY FROM THE
FORMATION TRANSACTIONS
The Philips Group, including the Founders, will receive certain material
benefits from the Formation Transactions, including improved liquidity and
diversification of their investment in the Properties, the deferral of certain
tax consequences of taxable dispositions of assets through the creation of the
Operating Partnership and the direct contribution of their interests in the
Properties to the Operating Partnership in exchange for Units, and, with respect
to the Founders, the receipt of salaries and/or options as executive officers of
the Company, and the release and/or indemnification by the Company of various
members of the Philips Group, including Mr. Pilevsky, with respect to the
assumed indebtedness and certain guarantees and indemnities in connection with
such indebtedness. In addition, the Management Company, an affiliate of the
Founders, will receive a fee in connection with its management of the day-to-day
operations of the Properties and options to purchase shares of Common Stock of
the Company. See 'Management Agreement and Non-Competition Agreement.'
BENEFITS TO THE TRUSTEES FROM THE FORMATION TRANSACTIONS
In connection with the Formation Transactions, Messrs. Stein and Goldman
will receive the Trustees Stock, with an aggregate Net Asset Value of $250,000
(5,000 shares of Common Stock), and the Trustees Warrants to purchase an
aggregate of 8,000 shares of Common Stock at an exercise price equal to $25.00
per share (a value of $211,000, based on the Black Scholes valuation model). As
such, these persons may have interests in the Formation Transactions that
conflict with the interests of the National shareholders. In addition, Messrs.
Stein and Goldman (or their affiliates) own an aggregate of approximately 12.9%
of the outstanding National Shares and will receive a pro-rata portion of the
Common Stock when distributed to the National shareholders following
consummation of the Formation Transactions. Compensation paid to the Managing
Trustee as a result of the conversion of National to a self-managed REIT in 1995
was $46,000 and $36,000 for the year ended December 31, 1996, and the nine
months ended September 30, 1997, respectively.
CERTAIN CONSEQUENCES OF THE FORMATION TRANSACTIONS: DISTRIBUTIONS OF COMMON
STOCK; FEDERAL INCOME TAX CONSEQUENCES; NATIONAL'S REIT STATUS
Distributions of Common Stock. The Company will purchase the National
Property in exchange for, among other things, 32,000 shares of Common Stock.
National will dividend approximately 3,744 of such shares of Common Stock by the
end of calendar 1997 to its shareholders on a pro rata basis and will dividend
approximately 20,256 of such shares of Common Stock by the end of January 1998
to its shareholders on a pro rata basis. National will retain approximately
8,000 shares of Common Stock (approximately 25% of the Common Stock received by
National). Distributions received, if any, on account of such retained shares,
or the net proceeds from the sale of any such shares, will be available to
National for working capital purposes.
Federal Income Tax Consequences. As a result of the distribution in 1997
of 3,744 shares of Common Stock to the National shareholders, gain for federal
income tax purposes will be recognized by the shareholders of National of
approximately $0.25 per National Share, and the distribution of 20,256 shares of
Common Stock in 1998 will be considered a reduction in basis of the National
Shares held by each holder and will be taxable as capital gain to the extent it
exceeds a shareholder's basis in the National Shares held by such shareholder.
National's REIT Status. Pursuant to the Contribution and Exchange
Agreement, National has agreed to maintain its existence and not adopt any plan
of liquidation or dissolution for a period of at least one year following
consummation of the Formation Transactions, although there can be no assurances
that National will be able to maintain its REIT status for such period. If
National fails to qualify as a REIT in any taxable year, National will be
subject to federal income tax on its taxable income at regular corporate rates,
distributions to shareholders would not be deductible by National, nor would
they be required to be made, and National's earnings may be subject to an excise
tax. National's REIT status may be adversely affected if the Company fails to
qualify as a REIT in any taxable year, for so long as the principal assets held
by National are shares of Common Stock of the Company.
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DEPENDENCE ON KEY MANAGEMENT PERSONNEL
The executive officers of the Company have substantial experience in
owning, operating, managing, acquiring and developing retail shopping centers.
The Company believes that its success will depend in large part upon the efforts
of such persons. The Company has entered into an employment agreement with Ms.
Levine which provides for Ms. Levine's employment with the Company for three
years and will contain certain non-compete provisions. In addition, the Company
expects to enter into employment agreements with Messrs. Petra and Gallagher
effective upon consummation of the Formation Transactions. There can be no
assurance that any of the executive officers will remain in the employ of the
Company. See 'Management.'
CHANGES IN SHAREHOLDERS' RIGHTS; ELIMINATION OF RESTRICTIONS ON CORPORATE
ACTIVITIES
The following protective provisions are applicable to National shareholders
through the Declaration of Trust, the Trustees Regulations or the MBCL, but will
not be applicable to shareholders of the Company through its Charter or By-Laws
or the MGCL: a trustee of National may be removed without cause by the
affirmative vote of the holders of a majority of the outstanding National Shares
entitled to vote, whereas a director of the Company may be removed only for
cause by the affirmative vote of the holders of two-thirds of the total
outstanding shares of Common Stock; the holders of 10% of the outstanding
National Shares or a majority of the Board of Trustees of National may require
that a special meeting of National shareholders be called, whereas the Chief
Executive Officer, President, a majority of the Board of Directors or the
holders of a majority of the outstanding shares of Common Stock may request a
special meeting of the Company's shareholders; and National's Declaration of
Trust restricts its investment and financing activities and certain
extraordinary transactions, whereas the Company's Charter and By-Laws do not
contain similar restrictions. See 'Comparison of Shareholders' Rights' and
'Certain Provisions of Maryland Law and the Company's Charter and By-Laws.'
In addition, certain provisions of the Partnership Agreement provide that
the Company may not engage in any Termination Transaction unless all limited
partners either will receive, or will have the right to elect to receive, for
each Unit an amount of cash, securities or other property equal to the product
of (i) the number of shares of Common Stock into which each Unit is then
exchangeable and (ii) the greatest amount of cash, securities or other property
paid to the holder of one share of Common Stock in consideration of one share of
Common Stock pursuant to the terms of the Termination Transaction. If, in
connection with the Termination Transaction, a purchase, tender or exchange
offer shall have been made to and accepted by the holders of the outstanding
shares of Common Stock, each holder of Units will receive, or will have the
right to elect to receive, the greatest amount of cash, securities or other
property which such holder would have received had it exercised its right to
redemption and received shares of Common Stock in exchange for its Units
immediately prior to the expiration of such purchase, tender or exchange offer
and had thereupon accepted such purchase, tender or exchange offer See
'Comparison of Shareholders' Rights' and 'Partnership Agreement of Operating
Partnership--Rights of Limited Partners'.
HIGH LEVEL OF DEBT; NO LIMITATION ON DEBT; UNCERTAINTY OF ABILITY TO REFINANCE
DEBT
High Level of Debt. On a pro forma basis at September 30, 1997, after
giving effect to the Formation Transactions, the Company would have had a
Debt-to-Total Capitalization Ratio of approximately 70% (assuming a Net Asset
Value of $50.00 per share of Common Stock.) The Company's leverage may have the
effect generally of impairing the Company's ability to make distributions to
shareholders, to obtain additional financing in the future and may have the
effect of reducing the Company's flexibility in responding to changing business
and economic conditions.
No Limitation on Debt. The Company has no policy limiting the amount of
its debt or its Debt-to-Total Capitalization Ratio, and the organizational
documents of the Company do not limit the amount or percentage of indebtedness
it may incur. The Company could become more highly leveraged, resulting in an
increased risk of default on the obligations of the Company and an increase in
debt service requirements which could affect adversely the financial condition
and results of operations of the Company and, consequently, the Company's
ability to make distributions to shareholders. See 'Policies With Respect to
Certain Activities--Financing Policies.'
Inability to Pay Debt Service; Effect of Cross-Collateralization. The
Company will be subject to the risks normally associated with debt financing,
including the risk that the Company's cash flow will be insufficient to meet
required payments of principal and interest, the risk that existing indebtedness
on the Properties cannot be
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refinanced or that the terms of such refinancing will not be as favorable as the
terms of existing indebtedness. Upon consummation of the Formation Transactions,
the Company expects to have outstanding approximately $176.8 million of
indebtedness, substantially all of which will be secured directly or indirectly
by mortgages encumbering the Properties. Certain of these mortgages have
'cross-default' and 'cross-collateralization' provisions. Accordingly, a default
under certain individual mortgages may entitle the lender secured thereby or
certain other secured lenders to exercise their respective remedies (including
foreclosure) against a number of the Partnership Properties. Of the
approximately $176.8 million of such outstanding indebtedness, approximately
$63.5 million and $9 million matures in 1998 and 1999, respectively, after
giving effect to all extension options. See 'Assumed Indebtedness.'
Variable Rate Debt. Upon consummation of the Formation Transactions, the
Company will have debt totaling approximately $96.8 million with interest rates
that adjust based on prevailing market interest rates. Increases in the interest
rates on the variable rate debt would adversely affect the Company's cash flow
and could reduce the amount of funds available for distribution to shareholders.
See 'Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources.'
Refinancing Risks. Since the Company anticipates that its internally
generated cash will be adequate to repay only a small portion of the Company's
mortgage indebtedness prior to maturity, it is expected that the Company will be
required to repay debt through refinancings and/or equity offerings. If the
Company were unable to refinance its indebtedness on acceptable terms, or at
all, the Company might be forced to dispose of one of more of the Properties
upon disadvantageous terms, which might result in losses to the Company and
which might adversely affect the cash available for distribution. If prevailing
interest rates or other factors at the time of refinancing result in higher
interest rates on refinancing, the Company's interest expense would increase,
which would adversely affect the Company's cash available for distribution and
its ability to pay distributions to shareholders.
Negative Cash Position. On a pro forma basis as of September 30, 1997, the
Company had a negative cash position of approximately $1.1 million. Although no
assurances can be given, the Company expects that its net cash flow from
operations during the period subsequent to September 30, 1997 and preceding
consummation of the Formation Transactions will be sufficient to substantially,
if not fully, fund the related transaction costs and eliminate such pro forma
cash deficiency. Alternatively, the Company may arrange short-term debt
financing to eliminate any cash deficiency arising upon consummation of the
Formation Transactions. Such financing could be more difficult to obtain given
the Company's highly leveraged capital structure. Failure to finance such cash
deficiency, whether out of net cash flow from operations or from the proceeds of
a short-term debt financing, could adversely affect the Company's ability to
repay its obligations or make distributions to shareholders.
LACK OF ACQUISITION FUNDING
The Company generally will be unable to readily access the capital markets
for acquisition funding, whether through the issuance of debt or equity
securities, until such time as the Company completes an Offering. Such lack of
ready access to the capital markets may have an adverse affect on the Company's
ability to acquire new properties. The Company may alternatively be able to fund
acquisitions, in whole or in part, through the issuance of shares of Common
Stock and/or Units in exchange for new properties. Although the Common Stock is
not currently listed on a national securities exchange, upon such listing, if
any, the Company will be required to obtain the approval of the holders of the
Common Stock prior to the issuance of additional securities in excess of 20% of
the then outstanding shares of Common Stock, other than pursuant to a public
offering. Such requirement could restrict the Company's ability to fund
acquisitions through the issuance of its securities in exchange for new
properties.
INABILITY TO MAKE REQUIRED DISTRIBUTIONS TO SHAREHOLDERS COULD AFFECT REIT
STATUS;
POTENTIAL REQUIREMENT TO BORROW
To obtain favorable tax treatment accorded to REITs under the Code, the
Company generally will be required each year to distribute to its shareholders
at least 95% of its REIT taxable income. The Company will be subject to income
tax on any undistributed REIT taxable income and net capital gain, 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.
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The Company intends to make distributions to its shareholders to comply
with the distribution provisions of the Code and to avoid federal income taxes
and the nondeductible 4% excise tax. Initially, a substantial portion of the
Company's income will consist of the income of the Operating Partnership and the
Company's cash flow will consist primarily of distributions from the Operating
Partnership. Distributions by the Operating Partnership will be determined,
until completion of an Offering, by the Interim Managing General Partner and,
following completion of an Offering, by the Company, through its Board of
Directors. The Interim Managing General Partner or the Board of Directors, as
the case may be, may consider a number of factors, including the amount of cash
available for distribution, the Operating Partnership's financial condition, the
Operating Partnership's capital expenditure requirements, the annual
distribution requirement under the REIT provisions of the Code and such other
factors as the Board of Directors deems relevant, in making such distribution
determinations.
Differences in timing between the receipt of income and the payment of
expenses in arriving at taxable income (of the Company or the Operating
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 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 consideration. 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. Failure of the Company to
qualify as a REIT could affect National's REIT status if the principal assets
held by National are the Common Stock of the Company. See 'Federal Income Tax
Considerations--Requirements for Qualification as a REIT--Annual Distribution
Requirements'.
LACK OF APPRAISALS
The relative valuations of the Partnership Properties, on the one hand, and
the National Property, on the other hand, were considered independently by the
Philips Group and National, and negotiated on an arm's-length basis. National
and the Philips Group are not related parties and retained separate legal
counsel and financial advisors. The terms of the Contribution and Exchange
Agreement were the result of lengthy negotiations. However, no third-party
appraisals of the Properties or any other assets were used to value such
property for purposes of the Formation Transactions. Accordingly, no assurance
can be given that the valuation of the Company implied by the market
capitalization of the Company does not exceed the aggregate value of the
Properties that might have been obtained from an independent appraisal, or that
the Common Stock received by National in the Formation Transactions reflects the
fair value of the National Property. See 'The Formation Transactions--Background
of the Formation Transactions', '--Opinion of Financial Advisor' and
'--Interests of the Trustees in the Formation Transactions.'
POSSIBLE ADVERSE EFFECTS ON COMMON STOCK PRICE ARISING FROM SHARES AVAILABLE FOR
FUTURE SALE
No prediction can be made as to the effect, if any, that future sales of
Common Stock or the availability of such shares for future sale will have on the
market price of the Common Stock. Sales of substantial amounts of Common Stock,
or the perception that such sales could occur, could affect adversely prevailing
market prices for the Common Stock. The Board of Directors has the authority,
without shareholder approval, to issue additional Common Stock or other capital
stock in any manner it deems appropriate, including in exchange for property.
Shareholders will have no preemptive right to purchase shares issued in any such
offerings, and any such offerings might cause a dilution of a shareholder's
investment in the Company.
In connection with the Formation Transactions, an aggregate of 1,450,000
Units in the Operating Partnership, which are redeemable after one year for an
equal number of shares of Common Stock, have been issued to the Philips Group
and the Series A Preferred Stock, which is convertible after six months into an
aggregate of 38,800 shares of Common Stock, has been issued to Prudential
Securities. In addition, the Company has granted to certain Trustees the
Trustees Warrants, which are immediately exercisable for 8,000 shares of Common
Stock, and the Trustees Stock, and has granted, or will grant immediately after
consummation of the Formation Transactions, options to purchase an aggregate of
261,600 shares of Common Stock to certain directors and officers of the Company
and those employees of the Management Company who perform significant services
for the Company. When issued, upon redemption of Units, the conversion of Series
A Preferred Stock or the exercise of warrants or options, as the case may be,
the shares of Common Stock will be available for sale in the public markets from
time to time pursuant to exemptions from registration requirements
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or, in the case of Common Stock issued upon redemption of Units, upon
registration pursuant to the registration rights under the Registration Rights
Agreement (the 'Registration Rights Agreement') between the Company and the
holders of the Units (a copy of which has been filed with the Commission as an
exhibit to the Registration Statement and is incorporated herein by reference).
Future sales of such restricted Common Stock and shares issued upon exercise of
the warrants or options and upon redemption of the Units or conversion of the
Series A Preferred Stock could have an adverse effect on the market price of the
Common Stock. See 'Shares Available for Future Sale,' 'Management--Executive
Compensation' and '--Stock Option Plan.'
CHANGES IN INVESTMENT AND FINANCING POLICIES WITHOUT SHAREHOLDER VOTE
Subject to the Company's fundamental investment policy to maintain its
qualification as a REIT, the Board of Directors will determine the Company's
investment and financing policies, its growth strategy, and its debt,
capitalization, distribution and operating policies. In addition, the Company's
Board of Directors may revise or amend its strategies and policies at any time
without a vote of the Company's shareholders. See 'Policies With Respect to
Certain Activities--Other Policies.' Accordingly, shareholders will have no
control over changes in strategies and policies of the Company, and such changes
may not serve the interest of all shareholders and could adversely affect the
Company's financial condition or results of operations. See 'Comparison of
Shareholders' Rights' and 'Policies with Respect to Certain
Activities--Financing.'
Issuance of Additional Securities. The Company has authority to offer its
Common Stock or other equity or debt securities in exchange for property or
otherwise. Existing shareholders will have no preemptive right to acquire any
such securities, and any such issuance of equity securities could result in
dilution of an existing shareholder's investment in the Company. To the extent
that the Company lists its securities, including the Common Stock, on a national
securities exchange, such exchange may have rules or policies which restrict the
issuance of equity securities above certain threshold levels without the Company
first obtaining shareholder approval for such issuances.
Risks Involved in Acquisitions Through Partnerships or Joint Ventures. The
Company may invest in properties through partnerships or joint ventures instead
of purchasing properties directly or through wholly-owned subsidiaries.
Partnership or joint venture investments may, under certain circumstances,
involve risks not otherwise present in a direct acquisition of properties. These
include the risk that the Company's co-venturer or
partner in an investment might become bankrupt; a co-venturer or partner might
at any time have economic or business interests or goals which are inconsistent
with the business interests or goals of the Company; and a co-venturer or
partner might be in a position to take action contrary to the instructions or
the requests of the Company or contrary to the Company's policies or objectives.
There is no limitation in the Charter as to the amount of investment the Company
may make in joint ventures or partnerships.
Risks Involved in Investments in Securities Related to Real Estate. The
Company may pursue its investment objectives through the ownership of securities
of entities engaged in the ownership of real estate. Ownership of such
securities may not entitle the Company to control the ownership, operation and
management of the underlying real estate. In addition, the Company may have no
ability to control the distributions with respect to such securities, which may
adversely affect the Company's ability to make required distributions to
shareholders. Furthermore, if the Company desires to control an issuer of
securities, it may be prevented from doing so by the limitations on percentage
ownership and gross income tests which must be satisfied by the Company in order
for the Company to qualify as a REIT. See 'Federal Income Tax Considerations--
Requirements for Qualification as a REIT.' The Company intends to operate its
business in a manner that will not require the Company to register under the
Investment Company Act of 1940 and shareholders will therefore not have the
protection of that Act.
The Company may also invest in mortgages, and may do so as a strategy for
ultimately acquiring the underlying property. In general, investments in
mortgages include the risk that borrowers may not be able to make debt service
payments or pay principal when due, the risk that the value of the mortgaged
property may be less than the principal amount of the mortgage note securing
such property, and the risk that interest rates payable on the mortgages may be
lower than the Company's cost of funds to acquire these mortgages. In any of
these events, Funds from Operations and the Company's ability to make required
distributions to shareholders could be adversely affected.
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CERTAIN ANTI-TAKEOVER PROVISIONS MAY INHIBIT A CHANGE OF CONTROL
Certain provisions of the Charter and the By-Laws of the Company and the
Partnership Agreement of the Operating Partnership may have the effect of
discouraging a third party from making an acquisition proposal for the Company
and may thereby inhibit a change of control of the Company under circumstances
that could give the holders of Common Stock the opportunity to realize a premium
over the then-prevailing market prices. Such provisions include staggered terms
for directors, advance notice requirements for certain shareholder proposals set
forth in the By-Laws, the absence of cumulative voting rights and certain
consent rights of the limited partners. See 'Certain Provisions of Maryland Law
and the Company's Charter and By-Laws' and 'Partnership Agreement of Operating
Partnership--Rights of Limited Partners.' In addition, the Ownership Limit may
have the effect of precluding an acquisition of control of the Company without
the approval of the Board of Directors. See '--Necessity to Maintain Ownership
Limit Required to Maintain REIT Qualification; Anti-Takeover Effect.'
New Classes and Series of Stock. The Charter authorizes the Board of
Directors to create new classes and series of securities and to establish the
preferences and rights of any such classes and series without further action of
the shareholders. The issuance of additional classes or series of capital stock
may have the effect of delaying, deferring or preventing a change of control of
the Company. See 'Description of Capital Stock of the Company--General.'
Staggered Board of Directors. Following consummation of the Formation
Transactions, the Board of Directors of the Company will be divided into three
classes serving staggered three-year terms, which may have the effect of
inhibiting a change of control of the Company. See 'Management--Directors and
Executive Officers of the Company.'
Ownership Limit. The Company has limited the ownership by any single
stockholder to 6.5% (by number of shares or value, whichever is more
restrictive) of the outstanding shares of capital stock of the Company (with
exemptions for Mr. Pilevsky and his affiliates, who are permitted to own up to
25% of the outstanding shares of capital stock (excluding interests redeemable
or convertible therefor and shares of Common Stock issuable upon exercise of
outstanding warrants) following consummation of the Formation Transactions).
Actual or constructive ownership of shares of capital stock in excess of the
applicable ownership limit will cause the violative transfer or ownership to be
void with respect to the transferee or owner as to that number of shares the
ownership of which by such owner or transferee results in such owner or
transferee or any other person violating any of the ownership limits, and such
shares will be automatically transferred to a trust for the benefit of a
qualified charitable organization. Such transferee or owner shall have no right
to vote such shares or be entitled to dividends or other distributions with
respect to such shares. See 'Description of Capital Stock of the Company--
Restrictions on Ownership and Transfer.'
Consent of Limited Partners. The Partnership Agreement provides that until
such time prior to the first anniversary of the consummation of the Formation
Transactions as the Company owns 67% of the partnership interests in the
Operating Partnership, and thereafter until such time as the Company owns 60% of
the partnership interests in the Operating Partnership, the consent of the
holders of at least 51% of the Units held by limited partners will be required
to: (i) engage in a Termination Transaction; (ii) dissolve, liquidate or wind-up
the Operating Partnership; (iii) change the nature of the business of the
Operating Partnership; or (iv) admit, remove or retain a general partner. In
addition, certain provisions of the Partnership Agreement provide that the
Company may not engage in any Termination Transaction unless all limited
partners either will receive, or will have the right to elect to receive, for
each Unit an amount of cash, securities or other property equal to the product
of (i) the number of shares of Common Stock into which each Unit is convertible
and (ii) the greatest amount of cash, securities or other property paid to the
holder of one share of Common Stock in consideration of one share of Common
Stock pursuant to the terms of the Termination Transaction. If, in connection
with the Termination Transaction, a purchase, tender or exchange offer shall
have been made to and accepted by the holders of the outstanding shares of
Common Stock, each holder of Units will receive, or will have the right to elect
to receive, the greatest amount of cash, securities or other property which such
holder would have received had it exercised its right to redemption and received
shares of Common Stock in exchange for its Units immediately prior to the
expiration of such purchase, tender or exchange offer and had thereupon accepted
such purchase, tender or exchange offer.
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ADVERSE EFFECT OF INCREASING MARKET INTEREST RATE LEVELS ON PRICE OF COMMON
STOCK
One of the factors that may influence the public market price of the Common
Stock will be the annual distribution rate on the price paid for shares of
Common Stock as compared with the rates on alternative investments. Thus, an
increase in general interest rate levels may lead purchasers of Common Stock to
demand a higher annual distribution rate, which could adversely affect the
market price of the Common Stock. In addition, the Company currently has no
policy to maintain a specific distribution rate, and, therefore, the Common
Stock could trade differently as compared to the public securities of other
REITs.
ABSENCE OF PUBLIC MARKET FOR COMMON STOCK; MARKET PRICE OF COMMON STOCK
There has been no public market for the Common Stock and there can be no
assurance that an active trading market will develop or be sustained or that
market conditions will permit the completion of an Offering. Unless the Company
is able to complete a public offering of its Common Stock, it is not expected to
meet the eligibility requirements for listing on a national securities exchange.
Factors such as government regulatory action, tax laws, interest rates and
market conditions in general could have a significant impact on the future
market price of the Common Stock. In addition, the trading volume of the Common
Stock may be limited, which could also have a significant effect on the future
market price of the Common Stock. No assurances can be made that the shares of
Common Stock will trade at or above $50.00 per share, the Net Asset Value per
share of Common Stock. See 'The Formation Transactions and Structure of the
Company--Calculation of Net Asset Value' for a description of Net Asset Value.
ODD-LOT SHARES
In connection with the dividend of shares of Common Stock by National,
certain shareholders may receive fractional shares or 'odd-lot' shares (fewer
than 100 shares), which in turn could affect the liquidity of such shares and
the transaction costs of a sale of such shares.
RISKS OF EQUITY REAL ESTATE INVESTMENT; ADVERSE IMPACT ON ABILITY TO MAKE
DISTRIBUTIONS;
EFFECT ON VALUE OF PROPERTIES
General. Real property investments are subject to varying degrees of risk.
The yields available from equity investments in real estate depend on the amount
of income and capital appreciation generated by the related properties. If the
Properties do not generate sufficient income to meet operating expenses,
including debt service, tenant improvements, third-party leasing commissions and
other capital expenditures, the Company's income and ability to make
distributions to its shareholders will be adversely affected. Income from the
Properties may be adversely affected by the general economic climate, local
economic conditions in the markets in which the Properties are located, such as
oversupply of space or a reduction in demand for rental space, the
attractiveness of the Properties to tenants, competition from other available
space, the ability of the Company to provide for adequate maintenance and
insurance and increased operating expenses. There is also the risk the Company's
income would be adversely affected if a significant number of tenants were
unable to pay rent or that as leases on the Properties expire, tenants will
enter into new leases on terms that are less favorable to the Company. Income
and real estate values may also be adversely affected by factors beyond the
control of the Company, such as applicable laws (e.g., environmental and tax
laws), interest rate levels and the availability of financing. In addition, real
estate investments are relatively illiquid and, therefore, will tend to limit
the ability of the Company to vary its portfolio promptly in response to changes
in economic or other conditions.
Dependence on Certain Properties. As of September 30, 1997, the total
annualized contractual base rents due under leases with tenants at the Company's
Palm Springs Mile Property represented 43.9% of the total annualized contractual
base rents due under all of the Company's leases. Furthermore, the Palm Springs
Mile Property represents 49.3% of the total leasable square footage of all of
the Properties. Although the Company believes that the current prospects for
this Property are good, the Company's revenues and cash available for
distributions to shareholders would be disproportionately and adversely affected
if this Property were to experience a materially adverse event. See 'Business
and Properties--Palm Springs Mile.'
As of September 30, 1997, the annualized contractual base rents due under
leases with tenants at the four Properties located within the New York City
metropolitan region represented 41.6% of the annualized contractual base rents
reserved under all of the Company's leases. The four Properties, Freeport
Meadowbrook Commons, Merrick Commons, Mill Basin Plaza and Forest Avenue
Shoppers Town, represent 22.5% of the total leasable square footage of all of
the Properties. Although the Company believes economic conditions within the New
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York metropolitan area are favorable, such economic conditions can vary
significantly from time to time and the Company's revenues and cash available
for distribution could be disproportionately and adversely affected if general
economic or other relevant conditions were to decline and result in a decrease
in consumer demand in the New York metropolitan area.
Competition. Numerous shopping center properties compete with the
Properties in attracting tenants to lease space. Tenants may consider certain of
these competing properties to be newer in appearance, better located or better
maintained than the Properties. The number of competitive commercial properties
in a particular area could have a material effect on the Company's ability to
lease space in the Properties or at newly developed or acquired properties and
on the rents charged. In addition, retailers at the Properties face increasing
competition from other forms of retailing, such as catalogues, discount shopping
clubs and telemarketing.
Risks of Acquisition, Renovation and Development Activities. The Company
intends to continue to actively acquire shopping center properties. Acquisitions
entail risks that investments will fail to perform in accordance with
expectations and that judgments with respect to the costs of improvements to
bring an acquired property up to standards established for the market position
intended for that property will prove inaccurate, as well as general investment
risks associated with any new real estate investment. See 'The Company's
Strategy for Growth.' However, there can be no assurance that the Company will
be able to obtain the necessary financing to make any acquisitions. The Company
will also consider commercial property development projects and may acquire
properties which need substantial renovation or repositioning. In connection
with any renovation or development project, the Company will bear certain risks,
including the risks of construction delays or cost overruns that may increase
project costs and could make such project uneconomical, the risk that occupancy
or rental rates at a completed project will not be sufficient to enable the
Company to pay operating expenses or earn its targeted rate of return on its
investment, and the risk of incurrence of predevelopment costs in connection
with projects that are not pursued to completion. In case of an unsuccessful
renovation or development project, the Company's loss could exceed its
investment in such project. Renovation or development projects may be more
highly leveraged than the Company's portfolio as a whole, which may result in an
increased risk of default and loss of equity investment if the project does not
have sufficient cash flow to cover its relatively high debt service
requirements. In addition, the Company anticipates that new development will be
financed under lines of credit or other forms of secured or unsecured
construction financing that will result in a risk that permanent financing for
newly developed projects might not be available or would be available only on
disadvantageous terms. Furthermore, the fact that the Company must distribute
95% of its REIT taxable income in order to maintain its qualification as a REIT
will limit the ability of the Company to rely upon income from operations or
cash flow from operations to finance new development or acquisitions. As a
result, if permanent debt or equity financing were not available on acceptable
terms to refinance new development or acquisitions undertaken without permanent
financing, further development activities or acquisitions might be curtailed or
cash available for distribution might be adversely affected.
Possible Environmental Liabilities. Under various federal, state and local
laws, ordinances and regulations, an owner or operator of real estate is liable
for the costs of removal or remediation of certain hazardous or toxic substances
on or in such property. Such laws often impose such liability without regard to
whether the owner or operator knew of, or was responsible for, the presence of
such hazardous or toxic substances. The presence of such substances, or the
failure to properly remediate such substances, may adversely affect the owner's
or operator's ability to sell or rent such property or to borrow using such
property as collateral. Persons who arrange for the disposal or treatment of
hazardous or toxic substances may also be liable for the costs of removal or
remediation of such substances at a disposal or treatment facility, whether or
not such facility is owned or operated by such person. Certain environmental
laws impose liability for release of asbestos-containing materials into the air,
and third parties may seek recovery from owners or operators of real properties
for personal injuries associated with asbestos-containing materials. In
connection with the ownership (direct or indirect), operation, management and
development of real properties, the Company may be considered an owner or
operator of such properties or as having arranged for the disposal or treatment
of hazardous or toxic substances and, therefore, may be potentially liable for
removal or remediation costs, as well as certain other costs, including
governmental fines and injuries to persons and property.
All of the Properties have been subject to a Phase I environmental
assessment or update (which involves general inspections without soil sampling
or ground water analysis) completed within the last year by independent
environmental consultants. None of these environmental assessments has revealed
any
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environmental liability that the Company believes would have a material adverse
effect on the Company's financial condition or results of operations taken as a
whole, nor is the Company aware of any such material environmental liability.
Nonetheless, it is possible that the Company's assessments do not reveal all
environmental liabilities or that there are material environmental liabilities
of which the Company is unaware. Moreover, there can be no assurance that (i)
future laws, ordinances or regulations will not impose any material
environmental liability or (ii) the current environmental condition of the
Properties will not be affected by tenants, by the condition of land or
operations in the vicinity of the Properties (such as the presence of
underground storage tanks), or by third parties unrelated to the Company.
Compliance with the various laws and regulations, now existing or hereafter
adopted, may affect the Company's ability to make any distributions to
shareholders could be adversely affected.
General Uninsured Losses. The Company will carry comprehensive liability,
fire, flood, extended coverage and rental loss insurance with policy
specifications, limits and deductibles customarily carried for similar
properties. There are, however, certain types of extraordinary losses which may
be either uninsurable or not economically insurable. Should an uninsured loss
occur, the Company could lose its investment in, and anticipated profits and
cash flows from, a Property. Additionally, although the Company (through its
subsidiaries) has owner's title insurance policies on all of the Properties in
amounts such that policy claims should not be limited by co-insurance
provisions, the Company may carry title insurance for less than the full value
of the Properties. If a loss occurs resulting from a title defect with respect
to a Property in excess of insured limits, the Company could lose all or part of
its investment in, and anticipated profits and cash flows from, such Property,
while remaining obligated for any recourse mortgage indebtedness or other
financial obligations related to the Property. Any such loss would adversely
affect the Company.
Bankruptcy of Tenants. As substantially all of the Company's income is
derived from rental income from real property, the Company's Funds from
Operations and its ability to make distributions to shareholders could be
adversely affected if a significant number of the Company's tenants are unable
to meet their obligations to the Company or if the Company is unable to lease on
economically favorable terms a significant amount of space in, or collect rental
payments on, its properties. At such times as a recessionary environment exists,
there is an increased risk that tenants will be unable to meet their obligations
to the Company and/or seek protection of the bankruptcy laws (which could result
in the rejection and termination of the debtor's lease). No assurance can be
given that tenants will not experience a downturn in their businesses or file
for protection under the bankruptcy laws (and if any tenants file, that they
will affirm their leases and continue to make rental payments in a timely
manner). Bankruptcies of tenants have not had a material adverse effect on the
Company, although no assurance can be given that future bankruptcies of tenants
will not have such adverse effects. If tenant leases are not affirmed following
bankruptcy or if a tenant's financial condition weakens, the Company's income
and cash available for distribution to shareholders may be adversely affected.
The Company currently has three anchor stores under lease to tenants which
are operating under the protection of bankruptcy laws. Caldor Inc. leases 94,393
square feet at Elm Plaza Shopping Center and 86,830 square feet at Branhaven
Plaza. Bradlees leases 60,000 square feet at Foxboro Plaza. The total annualized
contractual base rent under each of the foregoing leases is $205,000, $209,200
and $240,000, or $2.17, $2.41 and $4.00 per square foot, respectively. The
Bradlees lease obligations are guaranteed by the Stop N Shop Companies. While
the Company believes that the rents under each of the foregoing leases are below
market rent levels and that re-leasing of space to other tenants could enhance
cash flow, the termination of any of the above mentioned leases could cause a
short-term interruption in rental income from the affected space and potentially
affect the rental income from tenants at the property whose ability to pay is
dependent upon the presence at the property of an operating anchor tenant.
Regulation. A number of federal, state and local laws exist, such as the
Americans with Disabilities Act, which may require modifications to existing
buildings to improve, or restrict certain renovations by requiring, access to
such buildings by disabled persons. While the Company believes that all of the
Properties are in substantial compliance with laws currently in effect, and will
review periodically its properties to determine continuing compliance with
existing laws and any additional laws that are hereafter promulgated, additional
legislation may impose further requirements on owners with respect to access by
disabled persons. Notwithstanding that in certain instances the Company's
compliance cost may be reimbursable by tenants under their leases or that
compliance may be the direct obligation of a tenant, the Company's share of the
costs of compliance with such laws may be substantial and may reduce overall
returns on the Company's investments.
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Degree of Leverage. Prior to an equity offering, the Company will have a
Debt-to-Total Capitalization ratio of approximately 70%. Each of the Properties
will be encumbered with mortgage debt. Of the total $176.8 million of debt
expected to be outstanding upon completion of the Formation Transactions, $96.8
million represents floating rate debt. Increases in the interest rates on the
Company's variable rate debt would adversely affect cash flow and could reduce
the amount of funds available for distribution to shareholders. Additionally,
the degree of leverage presents risks relating to the ability of the Company to
refinance outstanding principal balances prior to maturity on terms at least as
favorable as the terms and conditions of the debt to be repaid. See '--High
Level of Debt; No Limitation on Debt; Uncertainty of Ability to Refinance Debt.'
TAX RISKS
Adverse Tax Consequences of Failure to Qualify as a REIT. The Company
intends to operate so as to qualify as a REIT under the Code commencing with its
taxable year ending December 31, 1998, but may elect to qualify as a REIT as
early as the taxable year ending December 31, 1997. The Company will elect REIT
status for the year ending December 31, 1997 if the failure to so elect would
adversely affect National's REIT status. A REIT generally is not taxed at the
corporate level on income it currently distributes to shareholders so long as it
distributes at least 95% of its REIT taxable income. Although the Company
believes that it will be organized and will operate in such a manner so as to
qualify and remain so qualified, qualification as a REIT involves the
satisfaction of numerous requirements applied under highly technical and complex
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 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. The Company is relying on
the opinion of Pryor, Cashman, Sherman & Flynn, counsel to the Company
('Counsel'), to the effect that, based on various assumptions relating to the
organization and operation of the Company and representations made by the
Company as to certain factual matters, the Company's proposed method of
operation will enable it to meet the requirements for qualification and taxation
as REIT. Such legal opinion is not binding on the IRS. See 'Federal Income Tax
Considerations.'
Other Tax Liabilities. Even if the Company qualifies as a REIT, it will be
subject to certain federal, state and local taxes on its income and property,
and certain states might contend that the Company is subject to certain
additional taxes. See 'Federal Income Tax Consideration--Other Tax
Considerations.'
NECESSITY TO MAINTAIN OWNERSHIP LIMIT REQUIRED TO MAINTAIN REIT QUALIFICATION;
ANTI-TAKEOVER EFFECT
For the Company to maintain its qualification as a REIT, not more than 50%
in value of the outstanding classes of capital stock of the Company ('Capital
Stock') may be owned, actually or constructively under the applicable
attribution rules of the Code, by five or fewer individuals (including certain
tax-exempt entities, other than, in general, qualified domestic pension funds)
at any time during the last half of any taxable year of the Company other than
the first taxable year for which the election to be taxed as a REIT has been
made (the 'five or fewer' requirement). The Charter contains certain
restrictions on the ownership and transfer of Capital Stock, described below,
which are intended to prevent concentration of stock ownership. These
restrictions, 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 shareholders. 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
shareholders due to the additional tax liability of the Company for the years
involved. See 'Federal Income Tax Consideration--Failure to Qualify as a REIT'.
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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 6.5% (by number of shares or value,
whichever is more restrictive) of the outstanding shares of Capital Stock (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 Capital Stock if such ownership or acquisition (i) would cause more
than 50% in value of the outstanding Capital Stock to be owned by five or fewer
individuals or (ii) would otherwise result in the Company's failing to qualify
as a REIT. As permitted by the Charter, the Board of Directors has adopted a
resolution providing that ownership by Mr. Pilevsky and his affiliates of up to
25% of the outstanding shares of Capital Stock (excluding interests redeemable
or convertible therefor and shares of Common Stock issuable upon exercise of
outstanding warrants) is not subject to the Ownership Limit. See 'Description of
Capital Stock of the Company--Restrictions on Ownership and Transfer.' The Board
of Directors may increase the Ownership Limit to up to 9.8% without a vote of
shareholders.
Any attempted acquisition (actual or constructive) of Capital Stock by a
person who, as a result of such acquisition, would violate one of the
limitations described above will cause the transfer resulting in such violation
to be deemed void ab initio. Violations of the Ownership Limit may result in a
repurchase by the Company of the shares the ownership of which violates such
limits. The Board of Directors may waive the Ownership Limit with respect to a
particular shareholder if it is satisfied, based upon the advice of tax counsel,
that such ownership in excess of the Ownership Limit will not jeopardize the
Company's status as a REIT. See 'Description of Capital Stock of the
Company--Restrictions on Ownership and Transfer' for additional information
regarding the aforementioned limits.
The Ownership Limit may (i) discourage a change of control of the Company,
(ii) deter tender offers for Common Stock, which offers may be attractive to the
Company's shareholders, or (iii) limit the opportunity for shareholders to
receive a premium for their Common Stock that might otherwise exist if an
investor attempted to assemble a block of Common Stock in excess of the
Ownership Limit or to effect a change of control of the Company.
COMPUTER SYSTEMS AND YEAR 2000 ISSUES
The 'Year 2000' issue concerns the potential exposures related to the
automated generation of business and financial misinformation resulting from the
application of computer programs which have been written using two digits,
rather than four, to define the applicable year of business transactions. Given
that the Company's principal property management systems are licensed from and
maintained by a third party software development company, which company is
currently modifying its real estate products to address the Year 2000 issue,
management does not anticipate any significant costs, problems or uncertainties
associated with becoming Year 2000 compliant. The Company is currently
developing a plan to insure that its other internally generated operating
systems are similarly modified on a timely basis. Failure of the Company or its
software provider to adequately address the Year 2000 issue could result in
misstatement of reported financial information or otherwise adversely affect the
Company's business operations, although the Company does not anticipate any such
results.
FORWARD-LOOKING STATEMENTS
This Proxy Statement/Prospectus contains forward-looking statements
generally identifiable by the words 'may,' 'will,' 'expect,' 'anticipate,'
'intend' and similar expressions. Discussions containing such forward-looking
statements may be found in material set forth under 'Summary,' 'The Company,'
'Capitalization,' 'Management's Discussion and Analysis of Financial Condition
and Results of Operations,' 'Business and Properties,' as well as within the
Proxy Statement/Prospectus generally. Such statements are subject to a number of
risks and uncertainties. Actual results in the future could differ materially
from those described in the forward-looking statements as a result of the risk
factors set forth above and the matters set forth in the Proxy
Statement/Prospectus generally. Prospective investors are cautioned that any
forward-looking statements are not guarantees of future performance and are
subject to such risks and uncertainties. The Company undertakes no obligation to
publicly release the results of any revisions to these forward-looking
statements that may be made to reflect any future events or circumstances.
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FORMATION TRANSACTIONS AND STRUCTURE OF THE COMPANY
The Company, the Operating Partnership and the Interim Managing General
Partner were each formed in July 1997. The other formation entities will each be
formed prior to the consummation of the Formation Transactions.
FORMATION TRANSACTIONS
National, the Company, the Operating Partnership, the other formation
entities and the Contributing Partnerships and their partners or members have or
will engage in the Formation Transactions designed to enable the Company to
continue and expand the real estate operations of the Philips Group and
National, to enable the Company to comply with certain requirements under the
federal income tax laws and regulations applicable to REITs, to facilitate
potential securitized financings, to gain certain tax advantages for the
existing owners of the Partnership Properties and to insulate each Property from
the liabilities of the other Properties. The Formation Transactions are as
follows:
(i) Pursuant to the Transaction Agreements,
(a) with respect to those Contributing Partnerships which own fee
title to Properties located in New York or Connecticut, the Contributing
Partnerships will contribute such fee title, together with any existing
indebtedness relating thereto, to the Operating Partnership or its
designee, which designee is likely to be a newly formed limited
partnership (in which the Company initially will own indirectly a 0.01%
non-managing general partnership interest through newly formed
wholly-owned subsidiaries of the Company ('Philips Subs'); each a
'Holding Partnership'), in exchange for Units;
(b) with respect to those Contributing Partnerships that are
partnerships or limited liability companies and which do not own fee
title to Properties located in New York or Connecticut, the partners or
members, as the case may be, of such Contributing Partnerships will
contribute all of their partnership interests or membership interests
therein, as the case may be, to the Operating Partnership, in exchange
for Units (which Units, together with those Units described in paragraph
(a) above, will represent approximately 93.9% of the outstanding Common
Stock of the Company, including interests redeemable or convertible
therefor and shares of Common Stock issuable upon exercise of
outstanding warrants); and
(c) any cash collateral posted by a Contributing Partnership as
security for indebtedness being assumed by the Operating Partnership in
connection with the Formation Transactions will be contributed to the
Operating Partnership or its designated affiliates upon the consummation
of the Formation Transactions and will remain as cash collateral for
such indebtedness and the relevant Contributing Partnerships will be
credited (in the form of additional Units) for such contribution.
(ii) The Company will purchase the National Property in exchange for
32,000 shares of Common Stock (which shares will represent approximately
2.1% of the outstanding Common Stock of the Company, including interests
redeemable or convertible therefor and shares of Common Stock issuable upon
exercise of outstanding warrants) and the assumption of approximately $550
million of debt.
(iii) National will dividend approximately 3,744 of such shares of
Common Stock by the end of calendar 1997 and approximately 20,256 of such
shares of Common Stock by the end of January 1998 (representing in the
aggregate not less than 75% of the Common Stock received by National) to
its shareholders on a pro-rata basis and retain approximately 8,000 shares
of Common Stock; distributions received, if any, on account of such
retained shares, or the net proceeds from the sale of any such shares, will
be available to National for working capital purposes;
(iv) Messrs. Stein and Goldman will receive the Trustees Securities in
consideration of their efforts on behalf of National to arrange and carry
out the Formation Transactions and their agreement to vote their National
Shares in favor of the Transaction Agreements;
(v) Mr. Pilevsky will purchase 10,660 shares of Common Stock
(approximately 22.4% of the outstanding Common Stock, excluding interests
redeemable or convertible therefor and shares of Common Stock issuable upon
exercise of outstanding warrants) at $50.00 per share, for a total purchase
price of $533,000;
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(vi) Prudential Securities will receive, in lieu of the financial
advisory fee payable by National upon consummation of the Formation
Transactions and assumed by the Company under the Contribution and Exchange
Agreement, 1,940 shares of Series A Preferred Stock, convertible into
38,800 shares of Common Stock, which Series A Preferred Stock represents
approximately 2.5% of the outstanding shares of Common Stock of the Company
(including interests redeemable or convertible therefor and shares of
Common Stock issuable upon exercise of outstanding warrants);
(vii) Ms. Levine, as Chief Operating Officer and Executive Vice
President, and Messrs. Petra and Gallagher, as President and Chief
Financial Officer, respectively, will each enter into an employment
agreement with the Company which will be effective as of the consummation
of the Formation Transactions;
(viii) The Company will contribute its fee title interest in the
National Property (together with the cash received from Mr. Pilevsky in
connection with his purchase of Common Stock) to the Operating Partnership
in exchange for its initial approximately 3.2% non-managing general
partnership interest therein (increasing to approximately 6.1% upon
exercise of the Trustee Warrant and conversion of the Series A Preferred
Stock). The Company will also acquire 1,940 preferred units of the
Operating Partnership, which will have financial terms substantially
identical to the financial terms of the Series A Preferred Stock;
(ix) The Interim Managing General Partner will make a pro rata
contribution to the Operating Partnership and to each of the Holding
Partnerships and Contributing Partnerships in exchange for its 0.001%
managing general partnership interest therein or managing member interest
therein, as the case may be;
(x) The Company will make capital contributions upon the consummation
of the Formation Transactions to the Philips Subs to enable them to be
0.01% owners of the Contributing Partnerships and the Holding Partnerships,
as non-managing general partner or non-managing member, as the case may be;
(xi) Each Unit holder may be required to recognize gain for federal
income tax purposes upon the contribution of the Property (or the
contribution of their partnership interests or membership interests, as the
case may be) to the Operating Partnership as a result of the Formation
Transactions, or in connection with the Operating Partnership's
satisfaction or assumption of the existing mortgages encumbering the
Property. Accordingly, in order to permit the Unit holders to defer the
recognition of gain for federal income tax purposes, Unit holders may
either (A) enter into an agreement with the Operating Partnership whereby
such Unit holder agrees to restore any deficit in such Unit holder's
capital account for federal income tax purposes upon a liquidation of the
Operating Partnership or the liquidation of such Unit holder's interest in
the Operating Partnership, or (B) execute a guarantee of the 'bottom
portion' (i.e., the last dollar portion) of secured or unsecured
indebtedness of the Operating Partnership within the meaning of the
Treasury Regulations promulgated under Section 752 of the Code;
(xii) The Company and the Operating Partnership will enter into the
Management Agreement with the Management Company; and
(xiii) Mr. Pilevsky, Ms. Levine and the Management Company will enter
into the Non-Competition Agreement with the Company.
As a result of the foregoing transactions, (i) National and its
shareholders (who will also continue to hold their National Shares) will own
32,000 shares of the Company's Common Stock, which will represent approximately
2.1% of the outstanding Common Stock of the Company (including interests
redeemable or convertible therefor and shares of Common Stock issuable upon
exercise of outstanding warrants); (ii) the Trustees will own the Trustees Stock
and the Trustees Warrants (which are immediately exercisable), which will
represent approximately 0.8% of the outstanding Common Stock of the Company
(including interests redeemable or convertible therefor and shares of Common
Stock issuable upon exercise of the Trustees Warrants); (iii) the Company will
own an approximately 6.1% non-managing general partnership interest in the
Operating Partnership; (iv) the Philips Group (of which Mr. Pilevsky will hold a
majority interest) will own 1,450,000 Units, which will represent an
approximately 93.9% limited partnership interest in the Operating Partnership;
(v) Mr. Pilevsky will own beneficially approximately 0.7% of the outstanding
Common Stock of the Company and 964,641 Units redeemable for shares of Common
Stock, which Units represent approximately 62.5% of the outstanding Common Stock
of the Company (in each case, including interests redeemable or convertible
therefor and shares of Common Stock issuable upon exercise of outstanding
warrants); (vi) Prudential Securities will
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own 1,940 shares of Series A Preferred Stock, convertible into 38,800 shares of
Common Stock, representing approximately 2.5% of the outstanding shares of
Common Stock of the Company (including interests redeemable or convertible
therefor and shares of Common Stock issuable upon exercise of outstanding
warrants); and (vii) the Interim Managing General Partner will own an
approximately 0.001% managing general partnership interest or managing member
interest, as the case may be, in each of the Operating Partnership, the Holding
Partnerships and the Contributing Partnerships. In addition, in connection with
the Formation Transactions, the Operating Partnership will assume approximately
$176.8 million of indebtedness encumbering the contributed assets and
partnership and membership interests.
In connection with the rendering of its opinion (described below) to the
Board of Trustees of National, Prudential Securities applied a range of
capitalization rates to the National Property's estimated net operating income
for 1997. Such application resulted in a range of estimated fair value of the
National Property of approximately $0.93 million to $1.07 million. Assuming a
value of $50.00 per share of Common Stock (see 'Calculation of Net Asset Value'
below), the value of the consideration to be received by National in exchange
for the National Property is approximately $1.6 million. Prudential Securities'
opinion is limited to the fairness of the consideration to be received by
National, and such opinion is subject to the assumptions and limitations
described below. See 'Formation Transactions and Structure of the
Company--Opinion of Financial Advisor.' Prudential Securities did not render an
opinion as to the fair value of the National Property.
CALCULATION OF NET ASSET VALUE
The Company's Net Asset Value was calculated based on the pro forma net
operating income for the nine properties contributed by the Contributing
Partnerships and the consideration to be paid for the National Property. The pro
forma annualized net operating income for the Partnership Properties was
calculated for the twelve-month period from March 1, 1997 to February 28, 1998,
based upon leases in place as of March 1, 1997. The calculation of net operating
income was not determined in accordance with GAAP. The total pro forma net
operating income for such period of approximately $22.7 million, valued by the
Company at a 9.0% capitalization rate, resulted in a gross asset value of
approximately $252.2 million. Such gross asset value, less the approximately
$178.5 million of indebtedness as of July 31, 1997 and less the approximately
$1.2 million of allocated transaction expenses, results in a net asset value of
approximately $72.5 million. Such net asset value, plus the $1.6 million in
consideration paid for the National Property, results in an aggregate Net Asset
Value of approximately $74.1 million for the portfolio as a whole.
The Company believes that its calculation of Net Asset Value constitutes a
reasonable basis for determining the number of shares of Common Stock to be
issued to National and the Trustees in connection with the purchase of the
National Property and is made solely for such purpose. It is not intended that
such calculation be a projection or forecast of the net operating income of the
Company or of the trading price for the Common Stock if a market for the Common
Stock is established. No assurances can be made that the shares of Common Stock
will trade at or above $50.00 per share, the Net Asset Value per share of Common
Stock.
BENEFITS OF THE FORMATION TRANSACTIONS TO THE PHILIPS GROUP
The Founders proposed the Formation Transactions to the Philips Group
because they believe that the benefits of the organization of the Company for
the Philips Group outweigh the detriments to them. Benefits to members of the
Philips Group, including the Founders, include:
o improved liquidity of their interests in the Properties, increased
diversification of investment and deferral of the tax consequences
of the contribution of their interests in the Partnership Properties
to the Operating Partnership;
o the Company will own and manage ten shopping center properties
throughout the New England, Mid-Atlantic and the Southeast regions
of the United States, thereby representing an investment in an
enterprise with a significantly larger and more diversified
portfolio, which, although no assurances can be given, should
provide the Company greater access to the capital markets and result
in economies of scale in its operations;
o the release and/or indemnification by the Company of various members
of the Philips Group, including Mr. Pilevsky, with respect to the
assumed indebtedness and certain guarantees and indemnities in
connection with such indebtedness;
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o receipt by the Founders of options to purchase Common Stock, each as
an executive officer of the Company, and the employment agreement
entered into with Ms. Levine providing for an annual salary, bonus
and other benefits for her services; and
o the Management Agreement, which will provide a fee to the Management
Company, an affiliate of the Founders, in connection with management
of the Properties. In addition, the Management Company or its
designees will receive options to purchase Common Stock.
BENEFITS OF THE FORMATION TRANSACTIONS TO THE TRUSTEES
Messrs. Stein and Goldman will receive the following benefits in connection
with the Formation Transactions that are in addition to the benefits received by
the National shareholders generally. These benefits are in consideration of the
efforts made by Messrs. Stein and Goldman to investigate, negotiate and
otherwise undertake the preparations necessary for National to enter into the
Formation Transactions and to vote their National Shares in favor of the
Transaction Agreements.
o Trustees Stock equal to an aggregate of $250,000 of Common Stock
(5,000 shares of Common Stock, based on a Net Asset Value of $50.00
per share of Common Stock); and
o Trustees Warrants to purchase an aggregate of 8,000 shares of Common
Stock at an exercise price of $25.00 per share (a value of $211,000,
based on the Black Scholes valuation model), which are immediately
exercisable for Common Stock, which Common Stock may not be sold
until after the first anniversary of the date of issuance of the
Trustees Warrants, and expire in 2003.
See 'Formation Transactions--Interests of the Trustees in the Formation
Transactions.'
BENEFITS OF THE FORMATION TRANSACTIONS TO THE NATIONAL SHAREHOLDERS
The shareholders of National will receive certain benefits in connection
with the Formation Transactions, including the following:
o the Formation Transactions will result in a diversified real estate
company with expertise, through the Company's executive officers and
directors and the Management Company, in acquisition, development,
financing, construction, leasing and other tenant-related services,
enabling the Company to benefit from an effective management team
with substantial real estate experience;
o the Company will own ten shopping center properties throughout the
New England, Mid-Atlantic and Southeast regions of the United States
compared with National's ownership of one property in Lake Mary,
Florida, thereby representing an investment for National
shareholders in an enterprise with a significantly larger and more
diversified portfolio, which, although no assurances can be given,
should provide the Company greater access to the capital markets and
result in economies of scale in its operations; and
o National does not expect to make distributions to shareholders in
the near future except as required to maintain its REIT status, but
the Company intends to make periodic distributions at least annually
to its shareholders in order to maintain its REIT status.
Upon consummation of the Formation Transactions described in this Proxy
Statement/Prospectus, including the amendment of the terms of the Declaration of
Trust to permit such transactions, (i) National and its shareholders will
receive an aggregate of approximately 2.1% of the outstanding Common Stock of
the Company (including interests redeemable or convertible therefor and shares
of Common Stock issuable upon exercise of outstanding warrants); (ii) the
Trustees will beneficially own an aggregate of approximately 0.3% of the
outstanding shares of Common Stock and warrants to purchase an additional 0.5%
of the outstanding shares of Common Stock (in each case, including interests
redeemable or convertible therefor and shares of Common Stock issuable upon
exercise of outstanding warrants); (iii) Mr. Pilevsky will beneficially own
approximately 0.7% of the outstanding Common Stock of the Company (including
interests redeemable or convertible therefor and shares of Common Stock issuable
upon exercise of outstanding warrants); (iv) Prudential Securities will
beneficially own 1,940 shares of Series A Preferred Stock, convertible into
38,800 shares of Common Stock, which Series A Preferred Stock represents
approximately 2.5% of the outstanding shares of Common Stock of the Company
(including interests redeemable or convertible therefor and shares of Common
Stock issuable upon exercise of outstanding warrants); and (v) the Philips Group
(of which Mr. Pilevsky will hold a majority interest)
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will beneficially own 1,450,000 Units redeemable for shares of Common Stock of
the Company, which Units represent approximately 93.9% of the outstanding shares
of Common Stock of the Company (including interests redeemable or convertible
therefor and shares of Common Stock issuable upon exercise of outstanding
warrants). National's shareholders will also continue to hold their National
Shares.
As of the Record Date, the Trustees of National had the right to vote
96,789 National Shares, or approximately 12.9% of the outstanding National
Shares. Such persons and their affiliates have agreed to vote in favor of the
Transaction Agreements. See '--Background of the Formation Transactions' and
'--Interests of the Trustees in the Formation Transactions.'
Pursuant to the terms of the Contribution and Exchange Agreement, National
has agreed to maintain its existence and not adopt any plan of liquidation or
dissolution for a period of one year following the closing of the Formation
Transactions. After such time, the Trustees will consider the alternatives
available to National, including whether to purchase new properties or to pursue
other business combinations or similar transactions. If no such alternative
transactions are feasible at that time, then, more likely than not, the Trustees
will take action to liquidate the trust. The Trustees believe that before making
any such decision to liquidate the trust, National should maintain its existence
for such one year period and retain a limited portion of the shares of Common
Stock to be received by National in the Formation Transactions to provide for
the payment of unknown or contingent liabilities of National, if any, at the
time of liquidation of the trust and any ongoing administrative expenses.
BACKGROUND OF THE FORMATION TRANSACTIONS
National was organized on January 16, 1985, as a Massachusetts business
trust. On July 23, 1993, National changed its name from Richard Roberts Real
Estate Growth Trust I to its current name. Since electing its REIT status in
1985, National has filed as a REIT under the provisions of the Code and intends
to maintain this status as long as it will benefit National's shareholders.
In 1985 and 1986, National commenced a series of public offerings of its
Shares, resulting in aggregate net proceeds of approximately $8.0 million, all
of which was invested directly in equity interests in five commercial properties
in the United States which had income-producing capabilities. Four of these
properties were lost to foreclosure in 1990 and 1992. National has experienced a
loss of $18,598, income of $33,452 and a loss of $272,220 for fiscal years ended
December 31, 1996, 1995 and 1994, respectively. The Shoppes at Lake Mary, a
shopping center located in Lake Mary, Florida, is National's sole remaining
property.
Over the past several years, the Board of Trustees of National,
specifically Messrs. Stein and Goldman, has spent a considerable amount of time
investigating various alternatives in order to enhance shareholder value and
return on equity. Mr. Reibstein, having only joined the Board of Trustees in
June 1997, has not participated in the work that was preparatory to the
agreement by the parties to undertake the consummation of the Formation
Transactions. The Board of Trustees' primary goal has been and continues to be
to protect the shareholders' current investment and to enhance their return by
reduced general and administrative costs. The Trustees, specifically Messrs.
Stein and Goldman, have spoken to numerous individuals throughout the country
involved in all aspects and segments of the real estate industry.
The Board of Trustees has received various proposals, and has performed
extensive due diligence in assessing all of these proposals. In spring of 1994,
National retained a securities firm, Bentley Securities Corp., to assist in
locating a merger or joint venture partner that would be interested in operating
within a public real estate investment trust structure. Different properties
were reviewed, and preliminary discussions were held with one party. In July
1994, discussions were held with Vickman & Co., the owner's representative of a
portfolio comprising 56 properties in the Chicago area, Northern Indiana and
Southern Wisconsin. These properties were all small retail shopping plazas that
were owned by a single family. Most of the sites were visited by the Trustees,
and they received and evaluated detailed financial data on each property.
Discussions and meetings were held with the attorneys for the seller, but no
definitive proposal was made by either party.
In January 1995, the Trustees entered into negotiations with David Clapper,
general partner for a portfolio of 4,700 multi-family units located primarily in
Michigan and Ohio. All the sites were visited by the Trustees, some financial
data was exchanged and various meetings between principals were held. The
limited partners of Mr. Clapper elected not to proceed with a transaction.
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In spring of 1995, the Trustees entered into detailed discussions with
National Corporation for Housing Partnership, the general partner of a portfolio
of more than 100,000 multi-family units, mostly government-subsidized
properties. The Trustees entered into contract negotiations to acquire numerous
properties, the largest being a 230 unit high-rise in Cincinnati, Ohio. The
total purchase price would have been between $50 and $73 million depending on
the number of units in the final package. The parties were unable to agree on
the terms of a definitive agreement.
In January through March of 1996, the Trustees held discussions with a
group owning more than 1,000 manufactured housing units in the Phoenix, Arizona
area. Included in this portfolio was land and plans to develop an additional 900
units. The parties were unable to agree on the terms of a definitive agreement.
In May 1996, the Trustees held discussions with both principals and
attorneys for a portfolio of multi-family units, located in the upper Midwest,
with an agreed upon value of $95 million. In-depth work was developed for an
UPREIT structure. Preliminary meetings were held in New York with potential
securities firms to raise the necessary capital for a transaction. However, the
parties were unable to agree on the terms of a definitive agreement.
From January 1997 through August 1997, representatives of National and
representatives of the Philips Group, and their respective advisors, held
numerous meetings and telephone conference calls to discuss in conceptual terms
the parameters of a possible transaction, to refine the structure of the
transaction and to negotiate the terms of a proposed acquisition agreement, as
described below.
Prudential Securities' initial meeting with National was on December 30,
1996. The persons present were Messrs. Stein and Goldman and representatives of
Prudential Securities. There was a general discussion concerning the Trustees'
goals for National and potential candidates for a consolidation with National.
Included among the attributes deemed by the Board of Trustees to be of critical
importance were: (i) the financial strength of the strategic partner; (ii) the
compatibility of investment objectives and policies; and (iii) the potential for
expansion by the combined entity. On January 12, 1997, National engaged
Prudential Securities to serve as National's financial advisor.
Prudential Securities had preliminary conversations with several private
real estate owners to obtain indications of interest concerning a possible
consolidation transaction with National. On February 12, 1997, Philips and
another private real estate owner made presentations to National to introduce
themselves to National and to describe their respective businesses and
organizations. Persons present were Messrs. Stein and Goldman, representatives
of Prudential Securities and representatives of each of the presenting persons.
Following the meeting, National advised Prudential Securities that it would
prefer to pursue a possible transaction with Philips because Philips' property
type was a better fit with National, Philips had a Florida presence like
National and National favored Philips' development-oriented growth plans. The
other party did not make a proposal for a consolidation transaction with
National.
On March 11, 1997, a meeting was held to discuss the structure of a
possible consolidation transaction between National and Philips. Philips
suggested that it would be interested in considering a merger with a price to
National shareholders that would represent a premium over the net asset value of
the National Property and that Philips might consider some continuing role of
the Trustees. No prices for a transaction were discussed. Persons present at the
meeting included Messrs. Stein and Goldman, Mr. Gallagher and other
representatives of Philips, representatives of Prudential Securities and counsel
to National and to Philips.
The parties had various telephone discussions concerning the structure of a
possible transaction between National and Philips.
At a meeting on April 16, 1997, the parties continued to discuss structural
issues concerning a consolidation, as well as valuation of the respective
properties, provisions of an operating partnership agreement, expense
reimbursement for National and the parties' respective rights to terminate the
agreements and other matters. The parties continued these negotiations at a
meeting on April 28, 1997. Persons present at each meeting (or by telephone)
were Mr. Stein, Mr. Gallagher, other representatives of Philips, representatives
of Prudential Securities, and counsel to Philips, to National and to Prudential
Securities.
The parties continued to work on drafts of the Contribution and Exchange
Agreement, the Operating Partnership Agreement and the proxy statement.
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During the course of negotiations in June, the structure of the transaction
was established as a taxable transfer of the National Property for Common Stock
rather than as a tax-free merger transaction to ensure that the Company is not
deemed to assume the liabilities of National, and the parties further discussed
the compensation that would be paid to the Trustees. On June 12, 1997, the
parties met to negotiate the principal agreements. Persons present at the
meeting were Mr. Stein (via telephone), Mr. Gallagher, other representatives of
Philips, representatives of Prudential Securities, and counsel to Philips, to
National (via telephone) and to Prudential Securities. The Company sought a
distribution by National of Common Stock to shareholders in 1997, (so that the
Company would achieve an immediate public distribution), which distribution was
expected to be taxable to the National shareholders. The Board agreed to this
distribution, since it concluded that it would minimize the adverse tax
consequences to National shareholders by limiting the 1997 distribution to
approximately 18% of the Common Stock to be received by National. National also
agreed to maintain its REIT status and corporate existence for at least one year
following the closing of the Formation Transactions. During this period the
Trustees intend to pursue new opportunities for investment by the REIT and to
continue National as a REIT thereafter so long as, in the Board's determination,
reasonable avenues for enhancing shareholder value remain available.
On July 11, 1997, Messrs. Stein and Goldman met with counsel to National to
review a proposed draft of the Contribution and Exchange Agreement and the proxy
statement.
At meetings (including by telephone conference call) on July 16 and July
23, 1997, the parties met to continue work on a draft of the proxy statement and
the Contribution and Exchange Agreement. Peter Stein and National's counsel
participated by telephone. Present at the meeting were Mr. Gallagher, other
representatives of Philips, representatives of Prudential Securities and counsel
to Philips and to Prudential Securities. By the end of July 1997, compensation
for the Trustees was agreed upon.
On August 7, 1997, a special meeting of the Board of Trustees of National
was held in the offices of Bingham Dana LLP in Boston, Massachusetts to consider
the proposed Formation Transactions. Present at the meeting were each of the
Trustees, Messrs. Stein, Goldman and Reibstein, and National's counsel, Bingham
Dana LLP. Initially, the Board discussed with counsel the latest drafts of the
Contribution and Exchange Agreement and related documents and reviewed the
issues outstanding in the transaction with the Company. Following this review a
conference call was held with Prudential Securities. Prudential Securities
discussed with the Board the financial analyses performed by Prudential
Securities and responded to questions of the Trustees. Prudential Securities
then delivered its opinion to the Board of Trustees to the effect that, as of
the date thereof, based on Prudential Securities' review and subject to the
assumptions and limitations described below, the consideration to be received by
National for the National Property pursuant to the Contribution and Exchange
Agreement is fair to National from a financial point of view. Prudential
Securities was then excused from the meeting. The Board then continued to
deliberate, consulting as necessary with counsel, with respect to the
Transaction Agreements and the Formation Transactions. As described more fully
below under '--Reasons for the Formation Transactions; Recommendation of the
Board of Trustees,' after consideration of the positive and negative factors
involved, based on the totality of the facts and circumstances, the Board
resolved to approve National's entering into the Contribution and Exchange
Agreement and the consummation of the Formation Transactions as being fair and
in the best interest of the shareholders, and recommended shareholder approval
of the Transaction Agreements following a proxy solicitation.
REASONS FOR THE FORMATION TRANSACTIONS; RECOMMENDATIONS OF THE BOARD OF TRUSTEES
By unanimous vote, the Board of Trustees (i) determined that the
Transaction Agreements and the Formation Transactions are fair to, and in the
best interests of, National and its shareholders, (ii) approved and adopted the
Transaction Agreements, and (iii) resolved to recommend that the National
shareholders approve the Transaction Agreements.
In evaluating the fairness of the Transaction Agreements and the Formation
Transactions and concluding to approve the Transaction Agreements and recommend
that shareholders of National approve the Transaction Agreements, the Trustees
reviewed the terms of the Transaction Agreements and the financial performance,
condition, business operations and prospects of National and the Company, and
considered a number of factors. The primary reasons that the Board of Trustees
is recommending approval of the Transaction Agreements are set
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forth below (although there can be no assurances that a National shareholder
will realize all or any of the potential benefits described below):
o The total capitalization of the Company on a pro forma basis as of
June 30, 1997 (based on Net Asset Value of $50.00 per share of
Common Stock) would be approximately $252.9 million, which would be
considerably greater than National's market capitalization at June
30, 1997. The Board of Trustees viewed this favorably because of the
Board's belief that it would potentially provide National's
shareholders with greater liquidity in their investment;
o The opportunity to benefit from the depth of experience represented
on the Company's Board of Directors and in its Executive Officers in
a diversified real estate company with expertise, through the
Company's directors and executive officers and the Management
Company, in acquisition, development, financing, construction,
leasing and other tenant-related services. The Board of Trustees
viewed this as a factor favorable to its determination because of
its belief that such directors, officers and the Management Company
personnel, given their general knowledge of the real estate markets
in the New England, Mid-Atlantic and Southeast regions of the United
States and their property management and overall management
expertise, would be able to enhance the value of the Company's
assets;
o The opportunity to expand the number of properties owned and managed
to ten shopping center properties in the New England, Mid-Atlantic
and Southeast regions of the United States, thereby representing an
investment in an enterprise with a significantly larger and more
diversified portfolio, which, although no assurances can be given,
should provide greater access to the capital markets and result in
economies of scale in its operations;
o The location, distribution and mix of the combined portfolio of
Properties;
o National does not expect to make cash distributions to its
shareholders in the near term except as required to maintain its
REIT status, but the Company intends to make periodic cash
distributions at least annually to its shareholders in order to
maintain its REIT status. National has covenanted to continue its
existence for at least one year following consummation of the
Formation Transactions, although there can be no assurances that
National will be able to maintain its REIT status for such period.
National shareholders will continue to hold Shares representing
their beneficial interest in the assets of National;
o The structure of the Formation Transactions. In this regard, the
Board of Trustees placed special emphasis on, and viewed as
favorable to its determination, the fact that the Formation
Transactions will allow shareholders of National to receive shares
of Common Stock and will provide the opportunity, though not the
assurance, for National's shareholders to share in any future
appreciation in value realized by the Company;
o The provisions in the Contribution and Exchange Agreement that
permit National to terminate the Contribution and Exchange Agreement
under certain circumstances, if required by the fiduciary duty of
National's Board of Trustees. The Board of Trustees viewed such
factor as favorable to its determination because of its belief that
these provisions would provide a third party wishing to make a
financially superior acquisition proposal for National the
opportunity to do so;
o The opinion, analysis and presentation of Prudential Securities
described below under Opinion of Financial Advisor, including the
written opinion of Prudential Securities dated August 7, 1997 to the
effect that, as of the date of the opinion and based upon and
subject to certain matters stated therein, the consideration to be
received by National for the National Property pursuant to the
Contribution and Exchange Agreement was fair to National from a
financial point of view. The Board of Trustees viewed Prudential
Securities' opinion as favorable to its determination, in part,
because Prudential Securities is an internationally recognized
investment banking firm with experience and expertise in the
evaluation of businesses and real estate portfolios and expertise in
connection with mergers and acquisitions and providing advisory
services and raising capital for companies in the real estate
industry;
o The increased cash flow potentially available for reinvestment in
the Company or distribution to shareholders of the combined entity;
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o The agreement by the Company, pursuant to the Contribution and
Exchange Agreement, to pay the expenses of National in connection
with the Transaction Agreements and the Formation Transactions, the
preparation of this Proxy Statement/Prospectus and National's
actions in connection therewith; and
o The provision of the Contribution and Exchange Agreement requiring
the affirmative vote of a plurality of votes casts by Unaffiliated
Shareholders for approval of the Transaction Agreements.
The Trustees also considered the following potential disadvantages of the
Formation Transactions to National shareholders:
o Control of the business of the Company (subject to certain
limitations) by Mr. Pilevsky, as Chairman of the Board and Chief
Executive Officer of the Company, including investment, financing
and distribution policies, and as sole member of the Interim
Managing General Partner (which will control the Operating
Partnership until the completion of an Offering) and the fact that
Mr. Pilevsky may have interests that differ from those of other
shareholders of the Company;
o Substantial influence over the affairs of the Company and the
Operating Partnership by the Founders as directors and executive
officers of the Company and as holders initially of Units and Common
Stock representing approximately 70.6% of the outstanding shares of
Common Stock of the Company (including interests redeemable or
convertible therefor and shares of Common Stock issuable upon
exercise of outstanding warrants);
o Conflicts of interests with certain members of the Philips Group,
including the Founders, who will continue to hold through Philips
Private Company significant interests in income producing real
property not contributed to the Company, including conflicts with
one of the Founders who may continue to spend a material amount of
his time and effort managing these interests, and conflicts with
certain personnel of the Management Company who will continue to
spend a material amount of their time and efforts managing the
business and properties of Philips Private Company;
o Material differences in the rights of shareholders of National as
compared to the rights of shareholders of the Company, including the
absence from the Company's charter documents of provisions
protecting shareholders and their investment, restrictions on
corporate investment and financing policies and limitations on
corporate transactions;
o The dependence of the Company on one Property which at June 30, 1997
represents approximately 44.8% of the Company's annualized
contractual base rents and the risk that if this Property were to
experience a materially adverse event, the Company's revenues and
cash available for distributions to shareholders would be adversely
affected; and
o The possibility that National may be required, if the Contribution
and Exchange Agreement is terminated under certain circumstances, to
pay the Company a termination fee of $500,000 to $750,000 plus the
expenses of the Company (in addition to having to pay its own
expenses incurred in connection with the Formation Transactions,
which will be substantial).
In the process of reviewing the proposed Formation Transactions, the Board
examined the benefits to be received by insiders and affiliates of National and
the Company from the Formation Transactions. With respect to the additional
consideration in the form of the Trustees Securities to be received from the
Company by the National Trustees, Messrs. Stein and Goldman, the Board
acknowledged the effort, mostly uncompensated, that had been made by the
Trustees over a three-year period to enhance shareholder value in National by
making improvements to National's real property, and exploring alternative
investment opportunities for National. See '--Background of the Formation
Transactions' for a more detailed description of these efforts. The Board also
took note of the substantial time and effort expended by each of the Trustees in
performing due diligence and negotiating the Formation Transactions, opportunity
for National shareholders. Based on these efforts and the ongoing effort of
managing National, the Board determined that the additional consideration to be
received by Messrs. Stein and Goldman, when viewed as part of the Formation
Transactions, was fair to, and in the best interest of, the National
shareholders.
The Board also considered the conflicts of interest and control issues
presented by the role of Mr. Pilevsky and the Philips Group and their insiders
and affiliates in the Formation Transactions. In particular, the Board
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noted that Mr. Pilevsky and the other officers and directors of the Company and
the members of the Philips Group will initially control Units and Common Stock
representing approximately 94.6% of the outstanding shares of Common Stock of
the Company (including interests redeemable or convertible therefor and shares
of Common Stock issuable upon exercise of outstanding warrants) compared to the
2.1% that it is contemplated that the National shareholders will own and the
0.8% to be owned by the Trustees. While an Offering would reduce such control,
the Board acknowledged that there could be no assurance that such an Offering
would be made or, if made, would be successful. Even if an Offering is
consummated, the Board recognized that Mr. Pilevsky and other affiliates and
insiders of the Philips Group could be expected to continue to have a
controlling influence over the Company.
The Board considered the significant interest and the expected ongoing
substantial involvement in other businesses and real properties of Mr. Pilevsky,
the other officers and directors of the Company and the management personnel of
the Management Company. The Board also noted the benefits and conflicts of
interest created by the Formation Transactions for the Company, the Philips
Group and their affiliates, and the tax consequences of the sale and refinancing
of certain of the Properties.
Despite the foregoing negative factors, the Board determined that the
opportunities and value to the shareholders presented by the Formation
Transactions outweighed the risks posed by the control and conflicts of interest
issues raised by the role of insiders and affiliates of the Philips Group in the
Formation Transactions and concluded that the Formation Transactions were both
fair to, and in the best interests of, shareholders.
In making this determination the following factors were significant to the
Board's recommendation to National shareholders to approve the Formation
Transactions:
o The Company will own ten shopping center properties throughout the New
England, Mid-Atlantic and Southeast regions of the United States compared with
National's ownership of a single property in Lake Mary, Florida with less than
half the gross leasable area of the smallest of the nine other Properties. The
Company thus represents an investment for National shareholders in an
enterprise with a significantly larger and more diversified portfolio than
National's, which, although no assurance can be given, should result in
economies of scale in operations and provide the Company with greater access
to capital and debt markets and potential real estate investment opportunities
than are available to National. The Common Stock being distributed to the
National shareholders thus represents an opportunity for National holders to
invest in the greater capital appreciation potential of the Company.
o The Formation Transactions will result in a diversified real estate company
which, through the Company's executive officers and directors and the
Management Company personnel, will have expertise in real estate acquisition,
development, financing, construction, leasing and other tenant-related
services, and operating experience and familiarity with all of the Properties
(other than National's) and their geographic markets, enabling the Company to
benefit from an effective management team with substantial range and depth in
their real estate experience.
o The Company's Properties, including the National Property, as of June 30, 1997
were approximately 96% leased to over 260 tenants and, based on recent
engineering and environmental reports, are well-maintained, do not require
significant capital improvements or contain significant environmental
liabilities and are established in markets which the Company believes
represent good growth opportunities.
o Although there can be no assurance as to when, if ever, an Offering will be
completed, or if completed, whether an active trading market for the Common
Stock will develop, upon completion of an Offering, the shares of Common Stock
to be distributed to National shareholders would be a more readily liquid
investment in a significantly larger investment portfolio than currently is
represented by the National Shares, for which no trading market currently
exists and there are no reasonable prospects for one to develop.
o As a result of National's carry-over of net operating losses and a deferral of
80% of the distribution of Common Stock until 1998, National expects that it
will not need to pay federal taxes on the gain represented by the Common Stock
received in the Formation Transactions and that it can substantially offset
any state taxes that would otherwise become due. While the initial 18%
distribution of Common Stock should be taxable to National shareholders as
ordinary income, the overall net tax consequences to the shareholders were not
viewed by the Board as a significant negative factor given the resulting
benefits to be received by National and the National shareholders from
consummation of the Formation Transactions.
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o National does not expect to make cash distributions to shareholders in the
near future except as may be required to maintain its REIT status, but the
Company believes it is likely to have net income sufficient to require limited
distributions to its shareholders in the near term in order to maintain its
REIT status.
In considering the Formation Transactions, the Board of Trustees of
National recognizes that the terms of the Contribution and Exchange Agreement
require National to agree that it will not initiate, solicit or encourage any
inquiry, offer or proposal for a merger, sale of assets or similar transaction.
The Board of Trustees of National concluded that this provision is necessary to
help ensure that the Formation Transactions could be consummated. Moreover, the
Board of Trustees viewed as favorable the fact that the Contribution and
Exchange Agreement does not prohibit National from responding to an unsolicited
proposal if the Board of Trustees concludes that it is required to do so by its
fiduciary duties to its shareholders.
The Board of Trustees of National further recognizes that the consummation
of the Formation Transactions requires the amendment of certain subsections of
Section 5.2 of the Declaration of Trust to eliminate provisions which might
otherwise prohibit National from engaging in the Formation Transactions and
certain of the investments resulting therefrom. The Board of Trustees concluded
that these amendments are a requirement for the consummation of the Formation
Transactions and a failure to amend these prohibitions would take away the
opportunity for shareholders to convert their National investment into an
investment in the larger, more diverse assets of the Company.
The Board of Trustees also notes that the provisions of the Contribution
and Exchange Agreement provide for indemnification equivalent to that available
to trustees, officers, employees or agents of National for actions and omissions
of such persons occurring prior to the Closing Date. Because the indemnification
provisions of the Contribution and Exchange Agreement are equivalent to the
rights currently available to such persons under National's Declaration of Trust
and National's Trustees' Regulations, the Board of Trustees did not view this
factor as affecting its evaluation or recommendation of the Formation
Transactions.
The Board of Trustees of National also notes that all of Prudential
Securities' compensation is contingent upon consummation of the Formation
Transactions and does not view such contingency as unfavorable to the Board of
Trustees' determination or the Board of Trustees' view of Prudential Securities'
analysis and opinion. The Board of Trustees did not view such potential
conflicts of Prudential Securities unfavorably because of the Board of Trustees'
belief that Prudential Securities would adhere to high standards of
professionalism in connection with its engagement and because contingencies for
financial advisors are common in transactions similar to the Formation
Transactions.
Finally, the Board of Trustees considered the risk that the anticipated
benefits of the Formation Transactions may not be fully realized. In the view of
the Board of Trustees, the negative factors are not sufficient, either
individually or collectively, to outweigh the advantages of the Formation
Transactions.
In view of the wide variety of factors considered in its evaluation, the
Trustees of National found it impracticable, and accordingly did not attempt, to
quantify or otherwise assign relative weights to specific factors. The Board of
Trustees of National believes that the positive and negative factors must be
considered as a whole and that isolating certain factors would create a
misleading view of the deliberative process and the reasons for the Board of
Trustees' recommendation.
THE BOARD OF TRUSTEES HAS UNANIMOUSLY APPROVED AND ADOPTED THE TRANSACTION
AGREEMENTS, AND HAVING DETERMINED THAT THE TRANSACTION AGREEMENTS AND THE
FORMATION TRANSACTIONS ARE FAIR TO AND IN THE BEST INTERESTS OF NATIONAL AND ITS
SHAREHOLDERS, UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR ADOPTION OF
EACH OF PROPOSAL 1 AND PROPOSAL 2.
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INTERESTS OF THE TRUSTEES IN THE FORMATION TRANSACTIONS
In considering the recommendation of the Board of Trustees to approve the
Transaction Agreements, shareholders of National should be aware that Messrs.
Stein and Goldman have interests in the Formation Transactions that are in
addition to the interests of shareholders of National generally, including the
receipt by Messrs. Stein and Goldman of the Trustees Stock, with an aggregate
Net Asset Value of $250,000 (5,000 shares of Common Stock), and the Trustees
Warrants, which are exercisable at $25.00 per share (a value of $211,000, based
on the Black Scholes valuation model).
Pursuant to the Contribution and Exchange Agreement, Messrs. Stein, Goldman
and Reibstein have agreed to vote all National Shares held by them, and to cause
their respective affiliates to vote all National Shares held by such affiliates,
in favor of the Transaction Agreements.
OPINION OF FINANCIAL ADVISOR
On August 7, 1997, Prudential Securities delivered its written opinion (the
'Opinion') to the Board of Trustees that, as of such date, the consideration to
be received by National for the National Property pursuant to the Contribution
and Exchange Agreement is fair to National from a financial point of view.
Prudential Securities made a presentation of the Opinion and the underlying
financial analysis to the Board of Trustees on August 7, 1997 and, in addition,
provided to each Trustee, prior to the meeting, a report setting forth the
analysis underlying the Opinion. This analysis, as presented to the Board of
Trustees, is summarized herein. All of the members of the Board of Trustees were
present at the meeting (either in person or via teleconference) and had an
opportunity to ask questions of Prudential Securities. Prudential Securities
discussed with the Board of Trustees the information in the report, and the
financial data and other factors considered by Prudential Securities, in
conducting its analysis, all of which are summarized herein.
In requesting the Opinion, the Board of Trustees did not give any special
instructions to Prudential Securities or impose any limitations upon the scope
of the investigation that Prudential Securities deemed necessary to enable it to
deliver the Opinion. A copy of the Opinion, which sets forth the assumptions
made, matters considered and limits on the review undertaken, is attached to
this Proxy Statement/Prospectus as Appendix A and is incorporated herein by
reference. The summary of the Opinion set forth below is qualified in its
entirety by reference to the full text of the Opinion. National shareholders are
urged to read the Opinion in its entirety. The Opinion is directed only to the
fairness of the consideration to be received by National from a financial point
of view and does not constitute a recommendation to any shareholder as to how
such shareholder should vote at the Meeting.
National selected Prudential Securities to provide financial advisory
services because it is an internationally recognized investment banking firm
engaged in rendering financial advisory services, with particular expertise in
REITs, and in the valuation of businesses and their securities in connection
with mergers and acquisitions and for other purposes, and has substantial
experience in transactions similar to the Formation Transactions. The engagement
letter with Prudential Securities provides that National will pay Prudential
Securities a fee equal to one percent of the total consideration paid in
connection with any transaction in which control of, or a material interest in,
National is acquired by a third party. Such fee is contingent upon consummation
of such a transaction. In addition, the engagement letter with Prudential
Securities provides that National will indemnify Prudential Securities and
certain related persons against certain liabilities, including liabilities under
securities laws, arising out of the agreement or Prudential Securities'
engagement.
In conducting its analysis and arriving at the Opinion, Prudential
Securities reviewed such information and considered such financial data and
other factors as Prudential Securities deemed relevant under the circumstances,
including:
(i) a draft dated July 31, 1997 of the Contribution and Exchange
Agreement;
(ii) a draft dated August 4, 1997 of the Proxy Statement/Prospectus on
Form S-4 (the 'Form S-4');
(iii) the Form 10-K and Form 10-K/A and related financial information
for the fiscal year ended December 31, 1996, the Form 10-Q and the related
unaudited financial information for the quarterly period ended March 31,
1997 for National and a draft of the Form 10-Q and the related unaudited
financial information for the quarterly period ended June 30, 1997 for
National;
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(iv) the draft financial statements of The Philips Company and the
Merrick/Mill Basin Properties, each for the fiscal year ended December 31,
1996 and the quarterly period ended March 31, 1997, included in the Form
S-4;
(v) the draft pro forma condensed combined financial statements of the
Company for the twelve months ended December 31, 1996 and the three months
ended March 31, 1997, included in the Form S-4;
(vi) certain information relating to the business, earnings, cash
flow, assets and prospects of National, furnished to Prudential Securities
by National;
(vii) certain information relating to the business, earnings, cash
flow, assets and prospects of the Company, furnished to Prudential
Securities by the management of Philips Private Company;
(viii) the financial terms of certain recent transactions Prudential
Securities deemed relevant to its inquiry; and
(ix) such other financial studies, analyses and investigations
Prudential Securities deemed appropriate.
Prudential Securities assumed that the draft Contribution and Exchange
Agreement, the draft Form S-4 and draft financial information reviewed by it
will conform in all material respects to those documents when in final form, and
that the Formation Transactions will be consummated substantially as
contemplated by the draft Contribution and Exchange Agreement.
Prudential Securities discussed with senior management of National and
Philips Private Company: (a) the prospects for the businesses of National and of
the Company; (b) their estimates of such business' future financial performance;
(c) the potential financial impact of the Formation Transactions on the
respective companies; and (d) such other matters as Prudential Securities deemed
relevant. Prudential Securities also visited selected properties owned by the
Contributing Partnerships.
In connection with its review and analysis and in arriving at the Opinion,
Prudential Securities assumed and relied upon the accuracy and completeness of
the financial and other information provided to Prudential Securities by
National and the Philips Private Company or which was publicly available, and
did not undertake to verify independently any such information. Prudential
Securities neither made nor obtained any independent valuations or appraisals of
any of National's assets or the assets of the Contributing Partnerships. With
respect to certain projected financial data provided to Prudential Securities
for National and for the Company, Prudential Securities assumed that the
information (and the assumptions and bases therefor) was reasonably prepared and
represented managements' best currently available estimate as to the future
financial performance of National and of the Company. Prudential Securities
reviewed unaudited pro forma financial information on a property-by-property
basis for the year ended February 28, 1998 for the Partnership Properties (see
'--Calculation of Net Asset Value', above), but did not use this information in
its financial analysis described below. The Opinion is necessarily based on
economic, financial and market conditions as they existed and could be evaluated
as of the date of the Opinion.
Prudential Securities expressed no opinion as to what the market value of
the Company's Common Stock will be when issued in the Formation Transactions or
the prices at which the Common Stock will trade after the Formation
Transactions. In addition, the Opinion does not evaluate the relative merits of
the Formation Transactions as compared to any other business plan or opportunity
which might be presented to National or the effect of any other arrangement
which National might pursue.
In arriving at the Opinion, Prudential Securities performed a variety of
financial analyses, which are summarized herein. The summary set forth herein of
the analyses presented to the Board of Trustees at the August 7, 1997 meeting
does not purport to be a complete description of the analyses performed. The
preparation of a fairness opinion is a complex process that involves various
determinations as to the most appropriate and relevant methods of financial
analyses and the application of these methods to the particular circumstances
and, therefore, such an opinion is not necessarily susceptible to partial
analysis or summary description. Prudential Securities believes that its
analysis must be considered as a whole and that selecting portions thereof or
portions of the factors considered by it, without considering all the analyses
and factors, could create an incomplete view of the evaluation process
underlying the Opinion. Prudential Securities made numerous assumptions with
respect to industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control of
National or the Company. Any estimates contained in Prudential Securities'
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analyses are not necessarily indicative of actual values or future results,
which may be significantly more or less favorable than suggested by such
analyses. Additionally, estimates of the values of businesses and securities do
not purport to be appraisals or necessarily reflect the prices at which
securities actually may be sold. Accordingly, such analyses and estimates are
inherently subject to substantial uncertainty.
Subject to the foregoing, the following is a summary of the financial
analyses performed by Prudential Securities in arriving at the Opinion.
Pro Forma Value Analysis. A pro forma value analysis was used by
Prudential Securities to establish an implied range of pro forma values for the
National Property per National Share, before and after giving effect to the
Formation Transactions.
Applying low, median and high capitalization rates of 10.50%, 11.00% and
11.50% (based upon discussions with local appraisers) to the National Property's
estimated net operating income ('NOI') for 1997, the National Property was found
to have an estimated value of $1.24 to $1.43 per National Share (with a median
of $1.33 per National Share). Prudential Securities analyzed the consideration
paid in several recent acquisition transactions of portfolios deemed by
Prudential Securities to be comparable to the Company's portfolio, and
considered the multiple of the total purchase price to the acquired portfolio's
NOI for the last twelve months. The transactions considered were the portfolio
acquisitions of Mid-Atlantic Realty Trust/Pechtor Family Holdings, Excel Realty
Trust, Inc./Properties owned or controlled by Albert B. Glickman, Regency Realty
Corporation/Branch Properties, L.P. and Kranzco Realty Trust/Union Property
Investors, Inc. None of the portfolios listed is identical to the Philips'
portfolio but rather were used for comparative purposes. Accordingly, a complete
analysis of the results of the calculations cannot be limited to a quantitative
review of such results and involves complex considerations and judgments. Such
transactions were considered relevant because of the type of property (retail)
and the timing of the acquisition (1997). Such transactions were found to have
an implied purchase price for the acquired portfolio of 10.3x to 11.0x NOI for
the last twelve months, or a capitalization rate of 9.06% to 9.75% with a median
capitalization rate of 9.18%. Applying these capitalization rates to the
Company's estimated pro forma NOI for 1997 resulted in an implied pro forma
value per National Share in the range of $1.47 to $1.97 (with a median of $1.88
per National Share). The median implied pro forma value per National Share
exceeds the median estimated value per National Share. Thus, in Prudential
Securities' view, such analysis supports Prudential Securities' conclusion that
the consideration to be received by National for the National Property is fair
from a financial point of view.
Pro Forma Funds From Operations Per Share Analysis. Prudential Securities
also analyzed the pro forma effect of the Formation Transactions on the Funds
from Operations per National Share, assuming that National continued to hold all
the Common Stock to be received by it in the Formation Transactions. An analysis
of anticipated future results based on National's NOI for the six months ended
June 30, 1997 (annualized) and the Company's pro forma NOI for the quarter ended
March 31, 1997 (annualized), and certain estimated expenses provided by
management of National and of the Company, indicated that the Formation
Transactions result in an increase in Funds from Operations per National Share
from $0.052 for the twelve months ended June 30, 1997 to an estimated $0.188 on
a pro forma basis for the twelve months ended December 31, 1997.
Projected financial and other information concerning National and the
impact of the Formation Transactions upon holders of National Shares is not
necessarily indicative of future results. All projected financial information is
subject to numerous contingencies beyond the control of the management of
National and the Company.
Prudential Securities was retained by National to render financial advisory
services. Pursuant to the Contribution and Exchange Agreement, at the closing of
the Formation Transactions the Company will assume National's payment and
indemnification obligations under National's engagement letter with Prudential
Securities. The Company agreed to pay Prudential Securities a fee equal to
$1,940,000, payable (together with interest at 9% per annum) upon the earlier to
occur of (i) the first anniversary of the closing of the Formation Transactions
and (ii) the closing of the Company's first equity offering. The Company has
also agreed that Prudential Securities shall have the right to act as lead
manager of the Company's first public offering or as exclusive sales agent for
its first private offering, in either case with proceeds in excess of $25
million, on terms to be agreed upon.
In lieu of the financial advisory fee payable by National upon consummation
of the Formation Transactions and assumed by the Company under the Contribution
and Exchange Agreement, Prudential Securities will
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receive 1,940 shares of Series A Preferred Stock, convertible into 38,800 shares
of Common Stock, which Series A Preferred Stock represents approximately 2.5% of
the outstanding shares of Common Stock of the Company (including interests
redeemable or convertible therefor and shares of Common Stock issuable upon
exercise of outstanding warrants). Upon consummation of an Offering, the Company
will have the right (subject to the holder's right to convert) to redeem the
Series A Preferred Stock for $1,940,000 in cash, plus any accrued and unpaid
dividends.
Prudential Securities Credit Corporation, an affiliate of Prudential
Securities, is the lender to a Contributing Partnership in the aggregate
principal amount of $24 million and to the partners of a second Contributing
Partnership in the aggregate principal amount of $13 million, which loans will
become obligations of the Company in connection with the Formation Transactions.
The maturity date of the $13 million loan is June 1998. The Company may elect to
extend the June 1998 maturity date of the $24 million loan by converting this
obligation to either a 7- or 10-year term loan.
DESCRIPTION OF THE CONTRIBUTION AND EXCHANGE AGREEMENT
The following description of the Contribution and Exchange Agreement is a
summary of its material terms only, and is not a complete statement of the terms
and conditions of such agreement. This summary is qualified in its entirety by
reference to the Contribution and Exchange Agreement and the other Transaction
Agreements, copies of which have been filed with the Commission as exhibits to
the Registration Statement and are incorporated herein by reference. Copies of
the Transaction Agreements may be examined, and copies obtained, as set forth
under the caption 'Available Information.' References to terms of the
Transaction Agreements shall also be deemed to be references to the applicable
respective provisions of the Contribution and Exchange Agreement and the related
ancillary agreements to the extent such documents contain governing provisions
with respect thereto.
Representations and Warranties. In the Contribution and Exchange
Agreement, the Company, the Contributing Partnerships and National have each
made customary representations and warranties to the other parties.
Conduct of Business. Pursuant to the Contribution and Exchange Agreement,
the Company, the Contributing Partnerships and National have agreed that, except
as permitted by the Contribution and Exchange Agreement or as otherwise
consented to in writing by the other parties, during the period from the date of
the Contribution and Exchange Agreement to the Closing, the Company, the
Contributing Partnerships, National and their respective subsidiaries will each
carry on its business in the ordinary course consistent with past practice, and
will use its best efforts to preserve intact its present business organization.
In addition, National has agreed to maintain its existence and not adopt any
plan of liquidation or dissolution for a period of at least one year following
the Closing.
No Solicitation of Competing Transactions. National has agreed that it
will not and shall cause its trustees, advisors, officers, employees, agents,
affiliates, or any investment banker or financial advisor acting on its behalf,
not to, directly or indirectly, solicit or initiate the submission of proposals
or offers from, or solicit, encourage, entertain or enter into any agreement,
arrangement or understanding with, or solicit or initiate any discussions with,
or furnish any information to, any corporation, partnership, person or other
entity or group, other than the Contributing Partnerships, with respect to any
Competing Offer except as may be required by the exercise of its fiduciary
duties under applicable law. A Competing Offer is defined in the Contribution
and Exchange Agreement as any agreement, arrangement or understanding with, or
any discussions with, or the furnishing of any information to, any corporation,
partnership, person or other entity or group, other than the Property
Partnerships or a representative thereof, with respect to the transfer of all or
any part of the National Property, or with respect to a merger, acquisition,
tender offer, exchange offer, consolidation or similar transaction involving any
purchase of all or any significant portion of the assets or equity securities of
National.
Conditions to the Formation Transactions. The respective obligation of
each of the parties to effect the Formation Transactions are subject to the
satisfaction or waiver at or prior to the Effective Time of, among other things,
the following conditions: (i) the Transaction Agreements shall have been
approved and adopted by the affirmative vote of the holders of a majority of the
outstanding National Shares and the affirmative vote of a plurality of the votes
cast by Unaffiliated Shareholders; (ii) no governmental entity or federal or
state court shall have issued any injunction or other order which restrains or
prohibits the consummation of the Formation
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Transactions; (iii) all authorizations, waivers or consents required to be
obtained in order to consummate the Formation Transactions shall have been
obtained; (iv) the Registration Statement of which the Proxy
Statement/Prospectus is a part shall have been declared effective by the
Commission and no stop order suspending the effectiveness shall have been issued
under the Securities Act or proceedings therefor initiated or threatened by the
Commission; (v) the representations and warranties of each of the parties shall
be accurate in all material respects and each of the parties shall have
performed or complied in all material respects with each of its obligations to
be performed or complied with as if they had been made on and as of the Closing
Date; (vi) the receipt by the Board of Trustees of an opinion to the effect that
the consideration to be received by National for the National Property pursuant
to the Contribution and Exchange Agreement is fair to National from a financial
point of view; and (vii) the consummation of the other Formation Transactions
contemplated by the Contribution and Exchange Agreement.
Indemnification and Insurance. Except as described herein, no party will
have any liability to any other party under the Contribution and Exchange
Agreement if the agreement is terminated. See 'Termination' below. The Company
will indemnify, defend and hold harmless the Trustees for any damages suffered
in the event any suits (other than suits that relate to actions or inactions on
the part of Messrs. Stein, Goldman or Reibstein taken or not taken, as the case
may be, which are unrelated to the negotiation and execution of the Contribution
and Exchange Agreement and consummation of the Formation Transactions) are
brought against them as a result of the transactions contemplated by the
Contribution and Exchange Agreement. These indemnification obligations of the
parties survive the consummation of the Formation Transactions.
Agreement to Vote. Pursuant to the Contribution and Exchange Agreement,
Messrs. Stein, Goldman and Reibstein agreed to vote all National Shares held by
them, and to cause their respective affiliates to vote all National Shares held
by such affiliates, in favor of the Transaction Agreements.
Fees and Expenses. The Transaction Agreements provide that the Company
will pay all fees and expenses incurred by the Company, the Contributing
Partnerships and National (including attorneys' and accountants' fees and
expenses) in connection with the negotiation, documentation and consummation of
the Formation Transactions. In certain circumstances, upon termination of the
Contribution and Exchange Agreement, National is required to pay a break-up fee
and reimburse expenses to the Company. See 'Termination' below. If the Formation
Transactions are not consummated by reason of a willful misrepresentation or
breach by the Company, National shall be entitled to retain the amount
reimbursed by the Company.
The total cash expenditures to be incurred by the Company in connection
with the Formation Transactions, other than the financial advisory fee paid to
Prudential Securities, which shall be in the form of Series A Preferred Stock,
are estimated to be approximately $1.8 million, including filing fees, title
costs, transfer costs, solicitation fees, engineering costs and other
acquisition costs.
Termination. The Contribution and Exchange Agreement may be terminated and
the Formation Transactions may be abandoned at any time, notwithstanding
approval by the shareholders of National: (i) by mutual written consent of the
parties; (ii) by any party in the event that (a) National's proxy statement is
not filed with the Commission by August 12, 1997 (provided, however, that the
Company shall be entitled to extend said date to September 30, 1997, in its sole
discretion), (b) the closing has not occurred by December 31, 1997, or (c) the
closing has not occurred within fourteen (14) days of obtaining the requisite
National shareholder approval; provided, however, that the party terminating the
Contribution and Exchange Agreement pursuant to clause (ii) above (a) shall not
have been responsible for delaying the occurrence of the event resulting in such
termination, and (b) must exercise their right to terminate within ten (10) days
of the occurrence of the event resulting in such termination; (iii) by National
in the event that (a) its counsel advises its Board of Trustees that National's
failure to engage in or pursue a Competing Offer might subject National's
trustees to liability for breach of their fiduciary duties under applicable law,
in which case National is obligated to pay expenses and pay a break-up fee of
$750,000 to the Company, or (b) the Company or the Contributing Partnerships are
not ready, willing and able to perform their obligations under the Contribution
and Exchange Agreement on the closing date, or the Company or the Contributing
Partnerships willfully default thereunder or willfully breaches any material
representation, warranty, covenant or agreement set forth therein; (iv) by the
Company or the Contributing Partnerships in the event that National is not
ready, willing and able to perform its obligations under the Contribution and
Exchange Agreement on the closing date or National willfully defaults or
willfully breaches any material representation, warranty, covenant or agreement
set forth therein; provided, however, that if such termination did not result
solely from the action of a third party but resulted from the willful action or
inaction
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after the date of the Contribution and Exchange Agreement of National and/or the
Trustees, National is obligated to pay expenses and pay a break-up fee of
$500,000 to the Company.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
As a general rule, Section 351 of the Code provides that no gain or loss
shall be recognized if property is transferred to a corporation by one or more
persons solely in exchange for stock of such corporation and immediately after
the exchange such person or persons are in control of the corporation within the
meaning of Section 368(c) of the Code. For this purpose, control is defined as
the ownership of stock possessing at least 80% of the total combined voting
power of all classes of stock entitled to vote and at least 80% of the total
number of shares of all other classes of stock of the corporation. However,
Section 351 of the Code does not apply to any transfer of property to an
investment company. Pursuant to relevant Treasury Regulations, transfers of
property to a corporation will be considered transfers to an investment company
if (i) the transfer results in a diversification of the transferor's interests
and (ii) the transferee corporation is a REIT. A transfer ordinarily results in
diversification if two or more persons transfer non-identical assets to the
transferee corporation in exchange for its stock. The Treasury Regulations also
provide that transfers of non-identical assets which constitute an insignificant
portion of the total value of assets transferred to a transferee corporation
will be disregarded for purposes of determining whether diversification has
occurred. Pursuant to the Formation Transactions, in exchange for, among other
things in the case of National, Common Stock, Mr. Pilevsky will contribute cash
and National will contribute real estate to the Company, each representing a
significant portion of the assets contributed to the Company. In addition,
Prudential Securities will receive, in lieu of the financial advisory fee
payable by National upon consummation of the Formation Transactions and assumed
by the Company under the Contribution and Exchange Agreement, 1,940 shares of
the Company's Series A Preferred Stock (which are convertible into 38,800 shares
of Common Stock of the Company). Cash and real estate are non-identical assets
and, therefore, the transfer will not qualify as a Code Section 351 transaction
because of the resulting diversification of the transferor's interests and the
fact that the transferee corporation anticipates that it will elect to be taxed
as a REIT. Accordingly, National will not qualify under the non-recognition
provisions of Code Section 351 and will recognize gain or loss on the transfer
of its property to the corporation in exchange for its stock.
Similarly, the corporate reorganization provisions set forth in Code
Section 368(a) are not applicable to the Formation Transactions because the
requisite 'Control' will not be retained by National. 'Control' is defined as at
least 80% of the total combined voting power of all classes of stock entitled to
vote and at least 80% of the total number of shares of all other classes, in the
case of a type 'C' reorganization, and at least 50% of the voting stock and
number of shares of all other classes of stock in the case of a type 'D'
reorganization. Accordingly, National and the Company agreed to treat the
Formation Transactions as taxable for federal income tax purposes. Consequently,
the Formation Transactions should result in the following federal income tax
consequences:
(1) It is estimated that for federal tax purposes a gain of
approximately $1.1 million will be recognized by National as a result of
the Formation Transactions and all such gain and a substantial portion of
state tax gain will be offset by carry-over net operating losses of
National;
(2) As a result of the distribution in 1997 of 3,744 shares of Common
Stock to the National shareholders, gain for federal tax purposes will be
recognized by the shareholders of National of approximately $0.25 per
Share, and the distribution of 20,256 shares of Common Stock in 1998 will
be considered a reduction in basis of the National Shares held by each
holder and will be taxable as capital gain only to the extent it exceeds a
shareholder's basis in the National Shares held by such shareholder;
(3) The income tax basis of the Common Stock received by a National
shareholder in the Formation Transactions will be equal to the fair market
value of such Common Stock;
(4) The holding period of such Common Stock received by a National
shareholder will begin as of the date such Common Stock is received by the
shareholder; and
(5) Shareholders will continue to hold their National Shares on the
same tax basis as prior to the Formation Transactions, subject to any
reduction in basis as contemplated by (2) above.
See 'Risk Factors--Certain Consequences of the Formation Transactions:
Distributions of Common Stock; Federal Income Tax Consequences; National's Reit
Status.'
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Bingham Dana LLP, tax counsel to National, has rendered an opinion
regarding the federal income tax consequences that are likely to be material to
a holder of National Shares, the conclusions of which are substantially similar
to the discussion of certain federal income tax consequences set forth above. A
copy of the form of the opinion of Bingham Dana LLP has been filed as an exhibit
to the Registration Statement of which this Proxy Statement/Prospectus is a
part. A copy of such opinion may be obtained, without charge, upon receipt of a
written request delivered to the Managing Trustee of National, at 32 Hanson
Road, Canton Center, Connecticut, 06020, or by facsimile to (888) 678-7642.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS BASED UPON CURRENT LAW
AND IS INTENDED FOR GENERAL INFORMATION ONLY. SUCH DISCUSSION MAY NOT BE
APPLICABLE TO A NATIONAL SHAREHOLDER WHO ACQUIRES THE COMMON STOCK AS
COMPENSATION. EACH NATIONAL SHAREHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX
ADVISOR CONCERNING THE SPECIFIC TAX CONSEQUENCES OF THE FORMATION TRANSACTIONS
TO SUCH SHAREHOLDER, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL AND
OTHER TAX LAWS.
The Company's decision to be taxed as a REIT will not affect the federal
income tax consequences of the Formation Transactions to the National
shareholders.
Holders of National shares are urged to consult their own tax advisors as
to the specific tax consequences to them of the Formation Transactions.
SOLICITATION AGENT
National has retained The Herman Group, Inc. (the 'Solicitation Agent') to
assist in the solicitation of proxies. In addition to the delivery of this Proxy
Statement/Prospectus to shareholders, the Solicitation Agent will orally solicit
the votes of the holders of National Shares.
For its services as Solicitation Agent, National has agreed to pay a fee
equal to $10,000. In addition, National will reimburse the Solicitation Agent
for its expenses, including fees and expenses of its counsel. National has also
agreed to indemnify the Solicitation Agent against certain liabilities and
expenses, including liabilities under federal securities laws. The Solicitation
Agent will receive no additional compensation for its services as Solicitation
Agent.
The proxies are being solicited on behalf of the Board of Trustees. The
expenses of soliciting proxies will be borne by National and reimbursed by the
Company. The principal solicitation is being made by mail; however, additional
solicitation may be made by telephone or in person by the Trustees of National
and their affiliates, who will not receive additional compensation. Arrangements
may also be made with brokerage houses and other custodians, nominees and
fiduciaries to forward the proxy materials to the beneficial owners of National
Shares. National will reimburse such forwarding agents for reasonable
out-of-pocket expenses incurred by them, but no compensation will be paid for
their services. In addition, the Solicitation Agent will assist National with
the solicitation and deliveries of proxies.
THE MEETING
PURPOSE OF THE MEETING
General. This Proxy Statement/Prospectus is being furnished in connection
with the solicitation of proxies by the Board of Trustees of National from
holders of National Shares for use at the Meeting of Shareholders of National to
be held at the offices of Pryor, Cashman, Sherman & Flynn, 410 Park Avenue, New
York, New York 10022, at 3:00 p.m. (local time) on Tuesday, December 30, 1997,
and at any adjournment or postponement thereof. This Proxy Statement/Prospectus
and the form of proxy are first being mailed to the shareholders of National on
or about December , 1997.
At the Meeting, the shareholders of National will be asked to consider and
act upon proposals to approve (i) the sale of the National Property pursuant to
the Contribution and Exchange Agreement and the related Formation Transactions,
and (ii) the amendment of the terms of the Declaration of Trust to delete
Sections 5.2(e), (i), (o) and (q) of the Declaration of Trust which might
otherwise prohibit National from engaging in the Formation Transactions and
certain of the investments resulting therefrom and inserting the statement in
its place that each such section has been ['Intentionally omitted'].
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The Board of Trustees of National has determined that the Transaction
Agreements and the Formation Transactions are fair to, and in the best interests
of, National and its shareholders and has unanimously approved each of Proposal
1 and Proposal 2.
ACCORDINGLY, THE BOARD OF TRUSTEES OF NATIONAL UNANIMOUSLY RECOMMENDS THAT
THE SHAREHOLDERS OF NATIONAL APPROVE EACH OF PROPOSAL 1 AND PROPOSAL 2.
Record Date; Shareholders Entitled to Vote and Required Vote. Only holders
of record of National Shares at the close of business on the Record Date are
entitled to notice of and to vote at the Meeting. On the Record Date, there were
748,738 National Shares outstanding, which is the only class of capital stock
entitled to vote at the Meeting. These National Shares were held by
approximately 1,770 holders of record on the Record Date.
The presence of a majority of the outstanding National Shares, either in
person or by proxy, is necessary to constitute a quorum at the Meeting.
Abstentions and broker non-votes are counted as shares present for purposes of
determining the presence of a quorum at the Meeting. If there are insufficient
votes to constitute a quorum or for approval of the Transaction Agreements, the
Meeting may be adjourned from time to time in order to permit further
solicitation of proxies. At the Meeting, each holder of National Shares is
entitled to one vote for each National Share held. Approval of each of Proposal
1 and Proposal 2 requires the affirmative vote of a majority of the outstanding
National Shares entitled to vote at the Meeting. Accordingly, abstentions and
broker non-votes will have the effect of a vote against the approval of a
proposal. In addition, the Contribution and Exchange Agreement requires the
affirmative vote of a plurality of votes cast by Unaffiliated Shareholders for
approval of Proposal 1. The adoption of each proposal is conditioned upon the
approval of the other proposal.
Solicitation, Revocation and Use of Proxies. All holders of National
Shares represented at the Meeting by properly executed proxies received by
National prior to or at the Meeting, unless such proxies previously have been
revoked, will be voted at the Meeting in accordance with the instructions on the
proxies. IF NO CONTRARY INSTRUCTIONS ARE INDICATED, SUCH PROXIES WILL BE VOTED
FOR THE APPROVAL OF EACH OF PROPOSAL 1 AND PROPOSAL 2. PROXIES THAT ARE VOTED
AGAINST EITHER PROPOSAL 1 OR PROPOSAL 2 WILL NOT BE VOTED IN FAVOR OF AN
ADJOURNMENT OR POSTPONEMENT OF THE MEETING. National does not know of any
matters other than as described in the accompanying Notice of Special Meeting
that are to come before the Meeting. If any other matter or matters are properly
presented for action at the Meeting, the persons named in the enclosed form of
proxy and acting thereunder will have the discretion to vote on such matters in
accordance with their best judgment, unless such authorization is withheld.
Proxies may be returned to the Solicitation Agent by facsimile at (214)
999-9323 or in the enclosed postage paid envelope. If returning a proxy by
facsimile, both sides of the proxy card should be transmitted. Any proxy given
pursuant to this solicitation may be revoked by the person giving it at any time
before it is voted. Proxies may be revoked by filing with the Solicitation Agent
written notice of revocation bearing a later date than the proxy, by duly
executing a later-dated proxy relating to the National Shares or by attending
the Meeting and voting in person (although attendance at the Meeting will not in
and of itself constitute revocation of a proxy). If you have any questions,
please call the Herman Group, Inc. at (800) 582-1313.
National has retained The Herman Group, Inc. to solicit proxies. The
Solicitation Agent may contact holders of National Shares by mail, telephone,
telex, telegraph and personal interviews. The Solicitation Agent will receive a
fee of $10,000 for such services, plus reimbursement of out-of-pocket expenses,
and National has agreed to indemnify the Solicitation Agent against certain
liabilities and expenses in connection with such solicitation, including
liabilities under the federal securities laws. The Trustees of National and
their affiliates may also solicit proxies by telephone, telegram or personal
contact and such persons will receive no additional compensation for such
services. Copies of solicitation materials will be furnished to fiduciaries,
custodians and brokerage houses for forwarding to beneficial owners of National
Shares held in their names. The Company will bear the cost of preparing and
mailing proxy materials in connection with the Meeting and the solicitation of
proxies, and the cost of the Commission filing fees and the printing costs in
connection with this Proxy Statement/Prospectus.
Appraisal Rights; Shareholders List. The shareholders of National have no
appraisal rights or dissenters' rights with respect to the Formation
Transactions under the Declaration of Trust or Massachusetts business trust law.
The Declaration of Trust provides that shareholders of National have the right,
for proper purposes, to inspect the trust's records, including a list of the
names and addresses of the shareholders of National, in the
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manner and to the extent that comparable records of a Massachusetts business
corporation would be available for inspection by shareholders under the laws of
the Commonwealth of Massachusetts. Such request for inspection should be
delivered to the Board of Trustees of National at 32 Hanson Road, Canton Center,
Connecticut, 06020, or by facsimile to (888) 678-7642.
APPROVAL OF THE TRANSACTION AGREEMENTS
At the Meeting, the shareholders of National will be asked to consider and
act upon proposals to approve (i) the sale of the National Property pursuant to
the Contribution and Exchange Agreement, and the related Formation Transactions
and (ii) the amendment of the terms of the Declaration of Trust to delete
Sections 5.2(e), (i), (o) and (q) of the Declaration of Trust which might
otherwise prohibit National from engaging in the Formation Transactions and
certain of the investments resulting therefrom and inserting the statement in
its place that such section has been '[Intentionally omitted]'. Approval of each
proposal requires the affirmative vote of a majority of the outstanding National
Shares entitled to vote at the Meeting. In addition, the Contribution and
Exchange Agreement requires the affirmative vote of a plurality of votes cast by
Unaffiliated Shareholders for approval of Proposal 1. The adoption of each
proposal is conditioned upon the approval of the other proposal. For a
description of the Contribution and Exchange Agreement and the related
Transaction Agreements, see 'The Formation Transactions--Description of the
Contribution and Exchange Agreement.' For a description of the Declaration of
Trust, see 'Comparison of Shareholders' Rights.'
OTHER BUSINESS; ADJOURNMENT OR POSTPONEMENT OF MEETING
The management of National currently does not intend to present, and does
not have any reason to believe that others will present, at the Meeting any item
of business other than those set forth herein. However, if any other business is
properly presented at the Meeting and may properly be considered and acted upon,
proxies will be voted by those named on the proxy in their best judgment.
Proxies that are voted against either Proposal 1 or Proposal 2 will not be voted
in favor of an adjournment or postponement of the Meeting.
PRINCIPAL HOLDERS OF NATIONAL SHARES
The following table sets forth the beneficial ownership as of the Record
Date by (i) each trustee of National and all trustees of National as a group and
(ii) each person known to the Company to own beneficially more than 5% of the
outstanding National Shares. Under the rules of the Commission, and for the
purpose of the following table, a beneficial owner of a security includes any
person who, directly or indirectly, has or shares voting power and/or investment
power with respect to such security. Unless otherwise indicated in the
footnotes, all of such interests are owned directly and the indicated person has
sole voting and investment power with respect to such National Shares.
<TABLE>
<CAPTION>
NUMBER OF NATIONAL SHARES
NAME AND ADDRESS BENEFICIALLY OWNED PERCENT OF CLASS
- ------------------------------------------------------------------- ------------------------- ----------------
<S> <C> <C>
Peter M. Stein, Trustee ........................................... 0(1) 0%
32 Hanson Road
Canton Center, CT
Jay W. Goldman, Trustee ........................................... 50,679.59(2)(3) 6.8%
41 Vineyard Road
Newton, MA 02159
Robert R. Reibstein, Trustee ...................................... 0 0%
135 Dedham Street
Newton, MA 02161
Gretchen L. Stein ................................................. 46,109.45 6.2%
32 Hanson Road
Canton Center, CT 06020
All Trustees as a group ........................................... 96,789.04 12.9%
</TABLE>
- ------------------
(1) Excludes 46,109.45 shares beneficially owned by Gretchen L. Stein, wife of
Mr. Stein, as to which Mr. Stein disclaims beneficial ownership.
(Footnotes continued on next page)
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(Footnotes continued from previous page)
(2) Includes 50,679.59 shares held by In-Grates Restated Profit Sharing Plan, of
which Mr. Goldman is the sole beneficiary.
(3) On March 3, 1997, National issued 30,416 Shares (at an agreed upon value of
$1.2132 per Share) to Mr. Goldman to repay him for monies he advanced to
National in connection with certain municipal assessments payable by
National.
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THE COMPANIES
PHILIPS INTERNATIONAL REALTY CORP.
The Company will acquire the interests of the Philips Group and National in
a portfolio of ten shopping center properties upon consummation of the Formation
Transactions. The Company will be a self-advised real estate company with
expertise, through the Company's executive officers and directors and the
Management Company, in all aspects of acquisition, development, construction,
leasing, management, operation and financing of shopping center properties in
the New England, Mid-Atlantic and Southeast regions of the United States. The
Company expects to qualify as a real estate investment trust for federal income
tax purposes commencing with the taxable year ending December 31, 1998, but may
elect to qualify as a REIT as early as the taxable year commencing with the
taxable year ending December 31, 1997.
Upon consummation of the Formation Transactions, the Company will own,
directly or indirectly through the Holding Partnerships and the Philips Subs,
all of the partnership or membership interests in, or assets of, the
Contributing Partnerships, which own the nine Partnership Properties located in
the New England, Mid-Atlantic and Southeast regions of the United States, and
the National Property. See 'Business and Properties.'
Affiliates of the Company. The members of the Philips Group were the
limited or general partners or members of each of the Contributing Partnerships.
The members of the Philips Group have transferred their respective partnership
or membership interests in, or caused the transfer of assets of, the
Contributing Partnerships to the Company in exchange for an aggregate of
1,450,000 Units of the Operating Partnership. With the transfer of its interests
in the Contributing Partnerships, the Philips Group has transferred to the
Company the Partnership Properties located in the New England, Mid-Atlantic and
Southeast regions of the United States. See 'Risk Factors--Conflicts of
Interest.'
The Company's day-to-day leasing, development, acquisition, property and
portfolio management and related administrative functions will be performed
jointly by the Companyand the Management Company. The Management Company
initially will be engaged to manage the Partnership Properties, pursuant to the
terms of the Management Agreement. The Company's executive officers will include
Mr. Pilevsky, Chairman of the Board and Chief Executive Officer of the Company,
who will devote in excess of 50% of his professional time to overseeing the
management of the Properties and the growth of the Company, as well as a
significant amount of his time to the management of the business and properties
of Philips Private Company, including non-retail real estate activities and
certain retail properties not contributed to the Company in the Formation
Transactions. Ms. Levine, Chief Operating Officer and Executive Vice President
of the Company, will devote in excess of 90% of her professional time to
overseeing the management of the Properties and the growth of the Company, and
will have limited involvement with certain properties not contributed to the
Company in the Formation Transactions. Pursuant to the terms of a
non-competition agreement, Mr. Pilevsky, Ms. Levine and the Management Company
have agreed to conduct all of their future management, operations, acquisitions
and development of retail shopping center properties, with certain exceptions,
through the Company. See 'Management Agreement and Non-Competition
Agreement--Non-Competition Agreement.' In addition, prior to the consummation of
the Formation Transactions, the Company will enter into employment agreements
with Messrs. Petra and Gallagher, who will devote all of their professional time
to overseeing the management of the Properties and the growth of the Company.
The Executive Officers have an average of 20 years' experience in all aspects of
the real estate industry, and have developed many long-term relationships with
tenants, brokers, property owners, lenders, contractors, suppliers and others in
the real estate industry throughout the New England, Mid-Atlantic and Southeast
regions of the United States. In addition, Mr. Petra has 13 years of prior
experience as a senior executive with a publicly-traded real estate company that
focused on the retail shopping center business.
THE HOLDING PARTNERSHIPS, THE INTERIM MANAGING GENERAL PARTNER AND THE PHILIPS
SUBS
The Holding Partnerships are limited partnerships formed under the laws of
the State of Delaware for the sole purpose of owning certain of the Properties
and assuming the mortgage indebtedness encumbering such Properties. The
Operating Partnership is the sole limited partner of each of the Holding
Partnerships with a 99.989% interest in each Holding Partnership.
The Philips Subs are wholly-owned subsidiaries of the Company formed under
the laws of the State of Delaware. Each Holding Partnership and Contributing
Partnership is owned 0.01% by a Philips Sub as non-managing general partner or
non-managing member, as the case may be.
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In general, those Contributing Partnerships whose general partnership
interests were contributed to the Company transferred such general partnership
interests to the Holding Partnerships as the designee of the Operating
Partnership in exchange for Units in the Operating Partnership. Those
Contributing Partnerships whose assets were transferred to the Company
transferred such assets to the Holding Partnerships as the designee of the
Operating Partnership in exchange for Units in the Operating Partnership. Those
Contributing Partnerships whose limited partnership interests were contributed
to the Company transferred such limited partnership interests to the Operating
Partnership in exchange for Units in the Operating Partnership. Those
Contributing Partnerships whose limited liability company membership interests
were contributed to the Company transferred such membership interests to the
Operating Partnership in exchange for Units in the Operating Partnership.
The Interim Managing General Partner is a limited liability company formed
under the laws of the State of Delaware, whose sole member is Mr. Pilevsky. Each
Holding Partnership and Contributing Partnership is owned 0.001% by the Interim
Managing General Partner as managing general partner or managing member, as the
case may be. Generally, the Interim Managing General Partner will have the full,
exclusive and complete control in the management of each of the Holding
Partnerships and Contributing Partnerships until such time as an Offering is
completed.
THE OPERATING PARTNERSHIP
The Operating Partnership has been organized as a Delaware limited
partnership and holds the Properties either through the Holding Partnerships or
the Contributing Partnerships. Generally, pursuant to the Partnership Agreement,
the Interim Managing General Partner will have full, exclusive and complete
control in the management of the Operating Partnership until such time as an
Offering is completed, subject to certain rights accorded the limited partners
and certain other limitations. Thereafter, the Company, as sole general partner
of the Operating Partnership, will have full, exclusive and complete
responsibility and discretion in the management and control of the Operating
Partnership, and the limited partners of the Operating Partnership will have no
authority, subject to certain rights accorded the limited partners, to transact
business for, or participate in the management activities or decisions of, the
Operating Partnership. See 'Partnership Agreement of Operating Partnership',
'Risk Factors--Conflicts of Interests' and '--Control by Interim Managing
General Partner.'
NATIONAL
National was organized on January 16, 1985, as a Massachusetts business
trust, and on July 23, 1993, changed its name from Richard Roberts Real Estate
Growth Trust I to its current name. National has made for 1996 and prior years,
and intends to make for 1997, an election to file as a REIT under the provisions
of the Code and intends to maintain this status as long as it will benefit
National's shareholders. The shareholders of National, at their Annual Meeting
on October 19, 1995, voted to change the management structure of National to a
self-managed REIT, effective October 27, 1995 when the advisor agreement with
First Investment Properties, Inc. expired.
From inception, National invested directly in equity interests in five
commercial properties in the United States which had income-producing
capabilities. Four of these properties were lost to foreclosure in 1990 and
1992. National has experienced a loss of $18,598, income of $33,452 and a loss
of $272,220 for fiscal years ended December 31, 1996, 1995 and 1994,
respectively. National considers its business to be operating in one industry
segment, investment in real property.
On March 31, 1986, National purchased The Shoppes at Lake Mary, a 38,125
square foot neighborhood shopping center located on 4.7 acres of land in Lake
Mary, Florida, from an unaffiliated entity for $3,200,000 in cash. The Shoppes
at Lake Mary is a two-story shopping center and office facility consisting of
three buildings and a parking lot with 191 parking spaces. Lake Mary is located
in Seminole County, Florida, slightly north and to the east of Orlando. The
Trustees are not aware of any environmental problems at the property site.
Due to past adverse conditions in the real estate market, and the economy
in general, the Trustees have determined that it would be necessary to extend
the holding period for its property beyond the originally anticipated four- to
seven-year period. The results of National's operations depend upon its
property's competitive position in its leasing market. The Shoppes at Lake Mary
is National's sole remaining property.
The National Property is not significantly affected by seasonal factors but
is subject to competition from similar types of properties in the vicinity in
which it is located. While the market in which the property operates is
experiencing an economic recovery, the property values generally remain below
the relatively high values experienced in the mid-1980's.
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MANAGEMENT AGREEMENT
AND NON-COMPETITION AGREEMENT
MANAGEMENT AGREEMENT
The following summary of the Management Agreement is qualified in its
entirety by reference to the Management Agreement, a copy of the form of which
has been filed as an exhibit to the Registration Statement of which this Proxy
Statement/Prospectus is a part. A copy of the Management Agreement may be
examined, and copies obtained, as set forth under the caption 'Available
Information.'
Pursuant to the Management Agreement, the Management Company will provide
the day-to-day operations, management and leasing services for the Properties,
including, among other things, (i) operating, maintaining and managing the
Properties; (ii) after consultation with and approval by the Operating
Partnership and the Company (collectively, 'Owner'), establishing rental rates;
(iii) enforcing the collection of rents; (iv) constructing improvements and
additions to the Properties, after consultation with and approval by the Owner;
(v) after consultation with and approval by the Owner, making all decisions
regarding the leasing of space at the Properties, including the termination of
leases; (vi) hiring, training, discharging and supervising all employees
necessary to properly maintain and operate the Properties; (vii) repairing the
Properties; (viii) purchasing supplies, equipment and services necessary for the
operation, maintenance, and repair of the Properties; (ix) contracting for all
services and utilities necessary for the efficient operation and maintenance of
the Properties; (x) taking such action as may be necessary to comply promptly
with any orders or requirements affecting the Properties; (xi) placing and
keeping in force all forms of insurance needed to adequately protect the Owner
and as required by the underlying mortgages and at law; (xii) maintaining a bank
account for the deposit of monies collected from the Properties and drawing from
such account in order to discharge any liabilities, obligations or expenses
incurred pursuant to the Management Agreement; and (xiii) providing back office
and support functions, including bookkeeping and accounting services. The
Management Company will receive (i) a management fee from the Company equal to
3% of gross rental collections received from the Properties for the calendar
year, payable in monthly installments based upon the receipts of the prior
month, (ii) leasing commissions and renewal leasing commissions (not to exceed
local current market rates, determined based upon an analysis derived from
contacts with local brokers), and (iii) a construction supervisory fee (ranging
from 10-20% of the cost of a project, determined based upon the level of
difficulty of such project) with regard to any tenant improvements and
construction matters relating to the Properties, and will be reimbursed for all
reasonable out-of-pocket expenses.
The Management Agreement will have an initial term of three years,
commencing upon the consummation of the Formation Transactions, subject to
automatic one-year renewals. The Management Agreement may be terminated by Owner
at any time, (i) in whole or in part, upon thirty days' written notice, in the
event that Owner elects to perform one or more of such management functions on
an 'in-house' basis (with a commensurate reduction in fees), and (ii) in whole,
immediately, upon the occurrence of certain other events, including upon the
gross negligence or willful misconduct of the Management Company, or if all or
substantially all of the Properties are sold. In connection with the services to
be provided by the Management Company to the Operating Partnership, the Company
will grant options to purchase up to 54,400 shares of Common Stock to the
Management Company or its designees at an exercise price of $50.00 per share,
which options shall be exercisable for a period of ten years following the date
of grant and shall vest 33 1/3% per year over three years.
NON-COMPETITION AGREEMENT
The following summary of the Non-Competition Agreement is qualified in its
entirety by reference to the Non-Competition Agreement (as defined below), a
copy of the form of which has been filed as an exhibit to the Registration
Statement of which this Proxy Statement/Prospectus is a part. A copy of the
Non-Competition Agreement may be examined, and copies obtained, as set forth
under the caption 'Available Information.'
In connection with the Formation Transactions, the Management Company, Mr.
Pilevsky and Ms. Levine (collectively, the 'Managers'), the Operating
Partnership and the Company will enter into a non-competition agreement (the
'Non-Competition Agreement'), pursuant to which the Managers have agreed that
until such time as both (i) one year has lapsed since the Management Agreement
has been terminated and neither Mr. Pilevsky nor Ms. Levine is a director or
executive officer of the Company and (ii) neither Mr. Pilevsky nor Ms. Levine
owns beneficially more than fifteen (15%) percent of the outstanding shares of
Common Stock on a
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fully diluted basis (including Units redeemable for shares of Common Stock),
neither the Managers nor any affiliate of the Management Company (within the
meaning of Rule 12b-2 of the Securities Exchange Act of 1934, as amended)
(together with the Managers, the 'Managing Group') shall engage in any way in
the acquisition, ownership, operation, development, management, renovation or
leasing (collectively, 'activities') of any retail shopping center properties
(or mixed properties which are primarily known as retail shopping center
properties based upon relative square footage of each use) or any improvements
thereof located in the United States, except for: (i) the Managing Group's
activities with respect to the Company and the Excluded Properties, including
the expansion of an Excluded Property which is contiguous to such property,
under certain conditions, (ii) the Managing Group's activities with respect to
property located anywhere in the continental United States so long as the retail
shopping center portion of such property does not exceed twenty thousand
(20,000) square feet, (iii) the acquisition by Mr. Pilevsky, Ms. Levine, their
spouses and issue of any property or interest in any property by inheritance,
and (iv) subject to certain conditions, Mr. Pilevsky or Ms. Levine providing
advice or financial assistance to any of their children with regard to projects
initiated by such children involving activities with respect to any retail
shopping center property located anywhere in New York City or outside New York
City so long as such property is not within a two (2) mile radius of property
owned by the Company or the Operating Partnership. Furthermore, in the event
that at any time after the fifth anniversary of the effective date of the Non-
Competition Agreement, Ms. Levine is neither a director or executive officer of
the Company for at least one year nor owns beneficially more than five (5%)
percent of the outstanding shares of Common Stock on a fully diluted basis
(including Units redeemable for shares of Common Stock), then with respect to
Ms. Levine only, the Non-Competition Agreement shall be deemed terminated.
PARTNERSHIP AGREEMENT OF OPERATING PARTNERSHIP
The following summary of the Agreement of Limited Partnership of the
Operating Partnership (the 'Partnership Agreement') and the descriptions of
certain provisions set forth elsewhere in this Proxy Statement/Prospectus are
qualified in their entirety by reference to the Partnership Agreement, a copy of
the form of which is filed as an exhibit to the Registration Statement of which
this Proxy Statement/Prospectus is a part. A copy of the Partnership Agreement
may be examined, and copies obtained, as set forth under the caption 'Available
Information.'
MANAGEMENT
The Operating Partnership has been organized as a Delaware limited
partnership pursuant to the terms of the Partnership Agreement. Generally,
pursuant to the Partnership Agreement and subject to the provisions with respect
to the Interim Managing General Partner described below, the Company, as the
general partner of the Operating Partnership, will have full, exclusive and
complete responsibility and discretion in the management and control of the
Operating Partnership, and the members of the Philips Group, as limited partners
of the Operating Partnership, will have no authority to transact business for,
or participate in the management activities or decisions of, the Operating
Partnership, except as provided in the Partnership Agreement and as required by
applicable law. However, until such time prior to the first anniversary of the
consummation of the Formation Transactions as the Company owns 67% of the
partnership interests in the Operating Partnership, and thereafter until such
time as the Company owns 60% of the partnership interests in the Operating
Partnership, the consent of the holders of at least 51% of the Units held by
limited partners will be required to: (i) engage in a Termination Transaction;
(ii) dissolve, liquidate or wind-up the Operating Partnership; (iii) change the
nature of the business of the Operating Partnership; or (iv) admit, remove or
retain a general partner. Following the consummation of the Formation
Transactions, the Company, as non-managing general partner, will own
approximately a 3.2% partnership interest in the Operating Partnership, and the
full and exclusive control over the affairs of the Operating Partnership will be
held by the Interim Managing General Partner until the completion of an
Offering.
CONTROL BY INTERIM MANAGING GENERAL PARTNER
The Partnership Agreement provides that until completion of an Offering,
the Interim Managing General Partner shall have full, exclusive and complete
responsibility and discretion in the management and control of the Operating
Partnership, and that the Company shall not be entitled to exercise any such
rights as general partner during such period (each subject to the rights
accorded the limited partners and subject to the provision that any transaction
between the Company or the Operating Partnership and Mr. Pilevsky or his
affiliates be approved by
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the independent directors of the Company). To the extent such funds are
available for distribution, the Interim Managing General Partner must cause the
Operating Partnership to make sufficient distributions to the Company to enable
it to make distributions to shareholders to maintain the Company's REIT status.
The sole manager and member of the Interim Managing General Partner will be Mr.
Pilevsky, who, together with certain other persons, own a controlling interest
in each of the Contributing Partnerships. Upon completion of an Offering, the
Interim Managing General Partner will be deemed to have withdrawn for a nominal
amount from the Operating Partnership and the Company will be entitled to
exercise in full the rights and responsibilities to manage the business and
affairs of the Operating Partnership as sole general partner under the
Partnership Agreement. References in this section 'Partnership Agreement of the
Operating Partnership' to the Company as general partner of the Operating
Partnership shall be deemed to be references to the Interim Managing General
Partner as required by the context thereof.
RIGHTS OF THE LIMITED PARTNERS
In addition to the rights accorded the limited partners discussed under
'--Management' above and '--Transferability of Interest' below, the limited
partners have certain rights with respect to amendments to the Partnership
Agreement. Other than with respect to certain nonmaterial or ministerial
amendments, until such time prior to the first anniversary of the consummation
of the Formation Transactions as the Company owns 67% of the partnership
interests in the Operating Partnership, and thereafter until such time as the
Company owns 60% of the partnership interests in the Operating Partnership, the
written consent of holders of at least 51% of the Units held by limited partners
is required to amend the Partnership Agreement. The foregoing notwithstanding,
the written consent of all the limited partners is required to (i) increase the
obligation of any limited partner to make contributions to the capital of the
Operating Partnership; (ii) modify the order of certain allocations of
distributions among the partners (other than as specifically provided for
therein); (iii) change the Operating Partnership to a general partnership; (iv)
reduce the percentage of limited partners required to consent to any matter in
the Partnership Agreement; (v) amend certain provisions in any manner that
prohibits or restricts the ability of a limited partner to exercise its
redemption rights in full; (vi) amend certain 'fair price' provisions applicable
as a result of a Termination Transaction; or (vii) amend the percentage
requirements for amending the Partnership Agreement.
INDEMNIFICATION AND FIDUCIARY STANDARDS
The Partnership Agreement provides that the general partner and its
affiliates, officers, directors, agents and employees shall not be liable for
damages or otherwise to the Operating Partnership or any of the partners or
their successors or assigns for any acts or omissions performed or omitted
within the scope of its authority as general partner, or otherwise conferred on
the general partner and such affiliates, officers, directors, agents and
employees by the Partnership Agreement, so long as such acts or omissions are
taken or omitted in good faith and do not involve willful misconduct or gross
negligence and are otherwise consistent with the general partner's fiduciary
duties of care and loyalty imposed on directors of a corporation formed under
the laws of the State of Delaware as set forth in the General Corporation Law of
the State of Delaware and construed by the courts of the State of Delaware. The
Partnership Agreement also provides that all such individuals and their
respective successors, executors, administrators and personal representatives
will be indemnified and held harmless by the Operating Partnership for any loss,
liability or expense incurred as a result of any act or omission concerning the
business or activities of the Operating Partnership or the general partner
provided such act or omission was not in violation of any term or provision of
the Partnership Agreement. The Partnership Agreement further provides that each
partner will indemnify the Operating Partnership if the Operating Partnership is
made a party to any litigation or otherwise incurs any loss or expense as a
result of or in connection with any partner's personal obligations or
liabilities unrelated to Partnership business. The liability of a partner
pursuant to the indemnity referred to in the immediately preceding sentence is
not limited to such partner's Units but is enforceable against such partner
personally.
The Company's Charter and By-Laws require the Company to indemnify its
directors and officers to the fullest extent permitted from time to time by
Maryland law. The Charter also permits the Company to indemnify employees,
agents and other persons acting on behalf of or at the request of the Company.
The MGCL permits a corporation to indemnify its directors, officers and certain
other parties against judgments, penalties, fines, settlements and reasonable
expenses actually incurred by them in connection with any proceeding to which
they
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may be made a party by reason of their service to or at the request of such
corporation, unless it is established that the act or omission of the
indemnified party was material to the matter giving rise to the proceeding and
(i) was committed in bad faith or was the result of active and deliberate
dishonesty, (ii) the indemnified party actually received an improper personal
benefit, or (iii) in the case of any criminal proceeding, the indemnified party
has reasonable cause to believe that the act or omission was unlawful. See
'Certain Provisions of Maryland Law and the Company's Charter and By-Laws.'
TRANSFERABILITY OF INTERESTS
The Partnership Agreement provides that the Company may not voluntarily
withdraw from the Operating Partnership, or transfer or assign its interest in
the Operating Partnership, without the consent of the holders of at least 51% of
the Units, subject to certain provisions described in the next paragraph.
Pursuant to the Partnership Agreement, members of the Philips Group have agreed,
other than pursuant to the redemption provisions, not to sell, assign, transfer,
pledge, encumber or in any manner dispose of all or any of their interest in the
Operating Partnership without the consent of the Company, which consent may not
be unreasonably withheld. However, each member of the Philips Group has the
right, upon prior written notice to the general partner and subject to
applicable securities laws, to (i) pledge or otherwise encumber all or any
portion of its interest in the Operating Partnership to an unrelated lender as
security for a bona fide obligation (subject, however, to applicable securities
laws) and/or (ii) transfer all or any portion of its interest in the Operating
Partnership to immediate family members and trusts for the benefit of the
members of its immediate family for estate and/or gift tax purposes.
In addition, the Partnership Agreement provides that the Company may not
engage in any Termination Transaction unless all limited partners either will
receive, or will have the right to elect to receive, for each Unit an amount of
cash, securities or other property equal to the product of (i) the number of
shares of Common Stock into which each Unit is convertible and (ii) the greatest
amount of cash, securities or other property paid to the holder of one share of
Common Stock in consideration of one share of Common Stock pursuant to the terms
of the Termination Transaction. If, in connection with the Termination
Transaction, a purchase, tender or exchange offer shall have been made to and
accepted by the holders of the outstanding shares of Common Stock, each holder
of Units will receive, or will have the right to elect to receive, the greatest
amount of cash, securities or other property which such holder would have
received had it exercised its right to redemption and received shares of Common
Stock in exchange for its Units immediately prior to the expiration of such
purchase, tender or exchange offer and had thereupon accepted such purchase,
tender or exchange offer. See 'Comparison of Shareholders' Rights' and
'Partnership Agreement of Operating Partnership--Rights of Limited Partners'.
The Company may also merge or otherwise combine its assets with another
entity if the following conditions are met: (i) substantially all of the assets
directly or indirectly owned by the surviving entity are held directly or
indirectly by the Operating Partnership or another limited partnership or
limited liability company which is the survivor of a merger, consolidation or
combination of assets with the Operating Partnership (in each case, the
'Surviving Partnership'); (ii) the limited partners own a percentage interest of
the Surviving Partnership based on the relative fair market value of the net
assets of the Operating Partnership and the relative fair market value of the
other net assets of the Surviving Partnerships immediately prior to the
consummation of such transaction; (iii) the rights, preferences and privileges
of the limited partners in the Surviving Partnership are at least as favorable
as those in effect immediately prior to the consummation of such transaction and
as those applicable to any other limited partners or non-managing members of the
Surviving Partnership; and (iv) such rights of the limited partners include the
right to exchange their interests in the Surviving Partnership for at least one
of the following: (a) the consideration available to such persons pursuant to
the preceding paragraph, or (b) if the ultimate controlling person of the
Surviving Partnership has publicly traded common equity securities, such common
equity securities, with an exchange ratio based on the relative fair market
value of such securities and the Common Stock. For purposes of this paragraph,
the determination of relative fair market values and rights, preferences and
privileges of the limited partners shall be reasonably determined by the
Company's Board of Directors as of the time of the Termination Transaction and,
to the extent applicable, the values shall be no less favorable to the limited
partners than the relative values reflected in the terms of the Termination
Transaction.
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CAPITAL CONTRIBUTIONS
The Partnership Agreement provides that if the Operating Partnership
requires additional funds at any time or from time to time in excess of funds
available to the Operating Partnership from borrowings or capital contributions,
the Company may borrow such funds from a financial institution or other lender
or through public debt offerings and lend such funds to the Operating
Partnership on the same terms and conditions as are applicable to the Company's
borrowing of such funds. As an alternative to borrowing funds required by the
Operating Partnership, the Company may raise such additional funds pursuant to
the issuance of Common Stock and contribute the net amount of cash so raised as
an additional capital contribution to the Operating Partnership. If the Company
so contributes additional capital to the Operating Partnership, the Company's
partnership interests in the Operating Partnership will be increased on a
proportionate basis. Conversely, the partnership interests of the limited
partners will be decreased on a proportionate basis in the event of additional
capital contributions by the Company, unless limited partners contribute their
pro-rata share of the required funds. In addition, the Company may contribute
the stock, assets or other consideration it receives in connection with any
merger, consolidation or other acquisition to the capital of the Operating
Partnership in exchange for additional Operating Partnership Units.
ADDITIONAL CLASSES OF UNITS
The general partner is allowed under the Partnership Agreement to create
and issue additional classes of Operating Partnership Units to new or existing
limited partners with such terms, preferences, conversion or other rights,
voting powers, restrictions, allocations, distribution rights, qualifications
and terms or conditions or redemption as the general partner determines is in
the best commercial interest of the Operating Partnership (which could be either
more or less favorable to the holders thereof than the currently outstanding
Units).
AWARDS UNDER STOCK OPTION PLANS
If options granted in connection with stock option plans of the Company are
exercised at any time or from time to time, the Partnership Agreement requires
the Company to contribute to the Operating Partnership as an additional capital
contribution the exercise price received by the Company in connection with the
issuance of shares of Common Stock to such exercising participant. Although the
Company will contribute to the Operating Partnership an amount equal to the
exercise price received by the Company, for purposes of recalculating the
Company's partnership interest the Company will be considered to have
contributed an amount equal to the fair market value of the shares of Common
Stock issued to the exercising party.
REDEMPTION RIGHTS
Beginning on the first anniversary of the consummation of the Formation
Transactions, members of the Philips Group will be able to exercise rights which
will, subject to certain limitations, enable them to require the Operating
Partnership to redeem part or all of their Units for Common Stock (on a
one-for-one basis, subject to certain anti-dilution adjustments and exceptions)
or cash (based upon the fair market value of an equivalent number of shares of
Common Stock at the time of such redemption). The obligation to redeem the
Philips Group's Units may be assumed by the Company in exchange for, at the
Company's election, either cash or shares of Common Stock (on a one-for-one
basis), provided that the Company may not pay for such redemption with shares of
Common Stock to the extent that it would result in a member of the Philips Group
beneficially or constructively owning shares of Common Stock in excess of the
Ownership Limit or Mr. Pilevsky and his affiliates beneficially or
constructively owning shares of Common Stock in excess of the Philips Ownership
Limit. See 'Description of Capital Stock--Restrictions on Transfer'.
REGISTRATION RIGHTS
For a description of certain registration rights held by members of the
Philips Group, see 'Shares Available for Future Sale--Registration Rights.'
TAX MATTERS
Pursuant to the Partnership Agreement, and subject to the rights accorded
the Interim Managing General Partner therein, the Company will be the tax
matters partner of the Operating Partnership and, as such, will have authority
to make tax elections under the Code on behalf of the Operating Partnership.
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The net income or net loss of the Operating Partnership will generally be
allocated to the Company and the limited partners in accordance with their
respective percentage interests in the Operating Partnership, subject to
compliance with the provisions of Sections 704(b) and 704(c) of the Code and the
regulations promulgated thereunder.
OPERATIONS
The Partnership Agreement requires that the Operating Partnership be
operated in a manner that will enable the Company to satisfy the requirements
for being classified as a REIT for federal income tax purposes.
The Partnership Agreement provides that the net operating cash revenues of
the Operating Partnership, as well as net sales and refinancing proceeds, will
be distributed from time to time as determined by the Company (but not less
frequently than quarterly) pro rata in accordance with the partners' respective
percentage interests.
DUTIES AND CONFLICTS
The Partnership Agreement provides that all business activities of the
Company, including all activities pertaining to the acquisition, development,
management and operation of any real properties, must be conducted through the
Operating Partnership.
TERM
The Operating Partnership will continue in full force and effect until
December 31, 2097, unless a majority in interest elects to continue the
Partnership, or until sooner dissolved pursuant to the terms of the Partnership
Agreement.
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COMPARISON OF SHAREHOLDERS' RIGHTS
Upon consummation of the Formation Transactions, the shareholders of
National will receive shares of Common Stock of the Company, a Maryland
corporation. Differences between the provisions of the MBCL and the MGCL, and
differences between the Declaration of Trust of National and the Charter and
By-Laws of the Company, may be relevant to the National shareholders. It is not
practical to summarize all such provisions here or to cover all of the respects
in which Maryland law may differ from Massachusetts law. Although the Company
and National believe that the following are all of the material differences in
the rights of the Company's shareholders and National shareholders, shareholders
are advised to review the Charter and the By-Laws of the Company and the
Declaration of Trust of National and the Trustees Regulations of National, which
are available as described under 'Available Information'; and the following
summary is qualified in its entirety by reference to the MBCL and the MGCL, the
Charter and By-Laws of the Company and the Declaration of Trust of National.
National's Declaration of Trust and relevant provisions of Massachusetts law are
summarized below under the caption 'National', and the Company's Charter and
By-Laws and relevant provisions of Maryland law are summarized below under the
caption 'Certain Provisions of Maryland Law and of the Company's Charter and
By-Laws'.
The following defined term applies to this discussion of the National
Declaration of Trust: 'Affiliate' means (i) any person directly or indirectly
controlling, controlled by or under common control with another person, (ii) any
person owning or controlling 5% or more of the outstanding voting securities or
beneficial interests of such other person, (iii) any officer, retired officer,
director, trustee, employee or general partner of such person and (iv) if such
other person is an officer, director, trustee or partner of another entity, then
the entity for which that person acts in any such capacity.
BOARD OF TRUSTEES AND BOARD OF DIRECTORS
National. The Declaration of Trust of National provides that National's
Board of Trustees must consist of at least three but not more than 15 persons.
The Declaration of Trust of National provides that trustees may be removed
either with or without cause by the affirmative vote (or written consent) of the
holders of record of at least a majority of the outstanding National Shares
entitled to vote or with cause by all the remaining Trustees.
The Declaration of Trust of National requires that a vacancy on the Board
of Trustees be filled by a majority of the remaining trustees or trustee in
office, or by the shareholders.
See 'Risk Factors--Benefits to the Trustees from the Formation
Transactions' for information with respect to compensation of the Trustees.
The Company. The Charter provides that the Board of Directors must consist
of at least three persons. The Charter does not require that a majority of the
Company's Board of Directors be independent.
The Charter provides that a director may be removed only for cause and only
by the affirmative vote of holders of two-thirds of the aggregate number of
shares of Common Stock then entitled to be cast generally in the election of
directors.
The Company's Charter and By-Laws provide that vacancies on the Board of
Directors may be filled by a majority of the remaining directors, though less
than a quorum, or by the shareholders; provided, however, that vacancies created
by newly created directorships may be filled only by a majority of the entire
Board of Directors or by the shareholders. See 'Certain Provisions of Maryland
Law and the Company's Charter and By-Laws--Number of Directors; Removal;
Filling Vacancies.'
See 'Management--Compensation of Directors' for information with respect to
compensation of Directors of the Company.
ISSUANCE OF CAPITAL STOCK
National. National is authorized by its Declaration of Trust to issue an
unlimited number of National Shares. Preferred stock is not authorized.
The Company. The authorized capital stock of the Company consists of one
hundred fifty million shares of Common Stock, and thirty million shares of
Preferred Stock, in such classes or series and with such rights, preferences,
limitations, terms and conditions, as determined by the Board of Directors.
47,660 shares of Common Stock and 1,940 shares of Series A Preferred Stock will
be issued in connection with the Formation Transactions. See '--Anti-Takeover
Provisions' and 'Description of Capital Stock of the Company.'
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DISTRIBUTIONS TO SHAREHOLDERS
National. The Declaration of Trust of National provides that holders of
National Shares are entitled to receive, as declared by National's Board of
Trustees, dividends and distributions and further provides that the Trustees
shall make cash distributions to holders of National Shares in amounts at least
sufficient to enable National to qualify as a REIT (and the Trustees may make
distributions in excess of such amount).
The Company. The Charter provides that, subject to certain exceptions, the
holder of shares of Capital Stock in excess of 6.5% (by number of shares or
value, whichever is more restrictive) of the outstanding shares of Capital Stock
are not entitled to distributions or to voting rights. See 'Description of
Capital Stock of the Company--Common Stock' and '--Restrictions on Ownership and
Transfer.'
SHAREHOLDER MEETINGS
National. The Declaration of Trust of National requires that National hold
an annual meeting of shareholders and furnish to each shareholder an annual
report no later than 120 days after the close of National's fiscal year. A
special meeting of shareholders may be called by a majority of trustees and will
be called upon the written request of the holders of at least 10% of the
outstanding National Shares.
The Company. The MGCL and the Company's By-Laws require that the Company
hold an annual meeting of shareholders. A special meeting of shareholders may be
called by the Board of Directors, the Chief Executive Officer or the President,
and will be called upon written request of the holders of a majority of the
outstanding shares of Common Stock.
SHAREHOLDER APPROVAL OF CERTAIN ACTIONS
National. Shareholder approval is required for amendments to the
Declaration of Trust, changes to the investment objectives and policies of
National, mergers, share exchanges and sales of all or substantially all of
National's assets. Such approval requires the affirmative vote of a majority of
all votes entitled to be cast on the matter. Such matters also require the
approval of a majority of the trustees.
The Company. Consolidations, mergers, share exchanges and sales of
substantially all of the assets (other than in the ordinary course of business)
of the Company require approval by the affirmative vote of a majority of
outstanding shares of Common Stock. The recommendation of the Board of Directors
and the affirmative vote of the holders of a majority of the outstanding shares
of Common Stock is required to amend the Company's Charter, including the
provisions relating to termination of REIT status and ownership limits.
Directors may be removed only for cause and only by the affirmative vote of the
holders of two-thirds of the aggregate number of shares of Common Stock then
entitled to be cast generally in the election of directors. The By-Laws of the
Company may only be adopted, altered or repealed by a majority of the Board of
Directors. See 'Certain Provisions of Maryland Law and the Company's Charter and
By-Laws.'
RESTRICTIONS ON CORPORATE ACTIVITIES
National. The Declaration of Trust of National provides that National may
not, among other things: (a) invest in the ownership of, or participations in
the ownership of, raw land or in agricultural properties or the issuance of
mortgage loans secured by raw land or agricultural properties; (b) invest in any
foreign currency, commodities, commodity futures contracts, bullion or chattels;
(c) invest in any contracts for the sale of real estate, except in connection
with the acquisition of interests in real property and unless such real estate
contracts are recordable in the chain of title; (d) issue 'redeemable
securities' as defined in Section 2(a)(32) of the Investment Company Act of
1940; (e) hold equity securities, including the shares of other REITs; (f)
engage in trading as compared with investment activities or engage in the
business of underwriting or agency distribution of securities issued by others;
(g) allow the aggregate borrowings of National to exceed one hundred percent
(100%) of the net assets, in the absence of a determination by a majority of the
Trustees that a higher level of borrowings (which in no event shall exceed three
hundred percent (300%) of the net assets) is appropriate and in the best
interest of National; (h) issue securities in exchange for certain real estate
investments; (i) invest in securities or interests in persons primarily engaged
in real estate activities or invest in securities of other issuers for the
purpose of exercising control; (j) hold property primarily for sale to customers
in the ordinary course of business of National other than in connection with the
liquidation of National; (k) except as otherwise permitted, make or invest in
certain mortgage loans; (l) engage in any short sale, or borrow, on an unsecured
basis, if such borrowing will result in an asset coverage of less than 300%,
except that such borrowing limitation shall not apply to a first mortgage trust;
(m) issue debt securities unless the historical debt service coverage (in the
most recently
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completed fiscal year of National) as adjusted for known changes is sufficient
to properly service that higher level of debt; (n) engage in joint ventures or
other lawful combination or associations with any person in connection with the
acquisition and ownership of investments in real property; (o) sell any real
property to any person or entity; (p) repurchase its shares except as otherwise
permitted; (q) acquire securities in any company holding investments or engaging
in activities prohibited by the Declaration of Trust; or (r) invest in real
property under construction or under contract for development, with certain
exceptions.
The Company. Neither the Company's Charter nor the MGCL contain similar
restrictions on the Company's activities.
INTERESTED PARTY TRANSACTIONS
National. Under National's Declaration of Trust, a contract, act or other
transaction, between National and any other person, or in which National is
interested, shall be valid and no Trustee, employee or agent of National shall
have any liability as a result of entering into any such contract, act or
transaction, even though (a) one (1) or more of the Trustees, employees or
agents are directly or indirectly interested in or connected with, or are
trustees, partners, directors, employees, officers or agents of such other
person, or (b) one (1) or more of the Trustees, employees or agents of National,
individually or jointly with others, is a party or are parties to, or directly
or indirectly interested in, or connected with, such contract, act or
transaction, provided that such interest or connection is disclosed or known to
the Trustees and thereafter the Trustees authorize or ratify such contract, act
or other transaction by affirmative vote of a majority of the Trustees who are
not interested in the transaction or affiliated with any other entity in the
transaction.
National shall not engage in a transaction with (a) any Trustee, employee
or agent (acting in his individual capacity) of National, (b) any director,
trustee, partner, officer, employee or agent acting in his individual capacity
as an advisor or contractor of National, (c) an advisor or contractor of
National or (d) an Affiliate of any of the foregoing, except to the extent that
such transaction has, after disclosure of such affiliation, been approved or
ratified by the affirmative vote of a majority of the Trustees who are not
interested or affiliated with any such person involved in the transaction,
including a majority of Trustees who have made certain determinations to the
extent applicable that: (i) such transaction is fair and reasonable to National
and its shareholders; (ii) based upon an appraisal, the total consideration is
not in excess of the appraised value of the interest in real property being
acquired, if an acquisition is involved, or less than the appraised value of the
interest in real property being disposed of, if a disposition is involved; and
(iii) if such transaction involves payments by National for services rendered to
National by a person in a capacity other than that of Trustee, officer, employee
or agent, (1) the compensation is not in excess of the compensation, if any,
paid to such person by any other person who is not an Affiliate of such person
for any comparable services in the same geographic area, and (2) the
compensation is not greater than the charges for comparable services generally
available in the same geographic area from other persons who are competent and
not affiliated with any of the parties involved.
The Company. Under the MGCL, any contract or transaction between the
Company and any director, officer or any entity in which the director or officer
has a material financial interest is not void or voidable if it is approved,
after disclosure of the interest, by the affirmative vote of a majority of
disinterested directors (even if they constitute less than a quorum of the Board
of Directors).
OWNERSHIP LIMIT
National. Whenever the National Board of Trustees deems it to be
reasonably necessary to protect the status of National as a REIT, the National
Board of Trustees may require a statement or affidavit from each shareholder or
proposed transferee of National Shares setting forth the number of shares
already owned by the shareholder or proposed transferee and any related person.
If, in the opinion of the National Board of Trustees, which will be conclusive,
any proposed transfer would jeopardize the status of National as a REIT, the
Trustees may refuse to permit such transfer. Any attempt to acquire National
Shares which would result in the disqualification of National as a REIT will be
null and void.
The Company. The Charter provides, subject to certain exceptions, that the
holder of shares of Capital Stock exceeding 6.5% (by number of shares or value,
whichever is more restrictive) of the total outstanding shares of Capital Stock
are not entitled to vote or to receive distributions and are subject to certain
other restrictions on transfer. Actual or constructive ownership of shares of
capital stock in excess of the applicable ownership limit will cause the
violative transfer or ownership to be void with respect to the transferee or
owner as to that number of shares the ownership of which by such owner or
transferee results in such owner or transferee
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or any other person violating any of the ownership limits, and such shares will
be automatically transferred to a trust for the benefit of a qualified
charitable organization. Such transferee or owner shall have no right to vote
such shares or be entitled to dividends or other distributions with respect to
such shares.The Board of Directors has waived the Ownership Limit for Mr.
Pilevsky and his affiliates. See 'Description of Capital Stock of the
Company--Restriction on Ownership and Transfer.'
ANTI-TAKEOVER PROVISIONS
National. As a Massachusetts business trust, National is not subject to
any of Massachusetts' anti-takeover laws, including the Massachusetts Control
Share Acquisition Act, the Massachusetts Business Combination Law and Chapter
110C of the Massachusetts General Law (the first generation of Massachusetts'
anti-takeover laws). Certain provisions of the Declaration of Trust require the
approval of shareholders for mergers and transactions with affiliates which
could inhibit a change of control. See 'Interested Party Transactions' and
'Shareholder Approval of Certain Actions' for a description of these provisions.
The Company. See 'Certain Provisions of Maryland Law and the Company's
Charter and By-Laws--Statutory Requirements for Certain Transactions' for a
description of the anti-takeover provisions of the MGCL. The By-Laws exempt the
Company from these provisions. The Partnership Agreement contains certain 'anti-
takeover' and 'fair price' provisions with respect to the rights of the limited
partners which may inhibit a change in control of the Company under the
circumstances that could give the holders of Common Stock the opportunity to
realize a premium over then-prevailing market prices. See 'Partnership Agreement
of Operating Partnership--Rights of Limited Partners.'
INDEMNIFICATION
National. National's Declaration of Trust provides that any person made a
party to any action, suit or proceeding or against whom a claim or liability is
asserted by reason of the fact that he was or is a shareholder, Trustee,
employee or agent of National shall be indemnified and held harmless by National
against any and all losses, liabilities, damages, fines, claims and judgments
and amounts paid on account thereof (whether in settlement or otherwise) and
shall be indemnified and held harmless against and, upon payment thereof, shall
be entitled to reimbursement for reasonable expenses, including attorneys' fees,
actually and reasonably incurred by him; provided, however, that no such
Trustee, employee or agent shall be so indemnified or reimbursed for any loss,
damage, fine, claim, judgment or liability and amounts paid on account thereof
(or expenses related thereto) which shall have been adjudicated to have arisen
out of or to have been based upon his gross negligence or willful or wanton
misconduct or with respect to any Trustee, employee or agent of National if the
same arises from any violation by them of federal or state securities laws.
The rights to indemnification set forth in National's Declaration of Trust
are not exclusive of any rights to which a person seeking indemnification may be
entitled under any agreement, vote of shareholders or disinterested Trustees,
common law or otherwise and such rights continue after the person seeking
indemnification ceases to be a Trustee, advisor, employee or agent of National
and inures to the benefit of the heirs, executors and administrators of such
person. The Declaration of Trust also limits the liabilities of Trustees,
employees and agents for their acts, except for gross negligence or willful or
wanton misconduct.
The Company. The Company's Charter contains certain provisions concerning
the indemnification of directors and officers. See 'Certain Provisions of
Maryland Law and the Company's Charter and By-Laws--Limitations of Liability
and Indemnification.'
NOMINATION OF TRUSTEES/DIRECTORS BY SHAREHOLDERS
National. The Declaration of Trust of National requires that the Trustees
nominate persons to be elected as Trustees.
The Company. Pursuant to the Company's By-Laws, no nominations for
directors, except those made by the directors themselves, shall be voted upon at
an annual or special meeting of the shareholders unless nominations made by
shareholders are made in writing and delivered to the Secretary of the Company
at least seventy-five (75) but not more than ninety (90) days prior to the
anniversary date of the immediately preceding annual meeting (or special meeting
in lieu thereof). See 'Certain Provisions of Maryland Law and the Company's
Charter and By-Laws--Advance Notice of Director Nominations and New Business.'
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CAPITALIZATION
The following table sets forth the combined historical capitalization, as
of September 30, 1997, of the contributed properties and interests on an
historical basis and of the Company, the Equity Investees and Philips
International Realty, L.P. on a pro forma basis and as adjusted to give effect
to the Formation Transactions. The information set forth in the following table
should be read in conjunction with the financial statements and the pro forma
financial information and notes thereto included elsewhere in this Proxy
Statement/Prospectus and the discussion contained in 'Management's Discussion
and Analysis of Financial Condition and Results of Operations.'
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-----------------------------------------------------------------------------------------------------
PRO FORMA
HISTORICAL ---------------------------------------------
---------------------------------------------------- PHILIPS
MERRICK/ PHILIPS INT'L PHILIPS INT'L INT'L EQUITY
PHILIPS MILL BASIN NATIONAL REALTY CORP. REALTY CORP. REALTY L.P. INVESTEES
-------- ---------- -------- -------------- -------------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Debt(1):
Mortgages and notes
payable............. $151,494 $ 25,854 $ 550 $ -- $ -- $ -- $ 177,022
-------- ---------- -------- ------ -------------- -------------- ---------
Equity (Deficit):
Preferred Stock(2)..... -- -- -- -- 1,940 -- --
Common Stock(3)........ -- -- -- -- -- -- --
Paid in capital........ -- -- -- 1 2,595 -- --
Equity (deficit)....... (5,389) 1,094 455 (14) (2,233) 13,681 11,209
-------- ---------- -------- ------ -------------- -------------- ---------
Total equity
(deficit)......... (5,389) 1,094 455 (13) 2,302 13,681 11,209
-------- ---------- -------- ------ -------------- -------------- ---------
Total Capitalization..... $146,105 $ 26,948 $1,005 $ (13) $ 2,302 $ 13,681 $ 188,231
-------- ---------- -------- ------ -------------- -------------- ---------
-------- ---------- -------- ------ -------------- -------------- ---------
</TABLE>
- ------------------
(1) See notes to financial statements for the respective entities for
information pertaining to mortgages and notes payable.
(2) On a pro forma basis--Philips International Realty Corp. Preferred Stock,
authorized 30,000,000 shares, $.01 par value, 1,940 convertible redeemable
shares of Series A Preferred Stock issued and outstanding. On a historical
basis no preferred stock of Philips International Realty Corp. was
authorized.
(3) On a pro forma basis--Philips International Realty Corp. Common Stock,
authorized 100,000,000 shares, $.01 par value, 47,660 shares issued and
outstanding. On a historical basis--Philips International Realty Corp.
Common Stock; authorized 3,000 shares, issued and outstanding 20 shares.
THE COMPANY'S STRATEGY FOR GROWTH
The Company will seek to maximize shareholder value through aggressive
growth of its cash flow per share to be accomplished through an integrated,
multi-faceted strategy capitalizing on the Company's existing strengths and the
substantial expertise of its executive officers, directors and the Management
Company in the real estate industry. Such strategy is comprised of the following
components:
INTERNAL GROWTH
Operations. The Company will continue to utilize its aggressive asset and
property management style to maximize cash flow from its properties. The
Company, through management's extensive knowledge of retail demand and shopping
center operations accumulated in over 20 years of shopping center ownership and
development throughout the United States, and through its extensive, direct
relationships with the tenant community, will continue its program of (a)
seeking optimal tenant mix at the most favorable rental structure, (b)
maximizing occupancy, (c) minimizing property operating expenses, and (d)
superior physical maintenance. The Company also will continue to selectively
engage in property expansion, re-leasing and redevelopment where the economics
of such are favorable to shareholder value. For example, the Philips Group
purchased the Palm Springs Mile Property in Hialeah, Florida in 1984 and has
increased net operating income by aggressively expanding the center, re-leasing
to achieve higher rentals and capitalize on below-market rents in place and
enhancing the tenant mix by focusing on leasing to strong national tenants such
as Circuit City Stores Inc., Toys
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'R' Us Inc., Kids R' Us, Burlington Co., Uptons Inc., Blockbuster Videos Inc.,
Walgreen Co., Pier 1 Imports Co. and Winn-Dixie Stores Inc. Such strong anchor
tenants have dramatically increased traffic flow, resulting in significantly
higher rents on new leases from local store tenants.
Balance Sheet Management and Cost Control. The Company intends to
aggressively manage its capital and cost structures so as to maximize total
return to shareholders. The Company intends to restructure its balance sheet to
reduce leverage, appropriately match assets and liabilities and to continuously
seek more favorable forms of capital with which to fulfill its business
objectives and enhance its cash flow per share. Consistent with this strategy,
the Company intends, subject to market conditions, to complete a public or
private equity offering, at such time as it deems it advantageous to do so, and,
simultaneously therewith, to obtain a revolving credit facility to fund
acquisitions and for working capital purposes. The Company, in order to more
appropriately match its overhead to the size of its portfolio, initially will
utilize the services of the Management Company for certain non-executive
functions, but intends as the portfolio grows to hire directly the individuals
providing such services.
Self-Management. The Company believes that direct management and leasing
of its properties is desirable and has begun to work towards achieving full
self-management. The Company will manage its properties initially through the
services and personnel of the Management Company under the supervision of the
directors and executive officers of the Company. Although no precise time table
can be given, the Company plans to become a fully integrated, self-managed REIT
in the next 18 to 36 months by growth through access to the capital markets and
through acquisitions of additional properties. The Company believes that its
access to the capital markets and its ability to issue Units will enable it to
make continued acquisitions of additional properties, which acquisitions should
position the Company such that it will become economically advantageous for the
Company to perform all of the functions of all of the day-to-day development,
leasing, acquisition, property management, construction management, accounting
and portfolio management on an 'in-house' basis rather than relying on the
Management Company for certain of these functions. The Company intends to
develop accounting and property management information systems and hire and
train personnel to enable the Company to integrate its property management
activities. It is contemplated that the Company eventually will employ a
significant number of those individuals who currently perform such functions on
behalf of the Management Company. See 'Risk Factors--Conflicts of Interest with
and Dependence on The Management Company.'
EXTERNAL GROWTH
Acquisitions. The Company intends to acquire additional properties at
initially attractive returns which are capable of being further enhanced through
the use of management's proven, value-added expertise, including opportunities
to expand or redevelop properties to attract tenants at higher rent levels. The
Company will seek to acquire properties at below replacement cost in markets
with strong demographics, emphasizing locations where retail demand exceeds
supply and the creation of new supply is hindered. As a result, it is
anticipated that most new acquisitions will occur in major urban-suburban
markets. The Company, through its management team, will apply the same asset and
property management philosophy which it has successfully used for over 20 years,
embodied in the assets to be contributed by the Contributing Partnership upon
the closing of the Formation Transactions. Future acquisition activity will be
facilitated by use of the extensive broker and partner network developed by the
Company's principals over the last 20 years.
When advantageous, the Company also intends to (a) capitalize on the trend
toward public ownership of real estate by pursuing purchases of other retail
companies with property portfolios possessing similar characteristics to those
the Company will be seeking as part of its ordinary acquisition program, and (b)
pursue joint venture opportunities, generally with the Company having control,
which serve to leverage the Company's activities and expertise to the
shareholders' benefit. The Company may acquire properties, in whole or in part,
through the issuance of Units, which will enable sellers to defer the payment of
taxes on properties contributed to the Operating Partnership until such time as
the Units are redeemed for Common Stock. The Company believes that this will
create a competitive advantage over cash purchasers when negotiating
acquisitions with privately-owned real estate enterprises.
Referrals of Potential Shopping Center Acquisitions. The Philips Group's
long-standing relationships in the real estate brokerage community should give
the Company a competitive advantage in identifying potential acquisition
candidates which fit the Company's investment objectives. Furthermore, the
numerous individuals and institutions who have invested with the members of the
Philips Group in past and present real estate projects
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should also provide a referral source of potential future retail shopping center
acquisition candidates. In addition, certain members of the Philips Group,
including Mr. Pilevsky, have significant equity interests in retail shopping
center properties which may over time become desirable acquisition targets for
the Company. Such properties were not included in the Formation Transactions for
various reasons, including the asset size, type, quality or geographic location
was not consistent with the Company's acquisition criteria, the required
valuation of such property would be economically undesirable from the Company's
standpoint at such time, and partnership and lender consent issues precluded
including certain property in the Company's property portfolio. Any acquisition
of properties owned in part or in whole by Mr. Pilevsky or any other member of
the Philips Group must be approved by the Company's independent directors. The
Company has no agreement with respect to the acquisition of any of these
excluded properties, and, therefore, no assurances can be made that such
acquisitions will be consummated.
Development. The Company intends to use its familiarity with its markets,
its tenant relationships and active, demonstrated development ability to
selectively develop retail assets in areas where the highest quality tenant
demand is the greatest. The development program, centered on identified tenant
demand, will be applied in those instances where economic return is reasonably
determined to be well in excess of existing property acquisition returns, the
effect on cash flow per share can be optimized and the Company is well insulated
from development risk.
Geographic Expansion. The Company will initially focus its activities in
the New England, Mid-Atlantic and Southeast regions of the United States,
utilizing the initial Properties as a foundation for the Company's anticipated
geographic expansion. The Company, upon closing of the Formation Transactions,
will have two offices, one located at the mid-point of the New England and
Mid-Atlantic regions, in New York, New York, and one located in the Southeast
region in Hialeah, Florida. The Company intends to utilize its existing presence
in these regions for expansion throughout the major markets of the eastern
United States.
DISTRIBUTION POLICY
The Company currently expects to make periodic distributions to its
shareholders to comply with the REIT requirements. See 'Management's Discussion
and Analysis of Financial Condition and Results of Operations--The Company (Pro
Forma)--Liquidity and Capital Resources.' Distributions by the Company to
holders of Common Stock will be determined by the Board of Directors. However,
such determinations will be subject to the discretion of the Interim Managing
General Partner pending completion of an Offering because the Company cannot
declare a distribution unless it receives a distribution from the Operating
Partnership. The Company currently expects that the principal factors the Board
will consider in setting distributions prior to a subsequent public offering of
Common Stock will be the annual REIT distribution requirements (described below)
and the Board's determination of the relative benefits of distribution versus
re-investment in the Company. The Board will also consider the actual net cash
flow of the Company, the Company's financial condition and capital and debt
service requirements, and such other factors as the Board of Directors deems
relevant.
In order to qualify to be taxed as a REIT, each year the Company must make
distributions to shareholders of at least 95% of its REIT taxable income (which
does not include capital gains). Because the Company's 'REIT taxable income' is
calculated without reference to cash flow, under certain circumstances the
Company may not have sufficient cash available to make the distributions
required under the REIT provisions of the Code. See 'Federal Income Tax
Considerations--Requirements for Qualification as a REIT--Annual Distribution
Requirements.'
The Company anticipates that cash available for distribution will exceed
its earnings and profits due to non-cash expenses, consisting primarily of
depreciation. Distributions by the Company to the extent of its current or
accumulated earnings and profits for federal income tax purposes will be
taxable to shareholders as ordinary dividend income. Distributions in excess
of earnings and profits generally will be treated as a non-taxable reduction
of a shareholder's basis in its Common Stock, to the extent of its basis, and
thereafter as taxable gain. Distributions treated as a non-taxable reduction
of basis will have the effect of deferring taxation until the shareholder's
disposition of the Common Stock. If the Company distributes only 95% of its
estimated REIT taxable income, no portion of the distributions to be paid to
the holders of Common Stock is expected to represent a return of capital. For
additional discussion of the tax treatment of distributions to the holders of
the Common Stock, see 'Federal Income Tax Considerations--Taxation of
Shareholders--Taxable Shareholder--Dividend Income.'
75
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected financial and operating information
for (i) Philips International Realty Corp. (the 'Company'), on a pro forma
basis, (ii) for The Philips Company ('Philips') on a combined historical basis,
(iii) for the Merrick Commons and Mill Basin Plaza Properties ('Merrick/Mill
Basin') on a combined historical basis, (iv) for National on a historical basis,
(v) for Philips, Merrick/Mill Basin and National, all on a combined
historical basis and as modified for the pro forma adjustments (collectively,
the 'Equity Investees') and (vi) for Philips International Realty, L.P. (the
'Operating Partnership') on a pro forma basis. This information should be read
in conjunction with all of the financial statements and the notes thereto
included elsewhere in this Proxy Statement/Prospectus. The unaudited historical
financial information presented herein is based upon the separate historical
financial statements of the respective entities and the notes thereto which
appear elsewhere in this Proxy Statement/Prospectus and should be read in
conjunction with such financial statements. The unaudited pro forma financial
information presented herein is based upon the pro forma financial statements of
Philips International Realty Corp., the Equity Investees, the Operating
Partnership and the notes thereto which appear elsewhere in this Proxy
Statement/Prospectus and should be read in conjunction with such financial
statements. Reference should also be made to 'Management's Discussion and
Analysis of Financial Condition and Results of Operations' in conjunction with
the review of all historical and pro forma financial and operating information
set forth herein.
Upon completion of the Formation Transactions, Philips International Realty
LLC will become the 'Interim Managing General Partner' of the Operating
Partnership and each of the property partnerships with a .001% interest in each
and the Company will have directly or indirectly a non-managing general
partnership interest and therefore will record its investment in the Operating
Partnership on the equity method. The Interim Managing General Partner's
interests will be redeemed by the respective partnerships upon consummation of a
future equity offering of at least $25 million. The Company's pro forma
adjustments are derived from the pro forma financial statements of the Equity
Investees property partnerships as set forth in the notes to the pro forma
financial statements.
The unaudited pro forma operating information for the Company, and the
Equity Investees and the Operating Partnership has been presented as if the
Formation Transactions had occurred as of January 1, 1996, and as if the Company
had qualified as a REIT, distributed all of its taxable income and, therefore,
incurred no federal income tax expense during the period. The unaudited pro
forma balance sheets for the Company, the Equity Investees and the Operating
Partnership as of September 30, 1997 are presented as if the Formation
Transactions had occurred on September 30, 1997. The unaudited pro forma balance
sheet of the Equity Investees combines the respective balance sheets of the
property partnerships as of September 30, 1997, subject to certain pro forma
adjustments. The pro forma balance sheet of the Operating Partnership reflects
its equity interest in the Equity Investees and the pro forma balance sheet of
the Company reflects its equity interest in the Operating Partnership.
The pro forma financial information is not necessarily indicative of what
the Company's, the Equity Investees' or the Operating Partnership's actual
financial position and results of operations would have been as of and for the
period indicated, nor does it purport to represent the future financial position
or results of operations of the Company, the Equity Investees or the Operating
Partnership.
76
<PAGE>
PHILIPS INTERNATIONAL REALTY CORP., PHILIPS INTERNATIONAL REALTY L.P., EQUITY
INVESTEES,
THE PHILIPS COMPANY AND THE MERRICK COMMONS AND MILL BASIN PLAZA PROPERTIES
SELECTED COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED
NINE MONTHS ENDED SEPTEMBER 30, DECEMBER 31,
------------------------------------------------------------------------------- ------------
PRO FORMA HISTORICAL PRO FORMA
------------------------------------- ---------------------------------------- ------------
1997 1997 1996 1996
------------------------------------- ------------------- ------------------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
PHILIPS INT. EQUITY MERRICK/ MERRICK/
PHILIPS INT. L.P. INVESTEES PHILIPS MILL BASIN PHILIPS MILL BASIN PHILIPS INT.
------------ ------------ --------- ------- ---------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA: (1)
Revenues from rental
property.................. $ -- $ -- $23,865 $19,508 $ 3,725 $19,338 $3,531 $ --
--- --- --------- ------- ----- ------- ----- ---
Property operating
expenses.................. -- -- 3,919 3,618 436 3,646 559 --
Real estate taxes.......... -- -- 3,432 2,792 612 2,742 552 --
Interest................... -- -- 11,936 9,766 1,581 8,584 2,570 --
Depreciation and
amortization.............. -- -- 3,946 2,867 422 2,480 470 --
General and
administrative............ -- 14 1,364 206 47 230 38 --
--- --- --------- ------- ----- ------- ----- ---
Total expenses............. -- 14 24,597 19,249 3,098 17,682 4,189 --
--- --- --------- ------- ----- ------- ----- ---
(732) 259 627 1,656 (658)
Equity in income (loss) of
investees................. (27) (709) -- 285 -- 15 -- (6)
Allocation of income on
Preferred Units........... 131 -- -- -- -- -- -- 175
Other income............... -- -- 23 22 1 17 949 --
--- --- --------- ------- ----- ------- ----- ---
Income (loss) before
extraordinary items ...... 104 (723) $ (709) $ 566 $ 628 $ 1,688 $ 291 169
--------- ------- ----- ------- -----
--------- ------- ----- ------- -----
Preferred Stock unit
distribution ............ 131 (131) (175)
--- --- ---
Net loss attributable to
General and Limited
Partners.................. $ 854
---
---
Net loss attributable to
common shares ............ $ (27) $ (6)
--- ---
--- ---
Net loss available to
General partners.......... -- $ (27) --
Net loss available to
Limited partners.......... -- $ (827) --
Loss per share before
extraordinary items(2).... $ (.57) $ (.13)
--- ---
--- ---
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------------
PRO FORMA HISTORICAL
------------------------- ----------------------------------------------------------------------
1996 1996 1995 1994 1993
------------------------- ------------------- ------------------- ------------------- -------
(UNAUDITED)
PHILIPS INT. EQUITY MERRICK/ MERRICK/ MERRICK/ (UNAUDITED)
L.P. INVESTEES PHILIPS MILL BASIN PHILIPS MILL BASIN PHILIPS MILL BASIN PHILIPS
------------ ----------- ------- ---------- ------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA: (1)
Revenues from rental
property.................. $ -- $33,230 $25,947 $4,949 $23,187 $4,810 $22,192 $2,308 $22,337
--- ----- ------- ----- ------- ----- ------- ----- -------
Property operating
expenses.................. -- 5,677 5,054 710 5,008 712 4,834 553 4,218
Real estate taxes.......... -- 4,451 3,671 744 3,591 671 3,554 370 3,446
Interest................... -- 16,168 11,728 3,496 11,097 2,054 9,695 873 9,524
Depreciation and
amortization.............. -- 5,134 3,417 576 3,072 540 2,896 322 2,738
General and
administrative............ -- 1,847 306 38 201 53 222 20 270
--- ----- ------- ----- ------- ----- ------- ----- -------
Total expenses............. -- 33,277 24,176 5,564 22,969 4,030 21,201 2,138 20,196
--- ----- ------- ----- ------- ----- ------- ----- -------
(38) 1,771 (615) 218 780 991 170 2,141
Equity in income (loss) of
investees................. (15) -- 95 -- 54 -- 6 -- (89)
Allocation of income on
Preferred Units........... -- -- -- -- -- -- -- -- --
Other income............... -- 23 22 1,307 35 3 48 2 46
--- ----- ------- ----- ------- ----- ------- ----- -------
Income (loss) before
extraordinary items ...... (15) $ (15) $ 1,888 $ 692 $ 307 $ 783 $ 1,045 $ 172 $ 2,098
----- ------- ----- ------- ----- ------- ----- -------
----- ------- ----- ------- ----- ------- ----- -------
Preferred Stock unit
distribution ............ (175)
---
Net loss attributable to
General and Limited
Partners.................. $ (190)
---
---
Net loss attributable to
common shares ............
Net loss available to
General partners.......... $ (6)
Net loss available to
Limited partners.......... $ (184)
Loss per share before
extraordinary items(2)....
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
HISTORICAL
---------------------------------
1993 1992
----------- --------------------
(UNAUDITED) (UNAUDITED)
(*)MERRICK/ (*)MERRICK/
MILL BASIN PHILIPS MILL BASIN
----------- ------- -----------
<S> <C> <C> <C>
OPERATING DATA:
Revenues from rental
property.................. $ 503 $22,622 $ 799
----- ------- -----
Property operating
expenses.................. 198 3,805 580
Real estate taxes.......... 199 3,393 374
Interest................... 337 10,044 484
Depreciation and
amortization.............. 44 2,724 117
General and
administrative............ 23 192 8
----- ------- -----
Total expenses............. 801 20,158 1,563
----- ------- -----
(298) 2,464 (764)
Equity in income (loss) of
investees................. -- (225) --
Allocation of income on
Preferred Units........... -- -- --
Other income............... 1 23 14
----- ------- -----
Income (loss) before
extraordinary items ...... $ (297) $ 2,262 $ (750)
----- ------- -----
----- ------- -----
Preferred Stock unit
distribution ............
Net loss attributable to
General and Limited
Partners..................
Net loss attributable to
common shares ............
Net loss available to
General partners..........
Net loss available to
Limited partners..........
Loss per share before
extraordinary items(2)....
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PRO FORMA HISTORICAL
------------------------------------------- -----------------------
<CAPTION>
(UNAUDITED) (UNAUDITED)
PHILIPS INT. EQUITY MERRICK/
PHILIPS INT. L.P. INVESTEES PHILIPS MILL BASIN
------------ ------------ --------- -------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Rental properties, at cost before accumulated
depreciation................................ $ -- $ -- $198,700 $165,066 $ 26,341
Investment in Equity Investees............... 2,315 11,208
Total assets................................. 2,317 13,681 197,125 154,036 27,661
Mortgage notes payable....................... -- -- 177,022 151,494 25,854
Stockholders/Owners' equity (deficit)........ 2,302 13,681 11,209 (5,389) 1,094
OTHER DATA:
Funds from operations(4)..................... 99 3,092 3,237 3,592 --
Net cash provided by (used in) operating
activities.................................. (27) (723) 3,237 85 --
Net cash provided by (used in) financing
activities.................................. 131 (131) (1,324 ) 18,623 --
Net cash (used in) investing activities...... -- -- (2,635 ) (19,369) --
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------------------------------------------
1996 1995 1994
----------------------- ----------------------- -----------------------
MERRICK/ MERRICK/ MERRICK/
PHILIPS MILL BASIN PHILIPS MILL BASIN PHILIPS MILL BASIN
-------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Rental properties, at cost before accumulated
depreciation................................ $137,399 $ 26,161 $124,892 $ 25,783 $118,307 $ 25,509
Investment in Equity Investees...............
Total assets................................. 129,841 27,575 116,856 31,813 108,188 25,957
Mortgage notes payable....................... 133,609 26,049 131,740 24,075 131,187 19,606
Stockholders/Owners' equity (deficit)........ (11,166) 586 (22,091) 6,011 (24,611) 5,056
OTHER DATA:
Funds from operations(4)..................... 5,574 -- 3,590 -- 4,050 --
Net cash provided by (used in) operating
activities.................................. 3,567 -- 3,535 -- 3,639 --
Net cash provided by (used in) financing
activities.................................. 6,086 -- 2,160 -- (876) --
Net cash (used in) investing activities...... (9,359) -- (6,604) -- (3,354) --
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------------
1993 1992
----------------------- -----------------------
(UNAUDITED) (UNAUDITED)
MERRICK/ MERRICK/
PHILIPS MILL BASIN PHILIPS MILL BASIN
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Rental properties, at cost before accumulated
depreciation................................ $114,953 $ 11,468 $113,748 $6,791
Investment in Equity Investees...............
Total assets................................. 109,474 11,186 108,770 6,833
Mortgage notes payable....................... 132,125 5,967 133,541 5,967
Stockholders/Owners' equity (deficit)........ (25,771) 3,555 (26,071) 1,429
OTHER DATA:
Funds from operations(4)..................... -- -- -- --
Net cash provided by (used in) operating
activities.................................. -- -- -- --
Net cash provided by (used in) financing
activities.................................. -- -- -- --
Net cash (used in) investing activities...... -- -- -- --
</TABLE>
- ------------------
(*) In 1992 and 1993, Merrick/Mill Basin consisted of only the Merrick Commons
Property. During this period such Property was undergoing significant
renovations.
77
<PAGE>
NATIONAL PROPERTIES INVESTMENT TRUST
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------------- ----------------------------------------------
1997 1996 1996 1995 1994 1993 1992
----------- ----------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
OPERATING DATA:
Revenues from rental property.............. $ 268 $ 260 $ 341 $ 311 $ 294 $ 307 $ 422
----------- ----------- ------ ------ ------ ------ ------
Property operating expenses................ 70 77 96 90 105 111 282
Real estate taxes.......................... 28 23 36 33 31 29 33
Interest................................... 43 47 60 46 32 47 61
Depreciation and amortization.............. 41 37 50 46 45 50 --
General and administrative................. 75 73 119 64 353 323 30
----------- ----------- ------ ------ ------ ------ ------
Total expenses............................. 257 257 361 279 566 560 406
----------- ----------- ------ ------ ------ ------ ------
Operating income........................... 11 3 (20) 32 (272) (253) 16
Other income expenses), net................ 1 1 1 1 -- 92 (24)
----------- ----------- ------ ------ ------ ------ ------
Net income (loss).......................... $ 12 $ 4 $ (19) $ 33 $ (272) $ (161) $ (8)
----------- ----------- ------ ------ ------ ------ ------
----------- ----------- ------ ------ ------ ------ ------
Net income (loss) per share(3)............. $0.02 $ 0.01 $(0.03) $ 0.05 $(0.39) $(0.24) $(0.01)
----------- ----------- ------ ------ ------ ------ ------
----------- ----------- ------ ------ ------ ------ ------
</TABLE>
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, AS OF DECEMBER 31,
------------- ----------------------------------------------
1997 1996 1995 1994 1993 1992
------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
BALANCE SHEET DATA:
Rental properties, at cost before accumulated
depreciation........................................ $ 1,700 $1,608 $1,548 $1,518 $1,510 $1,486
Total assets.......................................... 1,068 1,051 1,102 1,014 1,210 1,067
Mortgage notes payable................................ 550 571 598 399 400 --
Shareholders' equity.................................. 455 406 461 387 629 790
OTHER DATA:
Funds from operations(4).............................. 51 23 72 (230) (111) (8)
Net cash provided by (used in) operating activities... 47 60 (65) (54) (344) (11)
Net cash provided by (used in) financing activities... 15 (63) 200 19 360 --
Net cash (used in) investing activities............... (92) (60) (30) (7) (24) (15)
</TABLE>
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, AS OF DECEMBER 31,
------------- ----------------------------------------------
1997 1996 1995 1994 1993 1992
------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
OTHER DATA (IN THOUSANDS):
Cash and cash equivalents............................. $ 14 $ 44 $ 108 $ 3 $ 45 $ 53
Total assets at book value............................ 1,068 1,051 1,102 1,014 1,210 1,067
Total assets at the value assigned for purposes of the
Formation Transactions.............................. 2,211 -- -- -- -- --
Total liabilities..................................... 613 645 642 628 581 277
Shareholders' equity.................................. 455 406 461 387 629 790
Net increase (decrease) in cash and cash
equivalents......................................... (30) (64) 105 (42) (344) (11)
Net cash provided by (used in) operating activities... 47 60 (65) (54) (8) (26)
Dividends............................................. 0 36 0 0 0 0
OTHER DATA:
Ratio of earnings to fixed charges.................... 1.24 0.73 1.99 (6.69) (2.40) 0.87
Earnings (loss) per Share............................. 0.02 (0.03) 0.05 (0.39) (0.24) (0.01)
Book value per Share.................................. 0.61 0.56 0.64 0.54 0.92 1.15
Value assigned for the purposes of the Formation
Transactions per Share.............................. 2.13 -- -- -- -- --
Dividends per Share -- return of capital.............. 0.00 0.05 0.00 0.00 0.00 0.00
</TABLE>
78
<PAGE>
(Footnotes from previous pages)
- ------------------
(1) The following is a reconciliation of historical operating results to pro
forma results for the Equity Investees:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
<S> <C> <C>
Historical income (loss) before minority interest and extraordinary
item:
The Philips Company, less equity in income of
the Merrick/Mill Basin Properties................................ $ 281 $ 1,793
The Merrick/Mill Basin Properties.................................. 628 692
National Properties Investment Trust............................... 12 (19)
-------- --------
921 2,466
Adjustments relating to the purchase of the non-sponsor interests in
exchange for cash and Units:
Increase in depreciation related to purchase accounting............ (616) (1,090)
Increase in interest cost associated with financings of the
purchase of partners' interests and transaction fees............. (546) (884)
Increase in rental revenue related to partners' interests
purchased........................................................ 364 695
-------- --------
Combined historical, as adjusted..................................... 123 1,187
Pro forma changes in operating expenses due to organizational
changes:
Reduction in management fees....................................... 241 228
Increase in general and administrative expenses to support future
operations....................................................... (1,073) (1,430)
-------- --------
Pro forma loss before minority interests and extraordinary items..... $ (709) $ (15)
-------- --------
-------- --------
</TABLE>
(2) Pro forma net loss attributable to common shares items is calculated based
upon 47,660 shares of Common Stock assumed to be outstanding for the nine
months ended September 30, 1997 and the year ended December 31, 1996. The
anti-dilutive effect of the Warrants has not been considered in the
calculation for either period. In February 1997 the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 128
('FAS 128') which is effective for periods ending after December 15, 1997.
Had FAS 128 been adopted there would be no effect on the pro forma net loss
attributable to common shares.
(3) Net income (loss) per share is based upon 742,000, 719,000, 718,000,
719,000, 693,000, 671,000 and 684,000 weighted average numbers of shares of
beneficial interest outstanding for the nine months ended September 30, 1997
and 1996 (unaudited) and the years ended December 31, 1996, 1995, 1994, 1993
and 1992, respectively.
(4) The White Paper on Funds from Operations approved by the Board of Governors
of NAREIT in March 1995 defines Funds from Operations as net income (loss)
(computed in accordance with GAAP), excluding gains (or losses) from debt
restructuring and sales of properties, plus real estate related depreciation
and amortization and after adjustments for unconsolidated partnerships and
joint ventures. The Company believes that Funds from Operations is helpful
to investors as a measure of the performance of an equity REIT because,
along with cash flow from operating activities, financing activities and
investing activities, it provides investors with an indication of the
ability of the Company to incur and service debt, to make capital
expenditures and to fund other cash needs. The Company computes Funds from
Operations in accordance with standards established by NAREIT which may not
be comparable to Funds from Operations reported by other REITs that do not
define the term in accordance with the current NAREIT definition or that
interpret the current NAREIT definition differently than the Company. Funds
from Operations does not represent cash generated from operating activities
in accordance with GAAP and should not be considered as an alternative to
net income (determined in accordance with GAAP) as an indication of the
Company's financial performance or to cash flow from operating activities
(determined in accordance with GAAP) as a measure of the Company's
liquidity, nor is it indicative of funds available to fund the Company's
cash needs, including its ability to make cash distributions.
79
<PAGE>
Funds from Operations was calculated as follows:
<TABLE>
<CAPTION>
PHILIPS INTERNATIONAL PHILIPS INTERNATIONAL REALTY EQUITY
REALTY CORP. L.P. INVESTEES
PRO FORMA PRO FORMA PRO FORMA
---------------------------- ---------------------------- -------------
NINE MONTHS NINE MONTHS NINE MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED ENDED
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1997 1996 1997 1996 1997
------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Net loss attributable to common shares........ $ (27) $ (6)
Income (loss) before minority interest and
extraordinary items......................... $ (723) $ (15) $ (709)
Depreciation and amortization................. -- -- 3,946
Allocation of income to preferred units....... -- -- (131) (175) --
Adjustment for unconsolidated joint
ventures.................................... 126 164 3,946 5,134 --
------------- ------------ ------------- ------------ -------------
Funds from Operations......................... $ 99 $ 158 $ 3,092 $4,944 $ 3,237
------------- ------------ ------------- ------------ -------------
------------- ------------ ------------- ------------ -------------
<CAPTION>
EQUITY
INVESTEES
PRO FORMA THE PHILIPS COMPANY HISTORICAL
------------ ----------------------------------------
NINE MONTHS
YEAR ENDED ENDED YEARS ENDED DECEMBER 31,
DECEMBER 31, SEPTEMBER 30, ------------------------
1996 1997 1996 1995 1994
------------ ------------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net loss attributable to common shares........
Income (loss) before minority interest and
extraordinary items......................... $ (15) $ 566 $1,888 $ 307 $1,045
Depreciation and amortization................. 5,134 2,867 3,417 3,072 2,896
Allocation of income to preferred units....... -- -- -- -- --
Adjustment for unconsolidated joint
ventures.................................... -- 159 269 211 109
------------ ------------- ------ ------ ------
Funds from Operations......................... $5,119 $ 3,592 $5,574 $3,590 $4,050
------------ ------------- ------ ------ ------
------------ ------------- ------ ------ ------
</TABLE>
80
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULT OF OPERATIONS OF THE PHILIPS COMPANY
OVERVIEW
The following discussion should be read in conjunction with 'Selected
Combined Financial Data', and the Combined Financial Statements of The Philips
Company and the Combined Statements of Revenues and Certain Expenses of The
Merrick/Mill Basin Properties, and the notes thereto, appearing elsewhere in
this Proxy Statement/Prospectus. For purposes of this discussion, The Philips
Company includes the Merrick/Mill Basin Properties reflected on the equity
method. Where appropriate, the following discussion includes analysis of the
effects of the Formation Transactions. These effects are reflected in the Pro
Forma Financial Statements of Philips International Realty Corp., Philips
International Realty, L.P. and the Equity Investees and notes thereto, appearing
elsewhere in this Proxy Statement/Prospectus.
The Philips Company receives income primarily from rental revenue
(including recoveries from tenants) from its shopping centers, and actively
seeks to enhance its property cash flows and values through an on-going property
redevelopment program. As a result, the financial data generally shows increases
in total revenue from year to year, largely attributable to expansion and
retenanting of The Philips Company's properties during the year and the benefit
of a full period of rental and other revenue from expansions and retenanting
occurring in the preceding year.
RESULTS OF OPERATIONS
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1997 TO NINE MONTHS ENDED
SEPTEMBER 30, 1996.
Total revenue increased to $19,508,000 for the nine months ended September
30, 1997, as compared with $19,338,000 for the nine months ended September 30,
1996. This net increase is attributable to (i) growth in base rental revenues
associated with the expansion and leasing of available premises primarily at
Palm Springs Mile in Hialeah, Florida and Forest Avenue Shoppers Town in Staten
Island, New York, (ii) partially offset by lower expense recoveries from tenants
due to a reduction in total operating expenses between these periods. Overall
occupancy increased between periods by approximately 1% to 96.4%.
Property operating expenses were $3,618,000 and $3,646,000 for the nine
months ended September 30, 1997 and 1996, respectively. This $28,000 or .8%
decrease is primarily attributable to a reduction in snow removal costs incurred
by Properties located in the northeastern part of the country during the
respective periods. Property real estate taxes fluctuated by less than 2%
between the corresponding periods, reflecting the effect of increased
assessments associated with property expansions and renovations, offset by The
Philips Company's continuing efforts to secure property tax reductions.
Depreciation and amortization expenses increased by $387,000 or 15.6% to
$2,867,000 for the nine months ended September 30, 1997, as compared with
$2,480,000 for the nine months ended September 30, 1996. This increase reflects
the amortization of capital expenditures associated with the recent expansion,
renovation and retenanting of properties in Hialeah, Florida, Branhaven and
Enfield, Connecticut, and Staten Island, New York and the depreciation and
amortization related to the acquisition of non-sponsor interests in the Staten
Island, Branhaven and Hialeah properties.
Interest charges increased by $1,182,000 or 13.8% to $9,766,000 for the
nine months ended September 30, 1997, as compared with $8,584,000 for the
corresponding period in 1996, primarily representing financing costs on amounts
borrowed to fund The Philips Company's property expansion and renovation
programs.
In May 1996, The Philips Company acquired a 49% interest in a shopping
center property located in Brooklyn, New York. This investment had the effect of
improving The Philips Company's equity in income of investees from $15,000 for
the nine months ended September 30, 1996 to $285,000 for the nine months ended
September 30, 1997.
The Philips Company's income before extraordinary items decreased by
$1,122,000 to $566,000 for the nine months ended September 30, 1997, as compared
with $1,688,000 for the nine months ended September 30, 1996. This decrease
reflects increased interest costs associated with property refinancings
partially offset by higher rents related to retenanting and leasing efforts and
The Philips Company's equity participation in a new joint venture property.
The extraordinary expense of $164,000 for the nine months ended September
30, 1997 represents the write-off of deferred financing costs related to a
mortgage which was satisfied as a result of a restructuring of the debt
encumbering a certain property. The extraordinary income of $2,284,000 for the
nine months ended September 30, 1996 reflects gains related to the settlement of
debt obligations on three of the Properties.
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<PAGE>
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31, 1995.
Total revenue increased by $2,760,000 or 11.9% to $25,947,000 for the year
ended December 31, 1996, as compared to $23,187,000 for the year ended December
31, 1995. Growth in base rental revenues comprised the majority of this revenue
expansion, increasing $1,859,000 between years, as a result of (i) the leasing
of available premises in the portfolio which improved overall occupancy by 4.7%
from 90.7% to 95.4%, and (ii) higher rentals achieved on renewed and
renegotiated leases. Increased tenant expense recoveries associated with (i)
higher occupancy levels and (ii) slightly higher operating costs and real estate
taxes between years, as well as other property revenues including real estate
tax refunds, contributed to the balance of the revenue growth.
Property operating expenses for the year ended December 31, 1996 increased
less than 1% to $5,054,000 from $5,008,000 for the year ended December 31, 1995.
Property real estate taxes increased by $80,000 or 2.2% to $3,671,000 during
1996, as compared with $3,591,000 for 1995. This increase in real estate taxes
reflects assessments related to property expansions and renovations in the
portfolio, and generally higher tax rates imposed by various municipalities.
Depreciation and amortization expenses increased by $345,000 or 11.2% to
$3,417,000 from $3,072,000 in 1995. This increase is primarily attributable to
the amortization of capital expenditures associated with the recent expansions
and renovations of properties in Hialeah, Florida, Staten Island, New York and
Branhaven, Connecticut.
Interest expense for the year ended December 31, 1996 increased by $631,000
or 5.7% to $11,728,000 as compared to $11,097,000 for the year ended December
31, 1995. This net increase reflects (i) financing costs on amounts expended to
fund recent property expansions and renovations , offset by (ii) decreases
associated with the repayment of $3,397,000 in certain mortgage indebtedness
during the periods.
In May 1996, The Philips Company acquired a 49% interest in a shopping
center property located in Brooklyn, New York. This investment had the effect of
improving The Philips Company's equity in the net income of investees from
$54,000 in 1995 to $95,000 in 1996.
The Philips Company's income before extraordinary items increased from
$307,000 in 1995 to $1,888,000 in 1996. This improved performance is primarily
attributable to leasing activity which resulted in a 4.7% improvement in
portfolio occupancy levels, and higher rents on new and renegotiated leases,
which strengthened operating profitability. The extraordinary item in 1996 is
reflective of gains related to the settlement of debt obligations on three of
the properties.
COMPARISON OF YEAR ENDED DECEMBER 31, 1995 TO YEAR ENDED DECEMBER 31, 1994.
Total revenue increased by $995,000 or 4.5% to $23,187,000 for the year
ended December 31, 1995, as compared with $22,192,000 for the year ended
December 31, 1994. This increase is primarily attributable to increases in base
rental revenues of $948,000 associated with (i) the leasing of available
premises in the portfolio which improved overall occupancy by 2.5% and (ii)
higher rents achieved on renewed and renegotiated leases, most notably as
related to properties in Hialeah, Florida, and Freeport and Staten Island, New
York. Tenant expense recoveries increased modestly between years reflecting
improved occupancy levels and slightly increased operating costs and real estate
taxes in 1995 as compared with 1994.
Property operating expenses were $5,008,000 and $4,834,000 for the years
ended December 31, 1995, and 1994, respectively. This 3.6% increase in costs is
primarily attributable to an expansion of Palm Springs Mile Property in Hialeah,
Florida. Property taxes increased by $37,000 or 1.0% to $3,591,000 for the year
ended December 31, 1995, as compared to $3,554,000 for the year ended December
31, 1994. This increase reflects the combined effect of slight rate and
assessment increases at various Properties.
Depreciation and amortization expense for the year ended December 31, 1995
increased by $176,000 or 6.1% to $3,072,000 from $2,896,000 for the year ended
December 31, 1994, primarily reflecting increased amortization of capital
expenditures associated with recent expansions and renovations of the properties
in Hialeah, Florida and Staten Island, New York.
Interest expense for 1995 increased by $1,402,000 or 14.5% to $11,097,000
compared to $9,695,000 for 1994. This increase in financing costs reflects the
impact of higher short-term rates on The Philips Company's floating rate
indebtedness, as well as a greater level of borrowing to fund property
expansions and renovations.
Income before extraordinary item decreased from $1,045,000 in 1994 to
$307,000 in 1995. This decline in profitability is due primarily to a rise in
short-term interest rates which increased the costs of property financing.
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PRO FORMA OPERATING RESULTS
The pro forma condensed statements of operations reflect the Company's
investments in the operating partnership and property partnerships on the equity
method, whereas the historical financial statements were prepared on a combined
basis. Upon the occurrence of an equity offering of at least $25 million, the
interests of the interim managing general partner will be redeemed by the
respective partnerships and the Company will then consolidate its investments.
The differences between the results in the condensed pro forma statements of
operations and the historical combined financial statements are a result of the
pro forma adjustments effecting the operating partnership and property
partnerships as discussed below.
COMPARISON OF PRO FORMA NINE MONTHS ENDED SEPTEMBER 30, 1997 TO HISTORICAL NINE
MONTHS ENDED SEPTEMBER 30, 1997.
On a pro forma basis, the income before extraordinary items would have been
$104,000 for the nine months ended September 30, 1997, compared to historical
income before extraordinary items of $566,000 for the same period. This
reduction in pro forma income before extraordinary items is the result of the
Company's share of the following pro forma adjustments to the Equity Investees
(i) the inclusion of the Merrick/Mill Basin Properties and the National Property
properties and (ii) adjustments aggregating $(798,000) required to reflect the
acquisition of partnership interests. The adjustment for acquisition of
partnership interests consists of increased depreciation of $616,000 and
increased interest expense of $546,000, offset by an increase in straight-line
rental revenue of $364,000. In addition, income is further reduced by a net
increase in expenses of $832,000 attributable to organizational changes required
to support future operations.
COMPARISON OF PRO FORMA YEAR ENDED DECEMBER 31, 1996 TO HISTORICAL YEAR ENDED
DECEMBER 31, 1996.
On a pro forma basis, the income before extraordinary items would have been
$169,000 for the year ended December 31, 1996, compared to historical income
before extraordinary items of $1,888,000 for the same period. This reduction in
pro forma income before extraordinary items is the result of the Company's share
of the following pro forma adjustments to the Equity Investees (i) the inclusion
of the Merrick/Mill Basin Properties and the National Property as wholly-owned
properties and (ii) adjustments aggregating $(1,279,000) required to reflect the
acquisition of partnership interests. The adjustment for acquisition of
partnership interests consists of increased depreciation of $1,090,000,
increased interest expense of $884,000, offset by an increase in straight-line
rental revenue of $695,000. In addition, income is further reduced by a net
increase in expenses of $1,202,000 attributable to organizational changes
required to support future operations.
LIQUIDITY AND CAPITAL RESOURCES
The Philips Company has historically relied on fixed and floating rate
mortgage financing to fund acquisitions and refinance maturing debt. Working
capital and funds necessary for distributions, debt service and capital
expenditures have generally been provided through net cash flows from operations
and, in certain instances, capital contributions of partners and/or additional
borrowing. The ability to refinance debt prior to maturity and to fund
acquisitions have been generally dependent upon interest rates, the general
availability of both mortgage debt and private equity in the marketplace and the
cash flow and value of the asset to be financed or refinanced. Distributions
have been generally made based upon 100% of excess cash over identified,
near-term requirements.
The Company currently expects to make periodic distributions at least
annually to its shareholders and Unit holders as may be necessary to comply with
REIT requirements. The Operating Partnership's income will be derived primarily
from lease revenue from the Properties. Such income currently is not expected to
be sufficient to allow the Operating Partnership, using only cash from
operations, to retire all of its debt as it becomes due and, therefore, the
Operating Partnership will continue to require funds from Company debt and/or
equity financings to repay maturing debt.
Subject to market conditions, it is the intent of the Company to complete a
public or private offering of its shares of Common Stock as soon as reasonably
practicable following completion of the Formation Transactions, with the net
proceeds of such offering being used to reduce debt and to fund a working
capital reserve. The Company intends to maintain a conservative debt-to-total
capitalization ratio of less than 50%.
Although no assurances can be given, a public stock offering would be
expected to sufficiently reduce the Company's leverage to enable it to obtain a
credit facility which would primarily be used to fund acquisitions. The facility
would also be available to provide for temporary working capital, to meet
unanticipated cash expenditures and to fund near-term capital and leasing
expenditures for assets acquired. The Company expects that it will also have
additional borrowing capacity through the independent financing of acquired
properties and from future issuances of both debt and equity.
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<PAGE>
Prior to completion of an equity offering, the Company will balance the
timing and amount of periodic distributions against (i) the requirements imposed
on it by tax law for maintenance of REIT status and (ii) the maturity schedule
of its debt. Notwithstanding the completion of an offering in the amounts
anticipated and the use of proceeds to reduce outstanding indebtedness, the size
of post-offering distributions will likely require the Company to remain
dependent, although to a much lesser extent, upon the debt and/or equity markets
for funds necessary to repay remaining debt as it becomes due in the near term.
Upon completion of the Formation Transactions, the Company will have
outstanding debt of approximately $176.8 million. After giving effect to options
to extend the maturity of certain loans, there will remain approximately $63.5
million of debt which matures within one year. The Company's total debt expected
to be outstanding of $176.8 million will be a mix of floating and fixed-rate
debt. The floating rate debt of approximately $96.8 million will bear a weighted
average rate of approximately 8% at September 30, 1997 and will be all
pre-payable without penalty or premium. The approximately $80 million of fixed
rate debt will bear an average rate of 7.62%, have a weighted average maturity
of 5.2 years and generally will not be prepayable without the payment of
penalties based on make-whole formulae.
As of the closing of the Formation Transactions, the Company's total debt
will represent approximately 70% of the sum of (i) the Net Asset Value of the
Company's assets and (ii) the Company's total debt.
On a pro forma basis as of September 30, 1997, the Company had a negative
cash position of approximately $1.1 million. Although no assurances can be
given, the Company expects that its net cash flow from operations during the
period subsequent to September 30, 1997 and preceding consummation of the
Formation Transactions will be sufficient to substantially, if not fully, fund
the related transaction costs and eliminate such pro forma cash deficiency.
Alternatively, the Company may arrange short-term debt financing to eliminate
any cash deficiency arising upon closing of the Formation Transactions. Such
financing could be more difficult to obtain given the Company's highly leveraged
capital structure. Failure to finance such cash deficiency, whether out of net
cash flow from operations or from the proceeds of a short-term debt financing,
could adversely affect the Company's ability to repay its obligations or make
distributions to shareholders.
COMPUTER SYSTEMS AND YEAR 2000 ISSUES
The 'Year 2000' issue concerns the potential exposures related to the
automated generation of business and financial misinformation resulting from the
application of computer programs which have been written using two digits,
rather than four, to define the applicable year of business transactions. Given
that the Company's principal property management systems are licensed from and
maintained by a third party software development company, which company is
currently modifying its real estate products to address the Year 2000 issue,
management does not anticipate any significant costs, problems or uncertainties
associated with becoming Year 2000 compliant. The Company is currently
developing a plan to insure that its other internally generated operating
systems are similarly modified on a timely basis.
FUNDS FROM OPERATIONS
The White Paper on Funds from Operations approved by the Board of Governors
of NAREIT in March 1995 defines Funds from Operations as net income (loss)
(computed in accordance with GAAP), excluding gains (or losses) from debt
restructuring and sales of properties, plus real estate related depreciation and
amortization and after adjustments for unconsolidated partnerships and joint
ventures. The Company believes that Funds from Operations is helpful to
investors as a measure of the performance of an equity REIT because, along with
cash flow from operating activities, financing activities and investing
activities, it provides investors with an indication of the ability of the
Company to incur and service debt, to make capital expenditures and to fund
other cash needs. The Company computes Funds from Operations in accordance with
standards established by NAREIT which may not be comparable to Funds from
Operations reported by other REITs that do not define the term in accordance
with the current NAREIT definition or that interpret the current NAREIT
definition differently than the Company. Funds from Operations does not
represent cash generated from operating activities in accordance with GAAP and
should not be considered as an alternative to net income (determined in
accordance with GAAP) as an indication of the Company's financial performance or
to cash flow from operating activities (determined in accordance with GAAP) as a
measure of the Company's liquidity, nor is it indicative of funds available to
fund the Company's cash needs, including its ability to make cash distributions.
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On a pro forma basis after giving effect to the Formation Transactions,
Funds from Operations for the nine months ended September 30, 1997, and for the
year ended December 31, 1996, respectively, are as follow:
<TABLE>
<CAPTION>
PRO FORMA
----------------------------------------------------------------------------------------
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------------------------------- -----------------------------------------
PHILIPS PHILIPS PHILIPS PHILIPS
INT. INT'L L.P. EQUITY INVESTEE INT. INT'L L.P. EQUITY INVESTEE
--------- ----------- --------------- -------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Net loss attributable to
common shares............ $ (27,000) $ (6,000)
Loss before minority
interest and
extraordinary items...... -- $ (723,000) $ (709,000) -- $ (15,000) $ (15,000)
Depreciation and
amortization............. -- -- 3,946,000 -- -- 5,134,000
Adjustment for
unconsolidated joint
venture.................. 126,000 3,946,000 -- 164,000 5,134,000 --
Allocation of income to
preferred units.......... -- (131,000) -- (175,000)
--------- ----------- --------------- -------- ---------- ---------------
Funds from Operations...... $ 99,000 $ 3,092,000 $ 3,237,000 158,000 $4,944,000 $ 5,119,000
--------- ----------- --------------- -------- ---------- ---------------
--------- ----------- --------------- -------- ---------- ---------------
Net cash provided by
Operating Activities..... $ (27,000) $ (723,000) $ 3,237,000 $ (6,000) $ (15,000) $ 5,119,000
Net cash provided by used
in Financing
Activities............... $ 131,000 $ (131,000) $(1,324,000) $175,000 $ (175,000) $(1,068,000)
Net cash used in Investing
Activities............... -- -- $(2,635,000) -- -- $(3,878,000)
--------- ----------- --------------- -------- ---------- ---------------
--------- ----------- --------------- -------- ---------- ---------------
</TABLE>
INFLATION
Substantially all of the Company's leases contain provisions designed to
mitigate the adverse impact of inflation. Such provisions include clauses
enabling the Company to receive percentage rentals based on tenants' gross
sales, which generally increase as prices rise, and/or escalation clauses, which
generally increase rental rates during the terms of the leases. Such escalation
clauses are often related to increases in the consumer price index or similar
inflation indices. In addition, many of the Company's leases are for terms of
less than 10 years, which permits the Company to seek to increase rents upon
re-rental at market rates. Most of the Company's leases require the tenant to
pay their share of operating expenses, including common area maintenance, real
estate taxes and insurance, thereby reducing the Company's exposure to increase
in costs and operating expenses resulting from inflation. In addition, the
Company periodically evaluates its exposure to interest rate fluctuations and
may enter into interest rate protection agreements which mitigate, but do not
eliminate, the effect of changes in interest rates on its floating-rate loans.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF NATIONAL
The following discussion should be read in conjunction with 'Selected
Financial Data of National' and the financial statements of National, and the
notes thereto, appearing elsewhere in this Proxy Statement/Prospectus.
LIQUIDITY AND CAPITAL RESOURCES
National's primary cash requirements are for capital expenditures and
operating expenses, including utilities, insurance, sales taxes, maintenance and
management costs. Historically, National's primary sources of cash have been
from operations and bank borrowings.
At September 30, 1997, National has cash of approximately $14,492, which is
comprised almost entirely of net income from operations.
On August 11, 1997, National and the Trustees entered into the Contribution
and Exchange Agreement with the Company for the exchange of National's sole
property for 32,000 shares of Common Stock of the Company. The Company is
expected to qualify as a REIT and will have 10 retail properties at its
inception, nine to be contributed by affiliates of the Company and one by
National. All shareholders of National will receive a distribution of a portion
of the Common Stock and the remaining Common Stock will be held by National. The
Company will pay all expenses of National (including attorney's and accountants'
fees) in connection with the negotiation, documentation and consummation of the
Formation Transactions.
The Contribution and Exchange Agreement provides terms under which the
agreement may be terminated, and under certain circumstances National may be
required to pay a termination fee of $500,000 to $750,000 plus the expenses of
the Company and National incurred in connection with the Formation Transactions.
Shareholders of National will receive a proxy statement/prospectus pursuant
to which they will be asked to approve the proposed business combination with
the Company.
It is contemplated that this transaction will be completed by December 31,
1997.
The principal assets of National consist of an equity position in an
income-producing commercial property and cash.
INFLATION
Inflation has been consistently low during the periods presented in these
financial statements and, as a result, has not had a significant effect on the
operations of National.
COMPETITION
National's remaining property investment is subject to competition from
similar types of properties in the vicinity in which it is located. While the
market in which the property operates is experiencing a recovery, the property
values generally remain below the highs realized in the mid-1980's. The
property's current 100% occupancy rate, and National's holding of several
long-term leases with automatic escalation clauses, are indicators that National
is not currently facing heavy competition for tenants.
RESULTS OF OPERATIONS
For the quarter ended September 30, 1997, National reported net income from
property operations of $1,625 as compared to a net loss from property operations
of $1,752 for the quarter ended September 30, 1996. For the nine months ended
September 30, 1997, National reported net income from property operations of
$11,412 as compared to net income from property operations of $2,278 for the
nine months ended September 30, 1996. The increase is related to increases in
gross rental income due to decreases in vacancies and rent escalations. Also,
National had net income of $1,759 and $11,943 for the quarter and nine months
ended September 30, 1997, respectively, compared to a net loss of $1,443 and net
income of $3,620 for the quarter and nine months ended September 30, 1996,
respectively. General and administrative expenses increased by $6,815 for the
quarter ended September 30, 1997 over the quarter ended September 30, 1996 due
to increases in expenses related to National's preparation for the proposed sale
and increases in health insurance premiums.
The Managing Trustee was paid $12,000 and $36,000 for the quarter and nine
months ended September 30, 1997, respectively. In addition, National's offices
are located at premises owned by the Managing Trustee. No
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rent was charged to National in the quarter and nine months ended September 30,
1997, although National paid utility bills for the office of $435 and $1,571 in
the quarter and nine months ended September 30, 1997, respectively.
Year Ended December 31, 1996 compared to Year Ended December 31, 1995
For the year ended December 31, 1996, National reported a net loss from
property operations of $20,187 as compared to net income from property
operations of $32,192 for the year ended December 31, 1995. Significant
variances from 1995 are as follows: repairs and maintenance expenses were higher
due to repairs to the sprinkler system, septic system and air conditioning
systems; interest expense increased due to the refinancing and additional
borrowing on October 25, 1995; property management costs increased due to a
monthly Trustee fee paid to the Managing Trustee as a result of the conversion
of National to a self-managed REIT; telephone expenses increased due to
increased contact with shareholders, contact with contractors in Florida, and
contacts by the Managing Trustee when he is traveling; and revenues increased
due to increased occupancy and rent escalations.
The appraised market value of The Shoppes at Lake Mary was $2,050,000 as of
October 15, 1993, based upon an appraisal prepared by Pomeroy Appraisal
Associates of Florida, Inc. This increase in value over the September, 1991
appraisal reflects the stabilization of the tenancy, the increased occupancy at
the center and the firming of the local real estate market in general.
National's administrative expenses consist of shareholder reporting, legal
expenses, recordkeeping and audit expense, all of which are necessary but
provide an unfair burden on a single property.
The Advisor began, and at December 31, 1996 the Managing Trustee was
continuing, conversations with other REIT and real estate portfolios concerning
merging in order for both entities to benefit from the ability to share
overhead. The Trustee's primary goal is to protect the shareholders' current
investment and to enhance their current return by reduced general and
administrative costs. These conversations were preliminary at December 31, 1996.
Compensation paid to the Managing Trustee was $46,000 for the year ended
December 31, 1996.
Year Ended December 31, 1995 compared to Year Ended December 31, 1994
For the year ended December 31, 1995, National reported net income from
property operations of $32,192, as compared to a net loss from property
operations of $272,220 for the year ended December 31, 1994. Significant
variances from 1994 are as follows: general and administrative expenses were
reduced due to the waiving of the advisor fees by the advisor due to the
limitation of operating expenses per the Declaration of the Trust and a
reduction in travel expenses and costs related to the evaluation of new
investments; repairs and maintenance expenses were lower due to substantial
reductions in the costs of contracted services and less than average repairs
were performed; promotion and administration expense variances are the result of
different expense classifications between years; interest expense increased due
to increases in interest rates and the refinancing and additional borrowing on
October 27, 1995; and revenues increased due to increased occupancy and rent
escalations.
On October 27, 1995, National changed its operating structure to become a
self-administered trust. The Advisor and the Managing Trustee have made a
concerted effort to reduce the operating expenses and general and administrative
expenses of National. They have terminated the lease for their administrative
offices located in Connecticut and are operating out of an office provided by
the Managing Trustee. The travel and investigative expenses have been curtailed
to a level which the Managing Trustee feels will be supported by National's cash
flow. National has entered into a new leasing contract with a local (Florida)
real estate company to find new tenants, and the leasing commission is to be
paid on an annual basis, rather than entirely up front. This contract should
reduce the strain on cash flow due to substantial prepaid fees.
There was no agreement with regards to compensation of the Managing Trustee
and no compensation was provided for the period of October 27, 1995 to December
31, 1995.
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BUSINESS AND PROPERTIES
GENERAL
Upon consummation of the Formation Transactions, the Company will own 100%
of ten shopping center properties located in metropolitan and suburban areas in
five states in the New England, Mid-Atlantic and Southeast regions of the United
States. The Properties consist of shopping centers located in Merrick, Brooklyn,
Staten Island and Freeport, New York; Lake Mary and Hialeah, Florida; Enfield
and Branford, Connecticut; Delran, New Jersey; and Foxborough, Massachusetts.
The Properties are well established community and neighborhood shopping
centers strategically located in densely populated, generally middle and upper
income markets and are conveniently located and easily accessible from major
transportation arterials. The Properties contain a total of approximately 2.4
million square feet of GLA. As of September 30, 1997, the Properties were
approximately 96.3% leased to over 260 tenants. The Company's principal tenants
include many national and regional retailers, such as Pergament Home Centers,
Inc., APW Supermarkets, Inc. (Waldbaum's), Toys 'R' Us Inc., Giant Food Stores,
Inc., Walgreen Co. Mervyn's, United Artists Communications, Inc., The TJX
Companies (TJ Maxx), Winn-Dixie Stores Inc. and Michaels Stores Inc. Other
typical tenancies represented in the portfolio include Modell's Sporting Goods,
Marshall's, Circuit City Stores Inc., Fabric Bonanza and Radio Shack, as well as
a wide variety of apparel, service, fast-food and other convenience shopping
alternatives catering to more localized target markets.
The Company's properties range in size from approximately 38,000 to
1,200,000 square feet. The Company has maintained a policy of retaining its
shopping centers for long-term investment, and consequently has pursued a
program of regular physical maintenance together with major renovations and
refurbishing to preserve and increase the value of the properties. These
projects usually include renovating existing facades, installing uniform
signage, resurfacing parking lots and increasing parking lot lighting.
SHOPPING CENTER PROPERTIES
Geographic Markets. The Properties are located in 10 different commercial
real estate markets throughout the New England, Mid-Atlantic and Southeast
regions of the United States. The following table presents information about the
Properties by geographic market as of September 30, 1997:
<TABLE>
<CAPTION>
TOTAL
ANNUALIZED PERCENTAGE
STATE & TOTAL PERCENTAGE BASE OF TOTAL
NUMBER OF GLA OF TOTAL GLA PERCENTAGE RENT ANNUALIZED
PROPERTIES (SQ. FT.) (SQ. FT.)(%) LEASED(1)(%) ($000) BASE RENT(%)
- ------------------------ --------- ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
New York(4)............. Forest Ave. Shoppers Town 177,002 3,071
Meadowbrook Commons 173,027 3,029
Merrick Commons 106,393 1,737
Mill Basin Plaza 80,708 2,104
--------- ---------- ------
537,130 22.5 99.6 9,941 41.6
Florida(2).............. Palm Springs Mile 1,175,346 10,491
The Shoppes at Lake Mary 38,125 309
--------- ---------- ------
1,213,472 50.8 94.4 10,800 45.2
Connecticut(2).......... Branhaven Plaza 187,829 1,319
Elm Plaza 168,852 582
--------- ---------- ------
356,681 15.0 98.8 1,901 7.9
New Jersey(1)........... Millside Plaza 161,128 6.8 98.2 761 3.2
Massachusetts(1)........ Foxboro Plaza 117,831 4.9 91.2 513 2.1
--------- ------ ----- ---------- ------
Total................... 2,386,241 100.0 96.4 23,916 100.0
--------- ------ ----- ---------- ------
--------- ------ ----- ---------- ------
</TABLE>
- ------------------
(1) Percent of GLA leased as of September 30, 1997.
(2) Total annualized contractual base rent as of September 30, 1997, excluding
(i) percentage rent, (ii) additional rent payable by tenants such as common
area maintenance, real estate taxes and other expense reimbursements, and
(iii) future contractual rent escalations or cost of living increases.
88
<PAGE>
Rentals and Major Tenants. A substantial portion of the Company's income
consists of rent received under long-term leases which generally range from 5 to
10 years for non-anchor tenants and 15 to 25 years for anchor tenants. Most of
the leases provide for the payment of fixed base rentals monthly in advance and
for the payment by tenants of a pro-rata share of the real estate taxes,
insurance, utilities and common area maintenance of the shopping center. Many of
the Company's 260 leases also provide for the payment of additional rent
calculated as a percentage of a tenant's gross sales above predetermined
thresholds ('percentage rents'). Minimum base rental revenues and operating
expense reimbursements accounted for approximately 96% and 95% of the Company's
total rental revenues for the nine months ended September 30, 1997 and the year
ended December 31, 1996, respectively. Although a majority of the leases require
the Company to make roof and structural repairs as needed, a number of tenant
leases place that responsibility on the tenant, and the Company's standard small
store lease provides for roof repairs to be reimbursed by the tenant as part of
common area maintenance. The Company's management places a strong emphasis on
sound construction and safety at its properties.
The Company's community and neighborhood shopping centers are usually
anchored by a national or regional retailer. As a long-time participant in the
shopping center industry and a significant owner and manager of shopping
centers, the Company has established close relationships with a large number of
major national and regional retailers. As of September 30, 1997, no tenant
accounted for more than 6.1% of total annualized base rental revenues.
The following table summarizes certain information regarding tenants which
individually accounted for 2.00% or more of the total annualized contractual
base rent at September 30, 1997.
<TABLE>
<CAPTION>
TOTAL PERCENT OF
TOTAL PERCENT OF TOTAL ANNUALIZED TOTAL
GLA UNDER TOTAL ANNUALIZED BASE RENT ANNUALIZED
NUMBER LEASE LEASED BASE RENT(2) $/SQ. BASE
TENANT OF LEASES (SQ. FT.) GLA(%)(1) ($000'S) FT.(3) RENT(%)(4)
- ----------------------------------- --------- --------- ------------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Pergament Home Centers, Inc........ 1 58,200 2.4 1,463 6.1
Waldbaum's/APW Supermarkets,
Inc.............................. 4 180,859 7.6 1,256 6.95 5.3
Toys 'R' Us Inc.................... 3 113,358 4.8 979 8.64 4.1
Giant Food Stores, Inc............. 1 46,753 2.0 634 13.56 2.7
Mervyn's........................... 1 79,118 3.3 515 6.51 2.2
United Artists Communications,
Inc.............................. 1 39,214 1.6 510 13.00 2.1
Walgreen Co........................ 3 32,143 1.3 501 15.60 2.1
The TJX Companies (TJ Maxx)........ 1 34,798 1.5 500 14.37 2.1
Winn-Dixie Stores Inc.............. 1 53,820 2.3 489 9.09 2.0
Michaels Stores Inc................ 2 35,353 1.5 480 13.58 2.0
-- --------- ------------- ------------ ---------- ----------
Total/Weighted Average........... 18 673,616 28.2 7,327 10.88 30.7
-- --------- ------------- ------------ ---------- ----------
-- --------- ------------- ------------ ---------- ----------
</TABLE>
- ------------------
(1) Total GLA under lease to tenant divided by total GLA under lease to all
tenants in the Company's portfolio as of September 30, 1997.
(2) Total annualized contractual base rent as of September 30, 1997, excluding
(i) percentage rent, (ii) additional rent payable by tenant such as common
area maintenance, real estate taxes and other expense reimbursements, and
(iii) future contractual rent escalations or cost of living increases.
(3) Total annualized contractual base rent from tenant divided by total GLA
under lease to tenant as of September 30, 1997.
(4) Total annualized contractual base rent from tenant divided by total
annualized contractual base rent from all tenants in the Company's portfolio
as of September 30, 1997.
89
<PAGE>
Property Data. The following table sets forth certain information relating
to each of the Properties as of September 30, 1997. All of the Properties will
be 100% owned by the Company after completion of the Formation Transactions.
<TABLE>
<CAPTION>
PERCENTAGE TOTAL
TOTAL OF TOTAL ANNUALIZED
YEAR TOTAL PERCENT OF ANNUALIZED ANNUALIZED BASE RENT/ PERCENT
BUILT/ GLA TOTAL GLA BASE RENT BASE RENT SQ. FT. LEASED
PROPERTY LOCATION RENOVATED (SQ. FT.) (%) ($000)(1) (%) $ (2) (3)(%)
- ---------------------------------------- --------- ----------- ---------- ----------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Forest Avenue 1957/1996 177,002 7.4 3,071 12.8 17.51 99.1
Shoppers Town,
Staten Island, NY
Meadowbrook Commons 1990 173,027 7.3 3,029 12.7 17.50 100.0
Sunrise Highway,
Freeport, NY
Merrick Commons 1960/1994 106,393 4.5 1,737 7.3 16.38 99.7
Merrick Road
Merrick, NY
Mill Basin Plaza 1991 80,708 3.4 2,104 8.8 26.07 100.0
5700-5716 Avenue U
Brooklyn, NY
Palm Springs Mile 1958/1985 - 1,175,346 49.3 10,491 43.9 9.47 94.3
419 West 49th St. 1997
Hialeah, FL
The Shoppes at Lake Mary 1985 38,125 1.6 309 1.3 8.44 100.0
101 N. Country Club Rd.
Lake Mary, FL 32746
Branhaven Plaza 1971/1996 187,829 7.9 1,319 5.5 7.04 99.8
1060 West Main St.
Branhaven, CT
Elm Plaza 1973/1995 168,852 7.1 582 2.4 3.53 97.6
95 Elm Street
Enfield, CT
Millside Plaza 1977 161,128 6.8 761 3.2 4.81 98.3
Route 130 & Haines Mill Rd.
Delran, NJ
Foxboro Plaza 1982 117,831 4.9 513 2.1 4.77 91.2
Route 140 &
Commercial St.
Foxborough, MA
--------- ----- ---------- ----- ----- -------
2,386,241 100.0 23,916 100.0 10.41 96.4
--------- ----- ---------- ----- ----- -------
--------- ----- ---------- ----- ----- -------
<CAPTION>
ANCHOR TENANTS (.25,000 SQ. FT.)
(YEAR OF LEASE EXPIRATION;
PROPERTY LOCATION PRIMARY/OPTION TERM)
- ---------------------------- ---------------------------------
<S> <C>
Forest Avenue The TJX Companies (TJ Maxx)
Shoppers Town, (2005, 2020)
Staten Island, NY APW Supermarkets, Inc.
(Waldbaum's) (2001, 2011)
Meadowbrook Commons Giant Food Stores, Inc. (2025)
Sunrise Highway, Toys 'R' Us, Inc. (2020, 2040)
Freeport, NY Marshall's (2001, 2016)
Merrick Commons APW Supermarkets, Inc.
Merrick Road (Waldbaum's)(2013, 2041)
Merrick, NY
Mill Basin Plaza Pergament Home Centers Inc.(2011,
5700-5716 Avenue U 2021)
Brooklyn, NY
Palm Springs Mile United Artists Communications,
419 West 49th St. Inc. (2010, 2030)
Hialeah, FL Mervyn's (2011, 2031)
Publix Supermarket Inc.(2002)
Kids 'R'Us(2016, 2026)
Burlington Co. (2002, 2022)
Toys 'R' Us Inc.(2002, 2033)
Circuit City Stores, Inc. (2009,
2029)
RTG Furniture (2000, 2005)
The Shoppes at Lake Mary
101 N. Country Club Rd.
Lake Mary, FL 32746
Branhaven Plaza Caldor, Inc. (2002, 2022)
1060 West Main St. APW Supermarkets, Inc.
Branhaven, CT (Waldbaum's) (2016, 2038)
Elm Plaza Caldor Inc. (2001, 2021)
95 Elm Street APW Supermarkets, Inc.
Enfield, CT (Waldbaum's) (2014, 2034)
Millside Plaza Kmart Corp. (2002, 2017)
Route 130 & Haines Mill Rd. Shop Rite (2001, 2016)
Delran, NJ
Foxboro Plaza Bradlees (Stop N Shop) (2002,
Route 140 & 2022)
Commercial St.
Foxborough, MA
</TABLE>
- ------------------
(1) Total annualized contractual base rent as of September 30, 1997, excluding
(i) percentage rent, (ii) additional rent payable by tenants such as common
area maintenance, real estate taxes and other expense reimbursements, and
(iii) future contractual rent escalations and cost of living increases.
(2) Total annualized contractual base rent divided by total GLA leased as of
September 30, 1997.
(3) Percent of GLA leased as of September 30, 1997.
90
<PAGE>
Occupancy and Average Rentals. The following table sets forth the
aggregate average percent leased and average total annualized contractual base
rent per leased square foot for the Properties as of the dates indicated:
<TABLE>
<CAPTION>
AVERAGE TOTAL ANNUALIZED
AVERAGE PERCENT BASE RENT PER
YEAR LEASED(%)(1) LEASED SQUARE FOOT($)(2)
- --------------------------------------------------- --------------- ------------------------
<S> <C> <C>
September 30, 1997................................. 96.4 10.41
December 31, 1996.................................. 95.4 10.26
December 31, 1995.................................. 90.7 9.94
December 31, 1994.................................. 88.2 9.64
December 31, 1993.................................. 88.4 8.93
December 31, 1992.................................. 89.5 8.46
</TABLE>
- ------------------
(1) Average total GLA leased for all Properties in the portfolio as of the date
indicated.
(2) Average total annualized contractual base rents for all Properties in the
portfolio as of the date indicated divided by total GLA leased as of such
date.
Leasing Activity. The following table sets forth certain information
concerning the Company's leasing activities over the past two year, nine-month
period:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
NINE MONTHS ENDED
SEPTEMBER 30, 1997 1996 1995
-------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
ANCHOR NON-ANCHOR ANCHOR NON-ANCHOR ANCHOR NON-ANCHOR
TENANTS TENANTS TENANTS TENANTS TENANTS TENANTS
------- ---------- ------- ---------- ------- ----------
NEW LEASES
Number of leases signed....................... -- 20 2 36 1 21
GLA leased (sq.ft.)........................... -- 70,647 100,127 149,981 28,105 97,393
Base rent/square foot ($/sq.ft.)(1)........... -- $14.54 $ 6.26 $ 15.16 $ 7.00 $ 14.42
Tenant improvements/square foot
($/sq.ft.)(2)............................... -- $ 2.27 -- $ 2.35 -- $ 0.31
Leasing commissions & costs/square foot
($/sq.ft.)(3)............................... -- $ 2.32 $ 0.47 $ 3.25 -- $ 3.64
Effective rent/square foot ($/sq.ft.)(4)...... -- $13.87 $ 6.23 $ 14.44 $ 7.00 $ 13.94
RENEWALS
Number of leases signed....................... -- 4 -- 12 -- 3
GLA leased (sq.ft.)........................... -- 10,363 -- 23,380 -- 7,886
Base rent/square foot ($/sq.ft.)(1)........... -- $13.82 -- $ 14.93 -- $ 15.87
Tenant improvements/square foot
($/sq.ft.)(2)............................... -- -- -- $ 2.62 -- --
Leasing commissions & costs/square foot
($/sq.ft.)(3)............................... -- $ 0.85 -- $ 0.25 -- $ 1.98
Effective rent/square foot ($/sq.ft.)(4)...... -- $13.60 -- $ 14.45 -- $ 15.59
TOTAL NEW AND RENEWED LEASES SIGNED
Number of new and renewed leases signed....... -- 24 2 48 1 24
GLA leased (sq.ft.)........................... -- 81,010 100,127 173,361 28,105 105,279
Base rent/square foot ($/sq.ft.)(1)........... -- $14.45 $ 6.26 $ 15.13 $ 7.00 $ 14.53
Tenant improvements/square foot
($/sq.ft.)(2)............................... -- $ 1.98 -- $ 2.39 -- $ 0.28
Leasing commissions & costs/square foot
($/sq.ft.)(3)............................... -- $ 2.13 $ 0.47 $ 2.85 -- $ 3.52
Effective rent/square foot ($/sq.ft.)(4)...... -- $13.83 $ 6.23 $ 14.44 $ 7.00 $ 14.07
</TABLE>
(Footnotes on next page)
91
<PAGE>
(Footnotes from previous page)
- ------------------
* All tenants which have occupied space for less than one year have been omitted
from this table.
(1) Initial total annualized contractual base rent divided by square feet
leased.
(2) Tenant improvements (defined as capital costs incurred by the Company for
leasehold improvements including, but not limited to, costs for items such
as HVAC, plumbing, electrical upgrades, interior walls, wall finishes,
ceiling treatment and floor covering) divided by square feet leased.
(3) Leasing commissions (defined as brokerage commission fees and related
expenses paid by the Company in connection with new leases or lease
renewals) divided by square feet leased.
(4) Initial total annualized contractual base rent minus amortization of tenant
improvements and leasing commissions related to such leases divided by the
total square feet leased.
Lease Expirations. The following table sets out a schedule of the lease
expirations for the Properties for the approximate ten year period beginning in
October 1997 and ending in December 2007, assuming that none of the tenants
exercises renewal options or termination rights:
<TABLE>
<CAPTION>
TOTAL TOTAL PERCENT OF
ANNUALIZED ANNUALIZED PERCENT OF TOTAL
BASE RENT BASE RENT/ TOTAL GLA ANNUALIZED
GLA UNDER UNDER SQUARE FOOT LEASED BASE RENT
NUMBER OF EXPIRING EXPIRING UNDER REPRESENTED REPRESENTED
LEASES (SQ. FT.) LEASES(2) EXPIRING BY EXPIRING BY EXPIRING
YEAR OF LEASE EXPIRATION EXPIRING LEASES(1) ($000'S) LEASES($) LEASES(%) LEASES(%)
- ----------------------------------- --------- --------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
10/1/97--12/31/97.................. 21 43,701 474 10.86 1.9 2.0
1998............................... 32 92,985 1,259 13.54 4.0 5.3
1999............................... 30 115,081 1,632 14.18 5.0 6.8
2000............................... 30 154,200 1,697 11.00 6.7 7.1
2001............................... 39 371,309 3,730 10.05 16.2 15.6
2002............................... 36 501,300 2,409 4.81 21.8 10.1
2003............................... 11 48,829 647 13.25 2.1 2.7
2004............................... 9 57,997 623 10.74 2.5 2.6
2005............................... 12 131,614 1,475 11.21 5.7 6.2
2006............................... 13 92,182 1,233 13.38 4.0 5.2
2007............................... 7 35,773 718 20.04 1.6 3.0
--- --------- ---------- ----------- ----- -----
Total/Weighted Average........... 240 1,644,971 15,897 9.66 71.5 66.6
--- --------- ---------- ----------- ----- -----
--- --------- ---------- ----------- ----- -----
</TABLE>
- ------------------
(1) All month to month tenants as of September 30, 1997 are considered to have a
lease expiry in the 1997 year.
(2) Total annualized contractual base rents as of September 30, 1997 for tenant
leases expiring in respective periods.
Tax Basis and Real Estate Taxes. The aggregate cost basis of depreciable
real property for federal income tax purposes in the Properties as of September
30, 1997 was approximately $128 million. Depreciation and amortization are
provided on the straight line and double declining balance methods over the
estimated useful lives of the assets, which range from 15 to 39 years. The
aggregate real estate tax obligations on the Properties during the fiscal year
ended December 31, 1996 was approximately $4.4 million, or approximately $1.86
per square foot of GLA. Virtually all of the Company's leases contain provisions
requiring tenants to pay as additional rent a proportionate share of real estate
tax increases, including real estate tax increases resulting from improvements.
92
<PAGE>
GOVERNMENT REGULATIONS
Many laws and governmental regulations are applicable to the Properties and
changes in these laws and regulations, or their interpretation by agencies and
the courts, occur frequently.
Cost of Compliance with Americans with Disabilities Act. Under the
Americans With Disabilities Act, as amended (the 'ADA'), all places of public
accommodation, effective beginning in 1992, are required to meet certain federal
requirements related to access and use by disabled persons. Compliance with the
ADA might require removal of structural barriers to handicapped access in
certain public areas where such removal is 'readily achievable.' Noncompliance
with the ADA could result in the imposition of fines or an award of damages to
private litigants. The Company believes that the Properties are currently in
substantial compliance with all such regulatory requirements and the Company
expects to maintain substantial compliance with all regulatory requirements. If
required changes involve a greater amount of expenditures than the Company
currently anticipates or if the changes must be made on a more accelerated
schedule than the Company currently anticipates, the Company's ability to make
any distributions to shareholders could be adversely affected.
Environmental Matters. Under various federal, state and local laws,
ordinances and regulations, an owner or operator of real estate is liable for
the costs of removal or remediation of certain hazardous or toxic substances on
or in such property. Such laws often impose such liability without regard to
whether the owner or operator knew of, or was responsible for, the presence of
such hazardous or toxic substances. The presence of such substances, or the
failure to properly remediate such substances, may adversely affect the owner's
or operator's ability to sell or rent such property or to borrow using such
property as collateral. Persons who arrange for the disposal or treatment of
hazardous or toxic substances may also be liable for the costs of removal or
remediation of such substances at a disposal or treatment facility, whether or
not such facility is owned or operated by such person. Certain environmental
laws impose liability for release of asbestos-containing materials into the air,
and third parties may seek recovery from owners or operators of real properties
for personal injuries associated with asbestos-containing materials. In
connection with the ownership (direct or indirect), operation, management and
development of real properties, the Company may be considered an owner or
operator of such properties or as having arranged for the disposal or treatment
of hazardous or toxic substances and, therefore, may be potentially liable for
removal or remediation costs, as well as certain other costs, including
governmental fines and injuries to persons and property.
The Company believes that the Properties are in compliance in all material
respects with all federal, state and local laws, ordinances and regulations
regarding hazardous or toxic substances or petroleum products. The Company has
not been notified by any governmental authority, and is not otherwise aware, of
any material noncompliance, liability or claim relating to hazardous or toxic
substances or petroleum products in connection with any of its properties.
All of the Properties have been subject to a Phase I environmental
assessment or update (which involves general inspections without soil sampling
or ground water analysis) completed within the last year by independent
environmental consultants. None of these environmental assessments has revealed
any environmental liability that the Company believes would have a material
adverse effect on the Company's financial condition or results of operations
taken as a whole, nor is the Company aware of any such material environmental
liability. Nonetheless, it is possible that the Company's assessments do not
reveal all environmental liabilities or that there are material environmental
liabilities of which the Company is unaware. Moreover, there can be no assurance
that (i) future laws, ordinances or regulations will not impose any material
environmental liability or (ii) the current environmental condition of the
Properties will not be affected by tenants, by the condition of land or
operations in the vicinity of the Properties (such as the presence of
underground storage tanks), or by third parties unrelated to the Company. If
compliance with the various laws and regulations, now existing or hereafter
adopted, exceeds the Company's budgets for such items, the Company's ability to
make any distributions to shareholders could be adversely affected.
Other Regulations. The Properties are also subject to various federal,
state and local regulatory requirements such as state and local fire and life
safety requirements. Failure to comply with these requirements could result in
the imposition of fines by governmental authorities or awards of damages to
private litigants. The Company believes that the Properties are currently in
material compliance with all such regulatory requirements. However, if
requirements are changed or new requirements are imposed which would require
significant unanticipated expenditures by the Company, such events could have an
adverse effect on the Company's funds from operations and any distributions.
93
<PAGE>
Except as described in this Proxy Statement/Prospectus, there are no other
laws or regulations which have a material effect on the Company's operations,
other than typical state and local laws affecting the development and operation
of real property, such as zoning laws. See 'Certain Provisions of Maryland Law
and of the Company's Charter and Bylaws,' 'Federal Income Tax Consequences' and
'ERISA Considerations.'
EMPLOYEES
The Company initially will employ approximately 27 persons, 19 of whom are
directly engaged in the management, leasing and day-to-day operations of Palm
Springs Mile. In addition, certain employees of Philips Private Company who
currently manage the Partnership Properties will perform the day-to-day leasing,
development, acquisition, property and portfolio management, and related
administrative functions, of the Properties pursuant to the Management Agreement
as employees of the Management Company. The Company believes that relations with
its employees are good. None of the employees are unionized.
LEGAL PROCEEDINGS
Except as set forth herein, none of the Company, the Operating Partnership,
any of the Holding Partnerships, any of the Philips Subs, any of the
Contributing Partnerships or any of the Properties is subject to any material
litigation nor, to the Company's knowledge, is any material litigation
threatened against any of them, other than routine litigation arising in the
ordinary course of business, which is expected to be covered by liability
insurance.
In connection with certain real estate activities, certain affiliated
entities of Mr. Pilevsky were involved in proceedings under the federal
bankruptcy laws and/or similar state law proceedings during the 1980's and
earlier 1990's, substantially all of which proceedings have been resolved as of
the date of this Proxy Statement/Prospectus. From July 1, 1992, such proceedings
included eight foreclosures of, and three bankruptcy filings with respect to,
retail shopping center properties and six foreclosures of, and nine bankruptcy
filings with respect to, non-retail shopping center properties. None of the
Contributing Partnerships were involved in any such proceedings, other than the
partnership holding fee title to the Meadowbrook Commons Property, as described
below.
Philips Freeport Associates, L.P. ('Philips Freeport'), the owner of
Meadowbrook Commons, was party to certain notes with Chemical Bank which notes
were secured by mortgages on such property (the 'Loan'). Although Philips
Freeport was able to service the Loan from the revenues of the property, it was
unable to repay the full principal amount of the Loan upon maturity in November
1992. On January 21, 1994, Philips Freeport voluntarily commenced a proceeding
to reorganize pursuant to Chapter 11 of the Bankruptcy Code. The bankruptcy
proceeding resulted in an agreement between Philips Freeport and Chemical Bank
to modify and restate the Loan pursuant to the Debtor's Second Amended Chapter
11 Plan of Reorganization (the 'Plan'). The Plan, which also provided for the
payment in full of all trade claims over a two-year period, was confirmed by
order of the Bankruptcy Court dated March 30, 1995 and subsequently modified by
orders dated April 12, and April 28, 1995.
SIGNIFICANT PROPERTIES
Since the 1996 gross revenues for each of the Company's Palm Springs Mile,
Forest Avenue Shoppers Town and Meadowbrook Commons shopping centers amounted to
more than 10% of the aggregate gross revenues for the Properties during such
year, additional information regarding these Properties is provided below.
PALM SPRINGS MILE
Palm Springs Mile is a super-regional center with 1.2 million square feet
of GLA and approximately 140 tenants, located in Hialeah, Florida, within the
greater Miami-Hialeah metropolitan area. Hialeah is situated north of the Miami
International Airport, west of the municipalities of Miami, Miami Beach and
Aventura, and south of Broward County and Fort Lauderdale. Palm Springs Mile is
a unique, one-mile retail shopping complex that fronts both sides of West 49th
Street, forming a strategic section of the primary business corridor of Hialeah.
The property's 90 acres facilitates the expansion or reconfiguration of existing
space, and it has been regularly expanded since 1985, with the most recent
expansion of 11,400 square feet completed in 1997. Management believes that this
makes Palm Springs Mile an attractive site for larger retailers, and considers
it to be one of the strongest regional retail centers in the greater Miami area.
94
<PAGE>
Palm Springs Mile was acquired by the Company in 1985 and consists of 139
stores, including nationally recognized retailers, two supermarkets, a multiplex
movie theater and office space. Its major tenants include Publix Supermarket
Inc., Circuit City Stores Inc. and Toys 'R' Us, Inc.
The following table sets forth certain information regarding the Company's
leasing activities over the past two year, nine-month period for Palm Springs
Mile.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
NINE MONTHS ENDED -------------------------------------------
SEPTEMBER 30, 1997 1996 1995
-------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
ANCHOR NON-ANCHOR ANCHOR NON-ANCHOR ANCHOR NON-ANCHOR
TENANTS TENANTS TENANTS TENANTS TENANTS TENANTS
------- ---------- ------- ---------- ------- ----------
NEW LEASES
Number of leases signed.................... -- 11 1 18 1 13
GLA leased (sq.ft.)........................ -- 40,782 53,820 64,120 28,105 52,724
Base rent/square foot ($/sq.ft.)(1)........ -- $ 13.19 $ 9.09 $ 16.56 $ 7.00 $ 15.55
Tenant improvements/square foot
($/sq.ft.)(2)............................ -- -- -- $ 3.51 -- --
Leasing commissions & costs/square foot
($/sq.ft.)(3)............................ -- $ 0.30 -- $ 4.11 -- $ 4.42
Effective rent/square foot ($/sq.ft.)(4)... -- $ 13.13 $ 9.09 $ 15.67 $ 7.00 $ 15.07
RENEWALS
Number of leases signed.................... -- 1 -- 3 -- 2
GLA leased (sq.ft.)........................ -- 750 -- 5,103 -- 1,771
Base rent/square foot ($/sq.ft.)(1)........ -- $ 17.00 -- $ 14.53 -- $ 17.34
Tenant improvements/square foot
($/sq.ft.)(2)............................ -- -- -- -- -- --
Leasing commissions & costs/square foot
($/sq.ft.)(3)............................ -- -- -- $ 1.17 -- --
Effective rent/square foot ($/sq.ft.)(4)... -- $ 17.00 -- $ 14.26 -- $ 17.34
TOTAL NEW AND RENEWED LEASES SIGNED
Number of new and renewed leases signed.... -- 12 1 21 1 15
GLA leased (sq.ft.)........................ -- 41,532 53,820 69,223 28,105 54,495
Base rent/square foot ($/sq.ft.)(1)........ -- $ 13.26 $ 9.09 $ 16.41 $ 7.00 $ 15.61
Tenant improvements/square foot
($/sq.ft.)(2)............................ -- -- -- $ 3.25 -- --
Leasing commissions & costs/square foot
($/sq.ft.)(3)............................ -- $ 0.29 -- $ 3.89 -- $ 4.28
Effective rent/square foot ($/sq.ft.)(4)... -- $ 13.20 $ 9.09 $ 15.57 $ 7.00 $ 15.14
</TABLE>
- ------------------
(1) Initial total annualized contractual base rent divided by square feet
leased.
(2) Tenant improvements (defined as capital costs incurred by the Company for
leasehold improvements including, but not limited to, costs for items such
as HVAC, plumbing, electrical upgrades, interior walls, wall finishes,
ceiling treatment and floor covering) divided by square feet leased.
(3) Leasing commissions (defined as brokerage commission fees and related
expenses paid by the Company in connection with new leases or lease
renewals) divided by square feet leased.
(4) Initial total annualized contractual base rent minus amortization of tenant
improvements and leasing commissions related to such leases divided by the
total square feet leased.
95
<PAGE>
The following table sets out a schedule of lease expirations for Palm
Springs Mile for the approximate ten year period beginning in October 1997 and
ending in December 2007, assuming that none of the tenants exercises renewal
options or termination rights:
<TABLE>
<CAPTION>
PERCENT OF
TOTAL GLA PERCENT OF TOTAL
GLA TOTAL ANNUALIZED TOTAL ANNUALIZED LEASED ANNUALIZED BASE
NUMBER OF UNDER BASE RENT UNDER BASE RENT/SQ FT REPRESENTED RENT REPRESENTED
YEAR OF LEASE LEASES EXPIRING EXPIRING LEASES UNDER EXPIRING BY EXPIRING BY EXPIRING
EXPIRATION EXPIRING LEASES (SQ.FT.)(1) ($000)(2) LEASES($) LEASES(%) LEASES(%)
- ---------------------- --------- ------------------ ---------------- ------------------ ----------- ------------------
<S> <C> <C> <C> <C> <C> <C>
10/1/97 - 12/31/97.... 15 33,239 339 10.21 3.0 3.2
1998.................. 16 48,081 686 14.27 4.3 6.5
1999.................. 15 76,471 848 11.09 6.9 8.1
2000.................. 14 97,339 678 6.94 8.8 6.4
2001.................. 20 104,164 1,367 13.12 9.4 13.0
2002.................. 18 230,102 1,110 4.83 20.8 10.6
2003.................. 8 40,388 509 12.59 3.6 4.8
2004.................. 6 43,143 511 11.84 3.9 4.9
2005.................. 8 83,533 744 8.90 7.5 7.1
2006.................. 3 33,415 518 15.50 3.0 4.9
2007.................. 1 5,100 82 16.00 0.5 0.8
--- ---------- ------- ------ ----- -----
Total/Weighted
Average............. 124 794,975 7,393 9.30 71.7 70.3
--- ---------- ------- ------ ----- -----
--- ---------- ------- ------ ----- -----
</TABLE>
- ------------------
(1) All month to month tenants as of September 30, 1997 are considered to have a
lease expiry in the 1997 year.
(2) Total annualized contractual base rents as of September 30, 1997 for tenant
leases expiring in respective periods.
The following table sets forth the average percent leased and average total
annualized contractual base rent per leased square foot for Palm Springs Mile as
of the dates indicated:
<TABLE>
<CAPTION>
AVERAGE TOTAL ANNUALIZED BASE
AVERAGE PERCENT RENT PER LEASED SQUARE
YEAR LEASED(%)(1) FOOT($)(2)
- ---------------------------- ------------------------- -----------------------------
<S> <C> <C>
September 30, 1997.......... 94.3 9.47
December 31, 1996........... 93.8 9.57
December 31, 1995........... 85.5 8.94
December 31, 1994........... 85.2 8.63
December 31, 1993........... 85.3 8.10
December 31, 1992........... 85.7 7.74
</TABLE>
- ------------------
(1) Average total GLA leased as of the date indicated.
(2) Average total annualized contractual base rent as of the date indicated
divided by total GLA leased as of such date.
The aggregate cost basis of depreciable real property for federal income
tax purposes for Palm Springs Mile of December 31, 1996 was approximately $47.6
million. Depreciation and amortization are provided on the straight line and
double declining balance methods over the estimated useful lives of the assets,
which range from 15 to 39 years. The aggregate real estate tax obligations for
Palm Springs Mile during the fiscal year ended December 31, 1996 was
approximately $1.6 million, or approximately $1.38 per square foot of GLA.
FOREST AVENUE SHOPPERS TOWN
Forest Avenue Shoppers Town contains 177,002 square feet of GLA and 25
tenants, and is located along Forest Avenue in north central Staten Island, New
York. The Company believes that Forest Avenue Shoppers Town is one of the
dominant shopping centers in northern Staten Island, a densely populated
residential area in New York City, which functions as a bedroom community for
Manhattan. Forest Avenue Shoppers Town's major tenants include Waldbaum's,
Michaels Stores and The TJX Companies (TJ Maxx).
96
<PAGE>
The following table sets forth certain information regarding the Company's
leasing activities over the past two year, nine-month period for Forest Avenue
Shoppers Town:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1997 YEAR ENDED DECEMBER 31,
--------------------- ----------------------------------------------
1996 1995
--------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
ANCHOR NON-ANCHOR ANCHOR NON-ANCHOR ANCHOR NON-ANCHOR
TENANTS TENANTS TENANTS TENANTS TENANTS TENANTS
------- ---------- ------- ---------- ------- ----------
NEW LEASES
Number of leases signed................. -- 2 -- 2 -- 1
GLA leased (sq.ft.)..................... -- 12,555 -- 15,208 -- 17,573
Base rent/square foot ($/sq.ft.)(1)..... -- $ 21.09 -- $ 21.91 -- $ 13.50
Tenant improvements/square foot
($/sq.ft.)(2)......................... -- -- -- -- -- --
Leasing commissions & costs/square foot
($/sq.ft.)(3)......................... -- $ 7.07 -- $ 2.58 -- $ 4.68
Effective rent/square foot
($/sq.ft.)(4)......................... -- $ 20.35 -- $ 21.68 -- $ 13.06
RENEWALS
Number of leases signed................. -- -- -- 1 -- --
GLA leased (sq.ft.)..................... -- -- -- 980 -- --
Base rent/square foot ($/sq.ft.)(1)..... -- -- -- $ 25.00 -- --
Tenant improvements/square foot
($/sq.ft.)(2)......................... -- -- -- -- -- --
Leasing commissions & costs/square foot
($/sq.ft.)(3)......................... -- -- -- -- -- --
Effective rent/square foot
($/sq.ft.)(4)......................... -- -- -- $ 25.00 -- --
TOTAL NEW AND RENEWED LEASES SIGNED
Number of new and renewed leases
signed................................ -- 2 -- 3 -- 1
GLA leased (sq.ft.)..................... -- 12,555 -- 16,188 -- 17,573
Base rent/square foot ($/sq.ft.)(1)..... -- $ 21.09 -- $ 22.09 -- $ 13.50
Tenant improvements/square foot
($/sq.ft.)(2)......................... -- -- -- -- -- --
Leasing commissions & costs/square foot
($/sq.ft.)(3)......................... -- $ 7.07 -- $ 2.42 -- $ 4.68
Effective rent/square foot
($/sq.ft.)(4)......................... -- $ 20.35 -- $ 21.88 -- $ 13.06
</TABLE>
- ------------------
(1) Initial total annualized contractual base rent divided by square feet
leased.
(2) Tenant improvements (defined as capital costs incurred by the Company for
leasehold improvements including, but not limited to, costs for items such
as HVAC, plumbing, electrical upgrades, interior walls, wall finishes,
ceiling treatment and floor covering) divided by square feet leased.
(3) Leasing commissions (defined as brokerage commission fees and related
expenses paid by the Company in connection with new leases or lease
renewals) divided by square feet leased.
(4) Initial total annualized contractual base rent minus amortization of tenant
improvements and leasing commissions related to such leases divided by the
total square feet leased.
97
<PAGE>
The following table sets out a schedule of lease expirations for Forest
Avenue Shoppers Town for the approximate ten year period beginning in October
1997 and ending in December 2007, assuming that none of the tenants exercises
renewal options or termination rights.
<TABLE>
<CAPTION>
PERCENT OF
TOTAL GLA PERCENT OF TOTAL
GLA TOTAL ANNUALIZED TOTAL ANNUALIZED LEASED ANNUALIZED BASE
NUMBER OF UNDER BASE RENT UNDER BASE RENT/SQ FT REPRESENTED RENT REPRESENTED
YEAR OF LEASE LEASES EXPIRING EXPIRING LEASES UNDER EXPIRING BY EXPIRING BY EXPIRING
EXPIRATION EXPIRING LEASES (SQ.FT.)(1) ($000) (2) LEASES($) LEASES(%) LEASES(%)
- ---------------------- --------- ------------------ ---------------- ------------------ ----------- ------------------
<S> <C> <C> <C> <C> <C> <C>
10/1/97 - 12/31/98.... -- -- -- -- -- --
1999.................. 6 19,190 579 30.18 10.9 18.9
2000.................. 2 9,975 228 22.91 5.7 7.4
2001.................. 4 44,963 444 9.88 25.6 14.5
2002.................. 2 4,198 129 30.80 2.4 4.2
2003.................. -- -- -- -- -- --
2004.................. 1 900 26 28.64 0.5 0.8
2005.................. 2 40,578 610 15.03 23.1 19.9
2006.................. 3 22,888 335 14.62 13.0 10.9
2007.................. 2 15,317 347 22.66 8.7 11.3
--- ---------- ------- ------ ----- -----
Total/Weighted
Average............. 22 158,009 2,698 17.08 89.9 87.9
--- ---------- ------- ------ ----- -----
--- ---------- ------- ------ ----- -----
</TABLE>
- ------------------
(1) All month to month tenants as of September 30, 1997 are considered to have a
lease expiry in the 1997 year.
(2) Total annualized contractual base rents as of September 30, 1997 for tenant
leases expiring in respective periods.
The following table sets forth the average percent leased and average total
annualized contractual base rent per leased square foot for Forest Avenue
Shoppers Town as of the dates indicated:
<TABLE>
<CAPTION>
AVERAGE TOTAL ANNUALIZED BASE
AVERAGE PERCENT RENT PER LEASED SQUARE
YEAR LEASED%(1) FOOT($)(2)
- ---------------------------- ------------------------- -----------------------------
<S> <C> <C>
September 30, 1997.......... 99.1 17.51
December 31, 1996........... 98.6 16.73
December 31, 1995........... 95.0 16.71
December 31, 1994........... 86.7 16.91
December 31, 1993........... 90.3 12.31
December 31, 1992........... 82.8 11.27
</TABLE>
- ------------------
(1) Average total GLA leased as of the date indicated.
(2) Average total annualized contractual base rent as of the date indicated
divided by total GLA leased as of such date.
The aggregate cost basis of depreciable real property for federal income
tax purposes for Forest Avenue Shoppers Town as of December 31, 1996 was
approximately $10.4 million. Depreciation and amortization are provided on the
straight line and double declining balance methods over the estimated useful
lives of the assets, which range from 15 to 39 years. The aggregate real estate
tax obligations for Forest Avenue Shoppers Town during the fiscal year ended
December 31, 1996 was approximately $0.8 million, or approximately $4.39 per
square foot of GLA.
98
<PAGE>
MEADOWBROOK COMMONS
Meadowbrook Commons, which contains 173,027 square feet of GLA and 13
tenants, is located in Nassau County, Long Island, one of the most densely
populated suburbs in the New York metropolitan area. The shopping center is
situated on Sunrise Highway, a major east-west artery along the south shore of
Long Island. The center is leased to regional and national retailers, including
Giant Food Stores Inc., Toys 'R' Us Inc. and Walgreen Co.
The Company believes that Meadowbrook Commons is well positioned as one of
the strongest regional shopping 'power' centers on the south shore of Long
Island due to its excellent location and the growth in the Nassau County
economy.
The following table sets forth certain information regarding the Company's
leasing activities over the past two year, nine-month period for Meadowbrook
Commons:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
NINE MONTHS ENDED ----------------------------------------------
SEPTEMBER 30, 1997 1996 1995
--------------------- --------------------- ---------------------
ANCHOR NON-ANCHOR ANCHOR NON-ANCHOR ANCHOR NON-ANCHOR
TENANTS TENANTS TENANTS TENANTS TENANTS TENANTS
------- ---------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
NEW LEASES
Number of leases signed..................... -- -- -- 2 -- --
GLA leased (sq. ft.) -- -- -- 13,400 -- --
Base rent/square foot ($/sq. ft.)(1)........ -- -- -- $ 22.57 -- --
Tenant improvements/square foot
($/sq. ft.)(2)............................ -- -- -- -- -- --
Leasing commissions & costs/square foot
($/sq. Ft.)(3)............................ -- -- -- $ 4.21 -- --
Effective rent/square foot ($/sq. ft.)(4)... -- -- -- $ 22.03 -- --
RENEWALS
Number of leases signed..................... -- -- -- -- -- --
GLA leased (sq. ft.)........................ -- -- -- -- -- --
Base rent/square foot ($/sq. ft.)(1)........ -- -- -- -- -- --
Tenant improvements/square foot
($/sq. ft.)(2)............................ -- -- -- -- -- --
Leasing commissions & costs/square foot
($/sq. ft.)(3)............................ -- -- -- -- -- --
Effective rent/square foot ($/sq. ft.)(4)... -- -- -- -- -- --
TOTAL NEW AND RENEWED LEASES SIGNED
Number of new and renewed leases signed..... -- -- -- 2 -- --
GLA leased (sq. ft.)........................ -- -- -- 13,400 -- --
Base rent/square foot ($/sq. ft.)(1)........ -- -- -- $ 22.57 -- --
Tenant improvements/square foot
($/sq. ft.)(2)............................ -- -- -- -- -- --
Leasing commissions & costs/square foot
($/sq. ft.)(3)............................ -- -- -- $ 4.21 -- --
Effective rent/square foot ($/sq. ft.)(4)... -- -- -- $ 22.03 -- --
</TABLE>
(Footnotes on next page)
99
<PAGE>
(Footnotes from previous page)
- ------------------
(1) Initial total annualized contractual base rent divided by square feet
leased.
(2) Tenant improvements (defined as capital costs incurred by the Company for
leasehold improvements including, but not limited to, costs for items such
as HVAC, plumbing, electrical upgrades, interior walls, wall finishes,
ceiling treatment and floor covering) divided by square feet leased.
(3) Leasing commissions (defined as brokerage commission fees and related
expenses paid by the Company in connection with new leases or lease
renewals) divided by square feet leased.
(4) Initial total annualized contractual base rent minus amortization of tenant
improvements and leasing commissions related to such leases divided by the
total square feet leased.
The following table sets out a schedule of lease expirations for
Meadowbrook Commons for the approximate ten year period beginning in October
1997 and ending in December 2007, assuming that none of the tenants exercises
renewal options or termination rights:
<TABLE>
<CAPTION>
TOTAL
ANNUALIZED PERCENT OF
BASE RENT TOTAL GLA PERCENT OF TOTAL
UNDER TOTAL ANNUALIZED LEASED ANNUALIZED BASE
NUMBER OF GLA UNDER EXPIRING BASE RENT/SQ. FT. REPRESENTED RENT REPRESENTED
YEAR OF LEASE LEASES EXPIRING LEASES UNDER EXPIRING BY EXPIRING BY EXPIRING
EXPIRATION EXPIRING LEASES (SQ. FT.)(1) ($000)(2) LEASES($) LEASES(%) LEASES(%)
- ----------------------------- --------- ------------------- ---------- ----------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
10/1/97 - 12/31/98........... -- -- -- -- -- --
1999......................... 1 1,950 46 24.00 1.1 1.5
2000......................... 2 19,539 455 23.31 11.3 15.0
2001......................... 3 44,765 837 18.69 25.9 27.6
2002......................... 2 6,747 175 25.94 3.9 5.8
2003-2006.................... -- -- -- -- -- --
2007......................... 2 7,908 174 21.95 4.6 5.7
-- ------- ---------- ----- ----- -----
Total/Weighted Average....... 10 80,909 1,687 20.86 46.8 55.6
-- ------- ---------- ----- ----- -----
-- ------- ---------- ----- ----- -----
</TABLE>
- ------------------
(1) All month to month tenants as of September 30, 1997 are considered to have a
lease expiry in the 1997 year.
(2) Total annualized contractual base rents as of September 30, 1997 for tenant
leases expiring in respective periods.
The following table sets forth the average percent leased and average total
annualized contractual base rent per leased square foot for Meadowbrook Commons
as of the dates indicated:
<TABLE>
<CAPTION>
AVERAGE ANNUAL RENT PER
AVERAGE PERCENT LEASED SQUARE
YEAR LEASED(%)(1) FOOT($)(2)
- --------------------------------- ------------------------- -----------------------
<S> <C> <C>
September 30, 1997............... 100.0 17.50
December 31, 1996................ 100.0 17.40
December 31, 1995................ 100.0 17.27
December 31, 1994................ 100.0 16.81
December 31, 1993................ 80.0 17.41
December 31, 1992................ 100.0 18.18
</TABLE>
- ------------------
(1) Average total GLA as of the date indicated.
(2) Average total annualized contractual base rent as of the date indicated
divided by total GLA leased as of such date.
The aggregate cost basis of depreciable real property for federal income
tax purposes for Meadowbrook Commons as of December 31, 1996 was approximately
$17.5 million. Depreciation and amortization are provided on the straight line
and double declining balance methods over the estimated useful lives of the
assets, which range from 15 to 39 years. The aggregate real estate tax
obligations for Meadowbrook Commons during the fiscal year ended December 31,
1996 was approximately $0.7 million, or approximately $4.16 per square foot of
GLA.
100
<PAGE>
EXCLUDED PROPERTIES
Certain retail properties beneficially owned and controlled by the
principals of Philips Private Company will not be transferred to the Company in
the Formation Transactions (the 'Excluded Properties'). The Excluded Properties
were excluded from the Company's property portfolio for various reasons,
including the following: (i) partnership and lender consent issues precluded the
inclusion of certain properties in the Formation Transactions; (ii) due to
geographic location, inclusion of the property at this time could hinder the
Company's growth strategy, which centers upon an expansion from its initial
(core asset) market hubs, and inclusion of the property would result in either
an economically undesirable administrative burden on the Company or detract from
the Company's near term expansion goals, both to the detriment of shareholder
return; (iii) the Property's contribution to net cash flow, either initially or
over the next few years, is either unquantifiable, uncertain or likely to be
highly uneven, and inclusion of such an asset could contradict the Company's
philosophy, embodied by the assets to be contributed, that a stable base of the
highest quality assets is a prerequisite for the Company's sustained growth and
the maximization of shareholder return; (iv) the valuation of certain
properties, including debt encumbering such properties, make the properties
economically undesirable to acquire at this time; and (v) the asset profile is
not consistent with the Company's acquisition criteria. Mr. Pilevsky, Ms. Levine
and the Management Company have agreed to conduct all their future management,
operations, acquisitions and development of retail shopping center properties in
accordance with the terms of the Non-Competition Agreement.
The Excluded Properties consist of the following (not including non-retail
properties and retail properties with less than 20,000 rentable square feet):
seven properties located in California, Washington, Minnesota and Illinois,
aggregating approximately 769,300 square feet of GLA and individually ranging
from 72,655 to 164,281 square feet of GLA; six properties located in
Connecticut, Delaware, Pennsylvania and Kentucky, aggregating approximately
872,600 square feet of GLA and individually ranging from 90,077 to 202,701
square feet of GLA; thirteen properties located in New Jersey, New York and
Florida, aggregating approximately 1,533,900 square feet of GLA and individually
ranging from 24,000 to 381,498 square feet of GLA; a 100 acre development site
in New Jersey currently under contract; a 60,000 square foot renovation site
in New York, currently under contract; and a retail property under consideration
in connection with a hotel development project in South Beach, Florida. Of the
Excluded Properties, only two properties, located in Uniondale and Massapequa,
New York are potentially competitive with Properties of the Company
(specifically, with Merrick Commons and Meadowbrook Commons, respectively),
based on the size and location of such properties. The Uniondale property was
not included in the Company's property portfolio because the property was under
substantial construction, it is not multi-tenanted and it is subject to
substantial indebtedness. The Massapequa property was not included in the
Company's property portfolio because the property is under substantial
redevelopment, it has numerous vacancies and is subject to various partnership
consent issues. The Excluded Properties will continue to be managed by Philips
Private Company, independent of the Company.
101
<PAGE>
ASSUMED INDEBTEDNESS
The following table and related footnotes set forth, as of September 30,
1997, existing debt (in thousands) encumbering the Properties or the partnership
interests in the entity holding title to a Property. In connection with the
Formation Transactions, such indebtedness will be assumed by the Company.
<TABLE>
<CAPTION>
BALANCE INTEREST
AS OF RATE AS OF
SEPTEMBER 30, 1997 SEPTEMBER 30, 1997 MATURITY DATE
------------------ ------------------------- ----------------
<S> <C> <C> <C>
NEW ENGLAND
Branhaven Plaza(1)................... $ 9,415 Lower of LIBOR plus 3.50% November 1998
or Prime plus 0.75%
Elm Plaza(2)
First Mortgage.................... 3,401 9.00% July 2000
Second Mortgage................... 499 No interest due July 2000
Foxboro Shopping Center(2)
First Mortgage.................... 4,286 9.00% July 2000
Second Mortgage................... 214 No interest due July 2000
MID-ATLANTIC
Meadowbrook Commons(3)............... 25,831 LIBOR plus 2.50% March 1998
Merrick Commons and
Mill Basin Plaza.................. 25,854 7.28% January 2003
Forest Avenue Shoppers Town(4)(6).... 23,940 LIBOR plus 1.75% June 1998
Millside Plaza(2)
First Mortgage.................... 4,477 9.00% July 2000
Second Mortgage................... 223 No interest due July 2000
SOUTHEAST
Palm Springs Mile(5)
First Mortgage.................... 24,088 LIBOR plus 2.50% June 1998
First Mortgage.................... 42,120 7.83% February 2004
Mortgage note..................... 13,000 LIBOR plus 2.75% June 1998
The Shoppes at Lake Mary
First Mortgage.................... 550 Prime plus 2.00% October 1998
------------------
$177,898
------------------
------------------
</TABLE>
- ------------------
(1) The Company is required to make quarterly amortization payments equal to
fifty percent of the property's preceding quarter's net cash flow. The
Company has two options to extend the maturity date of this loan for six
months each, each upon the payment of a fee equal to 0.5% of principal
balance at the time of exercise.
(2) Elm Plaza, Millside Plaza and Foxboro Shopping Center loans are all
cross-collateralized. Subsequent to September 30, 1997, the lender committed
in writing to, as of the closing of the Formation Transactions, (i) extend
the maturity date to December 2002, fix the interest rate at 175 basis
points above the 5-year U.S. Treasury yield, and commence amortization on a
30-year repayment schedule, and (ii) eliminate the obligation to repay the
second mortgage loan. See Note 3 to The Philips Company Combined Financial
Statements.
(3) The Company is required to make quarterly amortization payments of the
excess cash flow from the preceding quarter.
(4) At the Company's option, the maturity date of this loan may be extended to
either June 2004 or June 2007. The loan requires monthly principal
amortization of $30. The lender has agreed, effective with the January 1,
1998 payment date, to suspend amortization until closing of the Formation
Transactions. Amortization will recommence at a rate of $30 per month
beginning with the first day of the calendar month following closing
(Footnotes continued on next page)
102
<PAGE>
(Footnotes continued from previous page)
of the Formation Transactions and if the loan is extended, amortization
should be based upon a 30-year amortization schedule.
(5) On August 8, 1997 PL Palm Springs LP, a limited partner in Palm Springs Mile
Associates, Ltd. ('Limited') acquired the interest of certain other partners
in Limited for approximately $15,900 of which is payable in cash of $2,900
and $13,000 in notes. The notes bear interest at LIBOR plus 2.75% and are
secured by a pledge of certain of the partnership interests in Limited and a
pledge of certain partnership interests in Forest Avenue Shopping
Associates. A default under these notes will trigger a cross-default under
the Forest Avenue Shoppers Town loan. The notes are due June 1998. The notes
require monthly principal amortization of $250. The lender has agreed,
effective with the January 1, 1998 payment date, to suspend amortization
until closing of the Formation Transactions. Amortization will recommence at
a rate of $250 per month beginning with the first day of the calendar month
following closing of the Formation Transactions. The lender has agreed to
make an additional loan to the borrower in the amount of $1,000, resulting
in a total outstanding principal amount of $13,000 at the closing of the
Formation Transactions. This $1,000 additional loan will bear interest at
LIBOR plus 1.75% and will mature in June 1998.
(6) The lender has agreed to make a second mortgage loan of $150 to the
borrower, resulting in a total outstanding principal amount of $24,000 at
the closing of the Formation Transactions. The $150 loan will bear interest
at LIBOR plus 1.75% and will mature in June 1998; provided that, at the
Company's option, the maturity date of the $150 loan may be extended to
either June 2004 or June 2007.
103
<PAGE>
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
The following is a discussion of the Company's investment objectives and
policies, financing policies and policies with respect to certain other
activities. These policies may be amended or revised from time to time at the
discretion of the Board of Directors unilaterally and without a vote of the
Company's shareholders. Any such change would be made by the Board of Directors,
however, only after a review and analysis of such change, in light of then
existing business and other circumstances, and then only if, in the exercise of
their business judgment, they believe that it is advisable to do so in the best
interest of the Company. No assurance can be given that the Company's investment
objectives will be attained or that the value of the Company will not decrease.
INVESTMENT OBJECTIVES AND POLICIES
In general, the Company's investment objectives are: (i) to increase the
value of the Company through increases in the cash flows and values of the
Properties (and any shopping centers or related properties hereafter acquired,
developed or expanded); (ii) to achieve long-term capital appreciation, and
preserve and protect the value of its interest in the Properties (and any
shopping centers or related properties hereafter acquired, developed or
expanded); and (iii) to provide quarterly or other periodic cash distributions,
a portion of which is expected to constitute a nontaxable return of capital
because it will exceed the Company's current and accumulated earnings and
profits, as well as to provide growth in distributions over time.
REAL ESTATE INVESTMENT POLICIES AND CRITERIA
The Company plans to invest primarily in neighborhood, community and
non-enclosed regional retail properties in major metropolitan and suburban
areas. In connection with future acquisitions, the Company will analyze various
factors, including, but not limited to:
o the location, accessibitility and visibility of the property,
o demographic profile,
o redevelopment potential of the property,
o the purchase price,
o the current and historical occupancy levels of the shopping centers
and of comparable properties in comparable locations,
o the characteristics of tenants, including anchor tenants, and the
terms of their leases,
o the quality of the construction and design of improvements,
o the relationship or fit of the shopping center with the other assets
owned by the Company,
o existing, proposed and potential competition,
o trade area, and
o local, regional and national economic trends.
The Company plans to invest in properties both for income and for capital
appreciation.
DISPOSITIONS
The Company has no current intention to dispose of any of the Properties,
but does reserve the right to do so if, based upon its periodic review of the
Company's portfolio, it determines that such action would be in the best
interests of the Company.
OTHER INVESTMENTS
Subject to the percentage of ownership limitations and gross income and
asset tests necessary for REIT qualification (see 'Federal Income Tax
Considerations'), the Company may also invest in securities of concerns engaged
in real estate activities or securities of other issuers. The Company may also
invest in the securities of other issuers in connection with acquisitions of
indirect interest in properties (normally general or limited
104
<PAGE>
partnership interests in special purpose partnerships owning properties). The
Company may in the future acquire some, all or substantially all of the
securities or assets of, or may capitalize or recapitalize, other REITs or
similar entities where such investment would be consistent with the Company's
investment policies. However, the Company does not anticipate investing in
issuers of securities (other than REITs in order to acquire interests in real
property) for the purpose of exercising control or acquiring any investments
primarily for sale in the ordinary course of business or holding any investments
with a view to making short-term profits from their sale. The Company may also
acquire loans secured by properties, including properties that the Company
desires to ultimately acquire. In addition, the Company may acquire minority or
controlling joint venture interests in properties. In any event, the Company
does not intend that its investments in securities will require the Company to
register as an 'investment company' under the Investment Company Act of 1940,
and the Company intends to divest securities before any such registration would
be required. The Company has not and does not intend to engage in material
trading, underwriting, agency distribution or sale of securities of other
issuers.
FINANCING
At September 30, 1997, after giving effect to the consummation of the
Formation Transactions, the Company would have a Debt-to-Total Capitalization
Ratio of approximately 70% (assuming a Net Asset Value of $50.00 per share of
Common Stock). See 'Capitalization' and the Company's Pro Forma Condensed
Combined Financial Statements elsewhere in this Proxy Statement/Prospectus. The
Company currently intends to adhere to a policy of maintaining a Debt-to-Total
Capitalization Ratio (based on total market capitalization) of not more than 50%
after completion of an Offering. No assurance can be given in this regard,
however, and the organizational documents of the Company do not limit the amount
or percentage of indebtedness that it may incur. The Company may from time to
time reevaluate its debt financing policy accordingly. As a result, the Company
may increase its Debt-to-Total Capitalization Ratio beyond the limits described
above. See 'Risk Factors--Risks Associated with Debt Financing--No Limitation on
Debt.' If the Board of Directors determines that additional funding is required,
the Company may raise such funds through additional equity offerings, debt
financing or retention of cash flow (subject to provisions in the Code
concerning taxability of undistributed income), or a combination of these
methods.
Indebtedness incurred by the Company may be in the form of purchase money
obligations to the sellers of properties, or in the form of publicly or
privately placed debt instruments, financing from banks, institutional
investors, or other lenders, any of which indebtedness may be unsecured or may
be secured by mortgages or other interests in the Property. Such indebtedness
may be recourse, non-recourse or cross-collateralized and, if recourse, such
recourse may include the Company's general assets and, if non-recourse, may be
limited to the particular property to which the indebtedness relates. In
addition, the Company may invest in properties subject to existing loans secured
by mortgages, deeds of trust or similar liens on the properties, or may
refinance properties acquired on a leveraged basis. The proceeds from any
borrowings by the Company may be used for working capital, to purchase
additional partnership interests in partnerships or joint ventures in which the
Company participates, to refinance existing indebtedness or to finance
acquisitions, expansion or development of new properties. The Company may also
incur indebtedness for other purposes when, in the opinion of the Board of
Directors, it is advisable to do so. In addition, the expected size of the
Company's distributions may not allow the Company, using only cash flow from
operation, to fund 100% of (i) the tenant allowances associated with renewal or
replacement of current tenants as their leases expire and (ii) the retirement of
all of its debt when due, and therefore, the Company may borrow to meet the
taxable income distribution requirements under the Code if the Company does not
have sufficient cash available to meet those distribution requirements.
The Company intends to finance acquisitions with the most appropriate
sources of capital, which may include undistributed Funds from Operations, the
issuance of equity securities including through the operation of any dividend
reinvestment plan adopted by the Company, the sale of assets, bank and other
institutional borrowings and the issuance of debt securities.
The Company does not have a policy limiting the number or amount of
mortgages that may be placed on any particular property, but mortgage financing
instruments may, and usually do, limit additional indebtedness on such
properties.
105
<PAGE>
EQUITY CAPITAL
The Board of Directors has the authority, without shareholder approval, to
issue additional shares of Common Stock and Preferred Stock or otherwise raise
capital, including through the issuance of senior securities, in any manner and
on such terms and for such consideration it deems appropriate, including in
exchange for property. Existing shareholders will have no preemptive right to
shares of Common Stock or other shares of capital stock issued in any offering,
and any such offering might cause a dilution of a stockholder's investment in
the Company. Although it has no current plans to do so, the Company may in the
future issues securities in connection with acquisitions.
WORKING CAPITAL RESERVES
The Company will seek to maintain working capital reserves (and when not
sufficient, access to borrowings) in amounts that the Board of Directors
determines to be adequate to meet normal contingencies in connection with the
operation of the Company's business and investments. See 'Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources.'
ANNUAL REPORTS
The Company has not issued annual reports to shareholders. Following the
consummation of the Formation Transactions, the Company will issue annual
reports, and other reports to shareholders, as required by the United States
securities laws, and will include annual financial statements certified by
independent public accountants.
OTHER POLICIES
The Company may, under certain circumstances, purchase shares of Common
Stock in the open market or in private transactions with its shareholders, if
such purchases are approved by the Board of Directors. The Board of Directors
has no present intention of causing the Company to repurchase any such shares,
and any such action would only be taken in conformity with applicable federal
and state laws and the applicable requirements for qualifying as a REIT. The
Company may also institute dividend reinvestment programs.
The Company has adopted certain policies to reduce or eliminate potential
conflicts of interest. Following consummation of the Formation Transactions, any
transaction between the Company and Philips Private Company must be approved by
a majority of the Independent Directors. 'Independent Directors' means those
members of the Board of Directors who are not officers or employees of the
Company, or directors, officers or employees of Philips Private Company or their
respective affiliates or any of their predecessors. In addition, the Company has
adopted a policy prohibiting any loans from the Company to the Philips Private
Company. Except as set forth above and the other transactions described herein
between the Company and such parties, any transaction between the Company and
any officer or director or principal shareholder (including any loan to or
borrowing from any such officer, director or principal shareholder or any
acquisition of assets or other property from or sale of assets or other property
to any such officer, director or principal shareholder) must be approved by a
majority of the disinterested directors.
The Company's policies with respect to all activities described may be
reviewed and modified from time to time by the Board of Directors without the
vote of the shareholders and the Board of Directors may, without the approval of
shareholders, alter the Company's investment, acquisition, financing and other
policies if it determines in the future that such a change is in the best
interest of the Company and its shareholders.
At all times, however, the Company intends to make investments in such a
manner as to be consistent with the requirement of the Code to qualify as a REIT
unless, because of circumstances or changes in the Code (or in the Treasury
Regulations), the Board of Directors, with the consent of a majority the holders
of the Common Stock, determines to revoke the Company's REIT election.
106
<PAGE>
MANAGEMENT
BOARD OF TRUSTEES OF NATIONAL
The current Board of Trustees of National are:
<TABLE>
<CAPTION>
NAME AGE
- -------------------------------------------------------------------- ---
<S> <C>
Peter M. Stein, Managing Trustee.................................... 45
Jay W. Goldman, Trustee............................................. 51
Robert R. Reibstein, Trustee........................................ 41
</TABLE>
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The Board of Directors of the Company is comprised of seven directors, four
of whom are Independent Directors.
The Board of Directors is responsible for the general policies of the
Company and the general supervision of the Company's activities conducted by its
officers, agents, advisors, managers or independent contractors, as may be
necessary in the course of the Company's business.
The directors and executive officers of the Company (each of whom will
serve as such following consummation of the Formation Transactions) are as
follows:
<TABLE>
<CAPTION>
DIRECTOR
TERM
NAME AGE POSITION EXPIRES
- ------------------------------------------ ---- ------------------------------------------ --------
<S> <C> <C> <C>
Philip Pilevsky........................... 51 Director, Chairman of the Board and Chief 2001
Executive Officer
Louis J. Petra............................ 44 Director and President 1999
Sheila Levine............................. 40 Director, Chief Operating Officer, 2000
Executive Vice President and Secretary
Brian J. Gallagher........................ 41 Chief Financial Officer, Director of N/A
Acquisitions and Treasurer
Andrew Aberham............................ 39 Director of Leasing N/A
A.F. Petrocelli........................... 54 Director 2000
Elise Jaffe............................... 42 Director 1999
Robert Grimes............................. 53 Director 2001
</TABLE>
The Company intends to elect an additional non-employee director (the
'Additional Director') on or about the consummation of the Formation
Transactions, whose term will expire in 2001.
Philip Pilevsky. Mr. Pilevsky is Chairman of the Board, Chief Executive
Officer and a Director of the Company, and has served as Chief Executive Officer
and President of Philips International Holding Corp. since its formation in
1982. Mr. Pilevsky has been involved in the real estate business for 25 years,
including the development, leasing, management, operation, acquisition and
disposition of commercial properties. Together with Ms. Levine, he founded the
entities that now comprise Philips International Holding Corp. and its
affiliates. Mr. Pilevsky is a nationally recognized member of the real estate
community, providing the Company with strategic leadership and a broadly-based
network of relationships. Outside the business world he is renowned as an
educator, author in the field of international relations and frequent
commentator for Fox 5 and CNBC. Mr. Pilevsky received a Bachelor of Arts degree
from C.W. Post College and a Masters Degree of Arts and a Masters Degree of
Education from Columbia University. Mr. Pilevsky is the brother of Ms. Levine.
Louis J. Petra. Mr. Petra is President and a Director of the Company.
Prior to joining the Company, he served as Chief Financial Officer, Vice
President and Treasurer of Kimco Realty Corporation from July 1984 through June
1997. Mr. Petra has extensive experience in the financial management,
administration and control of public and private real estate companies, with
particular knowledge of the shopping center industry and the REIT structure. Mr.
Petra received a Bachelor of Science in Accounting from St. John's University
and is a member of the American Institute of Certified Public Accountants and
the New York State Society of Certified Public Accountants.
Sheila Levine. Ms. Levine is Chief Operating Officer, Executive Vice
President and a Director of the Company, and has served as Chief Operating
Officer and Executive Vice President of Philips International Holding Corp.
since 1992. Ms. Levine coordinates and supervises the daily overall operations
of the Company
107
<PAGE>
including acquisitions, development, property management, finance and asset
management, construction, leasing and marketing for each property in the
Company's portfolio. Ms. Levine is responsible for property development, which
entails setting the management direction from pre-construction planning to the
marketing and leasing strategies of the ground-up construction project. She has
been involved in the real estate business for 18 years and, together with Mr.
Pilevsky, founded the entities that now comprise Philips International Holding
Corp. and its affiliates. Ms. Levine received a Bachelor of Science in Business
Administration from Hofstra University's School of Business in 1979. Ms. Levine
is the sister of Mr. Pilevsky.
Brian J. Gallagher. Mr. Gallagher is Chief Financial Officer and Director
of Acquisitions of the Company, and has served as the Director of Finance and
Acquisitions of Philips International Holding Corp. since 1989. Mr. Gallagher is
primarily responsible for capital deployment and capital management of the
Company, including obtaining financing and structuring and negotiating
acquisitions and joint ventures. Since joining Philips Private Company, he has
been responsible for transactions valued at over $1 billion. Prior to joining
the Company, Mr. Gallagher held positions in commercial real estate finance with
Credit Alliance Corporation and National Westminister Bank USA where he was
responsible for project finance and major account relationships. He received a
Bachelor of Science and a Master's degree in City and Regional Planning from
Ohio State University.
Andrew Aberham. Mr. Aberham is Director of Leasing of the Company. Mr.
Aberham has been responsible for marketing, development and leasing of the
Philips Private Company retail portfolio since 1995, including leasing and
negotiating over 300 retail lease transactions. From 1986 to 1995, Mr. Aberham
served as leasing director for Irving & Sol Goldman, et al., during which time
he negotiated over 500 lease transactions, leasing in excess of 2.5 million
square feet. Mr. Aberham received a Bachelor of Arts degree from the State
University of New York at Oneonta, and has received additional degrees in real
estate investment and construction management from New York University.
A.F. Petrocelli. Mr. Petrocelli is a Director of the Company. He has
served as Chairman of the Board and Chief Executive Officer of United Capital
Corp. since December 1987 and President since 1991. Mr. Petrocelli currently
owns over 65% of United Capital and has been a Director of United Capital since
1981. United Capital is an American Stock Exchange listed company specializing
in the investment and management of real estate assets and the manufacture and
sale of knitted wire, antenna and transformer products to a global customer
base. Mr. Petrocelli also serves on the Board of Directors of Prime Hospitality
Corp., a New York Stock Exchange listed company, and Nathan's Famous Inc.
Elise Jaffe. Ms. Jaffe is a Director of the Company. Ms. Jaffe has served
as Senior Executive Vice President of Real Estate for Dress Barn, Inc., a major
women's apparel retailer owning approximately 725 stores within the United
States, since 1994. She has been with Dress Barn for 15 years and serves on its
Executive Committee. Ms. Jaffe is on the Advisory Board of the International
Council of Shopping Centers/Value Retail News and is Vice President and the
Treasurer of the Paul Taylor Dance Foundation. Ms. Jaffee graduated magna cum
laude from Tufts University with a Bachelor of Arts in English and Psychology.
Robert Grimes. Mr. Grimes is a Director of the Company. He has served as
President of RS Grimes Co., Inc., an investment company, since September 1987.
Mr. Grimes has also been a Director and Executive Vice President of Auto-By-Tel
Corporation since July 1996. From April 1981 to March 1987, Mr. Grimes was a
partner with the investment firm of Cowen & Company. Mr. Grimes holds a Bachelor
of Science from Wharton School of Commerce and Finance at the University of
Pennsylvania and an L.L.B. from the University of Pennsylvania Law School.
Each of the directors serves from the date of his or her election until the
annual meeting of shareholders relating to the election of such class of
directors. A director may be removed only for cause and only upon the
affirmative vote of shareholders holding at least two-thirds of the outstanding
shares of Common Stock. See 'Certain Provisions of Maryland Law and the
Company's Charter and By-Laws--Number of Directors; Removal; Filling Vacancies.'
The executive officers are chosen by and serve at the discretion of the
Board of Directors. See '--Executive Compensation.'
108
<PAGE>
COMPENSATION OF DIRECTORS
Initially each director who is not an executive officer of the Company will
be paid $10,000 per year plus $750 for attendance in person at each meeting of
the Board of Directors, $500 for attendance in person at each meeting of a
committee thereof, if such meeting is held on a day other than the day of a
Board meeting, and $250 for each telephonic meeting participation. Each director
who is not an executive officer of the Company will also receive a grant of
options to purchase 4,000 shares of Common Stock under the Company's Stock
Option Plan (as defined below) upon his or her initial election to the Board,
which vest equally on the first, second and third anniversaries of the date of
such grant. See '--Stock Option Plan.' Executive Officers of the Company will
not be compensated for their services as directors. Each director will be
reimbursed for expenses relating to attendance at meetings of the Board of
Directors or any committee thereof.
Each of Messrs. Petrocelli and Grimes, Ms. Jaffe and the Additional
Director will be granted options prior to consummation of the Formation
Transactions in connection with his or her initial election to the Board of
Directors.
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee. Promptly following the consummation of the Formation
Transactions, the Board will establish an Audit Committee that will consist of
at least two Independent Directors and will not include any members of
management. The Audit Committee will be established to make recommendations
concerning the engagement of independent public accountants, review with the
independent public accountants the plans and results of the audit engagement,
approve professional services provided by the independent public accountants,
review the independence of the independent public accountants, consider the
range of audit and non-audit fees and review any recommendations made by the
Company's auditors regarding the Company's accounting methods and the adequacy
of its systems of internal accounting control. The Audit Committee members will
initially be Mr. Petrocelli and Ms. Jaffe.
Compensation Committee. Promptly following the consummation of the
Formation Transactions, the Board intends to establish a Compensation Committee
that will consist of not less than two Independent Directors. The Compensation
Committee will determine compensation for the Company's executive officers, in
addition to administering the Company's Stock Option Plan and making
recommendations to the directors with respect to the Company's compensation
policies. The Compensation Committee members will initially be Mr. Grimes and
another Independent Director.
EXECUTIVE COMPENSATION
The following table below sets forth the annual base salary rates and other
compensation expected to be paid in 1998 to the Company's Chief Executive
Officer and each of the Company's three other executive officers who are
expected to have a total annual salary in excess of $100,000 (collectively, the
'Named Executive Officers'). The Company has entered into, or will enter into
prior to consummation of the Formation Transactions, an employment agreement
with three of its executive officers as described below. See '--Employment
Agreements.'
<TABLE>
<CAPTION>
1998 BASE OPTIONS
NAME TITLE SALARY RATE GRANTED(1)
- ------------------------------------------- ---------------------------- ------------ ----------
<S> <C> <C> <C>
Philip Pilevsky............................ Chief Executive Officer $ 0 96,000
Louis J. Petra............................. President $175,000 40,000(2)
Sheila Levine.............................. Chief Operating Officer $175,000 40,000(2)
and Executive Vice President
Brian J. Gallagher......................... Chief Financial Officer $150,000 10,000
</TABLE>
- ------------------
(1) All options will be granted pursuant to the Company's Stock Option Plan and
will be exercisable at a price per share equal to $50.00. The number of
options and exercise price per share will be adjusted appropriately in the
event of an Offering.
(2) Upon the completion of an Offering (and following any related stock splits
and anti-dilution adjustments), such number shall increase to a minimum of
100,000 options to purchase shares of Common Stock.
109
<PAGE>
EMPLOYMENT AGREEMENTS
Sheila Levine Employment Agreement. Ms. Levine will enter into an
employment agreement with the Company (the 'Levine Employment Agreement'),
effective as of consummation of the Formation Transactions, providing for an
initial term of three years, subject to automatic one-year extensions. Ms.
Levine's annual base salary is $175,000, with annual increases in the discretion
of the Board of Directors or Compensation Committee of the Board of Directors.
Ms. Levine is also entitled to receive a minimum of twenty-five (25%) of the
annual bonus pool, with the amount of the Company's annual bonus pool to be
determined in the discretion of the Board of Directors. In addition, the Company
will issue Ms. Levine options which entitle Ms. Levine to acquire 40,000 shares
of Common Stock (increasing to a minimum of 100,000 shares of Common Stock upon
completion of an Offering and following any related stock splits and
anti-dilution adjustments) under the Company's Stock Option Plan (as defined
below), which options vest 33 1/3% on each of the first, second and third
anniversaries of the Levine Employment Agreement. Ms. Levine is required to
devote substantially all of her business time to the affairs of the Company. Ms.
Levine is entitled to a continuation of her annual base salary and bonus through
the end of her employment period should the Company terminate her employment
other than for cause, should she terminate her employment for good reason or
should there be a change in control. In addition, upon such a termination or
upon a change in control, the vesting of all options and restricted share awards
granted shall be accelerated.
Louis J. Petra Employment Agreement. Mr. Petra will enter into an
employment agreement with the Company (the 'Petra Employment Agreement'),
effective as of September 2, 1997, providing for a term of five years four
months. Mr. Petra's initial base salary is $175,000, with an increase to
$200,000 for the 2001 calendar year and $225,000 for the 2002 calendar year. Mr.
Petra is also entitled to receive a portion of the Company's annual bonus pool
to be determined in the discretion of the Board of Directors. Mr. Petra will
receive at the closing of the Formation Transactions options to purchase 40,000
shares of Common Stock (increasing to a minimum of 100,000 shares of Common
Stock upon completion of an Offering and following any related stock splits and
anti-dilution adjustments) under the Company's Stock Option Plan, with 25% of
the options vesting on December 31 of each of 1999, 2000, 2001 and 2002. In
addition, upon closing of an Offering, the Company shall loan on a non-recourse
basis to Mr. Petra $1,000,000, the proceeds of which shall be used to
simultaneously purchase newly issued Common Stock (the 'Acquisition Loan'). The
Acquisition Loan shall be forgiven in two $500,000 installments on December 31,
2000 and December 31, 2002. Mr. Petra is required to devote substantially all of
his business time to the affairs of the Company and is subject to customary
non-competition provisions. If a $100,000,000 public equity offering has not
occurred on or before June 1, 1998, either party may terminate Mr. Petra's
employment between June 1, 1998 and September 1, 1998, in which case Mr. Petra
shall receive a severance payment equal to $7,500 for each month elapsed from
August 1, 1997 through the date of termination. Either party may terminate the
Petra Employment Agreement on or after December 31, 2000, in which event Mr.
Petra shall receive his accrued but unpaid salary through his termination date,
the balance of his options shall fully vest, a pro-rata portion (based upon the
number of days Mr. Petra's employment was extended beyond December 31, 2000) of
the $500,000 outstanding balance of the Acquisition Loan shall be forgiven and
the repayment of any remaining outstanding balance thereafter shall be
accelerated. If Mr. Petra's employment is terminated for any reason other than
for cause or with good reason between June 1, 1998 and December 31, 2000, Mr.
Petra shall be entitled to continuation of his salary through December 31, 2000,
a pro rata bonus payment, forgiveness of $500,000 of the Acquisition Loan and
the repayment of the outstanding balance thereafter shall be accelerated. In
addition, Mr. Petra shall have a fully vested non-forfeitable right to any
options or restricted shares granted to him. If Mr. Petra is actively employed
on the date of a change in control, the full outstanding balance of the
Acquisition Loan shall be forgiven, all options and restricted share awards
shall be fully vested and the noncompetition provisions shall no longer apply.
If such a change in control occurs between June 1, 1998 and December 31, 2000
and Mr. Petra's employment is terminated by the Company or its successor on or
after the date of the change in control, Mr. Petra shall be entitled to receive
a pro-rata bonus payment and continuation of his salary through December 31,
2000.
Brian J. Gallagher Employment Agreement. The Company expects to enter into
an employment agreement with Mr. Gallagher, effective as of consummation of the
Formation Transactions, with an initial base salary of $150,000. In addition,
the Company will issue Mr. Gallagher options to acquire 10,000 shares of Common
Stock under the Company's Stock Option Plan, which options vest 33 1/3% on each
of the first, second and third anniversaries of the Gallagher employment
agreement.
110
<PAGE>
Each of the employment agreements will be governed by the laws of the State
of New York. Under New York law, a company cannot specifically enforce an
employment agreement with respect to continued services but may sue for money
damages and seek other relief in the event that an employee materially breaches
its employment agreement.
The foregoing summaries of the Levine Employment Agreement and the Petra
Employment Agreement are qualified in their entirety by reference to the terms
of the respective agreements, copies of the forms of which have been filed as
exhibits to the Registration Statement of which this Proxy Statement/Prospectus
is a part. Copies of each of the employment agreements may be examined, and
copies obtained, as set forth under the caption 'Available Information.'
Although the Company does not expect to enter into an employment agreement
with Mr. Pilevsky, Mr. Pilevsky will have a significant ownership interest in
the Company through his ownership of 10,660 shares of Common Stock
(approximately 22.4% of the outstanding shares of Common Stock, excluding
interests redeemable or convertible therefor and shares of Common Stock issuable
upon exercise of outstanding warrants), 964,641 Units representing approximately
62.5% of the outstanding shares of Common Stock (including interests redeemable
or convertible therefor and the exercise of outstanding warrants), and the grant
of 96,000 options to purchase Common Stock which vest over a three-year period.
In addition, Mr. Pilevsky will be subject to a non-compete agreement which will
limit his ability to engage in certain real estate activities. See 'Management
Agreement and Non-Competition Agreement--Non-Competition Agreement.'
STOCK OPTION PLAN
Effective immediately prior to consummation of the Formation Transactions,
the Company intends to adopt the Philips International Realty Corp. 1997 Stock
Option and Long-Term Incentive Plan (the 'Stock Option Plan') for the purpose of
attracting, retaining and maximizing the performance of executive officers and
key employees, attracting and retaining individuals with renown, ability and
intelligence to serve the Company as directors and consultants, and providing a
direct link between the compensation of such individuals with increases in
shareholder value. A total of 500,000 shares of the authorized shares of Common
Stock (subject to adjustment) have been reserved by the Company for issuance of
awards under the Stock Option Plan. The Stock Option Plan has a term of ten
years.
The Stock Option Plan provides for the grant of 'incentive stock options'
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended, non-statutory stock options, and restricted stock awards. The Stock
Option Plan will be administered by the Compensation Committee of the Board of
Directors. The exercise price for incentive stock options and non-statutory
options may not be less than 100% of the fair market value of shares of Common
Stock on the date of grant (110% of fair market value in the case of incentive
stock options granted to employees who hold more than 10% of the voting power of
the Company's issued and outstanding shares of Common Stock).
Options granted under the Stock Option Plan may not have a term of more
than ten years (five years in the case of incentive stock options granted to
employees who hold more than 10% of the voting power of the Company's issued and
outstanding shares of Common Stock) and generally vest over a three-year period.
Options generally terminate three months after the optionee's termination of
employment by the Company for any reason other than death, disability or
retirement, and are generally not transferable by the optionee other than by
will or the laws of descent and distribution.
To the extent that the aggregate fair market value of stock with respect to
which 'incentive stock options' (within the meaning of Section 422 of the Code,
but without regard to Section 422(d) of the Code) are exercisable for the first
time by an optionee during any calendar year (under the Stock Option Plan and
all other incentive stock option plans of the Company, any subsidiary and any
parent corporation) exceeds $100,000, such options shall be taxed as
non-qualified stock options. The rule set forth in the preceding sentence shall
be applied by taking options into account in the order in which they were
granted. For this purpose, the fair market value of stock shall be determined as
of the time that the option with respect to such stock is granted.
The Board of Directors granted options, each with a ten-year term, to
purchase up to 261,600 shares of Common Stock at an exercise price of $50.00 per
share to the following directors, executive officers and employees of the
Company and the Management Company. The number of options granted and exercise
prices of all outstanding options will be appropriately adjusted to reflect a
public stock offering.
111
<PAGE>
<TABLE>
<CAPTION>
NAME OPTIONS GRANTED
- ----------------------------------------------------------------------------- ---------------
<S> <C>
Philip Pilevsky.............................................................. 96,000(1)
Louis Petra.................................................................. 40,000(2)
Sheila Levine................................................................ 40,000(1)
Brian Gallagher.............................................................. 10,000(1)
Andrew Aberham............................................................... 2,000(1)
A.F. Petrocelli.............................................................. 4,000(1)
Elise Jaffe.................................................................. 4,000(1)
Robert Grimes................................................................ 4,000(1)
Additional Director.......................................................... 4,000(1)
Management Company........................................................... 54,400(1)
Other employees.............................................................. 3,200(1)
---------------
Total........................................................................ 261,600
---------------
---------------
</TABLE>
- ------------------
(1) Options will vest 33 1/3% on each of the first, second and third
anniversaries of the date of such grant. Mr. Levine's options shall increase
upon completion of an Offering (and following any related stock splits and
anti-dilution adjustments) to a minimum of 100,000 options to purchase
shares of Common Stock.
(2) Options will vest 25% on December 31 of each of 1999, 2000, 2001 and 2002.
Such options shall be granted upon the closing of the Formation
Transactions. Upon the closing of an Offering (and following any related
stock splits and anti-dilution adjustments), such number shall increase to a
minimum of 100,000 options to purchase shares of Common Stock.
The Stock Option Plan also provides for restricted stock awards which
consist of grants of shares of Common Stock subject to a restricted period
during which the restricted shares may not be sold, assigned, transferred, made
subject to a gift, or otherwise disposed of, mortgaged, pledged or otherwise
encumbered. At this time the Board of Directors has not granted, and does not
have any plans to grant, restricted shares of Common Stock.
THE 401(K) PLAN
Effective upon the consummation of the Formation Transactions, the Company
intends to establish the Philips International Realty Corp. 401(k) Savings and
Retirement Plan (the '401(k) Plan') to cover eligible employees of the Company
and any designated affiliates.
The 401(k) Plan will permit eligible employees of the Company (and any
designated affiliate) to defer up to 15% of their annual compensation, subject
to certain limitations imposed by the Code. The employees' elective deferrals
are immediately fully vested and non-forfeitable upon contribution to the 401(k)
Plan. The Company currently does not intend to make matching contributions to
the 401(k) Plan; however, it reserves the right to make matching contributions
and/or discretionary profit sharing contributions in the future.
The 401(k) Plan is designed to qualify under Section 401 of the Code so
that contributions by employees or by the Company to the 401(k) Plan, and income
earned thereon, are not taxable to employees until withdrawn from the 401(k)
Plan, and so that contributions by the Company, if any, will be deductible by
the Company when made.
INDEMNIFICATION
For a description of the limitation of liability and indemnification rights
of the Company's officers and directors, see 'Certain Provisions of Maryland Law
and of the Company's Charter and Bylaws.'
112
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain directors and executive officers of the Company (or members of
their immediate families) and persons who will hold more than 5% of the
outstanding shares of Common Stock (or interests redeemable therefor) have
direct or indirect interests in transactions which have been or will be
consummated by the Company, including the transfer of certain Properties and
entities owning Properties to the Company. See 'Formation Transactions and
Structure of the Company.'
TERMS OF TRANSFERS
The terms of the transfers of the Properties (or entities owning the
Properties) to the Company by the Contributing Partnerships were not determined
through arm's-length negotiations. Mr. Pilevsky had a substantial economic
interest in the entities transferring the Properties. In addition, Messrs. Stein
and Goldman will receive the Trustees Stock and the Trustees Warrants in
consideration of their efforts on behalf of National to arrange and carry out
the Formation Transactions and their agreement to vote their National Shares in
favor of the Transaction Agreements. See 'Risk Factors--Conflicts of Interests'
and 'Formation Transactions and Structure of the Company.'
REGISTRATION RIGHTS
For a description of certain registration rights held by the members of the
Philips Group, see 'Shares Available for Future Sale--Registration Rights.'
NON-COMPETITION AGREEMENT
The Management Company, Mr. Pilevsky and Ms. Levine have agreed that they
will not acquire, develop, lease or manage any retail shopping centers in the
United States other than through the Company and with respect to the Excluded
Properties and passive or de minimis investments. See 'Management Agreement and
Non-Competition Agreement.'
PARTNERSHIP AGREEMENT
Concurrently with the consummation of the Formation Transactions, the
Company will enter into the Partnership Agreement with the various limited
partners of the Operating Partnership. See 'Partnership Agreement of Operating
Partnership.' Mr. Pilevsky and Ms. Levine, who are limited partners of the
Operating Partnership, are directors and officers of the Company. In addition,
Mr. Pilevsky, as sole member of the Interim Managing General Partner, will
control the Operating Partnership until completion of an Offering.
MANAGEMENT AGREEMENT
Pursuant to the Management Agreement, the Management Company will provide
management, development, leasing and other services with respect to the
Properties for certain fees which the Company believes are comparable to those
it would pay on an arms'-length basis. See 'Management Agreement and Non-
Competition Agreement.'
MISCELLANEOUS
Jeffrey Levine, the husband of Ms. Levine, is a partner at the accounting
firm of Chassin Levine Rosen & Co., which firm has in the past provided
accounting and consulting services with respect to the entities owning the
Partnership Properties and is likely to provide similar services to the Company
and Philips Private Company in the future. During the 12-month period ended
December 31, 1996, the entities owning the Partnership Properties paid an
aggregate of approximately $200,000 in fees to Chassin Levine Rosen & Co.
Elise Jaffe, a Director of the Company, is also the Senior Executive Vice
President of Real Estate for Dress Barn, Inc., a tenant of certain of the
Properties and of certain of the Excluded Properties. During the 12-month period
ended December 31, 1996, Dress Barn, Inc. paid an aggregate of approximately
$300,000 in rent under leases for certain of the Partnership Properties.
BENEFITS OF THE FORMATION TRANSACTIONS TO CERTAIN EXECUTIVE OFFICERS AND THE
PHILIPS GROUP
In connection with the Formation Transactions, Mr. Pilevsky, Chief
Executive Officer and Chairman of the Board of Directors of the Company, will
receive Units, and Ms. Levine, Chief Operating Officer and Executive Vice
President, will receive Units and certain benefits under her employment
agreement with the Company. In addition, other members of the Philips Group will
receive benefits in connection with the Formation Transactions. See 'Formation
Transactions and the Structure of the Company--Benefits of the Formation
Transactions to the Philips Group.'
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PRINCIPAL SHAREHOLDERS
The following table sets forth information regarding the beneficial
ownership of shares of Common Stock (including Common Stock that may be issued
upon redemption of Units) for (i) each person who is expected to be the
beneficial owner of more than a 5% interest in the Company, (ii) each director
and executive officer of the Company who beneficially owns Common Stock, and
(iii) the directors and executive officers of the Company as a group, in each
case after consummation of the Formation Transactions. Except as noted below,
each person has full voting and investment power over the shares indicated.
Voting power includes the power to direct the voting of the shares held, and
investment power includes the power to direct the disposition of shares held.
The extent to which a person will hold Common Stock directly, as opposed to
Units, is set forth in the footnotes below.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
SHARES AND UNITS PERCENTAGE OF OF ALL COMMON
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) ALL COMMON STOCK(2) STOCK AND UNITS(1)(3)
- ------------------------------------------------- --------------------- ------------------- ---------------------
<S> <C> <C> <C>
Philip Pilevsky ................................. 975,301(4) 94.6 63.1
c/o Philips International Holding Corp.
417 Fifth Avenue, 3rd Floor
New York, NY 10016
Sheila Levine ................................... 115,137(5) 67.4 7.5
c/o Philips International Holding Corp.
417 Fifth Avenue, 3rd Floor
New York, NY 10016
Norman Stark .................................... 179,538(6) 76.3 11.6
c/o Omni Development & Marketing
757 Third Avenue
New York, NY 10017
National Properties Investment Trust ............ 32,000(7) 57.5 2.1
32 Hanson Road
Canton Center, CT 06020
Prudential Securities Incorporated .............. 38,800(8) 41.1 2.5
One New York Plaza
New York, NY 10292
All directors and executive officers as a
group (9 persons) ............................... 1,091,228 96.0 70.7
</TABLE>
- ------------------
(1) Excludes options to purchase 261,600 shares of Common Stock granted to
executive officers, directors, employees and consultants of the Company on
or prior to consummation of the Formation Transactions.
(2) Assumes 47,660 shares of Common Stock outstanding immediately following
consummation of the Formation Transactions. Assumes that all Units
beneficially held by the identified person (and no other person) are
redeemed for Common Stock, or that all shares of Series A Preferred Stock
beneficially held by the identified person are converted into shares of
Common Stock, as the case may be, and that the Trustees Warrants are all
exercised for Common Stock.
(3) Assumes a total of 1,544,460 shares of Common Stock outstanding immediately
following consummation of the Formation Transactions (assuming that all
outstanding Units are redeemed for Common Stock (although such Units are not
redeemable until the first anniversary of the issuance thereof), all shares
of Series A Preferred Stock are converted into Common Stock and the Trustees
Warrants are all exercised for Common Stock).
(4) Represents 10,660 shares of Common Stock and 964,641 Units.
(5) Represents 115,137 Units.
(6) Represents 179,538 Units.
(7) Represents 32,000 shares of Common Stock.
(8) Represents 1,940 shares of Series A Preferred Stock, immediately convertible
into 38,800 shares of Common Stock.
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DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
GENERAL
The authorized capital stock of the Company consists of 150,000,000 shares
of Common Stock, par value $.01 per share, and 30,000,000 shares of preferred
stock, par value $.01 per share ('Preferred Stock'). Upon consummation of the
Formation Transactions, 47,660 shares of Common Stock will be issued and
outstanding and 1,940 shares of Series A Preferred Stock will be issued and
outstanding.
Each outstanding share of Common Stock will entitle the holder to one vote
on all matters presented to stockholders for a vote, subject to the provisions
of the Company's Charter regarding the ownership of shares of Common Stock in
excess of the Ownership Limit described below and subject to the rights of
holders of Preferred Stock, if any, to a class vote under certain circumstances.
Holders of shares of Common Stock will have no preemptive rights or cumulative
voting rights. All shares of Common Stock to be issued and outstanding following
the consummation of the Formation Transactions will be duly authorized, fully
paid, and nonassessable. Distributions may be paid to the holder of shares of
Common Stock if and when declared by the Board of Directors of the Company out
of funds legally available therefor. See 'Distribution Policy.'
Under Maryland law, shareholders are generally not liable for the Company's
debts or obligations. If the Company is liquidated, subject to the right of any
holders of Preferred Stock to receive preferential distributions, each
outstanding share of Common Stock will be entitled to participate pro rata in
the assets remaining after payment of, or adequate provision for, all known
debts and liabilities of the Company, including debts and liabilities arising
out of its status of general partner of the Operating Partnership.
The Board of Directors will fix the attributes of any Preferred Stock that
it authorizes for issuance. Since the Board of Directors has the power to
establish the preferences, powers and rights of each series of Preferred Stock,
it may afford the holders of any series of Preferred Stock preferences, powers
and rights, voting or otherwise, senior to the rights of holders of shares of
Common Stock. The issuance of Preferred Stock could have the effect of delaying
or preventing a change in control of the Company.
SERIES A PREFERRED STOCK
The following description of the Series A Preferred Stock and the
descriptions of certain provisions set forth elsewhere in this Proxy
Statement/Prospectus are qualified in their entirety by reference to the
Articles Supplementary of the Series A Preferred Stock, a copy of the form of
which is filed as an exhibit to the Registration Statement of which this Proxy
Statement/Prospectus is a part. A copy of the Articles Supplementary may be
examined, and copies obtained, as set forth under the caption 'Available
Information.'
In connection with the Formation Transactions, a series of 1,940 shares of
convertible redeemable Series A Preferred Stock, par value $0.01 per share, of
the Company will be created and issued to Prudential Securities, with a stated
value of $1,000.00 per share (the 'Stated Value'). The Series A Preferred Stock
is convertible (based on its liquidation preference) into Common Stock at any
time following the six month anniversary of the date of issuance at a conversion
price of $50.00 per share of common stock, subject to adjustment for customary
anti-dilution rights. On the date of issuance, the 1,940 shares of Series A
Preferred Stock would be convertible into 38,800 shares of Common Stock.
Dividends on the Series A Preferred Stock are cumulative and payable quarterly
in arrears, at a rate per annum of nine percent (9%). If any dividend is not
declared or paid on any scheduled dividend payment date, interest shall accrue
on the amount of such accrued and unpaid dividend at the rate per annum of nine
percent (9%) until such time as such accrued and unpaid dividend is paid in
full, such interest to be paid concurrently with the payment of such accrued and
unpaid dividends. No cash dividends shall be payable on the Common Stock unless
and until all accrued and unpaid dividends (together with accrued interest
thereon) have been paid in full.
The Company shall have the right (by notice at least three business days
prior to such occurrence) to redeem all (but not less than all) of the shares of
Series A Preferred Stock outstanding upon the occurrence of an Offering, any
capital reorganization or reclassification of the capital stock of the Company
or consolidation or merger of the Company (in which the Company is not the
surviving corporation) with, or sale of all or substantially all of its assets
to, another person or entity, at a redemption price equal to the liquidation
preference, unless the holder elects to convert the shares of Series A Preferred
Stock into Common Stock on or prior to the date fixed for redemption. If the
date fixed for redemption is prior to the six month anniversary of the date of
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issuance of the Series A Preferred Stock, the holder may still elect to convert
all of the shares of Series A Preferred Stock prior to such date; provided,
however, that the actual conversion date shall not be until the six month
anniversary date of the issuance of the Series A Preferred Stock.
In the event of the voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of the Series A Preferred Stock shall be
entitled to have set apart for them, or to be paid out of the assets of the
Company, before any distribution is made to or set apart for the holders of the
Common Stock, an amount in cash equal to the Stated Value per share plus any
accrued but unpaid dividends thereon (including interest earned thereon, if
any).
Except as otherwise specifically provided by the MGCL, the holders of
shares of Series A Preferred Stock shall not be entitled to vote on any matters
required or permitted to be submitted to the shareholders of the Company for
their approval. While any shares of Series A Preferred Stock are outstanding,
the Company shall not alter or change the rights or preferences, including the
dividend, liquidation or voting rights, or the amendment or consent provisions,
of the Series A Preferred Stock without the affirmative consent (given in
writing or at a meeting duly called for that purpose) of the holders of at least
two-thirds of the outstanding shares of the Series A Preferred Stock.
In the event any shares of Series A Preferred Stock shall be converted or
redeemed, the shares so converted or redeemed shall be canceled, shall return to
the status of authorized but unissued Preferred Stock of no designated class or
series, and shall not be issuable by the Company as Series A Preferred Stock.
The Company may not issue additional shares of Preferred Stock whose
rights, preferences, powers, privileges and restrictions, qualifications and
limitations are senior to the Series A Preferred Stock without the consent of
the holders of two-thirds of the Series A Preferred Stock.
RESTRICTIONS ON TRANSFER
Ownership Limits. The Company's Charter contains certain restrictions on
the number of shares of Capital Stock that individual shareholders may own. For
the Company to qualify as a REIT under the Code, no more than 50% in value of
its outstanding shares of capital stock may be owned, directly or indirectly, by
five or fewer individuals (as defined in the Code to include certain entities)
during the last half of a taxable year (other than the first year) or during a
proportionate part of a shorter taxable year. The capital stock must also be
beneficially owned by 100 or more persons during at least 335 days of a taxable
year or during a proportionate part of a shorter taxable year. Since the Company
expects to qualify as a REIT, the Company's Charter contains restrictions on the
acquisition of capital stock intended to ensure compliance with these
requirements.
The Company's Charter, subject to certain exceptions, provides that no
holder may own or to be deemed to own by virtue of the attribution provisions of
the Code, more than 6.5% (by number of shares or value, whichever is more
restrictive) of the issued and outstanding shares of Capital Stock, which
percentage may be increased up to 9.8% upon resolution of the Board of
Directors. The Board of Directors may exempt a person from the Ownership Limit
if evidence satisfactory to the Board of Directors or the Company's tax counsel
is presented that the proposed transfer of stock to the intended transferee will
not then or in the future jeopardize the Company's status as a REIT. As a
condition of such exemption, the intended transferee must give written notice to
the Company of the proposed transfer and must furnish such opinions of counsel,
affidavits, undertakings, agreements and information as may be required by the
Board of Directors no later than the 15th day prior to any transfer which, if
consummated, would result in the intended transferee owning shares in excess of
the Ownership Limit. The foregoing restrictions on transferability and ownership
will not apply if the Board of Directors determines that it is no longer in the
best interests of the Company to attempt to qualify or to continue to qualify as
REIT. Any transfer of shares of Common Stock that would: (i) create a direct or
indirect ownership of shares of stock in excess of the Ownership Limit; (ii)
result in the shares of stock being owned by fewer than 100 persons; or (iii)
result in the Company being 'closely held' within the meaning of Section 856(h)
of the Code shall be null and void, and the intended transferee will acquire no
rights to the shares of Capital Stock.
The Board of Directors has exempted Mr. Pilevsky and his affiliates from
the Ownership Limit following the consummation of Formation Transactions. These
persons may acquire additional shares of Common Stock through the redemption of
Units, through the Stock Option Plan, from other shareholders or otherwise, but
in no
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event will they be permitted to acquire additional shares, either actually or
constructively, in excess of 25% of the outstanding Capital Stock.
Shares of capital stock owned, or deemed to be owned, or transferred to a
shareholder in excess of the Ownership Limit will automatically be deemed shares
of 'Excess Stock' that will be transferred, by operation of law, to the trustee
of a trust for the exclusive benefit of one or more charitable organizations
described in Section 170(b)(1)(A) and 170(c) of the Code (the 'Charitable
Beneficiary'). The trustee of the trust will be deemed to own the Excess Stock
for the benefit of the Charitable Beneficiary on the date of the violative
transfer to the original transferee-shareholder. Any dividend or distribution
paid to the original transferee-shareholder of Excess Stock prior to the
discovery by the Company that capital stock has been transferred in violation of
the provisions of the Company's Charter shall be repaid to the trustee upon
demand. Any dividend or distribution authorized and declared but unpaid shall be
rescinded as void ab initio with respect to the original transferee-shareholder
and shall instead be paid to the trustee of the trust for the benefit of the
Charitable Beneficiary. Any vote cast by an original transferee-shareholder of
shares of capital stock constituting Excess Stock prior to the discovery by the
Company that shares of capital stock have been transferred in violation of the
provisions of the Company's Charter shall be rescinded as void ab initio. While
the Excess Stock is held in trust, the original transferee-shareholder will be
deemed to have given an irrevocable proxy to the trustee to vote the capital
stock for the benefit of the Charitable Beneficiary. The trustee of the trust
may transfer the interest in the trust representing the Excess Stock to any
person whose ownership of the shares of capital stock would be permitted under
the Ownership Limit. If such transfer is made, the interest of the Charitable
Beneficiary shall terminate and the proceeds of the sale shall be payable to the
original transferee-shareholder and to the Charitable Beneficiary as described
herein. The original transferee-shareholder shall receive the lesser of (i) the
price paid by the original transferee-shareholder for the shares of capital
stock that were deemed Excess Stock or, if the original transferee-shareholder
did not give value for such shares (e.g., the stock was received through a gift,
devise or other transaction), the average closing price for the class of shares
from which such shares of capital stock originated for the ten trading days
immediately preceding such sale or gift, and (ii) the price received by the
trustee from the sale or other disposition of the Excess Stock held in trust.
The trustee may reduce the amount payable to the original transferee-shareholder
by the amount of dividends and distributions relating to the shares of Excess
Stock which have been paid to the original transferee-shareholder and are owned
by the original transferee-shareholder to the trustee. Any proceeds in excess of
the amount payable to the original transferee-shareholder shall be paid by the
trustee to the Charitable Beneficiary. Any liquidation distributions relating to
Excess Stock shall be distributed in the same manner as proceeds of a sale of
Excess Stock. If the foregoing transfer restrictions are determined to be void
or invalid by virtue of any legal decision, statute, rule or regulation, then
the original transferee-shareholder of any shares of Excess Stock may be deemed,
at the option of the Company, to have acted as an agent on behalf of the Company
in acquiring the shares of Excess Stock and to hold the shares of Excess Stock
on behalf of the Company.
In addition, the Company will have the right, for a period of 90 days
during the time any shares of Excess Stock are held in trust, to purchase all or
any portion of the shares of Excess Stock at the lesser of (i) the price
initially paid for such shares by the original transferee-shareholder, or if the
original transferee-shareholder did not give value for such shares (e.g., the
shares were received through a gift, devise or other transaction), the average
closing price for the class of stock from which such shares of Excess Stock
originated for the ten trading days immediately preceding such sale or gift, and
(ii) the average closing price for the class of stock from which such shares of
Excess Stock originated for the ten trading days immediately preceding the date
the Company elects to purchase such shares. The Company may reduce the amount
payable to the original transferee-shareholder by the amount of dividends and
distributions relating to the shares of Excess Stock which have been paid to the
original transferee-shareholder and are owed by the original
transferee-shareholder to the trustee. The Company may pay the amount of such
reductions to the trustee for the benefit of the Charitable Beneficiary. The
90-day period begins on the later date of which notice is received of the
violative transfer if the original transferee-shareholder gives notice to the
Company of the transfer or, if no such notice is given, the date the Board of
Directors determines that a violative transfer has been made.
All certificates representing shares of stock will bear a legend referring
to the restrictions described above.
Each shareholder shall upon demand be required to disclose to the Company
in writing any information with respect to the direct, indirect and constructive
ownership of capital stock of the Company as the Board of
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Directors deems necessary to comply with the provisions of the Code applicable
to REITs, to comply with the requirements of any taxing authority or
governmental agency or to determine any such compliance.
The Ownership Limit may have the effect of delaying, deferring or
preventing a change in control of the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock will be Boston
EquiServe.
CERTAIN PROVISIONS OF MARYLAND LAW AND OF
THE COMPANY'S CHARTER AND BY-LAWS
The following paragraphs summarize certain provisions of the Maryland
General Corporation Law (the 'MGCL') and the Company's Charter and By-Laws. The
summary does not purport to be complete and is subject to and qualified in its
entirety by reference to the MGCL and the Company's Charter and By-Laws, which
will be filed as exhibits to the Registration Statement of which this Proxy
Statement/Prospectus is a part, for complete information.
BOARD OF DIRECTORS
The Company's Charter provides that the number of directors of the Company
may be established by the Board of Directors but may not be fewer than three.
Any vacancy will be filled, at any regular meeting or at any special meeting
called for that purpose, by a majority of the remaining directors or, in the
case of a vacancy resulting from an increase in the number of directors, by a
majority of the entire Board of Directors.
Pursuant to the Company's Charter, the directors are divided into three
classes. One class will hold office initially for a term expiring at the annual
meeting of shareholders to be held in 1999, another class will hold office
initially for a term expiring at the annual meeting of shareholders to be held
in 2000, and a third class will hold office initially for a term expiring at the
annual meeting of shareholders to be held in 2001. As the term of each class
expires, directors in that class will be elected for a term of three years and
until their successors are duly elected and qualified, and the directors in the
other two classes will continue in office. The Company believes that
classification of the Board of Directors will help to assure the continuity and
stability of the Company's business strategies and policies as determined by the
Board of Directors.
The classified director provision could have the effect of making the
removal of incumbent directors more time consuming and difficult, which could
discourage a third party from making a tender offer or otherwise attempting to
obtain control of the Company, even though such an attempt might be beneficial
to the Company and its shareholders. At least two annual meetings of
shareholders, instead of one, will generally be required to effect a change in a
majority of the Board of Directors. Thus, the classified board provision could
increase the likelihood that incumbent directors will retain their positions.
Holders of shares of Common Stock will have no right to cumulative voting for
the election of directors. Consequently, at each annual meeting of shareholders,
the holders of a majority of the shares of Common Stock will be able to elect
all of the successors of the class of directors whose term expires at that
meeting.
REMOVAL OF DIRECTORS
The Company's Charter provides that a director may be removed only for
cause and only by the affirmative vote of at least two-thirds of the votes
entitled to be cast in the election of directors. This provision, when coupled
with the provision in the By-Laws authorizing the Board of Directors to fill
vacant directorships, precludes shareholders form removing incumbent directors
except upon a substantial affirmative vote and filling the vacancies created by
such removal with their own nominees.
BUSINESS COMBINATIONS
Under the MGCL, certain 'business combinations' (including a merger,
consolidation, share exchange, or, in certain circumstances, an asset transfer
or issuance or reclassification of equity securities) between the Company and
any person who beneficially owns 10% or more of the voting power of the
Company's shares or an affiliate of the Company who, at any time within the
two-year period prior to the date in question, was the
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beneficial owner of 10% or more of the voting power of the Company's then
outstanding shares (an 'Interested Stockholder') or an affiliate thereof are
prohibited for five years after the most recent date on which the Interested
Stockholder became an Interested Stockholder. Thereafter, any such business
combination must be recommended by the Board of Directors and approved by the
affirmative vote of a least (a) 80% of the votes entitled to be cast by holders
of outstanding shares of the Company's voting stock and (b) two-thirds of the
votes entitled to be cast by holders of outstanding shares of the Company's
voting stock other than shares held by the Interested Stockholder with whom the
business combination is to be effected, unless, among other things, the
Company's shareholders receive a minimum price (as defined in the MGCL) for
their shares of stock and the consideration is received in cash or in the same
form as previously paid by the Interested Stockholder for its shares. These
provisions of the MGCL do not apply, however, to business combinations that are
approved or exempted by the Board of Directors prior to the time that the
Interested Stockholder becomes an Interested Stockholder. The Company has opted
out of the business combination provisions of the MGCL and has provided that any
decision to opt back in requires the approval of holders of a majority of the
outstanding shares of Common Stock.
In addition, the Partnership Agreement requires that any merger or sale of
all or substantially all of the assets of the Operating Partnership be approved
by the holders of at least 51% of the outstanding Units until such time prior to
the first anniversary of the consummation of the Formation Transactions as the
Company owns 67% of the partnership interests of the Operating Partnership, and
thereafter, until such time as the Company owns 60% of the partnership interests
in the Operating Partnership. See 'Partnership Agreement of the Operating
Partnership--Rights of Limited Partners.'
CONTROL SHARE ACQUISITIONS
The MGCL provides that 'control shares' of the Company acquired in a
'control share acquisition' have no voting rights except to the extent approved
by a vote of two-thirds of the votes entitled to be cast on the matter,
excluding shares owned by the acquiror or by officers or directors who are
employees of the Company. 'Control shares' are voting shares of stock which, if
aggregated with all other such shares of stock previously acquired by the
acquiror, or in respect of which the acquiror is able to exercise or direct the
exercise of voting power (except solely by revocable proxy), would entitle the
acquiror to exercise voting power in electing directors within one of the
following ranges of voting power: (i) one-fifth or more but less than one-third,
(ii) one-third or more but less than a majority or (iii) a majority of all
voting power. 'Control shares' do not include shares of stock the acquiring
person is then entitled to vote as a result of having previously obtained
stockholder approval. A 'control share acquisition' means the acquisition of
control shares, subject to certain exceptions.
A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the Board of Directors to call a special meeting of shareholders to
be held within 50 days of demand to consider voting rights for the shares. If no
request for a meeting is made, the Company may itself present the question at
any shareholders' meeting.
If voting rights are not approved at the shareholders' meeting or if the
acquiring person does not deliver an acquiring person statement as required by
the MGCL, then, subject to certain conditions and limitations, the Company may
redeem any or all of the control shares (except those for which voting rights
have previously been approved) for fair value determined, without regard to the
absence of voting rights for the control shares, as of the date of the last
control share acquisition by the acquiror or of any meeting of shareholders at
which the voting rights of such shares are considered and not approved. If
voting rights for control shares are approved at a shareholders' meeting and the
acquiror becomes entitled to vote a majority of the shares of stock entitled to
vote, all other shareholders may exercise appraisal rights. The fair value of
the shares of stock as determined for purposes of such appraisal rights may not
be less than the highest price per share paid by the acquiror in the control
share acquisition.
The control share acquisition statute does not apply to shares acquired in
a merger, consolidation or share exchange if the Company is a party to the
transaction, or to acquisitions approved or exempted by the Company's Charter or
By-Laws. Pursuant to the MGCL, the Company's By-Laws exempt the Company from
these provisions of the MGCL and provides that any decision to opt back in
requires the approval of holders of a majority of the outstanding shares of
Common Stock.
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AMENDMENT TO THE ARTICLES OF INCORPORATION
Pursuant to the MGCL, a corporation generally cannot dissolve, amend its
articles or incorporation or merge, unless approved by the affirmative vote or
the written consent of shareholders holding at least two-thirds of the shares
entitled to vote on the matter unless a lesser percentage (but not less than a
majority of all of the votes to be cast on the matter) is set forth in the
corporation's articles of incorporation. The Company's Charter does, in fact,
provide for such a lesser percentage and provides that it may be amended by the
affirmative vote of the holders of not less than a majority of all of the votes
entitled to be cast on the matter.
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
The Company's By-Laws provide that (a) with respect to an annual meeting of
shareholders, nominations of persons for election to the Board of Directors and
the proposal of business to be considered by shareholders may be made only (i)
pursuant to the Company's notice of the meeting, (ii) by or at the direction of
the Board of Directors or (iii) by a shareholder who, among other things, is
entitled to vote at the meeting and has complied with the advance notice
procedures set forth in the By-Laws, and (b) with respect to special meetings of
shareholders, only the business specified in the Company's notice of meeting may
be brought before the meeting of shareholders and where the Company's notice of
the meeting specifies that directors are to be elected at such special meeting,
nominations of persons for election to the Board of Directors may be made only
(x) pursuant to the Company's notice of the meeting, (y) by or at the direction
of the Board of Directors or (z) provided that the Board of Directors has
determined that directors shall be elected at such meeting, by a shareholder
who, among other things, is entitled to vote at the meeting and has complied
with the advance notice provisions set forth in the By-Laws.
The provisions in the Company's Charter on classification of the Board of
Directors, removal of directors and amendments, and the advance notice
provisions of the By-Laws could have the effect of discouraging a takeover or
other transaction in which the holder of some, or a majority, of the shares of
Common Stock might receive a premium for their shares of Common Stock over the
then prevailing market price or which such holders might believe to be otherwise
in their best interests.
LIMITATION OF DIRECTORS' AND OFFICERS' LIABILITY
The Company's officers and directors are indemnified under Maryland law,
the Charter and By-Laws of the Company and the Partnership Agreement against
certain liabilities. The Charter requires the Company to indemnify its directors
and officers to the fullest extent permitted from time to time by the laws of
the State of Maryland. The By-Laws contain provisions which implement the
indemnification provisions of the Charter.
The MGCL permits a corporation to indemnify its directors and officers,
among others, against judgments, penalties, fines, settlements and reasonable
expenses actually incurred by them in connection with any proceeding to which
they may be made a party by reason of their service in those capacities unless
it is established that the act or omission of the director or officer was
material to the matter giving rise to the proceeding and was committed in bad
faith or was the result of active and deliberate dishonesty, or the director or
officer actually received an improper personal benefit in money, property or
services, or in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful, or the
director or officer was adjudged to be liable to the corporation for the act or
omission. No amendment of the Charter shall limit or eliminate the right to
indemnification provided with respect to acts or omissions occurring prior to
such amendment or repeal. Maryland law permits the Company to provide
indemnification to an officer to the same extent as a director, although
additional indemnification may be provided if such officer is not also a
director.
The MGCL permits the articles of incorporation of a Maryland corporation to
include a provision limiting the liability of its directors and officers to the
corporation and its shareholders for money damages, with specified exceptions.
The MGCL does not, however, permit the liability of directors and officers to
the corporation or its shareholders to be limited, to the extent that (1) it is
proved that the person actually received an improper benefit or profit in money,
property or services (to the extent such benefit or profit was received) or (2)
a judgment or other final adjudication adverse to such person is entered in a
proceeding based on a finding that the person's action, or failure to act, was
the result of active and deliberate dishonesty and was material to the cause of
action adjudicated in the proceeding. The Charter contains a provision
consistent with the MGCL. No amendment of the
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Charter shall limit or eliminate the limitation of liability with respect to
acts or omissions occurring prior to such amendment or repeal.
The Partnership Agreement also provides for indemnification of the Company
and its officers and directors to the same extent indemnification is provided to
officers and directors of the Company in its Charter, and limits the liability
of the Company and its officers and directors to the Operating Partnership and
its partners to the same extent liability of officers and directors of the
Company to its shareholders is limited under the Company's Charter. See
'Partnership Agreement of the Operating Partnership--Indemnification.'
Insofar as indemnification for liability arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
SHARES AVAILABLE FOR FUTURE SALE
GENERAL
Upon consummation of the Formation Transactions, there will be (i) 47,660
shares of Common Stock issued and outstanding, including an aggregate of 10,660
shares of Common Stock held by Mr. Pilevsky, (ii) 1,450,000 Units of the
Operating Partnership issued and outstanding, including an aggregate of 964,641
Units held by Mr. Pilevsky, and (iii) 1,940 shares of Series A Preferred Stock
issued and outstanding, convertible into 38,800 shares of Common Stock. Upon
consummation of the Formation Transactions, the Trustees will receive an
aggregate of 5,000 shares of Common Stock and the Trustees Warrants, which are
immediately exercisable, entitling them to purchase an aggregate of 8,000 shares
of Common Stock. See 'Formation Transactions and Structure of the Company' and
'Principal Shareholders.'
The Common Stock issued to Mr. Pilevsky and the Trustees, the Units, the
Trustees Warrants, the shares issuable upon conversion of the Series A Preferred
Stock and the shares issuable upon redemption of the Units or exercise of the
Trustees Warrants (collectively, the 'Restricted Shares'), will be 'restricted'
securities within the meaning of Rule 144 promulgated under the Securities Act
('Rule 144') and may not be sold in the absence of registration under the
Securities Act unless an exemption from registration is available, including
exemptions contained in Rule 144. As described below under 'Registration
Rights,' the Company has granted certain holders of the Restricted Shares
registration rights with respect to the shares of Common Stock underlying the
Units. The Units cannot be redeemed for shares of Common Stock until one year
from their date of issuance.
In general, under Rule 144, as currently in effect, if one year has elapsed
since the later of the date of acquisition of Restricted Shares from the Company
or any 'affiliate' of the Company, as that term is defined under the Securities
Act, the acquiror or subsequent holder thereof is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of (i)
1% of the then outstanding shares of Common Stock (approximately 477 shares upon
consummation of the Formation Transactions) or (ii) the average weekly trading
volume in the Common Stock during the four calendar weeks immediately preceding
such sale, subject to the filing of a Form 144 with respect to such sale and
certain other limitations and restrictions. Sales under Rule 144 are also
subject to certain manner of sale provisions, notice requirements and the
availability of current public information about the Company. In addition, if
two years have elapsed since the later of the date of acquisition of Restricted
Shares from the Company or from any affiliate of the Company, and the acquiror
or any subsequent holder thereof is not deemed to have been an affiliate of the
Company at any time during the 90 days preceding a sale, such person would be
entitled to sell such shares in the public market under Rule 144(k) without
regard to the above-described requirements.
The Company has established the Stock Option Plan for the purpose of
attracting and retaining directors, executive officers and other key employees.
See 'Management--Stock Option Plan', '--Executive Compensation' and
'--Compensation of Directors.' The Company intends to issue options to purchase
approximately 261,600 shares of Common Stock to directors, executive officers,
certain key employees and consultants upon consummation of the Formation
Transactions, and has reserved 138,400 additional shares for future issuance
under the Stock Option Plan. Prior to the expiration of the initial 12-month
period following consummation of the Formation Transactions, the Company expects
to file a registration statement with the
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Commission with respect to the Common Stock issuable under the Stock Option
Plan, pursuant to which shares may be resold without restriction, unless held by
affiliates.
There is currently no public market for the Common Stock. No prediction can
be made as to the effect, if any, that future sales of Common Stock, or the
availability of Common Stock for future sale or the redemption of Units will
have on the market price of the Common Stock prevailing from time to time should
a public market for the Common Stock be established. Sales of substantial
amounts of Common Stock, the conversion of Series A Preferred Stock, the
redemption of Units or the perception that such sales or redemptions could
occur, could adversely affect prevailing market prices of the shares of Common
Stock and impair the Company's ability to obtain additional capital through the
sale of equity securities. See 'Risk Factors--Absence of Public Market for
Shares.'
REGISTRATION RIGHTS
Pursuant to the Registration Rights Agreement, the Company has granted the
members of the Philips Group receiving Units in connection with the Formation
Transactions certain 'shelf' registration rights (collectively, the
'Registration Rights') with respect to the shares of Common Stock acquired upon
the redemption of Units (the 'Registrable Shares'). Subject to certain
limitations, the Registration Rights grant such holders of Registrable Shares
the opportunity to have such Registrable Shares registered by the Company on
Form S-3 at any time commencing one year after the consummation of the Formation
Transactions, as may be appropriate under the applicable provisions of the
Securities Act. It is uncertain whether Rule 144 will apply to transfers of the
Units as it is unclear whether certain tacking rules apply to the holding period
of the Units prior to a redemption of such Units for Common Stock. The Company
will bear expenses incident to its registration obligations upon exercise of the
Registration Rights, including the payment of federal securities law and state
blue sky registration fees, except that it will not bear any underwriting
discounts or commissions or transfer taxes relating to registration of
Registrable Shares.
FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material federal income tax
considerations that may be relevant to a prospective holder of shares of Common
Stock. Pryor, Cashman, Sherman & Flynn, which has acted as tax counsel to the
Company in connection with the formation of the Company and the Company's
election to be taxed as a REIT, has reviewed the following discussion and is of
the opinion that it fairly summarizes the federal income tax considerations that
are likely to be material to a holder of Common Stock. This discussion and such
opinion are based on current law. The following discussion is not exhaustive of
all possible tax considerations. This summary does not give a detailed
discussion of any state, local or foreign tax considerations. Nor does it
discuss all of the aspects of federal income taxation that may be relevant to a
prospective stockholder in light of his or her particular circumstances or to
certain types of shareholders (including insurance companies, tax-exempt
entities, financial institutions or broker-dealer, foreign corporations and
persons who are not citizens or residents of the United States) subject to
special treatment under the federal income tax laws. As used in this section the
term 'Company' refers solely to Philips International Realty Corp.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT WITH HIS OR HER OWN TAX
ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE PURCHASE,
OWNERSHIP AND SALE OF COMMON STOCK IN AN ENTITY ELECTING TO BE TAXED AS A REAL
ESTATE INVESTMENT TRUST, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER
TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP AND SALE AND OF POTENTIAL CHANGES
IN APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY
General. The Company intends to make an election to be taxed as a REIT
under Sections 856 through 860 of the Code commencing with the taxable year
ending December 31, 1998, but may elect to qualify as a REIT as early as the
taxable year ending December 31, 1997. The Company will elect REIT status for
the year ending December 31, 1997, if the failure to so elect would adversely
affect National's REIT status. The Company believes that, commencing with its
taxable year ending December 31, 1997, it will be organized and will operate in
such a manner as to qualify for taxation as a REIT under the Code, and the
Company intends to continue to
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operate in such a manner. No assurance, however, can be given that the Company
will operate in a manner so as to qualify or remain qualified as a REIT.
In the opinion of Pryor, Cashman, Sherman & Flynn, commencing with the
Company's taxable year ending December 31, 1997 (assuming REIT status is elected
for 1997 and, if not, for the taxable year ending December 31, 1998), and
assuming the consummation of the transactions contemplated herein and a timely
election for REIT status, the Company will be organized in conformity with the
requirements for qualification as a REIT, and its proposed method of operation
will enable it to meet the requirements for qualification and taxation as a REIT
under the Code. This opinion is based on certain assumptions relating to the
organization and operation of the Holding Partnerships in which the Operating
Partnership will hold an interest, and is conditioned upon certain
representations made by the Company as to certain factual matters relating to
the Company's organization and intended or expected manner of operation. Pryor,
Cashman, Sherman & Flynn is not aware of any facts or circumstances that are
inconsistent with these assumptions and representations. The Company's
qualification and taxation as a REIT will depend upon the Company's ability to
meet on a continuing basis, through actual annual operating results,
distribution levels and diversity of stock ownership, the various qualification
tests imposed under the Code discussed below. Pryor, Cashman, Sherman & Flynn
will not review compliance with these tests on a continuing basis, and thus no
assurance can be given that the Company will satisfy such tests on a continuing
basis. See 'Failure to Qualify' below. The opinion of Pryor, Cashman, Sherman &
Flynn is not binding upon the IRS and no assurance can be given that the IRS
will not challenge the Company's eligibility for taxation as a REIT. The opinion
of Pryor, Cashman, Sherman & Flynn is also based upon current law.
The following is a general summary of the Code sections that govern the
federal income tax treatment of a REIT and its shareholders. These sections of
the Code are highly technical and complex, and this summary is qualified in its
entirety by the applicable Code provisions, the regulations promulgated
thereunder ('Treasury Regulations') and administrative and judicial
interpretations thereof, all of which are subject to change.
If the Company qualifies for taxation as a REIT, it generally will not be
subject to federal corporate income taxes on taxable income that it currently
distributes to shareholders. This treatment substantially eliminates the 'double
taxation' (at the corporate and stockholder levels) that generally results from
investment in a corporation. However, the Company will be subject to federal
income tax in the following circumstances. First, the Company will be taxed at
regular corporate rates on any undistributed REIT taxable income, including
undistributed net capital gains. Second, under certain circumstances, the
Company may be subject to the 'alternative minimum tax' on its items of tax
preference. Third, if the Company has (i) taxable income from the sale or other
disposition of 'foreclosure property' (which is, in general, property acquired
by the Company by foreclosure or otherwise on default on a loan secured by the
property) which is held primarily for sale to customers in the ordinary course
of business or (ii) other non-qualifying income from foreclosure property, it
will be subject to tax at the highest corporate rate on such income. Fourth, if
the Company has taxable income from prohibited transactions (which are, in
general, certain sales or other dispositions of property (other than foreclosure
property) held primarily for sale to customers in the ordinary course of
business), such income will be subject to a 100% tax. Fifth, if the Company
should fail to satisfy the 75% gross income test or the 95% gross income test
(as discussed below), and has nonetheless maintained its qualification as a REIT
because certain other requirements have been met, it will be subject to a 100%
tax on the taxable income attributable to the greater of the amount by which the
Company fails the 75% or 95% test, multiplied by a fraction intended to reflect
the Company's profitability. Sixth, if the Company should fail to distribute
during each calendar year at least the sum of (i) 85% of its REIT ordinary
income for such year, (ii) 95% of its REIT capital gain net income for such year
and (iii) any undistributed taxable income from prior years, the Company would
be subject to a 4% excise tax on the excess of such required distribution over
the amounts actually distributed. Seventh, if the Company acquires any asset
from a C corporation (i.e., a corporation generally subject to full corporate
level tax) in a transaction in which the basis of the asset in the Company's
hands is determined by reference to the basis of the asset (or any other
property) in the hands of the C corporation, and the Company recognizes gain on
the disposition of such asset during the 10-year period beginning on the date on
which such asset was acquired by the Company, then, to the extent of such
property's 'built-in' gain (the excess of the fair market value of such property
at the time of acquisition by the Company over the adjusted basis in such
property at such time), such gain will be subject to tax at the highest regular
corporate rate applicable (pursuant to Treasury Regulations that
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have not yet been promulgated). The results described above with respect to the
recognition of 'built-in gain' assume that the Company will make an election
pursuant to IRS Notice 88-19.
Requirements for Qualification. The Code defines a REIT as a corporation,
trust or association (1) which is managed by one or more trustees or directors;
(2) the beneficial ownership of which is evidenced by transferable shares or by
transferable certificates of beneficial interest; (3) which would be taxable as
a domestic corporation but for Sections 856 through 859 of the Code; (4) which
is neither a financial institution nor an insurance company subject to certain
provisions of the Code; (5) the beneficial ownership of which is held by 100 or
more persons; (6) during the last half of each taxable year not more than 50% in
value of the outstanding stock of which is owned, directly or indirectly, by
five or fewer individuals (as defined in the Code to include certain entities);
and (7) which meets certain other tests, described below, regarding the nature
of its income and assets. The Code provides that conditions (1) through (4),
inclusive, must be met during the entire taxable year and that condition (5)
must be met during at least 335 days of a taxable year of 12 months, or during a
proportionate part of a taxable year of less than 12 months. Conditions (5) and
(6) will not apply until after the first taxable year for which an election is
made to be taxed as a REIT. The Company anticipates issuing sufficient shares of
Common Stock in sufficient proportions to allow the Company to satisfy
requirements (5) and (6). In addition, the Company's Charter will provide
restrictions regarding the transfer of its shares that are intended to assist
the Company in continuing to satisfy the share ownership requirements described
in (5) and (6) above. See 'Description of Capital Stock--Restrictions on
Transfer.' Pursuant to the recently enacted Taxpayer Relief Act of 1997 (the
'Act'), effective for the Company's taxable years beginning on or after January
1, 1998, so long as the Company complies with the Treasury Regulations (the
'Stock Ownership Regulations') for ascertaining the ownership of its stock, the
Company will not lose its qualification as a REIT as a result of a violation of
condition (6) if it neither knows nor upon exercising reasonable due diligence
would have known of such violation. In addition, under prior law, the Company's
failure to comply with the Stock Ownership Regulations could have resulted in
its disqualification as a REIT for the taxable year of the failure. For taxable
years beginning on or after January 1, 1998, the Company would be subject to a
financial penalty of $25,000 ($50,000 for intentional violations) for any year
in which it fails to comply with the Stock Ownership Regulations. Furthermore,
if the Company could establish that its failure to comply was due to reasonable
cause and not to willful neglect, no penalty would be imposed.
In addition, a corporation may not elect to become a REIT unless its
taxable year is the calendar year. The Company will have a calendar year taxable
year.
In the case of a REIT which is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the income
of the partnership attributable to such share. In addition, the character of the
assets and gross income of the partnership shall retain the same character in
the hands of the REIT for purposes of Section 856 of the Code, including
satisfying the gross income tests and asset tests. Thus, the Company's
proportionate share of the assets, liabilities and items of income of the
Operating Partnership and the Holding Partnerships in which the Operating
Partnership will have an interest will be treated as assets, liabilities and
items of income of the Company for purposes of applying the requirements
described herein.
Income Tests. In order to maintain qualification as a REIT, there are
three gross income requirements that must be satisfied annually. First, at least
75% of the REIT's gross income (excluding gross income from 'prohibited
transactions') for each taxable year must be derived directly or indirectly from
investments relating to real property or mortgages on real property (including
'rents from real property' and, in certain circumstances, interest) or from
certain types of temporary investments (the '75% Test'). Second, at least 95% of
the REIT's gross income (excluding gross income from 'prohibited transactions' )
for each taxable year must be derived from such real property investments, and
from dividends, interest and gain from the sale or disposition of stock or
securities, or from any combination of the foregoing (the '95% Test,' and
together with the 75% Test, the 'Gross Income Tests'). Finally, for the 1997
taxable year of the Company ending on December 31, 1997, short-term gain from
the sale or other disposition of stock or securities, gain from 'prohibited
transactions' and gain on the sale or other disposition of real property held
for less than four years (apart from involuntary conversions and sales of
foreclosure property) must represent less than 30% of the REIT's gross income
(including gross income from 'prohibited transactions') for each taxable year.
However, the 30% Test was repealed by the Act for taxable years beginning on or
after January 1, 1988. In addition, pursuant to the Act,
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for taxable years beginning on or after January 1, 1988, except to the extent
provided by regulations, 'qualifying income' for purposes of the Gross Income
Tests would include payments to the Company under an interest rate swap, cap
agreement, option, futures contract, forward rate agreement or any similar
financial instrument entered into by the Company to hedge its indebtedness, as
well as any gain from the disposition of any of the foregoing investments.
Rents received by the Company will qualify as 'rents from real property' in
satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in whole
or in part on the income or profits of any person. However, an amount received
or accrued generally will not be excluded from the term 'rents from real
property' solely by reason of being based on a fixed percentage or percentages
of receipts or sales. Second, the Code provides that rents received from a
tenant will not qualify as 'rents from real property' in satisfying the gross
income tests if the Company or an owner of l0% or more of the Company, actually
or constructively, owns 10% or more of such tenant (a 'Related Party Tenant').
Effective for the Company's taxable years beginning on or after January 1, 1998,
the constructive ownership rules for determining whether a tenant is a Related
Party Tenant are modified with respect to partners and partnerships to provide
that attribution between partners and partnerships occurs only when a partner
owns, directly and/or indirectly, a 25%-or-greater interest in the partnership.
Thus, a tenant will not be treated as a Related Party Tenant with respect to the
Company if shares of the Company are owned by a partnership and a partner that
owns, directly and indirectly, a less-than-25% interest in such partnership also
owns an interest in the tenant. A tenant will also not be a Related Party Tenant
if shareholders of the Company and owners of such tenant are partners in a
partnership in which neither owns, directly and/or indirectly, a 25%-or-greater
interest. Third, if rent attributable to personal property, leased in connection
with a lease of real property is greater than 15% of the total rent received
under the lease (the '15% Limitation'), then the portion of rent attributable to
such personal property will not qualify as 'rents from real property.' The
Company does not anticipate (i) charging rent for any portion of any Property
that is based in whole or in part on the income or profits of any person (except
by reason of being based on a percentage of receipts on sales, which, as
described above, is permitted), (ii) receiving rents in excess of a de minimis
amount from Related Party Tenants, and (iii) deriving rent attributable to
personal property leased in connection with real property in excess of the 15%
Limitation. Finally, for rents received to qualify as 'rents from real
property,' the Company generally must not operate or manage the property or
furnish or render services to tenants, other than through an 'independent
contractor' from whom the Company derives no revenue. The 'independent
contractor' requirement, however, does not apply to the extent the services
provided by the Company are 'usually or customarily rendered' in connection with
the rental of space for occupancy only and are not otherwise considered
'rendered to the occupant.' The Operating Partnership will provide certain
services with respect to the Properties that are intended to comply with the
'usually or customarily rendered' requirement. In the case of any services that
are not 'usual and customary' under the foregoing rules ('Impermissible
Services'), the Company intends to employ independent contractors to perform
such services.
Pursuant to the Act, effective for its tax years beginning on or after
January 1, 1998, the Company may render a de minimis amount of Impermissible
Services to tenants, or in connection with the management of property, without
having otherwise qualifying rents from the property being disqualified as 'rents
from real property.' The receipt of income in respect of such Impermissible
Services ('Impermissible Services Income') does not disqualify otherwise
qualifying income from real property as 'rents from real property' so long as
the Impermissible Services Income from the property does not exceed 1% of the
Company's gross income from the property for that tax year. To qualify for this
1% exception, the Impermissible Services may not be valued at less than 150% of
the Company's direct cost of service. The amount of any Impermissible Services
Income, however, is not treated as 'rents from real property' for purposes of
the 75% and 95% Gross Income Tests and, accordingly, must be considered together
with other nonqualifying income for puposes of satisfying the Gross Income
Tests.
The Operating Partnership may receive fees in consideration of the
performance of management and administrative services with respect to Properties
that are not owned entirely by the Operating Partnership. Although a portion of
such management and administrative fees generally will not qualify under the
Gross Income Tests, the Company believes that the aggregate amount of such fees
(and any Impermissible Services or other non-qualifying income) in any taxable
year will not cause the Company to fail the Gross Income Tests.
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If the Company fails to satisfy one or both of the Gross Income Tests for
any taxable year, it may nevertheless qualify as a REIT for such year if it is
entitled to relief under certain provisions of the Code. These relief provisions
generally will be available if the Company's failure to meet such tests was due
to reasonable cause and not due to willful neglect, the Company attaches a
schedule of the sources of its income to its return, and any incorrect
information on the schedules was not due to fraud with intent to evade tax. It
is not possible, however, to state whether in all circumstances the Company
would be entitled to the benefit of these relief provisions. As discussed above
in '--General,' even if these relief provisions apply, a tax would be imposed
with respect to the excess net income.
Effective for taxable years beginning on or after January 1, 1998, property
that is involuntarily converted will be excluded from the 'prohibited
transaction' rules.
Asset Tests. The Company, at the close of each quarter of its taxable
year, must also satisfy three tests relating to the nature of its assets. First,
at least 75% of the value of the Company's total assets (including its allocable
share of real estate assets held by (i) the Operating Partnership and
partnerships or limited liability companies in which the Operating Partnership
owns an interest or (ii) 'qualified REIT subsidiaries' of the Company) must be
represented by real estate assets, stock or debt instruments held for not more
than one year purchased with the proceeds of a stock offering or long-term (at
least five years) debt offering of the Company, cash, cash items and government
securities. Second, not more than 25% of the Company's total assets may be
represented by securities other than those in the 75% asset class. Third, of the
investments included in the 25% asset class, the value of any one issuer's
securities owned by the Company may not exceed 5% of the value of the Company's
total assets, and the Company may not own more than 10% of any one issuer's
outstanding voting securities. The 5% test must generally be met for any quarter
in which a REIT acquires securities of an issuer.
A REIT which meets the foregoing asset tests at the close of any quarter
will not lose its status as a REIT for failure to satisfy the asset tests at the
end of a later quarter solely by reason of changes in asset values. If the
failure to satisfy the asset tests results from an acquisition of securities or
other property during a quarter (including as a result of the REIT increasing
its interest in any partnership in whcih the REIT is a partner), the failure can
be cured by disposition of sufficient nonqualifying assets within 30 days after
the close of that quarter. The Company intends to maintain adequate records of
the value of its assets to ensure compliance with the asset tests and to take
such other actions within 30 days after the close of any quarter as may be
required to cure any noncompliance. If the Company failed to cure noncompliance
with the asset tests within such time period, the Company would cease to qualify
as a REIT.
Annual Distribution Requirements. The Company, in order to qualify as a
REIT, is required to distribute dividends (other than capital gain dividends) to
its shareholders in an amount at least equal to (A) the sum of (i) 95% of the
Company's 'REIT taxable income' (computed without regard to the dividends paid
deduction and the REIT's net capital gain) and (ii) 95% of the net income (after
tax), if any, from foreclosure property, minus (B) the sum of certain items of
non-cash income. In addition, if the Company disposes of any Built-In Gain Asset
during the Recognition Period, the Company could be required, pursuant to
Treasury Regulations that have not yet been promulgated, to distribute at least
95 percent of any Built-In Gain (after tax) recognized on the disposition of
such asset. Such distributions must be paid in the taxable year to which they
relate, or in the following taxable year if declared before the Company timely
files its tax return for such year and if paid on or before the first regular
dividend payment after such declaration. To the extent that the Company does not
distribute all of its net capital gain or distributes at least 95%, but less
than 100%, of its 'REIT taxable income,' as adjusted, it will be subject to tax
on the undistributed amount at regular capital gains and ordinary corporate tax
rates. As discussed below, shareholders of the Company for taxable years of the
Company beginning on or after January 1, 1998, would receive a tax credit for
the corporate level taxes paid by the Company on any undistributed capital
gains. See 'Taxation of Domestic Shareholders' below. Furthermore, if the
Company should fail to distribute during each calendar year at least the sum of
(i) 85% of its REIT ordinary income for such year, (ii) 95% of its REIT capital
gain income for such year, and (iii) any undistributed taxable income from prior
periods, the Company would be subject to a 4% excise tax (the 'Excise Tax') on
the excess of such required distribution over the amounts actually distributed.
As discussed more completely below under 'Taxation of Domestic
Shareholders,' the Company may elect pursuant to the Act for its taxable years
beginning on or after January 1, 1998, to retain any long-term capital gain
recognized during a taxable year ('Retained Gains') and pay a corporate level
tax on such Retained Gains.
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The Retained Gains are then considered to have been distributed to holders of
Common Stock. It is unclear whether any Retained Gains would be treated as
having been actually distributed for purposes of the Excise Tax. Absent public
guidance from the IRS or the adoption of corrective statutory provisions, if
Retained Gains were not treated as being actually distributed, any Retained
Gains possibly could be subject to the Excise Tax.
The Company intends to make timely distributions sufficient to satisfy the
annual distribution requirements. In this regard, the Partnership Agreement of
the Operating Partnership authorizes the Company, as general partner, to take
such steps as may be necessary to cause the Operating Partnership to distribute
to its partners an amount sufficient to permit the Company to meet these
distribution requirements. It is possible, however, that the Company, from time
to time, may not have sufficient cash or other liquid assets to meet the 95%
distribution requirement due to timing differences between the actual receipt of
income and actual payment of deductible expenses and the inclusion of such
income and deduction of such expenses in arriving at taxable income of the
Company, or if the amount of nondeductible expenses such as principal
amortization or capital expenditures exceed the amount of non-cash deductions.
In the event that such timing differences occur, in order to meet the 95%
distribution requirement, the Company may, or may cause the Operating
Partnership to, arrange for short-term, or possibly long-term, borrowing to
permit the payment of required dividends. If the amount of nondeductible
expenses exceeds non-cash deductions, the Operating Partnership may refinance
its indebtedness to reduce principal payments and borrow funds for capital
expenditures.
Under certain circumstances, the Company may be able to rectify a failure
to meet the distribution requirement for a year by paying 'deficiency dividends'
to shareholders in a later year that may be included in the Company's deduction
for dividends paid for the earlier year. Thus, the Company may be able to avoid
being taxed on amounts distributed as deficiency dividends, however, the Company
will be required to pay to the IRS interest based upon the amount of any
deduction taken for deficiency dividends.
Failure to Qualify. If the Company fails to qualify for taxation as a REIT
in any taxable year and the relief provisions do not apply, the Company will be
subject to tax (including any applicable alternative minimum tax) on its taxable
income at regular corporate rates. Distributions to shareholders in any year in
which the Company fails to qualify will not be deductible by the Company, nor
will they be required to be made. In such event, to the extent of current and
accumulated earnings and profits, all distributions to shareholders will be
taxable as ordinary income, and, subject to certain limitations in the Code,
corporate distributees may be eligible for the dividends received deduction.
Unless entitled to relief under specific statutory provisions, the Company also
will be disqualified from taxation as a REIT for the four taxable years
following the year during which qualification was lost. It is not possible to
state whether in all circumstances the Company would be entitled to such
statutory relief.
TAXATION OF SHAREHOLDERS
Taxation of Taxable Domestic Shareholders. As long as the Company
qualifies as a REIT, distributions made to the Company's taxable domestic
shareholders out of current or accumulated earnings and profits (and not
designated as capital gain dividends) will be taken into account by them as
ordinary income and will not be eligible for the dividends received deduction
for corporations. Distributions that are designated as capital gain dividends
will be taxed as long-term capital gains (to the extent they do not exceed the
Company's actual net capital gain for the taxable year) without regard to the
period for which the stockholder has held its stock. Although the matter is not
entirely free from doubt, it appears that, pursuant to the Act, the portion of
any such distributions designated as capital gain dividends attributable to gain
recognized after July 28, 1997 with respect to capital assets held by the
Company for more than 18 months on the date of sale will be treated as long-term
capital gain taxable at a maximum rate of 20% (or 25% to the extent any such
gain arises from the recapture of straight-line depreciation deductions
reflected in the basis of real property that has been held by the Company for
more than 18 months as of the date of sale) and any remaining portion of such
capital gain dividends will be treated as long-term capital gain taxable at a
maximum rate of 28%. However, corporate shareholders may be required to treat up
to 20% of certain capital gain dividends as ordinary income. Distributions in
excess of current and accumulated earnings and profits will not be taxable to a
stockholder to the extent that they do not exceed the adjusted basis of the
stockholder's shares of Common Stock, but rather will reduce the adjusted basis
of such shares. Assuming a shareholder holds his shares of Common Stock as a
capital asset, any such distributions in excess of a shareholder's adjusted
basis in his shares of Common Stock will be included in income as long-term
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capital gain taxable at a maximum rate of 20% if the gain is recognized after
July 28, 1997 and the shares have been held for more than 18 months at the time
of sale, long-term capital gain taxable at a maximum rate of 28% if the shares
have been held for more than one year but not more than 18 months and short-term
capital gain taxable at a maximum rate of up to 39.6% if the shares been held
for only one year or less. To the extent that such distributions exceed the
adjusted basis of a stockholder's shares of Common Stock, they will be included
in income as long-term capital gain (or short-term capital gain if the shares
have been held for one year or less), assuming the shares are a capital asset in
the hands of the stockholder. In addition, any dividend declared by the Company
in October, November or December of any year payable to a stockholder of record
on a specific date in any such month shall be treated as both paid by the
Company and received by the stockholder on December 31 of such year, provided
that the dividend is actually paid by the Company during January of the
following calendar year. Shareholders may not include in their individual income
tax any net operating losses or capital losses of the Company.
As indicated above, pursuant to the Act, the Company may elect, for taxable
years of the Company beginning on or after January 1, 1998, to retain gains
recognized by it and pay a corporate level tax on the undistributed amounts. The
maximum rate of tax applicable to corporate capital gains is 35%. To the extent
the Company recognized corporate level long-term capital gains which it retained
rather than distributing, a shareholder owning shares of Common Stock on
December 31 of the year in which such Retained Gains were recognized would be
required to include his proportionate share of the Retained Gains (as designated
by the Company in a notice mailed to the shareholder within the first 60 days of
the next year) in income for that year as long-term capital gain. Each
shareholder would be deemed to have paid a proportionate share of the amount of
tax paid by the Company with respect to the Retained Gains and would be allowed
a credit or refund for the tax deemed to be paid by him. Shareholders receiving
any such Retained Gains would increase their adjusted tax basis in their shares
of Common Stock by an amount equal to the Retained Gains included in their
income reduced by the amount of Company level tax deemed to have been paid by
them.
In general, any loss upon a sale or exchange of shares of Common Stock by a
stockholder who has held such shares for six months or less (after applying
certain holding period rules) will be treated as a long-term capital loss to the
extent of distributions from the Company required to be treated by such
stockholder as long-term capital gain.
Backup withholding. The Company will report to its domestic shareholders
and the IRS the amount of dividends paid during each calendar year, and the
amount of tax withheld, if any, with respect thereto. Under the backup
withholding rules, a stockholder may be subject to backup withholding at the
rate of 31% with respect to dividends paid unless such holder (a) is a
corporation or comes within certain other exempt categories and, when required,
demonstrates this fact or (b) provides a taxpayer identification number,
certifies as to no loss of exemption from backup withholding and otherwise
complies with applicable requirements of the backup withholding rules. A
stockholder who does not provide the Company with its correct taxpayer
identification number may also be subject to penalties imposed by the IRS. Any
amount paid as backup withholding will be creditable against the stockholder's
income tax liability. In addition, the Company may be required to withhold a
portion of capital gain distributions made to any shareholders who fail to
certify their non-foreign status to the Company. See '--Taxation of Foreign
Shareholders' below.
Taxation of Tax-Exempt Shareholders. Based upon published rulings by the
IRS, distributions by the Company to a shareholder that is a tax exempt entity
will not constitute 'unrelated business taxable income' ('UBTI'), provided that
the tax exempt entity has not financed the acquisition of its shares with
'acquisition indebtedness' within the meaning of the Code and the shares are not
otherwise used in an unrelated business or trade of the tax exempt entity.
In applying the REIT stock ownership test under the Code, a 'qualified
trust' (generally a pension trust or profit-sharing trust) is treated as holding
the shares of a REIT in proportion to their actuarial interests in such
qualified trust, and thus permits certain pension trusts to acquire more
concentrated ownership of a REIT. A 'qualified trust' owning more than 10% of a
REIT must treat a percentage of dividends from the REIT as UBTI. The percentage
is determined by dividing the REIT's gross income derived from an unrelated
trade or business for the year by the gross income of the REIT for the year in
which the dividends are paid. If this percentage is less than five percent,
however, dividends are not treated as UBTI. In general, the UBTI rule applies to
a REIT where the REIT qualifies as a REIT by reason of the above modification of
the stock ownership test and (i) one
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qualified trust owns more than 25% of the value of the REIT; or (ii) a group of
qualified trusts, each holding more than 10% of the value of the REIT,
collectively own more than 50% of the value of the REIT.
Taxation of Foreign Shareholders. The rules governing U.S. federal income
taxation of nonresident alien individuals, foreign corporations, foreign
partnerships and other foreign shareholders (collectively, 'Non-U.S.
Shareholders') are complex, and no attempt will be made herein to provide more
than a limited summary of such rules. Prospective Non-U.S. Shareholders 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.
Accordingly, the discussion does not address all aspects of U.S. federal
income tax and does not address state, local or foreign tax consequences
(including treaty benefits, if any, that may be available in certain instances)
that may be relevant to a Non-U.S. Shareholder in light of its particular
circumstances. In addition, this discussion is based on current law, which is
subject to change, and assumes that the Company qualifies for taxation as a
REIT. Non-U.S. Shareholders 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 that are not attributable to gain from sales or exchanges by
the Company of U.S. real property interests and not designated by the Company as
capital gain dividends will be treated as dividends of ordinary income to the
extent that they are made out of current or accumulated earnings and profits of
the Company. Such distributions ordinarily will 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 shares of
Common Stock is treated as effectively connected with the Non-U.S. Stockholder's
conduct of a U.S. trade or business, the Non-U.S. Shareholder generally will be
subject to a tax at graduated rates, in the same manner as U.S. shareholders 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. income tax at the rate of 30% on the gross amount of any dividends
paid to a Non-U.S. Shareholder unless (i) a lower treaty rate applies and the
required form evidencing eligibility for that reduced rate is filed with the
Company or (ii) the Non-U.S. Shareholder files an IRS Form 4224 with the Company
claiming that the distribution is 'effectively connected' income.
Distributions in excess of current and accumulated earnings and profits of
the Company will not be taxable to a shareholder to the extent that they do not
exceed the adjusted basis of the shareholder's shares of Common Stock, but
rather will reduce the adjusted basis of such shares. To the extent that such
distributions exceed the adjusted basis of a Non-U.S. Shareholder's shares, they
will give rise to tax liability if the Non-U.S. Shareholder would otherwise be
subject to tax on any gain from the sale or disposition of his shares of Common
Stock as described below. If it cannot be determined at the time a distribution
is made whether or not such distribution will be in excess of current and
accumulated earnings and profits, such distribution will be subject to
withholding at the rate applicable to dividends. However, the Non-U.S.
Shareholder may seek a refund of such amounts from the IRS if it is subsequently
determined that such distribution was, in fact, in excess of current and
accumulated earnings and profits of the Company.
Under proposed Treasury Regulations, withholding procedures would be
revised. Should the proposal be adopted, withholding generally would be at
either 31 percent or 30 percent unless a new Form W-8 is filed with the Company
by the beneficial owner to establish entitlement to treaty benefits or exemption
based upon the income being 'effectively connected'. In some instances,
additional documentation might be required from the beneficial owner, including
an individual taxpayer identification number from the IRS and a certification of
tax status from the tax authorities of the beneficial owner's country of
residence.
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. Shareholder under the provisions
of the Foreign Investment in Real Property Tax Act of 1980 ('FIRPTA'). Under
FIRPTA, these distributions are taxed to a Non-U.S. Shareholder as if such gain
were effectively connected with a U.S. business. Thus, Non-U.S. Shareholders
would be taxed at the normal capital gain rates applicable to U.S. shareholders
(subject to applicable alternative minimum tax and a special alternative minimum
tax in the case of nonresident alien individuals). Also, distributions subject
to FIRPTA may be subject to a 30% branch profits tax in the hands
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of a corporate Non-U.S. Shareholder not entitled to treaty relief or exemption.
The Company is required by applicable Treasury Regulations to withhold 35% of
any distribution that could be designated by the Company as a capital gain
dividend. This amount is creditable against the Non-U.S. Shareholder's FIRPTA
tax liability.
Gain recognized by a Non-U.S. Shareholder upon a sale of Common Stock
generally will not be taxed under FIRPTA if a REIT is a domestically controlled
REIT, defined generally as a REIT in which at all times during a specified
testing period less than 50% in value of the stock was held directly or
indirectly by foreign persons. It is currently anticipated that the Company will
be a 'domestically controlled REIT,' and therefore 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. Shareholder if (i) investment in the Common Stock
is 'effectively connected' with the Non-U.S. Shareholder's U.S. trade or
business, in which case the Non-U.S. Shareholder will be subject to the same
treatment as U.S. shareholders with respect to such gain, or (ii) the Non-U.S.
Shareholder 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, in which case the nonresident alien individual will be subject to
a 30% tax on the individual's capital gains. If the gain on the sale of Common
Stock were to be subject to taxation under FIRPTA, the Non-U.S. Shareholder
would be subject to the same treatment as U.S. shareholders with respect to such
gain (subject to applicable alternative minimum tax, possible withholding tax
and a special alternative minimum tax in the case of nonresident alien
individuals).
New Withholding Regulations. Final regulations pertaining to withholding
tax on income paid to foreign persons and related matters (the 'New Withholding
Regulations') were issued by the Treasury Department on October 6, 1997 and
published in the Federal Register on October 14, 1997. In general, the New
Withholding Regulations do not significantly alter the substantive withholding
and information reporting requirements, but unify current certification
procedures and forms and clarify reliance standards. For example, the New
Withholding Regulations adopt a certification rule which was in the proposed
regulations, under which a foreign shareholder who wishes to claim the benefit
of an applicable treaty rate with respect to dividends received from a United
States corporation will be required to satisfy certain certification and other
requirements. In addition, the New Withholding Regulations require a corporation
that is a REIT to treat as a dividend the portion of a distribution that is not
designated as a capital gain dividend or return of basis and apply the 30%
withholding tax (subject to any applicable deduction or exemption) to such
portion, and to apply the FIRPTA withholding rules (discussed above) with
respect to the portion of the distribution designated by the REIT as capital
gain dividend. The New Withholding Regulations will generally be effective for
payments made after December 31, 1998, subject to certain transition rules. THE
DISCUSSION SET FORTH ABOVE IN 'TAXATION OF FOREIGN SHAREHOLDERS' DOES NOT TAKE
THE NEW WITHHOLDING REGULATIONS INTO ACCOUNT. PROSPECTIVE FOREIGN SHAREHOLDERS
ARE STRONGLY URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE NEW
WITHHOLDING REGULATIONS.
OTHER TAX CONSIDERATIONS
Effect on REIT Qualification of Tax Status of Operating Partnership and
Other Partnerships. Substantially all of the Company's investments will be held
through the Operating Partnership, which in turn will hold interests in other
partnerships. These partnerships may involve special tax risks, including the
possible challenge by the IRS of (i) allocations of income and expense items,
which could affect the computation of taxable income of the Company, and (ii)
the status of the partnerships as partnerships (as opposed to associations
taxable as corporations) for income tax purposes. This partnership status risk
should be substantially diminished by Treasury Regulations issued on December
17, 1996, permitting election of partnership status effective January 1, 1997 by
the filing of Form 8823 or in certain other ways specified in the new
Regulations. With respect to the Company's existing partnership investments, the
new Regulations provide that (1) previously claimed partnership status, if
supported by a reasonable basis for classification, will generally be respected
for all periods prior to January 1, 1997; and (2) previously claimed partnership
status will generally be retained after January 1, 1997, unless an entity elects
to change its status by filing a formal election. The Company believes that it
has a reasonable basis for the classification of the Operating Partnership, the
Contributing Partnerships and the Holding Partnerships as partnerships for
federal income tax purposes and has neither filed nor does the Company intend to
file an election to be treated otherwise. If any of the partnerships elected to
be treated as an association, they would be taxable as corporations. In such a
situation, if the Company's ownership interest in any of the partnerships
exceeded 10% of the partnership's voting interests or the value of such interest
exceeded
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5% of the value of the Company's assets, the Company would cease to qualify as a
REIT. Furthermore, in such a situation, distributions from any of the
partnerships to the Company would be treated as dividends, which are not taken
into account in satisfying the 75% 'gross income test' described above and which
could therefore make it more difficult for the Company to meet the 75% asset
test described above. Finally, in such a situation the Company would not be able
to deduct its share of losses generated by any of the partnerships in computing
its taxable income. See '--Taxation of the Company--Failure to Qualify' above
for a discussion of the effect of the Company's failure to meet such tests for a
taxable year. The Company believes that the partnerships in which it owns
interests have been and will continue to be treated as partnerships (rather than
as associations taxable as corporations) for federal income tax purposes.
However, no assurance can be given that the IRS may not successfully challenge
the status of any partnerships.
Tax Allocations With Respect to Contributed Properties. Pursuant to
Section 704(c) of the Code, income, gain, loss, and deduction attributable to
appreciated property that is contributed to a partnership in exchange for an
interest in the partnership must be allocated for federal income tax purposes in
a manner such that the contributor is charged with the unrealized gain
associated with the property at the time of the contribution. The amount of such
unrealized gain is generally equal to the difference between the fair market
value of the contributed property at the time of contribution and the adjusted
tax basis of such property at the time of contribution (the 'Book-Tax
Difference'). In general, the fair market value of the interests in the various
Partnerships contributed to the Operating Partnership will be substantially in
excess of their adjusted tax bases. The partnership agreements of each of the
Operating Partnership and the Holding Partnerships require that allocations
attributable to each item of contributed property be made so as to allocate the
tax depreciation available with respect to such property first to the partners
other than the partner that contributed the property, to the extent of, and in
proportion to, their book depreciation, and then, if any tax depreciation
remains, to the partner that contributed the property. Upon the disposition of
any item of contributed property, any gain attributable to an excess at such
time of basis for book purposes over basis for tax purposes would be allocated
for tax purposes to the contributing partner. These allocations are intended to
be consistent with the Treasury Regulations under Section 704(c) of the Code.
In general, the Philips Group will be allocated disproportionately lower
amounts of depreciation deductions for tax purposes relative to their percentage
interests in the Operating Partnership, and disproportionately greater shares
relative to their percentage interests in the Operating Partnership of the
taxable income and gain on the sale by the Partnerships of one or more of the
contributed properties. These tax allocations will tend to reduce or eliminate
the Book-Tax Difference over the life of the Partnerships. The partnership
agreements of the Operating Partnership and the Holding Partnerships will adopt
the 'traditional method' of allocating items under Section 704(c) of the Code,
unless otherwise agreed to between the Company and the contributing partner.
Under the traditional method the amounts of the special allocations of
depreciation and gain under the special rules of Section 704(c) of the Code will
be limited by the so-called 'ceiling rule' and will not always eliminate the
Book-Tax Difference on an annual basis or with respect to a specific transaction
such as a sale. Thus, the carryover basis of the contributed assets in the hands
of the partnerships will cause the Company to be allocated less depreciation
than would be available for newly purchased properties.
State and Local Taxes. The Company and its shareholders may be subject to
state or local taxation in various state or local jurisdictions, including those
in which it or they transact business or reside. The state and local tax
treatment of the Company and its shareholders may not conform to the federal
income tax consequences discussed above. Consequently, prospective shareholders
should consult their own tax advisors regarding the effect of state and local
tax laws on an investment in the Common Stock of the Company.
ERISA CONSIDERATIONS
The following is a summary of material considerations arising under the
Employee Retirement Income Security Act of 1974, as amended ('ERISA'), and the
prohibited transaction provisions of Section 4975 of the Code that may be
relevant to a prospective purchaser (including, with respect to the discussion
contained below in '--Status of the Company, the Operating Partnership and the
Holding Partnerships under ERISA', to a prospective purchaser that is not an
employee benefit plan, another tax-qualified retirement plan or an individual
retirement account ('IRA')). This discussion does not purport to deal with all
aspects of ERISA or Section 4975 of the Code or, to the extent not pre-empted,
state law that may be relevant to particular employee benefit plan
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shareholders (including plans subject to Title I of ERISA, other employee
benefit plans and IRAs subject to the prohibited transaction provisions of
Section 4975 of the Code, and governmental plans and church plans that are
exempt from ERISA and Section 4975 of the Code but that may be subject to state
law requirements) in light of their particular circumstances.
A FIDUCIARY MAKING THE DECISION TO INVEST IN SHARES OF COMMON STOCK ON
BEHALF OF A PROSPECTIVE PURCHASER WHICH IS AN ERISA PLAN, A TAX-QUALIFIED
RETIREMENT PLAN, AN IRA OR OTHER EMPLOYEE BENEFIT PLAN IS ADVISED TO CONSULT ITS
OWN LEGAL ADVISOR REGARDING THE SPECIFIC CONSIDERATIONS ARISING UNDER ERISA,
SECTION 4975 OF THE CODE, AND (TO THE EXTENT NOT PRE-EMPTED) STATE LAW WITH
RESPECT TO THE PURCHASE, OWNERSHIP OR SALE OF SHARES OF COMMON STOCK BY SUCH
PLAN OR IRA.
EMPLOYEE BENEFIT PLANS, TAX-QUALIFIED RETIREMENT PLANS AND IRAS
Each fiduciary of an employee benefit plan subject to Title I of ERISA (an
'ERISA Plan') should carefully consider whether an investment in shares of
Common Stock is consistent with its fiduciary responsibilities under ERISA. In
particular, the fiduciary requirements of Part 4 of Title I of ERISA require (i)
an ERISA Plan's investments to be prudent and in the best interests of the ERISA
Plan, its participants and beneficiaries, (ii) an ERISA Plan's investments to be
diversified in order to reduce the risk of large losses, unless it is clearly
prudent not to do so, (iii) an ERISA Plan's investments to be authorized under
ERISA and the terms of the governing documents of the ERISA Plan and (iv) that
the fiduciary not cause the ERISA Plan to enter into transactions prohibited
under Section 406 of ERISA. In determining whether an investment in shares of
Common Stock is prudent for purposes of ERISA, the appropriate fiduciary of an
ERISA Plan should consider all of the facts and circumstances, including whether
the investment is reasonably designed, as a part of the ERISA Plan's portfolio
for which the fiduciary has investment responsibility, to meet the objectives of
the ERISA Plan, taking into consideration the risk of loss and opportunity for
gain (or other return) from the investment, the diversification, cash flow and
funding requirements of the ERISA Plan, and the liquidity and current return of
the ERISA Plan's portfolio. A fiduciary should also take into account the nature
of the Company's business, the length of the Company's operating history and
other matters described under 'Risk Factors.'
The fiduciary of an IRA or of an employee benefit plan not subject to Title
I of ERISA because it is a governmental or church plan or because it does not
cover common law employees (a 'Non-ERISA Plan') should consider that such an IRA
or Non-ERISA Plan may only make investments that are authorized by the
appropriate governing documents, not prohibited under Section 4975 of the Code
and permitted under applicable state law.
STATUS OF THE COMPANY, THE OPERATING PARTNERSHIP AND THE HOLDING PARTNERSHIPS
UNDER ERISA
In determining whether the fiduciary requirements of ERISA and the
prohibited transactions provisions of ERISA and the Code apply to an entity's
operations because one or more investors in the entity's equity interest is an
ERISA Plan or is a Non-ERISA Plan or IRA subject to Section 4975 of the Code, it
is necessary to determine whether such plan or IRA is deemed also to own a
undivided interest in the assets of that entity under Department of Labor
regulations defining 'plan assets' (the 'DOL Regulation'). An ERISA Plan
fiduciary should also consider the relevance of these principles to ERISA's
prohibition on improper delegation of control over or responsibility for 'land
assets' and ERISA's imposition of co-fiduciary liability on a fiduciary who
participates in, permits (by action or inaction) the occurrence of, or fails to
remedy a known breach by another fiduciary. The DOL Regulation provides that if
such a plan or IRA acquires 'publicity offered securities' sold pursuant to an
effective registration statement under the Securities Act and subsequently
registered under Section 12(b) or 12(g) of the Securities Exchange Act of 1934,
as amended, which are widely held by at least 100 holders independent of the
issuer and each other and freely transferable, such plan or IRA would not be
deemed to own an undivided interest in the assets of such entity. The DOL
Regulation provides that whether a security is 'freely transferable' is a
factual question based on all facts and circumstances.
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OTHER BUSINESS
The Board of Trustees does not intend to bring any other matters before the
Meeting and does not know of any matters to be brought before the Meeting by
others. If any other matter should come before the Meeting, it is the intention
of the persons named in the accompanying proxy to vote the proxy on behalf of
the shareholders they represent in accordance with their best judgment.
Proxies are being solicited on behalf of the Board of Trustees. All
expenses of this solicitation, including the cost of preparing and mailing this
Proxy Statement/Prospectus, will be borne by National and reimbursed by the
Company. In addition to solicitation by use of the mails, proxies may be
solicited by the Trustees of National in person or by telephone, telegram or
other means of communication. The Trustees will not be additionally compensated,
but may be reimbursed for out-of-pocket expenses in connection with such
solicitation. Arrangements will also be made with custodians, nominees and
fiduciaries for forwarding the proxy solicitation material to beneficial owners
of National Shares held of record by such persons, and National may reimburse
such custodians, nominees and fiduciaries for reasonable expenses incurred in
connection therewith. In addition, The Herman Group, Inc. has been engaged to
solicit proxies on behalf of National for a fee of $10,000, excluding any
additional expenses which might be incurred.
EXPERTS
The financial statements of Philips International Realty Corp. as of
September 30, 1997, the combined financial statements of The Philips Company as
of December 31, 1996 and 1995 and for each of the three years in the period
ended December 31, 1996, and the statements of revenues and certain expenses of
the Merrick/Mill Basin Properties for each of the three years in the period
ended December 31, 1996, all appearing in this Proxy Statement/Prospectus and
Registration Statement, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon appearing elsewhere herein, and
are included in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.
The financial statements of National Properties Investment Trust as of
December 31, 1996 and 1995 and for each of the two years in the period ended
December 31, 1996, all appearing in this Proxy Statement/Prospectus and
Registration Statement, have been audited by Bernardi, Alfin & Koos, L.L.C.,
independent auditors, as set forth in their report thereon appearing elsewhere
herein, and are included in reliance upon such reports given upon the authority
of such firm as experts in accounting and auditing.
The financial statements of National Properties Investment Trust as of
December 31, 1994 and for the year then ended, appearing in this Proxy
Statement/Prospectus and Registration Statement, have been audited by Kostin,
Ruffkess & Company, LLC, independent auditors, as set forth in their report
thereon appearing elsewhere herein, and are included in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
LEGAL MATTERS
Certain legal matters in connection with the Formation Transactions as well
as certain legal matters described under 'Federal Income Tax Considerations'
will be passed upon for the Company by Pryor, Cashman, Sherman & Flynn, New
York, New York. Legal matters relating to Maryland law, including the validity
of the issuance of shares of the Common Stock offered hereby, will be passed
upon for the Company by Ballard Spahr Andrews & Ingersoll, Baltimore, Maryland.
Legal matters relating to Massachusetts law as well as certain legal matters
described under 'Formation Transactions and Structure of the Company--Certain
Federal Income Tax Consequences' will be passed upon for National by Bingham
Dana LLP, Boston, Massachusetts.
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GLOSSARY OF CERTAIN DEFINED TERMS
Affiliate means (i) any person directly or indirectly controlling,
controlled by or under common control with another person, (ii) any person
owning or controlling 5% or more of the outstanding voting securities or
beneficial interests of such other person, (iii) any officer, retired officer,
director, trustee, employee or general partner of such person and (iv) if such
other person is an officer, director, trustee or partner of another entity, then
the entity for which that person acts in any such capacity.
Book-Tax Difference means the difference between the fair market value of
the contributed property at the time of contribution and the adjusted tax basis
of such property at the time of contribution.
Board of Directors means the Board of Directors of the Company.
Board of Trustees means the Board of Trustees of National.
By-Laws mean the Company's Amended and Restated By-Laws.
Capital Stock means the capital stock of the Company.
Charter means the Company's Amended and Restated Articles of Incorporation.
Closing means the closing of the transactions contemplated by the
Contribution and Exchange Agreement.
Code means the Internal Revenue Code of 1986, as amended.
Commission means the Securities and Exchange Commission.
Common Stock means the common stock, $.01 par value per share, of the
Company.
Company means Philips International Realty Corp., a Maryland corporation.
Contributing Partnerships mean certain contributing partnerships or limited
liability companies affiliated with Philips Private Company that will contribute
the Partnership Properties pursuant to the Contribution and Exchange Agreement.
Contribution and Exchange Agreement means the Contribution and Exchange
Agreement, dated as of August 11, 1997, among National, the Board of Trustees,
the Company, the Operating Partnership and the Contributing Partnerships.
Control share acquisition means the acquisition of Control shares, subject
to certain exceptions.
Control shares mean those voting shares of stock which, if aggregated with
all other such shares of stock previously acquired by the acquiror, or in
respect of which the acquiror is able to exercise or direct the exercise of
voting power (except solely by revocable proxy), would entitle the acquiror to
exercise voting power in electing directors within one of the following ranges
of voting power: (i) one-fifth or more but less than one-third, (ii) one-third
or more but less than a majority or (iii) a majority of all voting power;
provided, however that 'Control shares' do not include shares of stock the
acquiring person is then entitled to vote as a result of having previously
obtained shareholder approval.
Counsel means Pryor, Cashman, Sherman & Flynn, counsel to the Company.
Debt-to-Total Capitalization Ratio means the ratio of total debt of the
Company to the sum of the aggregate Net Asset Value plus the total debt of the
Company.
Declaration of Trust means the Restated Declaration of Trust of National.
DOL Regulation means Department of Labor regulations.
ERISA means the Employee Retirement Income Security Act of 1974, as
amended.
ERISA Plan means an employee benefit plan subject to Title I of ERISA.
Exchange Act means the Securities Exchange Act of 1934, as amended.
Excluded Properties means those retail shopping center properties
beneficially owned and controlled by the principals of Philips Private Company
that will not be transferred to the Company in the Formation Transactions.
134
<PAGE>
Executive Officers means Mr. Philip Pilevsky, Ms. Sheila Levine, Mr. Louis
Petra and Mr. Brian Gallagher.
FIRPTA means the Foreign Investment in Real Property Tax Act of 1980.
Formation Transactions mean the transactions resulting in the formation of
the Company and the Operating Partnership, including the contribution of nine
properties by the Philips Group and the acquisition of the National Property.
GLA means gross leasable area.
Holding Partnerships means certain newly formed limited partnerships which
will receive, pursuant to the Contribution and Exchange Agreement, fee title to
the Properties located in New York and Connecticut and the general partnership
interests of those Contributing Partnerships that are general partnerships.
Interested Stockholder means any person who beneficially owns 10% or more
of the voting power of the Company's shares or an affiliate of the Company who,
at any time within the two-year period prior to the date in question, was the
beneficial owner of 10% or more of the voting power of the Company's then
outstanding shares.
Independent Directors means those members of the Board of Directors of the
Company who are not officers or employees of the Company, or directors, officers
or employees of Philips Private Company or their respective affiliates or any of
their predecessors.
Interim Managing General Partner means Philips International Realty, LLC, a
Delaware limited liability company.
IRA means an individual retirement account.
Management Agreement means a management agreement by and among the Company,
the Operating Partnership and the Management Company.
Management Company means Philips International Holding Corp., an affiliate
of Philips Private Company.
MBCL means the Massachusetts Business Corporation Law.
Meeting means the Meeting of Shareholders of National to be held on
December 30, 1997, at the offices of Pryor, Cashman, Sherman & Flynn, 410 Park
Avenue, New York, New York 10022, at 3:00 p.m., local time, and any adjournment
thereof.
MGCL means the Maryland General Corporation Law.
NAREIT means the National Association of Real Estate Investment Trusts.
National means National Properties Investment Trust, a Massachusetts
business trust, f/k/a Richard Roberts Real Estate Growth Trust I.
National Property means the Lake Mary, Florida shopping center property
owned by National.
National Shares means shares of beneficial interest of National.
Net Asset Value means the pro forma net asset value of the Company at the
closing of the Formation Transactions, after taking into account all allocated
expenses in connection therewith, determined as set forth in 'Formation
Transactions and Structure of the Company--Calculation of Net Asset Value'.
Non-Competition Agreement means the non-competition agreement by and among
the Operating Partnership, the Company, the Management Company, Mr. Pilevsky and
Ms. Levine.
Non-ERISA Plan means an employee benefit plan not subject to Title I of
ERISA because it is a governmental or church plan or because it does not cover
common law employees.
Non-U.S. Shareholders mean nonresident alien individuals, foreign
corporations, foreign partnerships and other foreign shareholders.
Offering means one or more public offerings or private equity placements of
securities of the Company with gross proceeds aggregating in excess of $25
million.
135
<PAGE>
Operating Partnership means Philips International Realty, L.P., a Delaware
limited partnership.
Opinion means the opinion of Prudential Securities.
Ownership Limit means the restriction contained in the Company's Charter
providing that, subject to certain exceptions, no holder may own, or be deemed
to own by virtue of the constructive ownership provisions of the Code, more than
6.5% (by number or value, whichever is more restrictive) of the outstanding
shares of Capital Stock of the Company.
Partnership Agreement means the Agreement of Limited Partnership of the
Operating Partnership.
Partnership Properties mean the interests and/or assets of certain
partnerships, limited liability companies and affiliates of the Philips Group in
a portfolio of nine shopping center properties to be contributed to the Company
pursuant to the Contribution and Exchange Agreement.
Philips Group means Philip Pilevsky and certain other persons who will
receive Units in connection with the contribution of properties of, or
partnership or membership interests in, the Contributing Partnerships.
Philips Private Company means a private real estate firm controlled by Mr.
Philip Pilevsky.
Philips Subs mean newly formed wholly owned subsidiaries of the Company
which will receive, pursuant to the Contribution and Exchange Agreement, all of
the general partnership interests or managing membership interests in those
Contributing Partnerships that are limited partnerships or limited liability
companies and which do not own fee title to Properties located in New York and
Connecticut.
Preferred Stock means the 30,000,000 shares of preferred stock, par value
$.01 per share, of the Company.
Properties mean the National Property and the Partnership Properties.
Proxy Statement/Prospectus means this Proxy Statement and Prospectus.
Prudential Securities means Prudential Securities Incorporated
Record Date means the close of business on December 4, 1997.
Registrable Shares mean the shares of Common Stock acquired upon the
redemption of Units.
Registration Rights mean the certain 'shelf' registration rights with
respect to the Registrable Shares granted by the Company to the members of the
Philips Group receiving Units in connection with the Formation Transactions.
Registration Rights Agreement means the Registration Rights Agreement
between the Company and the holders of the Units to be entered into upon
consummation of the Formation Transactions.
Registration Statement means the Company's registration statement on Form
S-4 filed with the Commission under the Securities Act with respect to the
securities offered pursuant to the Proxy Statement/Prospectus.
REIT means a real estate investment trust.
Related Party Tenant means a tenant of which the Company or an owner of l0%
or more of the Company, directly or constructively, owns 10% or more.
Restricted Shares mean the Common Stock issued to Mr. Pilevsky and the
Trustees, the Units, the Trustees Warrants and the shares issuable upon
redemption of the Units or exercise of the Trustees Warrants.
Rule 144 means Rule 144 promulgated under the Securities Act.
Securities Act means the Securities Act of 1933, as amended.
Series A Preferred Stock means the convertible redeemable Series A
Preferred Stock, liquidation preference $1,000 per share, of the Company.
Surviving Partnership means the surviving entity of a merger or other
combination of assets involving the Company and another entity in which
substantially all of the assets directly or indirectly owned by the surviving
entity are held directly or indirectly by the Operating Partnership or another
limited partnership or limited
136
<PAGE>
liability company which is the survivor of a merger, consolidation or
combination of assets with the Operating Partnership.
Termination Transaction means the Company's merger, consolidation or other
combination with or into another person, the Company's sale of all or
substantially all of its assets or any reclassification, recapitalization or
change of the Company's outstanding equity interests.
Transaction Agreements mean the Contribution and Exchange Agreement and the
amendment to the Declaration of Trust.
Treasury Regulations mean the regulations promulgated under the Code.
Trustees means each of the members of the Board of Trustees of National.
Trustees Securities means the Trustees Stock and the Trustees Warrants.
Trustees Stock means the 5,000 shares of Common Stock issued to Messrs.
Stein and Goldman pursuant to the Contribution and Exchange Agreement.
Trustees Warrants mean warrants issued to Messrs. Stein and Goldman
pursuant to the Contribution and Exchange Agreement to purchase an aggregate of
8,000 shares of Common Stock at an exercise price of $25.00 per share.
UBTI means unrelated business taxable income.
Unaffiliated Shareholders means the shareholders of National who are not
Affiliates of National.
Units mean the units of limited partnership interests of the Operating
Partnership.
137
<PAGE>
INDEX TO FINANCIAL INFORMATION
<TABLE>
<S> <C>
NATIONAL PROPERTIES INVESTMENT TRUST
Financial Statements:
Accountants' Review Report............................................................................. F-2
Comparative Balance Sheet as of September 30, 1997 (unaudited) and December 31, 1996................... F-3
Comparative Statement of Operations for the Quarters and Nine Months Ended September 30, 1997 and 1996
(unaudited)........................................................................................... F-4
Comparative Statement of Changes in Shareholders' Equity for the Nine Months Ended September 30, 1997
and 1996.............................................................................................. F-5
Comparative Statement of Cash Flows for the Nine Months ended September 30, 1997 and 1996.............. F-6
Notes to the Financial Statements...................................................................... F-7
Reports of Independent Auditors........................................................................ F-11
Comparative Balance Sheet as of December 31, 1996 and 1995............................................. F-13
Comparative Statement of Operations for the Years Ended December 31, 1996, 1995 and 1994............... F-14
Comparative Statement of Changes in Shareholders' Equity for the Years Ended December 31, 1996, 1995
and 1994.............................................................................................. F-15
Comparative Statement of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994............... F-16
Comparative Schedule of Rental Expenses for the Years Ended December 31, 1996, 1995
and 1994............................................................................................. F-17
Notes to the Financial Statements...................................................................... F-18
Schedule III, Real Estate and Accumulated Depreciation as of December 31, 1996......................... F-24
PHILIPS INTERNATIONAL REALTY CORP.
Pro Forma Condensed Financial Statements (unaudited):
Pro Forma Condensed Balance Sheet as of September 30, 1997........................................... F-27
Pro Forma Condensed Statements of Operations for the Year Ended December 31, 1996.................... F-29
Pro Forma Condensed Statements of Operations for the Nine Months Ended September 30, 1997............ F-29
Historical
Report of Independent Auditors....................................................................... F-40
Balance Sheet as of September 30, 1997............................................................... F-41
Statement of Operations and Deficit for the Period August 31, 1997 (inception) to September 30,
1997................................................................................................ F-42
Statement of Cash Flows for the Period August 31, 1997 (inception) to September 30, 1997............. F-43
Notes to Financial Statements........................................................................ F-44
PHILIPS INTERNATIONAL REALTY L.P.
Pro Forma Condensed Financial Statements (unaudited)
Pro Forma Condensed Balance Sheet as of September 30, 1997........................................... F-30
Pro Forma Condensed Statement of Operations for the Year Ended December 31, 1996..................... F-32
Pro Forma Condensed Statement of Operations for the Nine Months Ended September 30, 1997............. F-32
EQUITY INVESTEES
Pro Forma Condensed Financial Statements (unaudited)
Pro Forma Condensed Combined Balance Sheet as of September 30, 1997.................................. F-33
Notes to Pro Forma Condensed Combined Balance Sheet.................................................. F-34
Pro Forma Condensed Combined Statement of Operations for the Year Ended December 31, 1996............ F-36
Pro Forma Condensed Combined Statement of Operations for the Nine Months Ended September 30, 1997.... F-37
Notes to Pro Forma Condensed Combined Statement of Operations........................................ F-38
THE PHILIPS COMPANY
Combined Financial Statements:
Report of Independent Auditors....................................................................... F-46
Combined Balance Sheets as of September 30, 1997 (unaudited) and December 31, 1996
and 1995........................................................................................... F-47
Combined Statements of Income for the Nine Months Ended September 30, 1997 and 1996 (unaudited) and
for the Years Ended December 31, 1996, 1995 and 1994................................................ F-48
Combined Statements of Owners' Deficit for the Nine Months Ended September 30, 1997 (unaudited) and
for the Years Ended December 31, 1996, 1995 and 1994................................................ F-49
Combined Statements of Cash Flows for the Nine Months Ended September 30, 1997 and 1996 (unaudited)
and for the Years Ended December 31, 1996, 1995 and 1994............................................ F-50
Notes to Combined Financial Statements............................................................... F-51
Schedule III--Real Estate and Accumulated Depreciation as of December 31, 1996....................... F-62
MERRICK COMMONS AND MILL BASIN PLAZA PROPERTIES
Combined Statement of Revenue and Certain Expenses
Report of Independent Auditors....................................................................... F-64
Combined Statements of Revenues and Certain Expenses for the Nine Months Ended
September 30, 1997 and 1996 (unaudited) and for the Years Ended December 31, 1996, 1995 and 1994... F-65
Notes to Combined Statements of Revenues and Certain Expenses........................................ F-66
</TABLE>
F-1
<PAGE>
Trustees
National Properties Investment Trust
P.O. Box 148
Canton Center, Connecticut 06020
We have reviewed the accompanying balance sheet of National Properties
Investment Trust as of September 30, 1997 and the related statements of
operations for the quarter and nine months ended September 30, 1997 and 1996,
and changes in shareholders' equity and cash flows for the nine months ended
September 30, 1997 and 1996, in accordance with Statements on Standards for
Accounting and Review Services issued by the American Institute of Certified
Public Accountants. All information included in these financial statements is
the representation of the management of National Properties Investment Trust.
A review of interim financial information consists principally of inquiries
of company personnel and analytical procedures applied to financial data. It is
substantially less in scope than an audit conducted in accordance with generally
accepted auditing standards, the objective of which is the expression of an
opinion regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet as of December 31, 1996, and the related statements
of operations, shareholders' equity and cash flows for the year then ended (not
presented herein). In our reports dated March 18, 1997 and October 7, 1997, we
expressed an unqualified opinion on those financial statements. In our opinion,
the information set forth in the accompanying balance sheet as of December 31,
1996 is fairly stated in all material respects in relation to the balance sheet
from which it has been derived.
Respectfully submitted,
/s/ Bernardi, Alfin & Koos, L.L.C.
BERNARDI, ALFIN & KOOS, L.L.C.
Certified Public Accountants
West Hartford, Connecticut
November 5, 1997
F-2
<PAGE>
NATIONAL PROPERTIES INVESTMENT TRUST
CANTON CENTER, CONNECTICUT
COMPARATIVE BALANCE SHEET
SEE ACCOUNTANTS' REVIEW REPORT
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
ASSETS
Investments in real estate and personal property.................................. $ 1,006,333 $ 948,583
Cash and cash equivalents......................................................... 14,492 44,403
Receivables....................................................................... 22,121 18,248
Other assets...................................................................... 24,681 39,633
------------ ------------
Total assets...................................................................... $ 1,067,627 $ 1,050,867
------------ ------------
------------ ------------
LIABILITIES
Accounts payable and accrued expenses............................................. $ 36,509 $ 53,107
Security deposits held and prepaid rent........................................... 26,958 20,821
Mortgage payable.................................................................. 549,636 571,258
------------ ------------
Total liabilities................................................................. 613,103 645,186
------------ ------------
SHAREHOLDERS' EQUITY
Shares of beneficial interest, no par value, unlimited authorization, shares
issued and outstanding were 749,276 in 1997 and 718,860 in 1996................. 11,791,866 11,754,966
Accumulated deficit............................................................... (11,337,342) (11,349,285)
------------ ------------
Total shareholders' equity........................................................ 454,524 405,681
------------ ------------
Total liabilities and shareholders' equity........................................ $ 1,067,627 $ 1,050,867
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
NATIONAL PROPERTIES INVESTMENT TRUST
CANTON CENTER, CONNECTICUT
COMPARATIVE STATEMENT OF OPERATIONS
SEE ACCOUNTANTS' REVIEW REPORT
<TABLE>
<CAPTION>
FOR THE QUARTER FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------------- --------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Property operations:
Gross rental income............................................ $ 92,636 $ 81,828 $268,323 $260,265
Rental expenses................................................ (62,306) (61,690) (182,268) (184,054)
General and administrative expenses............................ (28,705) (21,890) (74,643) (73,933)
-------- -------- -------- --------
Net income (loss) from property operations.................. 1,625 (1,752) 11,412 2,278
Other income (expense):
Interest income................................................ 134 309 531 1,342
-------- -------- -------- --------
Net income (loss)................................................ $ 1,759 $ (1,443) $ 11,943 $ 3,620
-------- -------- -------- --------
-------- -------- -------- --------
Income per share of beneficial interest.......................... $ -- $ -- $ 0.02 $ 0.01
-------- -------- -------- --------
-------- -------- -------- --------
Average number of shares of beneficial interest.................. 749,276 718,860 742,394 718,860
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
NATIONAL PROPERTIES INVESTMENT TRUST
CANTON CENTER, CONNECTICUT
COMPARATIVE STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
SEE ACCOUNTANTS' REVIEW REPORT
<TABLE>
<CAPTION>
FOR THE NINE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1997 1996
----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
------- ------------ ------- ------------
<S> <C> <C> <C> <C>
Shares of beneficial interest
Balance--beginning of the period.......................... 718,860 $ 11,754,966 718,860 $ 11,735,447
Shares issued............................................. 30,416 36,900 -- --
------- ------------ ------- ------------
Balance--end of the period.................................. 749,276 $ 11,791,866 718,860 $ 11,735,447
------- ------------ ------- ------------
------- ------------ ------- ------------
Accumulated deficit
Balance--beginning of the period.......................... $(11,349,285) $(11,274,829)
Net income................................................ 11,943 3,620
Dividends paid.............................................. -- (36,339)
------------ ------------
Balance--end of the period.................................. $(11,337,342) $(11,307,548)
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
NATIONAL PROPERTIES INVESTMENT TRUST
CANTON CENTER, CONNECTICUT
COMPARATIVE STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
SEE ACCOUNTANTS' REVIEW REPORT
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................................................. $ 11,943 $ 3,620
-------- --------
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization............................................................ 40,838 37,329
Changes in assets and liabilities
Receivables........................................................................... (3,873) (9,285)
Other assets.......................................................................... 8,220 4,709
Accounts payable and accrued expenses................................................. (16,598) 3,454
Security deposits held and prepaid rent............................................... 6,137 --
-------- --------
Total adjustments................................................................... 34,724 36,207
-------- --------
Net cash provided by operating activities.................................................. 46,667 39,827
-------- --------
Cash flows from investing activities:
Purchase of personal property.............................................................. (91,856) (17,348)
-------- --------
Cash flows from financing activities:
Principal payments on debt................................................................. (21,622) (19,167)
Proceeds from the issuance of shares....................................................... 36,900 --
Dividends paid............................................................................. -- (36,339)
-------- --------
Net cash provided by (used in) financing activities...................................... 15,278 (55,506)
-------- --------
Net increase (decrease) in cash and cash equivalents....................................... (29,911) (33,027)
Cash and cash equivalents, beginning of the period......................................... 44,403 108,081
-------- --------
Cash and cash equivalents, end of the period............................................... $ 14,492 $ 75,054
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
NATIONAL PROPERTIES INVESTMENT TRUST
CANTON CENTER, CONNECTICUT
NOTES TO FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES
A. ORGANIZATION:
National Properties Investment Trust (formerly Richard Roberts Real Estate
Growth Trust I) (the 'Trust') was organized on January 16, 1985 as a
Massachusetts Business Trust. The Trust invests directly in equity interests in
commercial, industrial and/or residential properties in the United States which
have income-producing capabilities and intends to hold its properties for
long-term investment. The Trust currently owns a single property located in
central Florida. The results of the Trust's operations depend upon the Trust's
property's competitive position in its respective leasing market. The Shoppes at
Lake Mary, a strip shopping center located in Lake Mary, Florida, is the Trust's
sole remaining property.
B. BASIS OF PRESENTATION:
The accompanying unaudited financial statements of the Trust have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three- and nine-month periods ended
September 30, 1997 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1997. For further information, refer to
the financial statements and accompanying footnotes thereto included in the
Trust's annual report on Form 10-K for the year ended December 31, 1996.
C. METHOD OF ACCOUNTING:
The financial statements of the Trust have been prepared on the accrual
basis of accounting.
D. CASH EQUIVALENTS:
For financial statement purposes, the Trust considers all highly liquid
investments with original maturities of three months or less to be cash
equivalents.
E. INCOME TAXES:
The Trust has made for prior years, and intends to make for 1997, an
election to file as a real estate investment trust (REIT) for federal tax
purposes, and if so qualified, will not be taxed on earnings distributed to
shareholders. Accordingly, no provision for federal income taxes has been made
for the periods ended September 30, 1997 and September 30, 1996. However, the
Trust is subject to state income taxes, where applicable.
F. REAL ESTATE ASSETS AND DEPRECIATION:
The Trust recognizes impairment losses for long-lived assets, on a property
by property basis, used in operations when indicators of impairment are present
and the undiscounted future cash flows are not sufficient to recover the asset's
carrying value. If such indicators are present, an impairment loss is recognized
based on the excess of the carrying amount of the impaired asset over its fair
value during the period that the indicators are present.
For long-lived assets to be disposed of, impairment losses are recognized
when the fair value of the asset, less the estimated cost to sell, is less than
the carrying value of the asset measured at the time management commits to a
plan to dispose of the asset. Assets are classified as assets to be disposed of
when management has committed to sell and is actively marketing the property.
Assets to be disposed of are carried at the lower of carrying value or fair
value less cost to dispose, determined on an asset by asset basis. Depreciation
is not recorded during the period in which assets are held for disposal and
gains (losses) from initial and subsequent adjustments to the carrying value of
the assets, if any, are recorded as a separate component of income from
continuing operations.
F-7
<PAGE>
NATIONAL PROPERTIES INVESTMENT TRUST
CANTON CENTER, CONNECTICUT
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1--ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES--(CONTINUED)
No impairment losses have been recognized since the Trust's adoption of
Statement of Financial Accounting Standards ('SFAS') No. 121 'Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of.'
Depreciation was computed using the straight-line method over an estimated
depreciable life of 40 years for real property, 7 years for personal property,
and over the life of the related lease for tenant improvements.
G. ACCUMULATED DEFICIT:
The accumulated deficit, reported as a reduction of Shareholders' Equity,
includes net losses recognized and distributions made to Shareholders as a
return of capital invested.
H. USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
NOTE 2--RELATED PARTY TRANSACTIONS
The Trust has entered into a temporary management agreement with the
Managing Trustee for a one-year term. The agreement calls for the Managing
Trustee to be paid $4,000 per month plus Trust related expenses. The Trust paid
the Managing Trustee $12,000 and $36,000 as compensation for managing the Trust
property for the quarter and nine months ended September 30, 1997, respectively.
In addition, the Trust offices are located at premises owned by the Managing
Trustee. No rent was charged to the Trust in the quarter and nine months ended
September 30, 1997, although the Trust paid utility bills for the office of $435
and $1,571 in the quarter and nine months ended September 30, 1997,
respectively.
On March 3, 1997, the Trust issued 30,416 shares of beneficial interest to
an IRA for the benefit of a Trustee of the Trust. The shares were issued for
$1.2132 per share, totaling $36,900.
NOTE 3--EARNINGS PER SHARE
Earnings per Share of Beneficial Interest are computed on the weighted
average number of Shares of Beneficial Interest outstanding during the period.
NOTE 4--INVESTMENT IN REAL ESTATE AND PERSONAL PROPERTY
The Trust purchased The Shoppes at Lake Mary, a 38,125 square foot shopping
center located in Lake Mary, Florida on March 31, 1986 for $3,200,000. Pursuant
to the purchase agreement, the seller guaranteed that the revenues generated by
the project during the first two years of its operation would be at least equal
to the aggregate of all expenses incurred in connection with the use and
operation of the project during each such year plus $360,000. The seller placed
$300,000 of the purchase price in an interest bearing escrow account as security
for the guarantee. On September 26, 1986, the Trust released the seller from the
guarantee in consideration for the funds held in escrow. The funds held in
escrow were forwarded to the Trust on October 2, 1986. The basis of the property
acquired has been reduced by the amount received under the terms of the cash
flow guarantee. On December 31, 1991 the Trust reduced the book value of real
property by $1,677,901 to its net realizable value.
All of the Trust's property is recorded at historical cost, except for its
real property which is recorded at its historical cost, less $310,762 for the
reduction in basis due to the release of funds escrowed at closing, and less a
$1,677,901 loss reserve to reduce the property value to its net realizable
value.
F-8
<PAGE>
NATIONAL PROPERTIES INVESTMENT TRUST
CANTON CENTER, CONNECTICUT
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--INVESTMENT IN REAL ESTATE AND PERSONAL PROPERTY--(CONTINUED)
The Trust's property and equipment are as follows:
<TABLE>
<CAPTION>
THE SHOPPES AT LAKE MARY
-----------------------------
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Land............................................................ $ 313,807 $ 230,299
Buildings....................................................... 1,147,584 1,147,584
Tenant improvements............................................. 219,090 210,742
Furnishings and equipment....................................... 19,544 19,544
------------- ------------
Total......................................................... 1,700,025 1,608,169
Less: accumulated depreciation.................................. (693,692) (659,586)
------------- ------------
Net investment in real estate and personal property............. $ 1,006,333 $ 948,583
------------- ------------
------------- ------------
</TABLE>
NOTE 5--RECEIVABLES
Receivables consist of the following:
<TABLE>
<CAPTION>
9/30/97 12/31/96
------------- ------------
<S> <C> <C>
Tenant receivables.............................................. $ 22,121 $ 18,248
Allowance for doubtful accounts................................. -- --
------------- ------------
Tenant receivables net of allowance............................. $ 22,121 $ 18,248
------------- ------------
------------- ------------
</TABLE>
NOTE 6--MORTGAGES PAYABLE
<TABLE>
<CAPTION>
9/30/97 12/31/96
------------- ------------
<S> <C> <C>
Mortgage payable in monthly installments of $7,201 of principal
and interest at 2% over prime on the outstanding balance. The
balance of principal and interest is due in full in October
1998. The loan is secured by a first mortgage lien on The
Shoppes at Lake Mary.......................................... $ 549,636 $ 571,258
------------- ------------
------------- ------------
</TABLE>
The following sets forth the principal payments due on the mortgage payable
for the twelve months ended:
<TABLE>
<S> <C>
September 30, 1998............................................. 31,528
September 30, 1999............................................. 518,108
</TABLE>
NOTE 7--TENANT LEASES
The Trust has entered into operating lease agreements with tenants of its
rental property, which have various termination dates. Certain leases also
contain provisions for inflationary increases and the pass through of a portion
of operating expenses under specified circumstances. Future minimum lease
payments under noncancellable operating leases are as follows:
<TABLE>
<S> <C>
1998.......................................................... $277,458
1999.......................................................... 181,817
2000.......................................................... 93,715
2001.......................................................... 24,324
2002.......................................................... 14,236
Thereafter.................................................... 32,018
--------
Total......................................................... $623,562
--------
--------
</TABLE>
F-9
<PAGE>
NATIONAL PROPERTIES INVESTMENT TRUST
CANTON CENTER, CONNECTICUT
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8--AGREEMENT FOR THE SALE OF REAL PROPERTY
On August 11, 1997, the Trust and the Trustees entered into a Contribution
and Exchange Agreement with a newly-formed entity (the 'Company') for the
exchange of the Trust's sole property for 32,000 shares of common stock of the
Company. The Company is expected to qualify as a REIT and will have 10 retail
properties at its inception, nine to be contributed by affiliates of the Company
and one by the Trust. All shareholders of the Trust will receive a distribution
of a portion of the Company stock and the remaining Company stock will be held
by the Trust. The Company will pay all expenses of the Trust (including
attorney's and accountants' fees) in connection with the negotiation,
documentation and consummation of the formation transactions.
The Contribution and Exchange Agreement provides terms under which the
agreement may be terminated, and under certain circumstances the Trust may be
required to pay a termination fee of $500,000 to $750,000 plus the expenses of
the Company and the Trust incurred in connection with the formation
transactions.
Shareholders of the Trust will receive a proxy statement/prospectus
pursuant to which they will be asked to approve the proposed business
combination with the Company.
It is contemplated that this transaction will be completed by December 31,
1997.
NOTE 9--CONTINGENCIES
Salvatore R. Carabetta, an Independent Trustee, resigned on June 30, 1996.
A successor Trustee was not appointed until June 16, 1997, which is greater than
the 60 day period required by the Declaration of Trust for the appointment of a
successor Trustee. The Declaration of the Trust requires a new Trustee to be
appointed within 60 days. On June 16, 1997, Robert Reibstein was appointed as
Trustee of the Trust.
On January 6, 1996, the Managing Trustee, Peter Stein, declared a dividend
without the express approval of Mr. Carabetta. Mr. Stein believes that the
request for a vote sent to Mr. Carabetta twice by certified mail, and not
responded to, constitutes a presence at a vote and abstention from the vote.
Additionally, until June 25, 1996 when Jay Goldman was elected as Trustee of the
Trust, Peter Stein, the Managing Trustee, had been acting on behalf of the Trust
without the express approval of the majority of the Trustees. Peter Stein and
Salvatore Carabetta were the sole remaining Trustees and since a majority of
Trustees needed to be present to have a vote, both Trustees need to be present
to hold a vote. On June 16, 1997, a Trustee meeting was held and the Trustees
acknowledged that the Trust was operating without the full complement of
Trustees and approved and ratified all actions carried out by the officers of
the Trust.
On June 16, 1997, the Trustees adopted an Amended and Restated Declaration
of Trust, which provides that the Trust may choose to elect officers, including
a President who shall act as Managing Trustee, and which further defines the
powers and limitations of the officers of the Trust. As of September 30, 1997,
no officers of the Trust have been appointed to oversee the management of the
Trust.
Management is unable to determine the effects the above events will have on
the financial condition of the Trust, if any.
NOTE 10--SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
9-30-97 9-30-96
------- -------
<S> <C> <C>
Cash paid during the nine months ended
Income taxes.......................................................... $ -- $ --
Interest.............................................................. $43,187 $46,618
</TABLE>
NOTE 11--RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the
current year presentation.
F-10
<PAGE>
Trustees
National Properties Investment Trust
P.O. Box 148
Canton Center, Connecticut 06020
We have audited the accompanying balance sheet of National Properties Investment
Trust as of December 31, 1996 and December 31, 1995, and the related statements
of operations, changes in shareholders' equity, and cash flows for the years
then ended. 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 audit. The financial statements of National Properties
Investment Trust as of December 31, 1994 were audited by other auditors whose
reports dated March 15, 1995, expressed an unqualified opinion on those
statements.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of National Properties Investment
Trust as of December 31, 1996 and December 31, 1995 and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles. Also in our opinion, the financial
statement schedules, when considered in relation to the basic financial
statements, presents fairly in all material respects the information shown
therein.
Respectfully submitted,
/s/ BERNARDI, ALFIN & KOOS, L.L.C.
BERNARDI, ALFIN & KOOS, L.L.C.
Certified Public Accountants
West Hartford, Connecticut March 18, 1997,
except for Comparative Statement of Operations
and Notes 1, 2 and 13, as to which
the date is October 7, 1997
F-11
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Trustees and Shareholders
National Properties Investment Trust
We have audited the accompanying statements of operations, stockholders' equity
and cash flows of National Properties Investment Trust for the year ended
December 31, 1994. These financial statements are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statements of operations, stockholders' equity and
cash flows are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the statements of
operations, stockholders' equity and cash flows. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the statements of
operations, stockholders' equity and cash flows. We believe that our audit of
the statements of operations, stockholders' equity and cash flows provide a
reasonable basis for our opinion.
In our opinion, the statements of operations, stockholders' equity and cash
flows referred to above present fairly, in all material respects, the results of
its operations and its cash flows for the year ended December 31, 1994, in
conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the statements of
operations, stockholders' equity and cash flows taken as a whole. The
supplemental schedules listed in the index to item 14 are presented for purposes
of complying with the Securities and Exchange Commission's rules and are not a
required part of the statements of operations, stockholders' equity and cash
flows. The supplemental schedules have been subjected to the auditing procedures
applied in the audits of the statements of operations, stockholders' equity and
cash flows and, in our opinion, fairly state in all material respects the
financial data required to be set forth therein in relation to the statements of
operations, stockholders' equity and cash flows of National Properties
Investment Trust, taken as a whole.
/s/ KOSTIN, RUFFKESS & COMPANY, LLC
KOSTIN, RUFFKESS & COMPANY, LLC
West Hartford, Connecticut
March 15, 1995
F-12
<PAGE>
NATIONAL PROPERTIES INVESTMENT TRUST
CANTON CENTER, CONNECTICUT
COMPARATIVE BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
ASSETS:
Investments in real estate and personal property.................................. $ 948,583 $ 930,294
Cash and cash equivalents......................................................... 44,403 108,081
Receivables....................................................................... 18,248 13,911
Prepaid expenses.................................................................. 21,019 22,772
Deposits.......................................................................... 2,160 1,800
Deferred expenses................................................................. 16,454 25,430
------------ ------------
Total assets...................................................................... $ 1,050,867 $ 1,102,288
------------ ------------
------------ ------------
LIABILITIES:
Accounts payable.................................................................. $ 17,307 $ 18,896
Accrued expenses.................................................................. 35,800 6,225
Prepaid rent and security deposits................................................ 20,821 18,196
Mortgage payable.................................................................. 571,258 598,353
------------ ------------
Total liabilities................................................................. 645,186 641,670
------------ ------------
SHAREHOLDERS' EQUITY:
Shares of beneficial interest, no par value, unlimited authorization, shares
issued and outstanding were 718,496 in 1996 and 718,860 in 1995................. 11,754,966 11,349,285
Accumulated deficit............................................................... (11,349,285) (11,294,348)
------------ ------------
Total shareholders' equity........................................................ 405,681 460,618
------------ ------------
Total liabilities and shareholders' equity........................................ $ 1,050,867 $ 1,102,288
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-13
<PAGE>
NATIONAL PROPERTIES INVESTMENT TRUST
CANTON CENTER, CONNECTICUT
COMPARATIVE STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Property operations:
Gross rental income...................................................... $ 340,768 $ 311,383 $ 293,883
Rental expenses.......................................................... (241,778) (214,790) (212,679)
General and administrative expenses...................................... (119,177) (64,401) (353,424)
--------- --------- ---------
Net income from property operations................................... (20,187) 32,192 (272,220)
Other income (expense):
Interest income.......................................................... 1,589 1,260 --
--------- --------- ---------
Net income (loss).......................................................... $ (18,598) $ 33,452 $(272,220)
--------- --------- ---------
--------- --------- ---------
Income (loss) per share of beneficial interest............................. $ (0.03) $ 0.05 $ (0.39)
--------- --------- ---------
--------- --------- ---------
Average number of shares of beneficial interest............................ 718,496 718,649 693,436
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-14
<PAGE>
NATIONAL PROPERTIES INVESTMENT TRUST
CANTON CENTER, CONNECTICUT
COMPARATIVE STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------
1996 1995 1994
---------------------- ---------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------- ------------ ------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
SHARES OF BENEFICIAL INTEREST
Balance--January 1,...................... 718,860 $ 11,754,966 714,395 $ 11,714,600 684,395 $ 11,684,600
Shares issued.......................... -- -- 847 30,000 30,000
Contributed capital.................... -- -- 39,519 -- --
Corrections of errors.................. (364) -- 3,618 -- -- --
------- ------------ ------- ------------ ------- ------------
Balance--December 31,.................... 718,496 $ 11,754,966 718,860 $ 11,754,966 714,395 $ 11,714,600
------- ------------ ------- ------------ ------- ------------
------- ------------ ------- ------------ ------- ------------
ACCUMULATED DEFICIT
Balance--January 1,...................... $(11,294,348) $(11,327,800) $(11,055,580)
Net income (loss)...................... (18,598) 33,452 (272,220)
Dividends paid......................... (36,339) -- --
------------ ------------ ------------
Balance--December 31,.................... $(11,349,285) $(11,294,348) $(11,327,800)
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-15
<PAGE>
NATIONAL PROPERTIES INVESTMENT TRUST
CANTON CENTER, CONNECTICUT
COMPARATIVE STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
-------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................................... $(18,598) $ 33,452 $(272,220)
-------- --------- ---------
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization........................................ 50,899 46,131 45,338
Issuance of shares of beneficial interest in lieu of cash............ -- -- 30,000
Changes in assets and liabilities:
Receivables.......................................................... (4,337) 1,510 24,884
Prepaid expenses..................................................... 1,753 13,188 89,980
Deferred expenses.................................................... -- (26,927) 4,516
Other................................................................ (360) 12,957 (3,444)
Accounts payable..................................................... (1,589) (57,119) 30,070
Accrued expenses..................................................... 29,575 414 (3,392)
Prepaid rent and security deposits................................... 2,625 (3,056) 487
Due to Advisor....................................................... -- (85,481) --
-------- --------- ---------
Total adjustments.................................................... 78,566 (98,383) 218,439
-------- --------- ---------
Net cash provided by (used in) operating activities......................... 59,968 (64,931) (53,781)
-------- --------- ---------
Cash flows from investing activities:
Purchase of personal property............................................. (60,212) (30,113) (7,300)
-------- --------- ---------
Cash flows from financing activities:
Principal payments on debt................................................ (27,095) (400,253) (26,395)
Mortgage proceeds......................................................... -- 600,000 --
Dividends paid............................................................ (36,339) -- --
Proceeds from note........................................................ -- -- 45,848
-------- --------- ---------
Net cash provided by (used in) financing activities......................... (63,434) 199,747 19,453
-------- --------- ---------
Net increase (decrease) in cash and cash equivalents........................ (63,678) 104,703 (41,628)
Cash and cash equivalents, beginning of the year............................ 108,081 3,378 45,006
-------- --------- ---------
Cash and cash equivalents, end of the year.................................. $ 44,403 $ 108,081 $ 3,378
-------- --------- ---------
-------- --------- ---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-16
<PAGE>
NATIONAL PROPERTIES INVESTMENT TRUST
CANTON CENTER, CONNECTICUT
COMPARATIVE SCHEDULE OF RENTAL EXPENSES
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Rental Expenses:
Personnel.................................................................. $ -- $ -- $ 6,291
Promotion and administration............................................... 21,170 21,193 13,206
Property management........................................................ -- 15,569 16,500
Leasing commissions........................................................ 12,713 12,688 12,662
Utilities.................................................................. 21,264 18,596 12,256
Maintenance and repair..................................................... 26,234 11,811 12,540
Contract services.......................................................... -- -- 22,368
Insurance.................................................................. 13,309 9,451 8,528
Property taxes............................................................. 35,896 33,339 30,571
Interest expense and late charges.......................................... 60,293 46,012 32,419
Amortization............................................................... 8,976 7,481 2,992
Depreciation............................................................... 41,923 38,650 42,346
-------- -------- --------
Total Rental Expenses................................................... $241,778 $214,790 $212,679
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-17
<PAGE>
NATIONAL PROPERTIES INVESTMENT TRUST
CANTON CENTER, CONNECTICUT
NOTES TO FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES:
A. Organization:
National Properties Investment Trust (formerly Richard Roberts Real Estate
Growth Trust I) (the 'Trust') was organized on January 16, 1985 as a
Massachusetts Business Trust. The Trust invests directly in equity interests in
commercial, industrial and/or residential properties in the United States which
have income-producing capabilities and intends to hold its properties for
long-term investment. The Trust currently owns a single property located in
central Florida. The results of the Trust's operations depend upon the Trust's
property's competitive position in its respective leasing market. The Shoppes at
Lake Mary, a strip shopping center located in Lake Mary, Florida, is the Trust's
sole remaining property.
B. Method of Accounting:
The financial statements of the Trust have been prepared on the accrual
basis of accounting.
C. Cash Equivalents:
For financial statement purposes, the Trust considers all highly liquid
investments with original maturities of three months or less to be cash
equivalents.
D. Income Taxes:
The Trust has made for prior years, and intends to make for 1996, an
election to file as a real estate investment trust (REIT) for federal tax
purposes, and if so qualified, will not be taxed on earnings distributed to
shareholders. Accordingly, no provision for federal income taxes has been made
for the periods ended December 31, 1996 and 1995. However, the Trust is subject
to state income taxes, where applicable.
E. Real Estate Assets and Depreciation:
On January 1, 1996, the Trust adopted the provisions of Statement of
Financial Accounting Standards ('SFAS') No. 121 'Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of.' The statement
requires impairment losses to be recognized for long-lived assets, on a property
by property basis, used in operations when indicators of impairment are present
and the undiscounted future cash flows are not sufficient to recover the assets'
carrying value. If such indicators are present, an impairment loss is recognized
based on the excess of the carrying amount of the impaired asset over its fair
value.
For long-lived assets to be disposed of, impairment losses are recognized
when the fair value of the asset, less the estimated cost to sell, is less than
the carrying value of the asset measured at the time management commits to a
plan to dispose of the asset. Assets are classified as assets to be disposed of
when management has committed to sell and is actively marketing the property.
Assets to be disposed of are carried at the lower of carrying value or fair
value less cost to dispose, determined on an asset by asset basis. Depreciation
is not recorded during the period in which assets are held for disposal and
gains (losses) from initial and subsequent adjustments to the carrying value of
the assets, if any, are recorded as a separate component of income from
continuing operations. Adoption of this standard did not have a material impact
on the Trust's financial position or results of operations.
Depreciation was computed using the straight-line method over an estimated
depreciable life of 40 years for real property, 7 years for personal property,
and over the life of the related lease for tenant improvements. The only
property owned by the Trust was written down to its realizable value at December
31, 1991.
F-18
<PAGE>
NATIONAL PROPERTIES INVESTMENT TRUST
CANTON CENTER, CONNECTICUT
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1--ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES:--(CONTINUED)
F. Accumulated Deficit:
The accumulated deficit, reported as a reduction of Shareholders' Equity,
includes net losses recognized and distributions made to Shareholders as a
return of capital invested.
G. Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
NOTE 2--RELATED PARTY TRANSACTIONS:
The Trust paid the Managing Trustee $46,000 and $15,569 as compensation for
managing the Trust property for the years ended December 31, 1996 and 1995,
respectively. In addition, effective in November 1995, the Trust offices are
located at premises owned by the Managing Trustee. No rent was charged to the
Trust in 1996 and 1995, although the Trust paid utility bills for the office of
$1,647 in 1996.
The Trust had entered into an agreement (the 'Advisory Agreement') with
First Investment Properties, Inc. (the 'Advisor'), a Connecticut corporation,
pursuant to which the Advisor is acting as an investment advisor and
administrator of the Trust's day-to-day affairs. Peter Stein, the Managing
Trustee, is the manager of First Investment Properties, Inc. The Advisory
Agreement expired on October 27, 1995 and was not renewed by the Trust.
Under the terms of the Advisory Agreement, the Trust pays to the Advisor:
(a) a reimbursement for organizational, offering and selling expenses advanced
on behalf of the Trust by the Advisor; (b) an annual Advisory Fee equals to 2.5%
of all cash receipts from operations in the ordinary course of business after
deducting payments for operating expenses, debt service, capital expenditures
with respect to real property investments, amounts set aside for reserves, after
the reimbursement of expenses incurred in the performance of advisory duties
described below, which is subordinate to an annual cumulative (but not
compounded) return to the investors of 10% per annum on the original Price Per
Share to the public in the offering, less all distributions of the net proceeds
from the sale or refinancing of the Trust's properties (the 'Adjusted Price Per
Share'); (c) an Acquisition Fee equal to 6% of the purchase price of any real
property acquired by the Trust, from which fee, the Advisor, will pay all real
estate and mortgage commissions due to unaffiliated parties; (d) a Disposition
Fee equal to 15% of any net proceeds from a sale, refinancing or other capital
transaction with respect to any of its investments, after the Shareholders have
received a return of their capital plus a cumulative (but not compounded) return
of 10% per annum on the Adjusted Price Per Share, of which Disposition Fee, the
Advisor, may pay up to 10% to any consultants; and (e) a Real Estate Brokerage
Commission upon the sale of any Trust real property investments, equal to 3% of
the gross sale price. The Trust will also reimburse the Advisor for any expenses
attributable to the performance of its duties pursuant to the Advisory
Agreement. The Advisor will refund to the Trust within 120 days after the end of
the fiscal year, the greater of the amount, if any, by which the Operating
Expenses of the Trust (as defined in the Prospectus) exceeded either (a) 2% of
the Book Value of Invested Assets (as defined in the Prospectus) or (b) 25% of
net income of the Trust, whichever is greater, or (c) 2% of the Trust's base
assets defined as total assets of the Trust less cash, cash items and unsecured
indebtedness. The Trust had Operating Expenses in excess of the above limits of
$85,481 during 1995 which were applied to a note payable due to the Advisor.
The note payable to the Advisor as a Due to Consultant arose as a result of
the costs associated from replacing the prior Advisor and Trustees in 1993. The
contract with the consultant was entered into with First Investment Properties,
Inc. and the Trust was not a party to the agreement. The Declaration of the
Trust prohibits the Trust from directly paying third party contractors of the
Advisor, but instructs the Trust to pay the Advisor
F-19
<PAGE>
NATIONAL PROPERTIES INVESTMENT TRUST
CANTON CENTER, CONNECTICUT
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--RELATED PARTY TRANSACTIONS:--(CONTINUED)
directly and the Advisor is responsible for paying the third party. The Trust
has no liability to the consultant. First Investment Properties, Inc. is solely
liable to the consultant. First Investment Properties, Inc. has received $85,481
directly and indirectly as payment of this note. The remaining $19,519 due to
the Advisor has been forgiven by First Investment Properties, Inc. and recorded
as contributed capital. Additionally, First Investment Properties, Inc. has
waived all rights to Advisory fees accrued in 1995 of $32,607 and any fees
accrued in prior years, which are not payable until such time as the
shareholders receive a cumulative, but not compounded ten percent return on
their investment. First Investment Properties, Inc. has agreed to this waiver
due to the fact they recognize that such a condition will never be met.
In March 1995, the Trust issued 847 shares of Beneficial Interest to
Gretchen Stein, spouse of Peter Stein, in exchange for the note payable at $1
per share per the agreement with the Trust in 1994. The remaining $20,000
balance was contributed to the Trust as capital.
In December 1994, the Trust issued 30,000 shares of beneficial interest at
$1 per share to the shareholders of the Advisor in lieu of cash renumeration.
Leasing commissions paid to Keystone Advisors, Inc. amounted to $0, $0, and
$25,845, for the years ended December 31, 1996, 1995 and 1994, respectively.
Due to Advisor is comprised of the following:
<TABLE>
<CAPTION>
12/31/96 12/31/95
-------- --------
<S> <C> <C>
Balance at the beginning of the year.................................. $ -- $105,000
Additions............................................................. -- --
Payments.............................................................. -- (85,481)
Balance written off................................................... -- (19,519)
-------- --------
Balance at the end of the year........................................ $ -- $ --
-------- --------
-------- --------
</TABLE>
NOTE 3--EARNINGS PER SHARE:
Earnings per Share of Beneficial Interest are computed on the weighted
average number of Shares of Beneficial Interest outstanding during the period.
NOTE 4--INVESTMENT IN REAL ESTATE AND PERSONAL PROPERTY:
The Trust purchased The Shoppes at Lake Mary, a 38,125 square foot shopping
center located in Lake Mary, Florida on March 31, 1986 for $3,200,000. Pursuant
to the purchase agreement, the seller guaranteed that the revenues generated by
the project during the first two years of its operation would be at least equal
to the aggregate of all expenses incurred in connection with the use and
operation of the project during each such year plus $360,000. The seller placed
$300,000 of the purchase price in an interest bearing escrow account as security
for the guarantee. On September 26, 1986, the Trust released the seller from the
guarantee in consideration for the funds held in escrow. The funds held in
escrow were forwarded to the Trust on October 2, 1986. The basis of the property
acquired has been reduced by the amount received under the terms of the cash
flow guarantee. On December 31, 1991 the Trust reduced the book value of real
property by $1,677,901 to its net realizable value.
All of the Trust's property is recorded at historical cost, except for its
real property which is recorded at its historical cost, less $310,762 for the
reduction in basis due to the release of funds escrowed at closing, and less
$1,677,901 loss reserve to reduce the property value to its net realizable
value.
F-20
<PAGE>
NATIONAL PROPERTIES INVESTMENT TRUST
CANTON CENTER, CONNECTICUT
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--INVESTMENT IN REAL ESTATE AND PERSONAL PROPERTY:--(CONTINUED)
The Trust's property and equipment are as follows:
<TABLE>
<CAPTION>
THE SHOPPES AT LAKE MARY
------------------------
1996 1995
---------- ----------
<S> <C> <C>
Land.............................................................. $ 230,299 $ 195,299
Buildings......................................................... 1,147,584 1,147,584
Tenant improvements............................................... 210,742 188,924
Furnishings and equipment......................................... 19,544 16,149
---------- ----------
Total............................................................. 1,608,169 1,547,956
Less: accumulated depreciation.................................... (659,586) (617,663)
---------- ----------
Net investment in real estate and personal property............... $ 948,583 $ 930,293
---------- ----------
---------- ----------
</TABLE>
NOTE 5--RECEIVABLES:
Receivables consist of the following:
<TABLE>
<CAPTION>
12/31/96 12/31/95
-------- --------
<S> <C> <C>
Tenant receivables...................................................... $ 18,247 $ 13,911
Allowance for doubtful accounts......................................... -- --
-------- --------
Tenant receivables net of allowance..................................... $ 18,247 $ 13,911
-------- --------
-------- --------
</TABLE>
Allowance for doubtful accounts is as follows:
<TABLE>
<CAPTION>
12/31/96 12/31/95
-------- --------
<S> <C> <C>
Balance at the beginning of the year.................................... $ -- $ --
Charged to expense...................................................... -- --
Recoveries.............................................................. -- --
Accounts receivable written off......................................... -- --
-------- --------
Balance at the end of the year.......................................... $ -- $ --
-------- --------
-------- --------
</TABLE>
NOTE 6--ACCRUED EXPENSES:
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
12/31/96 12/31/95
-------- --------
<S> <C> <C>
Accrued real estate taxes............................................... $ 35,800 $ --
Accrued interest........................................................ -- 6,225
-------- --------
Accrued expenses........................................................ $ 35,800 $ 6,225
-------- --------
-------- --------
</TABLE>
NOTE 7--MORTGAGE PAYABLE:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Mortgage payable in monthly installments of $7,201 of principal plus
interest at 2% over prime on the outstanding balance. The balance of
principal and interest is due in full in October 1998. The loan is
secured by a first mortgage lien on The Shoppes at Lake Mary......... $571,258 $598,353
-------- --------
-------- --------
</TABLE>
F-21
<PAGE>
NATIONAL PROPERTIES INVESTMENT TRUST
CANTON CENTER, CONNECTICUT
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--MORTGAGE PAYABLE:--(CONTINUED)
The following sets forth the principal payments due on the mortgage
payable:
<TABLE>
<S> <C>
1997.......................................................... 29,205
1998.......................................................... 542,053
</TABLE>
NOTE 8--CORRECTION OF ERRORS:
In May, 1993 the First Investment Properties, Inc. entered into a
consulting agreement with a company, owned by a relative of the former Advisor,
to help with the transfer of the Advisor, the resignations of the original
Trustees, and the transfer of management of the Lake Mary property. The Trust
was not a party to the agreement and is not liable on the note payable. The
liability should have been properly classified as an amount Due to Advisor.
During 1996 and 1995, the Trust has updated its shareholder records and has
corrected several errors by the previous transfer agent. These are reflected in
1996 and 1995 as corrections in the number of shares.
NOTE 9--TENANT LEASES:
The Trust has entered into operating lease agreements with tenants of its
rental property, which have various termination dates. Certain leases also
contain provisions for inflationary increases and the pass through of a portion
of operating expenses under specified circumstances. Future minimum lease
payments under noncancellable operating leases are as follows:
<TABLE>
<S> <C>
1997.......................................................... $279,903
1998.......................................................... 215,880
1999.......................................................... 145,864
2000.......................................................... 67,486
2001.......................................................... 6,300
--------
Total......................................................... $715,433
--------
--------
</TABLE>
NOTE 10--DIVIDENDS PAID TO SHAREHOLDERS:
The Trust declared and paid cash dividends on a monthly basis from February
1986 through September 1988. On April 11, 1989, the Trustees voted to suspend
the quarterly shareholders' dividend effective with the scheduled distribution
for the first quarter of 1989.
A one time dividend was declared in January 1996, paid in February 1996,
and payable to shareholders of record as of September 30, 1995, of $0.05 per
share. This dividend was a return of capital to the shareholders. The dividend
was declared by the sole vote of the Managing Trustee.
A specific date of re-establishment of the quarterly shareholders' dividend
has not yet been determined. Distributions made by the Trust are at the
discretion of the Trustees. Future distributions, if any, will be dependent upon
the earnings and cash flow of the Trust, its financial condition and other
relevant factors.
Dividends declared per share are based upon the actual number of shares
outstanding on the date of declaration and not upon the weighted average number
of shares outstanding during the period used in computing earnings per share.
F-22
<PAGE>
NATIONAL PROPERTIES INVESTMENT TRUST
CANTON CENTER, CONNECTICUT
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11--CONTINGENCIES:
George Knude, an Independent Trustee, resigned on November 13, 1995. A
successor Trustee had not been appointed until June 25, 1996, which was greater
than the 60 days provided in the Declaration of Trust.
Salvatore R. Carabetta, an Independent Trustee, resigned on June 30, 1996.
A successor Trustee has not been appointed to date, which is more than the 60
day period required by the Declaration of Trust for the appointment of a
successor Trustee. The Declaration of the Trust requires a new Trustee to be
appointed within 60 days. Additionally, until June 25, 1996 when Jay Goldman was
elected as Trustee of the Trust, Peter Stein, the Managing Trustee, had been
acting on behalf of the Trust without the express approval of the majority of
the Trustees. Peter Stein and Salvatore Carabetta were the sole remaining
Trustees and since a majority of Trustees need to be present to have a vote,
both Trustees need to be present to hold a vote.
On January 6, 1996, the Managing Trustee declared a dividend without the
express approval of Mr. Carabetta. Mr. Stein believes that the request for a
vote sent to Mr. Carabetta twice by certified mail, and not responded to,
constitutes a presence at a vote and abstention from the vote.
Management is unable to determine the effects the above events will have on
the financial condition of the Trust, if any.
NOTE 12--SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Cash paid during the year
Income taxes......................................................... $ -- $ -- $ --
Interest............................................................. $60,293 $46,012 $30,202
Non-cash Transactions
Issuance of shares of beneficial interest in exchange for debt....... $ -- $ 847 $
Cancellation of indebtedness on Due to Advisor....................... $ -- $19,519 $ --
Conversion of note payable to contributed capital.................... $ -- $20,000 $
</TABLE>
NOTE 13--RESTATEMENT OF FINANCIAL STATEMENTS:
The Comparative Statement of Operations has been restated to reflect that
general and administrative expenses are a component of income from operations in
accordance with generally accepted accounting principles. Previously, general
and administrative expenses were reported as other expenses. This change has no
effect on the income (loss) reported by the Trust.
The Comparative Statement of Financial Position, the Comparative Statement
of Operations, the Comparative Statement of Changes in Shareholders' Equity and
the Comparative Statement of Cash Flows for the year ended December 31, 1995
have been restated to reflect the write-off of $19,519 due to First Investment
Properties, Inc. as being reclassified to contributed capital.
Note 1 of these financial statements has been amended to reflect the
adoption of Statement of Financial Accounting Standards ('SFAS') No. 121
'Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of.' Adoption of this standard did not have a material impact on the
Trust's financial position or results of operations.
F-23
<PAGE>
NATIONAL PROPERTIES INVESTMENT TRUST
CANTON CENTER, CONNECTICUT
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
<TABLE>
<CAPTION>
COSTS GROSS AMOUNT
CAPITALIZED AT WHICH
INITIAL SUBSEQUENT CARRIED AT
COST TO CLOSE OF
TO TRUST ACQUISITION PERIOD
------------ ------------ ------------
BUILDING, BUILDING, BASIS REDUCTIONS BUILDING,
LAND AND LAND AND AND IMPAIRMENT LAND AND ACCUMULATED
DESCRIPTION ENCUMBRANCES IMPROVEMENTS IMPROVEMENTS WRITEDOWNS IMPROVEMENTS DEPRECIATION
- ----------------------------- ------------ ------------ ------------ ---------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
The Shoppes at Lake Mary
Land....................... (1) $ 432,840 $ 35,000 $ (237,541) $ 230,299 $ 497
Building................... (1) 2,898,706 -- (1,751,122) 1,147,584 475,036
Tenant improvements and
furniture & fixtures.... (1) -- 230,286 -- 230,286 184,053
------------ ------------ ---------------- ------------ -----------
Total................... $3,331,546 $ 265,286 $ (1,988,663) $1,608,169 $ 659,586
------------ ------------ ---------------- ------------ -----------
------------ ------------ ---------------- ------------ -----------
<CAPTION>
ESTIMATED
USEFUL LIFE
USED IN
DATE OF DATE COMPUTING
DESCRIPTION CONSTRUCTION ACQUIRED DEPRECIATION
- ----------------------------- ------------ -------- ------------
<S> <C> <C> <C>
The Shoppes at Lake Mary
Land....................... 3/31/86 --
Building................... 9/85 3/31/86 40
Tenant improvements and
furniture & fixtures.... Various Various (2)
Total...................
</TABLE>
- ------------------
(1) Refer to the Notes on the following page.
(2) See Notes 1, 4 and 7 of the Notes to the Financial Statements.
F-24
<PAGE>
NATIONAL PROPERTIES INVESTMENT TRUST
CANTON CENTER, CONNECTICUT
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996--(CONTINUED)
NOTES TO SCHEDULE III
(1) Mortgage payable in monthly installments of $7,201 of principal plus
interest at 2% over prime on the outstanding balance. The balance of
principal and interest is due in full in October 1998. The loan is secured
by a first mortgage lien on the real property.
(2) The useful lives of tenant improvements are determined based on the
remaining lease term and vary lease to lease.
(3) The aggregate cost of properties owned at December 31, 1996 for federal
income tax purposes is $1,608,169.
(4) Reconciliation of Investment Properties Owned:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Balance at the beginning of the period......................... $1,547,956 $1,517,843 $1,510,543
Additions during the period:
Sewer lines.................................................. 35,000
Tenant improvements and furniture & fixtures................. 25,213 30,113 7,300
Deductions during the period:
None......................................................... -- -- --
---------- ---------- ----------
Balance at the end of the period............................... $1,608,169 $1,547,956 $1,517,843
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
(5) Reconciliation of Accumulated Depreciation:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Balance at the beginning of the period..................... $ 617,662 $ 579,012 $ 536,666
Additions during the period:
Depreciation expense....................................... 41,924 38,650 42,346
Deductions during the period:
None....................................................... -- -- --
---------- ---------- ----------
Balance at the end of the period........................... $ 659,586 $ 617,662 $ 579,012
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
(6) The Trust recorded a basis reduction of $310,762 in October 1986 for the
reduction in basis due to the release of funds escrowed at closing from the
seller, and recorded an impairment writedown of $1,677,901 on December 31,
1991.
F-25
<PAGE>
PHILIPS INTERNATIONAL REALTY CORP.
PRO FORMA CONDENSED FINANCIAL STATEMENTS
Upon completion of the Formation Transactions, Philips International
Realty, LLC will become the 'Interim Managing General Partner' of the Operating
Partnership and each of the property partnerships with a .001% interest in each.
Although the Company will have a non-managing general partnership interest, it
will exercise significant influence over the management and operations of the
Operating Partnership and therefore will record its investment in the Operating
Partnership on the equity method. The Interim Managing General Partner's
interest will be redeemed by the respective partnerships upon consummation of a
future equity offering of at least $25 million. The Company's pro forma
adjustments are derived from the pro forma financial statements of the Operating
Partnership and the Equity Investees' property partnerships as set forth in the
respective pro forma financial statements.
The pro forma condensed balance sheet of the Company, the Operating
Partnership and the Equity Investees as of September 30, 1997 has been prepared
as if the Formation Transactions had been consummated on September 30, 1997. The
pro forma condensed statements of operations for the nine months ended September
30, 1997 and for the year ended December 31, 1996 are presented as if completion
of the Formation Transactions, including those reflected in the historical
financial statements (see Note 1 of The Philips Company financial statements),
occurred at January 1, 1996 and the effect thereof was carried forward through
the nine month period ended September 30, 1997.
The pro forma financial statements do not purport to represent what the
Company's, the Operating Partnership's and the Equity Investees' financial
position or results of operations would have been assuming the completion of the
Formation Transactions on such date or at the beginning of such period
indicated, nor do they purport to project the Company's, the Operating
Partnership's and the Equity Investees' financial position or results of
operations at any future date or for any future period. The pro forma condensed
combined financial statements should be read in conjunction with the financial
statements included elsewhere herein.
F-26
<PAGE>
PHILIPS INTERNATIONAL REALTY CORP.
PRO FORMA CONDENSED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PHILIPS
INTERNATIONAL PRO
REALTY FORMA
CORP. ADJUST. PRO FORMA
------------- ------- ---------
<S> <C> <C> <C>
ASSETS
Rental property.......................................................... $ -- $ 2,150(C) $ --
(2,150)(D)
Cash..................................................................... -- 533(A) --
(533)(D)
Other assets............................................................. 2 1,940(B) 2
(1,940)(D)
Investment in Operating Partnership...................................... -- 4,073(D) 2,315
(1,758)(E)
----- ------- ---------
$ 2 $ 2,315 $ 2,317
----- ------- ---------
----- ------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Liabilities:
Mortgage payable......................................................... $ -- $ 550(C) $ --
(550)(D)
Due to related parties................................................... 15 15
----- ------- ---------
Total Liabilities.......................................................... 15 0 15
----- ------- ---------
Shareholders' Equity
Preferred stock (G)...................................................... -- 1,940(B) 1,940
Common Stock (G).........................................................
Paid in capital.......................................................... 1 533(A) 2,595
461(F)
1,600(C)
Equity (deficit)......................................................... (14) (1,758)(E) (2,233)
(461)(F)
----- ------- ---------
Total Shareholders' Equity (deficit)....................................... (13) 2,315 2,302
----- ------- ---------
Total Liabilities and Shareholders' Equity................................. $ 2 $ 2,315 $ 2,317
----- ------- ---------
----- ------- ---------
</TABLE>
- ------------------
(A) To reflect proceeds of $533 from sale of 10,660 shares of common stock to
Philip Pilevsky at $50 per share.
(B) To reflect Prudential Securities Incorporated (or an affiliate) receipt of
1,940 shares of Series A Convertible Redeemable Preferred Stock in lieu of
the financial advisory fee payable by National upon consummation of the
Formation Transaction and assumed by the Company under the Contribution and
Exchange Agreement at a stated value of $1,940.
(C) Purchase of Shoppes at Lake Mary from National Properties Investment Trust
in exchange for the issuance of 32,000 shares of common stock valued at
$1,600 and the assumption of the existing mortgage note payable of $550.
(D) To reflect the contribution of the fee title interest in the Shoppes at Lake
Mary and the associated debt of $550, deferred offering cost of $1,940 and
the cash received from Philip Pilevsky to the Operating Partnership in
exchange for 1,940, preferred non-managing general partnership units at a
stated value of $1,940, which represents a 2.5% interest in the Operating
Partnership, and 47,660 non-managing general partnership units that
represent a 3.2% interest in the Operating Partnership exclusive of the
preferred interest.
(E) To adjust the investment in Operating Partnership at an amount equal to 3.2%
of the Operating Partnership pro forma combined equity, exclusive of the
value of the preferred units, plus the $1,940 value of the preferred equity.
F-27
<PAGE>
PHILIPS INTERNATIONAL REALTY CORP.
PRO FORMA CONDENSED BALANCE SHEET--(CONTINUED)
AS OF SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
(F) To reflect the issuance of 5,000 shares of common stock valued at $250 and
warrants issued with a value of $211 (based on the Black Scholes Valuation
Model) to two members of the Board of Trustees of National as consideration
for arranging the Formation Transaction and their agreement to vote in favor
of the transaction agreements. The expense associated with the issuance of
the shares and units have been treated as a nonrecurring charge.
(G) The number of shares authorized, issued and outstanding for each class of
stock is as follows:
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------- -----------
<S> <C> <C>
Preferred Stock
Authorized........................................................ -- 30,000,000
Issued............................................................ -- 1,940
Outstanding....................................................... -- 1,940
Common Stock
Authorized........................................................ 3,000 100,000,000
Issued............................................................ 20 47,660
Outstanding....................................................... 20 47,660
</TABLE>
F-28
<PAGE>
PHILIPS INTERNATIONAL REALTY CORP.
PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PHILIPS
INTERNATIONAL
REALTY PRO FORMA
CORP. ADJUST. PRO FORMA
------------- --------- ---------
<S> <C> <C> <C>
Allocation of income on preferred units................................. $ -- $ 175 (a) $ 175
Equity in loss before extraordinary items of Operating Partnership,
adjusted for allocation of income to preferred units.................. -- (6 )(b) (6 )
------------- --------- ---------
Net income............................................................ -- 169 169
Preferred unit distribution............................................. -- (175 )(c) (175 )
------------- --------- ---------
Net loss attributable to common shares................................ -- $ (6 ) $ (6 )
------------- --------- ---------
------------- --------- ---------
Net loss per common share............................................. $ (.13 )(e)
---------
---------
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PHILIPS
INTERNATIONAL
REALTY PRO FORMA PRO FORMA
CORP. ADJUST. ADJUSTED
------------- --------- ---------
<S> <C> <C> <C>
Allocation of income on preferred units................................. $ -- $ 131 (a) $ 131
Equity in loss before extraordinary items of Operating Partnership,
adjusted for allocation of income to preferred units.................. -- (27 )(b) (27 )
General and administrative expenses..................................... (14) 14 (d) --
------------- --------- ---------
Net income (loss)..................................................... (14) 118 104
Preferred stock dividends............................................... -- (131 )(c) (131 )
------------- --------- ---------
Net loss attributable to common shares................................ $ (14) $ (13 ) $ (27 )
------------- --------- ---------
------------- --------- ---------
Net loss per common share............................................. $ (.57 )(e)
---------
---------
</TABLE>
- ------------------
(a) Allocation of income on preferred units from Operating Partnership.
(b) To reflect 3.2% interest in loss before extraordinary items of Operating
Partnership, as adjusted for allocation of income to preferred units,
accounted for on the equity method.
(c) To reflect the 9% dividend on the Series A preferred stock.
(d) To reflect reimbursement of costs by Operating Partnership.
(e) Loss per common share is calculated based upon 47,660 shares of common stock
assumed to be outstanding for the year ended December 31, 1996 and for the
nine months ended September 30, 1997. The antidilutive effect of the
warrants has not been considered in the calculation.
F-29
<PAGE>
PHILIPS INTERNATIONAL REALTY, L.P.
PRO FORMA CONDENSED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PHILIPS
INTERNATIONAL PRO
REALTY FORMA
L.P. ADJUST. PRO FORMA
------------- ------- ---------
<S> <C> <C> <C>
ASSETS
Rental property........................................................ $ -- $ 2,150(A) $ --
(2,150)(C)
Cash................................................................... -- 533(A) 533
Other assets........................................................... -- 1,940(A) 1,940
Investment in Equity Investees......................................... -- 15,746(B) 11,208
1,600(C)
(6,138)(D)
----- ------- ---------
$ -- $13,681 $13,681
----- ------- ---------
----- ------- ---------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgage payable....................................................... $ -- $ 550(A) $ --
(550)(C)
Total Liabilities........................................................ -- -- --
----- ------- ---------
Partners' Capital
Preferred Units (E).................................................... -- 1,940(A) 1,940
General Partner (E).................................................... -- 2,133(A) 375
(1,758)(D)
Limited Partners (E)................................................... -- 15,746(B) 11,366
-- (4,380)(D)
----- ------- ---------
Total Partners' Capital.................................................. -- 13,681 13,681
----- ------- ---------
Total Liabilities and Shareholders' Equity............................... $ -- $13,681 $13,681
----- ------- ---------
----- ------- ---------
</TABLE>
- ------------------
(A) To reflect the contribution of the fee title interest in the Shoppes at Lake
Mary and the associated debt of $550, deferred offering costs of $1,940 and
cash of $533 from Philips International Realty Corp. in exchange for 1940
non-managing preferred general partner units representing a 2.5% interest in
the Operating Partnership and 47,660 non-managing common general partner
units representing a 3.2% interest in the Operating Partnership. Partners'
capital is increased by $1,940 for the preferred units issued in exchange
for the deferred costs and $2,133 for the contribution of the other net
assets in exchange for the general partnership interest.
(B) To reflect the contribution of the partnership or membership interest, as
the case may be, in the Property Partnerships and properties from the
Contributing Partnerships in exchange for 1,450,000 limited partner units
and the simultaneous contribution of such assets to the Equity Investees in
exchange for a 99.989% limited partner/non-managing member interest in each
Equity Investee.
(C) To reflect the contribution of the fee title interest in the Shoppes at Lake
Mary and the associated debt to an Equity Investee in exchange for a 99.989%
limited partner interest.
(D) To adjust the investment in Equity Investees at an amount equal to 99.989%
of the Equity Investees pro forma combined equity.
F-30
<PAGE>
PHILIPS INTERNATIONAL REALTY, L.P.
PRO FORMA CONDENSED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(UNAUDITED)
(E) The number of Units issued and outstanding for each class of Unit is as
follows:
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------- ---------
<S> <C> <C>
Preferred Units
Issued.................................................................................. -- 1,940
Outstanding............................................................................. -- 1,940
General Partner Units
Issued.................................................................................. 3,000 47,660
Outstanding............................................................................. 20 47,660
Limited Partner Units
Issued.................................................................................. -- 1,450,000
Outstanding............................................................................. -- 1,450,000
</TABLE>
F-31
<PAGE>
PHILIPS INTERNATIONAL REALTY L.P.
PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PHILIPS
INTERNATIONAL
REALTY PRO FORMA
L.P. ADJUST. PRO FORMA
------------- --------- ---------
<S> <C> <C> <C>
Equity in loss before extraordinary items of Equity Investees........... $ -- $ (15 )(a) $ (15 )
------------- --------- ---------
Net loss.............................................................. -- (15 ) (15 )
Preferred unit distribution............................................. -- (175 )(b) (175 )
------------- --------- ---------
Net loss attributable to General and Limited Partners................. $ -- $ (190 ) $ (190 )
------------- --------- ---------
------------- --------- ---------
General Partners...................................................... $ (6 ) $ (6 )
--------- ---------
--------- ---------
Limited Partners...................................................... $ (184 ) $ (184 )
--------- ---------
--------- ---------
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PHILIPS
INTERNATIONAL
REALTY PRO FORMA PRO FORMA
L.P. ADJUST. ADJUSTED
------------- --------- ---------
<S> <C> <C> <C>
Equity in loss before extraordinary items of Equity Investees........... $ -- $ (709 )(a) $ (709 )
General and administrative expenses..................................... -- (14 )(c) (14 )
------------- --------- ---------
Net (loss)............................................................ -- (723 ) (723 )
Preferred unit distribution............................................. -- (131 )(b) (131 )
------------- --------- ---------
Net loss attributable to General and Limited Partners................. $ -- $ (854 ) $ (854 )
------------- --------- ---------
------------- --------- ---------
General Partners...................................................... $ (27 ) $ (27 )
--------- ---------
--------- ---------
Limited Partners...................................................... $ (827 ) $ (827 )
--------- ---------
--------- ---------
</TABLE>
- ------------------
(a) To reflect 99.989% interest in income (loss) before extraordinary items of
Equity Investees, as adjusted for allocation of income to preferred units,
accounted for on the equity method.
(b) To reflect the 9% distribution on the Series A preferred units.
(c) To reflect reimbursement of costs incurred by Philips International Realty
Corp.
F-32
<PAGE>
EQUITY INVESTEES
PRO FORMA CONDENSED COMBINED BALANCE SHEET
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
----------------------------------------------------------------
THE MERRICK/ EQUITY
PHILIPS MILL BASIN NATIONAL PRO FORMA INVESTEES
COMPANY PROPERTIES PROPERTY ADJUST. PRO FORMA
-------- ---------- -------- --------- ---------------
<S> <C> <C> <C> <C> <C>
(1) (2) (3) (4)
ASSETS
Rental properties--Net............................. $138,249 $ 23,712 $2,150 $17,759(a) $ 183,700
1,830(d)
Cash and cash equivalents.......................... 124 43 (1,830)(d)
1,663(e)
Accounts receivable................................ 5,216 1,284 (1,667)(a) 4,833
Related party receivables.......................... 2,638 1,324 (3,962)(g)
Investment in partnerships......................... 979 (979)(b)
Deferred charges, net.............................. 3,369 901 (346)(a) 3,924
Other assets....................................... 3,461 397 60(c) 4,668
750(f)
-------- ---------- -------- --------- ---------------
Total assets....................................... $154,036 $ 27,661 $2,150 $13,278 $ 197,125
-------- ---------- -------- --------- ---------------
-------- ---------- -------- --------- ---------------
LIABILITIES AND OWNERS' EQUITY (DEFICIT)/PARTNERS' CAPITAL
Liabilities:
Mortgages and notes payable...................... $151,494 $ 25,854 $ 550 (936)(c) $ 177,022
60(c)
Accounts payable and accrued expenses............ 4,717 460 1,663(e) 7,590
750(f)
Related party payables........................... 1,910 253 (2,163)(h)
Other liabilities................................ 1,304 1,304
-------- ---------- -------- --------- ---------------
Total liabilities.................................. 159,425 26,567 550 (626) 185,916
-------- ---------- -------- --------- ---------------
Owners' equity (deficit)/partners' capital......... (5,389) 1,094 1,600 15,746(a)
(979)(b)
936(c)
(3,962)(g)
2,163(h)
(11,209)(i)
Partners capital
General partners/managing members................ 1(i) 1
Limited partners/non managing members............ 11,208(i) 11,208
-------- ---------- -------- --------- ---------------
Total liabilities and owners' equity
(deficit)/partners' capital...................... $154,036 $ 27,661 $2,150 $13,278 $ 197,125
-------- ---------- -------- --------- ---------------
-------- ---------- -------- --------- ---------------
</TABLE>
F-33
<PAGE>
EQUITY INVESTEES
NOTES TO PRO FORMA CONDENSED
COMBINED BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS)
(1) Represents historical combined balance sheet of seven properties comprising
The Philips Company.
(2) Represents historical combined balance sheet of The Merrick Commons and Mill
Basin Plaza Properties in which the The Philips Company has an equity
interest and which will be wholly-owned after the Formation Transactions.
(3) Contribution of Shoppes at Lake Mary from the Company to the Equity
Investees.
(4) Adjustments to the Pro Forma Condensed Balance Sheet as of September 30,
1997 are as follows:
(a) In accordance with APB #16, purchase of the interests of the non-sponsor
partners in exchange for approximately 285 Units (valued at $50 per
Unit) in the Operating Partnership. The sponsor interests are reflected
at historical basis. Sponsor interests consist of Philip Pilevsky and
family members. The sponsors will receive 1,165 Units in the Operating
Partnerships.
<TABLE>
<CAPTION>
HISTORICAL
BOOK VALUE
NON-SPONSOR PURCHASE PRO FORMA
INTERESTS PRICE ADJUSTMENTS
----------- -------- -----------
<S> <C> <C> <C>
The Philips Company:
Freeport............................................. $ (2,697) $ 2,615 $ 5,312
Enfield.............................................. 401 660 259
Delran............................................... 79 1,756 1,677
Foxborough........................................... 339 259 (80)
----------- -------- -----------
(1,878) 5,290 7,168
Merrick/Mill Basin Properties:
SP Avenue U.......................................... 984 5,070 4,086
Merrick.............................................. (585) 3,907 4,492
----------- -------- -----------
399 8,977 8,578
----------- -------- -----------
$ (1,479) $ 14,267 $15,746
----------- -------- -----------
----------- -------- -----------
Pro forma adjustment has been allocated as follows:
Rental properties--net......................................................... $17,759
Accounts receivable............................................................ (1,667)
Deferred charges............................................................... (346)
-----------
Net adjustment to owners' equity............................................... $15,746
-----------
-----------
</TABLE>
F-34
<PAGE>
EQUITY INVESTEES
NOTES TO PRO FORMA CONDENSED
COMBINED BALANCE SHEET--(CONTINUED)
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<S> <C> <C>
(b) Elimination of investment in Merrick/Mill Basin Properties historically accounted for on
the equity method....................................................................... $ (979)
(c) Net reduction in debt due to the following:
During November 1997, the Company reached an agreement with its lender in connection
with the Millside Plaza, Elm Plaza and Foxboro Plaza mortgage. Upon completion of the
proposed transactions, the debt will be modified (i) to extend the maturity date to
the year 2002, with an amortization equal to a 30 year term, (ii) to adjust the
interest rate to 175 basis points above the 30 year U.S. Treasury rate and (iii) to
eliminate the Company's obligation to repay $936 of second mortgage loans. $ (936)
The lender has agreed to make a second mortgage loan of $150 to the Company resulting in
a total outstanding principal amount of $24,000 at the closing of the Formation. As of
September 30, 1997 the additional financing would amount
to $60................................................................................ $ 60
(d) To record property acquisition costs, including title costs, transfer costs,
solicitation fees, engineering costs and other acquisition costs........................ $ 1,830
(e) To reclassify cash and cash equivalent deficiency to accounts payable................... $ 1,663
(f) To record accounting and legal fees in connection with the preparation for an initial
public offering......................................................................... $ 750
(g) To reflect the distribution of related party receivables prior to the completion of the
Formation Transaction................................................................... $ (3,962)
(h) To reflect the distribution of related party payables prior to the completion of the
formation transaction................................................................... $ 2,163
(i) To reflect allocation of owners interest between General Partners/Managing Members and
Limited Partners/Non-Managing Members interest in the Equity Investees.................. $ 11,209
</TABLE>
F-35
<PAGE>
EQUITY INVESTEES
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------------------------
THE MERRICK/MILL ACQUISITION OF EQUITY
PHILIPS BASIN NATIONAL PRO FORMA INVESTEES
COMPANY PROPERTIES PROPERTY ADJUST. PRO FORMA
------- ------------- -------------- --------- ---------
(1) (2) (3) (4)
<S> <C> <C> <C> <C> <C>
Revenue from rental property..................... $25,947 $ 6,256 $341 $ 695(a) $33,239
------- ------------- ------ --------- ---------
Expenses:
Operating expenses............................. 4,176 476 95 4,747
Real estate taxes.............................. 3,671 744 36 4,451
Management fees to
affiliates.................................. 878 234 46 (228)(d) 930
Interest expense............................... 11,728 3,496 60 884(c) 16,168
General and administrative expenses............ 306 38 73 1,430(e) 1,847
Depreciation and
amortization................................ 3,417 576 51 1,074(a) 5,134
16(f)
------- ------------- ------ --------- ---------
Total Expenses.............................. 24,176 5,564 361 3,176 33,277
------- ------------- ------ --------- ---------
Operating income............................ 1,771 692 (20) (2,481) (38)
Equity in net income of investees................ 95 -- -- (95)(b) --
Other income net................................. 22 -- 1 -- 23
------- ------------- ------ --------- ---------
Income (loss) before extraordinary items....... $1,888 $ 692 $(19) $(2,576) $ (15)
------- ------------- ------ --------- ---------
------- ------------- ------ --------- ---------
</TABLE>
F-36
<PAGE>
EQUITY INVESTEES
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997
--------------------------------------------------------------------
THE MERRICK/MILL ACQUISITION OF EQUITY
PHILIPS BASIN NATIONAL PRO FORMA INVESTEES
COMPANY PROPERTIES PROPERTY ADJUST. PRO FORMA
------- ------------- -------------- --------- ---------
(1) (2) (3) (4)
<S> <C> <C> <C> <C> <C>
Revenues from rental property.................... $19,508 $ 3,725 $268 $ 364(a) $23,865
------- ------------- ------ --------- ---------
Expenses:
Operating expenses............................. 2,895 256 70 3,221
Real estate taxes.............................. 2,792 612 28 3,432
Management fees to
affiliates.................................. 723 180 36 (241)(d) 698
Interest expense............................... 9,766 1,581 43 546(c) 11,936
General and administrative expenses............ 206 47 38 1,073(e) 1,364
Depreciation and 604(a)
amortization................................ 2,867 422 41 12(f) 3,946
------- ------------- ------ --------- ---------
Total expenses.............................. 19,249 3,098 256 1,994 24,597
------- ------------- ------ --------- ---------
Operating income................................. 259 627 12 (1,630) (732)
Equity in income of investees.................... 285 -- -- (285)(b) --
Other income (expense), net...................... 22 1 23
------- ------------- ------ --------- ---------
Income (loss) before extraordinary items....... $ 566 $ 628 $ 12 $(1,915) $ (709)
------- ------------- ------ --------- ---------
------- ------------- ------ --------- ---------
</TABLE>
F-37
<PAGE>
EQUITY INVESTEES
NOTES TO PRO FORMA CONDENSED
COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
(1) Represents historical combined income statement of seven properties
comprising The Philips Company.
(2) Represents historical combined income statement of two properties in which
The Philips Company has an equity interest and will be wholly-owned after
the Formation Transactions.
(3) Represents the income statement of The Shoppes at Lake Mary.
(4) Adjustments to the Pro Forma Operations of the Operating Partnership and
property partnerships for the nine months ended September 30, 1997 and the
year ended December 31, 1996 are as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
<S> <C> <C> <C>
(a) To reflect the adjustment resulting from purchase price
accounting:
Rental revenue--Adjustment to straight line rental
income.................................................. $ 364 $ 695
Depreciation and amortization............................... $ 604 $ 1,074
(b) Elimination of equity in net income of investees which is
included in the operations of Merrick/Mill Basin
Properties................................................ $ (285) $ (95)
(c) Increase in interest expense related to new financing:
Additional financing of $13,000 to purchase certain
partners' interests in Palm Springs Mile and
includes amortization of deferred financing
costs up to date of historical purchase................. $ 704 $ 1,110
Second mortgage of $150 on Forest Avenue.................... 6 8
Historical interest on Dime Savings Bank mortgages.......... (852) (1,158)
Renegotiated interest on Dime Saving Bank
mortgages............................................... 688 924
-------- --------
$ 546 $ 884
-------- --------
-------- --------
(d) Adjustment to management fees paid to affiliates related to
the properties acquired:
Management fees based on historical agreements.............. $ (939) $(1,158)
Management fees based upon agreement effective at
the completion of the Formation Transactions............ 698 930
-------- --------
Net decrease in management fees............................. $ (241) $ (228)
-------- --------
-------- --------
</TABLE>
F-38
<PAGE>
EQUITY INVESTEES
NOTES TO PRO FORMA CONDENSED
COMBINED STATEMENTS OF OPERATIONS--(CONTINUED)
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
<S> <C> <C> <C>
(e) Incremental general and administrative expenses associated
with formation transactions
Salaries, including taxes and benefits...................... $ 589 $ 785
Directors fees.............................................. 30 40
Transfer agent fees......................................... 6 8
Directors & officers liability insurance.................... 94 125
Professional fees........................................... 150 200
Travel and entertainment.................................... 45 60
Rent........................................................ 54 72
Other expenses.............................................. 30 40
State franchise tax......................................... 75 100
-------- --------
$ 1,073 $ 1,430
-------- --------
-------- --------
(f) To reflect depreciation based upon purchase price for The
Shoppes at Lake Mary...................................... $ 12 $ 16
</TABLE>
F-39
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Philips International Realty Corp.
We have audited the accompanying balance sheet of Philips International Realty
Corp. as of September 30, 1997 and the related statement of operations and
deficit and cash flows for the period August 31, 1997 (Inception) to September
30, 1997. These financial statements are the responsibility of the management of
Philips International Realty Corp. Our responsibility is to express an opinion
on these financial statements based on our audit.
We conducted our audit 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 balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Philips International Realty
Corp. at September 30, 1997 and the results of its operations and its cash flows
for the period August 31, 1997 to September 30, 1997 in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
November 7, 1997
F-40
<PAGE>
PHILIPS INTERNATIONAL REALTY CORP.
BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------
<S> <C>
ASSETS
Cash and cash equivalents..................................................................... $ 171
Other assets.................................................................................. 1,824
------------------
Total assets.................................................................................. $ 1,995
------------------
------------------
LIABILITIES AND SHAREHOLDER'S DEFICIT
Liabilities:
Due to related parties........................................................................ $ 15,000
------------------
Total liabilities............................................................................. 15,000
------------------
Commitments and contingencies (Note 2)
Shareholder's Deficit
Common stock $.01 par value; 3,000 shares authorized and 20 shares issued and outstanding.....
Paid in capital............................................................................... 1,000
Deficit....................................................................................... (14,005)
------------------
Total shareholder's deficit................................................................... (13,005)
------------------
Total liabilities and shareholder's deficit................................................... $ 1,995
------------------
------------------
</TABLE>
See accompanying notes.
F-41
<PAGE>
PHILIPS INTERNATIONAL REALTY CORP.
STATEMENT OF OPERATIONS
AND DEFICIT
<TABLE>
<CAPTION>
PERIOD
AUGUST 31, 1997
(INCEPTION) TO
SEPTEMBER 30, 1997
------------------
<S> <C>
Revenue....................................................................................... $ --
General and administrative expenses........................................................... 14,005
------------------
Net loss, representing deficit at September 30, 1997.......................................... $ (14,005)
------------------
------------------
</TABLE>
See accompanying notes.
F-42
<PAGE>
PHILIPS INTERNATIONAL REALTY CORP.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD
AUGUST 31, 1997
(INCEPTION) TO
SEPTEMBER 30, 1997
------------------
<S> <C>
Operating activities
Net loss...................................................................................... $ (14,005)
Changes in operating assets and liabilities:
Other assets................................................................................ (1,824)
Due to related parties...................................................................... 15,000
------------------
Net cash used in operating activities......................................................... (829)
------------------
Financing activities:
Contribution from shareholder............................................................... 1,000
------------------
Net cash provided by financing activities..................................................... 1,000
------------------
Net increase in cash and cash equivalents..................................................... 171
Cash and cash equivalents at beginning of period.............................................. --
------------------
Cash and cash equivalents at end of period.................................................... $ 171
------------------
------------------
</TABLE>
See accompanying notes.
F-43
<PAGE>
PHILIPS INTERNATIONAL REALTY CORP.
NOTES TO FINANCIAL STATEMENTS
1. FORMATION AND PROPOSED TRANSACTION
Philips International Realty Corp. (the 'Company'), a Maryland corporation,
and Philips International Realty L.P. (the 'Operating Partnership'), a Delaware
limited partnership, were formed in July 1997 for the purpose of combining
certain real estate properties (the 'Properties') which are owned by
partnerships and limited liability companies (the 'Contributing Companies') in
which Philip Pilevsky owns an interest. The Company expects to qualify as a real
estate investment trust ('REIT') under the Internal Revenue Code of 1986, as
amended. A REIT is a legal entity that holds real estate interests and, through
payments of dividends to shareholders, is permitted to reduce or avoid the
payment of federal income taxes at the Company level.
Proposed Transaction
The partners and members of the Contributing Companies intend to transfer
their shopping center assets or, in certain instances, their partnership or
membership interests in the entities which hold title to such shopping center
assets, to certain newly-formed entities as follows:
o With respect to those partnerships which own fee title to properties
located in New York or Connecticut, the partnerships will contribute such
fee title, together with any existing indebtedness relating thereto, to
the Operating Partnership or its designee, which designee is likely to be
a newly-formed limited partnership (in which the Company will indirectly
own a 0.01% general partnership interest), in exchange for Units in the
Operating Partnership;
o With respect to those partnerships that are partnerships or limited
liability companies and which do not own fee title to properties located
in New York or Connecticut, the partners or members, as the case may be,
of such partnerships will contribute all of their partnership interests
or membership interests therein, as the case may be, to the Operating
Partnership in exchange for Units in the Operating Partnership (which
Units, together with those Units described above, comprise a 93.9%
limited partner interest in the Operating Partnership and which, upon
redemption of such Units for Common Stock of the Company, would represent
approximately 93.9% of the outstanding Common Stock of the Company);
o The Company will purchase a shopping center property in Florida from an
existing unaffiliated seller (the 'Seller') in exchange for 32,000 shares
of Common Stock (which shares will represent approximately 2.1% of the
outstanding Common Stock of the Company on a fully-diluted basis);
o The trustees of the Seller will be issued 5,000 shares of Common Stock of
the Company, plus warrants to acquire an additional 8,000 shares of
Common Stock of the Company (which shares and warrants represent
approximately 0.8% of the outstanding Common Stock of Company on a
fully-diluted basis);
o An individual partner will purchase 10,660 shares of the Company's Common
Stock (approximately 0.7% of the outstanding Common Stock on a
fully-diluted basis) for a total purchase price of $533,000;
o Prudential Securities will receive, in lieu of the financial advisory fee
payable by National upon consummation of the Formation Transactions and
assumed by the Company under the Contribution and Exchange Agreement,
1,940 shares of Series A Preferred Stock, convertible into 38,800 shares
of Common Stock, which Series A Preferred Stock represents approximately
2.5% of the outstanding shares of Common Stock of the Company (including
interests redeemable or convertible therefor and shares of Common Stock
issuable upon exercise of outstanding warrants);
o The Company will contribute its fee title interest in the Florida
property, together with the cash received from the partner in connection
with the purchase of Common Stock, to the Operating Partnership in
exchange for an approximate 3.2% non-managing general partnership
interest therein; and
o The Operating Partnership and the Property-owning partnerships will be
controlled by Philips International Realty LLC, a Delaware limited
liability company, of which Philip Pilevsky is the sole member, until
such time as the Company completes public or private equity offerings of
its securities aggregating in excess of $25 million, at which time the
Company will become the sole general partner of the Operating Partnership
and the Property-owning partnerships.
F-44
<PAGE>
PHILIPS INTERNATIONAL REALTY CORP.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. COMMITMENTS AND CONTINGENCIES
Management Agreement
The Company will enter into an agreement with the Management Company, an
affiliate of Philip Pilevsky, to provide the day-to-day operations, management
and leasing services for the properties, as described in the Company's Proxy
Statement/Prospectus under the caption 'Management Agreement and Non-Competition
Agreement--Management Agreement.'
Stock Option Plan
The Company intends to adopt a stock option plan designed to attract,
retain and motivate executive officers of the Company and other key employees.
The plan will authorize the issuance of shares of common stock pursuant to
options granted under the plan, as described in the Company's Proxy
Statement/Prospectus under the caption 'Management--Stock Option Plan.'
Employment Agreements
The Company will enter into employment and non-competition agreements with
certain executive officers as described in the Company's Proxy
Statement/Prospectus under the captions 'Management--Employment Agreements' and
'Management Agreement and Non-Competition Agreement--Non-Competition Agreement.'
3. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
F-45
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Partners and Members of
The Philips Company
We have audited the accompanying combined balance sheets of The Philips Company
as of December 31, 1996 and 1995, and the related combined statements of income,
owners' deficit and cash flows for each of the three years in the period ended
December 31, 1996. We have also audited the financial statement schedule listed
on the Index to the Financial Statements included in the Proxy
Statement/Prospectus. These financial statements and financial statement
schedule are the responsibility of The Philips Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with 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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of The Philips
Company at December 31, 1996 and 1995, and the combined results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
Also, in our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be set
forth therein.
ERNST & YOUNG LLP
New York, New York
April 28, 1997
F-46
<PAGE>
THE PHILIPS COMPANY
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, --------------------
1997 1996 1995
------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Rental properties, at cost (Note 3)
Land and improvements................................................... $ 34,850 $ 27,687 $ 25,195
Building and improvements............................................... 130,216 109,712 99,697
------------- -------- --------
165,066 137,399 124,892
Less accumulated depreciation........................................... 26,817 24,277 21,315
------------- -------- --------
138,249 113,122 103,577
Cash and cash equivalents................................................. 124 785 491
Accounts receivable....................................................... 5,216 7,832 8,104
Related party receivables (Note 6)........................................ 2,638 1,216 --
Investments in partnerships (Note 2)...................................... 979 694 598
Deferred charges, net (Note 8)............................................ 3,369 4,605 2,826
Other assets (Note 9)..................................................... 3,461 1,587 1,260
------------- -------- --------
Total assets.............................................................. $ 154,036 $129,841 $116,856
------------- -------- --------
------------- -------- --------
LIABILITIES AND OWNERS' DEFICIT
Liabilities:
Mortgage notes payable (Note 3)......................................... $ 151,494 $133,609 $131,740
Accounts payable and accrued expenses................................... 4,717 3,584 4,510
Related party payables (Note 6)......................................... 1,910 2,067 1,278
Other liabilities....................................................... 1,304 1,747 1,419
------------- -------- --------
Total liabilities......................................................... 159,425 141,007 138,947
------------- -------- --------
Contingencies (Note 7)....................................................
Owners' deficit........................................................... (5,389) (11,166) (22,091)
------------- -------- --------
Total liabilities and owners' deficit..................................... $ 154,036 $129,841 $116,856
------------- -------- --------
------------- -------- --------
</TABLE>
See accompanying notes.
F-47
<PAGE>
THE PHILIPS COMPANY
COMBINED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- --------------------------------
1997 1996 1996 1995 1994
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue from rental property (Notes 1 and 5)........... $ 15,280 $ 15,068 $ 20,230 $ 18,163 $ 17,401
Escalation and reimbursement revenue................... 4,228 4,270 5,717 5,024 4,791
-------- -------- -------- -------- --------
Total Revenue.......................................... 19,508 19,338 25,947 23,187 22,192
-------- -------- -------- -------- --------
Expenses:
Operating expenses (Note 6).......................... 2,895 3,014 4,176 4,193 4,056
Real estate taxes.................................... 2,792 2,742 3,671 3,591 3,554
Management fees to affiliates (Note 6)............... 723 632 878 815 778
Interest expense (Note 3)............................ 9,766 8,584 11,728 11,097 9,695
Depreciation and amortization........................ 2,867 2,480 3,417 3,072 2,896
General and administrative expenses.................. 206 230 306 201 222
-------- -------- -------- -------- --------
Total expenses......................................... 19,249 17,682 24,176 22,969 21,201
-------- -------- -------- -------- --------
259 1,656 1,771 218 991
Equity in income of investees (Note 2)................. 285 15 95 54 6
Other income, net.................................... 22 17 22 35 48
-------- -------- -------- -------- --------
Income before extraordinary items.................... 566 1,688 1,888 307 1,045
Extraordinary items (Note 8)........................... (164) 2,284 2,881 -- 298
-------- -------- -------- -------- --------
Net income........................................... $ 402 $ 3,972 $ 4,769 $ 307 $ 1,343
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
See accompanying notes.
F-48
<PAGE>
THE PHILIPS COMPANY
COMBINED STATEMENTS OF OWNERS' DEFICIT
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
Balance at January 1, 1994................................................................... $(25,771)
Distributions.............................................................................. (441)
Contributions.............................................................................. 258
Net income for the year ended December 31, 1994............................................ 1,343
--------
Balance at December 31, 1994................................................................. (24,611)
Distributions.............................................................................. (468)
Contributions.............................................................................. 2,681
Net income for the year ended December 31, 1995............................................ 307
--------
Balance at December 31, 1995................................................................. (22,091)
Distributions.............................................................................. (1,101)
Contributions.............................................................................. 7,257
Net income for the year ended December 31, 1996............................................ 4,769
--------
Balance at December 31, 1996................................................................. (11,166)
Distributions (unaudited).................................................................. (4,497)
Contributions (unaudited).................................................................. 9,872
Net income for the nine months ended September 30, 1997 (unaudited)........................ 402
--------
Balance at September 30, 1997 (unaudited).................................................... $ (5,389)
--------
--------
</TABLE>
See accompanying notes.
F-49
<PAGE>
THE PHILIPS COMPANY
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- -----------------------------
1997 1996 1996 1995 1994
-------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net Income................................................ $ 402 $ 3,972 $ 4,769 $ 307 $ 1,343
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization........................ 2,867 2,480 3,417 3,072 2,896
Amortization of mortgage discount.................... 31 45 59 56 52
Extraordinary items.................................. 164 (2,284) (2,881) -- (298)
Equity in (income)/loss of investees................. (285) (15) (95) (54) (6)
Changes in operating assets and liabilities:
Accounts receivable.................................. (155) (1,019) (574) (411) (818)
Related party receivables............................ (1,611) (15) (357) 722 375
Deferred charges..................................... (1,286) (796) (2,957) (1,514) (835)
Other assets......................................... (598) (195) 432 527 572
Accounts payable and accrued expenses................ 1,120 (317) (793) (1,587) 2,075
Related party payables............................... (133) 1,431 1,997 249 184
Other liabilities.................................... (431) 60 550 2,168 (1,901)
-------- ------- ------- ------- -------
Net cash provided by operating activities................... 85 3,347 3,567 3,535 3,639
-------- ------- ------- ------- -------
INVESTING ACTIVITIES
Additions to land, buildings and improvements............... (19,369) (2,667) (9,359) (6,604) (3,354)
-------- ------- ------- ------- -------
Net cash used in investing activities....................... (19,369) (2,667) (9,359) (6,604) (3,354)
-------- ------- ------- ------- -------
FINANCING ACTIVITIES
Proceeds from mortgage notes payable...................... 79,400 420 14,835 1,719 --
Payments of mortgage notes payable........................ (61,546) (1,654) (10,742) (1,221) (693)
Contributions from owners................................. 4,941 2,002 2,635 2,130 258
Distributions to owners................................... (4,172) (878) (642) (468) (441)
-------- ------- ------- ------- -------
Net cash provided by (used in) financing activities......... 18,623 (110) 6,086 2,160 (876)
-------- ------- ------- ------- -------
Net increase (decrease) in cash and cash equivalents........ (661) 570 294 (909) (591)
Cash and cash equivalents at beginning of period............ 785 491 491 1,400 1,991
-------- ------- ------- ------- -------
Cash and cash equivalents at end of period.................. $ 124 $ 1,061 $ 785 $ 491 $ 1,400
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
NONCASH INVESTING AND FINANCING ACTIVITIES
Loans to and from affiliates reclassified as capital
contributions and/or distributions:
Contributions............................................. $ 159 $ 2,485 $ 2,524 $ 373 $ --
Distributions............................................. 325 458 459 -- --
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
Non cash adjustments relating to purchase of partnership
interests (see Note 1):
Increase in rental properties............................. $ 8,298 $ -- $ 3,148 $ -- $ --
Decrease in accounts receivable........................... (2,771) $ -- (846) -- --
Decrease in deferred charges (net)........................ (755) $ -- (204) -- --
-------- ------- ------- ------- -------
Increase in owners' equity................................ 4,772 -- 2,098 -- --
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
Investment in partnerships, included in capital
contributions............................................. $ -- $ -- $ -- $ 178 $
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
</TABLE>
See accompanying notes.
F-50
<PAGE>
THE PHILIPS COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
The Philips Company (the 'Company') is engaged in the ownership, operation,
leasing and development of seven community and neighborhood shopping center
properties (collectively, the 'Properties') located in New York, Connecticut,
New Jersey, Massachusetts and Florida.
Principles of Combination
The Philips Company is not a legal entity but rather a combination of real
estate properties that are currently organized as general and limited
partnerships and limited liability companies and which are under the common
management and control of Philip Pilevsky and his family. In addition,
investments in certain non-controlled limited partnerships are accounted for
under the equity method (see Note 2). All significant intercompany transactions
and balances have been eliminated in combination.
The specific partnerships and limited liability companies included in the
accompanying combined financial statements are as follows:
<TABLE>
<CAPTION>
ENTITY PROPERTY
- ------------------------------------- -----------------------------------------
<S> <C>
Branhaven Plaza L.L.C. Branhaven Plaza
Palm Springs Mile Associates, Ltd. Palm Springs Mile
Forest Avenue Shopping Associates Forest Avenue Shoppers Town
Philips Freeport Associates, L.P. Meadowbrook Commons
Foxborough Shopping L.L.C. Foxboro Plaza
Enfield Shopping L.L.C. Elm Plaza
Delran Shopping L.L.C. Millside Plaza
</TABLE>
Acquisition of Partnership Interests
Philip Pilevsky and his family purchased the following
Partnership/Membership Interests in contemplation of the proposed transactions
described below:
<TABLE>
<CAPTION>
PERCENTAGE
INTEREST
ENTITY DATE PURCHASED
- ----------------------------------- ------------- ----------
<S> <C> <C>
Forest Avenue Shopping Associates.. October 1996 65 %
Branhaven Plaza LLC (unaudited).... June 1997 25 %
Palm Springs Mile Associates, Ltd.
(unaudited)...................... August 1997 51.5%
</TABLE>
Rental properties, accounts receivables, deferred charges and owners'
deficit reflect the acquisition and purchase accounting in accordance with the
push down basis of accounting required by the Securities and Exchange
Commissions' Staff Accounting Bulletin #54. The following reflects the purchase
accounting:
<TABLE>
<CAPTION>
PURCHASE
HISTORICAL BOOK ACCOUNTING
VALUE OF NON-SPONSOR ADJUSTMENT
INTEREST AT DATE PURCHASE ------------------
ENTITY OF PURCHASE PRICE 1997 1996
- ----------------------------------- -------------------- -------- ------- -------
<S> <C> <C> <C> <C>
Forest Avenue Shopping Associates.. $ (2,098) $ 5,859 -- $ 7,957
Branhaven Plaza LLC (unaudited).... (439) 1,073 $ 1,512 --
Palm Springs Mile Associates, Ltd.
(unaudited)...................... (4,334) 15,881 20,215 --
</TABLE>
F-51
<PAGE>
THE PHILIPS COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Proposed Transaction
The partners and members of The Philips Company and the Merrick/Mill Basin
Properties (see Note 2) intend to transfer their shopping center assets or, in
certain instances, their partnership or membership interests in the entities
which hold title to such shopping center assets, to certain newly-formed
entities as follows:
o With respect to those partnerships which own fee title to properties
located in New York or Connecticut, the partnerships will contribute
such fee title, together with any existing indebtedness relating
thereto, to Philips International Realty L.P. (a newly-formed
'Operating Partnership') or its designee, which designee is likely
to be a newly-formed limited partnership (in which a subsidiary of
Philips International Realty Corp., a new company intending to
qualify as a real estate investment trust (the 'REIT') will
indirectly own a 0.01% general partnership interest), in exchange
for Units in the Operating Partnership;
o With respect to those partnerships or limited liability companies
which do not own fee title to properties located in New York or
Connecticut, the partners or members, as the case may be, of such
partnerships will contribute all of their partnership interests or
membership interests therein, as the case may be, to the Operating
Partnership in exchange for Units in the Operating Partnership
(which Units, together with those Units described above, comprise a
93.9% limited partners' position in the Operating Partnership and
which, upon redemption of such Units for Common Stock of the REIT,
would represent approximately 93.9% of the outstanding Common Stock
of the REIT);
o The REIT will purchase a shopping center property in Florida from an
existing unaffiliated seller (the 'Seller') in exchange for 32,000
shares of Common Stock (which shares will represent approximately
2.1% of the outstanding Common Stock of the REIT on a fully-diluted
basis);
o The trustees of the Seller will be issued 5,000 shares of Common
Stock of the REIT, plus warrants to acquire an additional 8,000
shares of Common Stock of the REIT (which shares and warrants
represent approximately 0.8% of the outstanding Common Stock of the
REIT on a fully-diluted basis);
o An individual partner will purchase 10,660 shares of the REIT's
Common Stock (approximately 0.7% of the outstanding Common Stock on
a fully-diluted basis) for a total purchase price of $533;
o Prudential Securities will receive, in lieu of the financial
advisory fee payable by National upon consummation of the Formation
Transactions and assumed by the Company under the Contribution and
Exchange Agreement, 1,940 shares of Series A Preferred Stock,
convertible into 38,800 shares of Common Stock, which Series A
Preferred Stock represents approximately 2.5% of the outstanding
shares of Common Stock of the Company (including interests
redeemable or convertible therefor and shares of Common Stock
issuable upon exercise of outstanding warrants);
o The REIT will contribute its fee title interest in the Florida
property, together with the cash received from the partner in
connection with the purchase of Common Stock, to the Operating
Partnership in exchange for approximately 3.2% non-managing general
partnership interest therein; and
o The Operating Partnership and the Property-owning partnerships will
be controlled by Philips International Realty LLC, a Delaware
limited liability company, of which Mr. Pilevsky is the sole member,
until such time as the Company completes public or private equity
offerings of its securities aggregating in excess of $25 million, at
which time the REIT will become the sole general partner of the
Operating Partnership and the Property-owning partnerships.
F-52
<PAGE>
THE PHILIPS COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Real Estate Properties
Depreciation is computed by the straight-line method over the estimated
useful lives of the assets which range from fifteen to thirty-nine years for
buildings and improvements. Tenant improvements, which are included in buildings
and improvements in the accompanying combined balance sheets, are amortized over
the lives of the respective leases, using the straight-line method.
During 1996, The Philips Company adopted Statement of Financial Accounting
Standards No. 121 ('SFAS No. 121'), Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of. SFAS No. 121 requires that
the Company review real estate assets for impairment whenever events or changes
in circumstances indicate that the carrying value of assets to be held and used
may not be recoverable. Impaired assets are required to be reported at the lower
of cost or fair value. Assets to be disposed of are required to be reported at
the lower of cost or fair value less cost to sell. Assets are classified to be
disposed when management has committed to a plan to dispose of the assets. Prior
to the adoption of SFAS No. 121, real estate assets were required to be stated
at the lower of cost or net realizable value. No impairment losses have been
recorded in any of the periods presented.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash and cash equivalents.
The Company maintains banking relationships with major financial
institutions and operates its properties through multiple bank accounts to
mitigate exposure to loss of cash balances which may from time to time exceed
federally insured limits.
Revenue Recognition
Minimum revenues from rental property are recognized on a straight-line
basis over the terms of the respective tenant leases.
Deferred Charges
Costs incurred to obtain tenant leases and long term financing, included in
deferred charges in the accompanying combined balance sheets, are amortized over
the terms of the related leases or debt agreements, as applicable.
Income Taxes
The entities comprising the Company are not taxpaying entities for income
tax purposes and, accordingly, no provision or credit has been made in the
accompanying financial statements for income taxes. Owners'/members' allocable
shares of taxable income or loss are reportable on their respective income tax
returns.
F-53
<PAGE>
THE PHILIPS COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Concentration of Revenue and Credit Risk
Approximately 51%, 50% and 50% of the Company's total revenue for the years
ended December 31, 1996, 1995 and 1994, respectively, was derived from Palm
Springs Mile Associates Ltd. Any adverse change in the operating profitability
of this property may have a material adverse effect on the Company.
Capital Contributions, Distributions and Profits and Losses
Capital contributions, distributions and profits and losses are allocated
in accordance with the terms of the applicable agreements.
Interim Unaudited Financial Information
The accompanying interim unaudited financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosure normally included in the financial
statements prepared in accordance with generally accepted accounting principles
may have been condensed or omitted pursuant to such rules and regulations,
although management believes that the disclosures are adequate to make the
information presented not misleading. The unaudited financial statements as of
September 30, 1997 and for the nine month periods ended September 30, 1997 and
1996 include, in the opinion of management, all adjustments, consisting of
normal recurring adjustments, necessary to present fairly the financial
information set forth therein.
2. INVESTMENT IN PARTNERSHIPS
The Company holds a limited partnership interest and a minority general
partnership interest in the following two partnerships (the 'Merrick/Mill Basin
Properties') which also own and operate community and neighborhood shopping
centers:
<TABLE>
<CAPTION>
THE PHILIPS COMPANY'S
PARTNERSHIP PROPERTY PERCENTAGE OWNERSHIP
- ----------------------------- ---------------- ----------------------
<S> <C> <C>
Merrick Shopping Associates Merrick Commons 30%
SP Avenue U Associates, L.P. Mill Basin Plaza 49%
</TABLE>
As a limited partner and minority general partner, the Company does not
control the activities of the partnerships. These investments, accounted for
under the equity method, are recorded initially at cost and subsequently
adjusted for equity in the net income or loss of investees and cash
contributions and distributions.
F-54
<PAGE>
THE PHILIPS COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
2. INVESTMENT IN PARTNERSHIPS--(CONTINUED)
Condensed financial statements of the entities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1995
SEPTEMBER 30, ------- -------
1997
----------------
(UNAUDITED)
<S> <C> <C> <C>
CONDENSED BALANCE SHEETS
Rental properties, net.......................................... $ 23,712 $23,955 $24,130
Cash and cash equivalents....................................... 43 96 74
Related party receivables....................................... 1,324 1,252 5,445
Accounts receivable............................................. 1,284 1,135 977
Deferred charges, net........................................... 901 1,000 801
Other assets.................................................... 397 137 386
---------------- ------- -------
Total assets.................................................... $ 27,661 $27,575 $31,813
---------------- ------- -------
---------------- ------- -------
Mortgage notes payable.......................................... 25,854 26,049 24,075
Accounts payable and accrued expenses........................... 460 320 507
Related party payables.......................................... 253 620 1,220
Other liabilities............................................... -- -- --
---------------- ------- -------
Total liabilities............................................... 26,567 26,989 25,802
Owners' equity.................................................. 1,094 586 6,011
---------------- ------- -------
Total liabilities and owners' equity............................ $ 27,661 $27,575 $31,813
---------------- ------- -------
---------------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
---------------- ---------------------------
1997 1996 1996 1995 1994
------ ------ ------ ------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONDENSED STATEMENTS OF OPERATIONS
Revenues from rental property and other income........ $3,726 $4,479 $6,256 $ 4,813 $2,310
------ ------ ------ ------- ------
Operating and other expenses.......................... 1,095 1,148 1,492 1,436 943
Interest.............................................. 1,581 2,570 3,496 2,054 873
Depreciation and amortization......................... 422 470 576 540 322
------ ------ ------ ------- ------
Total expenses........................................ 3,098 4,188 5,564 4,030 2,138
------ ------ ------ ------- ------
Income before extraordinary item...................... 628 291 692 783 172
Extraordinary item.................................... -- (188) (349) -- --
------ ------ ------ ------- ------
Net income............................................ $ 628 $ 103 $ 343 $ 783 $ 172
------ ------ ------ ------- ------
------ ------ ------ ------- ------
</TABLE>
F-55
<PAGE>
THE PHILIPS COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
3. MORTGAGE NOTES PAYABLE
As of December 31, 1996, mortgage notes payable aggregated $133,609 and
were collateralized by the Company's properties. Interest rates ranged from 7%
to 14%. Mortgage payments are due in monthly installments of principal and/or
interest and mature on various dates through 2004. The loan agreements contain
customary representations, covenants and events of default. A partner/member in
the entities that hold title to the properties has personally guaranteed the
repayment of mortgage loans with a balance of $38,720.
(A) SCHEDULE OF MORTGAGE NOTES
The following table summarizes mortgage indebtedness as of September 30,
1997 (unaudited), December 31, 1996 and 1995:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, --------------------
PROPERTY MORTGAGE NOTES WITH VARIABLE INTEREST: 1997 1996 1995
- -------------------- ------------------------------------------------ ------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Forest Avenue First mortgage note with a fixed interest rate $ -- 12,502 12,690
Shoppers Town of 9.5% due on August 1, 1997. Payments $115
each month.
Third mortgage note with a fixed interest rate -- 5,000 --
of 14% due on November 1, 1997. Monthly payments
of interest only.
Millside Plaza First mortgage notes with fixed interest rates 12,164 12,164 12,164
Elm Plaza of 8% originally due on June 30, 1997. Amended
Foxboro Plaza on July 1, 1995 to fixed interest rates of 9%
from July 1, 1995 to June 30, 1999 and 9.375%
from July 1, 1999 to July 1, 2000, maturing on
July 1, 2000. Further amended to extend the 9%
interest rate from June 30, 1999 to April 30,
2000. Monthly payments of interest only. See
Note 3(C).
Subordinate mortgages, net of discount, bearing 936 905 845
no interest, except if a default occurs, matures
on July 1, 2000. See Note 3(C).
Second mortgage note satisfied on April 15, -- -- 3,397
1996, bearing fixed interest rate of 7%.
Payments $7 each month.
Palm Springs Mile On February 14, 1997, the Company refinanced a 42,120 -- --
portion of the mortgages collateralized by a
portion of its Palm Springs Mile shopping center
with a life insurance company at a fixed rate of
7.83%, with maturity in February 2004.
------------- -------- --------
55,220 30,571 29,096
------------- -------- --------
TOTAL FIXED RATE NOTES
Forest Avenue Second mortgage note with variable interest rate -- 2,048 2,078
Shoppers Town based on the prime rate, matures on June 30,
1997.
On June 27, 1997, the Company refinanced three
mortgages collateralized by Forest Avenue
Shoppers Town with a financial
</TABLE>
F-56
<PAGE>
THE PHILIPS COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
3. MORTGAGE NOTES PAYABLE--(CONTINUED)
(A) SCHEDULE OF MORTGAGE NOTES (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, --------------------
PROPERTY MORTGAGE NOTES WITH VARIABLE INTEREST: 1997 1996 1995
- -------------------- ------------------------------------------------ ------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Forest Avenue services institution. An individual that is a 23,940 -- --
Shoppers Town member in the entity that owns the property has
(cont'd) personally guaranteed $6,000 (subject to
reductions as set forth in the Agreement) of the
new mortgage note. In addition, all membership
interests in Forest Avenue Shoppers Town LLC and
Branhaven Plaza LLC have been pledged as
collateral. Interest is at the rate of LIBOR
plus 1.75%, with a maturity date of December 1,
1997; however, either party can decide to extend
the loan on notice, not less than 30 days or
more than 90 days prior to maturity, to either
January 1, 2004 or 2007, upon the occurrence of
certain events as disclosed in the mortgage
agreement. (See Note 10)
Branhaven Plaza Wrap around mortgage note with a fixed interest 9,415 9,415 8,711
rate of 14.25% originally was scheduled to
mature on July 31, 1999. In addition to the
above interest, loan bore contingent interest at
the lesser of 15% of gross rents or 15% of $887.
Contingent interest totaled $101 and $88 for
1994 and 1995, respectively. The underlying
mortgage note with a fixed interest rate of 10%
matured on August 1, 1996. On November 1, 1996,
the wrap around mortgage notes were refinanced
to provide for variable interest rate of the
lower of LIBOR plus 3.50% or prime plus 0.75%
with maturity on November 1, 1998, with two
options to extend the maturity date for 6
months. The Company is required to make
quarterly amortization payments equal to fifty
percent of the property's preceding quarter's
net cash flow.
Meadowbrook Commons First mortgage note with variable interest of 25,831 26,096 26,696
2.5% plus base LIBOR rate, as defined, or
Floating Rate, as defined, matures on March 31,
1998. The Company is required to make quarterly
amortization payments of the excess cash flow
from the preceding quarter.
Palm Springs Mile First mortgage note collateralized by portion of 24,088 65,479 65,159
property with a variable interest rate of LIBOR
</TABLE>
F-57
<PAGE>
THE PHILIPS COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
3. MORTGAGE NOTES PAYABLE--(CONTINUED)
(A) SCHEDULE OF MORTGAGE NOTES (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, --------------------
PROPERTY MORTGAGE NOTES WITH VARIABLE INTEREST: 1997 1996 1995
- -------------------- ------------------------------------------------ ------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Palm Springs Mile plus 1.5%, matures on June 1, 1998. Monthly
(Cont'd) payments are interest only. See Note 3(F).
In connection with the purchase of the 13,000 -- --
nonsponsor interest in Palm Springs Mile
Associates, Ltd. (see Note 1), the Company
obtained $13,000 in Notes. Such notes are
collateralized by (i) the partnership interests
so acquired, (ii) the pledge of all limited
partners' rights to partnership distributions
until the notes are repaid, (iii) the personal
guarantee of the notes by an individual limited
partner, and (iv) the pledge of all members'
interests in Forest Avenue Shopping, LLC, an
affiliated entity (see Note 1). The notes bear
interest at LIBOR plus 2.75% and mature on the
earlier of June 1, 1998 or the date the Company
has raised at least $40,000 in equity. The notes
require monthly debt service payments of
principal and interest totaling approximately
$330. In connection with this transaction, a
first mortgage loan encumbering a certain
portion of the Company's Palm Spring Mile
shopping center was modified to provide for (i)
a concurrent principal paydown of $200, (ii) an
acceleration of the maturity date thereof to
June 1, 1998, and (iii) a guarantee of $12,000
of such outstanding mortgage loan balance by two
limited partners, such guarantee to increase to
the full amount of this first mortgage loan if
the aforementioned notes are not repaid by
December 31, 1997. See Note 10.
------------- -------- --------
TOTAL VARIABLE RATE INTEREST NOTES 96,274 103,038 102,644
------------- -------- --------
TOTAL MORTGAGE NOTES PAYABLE $ 151,494 $133,609 $131,740
------------- -------- --------
------------- -------- --------
</TABLE>
F-58
<PAGE>
THE PHILIPS COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
3. MORTGAGE NOTES PAYABLE--(CONTINUED)
(B) PRINCIPAL MATURITIES
The combined aggregate principal maturities of mortgage notes payable
outstanding as of September 30, 1997 and December 31, 1996 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, 1997 1996
------------------ -------------
(UNAUDITED)
<S> <C> <C>
1997....................................................... $ 23,940(a) $ 21,206
1998....................................................... 72,334(b) 36,172
1999....................................................... -- 1,796
2000....................................................... 13,100(c) 35,440
2001....................................................... -- 784
Thereafter................................................. 42,120 38,211
------------------ -------------
$151,494 $ 133,609
------------------ -------------
------------------ -------------
</TABLE>
- ------------------
(a) Extendable at the Company's option to December 2004 or 2007.
(b) Includes $9,415 extendable at Company's option for two periods of six months
each upon payment of 0.5% fee.
(c) Negotiated to (i) extend maturity date of $12,164 to 2002 and (ii) eliminate
obligation to repay $936 second mortgage loans. See Note 10.
(C) MULTIPARTY LOAN AGREEMENT
Delran Shopping L.L.C., Enfield Shopping L.L.C., Foxborough Shopping
L.L.C., and two affiliates, Wallingford Shopping L.L.C. and Freehold Shopping
L.L.C., are subject to a Multiparty Agreement with a savings bank. The five
shopping centers owned by these respective entities are encumbered by separate
first mortgage loans with this bank, and each such loan is cross-collateralized
with the loans encumbering the other four properties. The aggregate balance of
the five first mortgage loans at December 31, 1996 was $26,500, of which $12,164
relates to the Company's properties.
(D) CAPITALIZED INTEREST
Interest costs capitalized for the nine months ended September 30, 1997 and
1996 (unaudited), and for the years ended December 31, 1996, 1995 and 1994, were
$78, $42, $42, $383 and $129, respectively.
(E) INTEREST COST
Interest paid for the nine months ended September 30, 1997 and 1996
(unaudited) and for the years ended December 31, 1996, 1995, 1994 were $8,294,
$8,271, $10,878, $8,732 and $7,499, respectively.
4. FAIR VALUE OF FINANCIAL INSTRUMENTS
Estimated fair values for the Company's financial instruments were
determined by management using market information available as of December 31,
1996 and appropriate valuation methodologies which included, in the case of debt
instruments, consideration of interest rates available to the Company for the
issuance of debt with terms and maturities similar to its currently outstanding
indebtedness. Considerable judgment is necessary to interpret market data and
develop estimated fair values. Accordingly, the Company's estimates are not
necessarily indicative of the amounts the Company could realize on disposition
of its financial instruments. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts. Although management is not aware of any factors that would
significantly affect its estimates of the fair value amounts, such amounts have
not been comprehensively revalued for purposes of these financial statements
since December 31, 1996.
Cash equivalents and mortgage notes payable with an aggregate carrying
value of $133,609 are reflected in the accompanying combined balance sheet at
amounts which reasonably approximate their fair values.
F-59
<PAGE>
THE PHILIPS COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
5. RENTAL INCOME
The Company's shopping center properties are leased to tenants under
operating leases. The minimum rental amounts due under the leases are generally
either subject to scheduled fixed increases or upward adjustments based on
certain inflation indices. The leases generally also require that the tenants
reimburse the Company for increases in certain operating costs and real estate
taxes. Minimum rentals and expense reimbursements represented 96%, 96%, 95%, 96%
and 95% of revenues from rental properties for the nine months ended September
30, 1997 and 1996 (unaudited), and for the years ended December 1996, 1995 and
1994, respectively.
The approximate future minimum rents to be received over the next five
years and thereafter, assuming neither renewals nor extensions of leases which
may expire during the period, for leases in effect at December 31, 1996 are as
follows:
<TABLE>
<S> <C>
1997.......................................................... $ 16,905
1998.......................................................... 16,395
1999.......................................................... 15,617
2000.......................................................... 14,039
2001.......................................................... 11,811
Thereafter.................................................... 82,333
--------
$157,100
--------
--------
</TABLE>
6. RELATED PARTY TRANSACTIONS
(A) Management Agreement
Management services for the Company's properties are provided by a related
party, Philips International Holding Corp. Fees paid by the Company for such
services are generally based on 3% to 5% of total revenue.
(B) Advances To/From Partners
Advances to and from partners or members in those entities comprising the
Company and certain affiliated entities are reflected in the financial
statements as related party receivables and payables. Such advances are
generally due upon demand and are non-interest bearing.
(C) Leasing Commissions
Philips International Holding Corp., a related party, provides leasing
services to the Company for fees ranging generally from 2% to 5% of total
contractual rent due pursuant to the tenant leases. Leasing commissions paid to
Philips International Holding Corp. for the nine months ended September 30, 1997
and 1996 (unaudited), and for the years ended December 31, 1996, 1995 and 1994,
were $57, $70, $773, $181 and $546, respectively.
In addition, leasing commissions totaling $195 were paid during 1995 to a
partner in one of the entities comprising the Company.
7. CONTINGENCIES
The Company is subject to various legal proceedings and claims that arise
in the ordinary course of business. These matters are generally covered by
insurance. Management believes that the final outcome of such matters will not
have a material adverse effect on the financial position, results of operations
or liquidity of the Company.
F-60
<PAGE>
THE PHILIPS COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
8. EXTRAORDINARY ITEMS
The combined statements of income for the nine months ended September 30,
1996 (unaudited) and for the years ended December 31, 1996 and December 31, 1994
include extraordinary gains of approximately $2,284, $2,881 and $298,
respectively, in connection with the settlement of debt obligations on the
Company's shopping center properties. In addition, the combined statement of
income for the nine months ended September 30, 1997 (unaudited), includes an
extraordinary loss of approximately $164 representing the write-off of deferred
financing costs related to the refinancing of debt on a certain shopping center
property.
9. OTHER ASSETS
Other assets in the accompanying combined balance sheet include restricted
real estate tax escrows, capital improvement escrows and tenant security
deposits totaling $1,289, $791 and $558 as of September 30, 1997 (unaudited),
and December 31, 1996 and 1995, respectively.
10. SUBSEQUENT EVENTS (UNAUDITED)
During November 1997, the Company reached an agreement with its lender in
connection with the Millside Plaza, Elm Plaza and Foxboro Plaza mortgage to (i)
sever the Wallingford Shopping LLC and the Freehold Shopping LLC mortgages from
the cross-collateralization provisions of the original loan agreement effective
upon completion of the proposed transactions referred to in Note 1 of these
Notes to Combined Financial Statements, (ii) to extend the maturity date to the
year 2002, with an amortization equal to a 30 year term, (iii) adjust the
interest rate to 175 basis points above the 30 year U.S. Treasury rate and (iv)
eliminate the Company's obligation to repay $936 of second mortgage loans.
During November 1997, the Company reached an agreement with the lender of
the Forest Avenue Shopping LLC mortgage (i) to extend the maturity to June 1,
1998, (ii) to extend to June 1, 1998 the option, to extend the maturity date,
(iii) commencing January 1, 1998 until the completion of the Formation
Transactions, to suspend amortization and provide for Forest Avenue to make
distributions to Philip Pilevsky of $30 each month, the proceeds of which will
be placed by Philip Pilevsky into a cash collateral account pledged to secure
his existing $6,000 guaranty and (iv) for the lender to make a new $150 second
mortgage loan to Forest Avenue Shopping LLC guaranteed by Philip Pilevsky. The
proceeds of the second mortgage will be placed in a collateral account to secure
the guaranty of the second mortgage.
During November 1997, the Company reached an agreement with the lender of
the Palm Springs Mile Associates, Ltd. mortgage to suspend scheduled
amortization, effective as of January 1, 1998, of $250 per month until the
closing of the Formation Transactions. Amortization will recommence at the rate
of $250 per month beginning with the first day of the calendar month following
the closing of the Formation Transactions. The lender has agreed to make an
additional loan to the borrower in the amount of $1,000 resulting in a total
outstanding principal amount of $13,000 at the closing of the Formation
Transactions. The $1,000 additional loan will bear interest at an annual rate of
LIBOR + 1.75% and will mature in June 1998. The proceeds of the $1,000
additional loan will be placed in a collateral account to secure the
indebtedness.
F-61
<PAGE>
THE PHILIPS COMPANY
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COST CAPITALIZED GROSS AMOUNTS AT WHICH
INITIAL COST SUBSEQUENT TO ACQUISITION CARRIED AT CLOSE OF PERIOD
---------------------------------------- -------------------------- ------------------------------------
BUILDINGS BUILDINGS BUILDINGS
LAND AND AND LAND AND AND LAND AND AND
DESCRIPTION ENCUMBRANCES IMPROVEMENTS IMPROVEMENTS IMPROVEMENTS IMPROVEMENTS IMPROVEMENTS IMPROVEMENTS TOTAL
- ---------------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Millside Plaza $ 4,693 $ 960 $ 5,443 $ 26 $ 117 $ 986 $ 5,560 $ 6,546
Delran, NJ
Elm Plaza 3,883 709 4,968 72 167 781 5,135 5,916
Enfield, CT
Branhaven Plaza 9,415 1,883 7,646 -- 233 1,883 7,879 9,762
Branford, CT
Forest Avenue Shoppers 19,550 1,984 8,428 1,801 9,244 3,785 17,672 21,457
Town
Staten Island, NY
Meadowbrook Commons 26,096 5,000 -- 298 17,496 5,298 17,496 22,794
Freeport, NY
Foxboro Plaza 4,493 655 6,055 -- 302 655 6,357 7,012
Foxborough, MA
Palm Springs Mile 65,479 12,864 25,767 1,435 23,064 14,299 48,831 63,130
Hialeah, FL
Construction in 782 782 782
Progress
------------ ------------ ------------ ------ ------------ ------------ ------------ --------
$133,609 $ 24,055 $ 58,307 $3,632 $ 51,405 $ 27,687 $109,712 $137,399
------------ ------------ ------------ ------ ------------ ------------ ------------ --------
------------ ------------ ------------ ------ ------------ ------------ ------------ --------
<CAPTION>
GROSS AMOUNTS
AT WHICH
CARRIED AT
CLOSE OF
PERIOD
------------ LIFE ON WHICH
ACCUMULATED DATE DEPRECIATION IS
DESCRIPTION DEPRECIATION ACQUIRED COMPUTED
- ---------------------- ------------ -------- ---------------
<S> <C> <C> <C>
Millside Plaza $ 1,412 12/26/86 31.5 - 39 years
Delran, NJ
Elm Plaza 1,331 12/24/86 15 - 39 years
Enfield, CT
Branhaven Plaza 2,178 12/31/85 15 - 39 years
Branford, CT
Forest Avenue Shoppers 2,934 11/16/84 15 - 39 years
Town
Staten Island, NY
Meadowbrook Commons 2,833 11/9/89 15 - 39 years
Freeport, NY
Foxboro Plaza 1,572 11/24/86 15 - 39 years
Foxborough, MA
Palm Springs Mile 12,017 4/1/85 15 - 39 years
Hialeah, FL
Construction in
Progress
-----------
$24,277
-----------
-----------
</TABLE>
F-62
<PAGE>
THE PHILIPS COMPANY
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION--(CONTINUED)
The changes in real estate for the three years ended December 31, 1996 are
as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning of period..................................... $124,892 $118,288 $114,934
Improvements....................................................... 12,507 6,604 3,354
-------- -------- --------
Balance at end of period........................................... $137,399 $124,892 $118,288
-------- -------- --------
-------- -------- --------
</TABLE>
The aggregate cost of land, buildings and improvements for Federal income
tax purposes at December 31, 1996 was $126,002.
The changes in accumulated depreciation for the three years ended December
31, 1996 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Balance at beginning of period......................................... $21,315 $18,628 $16,018
Depreciation for period................................................ 2,962 2,687 2,610
------- ------- -------
Balance at end of period............................................... $24,277 $21,315 $18,628
------- ------- -------
------- ------- -------
</TABLE>
F-63
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Philips International Realty Corp.
We have audited the combined statement of revenues and certain expenses of the
Merrick Commons and Mill Basin Plaza Properties as described in Note 1, for the
three years ended December 31, 1996. These financial statements are the
responsibility of management. Our responsibility is to express an opinion on
these financial statements 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 the 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.
The accompanying combined statements of revenues and certain expenses were
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission for inclusion in the Proxy
Statement/Prospectus of the Philips International Realty Corp. and is not
intended to be a complete presentation of the Merrick Commons and Mill Basin
Plaza Properties revenues and expenses.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined revenues and certain expenses of the Merrick
Commons and Mill Basin Plaza Properties, as described in Note 1, for each of the
three years ended December 31, 1996 in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
New York, New York
April 28, 1997
F-64
<PAGE>
MERRICK COMMONS AND MILL BASIN PLAZA PROPERTIES
COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues from rental property, including other income
of $0, $0, $10, $3 and $2, respectively (Note 3)..... $ 2,945 $ 2,794 $ 3,802 $ 3,651 $ 1,771
Escalation and reimbursement revenue................... 780 737 1,157 1,162 539
--------- --------- --------- --------- ---------
3,725 3,531 4,959 4,813 2,310
Certain expenses:
Property taxes....................................... 612 552 744 671 370
Management fees (Note 6)............................. 180 165 234 230 110
Repairs and maintenance.............................. 101 116 150 196 120
Professional fees.................................... 63 99 120 62 160
Cleaning, security and landscaping................... 55 91 112 105 90
Utilities............................................ 37 50 48 79 50
Insurance............................................ 30 32 42 38 21
Other operating expenses............................. 16 44 42 55 22
--------- --------- --------- --------- ---------
1,094 1,149 1,492 1,436 943
--------- --------- --------- --------- ---------
Revenues in excess of certain expenses................. $ 2,631 $ 2,382 $ 3,467 $ 3,377 $ 1,367
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See accompanying notes.
F-65
<PAGE>
MERRICK COMMONS AND MILL BASIN PLAZA PROPERTIES
NOTES OF COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
(IN THOUSANDS)
1. BASIS OF PRESENTATION
Presented herein are the combined statements of revenues and certain
expenses related to the operations of the Merrick Commons and Mill Basin Plaza
Properties (the 'Merrick/Mill Basin Properties'), which shopping centers are
located in Merrick, NY and Brooklyn, NY, respectively.
The accompanying combined financial statements have been prepared in
accordance with the applicable rules and regulations of the Securities and
Exchange Commission for the acquisition of real estate properties. Accordingly,
the combined financial statements exclude certain expenses that may not be
comparable to those expected to be incurred by Philips International Realty
Corp. in the future operations of the aforementioned properties. Expenses
excluded consist of interest, depreciation and certain general and
administrative expenses.
2. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. REVENUE RECOGNITION
The Merrick/Mill Basin Properties are leased to tenants under operating
leases. Minimum rental revenue is recognized on a straight-line basis over the
terms of the respective leases.
4. MANAGEMENT AGREEMENTS AND RELATED PARTY TRANSACTIONS
Management services for the Merrick/Mill Basin Properties are provided by a
related party, Philips International Holding Corp. Fees paid for such services
are generally based on 3% to 5% of total revenue.
5. LEASE AGREEMENTS
The Merrick/Mill Basin Properties are leased to tenants under operating
leases. The minimum rental amounts due under the leases are generally either
subject to scheduled fixed increases or upward adjustments based on certain
inflation indices. The leases generally also require that the tenants reimburse
increases in certain operating costs and real estate taxes. Minimum rents and
expense reimbursements represented approximately 99% of revenues from rental
property for each of the nine months ended September 30, 1997 and 1996
(unaudited), and the years ended December 31, 1996, 1995 and 1994.
The approximate future minimum rents to be received over the next five
years and thereafter, assuming neither renewals nor extensions of leases which
may expire during the period, for leases in effect as of December 31, 1996 are
as follows:
<TABLE>
<S> <C>
1997........................................................... $ 3,663
1998........................................................... 3,603
1999........................................................... 3,576
2000........................................................... 3,559
2001........................................................... 3,229
Thereafter..................................................... 37,459
---------
$ 55,089
---------
---------
</TABLE>
F-66
<PAGE>
ANNEX A
PRIVATE AND CONFIDENTIAL
August 7, 1997
The Board of Trustees
National Properties Investment Trust
32 Hanson Road
Canton Center, CT 06020
Gentlemen:
We understand that National Properties Investment Trust, a Massachusetts
business trust electing to be taxed as a real estate investment trust (a 'REIT')
under the Internal Revenue Code of 1986, as amended ('National' or the
'Company'), and Philips International Realty Corp., a Maryland corporation which
expects to qualify as a REIT for federal income tax purposes commencing with the
taxable year ending December 31, 1997 ('Philips'), propose to enter into a
contribution and exchange agreement (the 'Agreement') among the Company,
Philips, Philips International Realty, L.P., a Delaware limited partnership (the
'Operating Partnership') and certain contributing partnerships or limited
liability companies (collectively, the 'Contributing Partnerships') affiliated
with Philips International, a private real estate firm ('Philips Private
Company'). Pursuant to the Agreement, (a) the Company will transfer The Shoppes
at Lake Mary, Florida shopping center owned by it (the 'National Property') to
Philips in exchange for shares of Philips Common Stock (which shares will
represent approximately 2.1% of the outstanding Common Stock of Philips,
including interests redeemable for Common Stock) (the 'Consideration'), (b)
Philips will transfer the National Property and certain other assets to the
Operating Partnership and (c) the Company and the Operating Partnership will own
the National Property and the nine properties owned by the Contributing
Partnerships.
You have requested our opinion as to whether the Consideration to be
received by National for the National Property pursuant to the Agreement is fair
to National from a financial point of view.
In conducting our analysis and arriving at the opinion expressed herein, we
have reviewed such materials and considered such financial and other factors as
we deemed relevant under the circumstances, including:
(i) a draft dated July 31, 1997 of the Agreement;
(ii) a draft dated August 4, 1997 of the Proxy Statement/Prospectus on Form
S-4 (the 'Form S-4');
(iii) the Form 10-K and Form 10-K(A) and related financial information for
the fiscal year ended December 31, 1996 and the Form 10-Q and the
related unaudited financial information for the quarterly period
ended March 31, 1997 for National, and a draft of National's Form
10-Q and the related unaudited financial information for the
quarterly period ended June 30, 1997;
(iv) the draft financial statements of The Philips Company and the Combined
Statement of Revenues and Certain Expenses for Merrick Commons and
Mill Basin Plaza, each for the fiscal year ended December 31, 1996 and
the quarterly period ended March 31, 1997, included in the Form S-4;
(v) the draft pro forma condensed combined financial statements of Philips
for the twelve months ended December 31, 1996 and the three months
ended March 31, 1997, included in the Form S-4;
(vi) certain information relating to the business, earnings, cash flow,
assets and prospects of National, furnished to us by National;
(vii) certain information relating to the business, earnings, cash flow,
assets and prospects of Philips, furnished to us by the management of
Philips Private Company;
(viii) the financial terms of certain recent transactions we deemed
comparable, or otherwise relevant to our inquiry; and
(ix) such other financial studies, analyses and investigations that we
deemed appropriate.
A-1
<PAGE>
We have assumed, with your consent, that the drafts of the Agreement, Form
S-4 and financial information we reviewed (as referred to above) will conform in
all material respects to those documents when in final form.
We have met with the senior management of National and of Philips Private
Company to discuss (i) the prospects for the respective businesses of National
and of Philips, (ii) their estimates of such businesses' future financial
performance, (iii) the financial impact of the transactions contemplated by the
Agreement on the respective companies and (iv) such other matters that we deemed
relevant. We have also visited selected properties of the Contributing
Partnerships.
In connection with our review and analysis and in arriving at our opinion,
we have relied upon the accuracy and completeness of the publicly available
information and all of the financial and other information provided to us by the
Company and Philips Private Company and have not undertaken any independent
verification of such information or any independent valuation or appraisal of
any of the assets or liabilities of the Company or Philips. With respect to
certain projected financial data, provided to us by the Company for the Company
and Philips Private Company for Philips, we have assumed that such information
(and the assumptions and bases therefor) has been reasonably prepared and
represents each respective management's best currently available estimates and
judgment of such management as to the future financial performance of the
Company and of Philips. Further, our opinion is necessarily based on economic,
financial and market conditions as they exist and can be evaluated as of the
date hereof.
Our opinion does not address nor should it be construed to address the
relative merits of the Agreement and alternative business strategies.
As you know, we have been retained by the Board of Trustees of the Company
to provide financial advisory services in connection with a possible transaction
in which control of, or a material interest in, the Company is acquired by a
third party and will receive a fee for such services, which fee is contingent
upon the consummation of the transactions contemplated by the Agreement or
consummation of another transaction involving the acquisition of the control of,
or a material interest in, National or its assets. Also as you know, an
affiliate of ours, Prudential Securities Credit Corporation, is the lender to a
Contributing Partnership and to the partners of a second Contributing
Partnership, and Philips, pursuant to the Agreement, has agreed to assume
certain of your payment and indemnity obligations under our engagement letter
with you and has agreed to engage our services in connection with a future
issuance of Philips' securities on terms to be agreed upon.
This letter and the opinion expressed herein may not be reproduced,
summarized, excerpted from or otherwise publicly referred to or disclosed in any
manner, without our prior written consent; provided, the Company may set forth
in full this letter in any proxy statement relating to the Agreement sent to the
Company's shareholders.
Our advisory services were provided for the use of the Board of Trustees of
the Company in the evaluation of the Agreement, and our opinion is not intended
to be, and does not constitute, a recommendation to any shareholder of the
Company as to how such shareholder should vote in connection with the Agreement.
On the basis of, and subject to, the foregoing, we are of the opinion that,
as of the date hereof, the Consideration to be received by National for the
National Property pursuant to the Agreement is fair to National from a financial
point of view.
Very truly yours,
PRUDENTIAL SECURITIES INCORPORATED
A-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's officers and directors are indemnified under Maryland law,
the Articles of Incorporation of the Company and the Agreement of Limited
Partnership of the Operating Partnership (the 'Partnership Agreement of the
Operating Partnership'), against certain liabilities. The Articles of
Incorporation require the Company to indemnify its directors and officers to the
fullest extent permitted from time to time by the laws of the State of Maryland.
The bylaws contain provisions which implement the indemnification provisions of
the Articles of Incorporation.
The Maryland General Corporation Law ('MGCL') permits a corporation to
indemnify its directors and officers, among others, against judgments,
penalties, fines, settlements and reasonable expenses actually incurred by them
in connection with any proceeding to which they may be made a party by reason of
their service in those capacities unless it is established that the act or
omission of the director or officer was material to the matter giving rise to
the proceeding and was committed in bad faith or was the result of active and
deliberate dishonesty, or the director or officer actually received an improper
personal benefit in money, property or services, or in the case of any criminal
proceeding, the director or officer had reasonable cause to believe that the act
or omission was unlawful, or the director or officer was adjudged to be liable
to the corporation for the act or omission. No amendment of the Articles of
Incorporation of the Company shall limit or eliminate the right to
indemnification provided with respect to acts or omissions occurring prior to
such amendment or repeal. Maryland law permits the Company to provide
indemnification to an officer to the same extent as a director, although
additional indemnification may be provided if such officer is not also a
director.
The MGCL permits the articles of incorporation of a Maryland corporation to
include a provision limiting the liability of its directors and officers to the
corporation and its shareholders for money damages, with specified exceptions.
The MGCL does not, however, permit the liability of directors and officers to
the corporation or its shareholders to be limited, to the extent that (1) it is
proved that the person actually received an improper benefit or profit in money,
property or services (to the extent such benefit or profit was received) or (2)
a judgment or other final adjudication adverse to such person is entered in a
proceeding based on a finding that the person's action, or failure to act, was
the result of active and deliberate dishonesty and was material to the cause of
action adjudicated in the proceeding. The Articles of Incorporation of the
Company contain a provision consistent with the MGCL. No amendment of the
Articles of Incorporation shall limited or eliminate the limitation of liability
with respect to acts of omissions occurring prior to such amendment or repeal.
The Partnership Agreement of the Operating Partnership also provides for
indemnification of the Company and its officers and directors to the same extent
indemnification is provided to officers and directors of the Company in its
Articles of Incorporation, and limits the liability of the Company and its
officers and directors to the Operating Partnership and its partners to the same
extent liability of officers and directors of the Company to its shareholders is
limited under the Company's Articles of Incorporation.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the 'Act') may be permitted to directors, officers or persons
controlling the registrant pursuant to the foregoing provisions, the registrant
has been informed that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) List of Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
3.1 -- Form of Amended and Restated Articles of Incorporation of the Company
3.2 -- Form of Articles Supplementary of Series A Preferred Stock
3.3 -- Form of Amended and Restated Bylaws of the Company
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
3.4 -- Form of Subscription Agreement between the Company and Philip Pilevsky
3.5 -- Form of Certificate of Common Stock
5.1 -- Form of Opinion of Ballard Spahr Andrews & Ingersoll regarding the validity of the securities being
registered
8.1 -- Form of Opinion of Pryor, Cashman, Sherman & Flynn regarding tax matters
8.2 -- Form of Opinion of Bingham Dana LLP regarding tax consequences of the transaction
10.1 -- Form of Amended and Restated Agreement of Limited Partnership of the Operating Partnership
10.2 -- Form of 1997 Stock Option Plan of the Company
10.3 -- Form of Agreement of Limited Partnership for Holding Partnerships
10.4 -- Form of Articles of Incorporation of Philips Subs
10.5 -- Form of Bylaws of Philips Subs
10.6 -- Contribution and Exchange Agreement, dated August 11, 1997, among National, the Board of Trustees,
the Company, the Operating Partnership and certain contributing partnerships or limited liability
companies associated with a private real estate firm controlled by Philip Pilevsky and certain
partners and members thereof
10.7 -- Form of Registration Rights Agreement among the Company and certain holders of limited partnership
interests in the Operating Partnership
10.8 -- Form of Management Agreement among the Company, the Operating Partnership and Philips International
Management Corp.
10.9 -- Form of Non-Competition Agreement among the Company, the Operating Partnership, Philip Pilevsky and
Sheila Levine
10.10 -- Form of Employment Agreement between the Company and Louis Petra
10.11 -- Form of Employment Agreement between the Company and Sheila Levine
10.12 -- Form of Trustee Warrant
23.1 -- Consent of Ernst & Young LLP
23.2 -- Consent of Bernardi, Alfin & Koos, L.L.C.
23.3 -- Consent of Kostin, Ruffkess & Company, LLC
23.4 -- Consent of A.F. Petrocelli
23.5 -- Consent of Elise Jaffe
23.6 -- Consent of Robert Grimes
23.7 -- Consent of Ballard Spahr Andrews & Ingersoll (contained in Exhibit 5.1)
23.8 -- Consent of Pryor, Cashman, Sherman & Flynn (contained in Exhibit 8.1)
23.9 -- Consent of Bingham Dana LLP (contained in Exhibit 8.2)
24 -- Power of Attorney (see Page II-5)
27 -- Financial Data Schedule
</TABLE>
(b) Financial Statement Schedules
(c) The opinion of Prudential Securities Incorporated is set forth as Annex
A to the Proxy Statement/Prospectus which constitutes part of this Registration
Statement.
ITEM 22. UNDERTAKINGS.
(a)(1) The undersigned registrant hereby undertakes as follows: that prior
to any public re-offering of the securities registered hereunder
through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c) under the Securities Act of 1933,
the issuer undertakes that such re-offering prospectus will contain
the information called for by the applicable registration form with
respect of re-offerings
II-2
<PAGE>
by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(2) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding or (ii) that purports
to meet the requirements of section 10(a)(3) under the Securities Act
of 1933 and is used in connection with an offering of securities
subject to Rule 415 under such Act, will be filed as a part of an
amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining
any liability under such Act, each such post-effective amendment
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
(3) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
(4) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of the
registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Act shall be deemed to be a part of this
registration statement as of the time it was declared effective. For
the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(b) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus
pursuant to Items 4, 10(b), 11 or 13 of this Form, within one
business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This
includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of
responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction,
and the company being acquired involved therein, that was not the
subject of and included in the registration statement when it became
effective.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW YORK, STATE OF NEW
YORK, ON DECEMBER 3, 1997.
PHILIPS INTERNATIONAL REALTY CORP.
By: /s/ PHILIP PILEVSKY
---------------------------------
Philip Pilevsky
Chairman of the Board and
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Philip Pilevsky or Sheila Levine or any
one of them, his or her attorneys-in-fact and agents, each with full power of
substitution and resubstitution for him or her in any and all capacities, to
sign any or all amendments or post-effective amendments to this Registration
Statement or a Registration Statement prepared in accordance with Rule 462 of
the Securities Act, and to file the same, with exhibits thereto and other
documents in connection herewith or in connection with the registration of the
Common Stock under the Securities Exchange Act of 1934, as amended, with the
Securities and Exchange Commission, granting unto each of such attorneys-in-fact
and agents full power and authority to do and perform each and every act and
thing requisite and necessary in connection with such matters and hereby
ratifying and confirming all that each of such attorneys-in-fact and agents or
his or her substitutes may do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES
INDICATED ON DECEMBER 3, 1997.
<TABLE>
<CAPTION>
TITLE
------------------------------------------------------------------
<S> <C>
/s/ PHILIP PILEVSKY Director, Chief Executive Officer and Chairman of the Board
- ------------------------------------------
Philip Pilevsky
/s/ LOUIS J. PETRA Director and President
- ------------------------------------------
Louis J. Petra
/s/ SHEILA LEVINE Director and Chief Operating Officer
- ------------------------------------------
Sheila Levine
/s/ BRIAN J. GALLAGHER Chief Financial Officer
- ------------------------------------------
Brian J. Gallagher
</TABLE>
II-4
<PAGE>
NATIONAL PROPERTIES INVESTMENT TRUST
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
The undersigned hereby (1) acknowledges receipt of the Notice of Special
Meeting of Shareholders (the 'Meeting') of National Properties Investment Trust,
a Massachusetts business trust ('National'), to be held at the offices of Pryor,
Cashman, Sherman & Flynn, 410 Park Avenue, New York, New York 10022, on
Tuesday, December 30, 1997, 3:00 p.m., local time, and the Proxy
Statement/Prospectus in connection therewith and (2) appoints JAY GOLDMAN and
PETER STEIN and each of them, his proxies with full power of substitution for
and in the name, place, and stead of the undersigned, to vote upon and act with
respect to all of the shares of beneficial interest, no par value (the 'Common
Stock'), of National standing in the name of the undersigned, or with respect to
which the undersigned is entitled to vote and act, at the Meeting and at any
adjournments or postponements thereof.
The Board of Trustees recommends a vote FOR each of Proposal 1 and Proposal 2
below. A MAJORITY VOTE FOR EACH OF PROPOSAL 1 AND PROPOSAL 2 IS REQUIRED TO
COMPLETE THE FORMATION TRANSACTIONS.
The undersigned directs that this proxy be voted as follows:
(1) Proposal 1: To approve and adopt the Contribution and Exchange Agreement,
dated as of August 11, 1997, by and among National, its trustees, Philips
International Realty Corp., a Maryland corporation, Philips International
Realty, L.P., a Delaware limited partnership, and certain contributing
partnerships or limited liability companies and certain partners and members
thereof, and the Formation Transactions.
/ / FOR / / AGAINST / / ABSTAIN
(2) Proposal 2: To approve and adopt the amendment of certain provisions of the
Restated Declaration of Trust of National to permit the Formation
Transactions.
/ / FOR / / AGAINST / / ABSTAIN
(3) In the discretion of the proxies, on any other matter that may properly come
before the Meeting or any adjournments or postponements thereof.
THIS PROXY WILL BE VOTED AS SPECIFIED ABOVE. IF NO SPECIFICATION IS MADE,
THIS PROXY WILL BE VOTED FOR EACH OF THE PROPOSALS.
Proxies that are voted against either Proposal 1 or Proposal 2 will not be voted
in favor of an adjournment or postponement of the Meeting.
(Please see reverse side)
<PAGE>
(Continued from the other side)
The undersigned hereby revokes any proxy heretofore given to vote or act with
respect to the Common Stock and hereby ratifies and confirms all that the
proxies, their substitutes, or any of them may lawfully do by virtue hereof.
If one or more of the proxies named shall be present in person or by substitute
at the Meeting or at any adjournments or postponements thereof, the proxies so
present and voting, either in person or by substitute, shall exercise all of the
powers hereby given.
Date: ____________________, 1997
________________________________
Please Print Name Here
________________________________
Signature of Stockholder
________________________________
Signature if held jointly
Please date this proxy and sign
your name exactly as it appears
hereon. Where there is more than
one owner, each should sign.
When signing as an attorney,
administrator, executor,
guardian, or trustee, please add
your title as such. If executed
by a corporation, the proxy
should be signed by a duly
authorized officer.
PLEASE DATE, SIGN, AND MAIL THIS PROXY IN THE ENCLOSED PRE-PAID ENVELOPE OR
DELIVER TO: The Herman Group, Inc., 2121 San Jacinto Street, 26th Floor, Dallas
Texas 75201. PROXIES (BOTH SIDES) MAY ALSO BE RETURNED BY FACSIMILE AT (214)
999-9323. If you have any questions, please call The Herman Group, Inc. at (800)
582-1313.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------ ----------------------------------------------------------------------------------------------- -----------
<S> <C> <C> <C>
3.1 -- Form of Amended and Restated Articles of Incorporation of the Company
3.2 -- Form of Articles Supplementary of Series A Preferred Stock
3.3 -- Form of Amended and Restated Bylaws of the Company
3.4 -- Form of Subscription Agreement between the Company and Philip Pilevsky
3.5 -- Form of Certificate of Common Stock
5.1 -- Form of Opinion of Ballard Spahr Andrews & Ingersoll regarding the validity of the
securities being registered
8.1 -- Form of Opinion of Pryor, Cashman, Sherman & Flynn regarding tax matters
8.2 -- Form of Opinion of Bingham Dana LLP regarding tax consequences of the transaction
10.1 -- Form of Amended and Restated Agreement of Limited Partnership of the Operating
Partnership
10.2 -- Form of 1997 Stock Option Plan of the Company
10.3 -- Form of Agreement of Limited Partnership for Holding Partnerships
10.4 -- Form of Articles of Incorporation of Philips Subs
10.5 -- Form of Bylaws of Philips Subs
10.6 -- Contribution and Exchange Agreement, dated August 11, 1997, among National, the Board of
Trustees, the Company, the Operating Partnership and certain contributing partnerships or
limited liability companies associated with a private real estate firm controlled by
Philip Pilevsky and certain partners and members thereof
10.7 -- Form of Registration Rights Agreement among the Company and certain holders of limited
partnership interests in the Operating Partnership
10.8 -- Form of Management Agreement among the Company, the Operating Partnership and Philips
International Management Corp.
10.9 -- Form of Non-Competition Agreement among the Company, the Operating Partnership, Philip
Pilevsky and Sheila Levine
10.10 -- Form of Employment Agreement between the Company and Louis Petra
10.11 -- Form of Employment Agreement between the Company and Sheila Levine
10.12 -- Form of Trustee Warrant
23.1 -- Consent of Ernst & Young LLP
23.2 -- Consent of Bernardi, Alfin & Koos, L.L.C.
23.3 -- Consent of Kostin, Ruffkess & Company, LLC
23.4 -- Consent of A.F. Petrocelli
23.5 -- Consent of Elise Jaffe
23.6 -- Consent of Robert Grimes
23.7 -- Consent of Ballard Spahr Andrews & Ingersoll (contained in Exhibit 5.1)
23.8 -- Consent of Pryor, Cashman, Sherman & Flynn (contained in Exhibit 8.1)
23.9 -- Consent of Bingham Dana LLP (contained in Exhibit 8.2)
24 -- Power of Attorney (see Page II-5)
27 -- Financial Data Schedule
</TABLE>
<PAGE>
ARTICLES OF AMENDMENT AND RESTATEMENT
OF
PHILIPS INTERNATIONAL REALTY CORP.
A MARYLAND CORPORATION
PHILIPS INTERNATIONAL REALTY CORP., a Maryland corporation (the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland (the "Department") that:
FIRST: The Corporation desires to and does hereby amend and restate its
Charter, as currently in effect, consisting of the Articles of Incorporation
filed on July 16, 1997 with the Department (the "Articles of Incorporation"), as
hereinafter provided. The provisions set forth in these Articles of Amendment
and Restatement are all of the provisions of the Charter of the Corporation as
currently in effect.
SECOND: The Charter of the Corporation is hereby amended by striking in
their entirety Articles FIRST through SIXTH of the Articles of Incorporation and
by substituting in lieu thereof the following:
ARTICLE I
NAME
The name of the corporation (the "Corporation") is:
Philips International Realty Corp.
ARTICLE II
PURPOSE
The purposes for which the Corporation is formed are to engage in any
lawful act or activity (including, without limitation or obligation, engaging in
business as a real estate investment trust under the Internal Revenue Code of
1986, as amended, or any successor statute (the "Code")) for which corporations
may be organized under the general laws of the State of Maryland as now or
hereafter in force. For purposes of these Articles, "REIT" means a real estate
investment trust under Sections 856 through 860 of the Code.
ARTICLE III
PRINCIPAL OFFICE IN STATE AND RESIDENT AGENT
The address of the principal office of the Corporation in the State of
Maryland is c/o United Corporate Services, Inc., Suite 1200, 20 South Charles
Street, Baltimore, Maryland 21201. The name of the resident agent of the
Corporation in the State of Maryland is United Corporate Services, Inc., whose
post address is Suite 1200, 20 South Charles Street, Baltimore, Maryland 21201.
The resident agent is a Maryland corporation.
<PAGE>
ARTICLE IV
PROVISIONS FOR DEFINING, LIMITING
AND REGULATING CERTAIN POWERS OF THE
CORPORATION AND OF THE STOCKHOLDERS AND DIRECTORS
Section 1. NUMBER AND CLASSIFICATION OF DIRECTORS. The business and affairs
of the Corporation shall be managed under the direction of the Board of
Directors of the Corporation (the "Board of Directors"). The number of directors
of the Corporation initially shall be seven, which number may be increased or
decreased pursuant to the bylaws of the Corporation (the "Bylaws), but shall
never be less than the minimum number required by the Maryland General
Corporation Law ("MGCL"). The names and classifications of the directors who
shall serve until the first annual meeting of stockholders and until their
successors are duly elected and qualify are:
Philip Pilevsky Class III
Louis J. Petra Class I
Sheila Levine Class II
A. F. Petrocelli Class II
Elise Jaffe Class I
Robert Grimes Class III
[Outside Director] Class III
These directors may increase the number of directors and may fill any vacancy,
whether resulting from an increase in the number of directors or otherwise, on
the Board of Directors prior to the first annual meeting of stockholders in the
manner provided in the Bylaws.
The directors shall be divided into three (3) classes designated as Class
I, Class II and Class III, as nearly equal in number as possible, with a term of
three (3) years each, and the terms of office of one class shall expire each
year. Class I directors shall hold office initially for a term expiring at the
annual meeting of stockholders in 1999, Class II directors shall hold office
initially for a term expiring at the annual meeting of stockholders in 2000 and
Class III directors shall hold office initially for a term expiring at the
annual meeting of stockholders in 2001. Beginning with the annual meeting of
stockholders in 1999 and at each succeeding annual meeting of stockholders, the
directors of the class of directors whose term expires at such meeting will be
elected to hold office for a term expiring at the third-succeeding annual
meeting. Each director will hold office for the term for which he or she is
elected and until his or her successor is duly elected and qualifies.
Section 2. AUTHORIZATION BY BOARD OF STOCK ISSUANCE. The Board of Directors
may authorize the issuance from time to time of shares of stock of the
Corporation of any class or series, whether now or hereafter authorized, or
securities or rights convertible into shares of its stock of any class or
series, whether now or hereafter authorized, for such consideration as the Board
of Directors may deem advisable, subject to such restrictions or limitations, if
any, as may be set forth in the Charter or the Bylaws.
Section 3. PREEMPTIVE RIGHTS. Except as may be provided by the Board of
Directors in setting the terms of classified or reclassified shares of stock
pursuant to Article V, Section 4, no holder of shares of stock of the
Corporation shall, as such holder, have any preemptive right to purchase or
subscribe for any additional shares of stock of the Corporation or any other
security of the Corporation which it may issue or sell.
Section 4. INDEMNIFICATION. The Corporation shall have the power, to the
maximum extent permitted by Maryland law in effect from time to time, to
obligate itself to indemnify, and to pay or reimburse reasonable expenses in
advance of final disposition of a proceeding to, (a) any individual who is a
present or former director or officer of the Corporation or (b) any individual
who, while an officer or director of the Corporation and at the request of the
Corporation, serves or has served as a director, officer, partner or trustee of
another corporation, partnership, joint venture, trust, employee benefit plan or
any other
2
<PAGE>
enterprise from and against any claim or liability to which such person may
become subject or which such person may incur by reason of his status as a
present or former director or officer of the Corporation. The Corporation shall
have the power, with the approval of the Board of Directors, to provide such
indemnification and advancement of expenses to a person who served a predecessor
of the Corporation in any of the capacities described in (a) or (b) above and to
any employee or agent of the Corporation or a predecessor of the Corporation.
Section 5. DETERMINATIONS BY BOARD. The determination as to any of the
following matters, made in good faith by or pursuant to the direction of the
Board of Directors consistent with the Charter and in the absence of actual
receipt of an improper benefit in money, property or services or active and
deliberate dishonesty established by a court, shall be final and conclusive and
shall be binding upon the Corporation and every holder of shares of its stock:
the amount of the net income of the Corporation for any period and the amount of
assets at any time legally available for the payment of dividends, redemption of
its stock or the payment of other distributions on its stock; the amount of
paid-in surplus, net assets, other surplus, annual or other net profit, net
assets in excess of capital, undivided profits or excess of profits over losses
on sales of assets; the amount, purpose, time of creation, increase or decrease,
alteration or cancellation of any reserves or charges and the propriety thereof
(whether or not any obligation or liability for which such reserves or charges
shall have been created shall have been paid or discharged); the fair value, or
any sale, bid or asked price to be applied in determining the fair value, of any
asset owned or held by the Corporation; any matters relating to the acquisition,
holding and disposition of any assets by the Corporation; or any matter relating
to the construction or interpretation of the Charter or Bylaws of the
Corporation.
Section 6. REIT QUALIFICATION. If the Corporation elects to qualify for
federal income tax treatment as a REIT, the Board of Directors shall use its
reasonable best efforts to take such actions as are necessary or appropriate to
preserve the status of the Corporation as a REIT; however, if the Board of
Directors determines that it is no longer in the best interests of the
Corporation to continue to be qualified as a REIT and such determination is
approved by the affirmative vote of the holders of not less than a majority of
all votes entitled to be cast on the matter, the Board of Directors may revoke
or otherwise terminate the Corporation's REIT election pursuant to Section
856(g) of the Code. The Board of Directors may also determine that compliance
with any restriction or limitation on stock ownership and transfers set forth in
Article VI is no longer required for REIT qualification.
Section 7. REMOVAL OF DIRECTORS. Any director, or the entire Board of
Directors, may be removed from office at any time, for cause only, by the
affirmative vote of not less than two-thirds of the votes entitled to be cast
for the election of directors.
Section 8. IRREVOCABLE RESOLUTIONS. The Board of Directors may designate
any of its resolutions to be "irrevocable." Resolutions so designated may not be
revoked subsequently by the Board of Directors without the approval of the
issued and outstanding shares of Common Stock of the Corporation by the
affirmative vote of a majority of all votes entitled to be cast in respect of
such shares of Common Stock.
ARTICLE V
STOCK
Section 1. AUTHORIZED SHARES. The Corporation has authority to issue a
total of 180,000,000 shares of stock, consisting of 150,000,000 shares of Common
Stock, $0.01 par value per share ("Common Stock"), and 30,000,000 shares of
Preferred Stock, $0.01 par value per share ("Preferred Stock"). The aggregate
par value of all authorized shares of stock having par value is $1,800,000.
Section 2. COMMON STOCK. Except as may otherwise be required by law, and
subject to the provisions of Article VI and the rights of holders of any class
or series of Preferred Stock established pursuant to Section 3 of this Article
V, (i) each share of Common Stock shall entitle the holder thereof to one vote
on all matters voted upon by stockholders, (ii) the holders of Common Stock
shall be entitled to
3
<PAGE>
receive, pro rata in relation to the number of shares of Common Stock held by
them, such dividends as may be authorized from time to time by the Board of
Directors out of funds legally available therefor, and (iii) in the event of the
voluntary or involuntary liquidation, dissolution or winding-up of the
Corporation, the holders of Common Stock shall be entitled to receive, pro rata
in relation to the number of shares of Common Stock held by them, all of the
remaining assets of the Corporation, tangible and intangible, of whatever kind
available for distribution to stockholders, if any. The Common Stock shall be
subject to the express terms of the Preferred Stock or any classes thereof. The
Board of Directors may reclassify any unissued shares of Common Stock from time
to time in one or more classes or series of stock.
Section 3. PREFERRED STOCK. The Preferred Stock may be issued, from time to
time, in one or more classes or series, and each class or series shall be known
and designated by such designations, as may be stated and expressed in a
resolution or resolutions adopted by the Board of Directors and as shall have
been set forth in articles supplementary made, executed, acknowledged, filed and
recorded in the manner required by the MGCL in order to make the same effective.
The Board of Directors may classify any unissued shares of Preferred Stock and
reclassify any previously classified but unissued shares of Preferred Stock of
any series from time to time, in one or more classes or series of stock.
Section 4. CLASSIFIED OR RECLASSIFIED SHARES. Prior to issuance of
classified or reclassified shares of any class or series, the Board of Directors
by resolution shall: (a) designate that class or series to distinguish it from
all other classes and series of stock of the Corporation; (b) specify the number
of shares to be included in the class or series; (c) set, subject to the
provisions of Article VI and subject to the express terms of any class or series
of stock of the Corporation outstanding at the time, the preferences, conversion
or other rights, voting powers, restrictions, limitations and restrictions on
ownership, limitations as to dividends or other distributions, qualifications
and terms and conditions of redemption for each class or series; and (d) cause
the Corporation to file articles supplementary with the Department. Any of the
terms of any class or series of stock set pursuant to clause (c) of this Section
4 may be made dependent upon facts or events ascertainable outside the Charter
(including determinations by the Board of Directors or other facts or events
within the control of the Corporation) and may vary among holders thereof,
provided that the manner in which such facts, events or variations shall operate
upon the terms of such class or series of stock is clearly and expressly set
forth in the articles supplementary filed with the Department.
Section 5. CHARTER AND BYLAWS. All persons who shall acquire stock in the
Corporation shall acquire such stock subject to the provisions of the Charter
and the Bylaws.
ARTICLE VI
RESTRICTION ON TRANSFER,
ACQUISITION AND REDEMPTION OF SHARES
Section 1. DEFINITIONS. For purposes of this Article VI, the following
terms shall have the following meanings:
"Beneficial Ownership" shall mean ownership of shares of Equity Stock by a
Person who is or would be an actual owner, for federal income tax purposes, of
such shares of Equity Stock or who is or would be treated as a constructive
owner of such shares of Equity Stock under Section 542(a)(2) of the Code either
directly or constructively through the application of Section 544 of the Code,
as modified by Sections 856(h)(1)(B) and 856(h)(3) of the Code. For purposes of
determining the percentage ownership of Common Stock by any Person, shares of
Common Stock that may be acquired upon conversion, exchange or exercise of any
securities of the Corporation or any debt securities of Philips International
Realty, L.P. directly or constructively held by such Person, but not Common
Stock issuable with respect to the conversion, exchange or exercise of
securities of the Corporation or debt securities of Philips International
Realty, L.P. held by other Persons, shall be deemed to be outstanding prior to
such conversion, exchange or exercise. The terms "Beneficial Owner,"
"Beneficially Owns," "Beneficially Own" and "Beneficially Owned" shall have the
correlative meanings.
4
<PAGE>
"Charitable Beneficiary" shall mean a beneficiary of the Trust as
determined pursuant to Section 14 of this Article VI.
"Effective Date" shall mean the date as of which the Corporation's
registration statement on Form S-4 (File No. _____) is declared effective by the
Securities and Exchange Commission.
"Equity Stock" shall mean Common Stock and any class or series of Preferred
Stock.
"Excess Stock" shall mean excess stock as defined in Section 3 of this
Article VI.
"Market Price" as to any date shall mean the average of the last sales
price reported on the New York Stock Exchange, Inc. ("NYSE") of Common Stock or
Preferred Stock, as the case may be, on the ten trading days immediately
preceding the relevant date, or if not then traded on the New York Stock
Exchange, the average of the last reported sales price of the Common Stock or
Preferred Stock, as the case may be, on the ten trading days immediately
preceding the relevant date as reported on any exchange or quotation system over
which the Common Stock or Preferred Stock, as the case may be, may be traded, or
if not then traded over any exchange or quotation system, then the market price
of the Common Stock or Preferred Stock, as the case may be, on the relevant date
as determined in good faith by the Board of Directors.
"Ownership Limit" shall initially mean 6.5% of the lesser of the aggregate
number or value of the outstanding shares of Equity Stock of the Corporation
and, after any adjustment as set forth in Section 9 of this Article VI, shall
mean such percentage as so adjusted. The number and value of shares of the
Equity Stock of the Corporation shall be determined by the Board of Directors in
good faith, which determination shall be conclusive for all purposes hereof.
"Person" shall mean an individual, corporation, partnership, estate, trust
(including a trust qualified under Section 401(a) or 501(c)(17) of the Code), a
portion of a trust permanently set aside for or to be used exclusively for the
purposes described in Section 642(c) of the Code, association, private
foundation within the meaning of Section 509(a) of the Code, joint stock company
or other entity and also includes a group as that term is used for purposes of
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended; but does
not include an underwriter which participated in a public offering of the Equity
Stock for a period of 30 days following the purchase by such underwriter of
shares of the Equity Stock.
"Purported Beneficial Transferee" shall mean, with respect to any purported
Transfer which results in Excess Stock as described below in Section 3 of this
Article VI, the purported beneficial transferee for whom the Purported Record
Transferee would have acquired shares of Equity Stock, if such Transfer had not
been void under Section 2 of this Article VI.
"Purported Record Transferee" shall mean, with respect to any purported
Transfer which results in Excess Stock as described below in Section 3 of this
Article VI, the record holder of the Equity Stock if such Transfer had not been
void under Section 2 of this Article VI.
"Restriction Termination Date" shall mean the first day after the Effective
Date on which the Board of Directors determines that it is no longer in the best
interests of the Corporation to attempt to, or continue to, qualify as a REIT.
"Transfer" shall mean any issuance, sale, transfer, gift, assignment,
devise or other disposition of Equity Stock (including (i) the granting of any
option or entering into any agreement for the sale, transfer or other
disposition of Equity Stock or (ii) the sale, transfer, assignment or other
disposition of any securities or rights convertible into or exchangeable for
Equity Stock), whether voluntary or involuntary, whether of record or
beneficially and whether by operation of law or otherwise. The terms "Transfers"
and "Transferred" shall have the correlative meanings.
"Trust" shall mean the trust created pursuant to Section 14 of this Article
VI.
"Trustee" shall mean the Person that is appointed by the Corporation
pursuant to Section 14
5
<PAGE>
of this Article VI to serve as trustee of the Trust, and any successor thereto.
Section 2. OWNERSHIP LIMITATION. (i) Except as provided in Section 2 of
this Article VI, from the Effective Date and prior to the Restriction
Termination Date, no Person shall Beneficially Own shares of Equity Stock in
excess of the Ownership Limit.
(ii) Except as provided in Section 2 of this Article VI, from the Effective
Date and prior to the Restriction Termination Date, any Transfer that, if
effective, would result in any Person Beneficially Owning Equity Stock in excess
of the Ownership Limit shall be void ab initio as to the Transfer of such shares
of Equity Stock which would be otherwise Beneficially Owned by such Person in
excess of the Ownership Limit and the intended transferee shall acquire no
rights in such shares of Equity Stock.
(iii) From the Effective Date and prior to the Restriction Termination
Date, any Transfer that, if effective, would result in the Equity Stock being
Beneficially Owned by less than 100 Persons (determined without reference to any
rules of attribution) shall be void ab initio as to the Transfer of such shares
of Equity Stock which would be otherwise Beneficially Owned by the transferee;
and the intended transferee shall acquire no rights in such shares of Equity
Stock.
(iv) From the Effective Date and prior to the Restriction Termination Date,
any Transfer that, if effective, would result in the Corporation being "closely
held" within the meaning of Section 856(h) of the Code shall be void ab initio
as to the Transfer of the shares of Equity Stock which would cause the
Corporation to be "closely held" within the meaning of Section 856(h) of the
Code; and the intended transferee shall acquire no rights in such shares of
Equity Stock.
Section 3. EXCESS STOCK. (i) If, notwithstanding the other provisions
contained in this Article VI, at any time after the date of the Effective Date
and prior to the Restriction Termination Date, there is a purported Transfer or
other change in the capital structure of the Corporation such that any Person
would Beneficially Own Equity Stock in excess of the applicable Ownership Limit,
then, except as otherwise provided in Section II, such shares of Equity Stock in
excess of such Ownership Limit (rounded up to the nearest whole share; "Excess
Stock") shall be treated as provided in this Article VI. Such treatment shall be
effective as of the close of business on the business day prior to the date of
the purported Transfer or change in capital structure.
(ii) If, notwithstanding the other provisions contained in this Article VI,
at any time after the date of the Effective Date and prior to the Restriction
Termination Date, there is a purported Transfer or other change in the capital
structure of the Corporation which, if effective, would cause the Corporation to
become "closely held" within the meaning of Section 856(h) of the Code, then the
shares of Equity Stock being Transferred which would cause the Corporation to be
"closely held" within the meaning of Section 856(h) of the Code (rounded up to
the nearest whole share) shall be treated as Excess Stock as provided in this
Article VI. Such treatment shall be effective as of the close of business on the
business day prior to the date of the purported Transfer or change in capital
structure.
Section 4. PREVENTION OF TRANSFER. If the Board of Directors or its
designee shall at any time determine in good faith that a Transfer has taken
place in violation of Section 2 of this Article VI or that a Person intends to
acquire or has attempted to acquire beneficial ownership (determined without
reference to any rules of attribution) or Beneficial Ownership of any shares of
stock of the Corporation in violation of Section 2 of this Article VI, the Board
of Directors or its designee shall take such action as it deems advisable to
refuse to give effect to or to prevent such Transfer, including, but not limited
to, refusing to give effect to such Transfer on the books of the Corporation or
instituting proceedings to enjoin or rescind such Transfer; provided, however,
that any Transfers or attempted Transfers in violation of subparagraphs Section
2 (ii) and (iv) of this Article VI shall automatically result in the treatment
described in Section 3, irrespective of any action (or non-action) by the Board
of Directors.
Section 5. NOTICE TO CORPORATION. Any Person who acquires or attempts to
acquire shares in violation of Section 2 of this Article VI, or any Person who
is or attempts to become a transferee such that Excess Stock results under
Section 3 of this Article VI, shall immediately give written
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<PAGE>
notice or, in the event of a proposed or attempted Transfer, give at least 15
days prior written notice to the Corporation of such event and shall provide to
the Corporation such other information as the Corporation may request in order
to determine the effect, if any, of such Transferor's attempted Transfer on the
Corporation's status as a REIT.
Section 6. INFORMATION FOR CORPORATION. From the date of the Effective Date
and prior to the Restriction Termination Date, each Person who is a Beneficial
Owner of Equity Stock and each Person (including the stockholder of record) who
is holding Equity Stock for a Beneficial Owner shall upon demand provide in
writing to the Corporation any information with respect to the direct, indirect
and constructive ownership of Equity Stock of the Corporation as the Board of
Directors deems necessary to comply with the provisions of the Code applicable
to REITS, to comply with the requirements of any taxing authority or
governmental agency or to determine any such compliance.
Section 7. OTHER ACTION BY BOARD. Subject to the provisions of Section 19
of this Article VI, nothing contained in this Article VI shall limit the
authority of the Board of Directors to take such other action as it deems
necessary or advisable to protect the Corporation and the interests of its
stockholders by preservation of the Corporation's status as a REIT.
Section 8. AMBIGUITIES. In the case of any ambiguity in the application of
any of the provisions of this Article VI, including any definition contained in
Section 1, the Board of Directors shall have the power to determine the
application of the provisions of this Article VI with respect to any situation
based on the facts known to it.
Section 9. INCREASE IN OWNERSHIP LIMIT. Subject to the limitations provided
in Section 10 of this Article VI, the Board of Directors may from time to time
increase the Ownership Limit.
Section 10. LIMITATIONS ON CHANGES IN OWNERSHIP LIMIT. (i) The Ownership
Limit for a class or series of Equity Stock may not be increased if, after
giving effect to such increase, five or fewer Beneficial Owners of Equity Stock
would Beneficially Own, in the aggregate, more than 50.0% in value of the
outstanding shares of Equity Stock.
(ii) Prior to any modification of the Ownership Limit pursuant to Section 9
of this Article VI, the Board of Directors may require such opinions of counsel,
affidavits, undertakings or agreements as it may deem necessary or advisable in
order to determine or ensure the Corporation's status as a REIT.
Section 11. EXEMPTIONS BY BOARD. The Board of Directors may, in its sole
discretion, waive the Ownership Limit with respect to any particular Person or
Persons if evidence satisfactory to the Board of Directors and the Corporation's
tax counsel is presented that the changes in ownership pursuant to such waiver
will not cause the Corporation not to continue to be qualified as a REIT and are
not reasonably likely to cause the Corporation not to continue to be qualified
as a REIT in the future and the Board of Directors otherwise decides that such
action is in the best interest of the Corporation.
Section 12. LEGEND. (i) In addition to any other legend required by
applicable law, each certificate for shares of Common Stock or Preferred Stock
shall bear substantially the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON
TRANSFER FOR THE PURPOSE OF THE CORPORATION'S MAINTENANCE OF ITS STATUS AS A
REAL ESTATE INVESTMENT TRUST (A "REIT") UNDER THE INTERNAL REVENUE CODE OF 1986,
AS AMENDED. EXCEPT AS OTHERWISE PROVIDED PURSUANT TO THE CHARTER OF THE
CORPORATION, NO PERSON MAY BENEFICIALLY OWN SHARES OF EQUITY STOCK IN EXCESS OF
6.5% (OR SUCH GREATER PERCENTAGE AS MAY BE DETERMINED BY THE BOARD OF DIRECTORS
OF THE CORPORATION) OF THE AGGREGATE NUMBER OR VALUE OF THE OUTSTANDING SHARES
OF EQUITY STOCK OF THE CORPORATION. ANY PERSON WHO ACQUIRES OR ATTEMPTS TO
ACQUIRE SHARES OF EQUITY STOCK IN EXCESS OF THE AFOREMENTIONED LIMITATION, OR
ANY PERSON WHO IS OR ATTEMPTS TO BECOME A TRANSFEREE SUCH THAT EXCESS STOCK
RESULTS UNDER THE PROVISIONS OF THE
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<PAGE>
CHARTER, SHALL IMMEDIATELY GIVE WRITTEN NOTICE OR, IN THE EVENT OF A PROPOSED OR
ATTEMPTED TRANSFER, GIVE AT LEAST 15 DAYS PRIOR WRITTEN NOTICE TO THE
CORPORATION OF SUCH EVENT AND SHALL PROVIDE TO THE CORPORATION SUCH OTHER
INFORMATION AS IT MAY REQUEST IN ORDER TO DETERMINE THE EFFECT ON ANY SUCH
TRANSFER ON THE CORPORATION'S STATUS AS A REIT. ALL CAPITALIZED TERMS IN THIS
LEGEND HAVE THE MEANINGS DEFINED IN THE CHARTER OF THE CORPORATION, A COPY OF
WHICH, INCLUDING THE RESTRICTIONS ON TRANSFER, WILL BE SENT TO ANY STOCKHOLDER
ON REQUEST AND WITHOUT CHARGE. IF THE RESTRICTIONS ON TRANSFER ARE VIOLATED, THE
SECURITIES REPRESENTED HEREBY WILL BE TREATED AS SHARES OF EXCESS STOCK THAT
WILL BE TRANSFERRED, BY OPERATION OF LAW, TO THE TRUSTEE OF A TRUST FOR THE
EXCLUSIVE BENEFIT OF ONE OR MORE CHARITABLE ORGANIZATIONS.
(ii) In addition to the above legend and any other legend required by
applicable law, each certificate for shares of Preferred Stock shall bear such
legend as may be set forth in the articles supplementary with respect to the
transferability of such Preferred Stock.
Section 13. SEVERABILITY. If any provision of this Article VI or any
application of any such provision is determined to be void, invalid or
unenforceable by virtue of any legal decision, statute, rule or regulation, then
the Purported Record Transferee may be deemed, at the option of the Corporation,
to have acted as an agent of the Corporation in acquiring such shares of Excess
Stock and to hold such shares of Excess Stock on behalf of the Corporation and
the validity and enforceability of the remaining provisions shall not be
affected and other applications of such provision shall be affected only to the
extent necessary to comply with the determination of such court.
Section 14. TRUST FOR EXCESS STOCK. Upon any purported Transfer that
results in Excess Stock pursuant to Section 3 of this Article VI, such Excess
Stock shall be deemed to have been transferred by operation of law to the
Trustee of a trust (the "Trust") for the exclusive benefit of one or more
Charitable Beneficiaries. The Trustee shall be appointed by the Corporation, and
shall be a Person unaffiliated with the Corporation, any Purported Beneficial
Transferee or any Purported Record Transferee. By written notice to the Trustee,
the Corporation shall designate one or more non-profit organizations to be the
Charitable Beneficiary(ies) of the interest in the Trust representing the Excess
Stock such that (a) the shares of Equity Stock, from which the shares of Excess
Stock held in the Trust originated, would not violate the restrictions set forth
in Section 2 of this Article VI in the hands of such Charitable Beneficiary and
(b) each Charitable Beneficiary is an organization described in Sections
170(b)(1)(a), 170(c)(2) and 501(c)(3) of the Code. The Trustee of the Trust will
be deemed to own the Excess Stock for the benefit of the Charitable Beneficiary
on the date of the purported Transfer that results in Excess Stock pursuant to
Section 3 of this Article VI. Shares of Excess Stock so held in trust shall be
issued and outstanding stock of the Corporation. The Purported Record Transferee
shall have no rights in such Excess Stock except as expressly provided for in
this Article VI.
Section 15. DIVIDENDS ON EXCESS STOCK. Shares of Excess Stock will be
entitled to dividends and distributions authorized and declared with respect to
the class or series of Equity Stock from which the Excess Stock originated and
will be payable to the Trustee of the Trust in which such Excess Stock is held,
for the benefit of the Charitable Beneficiary. Dividends and distributions will
be authorized and declared with respect to each share of Excess Stock in an
amount equal to the dividends and distributions authorized and declared on each
share of stock of the class or series of Equity Stock from which the Excess
Stock originated. Any dividend or distribution paid to a Purported Record
Transferee of Excess Stock prior to the discovery by the Corporation that Equity
Stock has been transferred in violation of the provisions of the Charter shall
be repaid by the Purported Record Transferee to the Trustee upon demand. The
Corporation shall rescind any dividend or distribution authorized and declared
but unpaid as void ab initio with respect to the Purported Record Transferee,
and the Corporation shall pay such dividend or distribution when due to the
Trustee of the trust for the benefit of the Charitable Beneficiary.
Section 16. LIQUIDATION DISTRIBUTIONS FOR EXCESS STOCK. Subject to the
preferential rights of the Preferred Stock, if any, as may be determined by the
Board of Directors, in the event of any voluntary or involuntary liquidation,
dissolution or winding up of, or any other distribution of
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all or substantially all of the assets of the Corporation, each holder of shares
of Excess Stock shall be entitled to receive, in the case of Excess Stock
originated from Preferred Stock, ratably with each other holder of Preferred
Stock and Excess Stock originated from Preferred Stock and having the same
rights to payment upon liquidation, dissolution or winding up as such Preferred
Stock and, in the case of Excess Stock originated from Common Stock, ratably
with each other holder of Common Stock and Excess Stock originated from Common
Stock, that portion of the assets of the Corporation available for distribution
to its stockholders as the number of shares of the Excess Stock held by such
holder bears to the total number of shares of (i) Preferred Stock and Excess
Stock then outstanding (in the case of Excess Stock originated from Preferred
Stock) and (ii) Common Stock and Excess Stock then outstanding (in the case of
Excess Stock originated from Common Stock).
Any liquidation distributions to be distributed with respect to Excess
Stock shall be distributed in the same manner as proceeds from the sale of
Excess Stock are distributed as set forth in Section 18 of this Article VI.
Section 17. VOTING RIGHTS FOR EXCESS STOCK. Any vote cast by a Purported
Record Transferee of Excess Stock prior to the discovery by the Corporation that
Equity Stock has been transferred in violation of the provisions of the Charter
shall be void ab initio. While the Excess Stock is held in trust, the Purported
Record Transferee will be deemed to have given an irrevocable proxy to the
Trustee to vote the shares of Excess Stock for the benefit of the Charitable
Beneficiary.
Section 18. NON-TRANSFERABILITY OF EXCESS STOCK. Excess Stock shall not be
transferable. In its sole discretion, the Trustee of the Trust may transfer the
interest in the Trust representing shares of Excess Stock to any Person if the
shares of Excess Stock would not be Excess Stock in the hands of such Person. If
such transfer is made, the interest of the Charitable Beneficiary in the Excess
Stock shall terminate and the proceeds of the sale shall be payable by the
Trustee to the Purported Record Transferee and to the Charitable Beneficiary as
herein set forth. The Purported Record Transferee shall receive from the Trustee
the lesser of (i) the price paid by the Purported Record Transferee for its
shares of Equity Stock that were treated as Excess Stock or, if the Purported
Record Transferee did not give value for such shares (e.g., the stock was
received through a gift, devise or other transaction), the average closing price
for the class of shares from which such shares of Excess Stock originated for
the ten trading days immediately preceding such sale or gift, and (ii) the price
received by the Trustee from the sale or other disposition of the Excess Stock
held in trust. The Trustee may reduce the amount payable to the Purported Record
Transferee by the amount of dividends and distributions which have been paid to
the Purported Record Transferee and are owed by the Purported Record Transferee
to the Trustee pursuant to Section 15 of this Article VI. Any proceeds in excess
of the amount payable to the Purported Record Transferee shall be paid by the
Trustee to the Charitable Beneficiary. Upon such transfer of an interest in the
Trust, the corresponding shares of Excess Stock in the Trust shall be
automatically deemed to be an equal number of shares of Equity Stock, and such
shares of Equity Stock shall be transferred of record to the transferee of the
interest in the Trust if such shares of Equity Stock would not be Excess Stock
in the hands of such transferee. Prior to any transfer of any interest in the
Trust, the Corporation must have waived in writing its purchase rights under
Section 20 of this Article VI.
Section 19. NYSE TRANSACTIONS. Nothing in this Article VI shall preclude
the settlement of any transaction entered into through the facilities of the
NYSE. The fact that the settlement of any transaction may occur shall not negate
the effect of any other provision of this Article VI and any transferee in such
a transaction shall be subject to all of the provisions and limitations set
forth in this Article VI.
Section 20. CALL BY CORPORATION ON EXCESS STOCK. Shares of Excess Stock
shall be deemed to have been offered for sale to the Corporation, or its
designee, at a price per share payable to the Purported Record Transferee equal
to the lesser of (i) the price per share in the transaction that created such
Excess Stock (or, in the case of a devise or gift, the Market Price at the time
of such devise or gift) and (ii) the Market Price of the Common Stock or
Preferred Stock from which such Excess Stock originated on the date the
Corporation, or its designee, accepts such offer. The Corporation may reduce the
amount payable to the Purported Record Transferee by the amount of dividends and
distributions which have been paid to the Purported Record Transferee and are
owed by the Purported Record Transferee to the
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Trustee pursuant to Section 15 of this Article VI. The Corporation may pay the
amount of such reductions to the Trustee for the benefit of the Charitable
Beneficiary. The Corporation shall have the right to accept such offer for a
period of 90 days after the later of (i) the date of the Corporation's receipt
of notice pursuant to Section 5 of this Article VI and (ii) if the Corporation
does not receive a notice of such Transfer pursuant to Section 5 of this Article
VI, the date that the Board of Directors determines in good faith that a
Transfer resulting in Excess Stock has occurred, but in no event later than a
permitted Transfer pursuant to and in compliance with the terms of Section 18 of
this Article VI.
Section 21. ENFORCEMENT. The Corporation is authorized specifically to seek
equitable relief, including injunctive relief, to enforce the provisions of this
Article VI.
Section 22. NON-WAIVER. No delay or failure on the part of the Corporation
or the Board of Directors in exercising any right hereunder shall operate as a
waiver of any right of the Corporation or the Board of Directors, as the case
may be, except to the extent specifically waived in writing.
ARTICLE VII
AMENDMENTS
The Corporation reserves the right from time to time to make any amendment
to its Charter, now or hereafter authorized by law, including any amendment
altering the terms or contract rights, as expressly set forth in this Charter,
of any shares of outstanding stock. All rights and powers conferred by the
Charter on stockholders, directors and officers are granted subject to this
reservation. Any amendment to the Charter shall be valid only if approved by the
affirmative vote of the holders of not less than a majority of all the votes
entitled to be cast on the matter.
ARTICLE VIII
LIMITATION OF LIABILITY
To the maximum extent that Maryland law in effect from time to time permits
limitation of the liability of directors and officers of a corporation, no
director or officer of the Corporation shall be liable to the Corporation or its
stockholders for money damages. Neither the amendment nor repeal of this Article
VIII, nor the adoption or amendment of any other provision of the Charter or
Bylaws inconsistent with this Article VIII, shall apply to or affect in any
respect the applicability of the preceding sentence with respect to any act or
failure to act which occurred prior to such amendment, repeal or adoption.
THIRD: These Articles of Amendment and Restatement were duly advised by the
Board of Directors of the Corporation and duly approved by the stockholders of
the Corporation in accordance with applicable law.
FOURTH: The current address of the principal office of the Corporation in
the State of Maryland and the name and address of the current resident agent of
the Corporation in the State of Maryland are set forth in Article III of
Paragraph SECOND of the Articles of Amendment and Restatement entitled
"PRINCIPAL OFFICE IN STATE AND RESIDENT AGENT."
FIFTH: Immediately prior to the amendments contained in these Articles of
Amendment and Restatement, the number of Directors of the Corporation was two
(2) and the names of those Directors are Philip Pilevsky and Sheila Levine.
SIXTH: Immediately following the amendments contained in these Articles of
Amendment and Restatement, the number of Directors of the Corporation will be
seven (7) and the names of those Directors are Philip Pilevsky, Louis J. Petra,
Sheila Levine, A. F. Petrocelli, Elise Jaffe, Robert Grimes and [Outside
Director].
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SEVENTH: Immediately prior to the amendments contained in these Articles of
Amendment and Restatement, the Corporation had authority to issue Three Thousand
(3,000) shares of Common Stock, par value $.01 per share, and the aggregate par
value of all such authorized shares of stock of the Corporation having par value
was Thirty Dollars ($30.00).
EIGHTH: Immediately following the amendments contained in these Articles of
Amendment and Restatement, the Corporation will have authority to issue One
Hundred Eighty Million (180,000,000) Shares of capital stock, consisting of One
Hundred Fifty Million (150,000,000) shares of Common Stock, par value $.01 per
share, and Thirty Million (30,000,000) shares of Preferred Stock, par value $.01
per share, and the aggregate par value of all such authorized shares of stock of
the Corporation having par value will be One Million Eight Hundred Thousand
Dollars ($1,800,000).
NINTH: A description, as amended, of each class of capital stock of the
Corporation, including the preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption is set forth in Article V of Paragraph SECOND of these
Articles of Amendment and Restatement entitled "STOCK".
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IN WITNESS WHEREOF, Philips International Realty Corp. has caused these
Articles of Amendment and Restatement to be executed in its name and of its
behalf by its President and attested to by its Secretary and its said President
acknowledges that these Articles of Amendment and Restatement are the corporate
act of the said Corporation and further certifies, under penalties of perjury,
that to the best of his knowledge, information and belief, matters and facts set
forth herein are true in all material respects.
ATTEST: PHILIPS INTERNATIONAL REALTY CORP.
____________________________ BY:______________________________
Sheila Levine Louis J. Petra
Secretary President
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-------------------------------------------
ARTICLES SUPPLEMENTARY
OF
SERIES A PREFERRED STOCK
OF
PHILIPS INTERNATIONAL REALTY CORP.
--------------------------------------------
Series A Preferred Stock
A series of one thousand nine hundred forty (1,940) shares of Preferred
Stock, par value $0.01 per share, of Philips International Realty Corp. (the
"Corporation) shall be created and be designated "Series A Preferred Stock"
having the following rights and preferences:
DESIGNATION OF SERIES A PREFERRED STOCK. The rights, preferences, powers,
privileges and restrictions, qualifications and limitations granted to or
imposed upon the Series A Preferred Stock (referred to hereinafter sometimes as
the "Designations") shall be as set forth below. The Corporation may issue
additional series of Preferred Stock whose rights, preferences, powers,
privileges and restrictions, qualifications and limitations are either
subordinate to or pari passu with, but not senior to, the Designations of the
Series A Preferred Stock. Capitalized terms used and not otherwise defined
herein shall have the meanings set forth in the Articles of Amendment and
Restatement of the Corporation. The Articles of Amendment and Restatement is on
file at the principal place of business of the Corporation and copies will be
made available on request and without cost to any stockholder of the Corporation
so requesting.
1. Stated Value. The stated value of the Series A Preferred Stock shall be
one thousand dollars ($1,000.00) per share (the "Stated Value").
2. Dividends.
(a) Subject to Section 2(b) below, commencing from the date of initial
issuance of shares of Series A Preferred Stock (the "Date of Issuance"),
dividends on Series A Preferred Stock shall be payable in arrears quarterly, at
the rate per annum of nine percent (9%) of the Stated Value of each such share
of Series A Preferred Stock, on the last Business Day (as defined below) of each
calendar quarter, commencing on March 31, 1998 (each of such dates being
hereinafter called a "Dividend Payment Date"). If any dividend is not declared
or paid pursuant to the terms hereof on any Dividend Payment Date, interest
shall accrue on the amount of such accrued and unpaid dividend at the rate per
annum of nine percent (9%) until such time as such accrued and unpaid dividend
is paid in full, such interest to be paid concurrently with the payment of such
accrued and unpaid dividends (such amounts, collectively the "Unpaid
Dividends"). If, on any Dividend
<PAGE>
Payment Date, the Corporation shall not be lawfully permitted under Maryland law
to pay all or a portion of any such declared dividends, the Corporation shall
take such action as may be lawfully permitted in order to enable the Corporation
to the extent permitted by Maryland law, lawfully to pay such dividends.
Dividends shall be cumulative. The record date for the payment of dividends on
the Series A Preferred Stock shall be the day immediately prior to each such
Dividend Payment Date. No cash dividends shall be payable on the Common Stock
unless and until all Unpaid Dividends have been paid in full.
(b) For purposes of these Articles Supplementary, "Business Day" shall mean
any day, excluding Saturday, Sunday and any other day on which commercial banks
in New York are authorized or required by law to close.
3. Liquidation. The Series A Preferred Stock shall be preferred as to
assets over any class of Common Stock such that in the event of the voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, the
holders of the Series A Preferred Stock shall be entitled to have set apart for
them, or to be paid out of the assets of the Corporation, before any
distribution is made to or set apart for the holders of the Common Stock, an
amount in cash equal to the Stated Value per share plus any accrued but unpaid
dividends thereon (including interest earned thereon, if any, pursuant to
Section 2(a) hereof), plus any "Accrued Dividends" (as defined below) as of such
date of payment. "Accrued Dividends" shall mean, as of any date of
determination, an amount equal to the Unpaid Dividends plus the amount of
dividends, determined at the rate fixed for the payment of dividends on the
Series A Preferred Stock on such date as provided in Section 2 hereof which
would be paid on the Series A Preferred Stock for the period of time elapsed
from the most recent dividend payment to the date of determination, had such
date of determination been a Dividend Payment Date. If the assets or surplus
funds to be distributed to the holders of the Series A Preferred Stock are
insufficient to permit the payment to such holders of their full preferential
amount, the assets and surplus funds legally available for distribution shall be
distributed ratably among the holders of the Series A Preferred Stock in
proportion to the full preferential amount each such holder is otherwise
entitled to receive.
4. Conversion of Series A Preferred Stock.
The holders of Series A Preferred Stock shall have the following conversion
rights:
(i) Right to Convert. Each share of Series A Preferred Stock shall be
convertible, on the Conversion Dates and at the Conversion Prices set forth
below, into fully paid and nonassessable shares of Common Stock.
(ii) Mechanics of Conversion. Each holder of Series A Preferred Stock who
desires to convert the same into shares of Common Stock shall provide notice in
the form of the Notice of Conversion or Exercise attached to that certain
engagement letter between National Properties Investment Trust and Prudential
Securities Incorporated, dated January 8, 1997, as amended as of ___, 1997 (the
"Engagement Letter") in the manner provided for in the Engagement Letter (a
"Conversion Notice"). The original Conversion Notice and the certificate
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or certificates representing the Series A Preferred Stock for which conversion
is elected, shall be delivered to the Corporation by hand or by overnight
courier, duly endorsed. The date upon which a Conversion Notice is properly
received by the Corporation shall be a "Notice Date."
The Corporation shall use all reasonable efforts to issue and deliver
within three (3) business days after the Notice Date, to such holder of Series A
Preferred Stock at the address of the holder on the stock books of the
Corporation, a certificate or certificates for the number of shares of Common
Stock to which the holder shall be entitled as aforesaid; provided that the
original shares of Series A Preferred Stock to be converted are received by the
Corporation within three business days after the Notice Date and the person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock on the Notice Date. If the original shares of Series
A Preferred Stock to be converted are not received by the Corporation within
three business days after the Notice Date, the Conversion Notice shall become
null and void.
(iii) Conversion Dates. The Series A Preferred Stock shall be convertible
into shares of Common Stock at any time following the six month anniversary of
the date of issuance, subject to subsection (v) below.
(iv) Conversion Price. Each share of Series A Preferred Stock shall be
convertible into the number of shares of Common Stock according to the following
formula:
N x 1,000 + Accrued Dividends
-----------------------------
Conversion Price
where:
N = the number of shares of the Series A Preferred Stock
for which conversion is being elected:
and
Conversion
Price = $50.00
(v) Optional Redemption. Upon the occurrence of a public or private equity
offering by the Corporation of securities of the Corporation pursuant to which
the Corporation receives gross proceeds, together with gross proceeds from prior
offerings, excluding any offering that is substantially concurrent with the
Formation Transactions, in excess of $25 million, any capital reorganization or
reclassification of the capital stock of the Corporation or consolidation or
merger of the Corporation (in which the Corporation is not the surviving
corporation) with, or sale of all or substantially all of its assets to, another
person or entity, the Corporation may (by notice at least three (3) Business
Days prior to such occurrence) redeem all (but not less than all) of the shares
of Series A Preferred Stock outstanding on the date that such reorganization,
reclassification, consolidation, merger or sale is consummated, at a redemption
price equal to the Conversion Price, unless the holder elects to convert all the
shares
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<PAGE>
of Series A Preferred Stock on or prior to the date fixed for redemption as
contemplated by clause (i) and (ii) above. If the date fixed for redemption is
prior to the six month anniversary of the date of issuance of the Series A
Preferred Stock, the holder may still elect to convert all of the shares of
Series A Preferred Stock prior to such date, provided, however, that the actual
Conversion Date shall not be until the six month anniversary date of the
issuance of the Series A Preferred Stock.
(vi) Fractional Shares. No fractional share shall be issued upon the
conversion of any shares, share or fractional share of Series A Preferred Stock.
All shares of Common Stock (including fractions thereof) issuable upon
conversion of shares (or fractions thereof) of Series A Preferred Stock by a
holder thereof shall be aggregated for purposes of determining whether the
conversion would result in the issuance of any fractional share. If, after the
aforementioned aggregation, the conversion would result in the issuance of a
fraction of a share of Common Stock, the Corporation shall, in lieu of issuing
any fractional share, pay the holder otherwise entitled to such fraction a sum
in cash equal to the Conversion Price of the Common Stock on the Notice Date
multiplied by such fraction.
(vii) Reservation of Stock Issuable Upon Conversion. The Corporation shall
at all times reserve and keep available out of its authorized but unissued
shares of Common stock, solely for the purpose of effecting the conversion of
the shares of the Series A Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
then outstanding shares of the Series A Preferred Stock; and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of the Series A
Preferred Stock, the Corporation will take such corporate action as may be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purpose. As soon as practicable
following such time as the Common stock is listed on a national securities
exchange, the Corporation covenants to effect the listing of the Common Stock
underlying the Series A Preferred Stock on such national securities exchange.
(viii) Adjustment to Conversion Price.
(a) If, prior to the conversion of all shares of Series A Preferred
Stock, the number of outstanding shares or Common Stock is increased by a
stock split, stock dividend, or other similar event, the Conversion Price
shall be proportionately reduced, or if the number of outstanding shares of
Common Stock is decreased by a combination or reclassification of shares,
or other similar event, the Conversion Price shall be proportionately
increased.
(b) If prior to the conversion of all shares of Series A Preferred
Stock, there shall be any merger, consolidation, exchange of shares,
recapitalization, reorganization, or other similar event, as a result of
which shares of Common Stock of the Corporation shall be changed into the
same or a different number of shares of the same or another class or
classes of stock or securities of the Corporation or another entity, then
the holders of Series A Preferred Stock shall thereafter have the right to
purchase and receive upon conversion of shares of Series A Preferred Stock,
upon the basis and upon the terms and conditions specified herein and in
lieu of the shares of Common Stock immediately theretofore issuable upon
conversion, such share of stock and/or securities as may be issued or
payable with respect to or in exchange for the number of shares of Common
Stock immediately theretofore purchasable and receivable upon the
conversion of shares of Series A Preferred Stock held by such holders had
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<PAGE>
such merger, consolidation, exchange of shares, recapitalization or
reorganization not taken place, and in any such case appropriate provisions
shall be made with respect to the rights and interest of the holders of the
Series A Preferred Stock to the end that the provisions hereof (including,
without limitation, provisions for adjustment of the Conversion Price and
of the number of shares issuable upon conversion of the Series A Preferred
Stock) shall thereafter be applicable, as nearly as may be practicable in
relation to any shares of stock or securities thereafter deliverable upon
the exercise hereof. The Corporation shall not effect any transaction
described in this subsection unless (i) the resulting successor or
acquiring entity (if not the Corporation) assumes by written instrument the
obligation to deliver to the holders of the Series A Preferred Stock such
shares of stock and/or securities as, in accordance with the foregoing
provisions, the holders of the Series A Preferred Stock may be entitled to
purchase or (ii) prior to the consummation of such transaction, the
Corporation has redeemed all of the outstanding shares of Series A
Preferred Stock pursuant to Section 4(v).
(c) If any adjustment under this subsection would create a fractional
share of Common Stock or a right to acquire a fractional share of Common
Stock, such fractional share shall be disregarded and the number of shares
of Common Stock issuable upon conversion shall be the next higher number of
shares.
D. Status of Converted Stock. In the event any shares of Series A Preferred
Stock shall be converted or redeemed as contemplated by these Articles
Supplementary, the shares so converted or redeemed shall be canceled, shall
return to the status of authorized but unissued Preferred Stock of no designated
class or series, and shall not be issuable by the Corporation as Series A
Preferred Stock.
5. No Reissuance. Any shares of Series A Preferred Stock exchanged,
redeemed, purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled promptly after the acquisition
thereof. All such shares of Series A Preferred Stock shall upon their
cancellation become authorized but unissued shares of preferred stock, par value
$.01 per share, of the Corporation and may not be reissued as shares of Series A
Preferred Stock; provided, however, that upon the filing of an appropriate
Articles Supplementary with the State of Maryland, all such shares may be
reissued as part of another series of Preferred Stock, par value $.01 per share,
of the Corporation subject to the conditions or restrictions on issuance set
forth herein and therein.
6. Voting Rights. Except as otherwise specifically provided by the General
Corporation Law of the State of Maryland or as otherwise provided herein, the
holders of shares of Series A Preferred Stock shall not be entitled to vote on
any matters required or permitted to be submitted to the stockholders of the
Corporation for their approval.
(a) While any shares of Series A Preferred Stock are outstanding, the
Corporation shall not alter or change the dividend, liquidation or voting
rights, preferences, conversion or redemption provisions or amendment or consent
provisions, of the Series A Preferred Stock without the affirmative consent
(given in writing or at a meeting duly called for
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<PAGE>
that purpose) of the holders of at least sixty-six and two-thirds percent
(66-2/3%) of the outstanding shares of the Series A Preferred Stock.
7. Notice of Certain Events. If at any time, to the extent permitted
hereunder:
(a) the Corporation shall declare any dividend, distribution or
subscription rights upon any class or capital stock ranking on a parity with or
junior to the Series A Preferred Stock;
(b) there shall be any capital reorganization or reclassification of the
capital stock of the Corporation or consolidation or merger of the Corporation
with, or sale of all or substantially all of its assets to, another person or
entity; or
(c) there shall be a voluntary or involuntary dissolution, liquidation or
winding-up of the Corporation;
then, in any one or more of the foregoing cases, the Corporation shall give, by
certified or registered mail, postage prepaid, addressed to the holders of
Series A Preferred Stock at the address of such holders as shown on the stock
record books of the Corporation, (i) at least thirty (30) days' prior written
notice of the date on which the books of the Corporation shall close or of a
record date fixed for such dividend, distribution or subscription rights or for
determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up, and (ii) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, at least
thirty (30) days' prior written notice of the date when the same shall take
place. Any notice given in accordance with the foregoing clause (i) shall also
specify, in the case of any such dividend, distribution or option rights, the
date on which the holders of any class of capital stock shall be entitled
thereto.
8. Rank and Limitations of Preferred Stock. All shares of Series A
Preferred Stock shall rank equally with each other share of Series A Preferred
Stock and shall be identical in all respects.
___________, 1997 PHILIPS INTERNATIONAL REALTY CORP.
By: ______________________________
Name:
Title:
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<PAGE>
AMENDED AND RESTATED
BYLAWS OF
PHILIPS INTERNATIONAL REALTY CORP.
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The principal office of the Corporation shall
be located at such place or places as the Board of Directors may designate.
Section 2. ADDITIONAL OFFICES. The Corporation may have additional offices
at such places as the Board of Directors may from time to time determine or the
business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. PLACE. All meetings of stockholders shall be held at the
principal office of the Corporation or at such other place within the United
States as shall be stated in the notice of the meeting.
Section 2. ANNUAL MEETING. An annual meeting of the stockholders for the
election of directors and the transaction of any business within the powers of
the Corporation shall be held on a date and at the time set by the Board of
Directors during the month of May in each year, unless the Board of Directors
elects to hold the meeting in any other month. Failure to hold an annual meeting
does not invalidate the Corporation's existence or affect any otherwise valid
acts of the Corporation..
Section 3. SPECIAL MEETINGS. The president, chief executive officer or
Board of Directors may call special meetings of the stockholders. Special
meetings of stockholders shall also be called by the secretary of the
Corporation upon the written request of the holders of shares entitled to cast
not less than a majority of all the votes entitled to be cast at such meeting.
Such request shall state the purpose of such meeting and the matters proposed to
be acted on at such meeting. The secretary shall inform such stockholders of the
reasonably estimated cost of preparing and mailing notice of the meeting and,
upon payment to the Corporation by such stockholders of such costs, the
secretary shall give notice to each stockholder entitled to notice of the
meeting. Unless requested by the stockholders entitled to cast a majority of all
the votes entitled to be cast at such meeting, a special meeting need not be
called to consider any matter which is substantially the same as a matter voted
on at any special meeting of the stockholders held during the preceding twelve
months.
Section 4. NOTICE. Not less than ten nor more than 90 days before each
meeting of stockholders, the secretary shall give to each stockholder entitled
to vote at such meeting and to each stockholder not entitled to vote who is
entitled to notice of the meeting written or printed notice stating the time and
place of the meeting and, in the case of a special meeting or as otherwise may
be required by any statute, the purpose for which the meeting is called, either
by mail or by presenting it to such
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stockholder personally or by leaving it at his residence or usual place of
business. If mailed, such notice shall be deemed to be given when deposited in
the United States mail addressed to the stockholder at his post office address
as it appears on the records of the Corporation, with postage thereon prepaid.
Section 5. SCOPE OF NOTICE. Any business of the Corporation may be
transacted at an annual meeting of stockholders without being specifically
designated in the notice, except such business as is required by any statute to
be stated in such notice. No business shall be transacted at a special meeting
of stockholders except as specifically designated in the notice.
Section 6. ORGANIZATION. At every meeting of stockholders, the Chairman of
the Board, if there be one, shall conduct the meeting or, in the case of vacancy
in office or absence of the Chairman of the Board, one of the following officers
present shall conduct the meeting in the order stated: the Vice Chairman of the
Board, if there be one, the President, the Vice Presidents in their order of
rank and seniority, or a Chairman chosen by the stockholders entitled to cast a
majority of the votes which all stockholders present in person or by proxy are
entitled to cast, shall act as Chairman, and the Secretary, or, in his absence,
an assistant secretary, or in the absence of both the Secretary and assistant
secretaries, a person appointed by the Chairman shall act as Secretary.
Section 7. QUORUM. At any meeting of stockholders, the presence in person
or by proxy of stockholders entitled to cast a majority of all the votes
entitled to be cast at such meeting shall constitute a quorum; but this section
shall not affect any requirement under any statute or the charter of the
Corporation for the vote necessary for the adoption of any measure. If, however,
such quorum shall not be present at any meeting of the stockholders, the
stockholders entitled to vote at such meeting, present in person or by proxy,
shall have the power to adjourn the meeting from time to time to a date not more
than 120 days after the original record date without notice other than
announcement at the meeting. At such adjourned meeting at which a quorum shall
be present, any business may be transacted which might have been transacted at
the meeting as originally notified.
Section 8. VOTING. A plurality of all the votes cast at a meeting of
stockholders duly called and at which a quorum is present shall be sufficient to
elect a director. Each share may be voted for as many individuals as there are
directors to be elected and for whose election the share is entitled to be
voted. A majority of the votes cast at a meeting of stockholders duly called and
at which a quorum is present shall be sufficient to approve any other matter
which may properly come before the meeting, unless more than a majority of the
votes cast is required by statute or by the charter of the Corporation. Unless
otherwise provided in the charter, each outstanding share, regardless of class,
shall be entitled to one vote on each matter submitted to a vote at a meeting of
stockholders.
Section 9. PROXIES. A stockholder may vote the stock owned of record by
him, either in person or by proxy executed in writing by the stockholder or by
his duly authorized attorney in fact. Such proxy shall be filed with the
secretary of the Corporation before or at the time of the meeting. No proxy
shall be valid after eleven months from the date of its execution, unless
otherwise provided in the proxy.
Section 10. VOTING OF STOCK BY CERTAIN HOLDERS. Stock of the Corporation
registered in the name of a corporation, partnership, trust or other entity, if
entitled to be voted, may be voted by the president or a vice president, a
general partner or trustee thereof, as the case may be, or a proxy appointed by
any of the foregoing individuals, unless some other person who has been
appointed to vote such stock pursuant to a bylaw or a resolution of the
governing body of such corporation or other entity or agreement of the partners
of a partnership presents a certified copy of such bylaw, resolution or
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agreement, in which case such person may vote such stock. Any director or other
fiduciary may vote stock registered in his name as such fiduciary, either in
person or by proxy.
Shares of stock of the Corporation directly or indirectly owned by it shall
not be voted at any meeting and shall not be counted in determining the total
number of outstanding shares entitled to be voted at any given time, unless they
are held by it in a fiduciary capacity, in which case they may be voted and
shall be counted in determining the total number of outstanding shares at any
given time.
The Board of Directors may adopt by resolution a procedure by which a
stockholder may certify in writing to the Corporation that any shares of stock
registered in the name of the stockholder are held for account of a specified
person other than the stockholder. The resolution shall set forth the class of
stockholders who may make the certification, the purpose for which the
certification may be made, the form of certification and the information to be
contained in it; if the certification is with respect to a record date or
closing of the stock transfer books, the time after the record date or closing
of the stock transfer books within which the certification must be received by
the Corporation; and any other provisions with respect to the procedure which
the Board of Directors considers necessary or desirable. On receipt of such
certification, the person specified in the certification shall be regarded as,
for the purposes set forth in the certification, the stockholder of record of
the specified stock in place of the stockholder who makes the certification.
Section 11. INSPECTORS. At any meeting of stockholders, the chairman of the
meeting may, or upon the request of any stockholder shall, appoint one or more
persons as inspectors for such meeting. Such inspectors shall ascertain and
report the number of shares represented at the meeting based upon their
determination of the validity and effect of proxies, count all votes, report the
results and perform such other acts as are proper to conduct the election and
voting with impartiality and fairness to all the stockholders.
Each report of an inspector shall be in writing and signed by him or by a
majority of them if there is more than one inspector acting at such meeting. If
there is more than one inspector, the report of a majority shall be the report
of the inspectors. The report of the inspector or inspectors on the number of
shares represented at the meeting and the results of the voting shall be prima
facie evidence thereof.
Section 12. NOMINATIONS AND STOCKHOLDER BUSINESS
(a) ANNUAL MEETINGS OF STOCKHOLDERS. (1) Nominations of persons for
election to the Board of Directors and the proposal of business to be considered
by the stockholders (except for stockholder proposals included in the proxy
materials pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) may be made at an annual meeting of stockholders
(i) pursuant to the Corporation's notice of meeting, (ii) by or at the direction
of the Board of Directors or (iii) by any stockholder of the Corporation who was
a stockholder of record at the time of giving of notice provided for in this
Section 12 (a), who is entitled to vote at the meeting and who complied with the
notice procedures set forth in this Section 12 (a)
(2) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (iii) of paragraph (a) (1) of
this Section 12, the stockholder must have given timely notice thereof in
writing to the secretary of the Corporation. To be timely, a stockholder's
notice shall be delivered to the secretary at the principal executive offices of
the Corporation not less than 75 days nor more than 90 days prior to the first
anniversary of the preceding year's annual meeting or special meeting in lieu
thereof; provided, however, that in the event that the date of the annual
meeting
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is advanced by more than seven calendar days or delayed by more than 60 days
from such anniversary date, notice by the stockholder to be timely must be so
delivered not earlier than the 90th day prior to such annual meeting and not
later than the close of business on the later of the 75th day prior to such
annual meeting or the 20th day following the earlier of the day on which public
announcement of the date of such meeting is first made or notice of the meeting
is mailed to stockholders. Such stockholder's notice shall set forth (i) as to
each person whom the stockholder proposes to nominate for election or reelection
as a director all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Exchange Act
(including such person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected) ; (ii) as to any other
business that the stockholder proposes to bring before the meeting, a brief
description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest in
such business of such stockholder and of the beneficial owner, if any, on whose
behalf the proposal is made; and (iii) as to the stockholder giving the notice
and the beneficial owner, if any, on whose behalf the nomination or proposal is
made, (x) the name and address of such stockholder, as they appear on the
Corporation's books, and of such beneficial owner and (y) the number of shares
of each class of stock of the Corporation which are owned beneficially and of
record by such stockholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph (a) (2) of
this Section 12 to the contrary, in the event that the number of directors to be
elected to the Board of Directors is increased and there is no public
announcement naming all of the nominees for director or specifying the size of
the increased Board of Directors made by the Corporation at least 85 days prior
to the first anniversary of the preceding year's annual meeting, a stockholder's
notice required by this Section 12(a) shall also be considered timely, but only
with respect to nominees for any new positions created by such increase, if it
shall be delivered to the secretary at the principal executive offices of the
Corporation not later than the close of business on the tenth day following the
day on which such public announcement is first made by the Corporation.
(b) SPECIAL MEETINGS OF STOCKHOLDERS. Only such business shall be conducted
at a special meeting of stockholders as shall have been brought before the
meeting pursuant to the Corporation's notice of meeting. Nominations of persons
for election to the Board of Directors may be made at a special meeting of
stockholders at which directors are to be elected (i) pursuant to the
Corporation's notice of meeting, (ii) by or at the direction of the Board of
Directors or (iii) provided that the Board of Directors has determined that
directors shall be elected at such special meeting, by any stockholder of the
Corporation who is a stockholder of record at the time of giving of notice
provided for in this Section 12 (b), who is entitled to vote at the meeting and
who complied with the notice procedures set forth in this Section 12 (b) . In
the event the Corporation calls a special meeting of stockholders for the
purpose of electing one or more directors to the Board of Directors, any such
stockholder may nominate a person or persons (as the case may be) for election
to such position as specified in the Corporation's notice of meeting, if the
stockholder's notice containing the information required by paragraph (a) (2) of
this Section 12 shall be delivered to the secretary at the principal executive
offices of the Corporation not earlier than the 90th day prior to such special
meeting and not later than the close of business on the later of the 75th day
prior to such special meeting or the tenth day following the day on which public
announcement is first made of the date of the special meeting and of the
nominees proposed by the Board of Directors to be elected at such meeting.
(c) GENERAL. (1) Only such persons who are nominated in accordance with the
procedures set forth in this Section 12 shall be eligible to serve as directors
and only such business shall be
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conducted at a meeting of stockholders as shall have been brought before the
meeting in accordance with the procedures set forth in this Section 12. The
presiding officer of the meeting shall have the power and duty to determine
whether a nomination or any business proposed to be brought before the meeting
was made in accordance with the procedures set forth in this Section 12 and, if
any proposed nomination or business is not in compliance with this Section 12,
to declare that such defective nomination or proposal be disregarded.
(2) For purposes of this Section 12, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Sections 13,
14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Section 12, a
stockholder shall also comply with all applicable requirements of state law and
of the Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Section 12. Nothing in this Section 12 shall be deemed
to affect any rights of stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act.
Section 13. VOTING BY BALLOT. Voting on any question or in any election may
be viva voce unless the presiding officer shall order or any stockholder shall
demand that voting be by ballot.
Section 14. CONTORL SHARES. Notwithstanding any other provision of the
charter of the Corporation or these Bylaws, Title 3, Subtitle 7 of the Maryland
General Corporation Law (or any successor statute) shall not apply to any
acquisition by any person of shares of stock of the Corporation. This section
may be repealed, in whole or in part, at any time, whether before or after an
acquisition of control shares and, upon such repeal, may, to the extent provided
by any successor bylaw, apply to any prior or subsequent control share
acquisition.
ARTICLE III
DIRECTORS
Section 1. GENERAL POWERS; QUALIFICATIONS. The business and affairs of the
Corporation shall be managed under the direction of its Board of Directors.
Section 2. NUMBER, TENURE AND QUALIFICATIONS. At any regular meeting or at
any special meeting called for that purpose, a majority of entire Board of
Directors may establish, increase or decrease the number directors, provided
that the number thereof shall never be less than the minimum number required by
the Maryland General Corporation Law, and further provided that the tenure of
office of a director shall not be affected by any decrease in the number of
directors.
Section 3. ANNUAL AND REGULAR MEETINGS. An annual meeting of the Board of
Directors shall be held immediately after and at the same place as the annual
meeting of stockholders, no notice other than this Bylaw being necessary. The
Board of Directors may provide, by resolution, the time and place, either within
or without the State of Maryland, for the holding of regular meetings of the
Board of Directors without other notice than such resolution.
Section 4. SPECIAL MEETINGS. Special meetings of the Board of Directors may
be called by or at the request of the chairman of the board (or any co-chairman
of the board if more than one),
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president or by a majority of the directors then in office. The person or
persons authorized to call special meetings of the Board of Directors may fix
any place, either within or without the State of Maryland, as the place for
holding any special meeting of the Board of Directors called by them.
Section 5. NOTICE. Notice of any special meeting of the Board of Directors
shall be delivered personally or by telephone, facsimile transmission, United
States mail or courier to each director at his business or residence address.
Notice by personal delivery, by telephone or a facsimile transmission shall be
given at least two days prior to the meeting. Notice by mail shall be given at
least five days prior to the meeting and shall be deemed to be given when
deposited in the United States mail properly addressed, with postage thereon
prepaid. Telephone notice shall be deemed be given when the director is
personally given such notice in a telephone call to which he is a party.
Facsimile transmission notice shall be deemed be given upon completion of the
transmission of the message to the number given to the Corporation by the
director and receipt of a completed answer-back indicating receipt. Neither the
business to be transacted at, the purpose of, any annual, regular or special
meeting of the Board of Directors need be stated in the notice, unless
specifically required by statute or these Bylaws.
Section 6. QUORUM. A majority of the directors shall constitute a quorum
for transaction of business at any meeting of the Board of Directors, provided
that, if less than a majority of such directors are present at said meeting, a
majority of the directors present may adjourn the meeting from time to time
without further notice, and provided further that if, pursuant to the charter of
the Corporation or these Bylaws, the vote of a majority of a particular group of
directors is required for action, a quorum must also include a majority of such
group.
The Board of Directors present at a meeting which has been duly called and
convened may continue to transact business until adjournment, notwithstanding
the withdrawal of enough directors to leave less than a quorum.
Section 7. VOTING. The action of the majority of the directors present at a
meeting at which a quorum is present shall be the action of the Board of
Directors, unless the concurrence of a greater proportion is required for such
action by applicable statute.
Section 8. TELEPHONE MEETINGS. Directors may participate in a meeting
by means of a conference telephone or similar communications equipment if all
persons participating in the meeting can hear each other at the same time.
Participation in a meeting by these means shall constitute presence in person at
the meeting.
Section 9. INFORMAL ACTION BY DIRECTORS. Any action required or
permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting, if a consent in writing to such action is signed by each
director and such written consent is filed with the minutes of proceedings of
the Board of Directors.
Section 10. VACANCIES. If for any reason any or all the directors cease to
be directors, such event shall not terminate the Corporation or affect these
Bylaws or the powers of the remaining directors hereunder (even if fewer than
three directors remain) . Any vacancy on the Board of Directors for any cause
other than an increase in the number of directors shall be filled by a majority
of the remaining directors, although such majority is less than a quorum. Any
vacancy in the number of directors created by an increase in the number of
directors may be filled by a majority vote of the entire Board of Directors. Any
individual so elected as director shall hold office for the unexpired term of
the director he is replacing.
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Section 11. COMPENSATION. Directors shall not receive any stated salary for
their services as directors but, by resolution of the Board of Directors, may
receive fixed sums per year and/or per meeting and/or per visit to real property
owned or to be acquired by the Corporation and for any service or activity they
performed or engaged in as directors. Directors may be reimbursed for expenses
of attendance, if any, at each annual, regular or special meeting of the Board
of Directors or of any committee thereof and for their expenses, if any, in
connection with each property visit and any other service or activity they
performed or engaged in as directors; but nothing herein contained shall be
construed to preclude any directors from serving the Corporation in any other
capacity and receiving compensation therefor.
Section 12. LOSS OF DEPOSITS. No director shall be liable for any loss
which may occur by reason of the failure of the bank, trust company, savings and
loan association, or other institution with whom moneys or stock have been
deposited.
Section 13. SURETY BONDS. Unless required by law, no director shall be
obligated to give any bond or surety or other security for the performance of
any of his duties.
Section 14. RELIANCE. Each director, officer, employee and agent of the
Corporation shall, in the performance of his duties with respect to the
Corporation, be fully justified and protected with regard to any act or failure
to act in reliance in good faith upon the books of account or other records of
the Corporation, upon an opinion of counsel or upon reports made to the
Corporation by any of its officers or employees or by the adviser, accountants,
appraisers or other experts or consultants selected by the Board of Directors or
officers of the Corporation, regardless of whether such counsel or expert may
also be a director.
Section 15. CERTAIN RIGHTS OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS.
The directors shall have no responsibility to devote their full time to the
affairs of the Corporation. Any director or officer, employee or agent of the
Corporation, in his personal capacity or in a capacity as an affiliate,
employee, or agent of any other person, or otherwise, may have business
interests and engage in business activities similar to or in addition to or in
competition with those of or relating to the Corporation.
ARTICLE IV
COMMITTEES
Section 1. NUMBER, TENURE AND QUALIFICATIONS. The Board of Directors may
appoint from among its members an Executive Committee, an Audit Committee, a
Compensation Committee and other committees, composed of two or more directors,
to serve at the pleasure of the Board of Directors.
Section 2. POWERS. The Board of Directors may delegate to committees
appointed under Section 1 of this Article any of the powers of the Board of
Directors, except as prohibited by law.
Section 3. MEETINGS. Notice of committee meetings shall be given in the
same manner as notice for special meetings of the Board of Directors. A majority
of the members of the committee shall constitute a quorum for the transaction of
business at any meeting of the committee. The act of a majority of the committee
members present at a meeting shall be the act of such committee. The Board
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of Directors may designate a chairman of any committee, and such chairman or any
two members of any committee may fix the time and place of its meeting unless
the Board shall otherwise provide. In the absence of any member of any such
committee, the members thereof present at any meeting, whether or not they
constitute a quorum, may appoint another director to act in the place of such
absent member. Each committee shall keep minutes of its proceedings.
Section 4. TELEPHONE MEETINGS. Members of a committee of the Board of
Directors may participate in a meeting by means of a conference telephone or
similar communications equipment if all persons participating in the meeting can
hear each other at the same time. Participation in a meeting by these means
shall constitute presence in person at the meeting.
Section 5. INFORMAL ACTION BY COMMITTEES. Any action required or permitted
to be taken at any meeting of a committee of the Board of Directors may be taken
without a meeting, if a consent in writing to such action is signed by each
member of the committee and such written consent is filed with the minutes of
proceedings of such committee.
Section 6. VACANCIES. Subject to the provisions hereof, the Board of
Directors shall have the power at any time to change the membership of any
committee, to fill all vacancies, to designate alternate members to replace any
absent or disqualified member or to dissolve any such committee.
ARTICLE V
OFFICERS
Section 1. GENERAL PROVISIONS. The officers of the Corporation shall
include a chief executive officer, a president, a secretary and a treasurer and
may include a chairman of the board (or one or more co-chairmen of the board), a
vice chairman of the board, one or more executive vice presidents, one or more
senior vice presidents, one or more vice presidents, a chief operating officer,
a chief financial officer, one or more assistant secretaries and one or more
assistant treasurers. In addition, the Board of Directors may from time to time
appoint such other officers with such powers and duties as they shall deem
necessary or desirable. The officers of the Corporation shall be elected
annually by the Board of Directors at the first meeting of the Board of
Directors held after each annual meeting of stockholders, except that the chief
executive officer may appoint one or more vice presidents, assistant secretaries
and assistant treasurers. If the election of officers shall not be held at such
meeting, such election shall be held as soon thereafter as may be convenient.
Each officer shall hold office until his successor is elected and qualifies or
until his death, resignation or removal in the manner hereinafter provided. Any
two or more offices except president and vice president may be held by the same
person. In its discretion, the Board of Directors may leave unfilled any office
except that of president, treasurer and secretary. Election of an officer or
agent shall not of itself create contract rights between the Corporation and
such officer or agent.
Section 2. REMOVAL AND RESIGNATION. Any officer or agent of the Corporation
may be removed by the Board of Directors if in its judgment the best interests
of the Corporation would be served thereby, but such removal shall be without
prejudice to the contract rights, if any, of the person so removed. Any officer
of the Corporation may resign at any time by giving written notice of his
resignation to the Board of Directors, the chairman of the board (or any
co-chairman of the board if more than one), the president or the secretary. Any
resignation shall take effect at any time subsequent to the time specified
therein or, if the time when it shall become effective is not specified therein,
immediately upon its receipt. The acceptance of a resignation shall not be
necessary to make it effective unless
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otherwise stated in the resignation. Such resignation shall be without prejudice
to the contract rights, if any, of the Corporation.
Section 3. VACANCIES. A vacancy in any office may be filled by the Board of
Directors for the balance of the term.
Section 4. CHIEF EXECUTIVE OFFICER. The Board of Directors may designate a
chief executive officer. In the absence of such designation, the chairman of the
board (or, if more than one, the co-chairmen of the board in the order
designated at the time of their election or, in the absence of any designation,
then in the order of their election) shall be the chief executive officer of the
Corporation. The chief executive officer shall have general responsibility for
implementation of the policies of the Corporation, as determined by the Board of
Directors, and for the management of the business and affairs of the
Corporation.
Section 5. CHIEF OPERATING OFFICER. The Board of Directors may designate a
chief operating officer. The chief operating officer shall have the
responsibilities and duties as set forth by the Board of Directors or the chief
executive officer.
Section 6. CHIEF FINANCIAL OFFICER. The Board of Directors may designate a
chief financial officer. The chief financial officer shall have the
responsibilities and duties as set forth by the Board of Directors or the chief
executive officer.
Section 7. CHAIRMAN OF THE BOARD. The Board of Directors shall designate a
chairman of the board (or one or more co-chairmen of the board) The chairman of
the board shall preside over the meetings of the Board of Directors and of the
stockholders at which he shall be present. If there be more than one, the
co-chairmen designated by the Board of Directors will perform such duties. The
chairman of the board shall perform such other duties as may be assigned to him
or them by the Board of Directors.
Section 8. CHAIRMAN OF THE BOARD EMERITUS. The directors may elect by a
majority vote, from time to time, a chairman of the board emeritus (or one or
more co-chairmen of the board emeritus) . The chairman of the board emeritus
shall be an honorary position and shall have no vote on any matter considered by
the directors. The chairman of the board emeritus shall serve for such term as
determined by the Board of Directors and may be removed by a majority vote of
the Board of Directors with or without cause.
Section 9. PRESIDENT. The president or chief executive officer, as the case
may be, shall in general supervise and control all of the business and affairs
of the Corporation. In the absence of a designation of a chief operating officer
by the Board of Directors, the president shall be the chief operating officer.
He may execute any deed, mortgage, bond, contract or other instrument, except in
cases where the execution thereof shall be expressly delegated by the Board of
Directors or by these Bylaws to some other officer or agent of the Corporation
or shall be required by law to be otherwise executed; and in general shall
perform all duties incident to the office of president and such other duties as
may be prescribed by the Board of Directors from time to time.
Section 10. VICE PRESIDENTS. In the absence of the president or in the
event of a vacancy in such office, the vice president (or in the event there be
more than one vice president, the vice presidents in the order designated at the
time of their election or, in the absence of any designation, then in the order
of their election) shall perform the duties of the president and when so acting
shall have all the powers of
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and be subject to all the restrictions upon the president; and shall perform
such other duties as from time to time may be assigned to him by the president
or by the Board of Directors. The Board of Directors may designate one or more
vice presidents as executive vice president or as vice president for particular
areas of responsibility.
Section 11. SECRETARY. The secretary shall (a) keep the minutes of the
proceedings of the stockholders, the Board of Directors and committees of the
Board of Directors in one or more books provided for that purpose; (b) see that
all notices are duly given in accordance with the provisions of these Bylaws or
as required by law; (c) be custodian of the corporate records and of the seal of
the Corporation; (d) keep a register of the post office address of each
stockholder which shall be furnished to the secretary by such stockholder; (e)
have general charge of the share transfer books of the Corporation; and (f) in
general perform such other duties as from time to time may be assigned to him by
the chief executive officer, the president or by the Board of Directors.
Section 12. TREASURER. The treasurer shall have the custody of the funds
and securities of the Corporation and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. In the absence of a designation of a chief financial officer by the
Board of Directors, the treasurer shall be the chief financial officer of the
Corporation.
The treasurer shall disburse the funds of the Corporation as may be ordered
by the Board of Directors, taking proper vouchers for such disbursements, and
shall render to the president and Board of Directors, at the regular meetings of
the Board of Directors or whenever it may so require, an account of all his
transactions as treasurer and of the financial condition of the Corporation.
If required by the Board of Directors, the treasurer shall give the
Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the Corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, moneys and other property of whatever kind in his possession or under
his control belonging to the Corporation.
Section 13. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The assistant
secretaries and assistant treasurers, in general, shall perform such duties as
shall be assigned to them by the secretary or treasurer, respectively, or by the
president or the Board of Directors. The assistant treasurers shall, if required
by the Board of Directors, give bonds for the faithful performance of their
duties in such sums and with such surety or sureties as shall be satisfactory to
the Board of Directors.
Section 14. SALARIES. The salaries and other compensation of the officers
shall be fixed from time to time by the Board of Directors and no officer shall
be prevented from receiving such salary or other compensation by reason of the
fact that he is also a director.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. CONTRACTS. The Board of Directors may authorize any officer or
agent to enter into any contract or to execute and deliver any instrument in the
name of and on behalf of the Corporation and such authority may be general or
confined to specific instances. Any agreement, deed,
10
<PAGE>
mortgage, lease or other document executed by one or more of the directors or by
an authorized person shall be valid and binding upon the Board of Directors and
upon the Corporation when authorized or ratified by action of the Board of
Directors.
Section 2. CHECKS AND DRAFTS. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the Corporation shall be signed by such officer or agent of the Corporation in
such manner as shall from time to time be determined by the Board of Directors.
Section 3. DEPOSITS. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies or other depositories as the Board of Directors may
designate.
ARTICLE VII
STOCK
Section 1. CERTIFICATES. Each stockholder shall be entitled to a
certificate or certificates which shall represent and certify the number of
shares of each class of stock held by him in the Corporation. Each certificate
shall be signed by the chief executive officer, the president or a vice
president and countersigned by the secretary or an assistant secretary or the
treasurer or an assistant treasurer and may be sealed with the seal, if any, of
the Corporation. The signatures may be either manual or facsimile. Certificates
shall be consecutively numbered; and if the Corporation shall, from time to
time, issue several classes of stock, each class may have its own number series.
A certificate is valid and may be issued whether or not an officer who signed it
is still an officer when it is issued. Each certificate representing shares
which are restricted as to their transferability or voting powers, which are
preferred or limited as to their dividends or as to their allocable portion of
the assets upon liquidation or which are redeemable at the option of the
Corporation, shall have a statement of such restriction, limitation, preference
or redemption provision, or a summary thereof, plainly stated on the
certificate. If the Corporation has authority to issue stock of more than one
class, the certificate shall contain on the face or back a full statement or
summary of the designations and any preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends and other
distributions, qualifications and terms and conditions of redemption of each
class of stock and, if the Corporation is authorized to issue any preferred or
special class in series, the differences in the relative rights and preferences
between the shares of each series to the extent they have been set and the
authority of the Board of Directors to set the relative rights and preferences
of subsequent series. In lieu of such statement or summary, the certificate may
state that the Corporation will furnish a full statement of such information to
any stockholder upon request and without charge. If any class of stock is
restricted by the Corporation as to transferability, the certificate shall
contain a full statement of the restriction or state that the Corporation will
furnish information about the restrictions to the stockholder on request and
without charge.
Section 2. TRANSFERS. Upon surrender to the Corporation or the transfer
agent of the Corporation of a stock certificate duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, the
Corporation shall issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
The Corporation shall be entitled to treat the holder of record of any
share of stock as the holder in fact thereof and, accordingly, shall not be
bound to recognize any equitable or other claim to or interest in such share or
on the part of any other person, whether or not it shall have express or other
11
<PAGE>
notice thereof, except as otherwise provided by the laws of the State of
Maryland.
Notwithstanding the foregoing, transfers of shares of any class of stock
will be subject in all respects to the charter of the Corporation and all of the
terms and conditions contained therein.
Section 3. REPLACEMENT CERTIFICATE. Any officer designated by the Board of
Directors may direct a new certificate to be issued in place of any certificate
previously issued by the Corporation alleged to have been lost, stolen or
destroyed upon the making of an affidavit of that fact by the person claiming
the certificate to be lost, stolen or destroyed. When authorizing the issuance
of a new certificate, an officer designated by the Board of Directors may, in
his discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or the owner's legal
representative to advertise the same in such manner as he shall require and/or
to give bond, with sufficient surety, to the Corporation to indemnify it against
any loss or claim which may arise as a result of the issuance of a new
certificate.
Section 4. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. The Board of
Directors may set, in advance, a record date for the purpose of determining
stockholders entitled to notice of or to vote at any meeting of stockholders or
determining stockholders entitled to receive payment of any dividend or the
allotment of any other rights, or in order to make a determination of
stockholders for any other proper purpose. Such date, in any case, shall not be
prior to the close of business on the day the record date is fixed and shall be
not more than 90 days and, in the case of a meeting of stockholders, not less
than ten days, before the date on which the meeting or particular action
requiring such determination of stockholders of record is to be held or taken.
In lieu of fixing a record date, the Board of Directors may provide that
the stock transfer books shall be closed for a stated period but not longer than
20 days. If the stock transfer books are closed for the purpose of determining
stockholders entitled to notice of or to vote at a meeting of stockholders, such
books shall be closed for at least ten days before the date of such meeting.
If no record date is fixed and the stock transfer books are not closed for
the determination of stockholders, (a) the record date for the determination of
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day on which the notice of meeting is mailed
or the 30th day before the meeting, whichever is the closer date to the meeting;
and (b) the record date for the determination of stockholders entitled to
receive payment of a dividend or an allotment of any other rights shall be the
close of business on the day on which the resolution of the directors, declaring
the dividend or allotment of rights, is adopted.
When a determination of stockholders entitled to vote at any meeting of
stockholders has been made as provided in this section, such determination shall
apply to any adjournment thereof, except when (i) the determination has been
made through the closing of the transfer books and the stated period of closing
has expired or (ii) the meeting is adjourned to a date more than 120 days after
the record date fixed for the original meeting, in either of which case a new
record date shall be determined as set forth herein.
Section 5. STOCK LEDGER. The Corporation shall maintain at its principal
office or at the office of its counsel, accountants or transfer agent, an
original or duplicate share ledger containing the name and address of each
stockholder and the number of shares of each class held by such stockholder.
Section 6. FRACTIONAL STOCK; ISSUANCE OF UNITS. The Board of Directors may
issue
12
<PAGE>
fractional stock or provide for the issuance of scrip, all on such terms and
under such conditions as they may determine. Notwithstanding any other provision
of the charter or these Bylaws, the Board of Directors may issue units
consisting of different securities of the Corporation. Any security issued in a
unit shall have the same characteristics as any identical securities issued by
the Corporation, except that the Board of Directors may provide that for a
specified period securities of the Corporation issued in such unit may be
transferred on the books of the Corporation only in such unit.
ARTICLE VIII
ACCOUNTING YEAR
The Board of Directors shall have the power, from time to time, to fix the
fiscal year of the Corporation by a duly adopted resolution.
ARTICLE IX
DISTRIBUTIONS
Section 1. AUTHORIZATION. Dividends and other distributions upon the stock
of the Corporation may be authorized and declared by the Board of Directors,
subject to the provisions of law and the charter of the Corporation. Dividends
and other distributions may be paid in cash, property or stock of the
Corporation, subject to the provisions of law and the charter of the
Corporation.
Section 2. CONTINGENCIES. Before payment of any dividends or other
distributions, there may be set aside out of any assets of the Corporation
available for dividends or other distributions such sum or sums as the Board of
Directors may from time to time, in its absolute discretion, think proper as a
reserve fund for contingencies, for equalizing dividends or other distributions,
for repairing or maintaining any property of the Corporation or for such other
purpose as the Board of Directors shall determine to be in the best interest of
the Corporation, and the Board of Directors may modify or abolish any such
reserve in the manner in which it was created.
ARTICLE X
INVESTMENT POLICY
Subject to the provisions of the charter of the Corporation, the Board of
Directors may from time to time adopt, amend, revise or terminate any policy or
policies with respect to investments by the Corporation as it shall deem
appropriate in its sole discretion.
ARTICLE XI
SEAL
Section 1. SEAL. The Board of Directors may authorize the adoption of a
seal by the Corporation. The seal shall contain the name of the Corporation and
the year of its incorporation and the words "Corporate Seal Maryland." The Board
of Directors may authorize one or more duplicate seals and provide for the
custody thereof.
13
<PAGE>
Section 2. AFFIXING SEAL. Whenever the Corporation is permitted or required
to affix its seal to a document, it shall be sufficient to meet the requirements
of any law, rule or regulation relating to a seal to place the word "(SEAL)"
adjacent to the signature of the person authorized to execute the document on
behalf of the Corporation.
ARTICLE XII
INDEMNIFICATION AND ADVANCES FOR EXPENSES
To the maximum extent permitted by Maryland law in effect from time to
time, the Corporation, without requiring a preliminary determination of the
ultimate entitlement to indemnification, shall indemnify and shall pay or
reimburse reasonable expenses in advance of final disposition of a proceeding to
(a) any individual who is a present or former director or officer of the
Corporation and who is made a party to the proceeding by reason of his service
in that capacity or (b) any individual who, while a director of the Corporation
and at the request of the Corporation, serves or has served another corporation,
partnership, joint venture, trust, employee benefit plan or any other enterprise
as a director, officer, partner or trustee of such corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise and who is made
a party to the proceeding by reason of his service in that capacity. The
Corporation may, with the approval of its Board of Directors, provide such
indemnification and advance for expenses to a person who served a predecessor of
the Corporation in any of the capacities described in (a) or (b) above and to
any employee or agent of the Corporation or a predecessor of the Corporation.
Neither the amendment nor repeal of this Article, nor the adoption or
amendment of any other provision of the Bylaws or charter of the Corporation
inconsistent with this Article, shall apply to or affect in any respect the
applicability of the preceding paragraph with respect to any act or failure to
act which occurred prior to such amendment, repeal or adoption.
ARTICLE XIII
WAIVER OF NOTICE
Whenever any notice is required to be given pursuant to the charter of the
Corporation or these Bylaws or pursuant to applicable law, a waiver thereof in
writing, signed by the person or persons entitled to such notice, whether before
or after the time stated therein, shall be deemed equivalent to the giving of
such notice. Neither the business to be transacted at nor the purpose of any
meeting need be set forth in the waiver of notice, unless specifically required
by statute. The attendance of any person at any meeting shall constitute a
waiver of notice of such meeting, except where such person attends a meeting for
the express purpose of objecting to the transaction of any business on the
ground that the meeting is not lawfully called or convened.
ARTICLE XIV
AMENDMENT OF BYLAWS
Subject to the rights of stockholders provided in Section 14 of Article II
of these Bylaws, the Board of Directors shall have the exclusive power to adopt,
alter or repeal any provision of these Bylaws and to make new Bylaws.
14
<PAGE>
Mr. Philip Pilevsky
Philips International
417 Fifth Avenue
New York, New York 10016
______, 1997
Philips International Realty
417 Fifth Avenue
New York, New York 10016
Attention: Louis J. Petra,
President
Re: SUBSCRIPTION AGREEMENT
Ladies and Gentlemen:
The undersigned, Philip Pilevsky (hereinafter referred to as the
"Subscriber"), hereby subscribes for and agrees to acquire on the terms and
conditions set forth below, 10,660 shares of Common Stock, $.01 par value per
share (the "Common Stock" or the "Shares"), of Philips International Realty
Corp., a Maryland corporation (the "Corporation"), for a purchase price of
$50.00 per share. The aggregate purchase price of $533,000.00 shall be paid in
immediately available funds to the Corporation upon the closing of the
transaction.
1. Representations and Warranties of the Subscriber. The Subscriber, by
signing this Subscription Agreement, hereby represents and warrants to the
Corporation as follows, such representations and warranties to survive receipt
of the Shares:
(a) The Subscriber has the legal capacity to enter into and perform this
Agreement.
(b) The Corporation has provided the Subscriber with (i) a copy of the
Amended and Restated Articles of Incorporation of the Corporation (the "Articles
of Incorporation"), (ii) a copy of the Amended and Restated By-laws of the
Corporation (the "By-laws") and (iii) certain other written materials, including
the Proxy Statement/Prospectus of National Properties Investment Trust and the
Corporation, dated _________, 1997 (collectively, the "Research Materials"). The
Subscriber has received and carefully reviewed the Research Materials in
connection with the issuance of its Shares.
(c) The Subscriber hereby acknowledges that, except for the documents
described in clauses (i) through (iii) of paragraph (b) above, which the
Corporation has
<PAGE>
provided to it and has represented to be complete and accurate,
no representation has been made to it regarding the completeness or accuracy of
any written materials provided by the Corporation relating to the Corporation,
the issuance of the Shares and any other matters relating to the Subscriber's
investment in the Corporation;
(d) The Corporation has answered all inquiries that the Subscriber has put
to it relating to the Research Materials and the Subscriber has been afforded
the opportunity to obtain any additional information, to the extent the
Corporation possessed such information or was able to acquire it without
unreasonable effort or expense, necessary (i) to verify the accuracy of the
information set forth in the Research Materials and (ii) to evaluate the merits
and risks of purchasing the Shares;
(e) The Subscriber has reviewed and understands the various risks of an
investment in the Shares and in making such investment has relied upon such
independent investigation and evaluation of the Research Materials as it has
deemed necessary to make an informed decision to purchase the Shares;
(f) The Subscriber represents that it is an "accredited investor" as such
term is defined in Regulation D under the Securities Act of 1933, as amended
(the "Act");
(g) The Subscriber understands and acknowledges that: it may not be able to
resell readily any of the Shares purchased hereunder, because (i) there may be
no public market for any of such Shares; (ii) none of such Shares has been
registered under the Act and, therefore, such Shares can only be resold if they
are subsequently registered under the Act or an exemption from such registration
is available; and (iii) the Corporation has not agreed to register any of such
Shares for resale under the Act. No aspect of this Agreement has been reviewed
by the Securities and Exchange Commission or the securities regulatory
authorities of any state;
(h) The Subscriber is acquiring the Shares for its own account and not on
behalf of other persons, for investment purposes, and not with a view to
distribution or resale to others; the Subscriber is not participating, directly
or indirectly, in an underwriting of any such distribution or other transfer of
the Shares; and the Subscriber understands that the Corporation is relying upon
the truth and accuracy of this representation and warranty; and
(i) The Subscriber acknowledges that the statements and representations
made by it in this Subscription Agreement have been relied upon by the
Corporation in entering into this Agreement.
2. Representations and Warranties of the Corporation. The Corporation
represents and warrants to the Subscriber that, as of the date hereof:
(a) The Corporation is duly organized and existing under the laws of
Maryland and is in good standing under such laws. The Corporation has all
requisite
2
<PAGE>
power and authority to engage in its business. The copy of the Articles of
Incorporation and By-Laws provided to Subscriber constitute true, correct and
complete versions of the Articles of Incorporation and By-Laws as of the date
hereof;
(b) The Corporation has all requisite power and authority to execute and
deliver this Subscription Agreement and to carry out and perform its obligations
under the terms thereof and hereof; and
(c) All actions on the part of the directors and the officers of the
Corporation necessary for the authorization, execution and delivery of this
Subscription Agreement have been taken. This Agreement, when duly executed and
delivered will represent the legal, valid and binding obligation of the
Corporation, enforceable in accordance with its terms, subject to the effects of
any applicable bankruptcy and insolvency laws and general principles of equity.
3. Miscellaneous. (a) All notices or other communications given or made
hereunder shall be in writing and shall be delivered by hand or by overnight
courier or mailed by registered or certified mail, postage prepaid, to the
Subscriber or to the Corporation at the respective addresses set forth herein,
and shall be deemed to have been given or delivered on the date of the by-hand
delivery, the day after receipt by such courier or four (4) days after such
mailing.
(b) This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
(c) This Agreement constitutes the entire agreement between the Subscriber
and the Corporation with respect to the subject matter hereof, and may be
amended only by a writing executed by the party to be bound thereby. Neither
this Agreement nor any of the Subscriber's rights hereunder may be transferred
or otherwise assigned hereunder.
(d) Unless this Agreement ceases to be effective, the Subscriber's
obligations hereunder shall not be terminated upon the occurrence of any event
(whether by operation of law or otherwise), and this Agreement (including the
representations and warranties contained herein) shall be binding upon the
Subscriber's successors, legal representatives, heirs and distributees.
(e) If requested at any time by the Corporation, the Subscriber will
promptly supply such information regarding itself as may be necessary for
inclusion in any registration, qualification, application or other filing to be
made at any time hereafter on the Corporation's behalf. The Subscriber shall
furnish such information to the Corporation as the Corporation shall deem
necessary to satisfy itself that the Subscriber may legally enter into this
Subscription Agreement.
3
<PAGE>
(f) This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
4. Compliance with Applicable Law. The Subscriber understands and agrees
that it will not sell, assign, transfer, pledge or otherwise dispose of any of
the Shares except in compliance with all conditions on transfer imposed by the
Articles of Incorporation, the Act, and "Blue Sky" or securities laws of any
state. The Subscriber further agrees that it will be fully responsible for
compliance with all such conditions and that the certificates representing the
Shares will carry a legend restricting transfer.
5. Execution of Other Documents. The Subscriber agrees that it will execute
such other documents as may be necessary to complete the transactions
contemplated hereby, and it agrees to be bound by all of the terms and
provisions of any such documents and to perform all of its obligations
thereunder with respect to the Shares being purchased.
6. No Commission. The Subscriber represents and warrants that no sales
commission is due to any person in connection with its purchase of the Shares.
4
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Subscription Agreement on
the date set forth on the signature page hereto.
-------------------------
Philip Pilevsky
Agreement accepted as
of _____, 1997
PHILIPS INTERNATIONAL REALTY CORP.
By:_________________________________
Name:
Title:
5
<PAGE>
Annex to Subscription Agreement
Class of Total Purchase
Shares Number of Shares Price Per Share Price
- ------ ---------------- --------------- -----
Common 10,660 X $50.00 = $533,000.00
Stock
Name & Address of Subscriber:
Philip Pilevsky
c/o Philips International
417 Fifth Avenue
New York, New York 10016
6
<PAGE>
Temporary Certificate - Exchangeable for Definitive Engraved Certificate
When Ready for Delivery
NUMBER SHARES
[LOGO]
PHILIPS INTERNATIONAL REALTY CORP.
COMMON STOCK
INCORPORATED UNDER THE LAWS SEE REVERSE FOR IMPORTANT
OF THE STATE OF MARYLAND NOTICE ON TRANSFER
RESTRICTIONS AND OTHER
INFORMATION
CUSIP
---------------------
THIS CERTIFIES THAT
-------------------------------------------------------
IS THE RECORD HOLDER OF
----------------------------------------------------
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK, $.01 PAR VALUE, OF
PHILIPS INTERNATIONAL REALTY CORP.
(the "Corporation") transferable on the books of the Corporation by the holder
hereof in person or by his duly authorized attorney, upon surrender of this
Certificate properly endorsed. This Certificate and the shares represented
hereby are issued and shall be held subject to all of the provisions of the
charter of the Corporation (the "Charter") and the Bylaws of the Corporation and
any amendments thereto. This Certificate is not valid unless countersigned and
registered by the Transfer Agent and Registrar.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
executed on behalf of its duly authorized officers.
Dated:
PHILIPS INTERNATIONAL REALTY CORP.
/s/ Sheila Levine INCORPORATED /s/ Philip Pilevsky
Secretary 1997 Chairman
MARYLAND
COUNTERSIGNED AND REGISTERED:
BOSTON EQUISERVE
TRANSFER AGENT AND REGISTRAR
BY /S/ [Illegible]
AUTHORIZED SIGNATURE
<PAGE>
The Corporation is authorized to issue stock of more than one class, consisting
of shares of Common Stock and one or more classes of shares of Preferred Stock
or any class or series of stock other than Common Stock. The Board of Directors
is authorized to determine the preferences, limitations and relative rights of
shares of Preferred Stock before the issuance of any shares of Preferred Stock.
The Corporation will furnish, without charge, to any stockholder making a
written request therefor, a copy of the charter of the Corporation and a written
statement of the designations, relative rights, preferences and limitations
applicable to each such class of stock. Requests for such written statement may
be directed to the Corporate Secretary at the Corporation's principal office.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON
TRANSFER FOR THE PURPOSE OF THE CORPORATION'S MAINTENANCE OF ITS STATUS AS A
REAL ESTATE INVESTMENT TRUST (A "REIT") UNDER THE INTERNAL REVENUE CODE OF 1986,
AS AMENDED. EXCEPT AS OTHERWISE PROVIDED PURSUANT TO THE CHARTER OF THE
CORPORATION, NO PERSON MAY BENEFICIALLY OWN SHARES OF EQUITY STOCK IN EXCESS OF
6.5% (OR SUCH GREATER PERCENTAGE AS MAY BE DETERMINED BY THE BOARD OF DIRECTORS
OF THE CORPORATION) OF THE AGGREGATE NUMBER OR VALUE OF THE OUTSTANDING SHARES
OF EQUITY STOCK OF THE CORPORATION. ANY PERSON WHO ACQUIRES OR ATTEMPTS TO
ACQUIRE SHARES OF EQUITY STOCK IN EXCESS OF THE AFOREMENTIONED LIMITATION, OR
ANY PERSON WHO IS OR ATTEMPTS TO BECOME A TRANSFEREE SUCH THAT EXCESS STOCK
RESULTS UNDER THE PROVISIONS OF THE CHARTER, SHALL IMMEDIATELY GIVE WRITTEN
NOTICE OR, IN THE EVENT OF A PROPOSED OR ATTEMPTED TRANSFER, GIVE AT LEAST 15
DAYS PRIOR WRITTEN NOTICE TO THE CORPORATION OF SUCH EVENT AND SHALL PROVIDE TO
THE CORPORATION SUCH OTHER INFORMATION AS IT MAY REQUEST IN ORDER TO DETERMINE
THE EFFECT ON ANY SUCH TRANSFER ON THE CORPORATION'S STATUS AS A REIT. ALL
CAPITALIZED TERMS IN THIS LEGEND HAVE THE MEANINGS DEFINED IN THE CHARTER OF THE
CORPORATION, A COPY OF WHICH, INCLUDING THE RESTRICTIONS ON TRANSFER, WILL BE
SENT TO ANY STOCKHOLDER ON REQUEST AND WITHOUT CHARGE. IF THE RESTRICTIONS ON
TRANSFER ARE VIOLATED, THE SECURITIES REPRESENTED HEREBY WILL BE TREATED AS
SHARES OF EXCESS STOCK THAT WILL BE TRANSFERRED, BY OPERATION OF LAW, TO THE
TRUSTEE OF A TRUST FOR THE EXCLUSIVE BENEFIT OF ONE OR MORE CHARITABLE
ORGANIZATIONS.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according the applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as tenants in
common
COM PROP - as community property
UNIF MIN ACT - Custodian
---------- -----------
(Cust) (Minor)
under Uniform Gifts to Minors Act
------------------------
(State)
UNIF TRF MIN ACT - Custodian (until age )
---------- ---------
(Cust)
under Uniform Transfers to Minors Act
--------
(Minor)
---------------------
(State)
Additional abbreviations may also be used though not in the above list.
<PAGE>
FOR VALUE RECEIVED, ------------------ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- -------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- -------------------------------------------------------------------------------
- ----------------------------------------------------------------------- Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- -------------------------------------------------------------------- Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated:
-----------------------------------
X
----------------------------------
X
----------------------------------
NOTICE: THE SIGNATURES TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME (S)
AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE
Signature(s) Guaranteed WHATEVER.
By
-----------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED
BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS
WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEED MEDALLION
PROGRAM), PURSUANT TO S.E.C. RULE
17Ad-15.
<PAGE>
[Letterhead of Ballard Spahr Andrews & Ingersoll]
November __, 1997
Philips International Realty Corp.
417 Fifth Avenue
New York, New York 10016
Re: Philips International Realty Corp., a Maryland corporation, (the
"Company") - Registration Statement on Form S-4 (Registration No.
333-xxxxx) pertaining to Thirty-Two Thousand (32,000) shares (the
"Shares") of common stock, par value one cent ($.01) per share
----------------------------------------------------------------
Ladies and Gentlemen:
In connection with the registration of the Shares under the Securities Act
of 1933 as amended (the "Act"), by the Company on Form S-4 filed with the
Securities and Exchange Commission (the "Commission") on or about November __,
1997 (the "Registration Statement"), you have requested our opinion with respect
to the matters set forth below.
We have acted as special Maryland corporate counsel for the Company in
connection with the matters described herein. In our capacity as special
Maryland corporate counsel to the Company, we have reviewed and are familiar
with proceedings taken and proposed to be taken by the Company in connection
with the authorization, issuance and sale of the Shares, and for purposes of
this opinion have assumed such proceedings will be timely completed in the
manner presently proposed. In addition, we have relied upon certificates and
advice from the officers of the Company upon which we believe we are justified
in relying and on various certificates from, and documents recorded with, the
State Department of Assessments and Taxation of Maryland (the "SDAT"), including
the charter of the Corporation (the "Charter"), consisting of Articles of
Incorporation filed with the SDAT on July 16, 1997 and Articles of Amendment and
Restatement filed with the SDAT on November __, 1997. We have also examined the
Amended and Restated Bylaws of the Company adopted as of November __, 1997 (the
"Bylaws") and
<PAGE>
Philips International Realty Corp.
November __, 1997
Page 2
Resolutions of the Board of Directors of the Company adopted on or
before the date hereof and in full force and effect on the date hereof; and such
laws, records, documents, certificates, opinions and instruments as we deem
necessary to render this opinion.
We have assumed the genuineness of all signatures and the authenticity of
all documents submitted to us as originals and the conformity to the originals
of all documents submitted to us as certified, photostatic or conformed copies.
In addition, we have assumed that each person executing any instrument, document
or certificate referred to herein on behalf of any party is duly authorized to
do so. We have also assumed that none of the Shares will be issued or
transferred in violation of the provisions of Article VI of the Charter entitled
"Restrictions on Transfer, Acquisition and Redemption of Shares".
Based on the foregoing, and subject to the assumptions and qualifications
set forth herein, it is our opinion that, as of the date of this letter, the
Shares have been duly authorized by all necessary corporate action on the part
of the Company, and the Shares will, upon issuance and delivery in accordance
with and subject to the terms and conditions described in the Registration
Statement against payment of consideration therefore as determined by the Board
of Directors of the Company or a committee thereof, be validly issued, fully
paid and nonassessable.
We consent to your filing this opinion as an exhibit to the Registration
Statement, and further consent to the filing of this opinion as an exhibit to
the applications to securities commissioners for the various states of the
United States for registration of the Shares. We also consent to the
identification of our firm as Maryland counsel to the Company in the section of
the Prospectus (which is part of the Registration Statement) entitled "Legal
Matters."
The opinions expressed herein are limited to the laws of the State of
Maryland and we express no opinion concerning any laws other than the laws of
the State of Maryland. Furthermore, the opinions presented in this letter are
limited to the matters specifically set forth herein and no other opinion shall
be inferred beyond the matters expressly stated.
Very truly yours,
<PAGE>
____________ ____, 1997
Philips International Realty Corp.
417 Fifth Avenue
New York, NY 10016
Ladies and Gentlemen:
We have acted as tax counsel to Philips International Realty Corp. (the
"Company") in connection with the proposed transactions described in the Proxy
Statement/Prospectus included as part of that certain Registration Statement on
Form S-4 filed with the Securities and Exchange Commission on _________ ___,
1997, and as amended through the date hereof (the "Registration Statement"). In
connection therewith, you have requested our opinion with respect to the
qualification of the Company as a real estate investment trust ("REIT") under
the Internal Revenue Code of 1986, as amended (the "Code"), and the accuracy of
the discussion included in the Registration Statement under the heading "Federal
Income Tax Considerations."
We hereby consent to the use of our opinion as an Exhibit to the
Registration Statement and to any and all references to our firm in the Proxy
Statement/Prospectus that is a part of the Registration Statement, which Proxy
Statement/Prospectus will be delivered to prospective purchasers of shares of
Common Stock in the Company, and we hereby consent to such use of our opinion.
All defined terms used herein shall have the same meaning as used in the
Registration Statement.
<PAGE>
Philips International Realty Corp.
__________ ___, 1997
Page 2
FACTS AND ASSUMPTIONS RELIED UPON
In rendering the opinions expressed herein, we have examined such documents
as we have deemed appropriate, including (but not limited to) the following:
1. The Proxy Statement/Prospectus and the Registration Statement (including
the exhibits thereto);
2. The Partnership Agreement of the Operating Partnership;
3. The Agreements of Limited Partnership of the Holding Partnerships;
4. The Articles of Incorporation and Bylaws of the Company as in effect on
the date hereof;
5. The Contribution and Exchange Agreement; all as set forth as exhibits to
the Registration Statement, and such other records, certificates and documents
as we have deemed necessary or appropriate for purposes of rendering opinions
set forth herein.
In our examination of documents, we have assumed, with your consent, that
all documents submitted to us are authentic originals, or if submitted as
photocopies, that they faithfully reproduce the originals thereof, that all such
documents have been or will be duly executed to the extent required, that all
representations and statements set forth in such documents are true and correct,
and that all obligations imposed by any such documents on the parties thereto
have been or will be performed or satisfied in accordance with their terms.
We have reviewed the descriptions set forth in the Registration Statement
of the proposed investments, activities, operations and governance of the
Company, the Operating Partnership and the Holding Partnerships. We have relied
upon the facts set forth in the Registration Statement, and we assume that the
Company, the Operating Partnership and the Holding Partnerships will each be
operated in accordance with (i) applicable laws and the terms and conditions of
applicable documents and (ii) the statements and representations made in the
<PAGE>
Philips International Realty Corp.
__________ ___, 1997
Page 3
Registration Statement. In addition, we are relying upon certain representations
from the Company, the Operating Partnership and the Holding Partnerships that
such entities and will be owned and operated in such a manner that the Company
will satisfy the requirements for qualification as a REIT under the Code.
The foregoing representations are all contained in a letter to us dated as
of the date hereof (the "Certificate") . No facts have come to our attention
that are inconsistent with the facts and representations set forth in the
Certificate. To the extent that any of the written representations provided to
us in the Certificate are with respect to matters set forth in the Code or
Treasury Regulations, we have reviewed with the individual making such
representations the relevant provisions of the Code, applicable Treasury
Regulations and published administrative interpretations thereof.
OPINIONS
Based upon and subject to the foregoing, we are of the following opinions:
(1) Assuming that the actions contemplated in the Registration Statement
are completed in a timely fashion and that a timely election for REIT status is
made, the Company will be organized in conformity with the requirements for
qualification as a REIT under the Code and its proposed method of operation will
enable it to qualify as a REIT commencing with the taxable year ending December
31, 1998 (or the short taxable year ending December 31, 1997, if a timely
election is made with respect thereto); and
(2) The discussion contained in that portion of the Registration Statement
under the caption "Federal Income Tax Considerations" fairly summarizes the
federal income tax considerations that are likely to be material to a holder of
Common Stock.
The opinions expressed herein are based upon the Code, the U.S. Treasury
Regulations promulgated thereunder, current administrative positions of the U.S.
Internal Revenue Service, and existing judicial decisions, any of which could be
changed
<PAGE>
Philips International Realty Corp.
__________ ___, 1997
Page 4
any time, possibly on a retroactive basis. Any such changes could adversely
affect the opinions rendered herein and the tax consequences to the Company and
the investors in the Common Stock. In addition, as noted above, our opinions are
based solely on the documents that we have examined, the additional information
that we have obtained, and the representations that are being made to us, and
cannot be relied upon if any of the facts contained in such documents or in such
additional information are, or later become, inaccurate or if any of the
representations made to us are, or later become, inaccurate.
We express no opinion with respect to the transactions described herein and
in the Registration Statement other than those expressly set forth herein.
Furthermore, the Company's qualification as a REIT will depend on the Company
making a timely election for REIT status and meeting, in its actual operations,
the applicable asset composition, source of income, shareholder diversification,
distribution, recordkeeping and other requirements of the Code necessary for a
corporation to qualify as a REIT. We will not review these operations, and no
assurance can be given that the actual operations of the Company and its
affiliates will meet these requirements or the representations made to us with
respect thereto.
Finally, our opinion is limited to the tax matters specifically covered
hereby, and we have not been asked to address, nor have we addressed, any other
tax consequences of an investment in the Common Stock.
Very truly yours,
<PAGE>
As of December __, 1997
National Properties Investment Trust
32 Hanson Road
Canton Center, CT 06020
Ladies and Gentlemen:
We have acted as tax counsel to National Properties Investment Trust
(the "Company"), a Massachusetts Business Trust organized under the laws of the
Commonwealth of Massachusetts, in connection with the preparation of a joint
proxy statement and prospectus (the "Proxy Statement/Prospectus") furnished to
holders of Company shares (the "Company Shares") and filed with the Securities
and Exchange Commission on December __, 1997 pursuant to Section 14(a) of the
Securities Exchange Act of 1934. Capitalized terms used herein and not otherwise
defined have the same meaning as in the Proxy Statement/Prospectus.
The Proxy Statement/Prospectus relates to a proposed transaction (the
"Transaction") consisting of a sale of the Company's sole real estate asset to
Philips International Realty Corp. ("Philips"), a Maryland corporation, in
exchange for shares of Philips $.01 value per share common stock (the "Philips
Common Stock"), and the distribution of a portion of such stock to the Company
Shareholders, all as described in the Proxy Statement/Prospectus. You have
requested our opinion regarding the material anticipated federal income tax
consequences of the Transaction to a U.S. holder of the Company Shares.
In rendering our opinion, we have reviewed the Proxy Statement/
Prospectus and such other materials as we have deemed necessary or appropriate
as a basis for our opinion. For purposes of this opinion, we have assumed that
the Formation Transactions will be completed at the time and in the manner
contemplated in the Proxy Statement/Prospectus, as it is currently drafted.
With your permission, we have also assumed, without limitation and
without independent investigation of any of the facts necessary to reach such
conclusions: (i) that Philips will elect to be taxable as a real estate
investment trust pursuant to the provisions of Section 856 et seq. of the
Internal Revenue Code of 1986, as amended (the "Code") and will qualify as
<PAGE>
National Properties Investment Trust
As of December __, 1997
Page 2
such a real estate investment trust as of the date of the Transaction; (ii) that
the Company qualifies as such a real estate investment trust under the Code
through the date hereof and for all prior open taxable years and will continue
to so qualify at all times after the Transaction through the end of its taxable
year ending December, 1998; and (iii) that the Company will conduct its
operations so as not to have any taxable income or earnings and profits for its
taxable year ending December, 1998.
For the reasons set forth in the discussion of "Certain Federal Income
Tax Consequences" in the Proxy Statement/Prospectus, we have also assumed that
the exchange of the Company's real estate asset for Philips Common Stock will
not qualify under the non-recognition provisions of Code Section 351 or under
the corporate reorganization provisions set forth in Code Section 368(a), and
that the Company will accordingly recognize gain or loss on the transfer of its
real estate asset to Philips in exchange for Philips Common Stock. We also note
in that regard that the Company and Philips have agreed to treat the Formation
Transactions as taxable for federal income tax purposes. We have been advised by
the Company that the resulting gain will be approximately $1.1 million and that
all such gain will be offset for federal income tax purposes by carry-over net
operating losses of the Company.
In rendering our opinion, we have considered the applicable provisions
of the Code, Treasury regulations, pertinent judicial authorities, rulings of
the Internal Revenue Service, and such other authorities as we have considered
relevant. Based upon and subject to the foregoing, it is our opinion that the
U.S. federal income tax consequences materially relevant to the U.S. holders of
Company Shares under current law are as follows:
1. If the planned distribution in 1997 of 3,744 shares of Philips
Common Stock to the Company shareholders is effected on or before December 31,
1997, each shareholder of the Company will recognize gain for federal tax
purposes in an amount equal to the fair market value of the shares of Phillip
Common Stock received by such shareholder as a part of such distribution.
2. The proposed distribution of 20,256 shares of Philips Common Stock
in 1998 will be considered a reduction in basis of the Company Shares held by
each holder and will be taxable as capital gain to a shareholder only to the
extent that the amount of such distribution received by a shareholder exceeds
such shareholder's basis in the Company Shares held by such shareholder.
<PAGE>
National Properties Investment Trust
As of December __, 1997
Page 3.
3. The income tax basis of the Philips Common Stock received by a
Company shareholder in the Formation Transactions will be equal to the fair
market value of such Philips Common Stock.
4. The holding period of such Philips Common Stock received by a
Company shareholder will begin as of the date such Philips Common Stock is
received by the shareholder.
5. Shareholders will continue to hold their Company Shares on the same
tax basis as prior to the Formation Transactions, subject to any reduction in
basis as contemplated by (2) above.
This opinion is being furnished in connection with the preparation of
the Proxy Statement/Prospectus. We express no opinion with respect to state,
local or foreign income and other tax laws that may be applicable to the
Transaction, nor do we express any opinion with respect to the specific
consequences of any purchase, ownership or disposition of the Company Shares or
Philips Common Stock by any U.S. holder to the extent that such consequences are
affected by specific facts or circumstances that result in treatment that
differs from that described above and in the Proxy Statement/Prospectus. Our
opinion, which is not binding on the Internal Revenue Service, is expressed as
of the date hereof based on existing statutory, regulatory and judicial
authority and therefore is subject to subsequent legislative, regulatory,
interpretive and judicial developments that may be applied with retroactive
effect to the material detriment of holders of the Company Shares or the Philips
Common Stock. Our opinion is limited to the tax matters specifically discussed
above and except to the extent expressly set forth herein we have not been asked
to address, nor have we addressed, any other tax consequences relating to the
Transaction.
This opinion is not to be used, circulated, quoted or otherwise
referred to for any purposes without our express written permission.
Notwithstanding the previous sentence, we hereby consent to the filing of this
form of opinion with the Securities and Exchange Commission as an exhibit to the
Proxy Statement/Prospectus. In giving this consent, we do not admit that we come
within the category of persons whose consent is required.
Very truly yours,
BINGHAM DANA LLP
<PAGE>
AGREEMENT OF LIMITED PARTNERSHIP
OF
PHILIPS INTERNATIONAL REALTY, L.P.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 DEFINITIONS..............................................................................................2
ARTICLE 2 CONTINUATION OF THE PARTNERSHIP..........................................................................
2.1 Continuation................................................................................................
2.2 Entire Agreement............................................................................................
ARTICLE 3 NAME AND OFFICES.........................................................................................
3.1 Name........................................................................................................
3.2 Principal and Registered Offices............................................................................
ARTICLE 4 PURPOSE..................................................................................................
4.1 Purpose.....................................................................................................
4.2 Powers......................................................................................................
ARTICLE 5 TERM AND FISCAL YEAR.....................................................................................
5.1 Term........................................................................................................
5.2 Fiscal Year.................................................................................................
ARTICLE 6 CAPITAL CONTRIBUTIONS, ADDITIONAL FUNDING AND CAPITAL
ACCOUNTS...........................................................................................................
6.1 Capital Contributions of the General Partner................................................................
6.2 Capital Contributions of the Limited Partners...............................................................
6.3 General Partner Option to Contribute Additional Capital.....................................................
6.4 General Partner Option to Issue Additional Partnership Units to Limited Partners............................
6.5 Capital Accounts............................................................................................
6.6 Limited Liability...........................................................................................
6.7 Return of Capital...........................................................................................
6.8 No Interest on Capital Contributions........................................................................
6.9 No Third Party Beneficiary..................................................................................
6.10 Common Stock Option Plans..................................................................................
ARTICLE 7 ALLOCATION OF PROFITS AND LOSSES.........................................................................
7.1 General Allocation of Profits and Losses....................................................................
7.2 Allocations with Respect to Transferred Interests...........................................................
7.3 Regulatory Allocations......................................................................................
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
(a) Minimum Gain Chargeback................................................................................
(b) Exceptions to Section 7.3(a)...........................................................................
(c) Qualified Income Offset................................................................................
(d) Gross Income Allocation................................................................................
(e) Partner Nonrecourse Debt...............................................................................
(f) Interpretation.........................................................................................
(g) Curative Allocations...................................................................................
7.4 Special Allocations with Respect to Contributed or Revalued Property........................................
ARTICLE 8 DISTRIBUTIONS............................................................................................
8.1 Distribution of Net Cash Flow...............................................................................
8.2 Distributions in Kind.......................................................................................
8.3 Withholding.................................................................................................
ARTICLE 9 MANAGEMENT...............................................................................................
9.1 Management of Partnership Affairs...........................................................................
9.2 Powers and Authorities of the General Partner...............................................................
9.3 Major Decisions............................................................................................
9.4 Restrictions on General Partner's Authority.................................................................
9.5 Engagements by the Partnership..............................................................................
9.6 Engagement of Affiliates....................................................................................
9.7 Liability of the General Partner............................................................................
9.8 Reimbursement of Certain Expenses of the General Partner....................................................
9.9 Outside Activities of the General Partner...................................................................
9.10 Operation in Accordance with REIT Requirements.............................................................
9.11 Title Holder...............................................................................................
ARTICLE 10 RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS..............................................................
10.1 No Participation in Management of Partnership; Rights of Limited Partners to Certain
Documents...................................................................................................
10.2 Withdrawal, Retirement, Death, Incompetency, Insolvency or Dissolution of a Limited
Partner.....................................................................................................
10.3 Redemption Rights..........................................................................................
(a) Grant of Rights.........................................................................................
(b) Delivery of Exercise Notices............................................................................
(c) Assumption by General Partner...........................................................................
(d) Limitation on Exercise of Redemption Rights.............................................................
(e) Computation of Number of Exchange Shares and/or Cash To Be Paid.........................................
(f) Closing; Delivery of Election Notice....................................................................
(g) Closing Deliveries......................................................................................
(h) Term of Rights..........................................................................................
(i) Covenants of the General Partner........................................................................
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
(j) Limited Partners' Covenant..............................................................................
ARTICLE 11 BANKING, RECORDS AND TAX MATTERS........................................................................
11.1 Partnership Funds..........................................................................................
11.2 Books and Records..........................................................................................
11.3 Financial Statements.......................................................................................
11.4 Tax Returns................................................................................................
11.5 Section 754 Matters........................................................................................
11.6 Tax Matter Partners........................................................................................
11.7 Other Reports..............................................................................................
ARTICLE 12 TRANSFER OF GENERAL PARTNER INTERESTS...................................................................
12.1 Transfer of Interest of the General Partner................................................................
12.2 Retirement of the General Partner..........................................................................
12.3 Transferee of the General Partner's Interest...............................................................
12.4 Retirement of Last Remaining General Partner...............................................................
12.5 Continuation of Partnership................................................................................
12.6 Merger or Consolidation of the General Partner.............................................................
ARTICLE 13 TRANSFER OF LIMITED PARTNER INTERESTS...................................................................
13.1 Transfer of Interest of a Limited Partner..................................................................
13.2 Assignee and Substitute Limited Partners...................................................................
13.3 Assignment.................................................................................................
13.4 Cost of Admission..........................................................................................
ARTICLE 14 DISSOLUTION AND LIQUIDATION OF PARTNERSHIP..............................................................
14.1 Dissolution of the Partnership.............................................................................
14.2 Winding Up of Affairs......................................................................................
14.3 Accounting.................................................................................................
14.4 Final Distribution of Partnership Property.................................................................
14.5 Certificate of Cancellation................................................................................
ARTICLE 15 POWER OF ATTORNEY.......................................................................................
15.1 Power of Attorney..........................................................................................
15.2 Grant of Authority Irrevocable.............................................................................
ARTICLE 16 AMENDMENT OF PARTNERSHIP AGREEMENT......................................................................
16.1 Amendments by Partners.....................................................................................
16.2 Amendment by the General Partner...........................................................................
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
16.3 Amendment of Certificate...................................................................................
ARTICLE 17 INDEMNIFICATION.........................................................................................
17.1 Partnership Indemnification of Partner.....................................................................
17.2 Partner Indemnification of Partnership.....................................................................
ARTICLE 18 MISCELLANEOUS PROVISIONS................................................................................
18.1 Notices....................................................................................................
18.2 Severability...............................................................................................
18.3 Parties Bound..............................................................................................
18.4 Applicable Law.............................................................................................
18.5 Partition..................................................................................................
18.6 Computation of Accountants.................................................................................
18.7 Headings...................................................................................................
18.8 Counterparts...............................................................................................
</TABLE>
iv
<PAGE>
AGREEMENT OF LIMITED PARTNERSHIP
OF
PHILIPS INTERNATIONAL REALTY, L.P.
THIS AGREEMENT OF LIMITED PARTNERSHIP (this "Agreement") of PHILIPS
INTERNATIONAL REALTY, L.P., a Delaware limited partnership (the "Partnership"),
is made and entered into as of the ___ day of ______, 1997, by and among PHILIPS
INTERNATIONAL REALTY CORP., a Maryland corporation, as general partner, PHILIPS
INTERNATIONAL REALTY, LLC, a Delaware limited liability company, as interim
managing general partner, and those parties who are designated as limited
partners on Exhibit A attached hereto and made a part hereof by this reference,
as limited partners.
R E C I T A L S:
WHEREAS, the parties hereto have determined that it is in the best
interests of the parties' long term strategic growth to combine their respective
properties and related assets pursuant to that certain Contribution and Exchange
Agreement, dated August ___, 1997 (the "Contribution and Exchange Agreement"),
among the Partnership, National Properties Investment Trust, a Massachusetts
business trust ("National"), Philips International Realty Corp. and the parties
designated as limited partners on Exhibit A attached hereto, whereby the
partners are contributing to the Partnership, directly or indirectly, all of the
partners' right, title and interest in and to their respective properties, on
the terms and conditions set forth therein;
WHEREAS, the Partnership was previously formed pursuant to that certain
Agreement of Limited Partnership, dated as of July 16, 1997 (the "Original
Agreement"), and that certain Certificate of Limited Partnership, dated as of
July 16, 1997, which was filed with the Secretary of State of Delaware on July
17, 1997;
WHEREAS, the parties hereto desire to continue the Partnership and
amend and restate the terms and provisions of the Original Agreement in its
entirety, all upon the terms and provisions, and subject to the conditions, set
forth herein;
NOW, THEREFORE, in consideration of the foregoing, of the mutual
promises contained herein, and for other good and valuable
<PAGE>
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, intending to be legally bound, hereby agree as follows:
ARTICLE 1
DEFINITIONS
As used in this Agreement, unless otherwise clearly indicated to the
contrary, the following terms have the meanings set forth below.
"Accountants" shall mean the firm or firms of independent certified
public accountants selected from time to time by the General Partner on behalf
of the Partnership to audit the books and records of the Partnership and to
prepare statements and reports in connection therewith.
"Act" shall mean the Delaware Revised Uniform Limited Partnership Act,
as amended from time to time subsequent to the date hereof.
"Additional Partnership Units" shall have the definition assigned to
such term in Section 6.3 hereof.
"Additional Limited Partner" shall have the definition assigned to such
term in Section 6.4 hereof.
"Affiliate" shall mean, with respect to any Partner (or as to any other
Person the affiliates of whom are relevant for purposes of any of the provisions
of this Agreement), (i) any member of the Immediate Family of such Partner; (ii)
any trustee or beneficiary of a Partner; (iii) any legal representative,
successor or assignee of such Partner or any Person referred to in the preceding
clauses (i) and (ii); (iv) any trustee for the benefit of such Partner or any
Person referred to in the preceding clauses (i) through (iii); or (v) any Person
which directly or indirectly through one or more intermediaries, Controls, is
Controlled by, or is under common Control with such Partner or any Person
referred to in the preceding clauses (i) through (iv).
"Agreed Value" shall mean, with respect to any property contributed by
a Partner to the Partnership hereunder, an amount equal to (i) the Gross Asset
Value of the Capital Contribution
2
<PAGE>
determined as of the date of such contribution, less (ii) the amount of any and
all liabilities securing such contributed property that the Partnership is
considered to assume or take subject to with respect to such property under Code
Section 752 or the Regulations promulgated thereunder.
"Board of Directors" shall mean the Board of Directors of the General
Partner.
"Capital Account" shall have the definition assigned to such term in
Section 6.5 hereof.
"Capital Contribution" shall mean, with respect to any Partner, the
amount of money and the Agreed Value of any property (other than money)
contributed to the Partnership with respect to the Partnership Interest held by
such Partner.
"Certificate" shall mean the Partnership's Certificate of Limited
Partnership, as amended from time to time in accordance with the terms hereof
and the Act.
"Closing Price" shall mean, on any date, with respect to a share of
Common Stock, the last sale price, regular way, or, in case no such sale takes
place on such day, the average of the closing bid and asked prices, regular way,
for one share of Common Stock in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed or
admitted to trading on the New York Stock Exchange or, if the Common Stock is
not listed or admitted to trading on the New York Stock Exchange, as reported in
the principal consolidated transaction reporting system with respect to
securities listed on the principal national securities exchange on which the
Common Stock is listed or admitted to trading, or if the Common Stock is not
listed or admitted to trading on any national securities exchange, the last
quoted price, or if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by the National Association
of Securities Dealers, Inc. Automated Quotations System or, if such system is no
longer in use, the principal other automated quotations system that may then be
in use or, if the Common Stock is not quoted by any such organization, the
average of the closing bid and asked prices as furnished by a professional
market maker making a market in the Common Stock as such person is selected from
time to time by the Board of Directors.
3
<PAGE>
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, or any successor statute thereto.
"Common Stock" shall mean the shares of the common stock, par value
$.01 per share, of the General Partner.
"Contribution and Exchange Agreement" shall have the meaning assigned
to such term in the Recitals set forth above.
"Control" shall mean the ability, whether by the direct or indirect
ownership of shares or other equity interests, by contract or otherwise, to
elect a majority of the directors of a corporation, to select the managing
partner of a partnership, or otherwise to select, or have the power to remove
and then select, a majority of those persons exercising governing authority over
any particular entity. In the case of a limited partnership, the sole general
partner, all of the general partners to the extent each has equal management
control and authority, or the managing general partner or managing general
partners thereof shall be deemed to have control of such partnership and, in the
case of a trust, any trustee thereof or any Person having the right to select
any such trustee shall be deemed to have control of such trust.
"Current Per Share Market Price", on any date, shall mean the average
of the Closing Price for the five (5) consecutive Trading Days ending on such
date.
"Depreciation" shall mean, with respect to any asset of the Partnership
for any fiscal year or other period, the depreciation, depletion, amortization
or other cost recovery deduction, as the case may be, allowed or allowable for
Federal income tax purposes in respect of such asset for such fiscal year or
other period; provided, however, that if there is a difference between the Gross
Asset Value and the adjusted tax basis of such asset, Depreciation shall mean
"book depreciation, depletion or amortization" as determined under Section
1.704-1(b)(2)(iv)(g)(3) of the Regulations.
"Excess Deficit Capital Account Balance" of any Partner shall be the
Capital Account balance of such Partner, adjusted as provided in the immediately
following sentence, to the extent, if any, that such balance is a deficit (after
adjustment). For purposes of determining the existence and amount of an Excess
4
<PAGE>
Deficit Capital Account Balance, the Capital Account balance of a Partner shall
be adjusted by: (i) crediting thereto (A) that portion of any deficit Capital
Account balance that such Partner is required to restore under the terms of this
Agreement or any other document, and (B) the amount of such Partner's share of
Minimum Gain, including any Partner Nonrecourse Debt Minimum Gain; and (ii)
charging thereto the items described in Regulation Sections
1.704-1(b)(2)(ii)(d)(4), (5) and (6) that apply to such Partner. The existence
and amount of Excess Deficit Capital Account Balance at the end of any year
shall be determined before any other allocations provided for in Article 7 for
such year have been made.
"Exercise Notice" shall mean the written notice as described in Section
10.3(b) hereof to be given by an Exercising Partner to the General Partner to
exercise Redemption Rights, the form of which Exercise Notice is attached to the
Unit Certificate as Attachment 1.
"Exercising Partners" shall have the meaning set forth in Section
10.3(b) hereof.
"General Partner" shall mean Philips International Realty Corp., a
Maryland corporation, and any substitute or additional General Partner(s) duly
admitted pursuant to the terms of this Agreement, or, where the context so
requires, any successor General Partner(s) acting pursuant to the provisions of
this Agreement, or, where the context so requires, the Interim Managing General
Partner.
"Gross Asset Value" shall mean, with respect to any asset of the
Partnership, such asset's adjusted basis for Federal income tax purposes, except
as follows:
(a) The initial Gross Asset Value of any asset contributed by
a Partner shall be equal to the gross fair market value of such asset
without reduction for liabilities, as determined by the General
Partner, in its reasonable discretion (as set forth on Exhibit ___
attached hereto and as amended from time to time to reflect new
contributions); provided, however, that the Gross Asset Value of the
assets contributed by a Limited Partner concurrent with the Offering or
otherwise in exchange for Partnership Units shall be equal to the
product of (1) the number of Partnership Units received by such Limited
Partner
5
<PAGE>
multiplied by (2) (i) the initial public offering price per share of
Common Stock in connection with the Offering, or (ii) the Current Per
Share Price (as determined on the dates specified in Article 6 of this
Agreement) in connection with Partnership Units issued subsequent to
the Offering, and increased, in both instances, by the amount of
liabilities assumed or taken subject to by the Partnership upon
contribution.
(b) If the General Partner reasonably determines that an
adjustment is necessary or appropriate to reflect the relative economic
interests of the Partners, the Gross Asset Values of all Partnership
assets shall be adjusted to equal their respective gross fair market
values, as reasonably determined by the General Partner, as of the
following times:
(i) a Capital Contribution (other than a de minimis
Capital Contribution) to the Partnership by a new or
existing Limited Partner as consideration for a
Partnership Interest;
(ii) the distribution by the Partnership to a Partner of
more than a de minimis amount of Partnership money
or property as consideration for the redemption of a
Partnership Interest;
(iii) the liquidation of the Partnership within the
meaning of Section 1.704-1(b)(2)(ii)(g) of the
Regulations; and
(iv) any other time that such adjustment may be made
under the Code, the Regulations or any
administrative pronouncement or ruling by the IRS.
(c) The Gross Asset Value of any Partnership asset distributed
to a Partner shall be the gross fair market value of such asset as
reasonably determined by the General Partner as of the date of
distribution; and
(d) The Gross Asset Values of Partnership assets shall be
increased (or decreased) to reflect any adjustments to
6
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the adjusted basis of such assets pursuant to Sections 734(b) or 743(b)
of the Code, but only to the extent that such adjustments are taken
into account in determining Capital Accounts pursuant to Section
1.704-1(b)(2)(iv)(m) of the Regulations; provided, however, that Gross
Asset Values shall not be adjusted pursuant to this paragraph to the
extent that the General Partner reasonably determines that an
adjustment pursuant to paragraph (b) above is necessary or appropriate
in connection with a transaction that would otherwise result in an
adjustment pursuant to this paragraph (d).
At all times, Gross Asset Values shall be adjusted by any Depreciation taken
into account with respect to the Partnership's assets for purposes of computing
Profits and Losses. Any adjustment to the Gross Asset Values of Partnership
property shall require an adjustment to the Partners' Capital Accounts; as for
the manner in which such adjustments are allocated to the Capital Accounts, see
clause (iii) of the definition of Profits and Losses in the case of adjustment
by Depreciation, and clause (iv) of said definition in all other cases.
"Immediate Family" shall mean, with respect to any individual Person,
such individual Person's spouse, parents, parents-in-law, descendants, nephews,
nieces, brothers, sisters, brothers-in-law, sisters-in-law and children-in-law.
"Indemnitee" means (i) the General Partner and the Interim Managing
General Partner (in their respective capacities as General Partner and Interim
Managing General Partner) and their respective Affiliates, trustees, officers,
directors, employees and agents, or their respective successors, executors,
administrators or personal representatives, or (ii) any Partner by reason of his
or its liabilities, pursuant to a loan guarantee or otherwise, for any
indebtedness of the Partnership or any Affiliate of the Partnership (including,
without limitation, any indebtedness which the Partnership or any Affiliate of
the Partnership has assumed or taken assets subject to).
"Interim Managing General Partner" shall mean Philips International
Realty, LLC, a Delaware limited liability company, and any substitute or
additional Interim Managing General Partner(s) duly admitted pursuant to the
terms of this Agreement and acting pursuant to Section 9.1(b) of this Agreement,
or, where the context so requires, any successor Interim Managing
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General Partner(s), acting pursuant to the provisions of this Agreement.
"IRS" means the Internal Revenue Service, which administers the federal
tax laws of the United States.
"Limited Partners" shall mean any Person named as a Limited Partner on
the Exhibit A attached hereto as such Exhibit may be amended from time to time,
or any substituted Limited Partner or additional Limited Partner duly admitted
to the Partnership pursuant to the terms of this Agreement.
"Liquidation" shall mean the disposition of all or substantially all of
the assets of the Partnership pursuant to a complete liquidation of the
Partnership.
"Minimum Gain" shall have the meaning given such term in Treasury
Regulation Section 1.704-2(d), and shall generally mean the amount by which the
nonrecourse liabilities secured by any assets of the Partnership exceed the
adjusted tax basis of such assets as of the date of determination. A Partner's
share of Minimum Gain (and any net decrease thereof) at any time shall be
determined in accordance with Treasury Regulation Section 1.704-2(g).
"Net Cash Flow" shall mean, with respect to any fiscal period of the
Partnership, the excess, if any, of "Receipts" over "Expenditures." For purposes
hereof, the term "Receipts" means the sum of (i) all cash receipts of the
Partnership from all sources for such period, including Net Sale Proceeds and
Net Financing Proceeds but excluding Capital Contributions, and (ii) any amounts
held as reserves as of the last day of the period immediately prior to such
fiscal period that the General Partner deemed necessary for any capital or
operating expenditure permitted hereunder. The term "Expenditures" means the sum
of (a) all cash expenses of the Partnership for such period, (b) the amount of
all payments of principal and interest on account of any indebtedness of the
Partnership including payments of principal and interest on account of any
indebtedness owed to a Partner during such period, (c) any amounts held as
reserves as of the last day of such fiscal period as the General Partner in its
sole discretion deems necessary for any capital or operating expenditures
permitted hereunder or reserves for any other purpose that the General Partner
in its sole discretion shall determine to be appropriate and (d) any amounts
held in working
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capital accounts or other cash or similar balances which the General Partner
determines to be necessary or appropriate in its sole discretion. In the event
the General Partner issues additional classes of Partnership Units other than OP
Units, the General Partner may, to the extent necessary, in its sole discretion,
determine the amount of Net Cash Flow attributable to each class of Partnership
Units and the timing of payment thereof.
"Net Financing Proceeds" shall mean the cash proceeds received by the
Partnership in connection with any borrowing or refinancing of borrowing by or
on behalf of the Partnership (whether or not secured), after deduction of all
costs and expenses incurred by the Partnership in connection with such
borrowing, and after deduction of that portion of such proceeds used to repay
any other indebtedness of the Partnership, or any interest or premium thereon.
"Net Sale Proceeds" means the cash proceeds received by the Partnership
in connection with a sale of any asset by or on behalf of the Partnership after
deduction of any costs or expenses incurred by the Partnership, or payable
specifically out of the proceeds of such sale (including, without limitation,
any repayment of any indebtedness required to be repaid as a result of such sale
or which the General Partner elects to repay out of the proceeds of such sale,
together with accrued interest and premium, if any, thereon and any sales
commissions or other costs and expenses due and payable to any Person in
connection with a sale, including to a Partner or its Affiliates).
"Offered Units" shall mean the Partnership Units of the Exercising
Partners identified in an Exercise Notice which, pursuant to the exercise of a
Redemption Right, can be acquired by the General Partner under the terms hereof.
"Offering" shall mean any public offering of the General Partner's
Common Stock under the Securities Act or private equity placement of securities
of the General Partner that occurs on or after the date hereof.
"OP Units" shall mean those Partnership Units issued pursuant to the
terms of the Contribution and Exchange Agreement and any additional OP Units
issued by the General Partner pursuant to Article 6 hereof.
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"Organizational Limited Partner" shall mean the initial limited partner
of the Partnership.
"Original Agreement" shall have the meaning assigned to such term in
the Recitals set forth above.
"Partner or Partners" shall mean, unless the context in which the term
is used requires otherwise, the General Partner, the Interim Managing General
Partner and the Limited Partners.
"Partner Nonrecourse Debt" shall have the meaning assigned to such term
in Regulation Section 1.704-2(b)(4).
"Partner Nonrecourse Debt Minimum Gain" shall have the meaning assigned
to such term in Regulation Section 1.704-2(i).
"Partnership" shall mean Philips International Realty, L.P., a Delaware
limited partnership.
"Partnership Agreement" shall mean this Agreement of Limited
Partnership and the Exhibits and Schedules hereto, and any amendments hereto
from time to time.
"Partnership Interest" shall mean the ownership interest of a Partner
in the Partnership from time to time, including such Partner's Percentage
Interest and Capital Account and any and all other benefits to which the holder
of such a Partnership Interest may be entitled as provided in this Agreement and
under applicable laws, together with all obligations of such Person to comply
with the terms and provisions of this Agreement.
"Partnership Unit" shall mean a fractional, undivided share of the
Partnership Interests of all Partners issued pursuant to Article 6 hereof;
provided, however, that in the event the General Partner issues classes of
Partnership Units to Limited Partners other than the OP Units pursuant to
Section 6.4 hereof, the term Partnership Unit shall mean with respect to each
class of Partnership Units, a fractional, undivided share of the Partnership
Interests of all Partners in such class. Currently, each Partnership Unit may be
redeemed for one share of Common Stock. Accordingly, if the Common Stock of the
General Partner (or any other class of stock) undergoes any split or reverse
split, then, without any further action or consent by the General Partner or any
Limited Partner, each corresponding class of Partnership Unit that is
convertible into such stock shall
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similarly be split or combined by the same ratio as was used to split or combine
the stock. For example if the Common Stock under a reverse 2 for 1 split (i.e.
every two shares of old Common Stock are converted into one share of new Common
Stock) then the corresponding class of Partnership Units shall undergo a similar
reverse split (i.e. every two old Partnership Units shall be converted into one
new Partnership Unit.
"Partnership Record Date" shall mean the record date established by the
General Partner for any particular distribution of Net Cash Flow pursuant to
Article 8 hereof, which record date shall be the same as the record date
established by the General Partner for distribution to its stockholders of some
or all of its portion of such distribution.
"Percentage Interest" shall mean, with respect to any Partner, its
interest in the Partnership as determined by dividing the Partnership Units
owned by such Partner by the total number of Partnership Units then issued and
outstanding; provided, however, that in the event the General Partner issues
classes of Partnership Units other than OP Units, the term Percentage Interest
shall mean with respect to any Partner, its interest in the Partnership as
determined by dividing the Partnership Units of each class owned by such Partner
by the total number of Partnership Units in such class then issued and
outstanding.
"Person" shall mean a natural person, corporation, trust, partnership,
estate, unincorporated association or other entity.
"Profits or Losses" shall mean, for each fiscal year or other
applicable period, an amount equal to the Partnership's net income or loss for
such year or period as determined for Federal income tax purposes by the
Accountants, determined in accordance with Section 703(a) of the Code (for this
purpose, all items of income, gain, loss or deduction required to be stated
separately pursuant to Section 703(a) of the Code shall be included in taxable
income or loss), with the following adjustments: (i) by including as an item of
gross income any tax-exempt income received by the Partnership; (ii) by treating
as a deductible expense any expenditure of the Partnership described in Section
705(a)(2)(B) of the Code (including amounts paid or incurred to organize the
Partnership (unless an election is made pursuant to Code Section 709(b)) or to
promote the sale of interests in the
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Partnership and by treating deductions for any losses incurred in connection
with the sale or exchange of Partnership property disallowed pursuant to Section
267(a)(1) or Section 707(b) of the Code as expenditures described in Section
705(a)(2)(B) of the Code); (iii) in lieu of depreciation, depletion,
amortization and other cost recovery deductions taken into account in computing
total income or loss, there shall be taken into account Depreciation; (iv) gain
or loss resulting from any disposition of Partnership property with respect to
which gain or loss is recognized for Federal income tax purposes shall be
computed by reference to the Gross Asset Value of such property rather than its
adjusted tax basis; and (v) in the event of an adjustment of the Gross Asset
Value of any Partnership asset which requires that the Capital Accounts of the
Partnership be adjusted pursuant to Regulation Section 1.704-1(b)(2)(iv)(e), (f)
and (m), the amount of such adjustment is to be taken into account as additional
Profits or Losses pursuant to Article 7.
"Properties" shall mean each of the following (i.e., those partnerships
or properties, as the case may be, in which, pursuant to the Contribution and
Exchange Agreement, the Partners are contributing to the Partnership, directly
or indirectly, all of their right, title and interest as partners in such
partnerships or owners of such properties, as the case may be): (i) Palm Springs
Mile Associates, Ltd., (ii) Forest Avenue Shopping Associates, (iii) Philips
Freeport Associates, L.P., (iv) Merrick Shopping Associates, (v) SP Avenue U
Associates, L.P., (vi) Foxborough Shopping, L.L.C., (vii) Enfield Shopping
L.L.C., (viii) Delran Shopping L.L.C., (ix) Branhaven Plaza LLC, and (x) The
Shoppes at Lake Mary (the "National Property").
"Redemption Rights" shall have the meaning set forth in Section 10.3(a)
hereof.
"Regulations" shall mean the Treasury regulations promulgated under the
Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"Regulatory Allocations" has the meaning set forth in Section 7.3(g) of
this Agreement.
"REIT" shall mean a real estate investment trust under Section 856 of
the Code.
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"REIT Requirements" shall mean any and all requirements that must be
met to qualify as a REIT under the Code and the Regulations.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Surviving Partnership" shall have the meaning set forth in Section
12.6(b) hereof.
"Trading Day" shall mean a day on which the principal national
securities exchange on which the Common Stock is listed or admitted to trading
is open for the transaction of business or, if the Common Stock is not listed or
admitted to trading on any national securities exchange, any day other than a
Saturday, a Sunday or a day on which banking institutions in the State of New
York are authorized or obligated by law or executive order to close.
"Unit Certificate" shall have the meaning set forth in Section 6.2
hereof.
ARTICLE 2
CONTINUATION OF THE PARTNERSHIP
2.1 Continuation. The Partners hereby continue the Partnership as a
limited partnership formed under and pursuant to the terms and provisions of the
Act, and the rights and obligations of the Partners shall be as provided therein
except as otherwise expressly provided in this Agreement. The Partners agree to
execute such certificates or documents and do such filings and recordings and
all other acts, including the filing or recording of an amendment to the
Certificate and any assumed name certificates in the appropriate offices in the
State of Delaware and any other applicable jurisdictions as may be required to
comply with applicable law. The Partners agree that immediately after the
admission of one Limited Partner, the Organizational Limited Partner shall be
deemed to have withdrawn from the Partnership.
2.2 Entire Agreement. Each and every other agreement or understanding,
oral or written, relating in any way to the formation or operation of the
Partnership including, but not
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limited to, the Original Agreement, is hereby superseded in its entirety. From
and after the execution of this Agreement, the same shall constitute the only
Agreement of Limited Partnership of the Partnership except as the same may
hereafter be amended pursuant to the provisions hereof. This Agreement
represents the entire agreement and understanding of the parties hereto
concerning the Partnership and their relationship as Partners, and all prior or
concurrent agreements, understandings, representations and warranties in regard
to the subject matter hereof including, but not limited to, the Original
Agreement, are and have been merged herein.
ARTICLE 3
NAME AND OFFICES
3.1 Name. The business of the Partnership shall be conducted under the
name of "Philips International Realty, L.P.", or such other name as the General
Partner may from time to time designate upon notice to the Limited Partners.
3.2 Principal and Registered Offices. The principal place of business
of the Partnership shall be located at c/o the General Partner at 417 Fifth
Avenue, New York, New York 10016. The registered agent of the Partnership shall
be [The Prentice-Hall Corporation System, Inc.] The registered office of the
Partnership shall be [32 Loockerman Square, Suite L-100, Dover, Kent County,
Delaware 19901]. The General Partner may from time to time designate another
registered agent or another location for the registered office or principal
place of business of the Partnership upon notice to the other Partners. The
Partnership may maintain offices at such other place or places within or outside
the State of Delaware as the General Partner deems advisable.
ARTICLE 4
PURPOSE
4.1 Purpose. The purpose and nature of the business to be conducted by
the Partnership is (i) to conduct any business that may be lawfully conducted by
a limited partnership organized pursuant to the Act; provided, however, that
such business shall be limited to and conducted in such a manner as to permit
the General Partner at all times to be classified as a REIT for
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federal income tax purposes, unless the General Partner has determined to cease
to qualify as a REIT, (ii) to enter into any partnership, joint venture or other
similar arrangements to engage in any of the foregoing or the ownership of
interests in any entity engaged in any of the foregoing and (iii) to do anything
necessary or incidental to the foregoing. In connection with the foregoing, and
without limiting the General Partner's right in its sole discretion to cease
qualifying as a REIT, the Partners acknowledge that the General Partner's status
as a REIT inures to the benefit of all of the Partners and not solely the
General Partner.
4.2 Powers. The Partnership is empowered to do any and all acts and
things necessary, appropriate, proper, advisable, incidental to or convenient
for the furtherance and accomplishment of the purposes and business described
herein and for the protection and benefit of the Partnership; provided, that the
Partnership shall not take, or shall refrain from taking, any action which, in
the judgment of the General Partner, in its sole and absolute discretion, (i)
could adversely affect the ability of the General Partner to continue to qualify
as a REIT, (ii) could subject the General Partner to any additional taxes under
Section 857 or Section 4981 of the Code or any successor or newly enacted
provisions of the Code imposing other additional taxes or penalties on the
General Partner, or (iii) could violate any law or regulation of any
governmental body or agency having jurisdiction over the General Partner or its
securities, unless any such action (or inaction) under (i), (ii) or (iii) shall
have been specifically consented to by the General Partner in writing.
ARTICLE 5
TERM AND FISCAL YEAR
5.1 Term. The term of the Partnership commenced on July __, 1997, the
date the Certificate was filed in the appropriate offices in the State of
Delaware, and shall continue until terminated pursuant to the provisions of
Article 14 of this Agreement.
5.2 Fiscal Year. The first fiscal year of the Partnership shall
terminate on December 31, 1997, and succeeding fiscal years shall terminate on
December 31 of each year thereafter, or such other date as the Partnership shall
terminate as herein provided.
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ARTICLE 6
CAPITAL CONTRIBUTIONS, ADDITIONAL FUNDING AND CAPITAL ACCOUNTS
6.1 Capital Contributions of the General Partner and the Interim
Managing General Partner.
(a) Initial Capital Contribution of the General Partner. Concurrent
with the execution of this Agreement, the General Partner, pursuant to the
Contribution and Exchange Agreement, shall contribute to the Partnership,
directly or indirectly, as its initial Capital Contribution, all of such General
Partner's right, title and interest in and to National Property. The General
Partner shall initially be issued and thereafter shall own Partnership Units in
the amount set forth opposite its name on Exhibit A, which number of Partnership
Units shall be adjusted on such Exhibit A from time to time by the General
Partner to the extent necessary to reflect accurately issuances, exchanges,
redemptions, Capital Contributions, or similar events having an effect on a
Partner's Partnership Units.
(b) Capital Contribution of the General Partner Upon Completion of an
Offering. Upon completion of any Offering, the General Partner shall contribute
the proceeds of the Offering to the Partnership, which proceeds will be net of
the underwriter's discount and other expenses, and the General Partner shall be
credited with having made a Capital Contribution to the Partnership in the
amount of the net proceeds of the Offering. The Partners hereby acknowledge and
agree that the aggregate number of additional Partnership Units to be issued to
the General Partner upon completion of any Offering shall be exactly equal to
the number of shares of Common Stock issued in the Offering. Upon any subsequent
sales of shares of Common Stock pursuant to the exercise of the over-allotment
option in connection with the Offering, the General Partner shall, subject to
and in accordance with the terms and conditions of this Section 6.1, contribute
the proceeds of such subsequent sale to the Partnership, and shall be issued
additional Partnership Units in an amount exactly equal to the number of shares
of Common Stock subsequently sold in connection with the Offering.
(c) Ownership Interest of the General Partner. The Partners acknowledge
and agree that the General Partner's ownership interest in the Partnership (and
therefore the number of Partnership Units owned by it) shall at all times be
equal to
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the fraction the numerator of which is the number of issued and outstanding
shares of Common Stock of the General Partner (the "G.P. Shares") and the
denominator of which is the sum of the G.P. Shares plus the number of issued and
outstanding Partnership Units held by Partners other than the General Partner;
provided, however, that the foregoing shall only apply for so long as the only
class of Partnership Units is OP Units and the only equity securities of the
General Partner is Common Stock. If the Common Stock of the General Partner (or
any other class of stock) undergoes any split or reverse split, then, without
any further action or consent by the General Partner or any Limited Partner,
each corresponding class of Partnership Unit that is convertible into such stock
shall similarly be split or combined by the same ratio as was used to split or
combine the stock. For example if the Common Stock under a reverse 2 for 1 split
(i.e. every two shares of old Common Stock are converted into one share of new
Common Stock) then the corresponding class of Partnership Units shall undergo a
similar reverse split (i.e. every two old Partnership Units shall be converted
into one new Partnership Unit).
(d) Capital Contribution of the Interim Managing General Partner.
Concurrent with the execution of this Agreement, and subject to Section 9.1 (b)
hereof, the Interim Managing General Partner shall contribute to the Partnership
one dollar ($1.00) as its initial Capital Contribution. The Interim Managing
General Partner shall initially be issued and thereafter shall own one
Partnership Unit. Upon completion of the initial public Offering, the Interim
Managing General Partner shall automatically be entitled to a return of its
Capital Contribution, and shall automatically be deemed to have withdrawn from
the Partnership.
6.2 Capital Contributions of the Limited Partners. Concurrent with the
execution of this Agreement, each Limited Partner, pursuant to the Contribution
and Exchange Agreement, shall contribute to the Partnership, directly or
indirectly, as its initial Capital Contribution, all of such Limited Partner's
right, title and interest in and to the Properties. Each Limited Partner shall
initially be issued and thereafter shall own Partnership Units in the amount set
forth opposite such Limited Partner's name on Exhibit A, which number of
Partnership Units on such Exhibit A shall be adjusted from time to time by the
General Partner to the extent necessary to reflect accurately exchanges,
redemptions, Capital Contributions, capital stock changes of the General Partner
or similar events having an effect on such
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Partner's Partnership Units. The Partnership Units issued to each Limited
Partner shall be evidenced by the issuance of a certificate (the "Unit
Certificate") in substantially the form of Exhibit B attached hereto, which Unit
Certificate shall bear the following legend:
"THE UNITS REPRESENTED BY THIS CERTIFICATE OR INSTRUMENT MAY NOT BE TRANSFERRED,
SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH
TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION COMPLIES
WITH THE PROVISIONS OF THE AGREEMENT OF LIMITED PARTNERSHIP OF PHILIPS
INTERNATIONAL REALTY, L.P., DATED AS OF ______, 1997 (A COPY OF WHICH IS ON FILE
WITH THE PARTNERSHIP). EXCEPT AS OTHERWISE PROVIDED IN SUCH AGREEMENT, NO
TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THE
UNITS REPRESENTED BY THIS CERTIFICATE MAY BE MADE EXCEPT (A) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR (B) IF THE PARTNERSHIP HAS BEEN FURNISHED WITH A SATISFACTORY
OPINION OF COUNSEL FOR THE HOLDER THAT SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE,
HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF
THE ACT AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER. IN ADDITION, THE
UNITS ARE SUBJECT TO THE PROVISIONS OF SECTION 19.1 OF A CERTAIN CONTRIBUTION
AND EXCHANGE AGREEMENT DATED AS OF AUGUST 11, 1997 (A COPY OF WHICH IS ON FILE
WITH THE PARTNERSHIP)."
On the date of admission of one or more Limited Partners to the Partnership, the
Organizational Limited Partner shall be entitled to a return of its Capital
Contribution, and shall be deemed to have withdrawn from the Partnership.
6.3 General Partner Option to Contribute Additional Capital. If the
Partnership requires funds at any time or from time to time in excess of funds
available to the Partnership through borrowings and prior or additional Capital
Contributions, the General Partner may, but shall not be required to, borrow
such funds from a financial institution or other lender or through public debt
offerings and lend such funds to the Partnership on the same terms and
conditions as are applicable to the General Partner. If, notwithstanding the
foregoing, the Partnership requires funds for any proper Partnership purpose in
excess of any other funds anticipated by the General Partner to be available to
the Partnership (including through borrowings and prior Capital Contributions),
or if the General Partner concludes
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that borrowings are inappropriate, the General Partner may, but shall not be
required to, raise such additional funds pursuant to the issuance of shares of
its Common Stock (or New Securities subject to Section 6.4(b))(any such issuance
which is made for the purpose of providing additional funds to the Partnership
shall be referred to herein as an "Additional Issuance"). In the event any such
Additional Issuance is consummated, then (i) the General Partner shall
contribute the net amount of cash raised pursuant to such Additional Issuance to
the capital of the Partnership and (ii) the Partnership shall issue additional
Partnership Units ("Additional Partnership Units") to the General Partner, on
the date upon which such funds are contributed to the Partnership, in an amount
equal to that number of Partnership Units which, if such Additional Partnership
Units were redeemed as of their date of issuance by the General Partner for
shares of Common Stock pursuant to Section 10.3 hereof, would result in the
General Partner receiving that number of shares of Common Stock equal to the
number of shares of Common Stock that were issued pursuant to such Additional
Issuance. In addition, in the event that the General Partner shall issue shares
of Common Stock (and/or pay cash out of the net proceeds of any Additional
Issuance) in connection with any subsequent merger, consolidation or other
acquisition, the General Partner shall contribute the shares of stock, assets
and/or other consideration received by the General Partner in connection
therewith to the capital of the Partnership in exchange for Additional
Partnership Units in an amount equal to that number of Partnership Units which,
if such Additional Partnership Units were redeemed as of their date of issuance
by the General Partner for shares of Common Stock pursuant to Section 10.3
hereof, would result in the General Partner receiving that number of shares of
Common Stock equal to the number of shares of Common Stock that were issued in
connection with such merger, consolidation or other acquisition and/or such
Additional Issuance. Notwithstanding the foregoing sentence, the General Partner
shall have the right, in its sole discretion, to treat a contribution to the
capital of the Partnership in a manner other than as described above if, upon
the advice of counsel to the General Partner and/or the Partnership, such
alternative treatment will provide a more favorable federal and/or state tax
consequence to the General Partner and/or the Partnership.
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6.4 General Partner Option to Issue Additional Partnership Units to
Limited Partners.
(a) Issuance of Additional Partnership Units. At any time
after the date hereof without the consent of any Partner, but subject to the
provisions of Section 13.1 hereof, the General Partner may, upon its
determination, which shall be made in its sole and absolute discretion, that the
issuance of Additional Partnership Units to new or existing limited partners is
in the best commercial interests of the Partnership, cause the Partnership to
issue Additional Partnership Units to and admit as a limited partner in the
Partnership, any Person (an "Additional Limited Partner" herein) in exchange for
the contribution by such Person of cash and/or property desirable to further the
purposes of the Partnership under Article 4 hereof. In the event that Additional
Partnership Units are issued by the Partnership pursuant to this Section 6.4,
the amount of such Partnership Units issued to each Additional Limited Partner
shall, unless otherwise determined by the General Partner in the exercise of its
sole discretion but subject to its fiduciary duty to all Limited Partners (i) be
fixed by agreement between the General Partner and such Additional Limited
Partner in the General Partner's sole discretion or (ii) be equal to that number
of Partnership Units which, if such Additional Partnership Units were redeemed
as of their date of issuance by such Additional Limited Partner pursuant to
Section 10.3 hereof, would result in such Additional Limited Partner receiving
that number of shares of Common Stock equal to (x) the Agreed Value of any
property (as determined by the General Partner, in its sole and absolute
discretion), plus the amount of any cash contributed by the Additional Limited
Partner, as of the date of contribution to the Partnership divided by (y) the
Current Per Share Market Price (computed as of the Trading Day immediately
preceding the date of contribution to the Partnership or such other date or
average of Trading Days as the General Partner may agree with such Additional
Limited Partner in the exercise of its sole discretion). In addition, the
General Partner is hereby authorized to cause the Partnership from time to time
to issue to the Partners (including the General Partner) or other Persons
additional Partnership Units or such other Partnership Interests in one or more
classes, or one or more series of such classes, with such designations,
preferences and relative, participating, optional or other special rights,
powers and duties, including rights, powers and duties which may be senior, pari
passu or
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junior to OP Units, all as shall be determined by the General Partner in its
sole and absolute discretion subject to Delaware law, including, without
limitation, (i) the allocations of items of Partnership income, gain, loss,
deduction and credit to each such class or series of Partnership Interests; (ii)
the right of each such class or series of Partnership Interests to share in
Partnership distributions; and (iii) the rights of each such class or series of
Partnership Interests upon dissolution and liquidation of the Partnership;
provided that no such additional Partnership Units or other Partnership
Interests shall be issued to the General Partner unless either (A)(1) the
additional Partnership Interests are issued in connection with the issuance of
shares of Common Stock or other shares by the General Partner, which shares have
designations, preferences and other rights such that the economic interests
attributed to such shares are substantially similar to the designations,
preferences and other rights of the additional Partnership Interests issued to
the General Partner in accordance with this Section 6.4, and (2) the General
Partner shall make a Capital Contribution to the Partnership in an amount equal
to the proceeds raised in connection with the issuance of such shares of the
General Partner, or (B) the additional Partnership Units are issued to all the
Partners in proportion to their respective Percentage Interests. Any Additional
Limited Partner shall be issued a Unit Certificate representing the amount of
Partnership Units issued to such Additional Limited Partner and, in the event
the General Partner issues Partnership Units other than OP Units, indicating the
class, terms, preferences and other restrictions or rights of such Partnership
Unit. The General Partner shall be authorized on behalf of each of the Partners
to amend this Agreement to reflect the issuance of Additional Partnership Units
(including, without limitation, the issuance of new classes of Partnership
Units) and/or the admission of any Additional Limited Partner(s) in accordance
with the provisions of this Section 6.4, and the General Partner shall promptly
deliver a copy of such amendment (which, in the event that new classes of
Partnership Units are issued, shall contain the terms of such new classes of
Partnership Units) to each Limited Partner. Without limiting the foregoing, the
General Partner is expressly authorized to cause the Partnership to issue
Partnership Units for less than fair market value, so long as the General
Partner concludes in good faith that such issuance is in the interest of the
General Partner and the Partnership (for example, and not by way of limitation,
the issuance of Partnership Units pursuant to an employee purchase plan
providing for employee purchases of
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Partnership Units at a discount from fair market value or employee options that
have an exercise price that is less than the fair market value of the
Partnership Units, either at the time of issuance or at the time of exercise).
(b) Adjustments to Partnership Units. If the Common Stock (or
any other class of stock of the General Partner for which a class of Partnership
Units may be redeemed) undergoes any split or reverse split, then without
further action or consent by the General Partner or any Limited Partner, each
corresponding class of Partnership Units that is redeemable for such stock shall
be split or combined in accordance with the same ratio used to split or combine
the stock. For example, if the Common Stock undergoes a reverse 2 for 1 split
(i.e., every two shares of old Common Stock are converted into one share of new
Common Stock) then the corresponding class of Partnership Units that are
redeemable for such Common Stock shall undergo a similar reverse split (i.e.,
every two old OP Units shall be converted into one new OP Unit). Similarly, if
any class of Partnership Units into which another class of Partnership Units is
convertible undergoes any split or reverse split, then without further action or
consent by the General Partner or any Limited Partner, the latter class of
Partnership Units shall be split or combined in accordance with the same ratio
used to split or combine the first class of Partnership Units.
(c) Fractional Units. The General Partner shall have the right
to issue fractional Partnership Units upon the conversion or exchange of one
class of Partnership Units for a second class of Partnership Units; provided,
however, that in accordance with Section 10.3(e) hereof no fractional shares of
Common Stock of the General Partner shall be issued upon the redemption of any
class of Partnership Units for Common Stock.
(d) Issuance of New Securities. Following completion of any
Offering, the General Partner shall not issue any additional shares of Common
Stock (other than shares of Common Stock issued pursuant to Section 10.3
hereof), or rights, options, warrants or convertible or exchangeable securities
containing the right to subscribe for or purchase shares of capital stock
(collectively, "New Securities"), other than to all holders of shares of Common
Stock, unless (i) the General Partner shall cause the Partnership to issue to
the General Partner Partnership Interests or rights, options, warrants or
convertible or exchangeable securities of the Partnership having
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designations, preferences and other rights, all such that the economic interests
are substantially similar to those of the New Securities, and (ii) the General
Partner contributes to the Partnership the proceeds from the issuance of such
New Securities and from the exercise of rights contained in such New Securities.
Without limiting the foregoing, the General Partner is expressly authorized to
issue New Securities for less than fair market value, and the General Partner is
expressly authorized to cause the Partnership to issue to the General Partner
corresponding Partnership Interests, so long as (x) the General Partner
concludes in good faith that such issuance is in the interest of the General
Partner and the Partnership (for example, and not by way of limitation, the
issuance of shares of Common Stock and corresponding Units pursuant to an
employee stock purchase plan providing for employee purchases of shares of
Common Stock at a discount from fair market value or employee stock options that
have an exercise price that is less than the fair market value of the shares of
Common Stock, either at the time of issuance or at the time of exercise), and
(y) the General Partner contributes all proceeds from such issuance and exercise
to the Partnership.
6.5 Capital Accounts. A separate capital account (a "Capital Account")
shall be maintained for each Partner in accordance with the Code and the
Regulations promulgated thereunder including, but not limited to, the rules
regarding the maintenance of partners' Capital Accounts set forth in Regulation
Section 1.704-1. Subject to the immediately preceding sentence, there shall be
credited to each Partner's Capital Account: (i) the amount of money contributed
by the Partner to the Partnership (subject, however, in the case of a Capital
Contribution by the General Partner upon completion of any Offering or upon
Additional Issuances (as defined in Section 6.3 above) of Common Stock, pursuant
to the provisions of Sections 6.1(b) and 6.3 hereof, the net amount of Offering
proceeds contributed to the Partnership), (ii) the Agreed Value of any property
contributed by the Partner to the Partnership, (iii) the amount of any
Partnership liabilities assumed by such Partner (other than liabilities secured
by property distributed to such Partner that such Partner is considered to have
assumed or taken subject to under Section 752 of the Code), and (iv) the
Partner's share of income or gain (or items thereof), including income and gain
exempt from tax. There shall be charged against each Partner's Capital Account:
(w) the amount of money distributed to the Partner by the Partnership, (x) the
Agreed Value of any property distributed to the Partner by the Partnership, (y)
the amount of
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any liabilities of such Partner assumed by the Partnership (other than
liabilities secured by property contributed to the Partnership by such Partner
that the Partnership is considered to have assumed or taken subject to pursuant
to Section 752 of the Code) and (z) the Partner's share of loss and deduction
(or items thereof). To the extent a Partner's Capital Account is greater than
zero, such excess is hereinafter referred to as a "positive balance". To the
extent a Partner's Capital Account is less than zero, said amount is hereinafter
referred to as a "deficit balance".
6.6 Limited Liability. Notwithstanding anything in this Agreement to
the contrary, the personal liability of a Limited Partner arising out of or in
any manner relating to the Partnership shall be limited to and shall not exceed
such Limited Partner's Capital Contribution made or required to be made pursuant
to this Agreement plus the amount of any deficit balances in its Capital Account
such Limited Partner is obligated to restore pursuant to the provisions of
Section 7.3 hereof. No Limited Partner shall have any personal liability for
liabilities or obligations of the Partnership, except to the extent of its
Capital Contribution, as aforesaid or as specifically provided in Section 7.3.
6.7 Return of Capital. Except as otherwise provided herein, (i) no
Partner shall be required to make any further or additional contributions to the
capital of the Partnership or to lend or advance funds to the Partnership for
any purpose and (ii) no Partner shall be entitled to the return of its capital,
except to the extent, if any, that distributions are made or deemed to be made
to such Partner otherwise than out of Profits pursuant to this Agreement.
6.8 No Interest on Capital Contributions. No interest or additional
share of Profits shall be paid or credited to the Partners on their Capital
Accounts, or on any undistributed Profits or funds left on deposit with the
Partnership; provided, however, that nothing contained herein shall be construed
to prevent or prohibit the payment of interest on account of loans made by the
Partners to the Partnership. Any loans made to the Partnership by a Partner
shall not increase its Capital Contribution or interest in the Profits, Losses
or Net Cash Flow of the Partnership, but shall be a debt due from the
Partnership and repaid accordingly.
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6.9 No Third Party Beneficiary. No creditor or other third party having
dealings with the Partnership shall have the right to enforce the right or
obligation of any Partner to make Capital Contributions or loans or to pursue
any other right or remedy hereunder or at law or in equity, it being understood
and agreed among the parties hereto that the provisions of this Agreement shall
be solely for the benefit of, and may be enforced solely by, the parties hereto
and their respective successors and assigns. None of the rights or obligations
of the Partners herein set forth to make Capital Contributions or loans to the
Partnership shall be deemed an asset of the Partnership for any purpose by any
creditor or other third party, nor may such rights or obligations be sold,
transferred or assigned by the Partnership or pledged or encumbered by the
Partnership to secure any debt or other obligation of the Partnership or of any
of the Partners.
6.10 Common Stock Option Plans. The Partners hereby acknowledge that
prior to the date hereof the General Partner has adopted, and the Partners
hereby acknowledge and agree that from and after the date hereof the General
Partner may adopt, without the consent of any Limited Partner, one or more stock
option or incentive plans ("Stock Plans") pursuant to which officers, directors,
trustees, employees and/or consultants of the General Partner, the Partnership
or any Affiliate of either of them may acquire shares of Common Stock. On each
date on which the General Partner issues any shares of Common Stock to a person
pursuant to a Stock Plan (i) the consideration paid for each such share of
Common Stock shall, as soon as received by the General Partner, be contributed
to the capital of the Partnership and (ii) the General Partner shall be issued
Partnership Units in an amount equal to that number of Partnership Units which,
if such Partnership Units were redeemed as of their date of issuance by the
General Partner for shares of Common Stock pursuant to Section 10.3 hereof,
would result in the General Partner receiving that number of shares of Common
Stock which are being issued to any such person pursuant to the Stock Plan. For
purposes of this Section 6.10 only, shares of Common Stock issued subject to
forfeiture or other similar restrictions shall be deemed issued upon the lapse
of such restrictions. Notwithstanding anything herein to the contrary, the mere
grant of options to purchase shares of Common Stock pursuant to any Stock Plan
shall not constitute the grant or issuance of shares of Common Stock for
purposes of this Section 6.10.
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ARTICLE 7
ALLOCATION OF PROFITS AND LOSSES
7.1 General Allocation of Profits and Losses. Except as otherwise
provided in this Article 7, after giving effect to any and all allocations set
forth in Section 7.4 below, all Profits and Losses of the Partnership (including
all items of income and expense entering into the determination of such Profits
and Losses), as finally determined for Federal income tax purposes for each
fiscal year of the Partnership, shall be allocated to and among the Partners in
accordance with their respective Percentage Interests.
7.2 Allocations with Respect to Transferred Interests. Unless otherwise
required by the Code and/or the Regulations or as determined by the General
Partner, in its sole and absolute discretion, any Profits or Losses allocable to
an additional Partnership Interest issued during any year or any fiscal quarter
or to a Partnership Interest which has been transferred during any year shall be
allocated among the Persons who were holders of such Partnership Interest during
such year in the manner described in Section 13.3(c) below.
7.3 Deficit Restoration Obligation. In the event that any Limited
Partner hereto enters into a "deficit restoration obligation" to the Partnership
pursuant to this Section 7.3, and such Limited Partner has a deficit balance in
its Capital Account following the liquidation of its interest in the
Partnership, as determined after taking into account all Capital Account
adjustments for the Partnership's taxable year during which the liquidation
occurs, such Limited Partner shall be unconditionally obligated to restore the
amount of such deficit balance to the Partnership by the later of (i) the end of
such taxable year, or (ii) 90 days after the date of the liquidation of the
Limited Partner's interest in the Partnership, which amount shall, upon
liquidation of the Partnership, be paid to creditors of the Partnership or
distributed to other Partners in accordance with their positive Capital Account
balances. For purposes hereof, a "deficit restoration obligation" shall mean an
unconditional agreement by a Limited Partner to restore a deficit balance in its
Capital Account (which may be limited in amount) in the form thereof used by the
Partnership. Any Limited Partner may, but is not obligated to, enter into such
an agreement at any time during the term hereof but not more often than
annually.
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7.4 Regulatory Allocations.
(a) Minimum Gain Chargeback. Notwithstanding any other
provision of this Agreement (except as provided in Section 7.4(b) below), if
there is a net decrease in Minimum Gain for a Partnership taxable year, each
Partner shall be allocated, before any other allocation of Partnership items for
such taxable year, items of income and gain for such year (and, if necessary,
for subsequent years) in proportion to, and to the extent of, the amount of such
Partner's share of the net decrease in Minimum Gain during such year. The income
allocated pursuant to this Section 7.4(a) in any taxable year shall consist
first of gains recognized from the disposition of property subject to one or
more nonrecourse liabilities of the Partnership, and any remainder shall consist
of a pro rata portion of other items of income or gain of the Partnership.
(b) Exceptions to Section 7.4(a). The allocation otherwise
required pursuant to Section 7.4(a) shall not apply to a Partner to the extent
that: (a) such Partner's share of the net decrease in Minimum Gain is caused by
a guarantee, refinancing or other change in the instrument evidencing a
nonrecourse debt of the Partnership which causes such debt to become a partially
or wholly recourse debt or a Partner Nonrecourse Debt, and such Partner bears
the economic risk of loss (within the meaning of Treasury Regulation Section
1.752-2) for such changed debt; (b) such Partner's share of the net decrease in
Minimum Gain results from the repayment of a nonrecourse liability of the
Partnership, which repayment is made using funds contributed by such Partner to
the capital of the Partnership; (iii) the IRS, pursuant to Treasury Regulation
Section 1.704-2(f)(4), waives the requirement of such allocation in response to
a request for such waiver made by the General Partner on behalf of the
Partnership (which request the General Partner may or may not make, in its sole
discretion, if it determines that the Partnership would be eligible therefor);
or (iv) additional exceptions to the requirement of such allocation are
established by revenue rulings issued by the IRS pursuant to Treasury Regulation
Section 1.704-2(f)(5), which exceptions apply to such Partner, as determined by
the General Partner in its sole discretion.
(c) Qualified Income Offset. Notwithstanding any other
provision of this Agreement, if a Partner unexpectedly receives an adjustment,
allocation or distribution described in Regulation
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Section 1.704-1(b)(2)(ii)(d)(4),(5) or (6) that causes or increases an Excess
Deficit Capital Account Balance with respect to such Partner, items of
Partnership gross income and gain shall be specially allocated to such Partner
in an amount and manner sufficient to eliminate such Excess Deficit Capital
Account Balance as quickly as possible.
(d) Gross Income Allocation. If at the end of any Partnership
taxable year, a Partner has an Excess Deficit Capital Account Balance, such
Partner shall be specially allocated items of Partnership gross income or gain
in an amount and manner sufficient to eliminate such Excess Deficit Capital
Account Balance as quickly as possible, until all Excess Deficit Capital Account
Balances have been eliminated. To the extent that any class of Partnership Units
that are convertible into OP Units has received distributions at the end of any
Partnership taxable year (including any prior taxable year) in excess of the
amounts such class of Partnership Units would have received during such taxable
year or years if all of the Partnership Units of such class had been converted
into OP Units (such excess being referred to hereinafter as "Excess Amounts"),
such items of gross income or gain shall then be allocated proportionately to
and among the holders of such class Partnership Units until such holders have
been allocated an amount equal to all Excess Amounts.
(e) Partner Nonrecourse Debt. Notwithstanding any other
provision of this Agreement, any item of Partnership Loss, deduction or
expenditures described in Code Section 705(a)(2)(B) that is attributable to a
Partner Nonrecourse Debt shall be allocated to those Partners that bear the
economic risk of loss for such Partner Nonrecourse Debt, and among such Partners
in accordance with the ratios in which they share such economic risk, determined
in accordance with Treasury Regulation Section 1.704-2(i). If there is a net
decrease for a Partnership taxable year in any Partner Nonrecourse Debt Minimum
Gain of the Partnership, each Partner with a share of such Partner Nonrecourse
Debt Minimum Gain as of the beginning of such year shall be allocated items of
gross income and gain in the manner and to the extent provided in Treasury
Regulation Section 1.704-2(i)(4).
(f) Interpretation. The foregoing provisions of this Section
7.4 are intended to comply with Treasury Regulation Sections 1.704-1(b) and
1.704-2 and shall be interpreted
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consistently with this intention. Any terms used in such provisions that are not
specifically defined in this Agreement shall have the meaning, if any, given
such terms in the Regulations cited above.
(g) Curative Allocations. If any allocation of gain, income,
loss, expense or any other item is made pursuant to Section 7.4(a), 7.4(c),
7.4(d) or 7.4(e) of this Agreement (the "Regulatory Allocations") with respect
to one or more Partners (the "Deficit Partners"), then the balance of such items
for the current and all subsequent fiscal years shall be allocated among the
Partners other than the Deficit Partners as if such items were allocated among
all the Partners (including the Deficit Partners) without regard to this Section
7.3, until the amount of such items that would have been allocated to the
Deficit Partners but for the Regulatory Allocations equal the amount allocated
to the Deficit Partners pursuant to the Regulatory Allocations.
7.5 Special Allocations with Respect to Contributed or Revalued
Property. Notwithstanding anything contained herein to the contrary, taxable
income, gain, loss and deduction with respect to any Partnership property that
is contributed to the Partnership by a Partner shall be shared among the
Partners for income tax purposes pursuant to Regulations promulgated under
Section 704(c) of the Code, so as to take into account the variation, if any,
between the adjusted tax basis of the property to the Partnership and its
initial Gross Asset Value. With respect to Partnership property that is
initially contributed to the Partnership upon its formation, such variation
between the adjusted tax basis and initial Gross Asset Value shall be taken into
account under the "traditional method" as described in Treasury Regulation
Section 1.704-3(b), unless otherwise determined by the General Partner and the
contributing Partner. With respect to properties subsequently contributed to the
Partnership, the Partnership shall account for such variation under any method
approved under Section 704(c) of the Code and the applicable regulations as
chosen by the General Partner. In the event the Gross Asset Value of any
Partnership asset is adjusted pursuant to subparagraph (b) of the definition of
Gross Asset Value (as provided in Article 1 of this Agreement), subsequent
allocations of tax items with respect to such asset shall take account of the
variation, if any, between the adjusted tax basis of such asset and its Gross
Asset Value in the same manner as under Section 704(c) of the Code and the
applicable regulations.
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7.6 Allocations with Respect to Partnership Units other than OP Units.
In the event the General Partner issues additional classes of Partnership Units
other than OP Units, then the General Partner shall determine, in its sole
discretion, the Profits and Losses attributable to each class and shall allocate
to Profits and Losses of each class of Partnership Units among the Partners in
such class in proportion to their respective Percentage Interests in such class,
after giving effect to any and all special allocations set forth in Section 7.4
above.
ARTICLE 8
DISTRIBUTIONS
8.1 Distribution of Net Cash Flow. Net Cash Flow of the Partnership, if
any, shall be distributed to and among the Partners as follows:
(a) If such Net Cash Flow has not arisen pursuant to a
Liquidation of the Partnership, such Net Cash Flow shall be distributed to and
among the Partners in accordance with their respective Percentage Interests; or
(b) If such Net Cash Flow has arisen pursuant to a Liquidation
of the Partnership, such Net Cash Flow shall be distributed to and among the
Partners having positive balances in their Capital Accounts (after taking into
account any and all Capital Account adjustments for the Partnership taxable year
during which the Liquidation occurs), in proportion to and to the extent of such
positive balances.
Net Cash Flow shall be distributed to the Partners in such amounts and at such
intervals as the General Partner, in its sole discretion, may determine, but no
less frequently than quarterly. With respect to each and every distribution of
Net Cash Flow to the Partners hereunder, the General Partner shall distribute
such Net Cash Flow only to those Partners who are Partners on the Partnership
Record Date and whose Partnership Units were outstanding during the period to
which such distribution relates and, with respect to those Partners who were
issued additional Partnership Units during such period, the General Partner
shall distribute Net Cash Flow (i) on a pro-rated basis based upon the number of
days during such period that such Partners held such additional Partnership
Units or (ii) on such other reasonable basis as determined by the General
Partner in its sole discre-
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tion; provided, however, in no event may a Partner receive a distribution of Net
Cash Flow with respect to any particular Partnership Unit if such Partner is
entitled to receive a distribution out of such Net Cash Flow with respect to one
or more shares of Common Stock for which such Partnership Unit has been
redeemed. Notwithstanding the foregoing, the General Partner shall take such
reasonable efforts, as determined by it in its sole and absolute discretion and
consistent with its qualification as a REIT, to cause the Partnership to
distribute sufficient amounts to enable the General Partner to pay stockholder
dividends that will (i) satisfy the REIT Requirements and (ii) avoid any federal
income or excise tax liability of the General Partner.
8.2 Distributions in Kind. No right is given to any Partner to demand
and receive property or cash. The General Partner may determine, in its sole and
absolute discretion, to make a distribution in kind to the Partners of
Partnership assets, and such assets shall be distributed in such a fashion as to
ensure that the fair market value of such assets is distributed and allocated in
accordance with Section 8.1 hereof.
8.3 Withholding. Each Limited Partner hereby authorizes the Partnership
to withhold from or pay on behalf of or with respect to such Limited Partner any
amount of federal, state, local or foreign taxes that the General Partner
determines or reasonably believes that the Partnership is required to withhold
or pay with respect to any amount distributable or allocable to such Limited
Partner pursuant to this Agreement, including, without limitation, any taxes
required to be withheld or paid by the Partnership pursuant to Code Sections
1441, 1442, 1445 or 1446. Any and all amounts withheld pursuant to this Section
8.3 with respect to any allocation, payment or distribution to any Partner
hereunder shall be treated as amounts distributed to such Partner pursuant to
Section 8.1 hereof for all purposes under this Agreement. If any amount is
withheld by the Partnership pursuant to this Section 8.3 with respect to a
particular Partner and such amount would not have been distributed to such
Partner pursuant to Section 8.1 hereof at any time on or before the date it is
withheld, then such Partner shall contribute to the capital of the Partnership
an amount equal to the amount so withheld as soon as practicable after the
delivery by the General Partner to such Partner of a notice requesting such
contribution to the Partnership. The General Partner, on behalf of the
Partnership, shall have the right to offset any obligation of a Partner to
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contribute additional funds to the Partnership pursuant to the immediately
preceding sentence of this Section 8.3 against any future distributions due to
such Partner under Section 8.1 hereof.
8.4 Distributions with Respect to Partnership Units other than OP
Units. Notwithstanding the foregoing provisions of this Article 8, in the event
the General Partner issues additional classes of Partnership Units other than OP
Units to Limited Partners, then the General Partner shall determine, in its sole
discretion, the amount of distributions of Net Cash Flow attributable to each
class and shall distribute such Net Cash Flow to each class of Partnership Units
among the Partners in such class in proportion to their respective Percentage
Interests in such class or otherwise required pursuant to the terms of such
Partner's Unit Certificates.
ARTICLE 9
MANAGEMENT
9.1 Management of Partnership Affairs.
(a) General Partner. Except as otherwise specifically provided
in this Agreement, and subject to Section 9.1(b) below, the General Partner
shall have full, exclusive and complete responsibility and discretion in the
management and control of the business and affairs of the Partnership and shall
make all decisions affecting the Partnership's business and affairs. Subject to
the foregoing, the General Partner shall have all the rights, powers and
obligations of a general partner as provided in the Act, and, except as
otherwise provided, any action taken by the General Partner (in its capacity as
such) shall constitute the act of and serve to legally bind the Partnership.
Persons dealing with the Partnership shall be entitled to rely conclusively on
the power and authority of the General Partner as set forth in this Agreement.
(b) Interim Managing General Partner. From the date hereof
until consummation of Offerings aggregating gross proceeds to the General
Partner of at least $25 million, the Interim Managing General Partner shall,
subject to the rights accorded the Limited Partners hereunder and under the Act
and subject to the prior consent of the General Partner with respect to
transactions with Affiliates of the Interim Managing General
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Partner, have full, exclusive and complete responsibility and discretion in the
management and control of the business and affairs of the Partnership and shall
make all decisions affecting the Partnership's business and affairs to the
extent otherwise granted to the General Partner hereunder, and the General
Partner shall have no such rights. Subject to the foregoing, the Interim
Managing General Partner shall have all the rights, powers and obligations of a
general partner as provided in the Act, and, except as otherwise provided, any
action taken by the Interim Managing General Partner (in its capacity as such)
shall constitute the act of and serve to legally bind the Partnership. Persons
dealing with the Partnership shall be entitled to rely conclusively on the power
and authority of the Interim Managing General Partner as set forth in this
Agreement. The Partners agree that immediately upon consummation of Offerings
aggregating gross proceeds to the General Partner of at least $25 million, the
Interim Managing General Partner shall automatically be deemed to have withdrawn
from the Partnership, and the General Partner shall be entitled to exercise in
full the rights and responsibilities hereunder accorded to the General Partner
that it would have received but for the rights accorded the Interim Managing
General Partner under this Section 9.1(b). Until consummation of Offerings
aggregating gross proceeds to the General Partner of at least $25 million,
references to the General Partner in this Agreement shall be deemed to be
references to the Interim Managing General Partner, unless otherwise required by
the context thereof; provided, however, that references to the General Partner
herein, including, without limitation, those set forth in Articles 6, 7 and 8
and Section 10.3 hereof, shall always refer with respect to economic issues (as
opposed to management issues) to the General Partner.
9.2 Powers and Authorities of the General Partner. Except as otherwise
specifically provided in this Agreement, and subject to Sections 9.1(b) and 9.3
hereof, the General Partner is hereby granted the right, power and authority to
do on behalf of the Partnership all things which, in its best business judgment,
are necessary, proper or desirable to carry out its duties and responsibilities,
including but not limited to, the right, power and authority:
(a) To manage, control, invest, reinvest, acquire by purchase,
lease or otherwise, develop, expand, sell, contract to purchase or sell, grant,
obtain or exercise options to purchase, options to sell or conversion rights,
assign, transfer, convey,
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deliver, endorse, exchange, pledge, mortgage, abandon, improve, repair,
maintain, insure, lease for any term and otherwise deal with any and all
property of whatsoever kind and nature, and wheresoever situated, in furtherance
of the purposes of the Partnership;
(b) To acquire, directly or indirectly, interests in real
estate of any kind and of any type, and any and all kinds of interests therein,
and to determine the manner in which title thereto is to be held; to manage,
insure against loss, protect and subdivide any of the real estate, interests
therein or parts thereof; to improve, develop or redevelop and expand any such
real estate; to participate in the ownership and development of any property; to
dedicate for public use, to vacate any subdivisions or parts thereof, to
resubdivide, to contract to sell, to grant options to purchase or lease, to sell
on any terms; to convey, to mortgage, pledge or otherwise encumber said
property, or any part thereof; to lease said property or any part thereof from
time to time, upon any terms and for any period of time, and to renew or extend
leases, to amend, change or modify the terms and provisions of any leases and to
grant options to lease and options to renew leases and options to purchase; to
partition or to exchange said real property, or any part thereof, for other real
or personal property; to grant easements or charges of any kind; to release,
convey or assign any right, title or interest in or about or easement
appurtenant to said property or any part thereof; to construct and reconstruct,
remodel, alter, repair, add to or take from buildings on said premises; to
insure any Person having an interest in or responsibility for the care,
management or repair of such property; to direct the trustee of any land trust
to mortgage, lease, convey or contract to convey the real estate held in such
land trust or to execute and deliver deeds, mortgages, notes, and any and all
documents pertaining to the property subject to such land trust or in any matter
regarding such trust; to execute assignments of all or any part of the
beneficial interest in such land trust;
(c) To employ, engage or contract with or dismiss from
employment or engagement Persons to the extent deemed necessary by the General
Partner for the operation and management of the Partnership business, including
but not limited to, contractors, subcontractors, engineers, architects,
surveyors, mechanics, consultants, accountants, attorneys, insurance brokers,
real estate brokers and others;
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(d) To enter into contracts on behalf of the Partnership;
(e) To borrow money, procure loans and advances from any
Person for Partnership purposes, and to apply for and secure, from any Person,
credit or accommodations; to contract liabilities and obligations, direct or
contingent and of every kind and nature with or without security; and to repay,
discharge, settle, adjust, compromise or liquidate any such loan, advance,
credit, obligation or liability;
(f) To pledge, hypothecate, mortgage, assign, deposit,
deliver, enter into sale and leaseback arrangements or otherwise give as
security or as additional or substitute security, or for sale or other
disposition any and all Partnership property, tangible or intangible, including,
but not limited to, real estate and beneficial interests in land trusts, and to
make substitutions thereof, and to receive any proceeds thereof upon the release
or surrender thereof; to sign, execute and deliver any and all assignments,
deeds and other contracts and instruments in writing; to authorize, give, make,
procure, accept and receive moneys, payments, property, notices, demands,
vouchers, receipts, releases, compromises and adjustments; to waive notices,
demands, protests and authorize and execute waivers of every kind and nature; to
enter into, make, execute, deliver and receive written agreements, undertakings
and instruments of every kind and nature; to give oral instructions and make
oral agreements; and generally to do any and all other acts and things
incidental to any of the foregoing or with reference to any dealings or
transactions which any attorney may deem necessary, proper or advisable;
(g) To acquire and enter into any contract of insurance which
the General Partner deems necessary or appropriate for the protection of the
Partnership, for the conservation of the Partnership's assets or for any purpose
convenient or beneficial to the Partnership;
(h) To conduct any and all banking transactions on behalf of
the Partnership; to adjust and settle checking, savings, and other accounts with
such institutions as the General Partner shall deem appropriate; to draw, sign,
execute, accept, endorse, guarantee, deliver, receive and pay any checks,
drafts, bills of exchange, acceptances, notes, obligations, undertakings
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and other instruments for or relating to the payment of money in, into, or from
any account in the Partnership's name; to execute, procure, consent to and
authorize extensions and renewals of the same; to make deposits and withdraw the
same and to negotiate or discount commercial paper, acceptances, negotiable
instruments, bills of exchange and dollar drafts;
(i) To demand, sue for, receive, and otherwise take steps to
collect or recover all debts, rents, proceeds, interests, dividends, goods,
chattels, income from property, damages and all other property, to which the
Partnership may be entitled or which are or may become due to the Partnership
from any Person; to commence, prosecute or enforce, or to defend answer or
oppose, contest and abandon all legal proceedings in which the Partnership is or
may hereafter be interested; and to settle, compromise or submit to arbitration
any accounts, debts, claims, disputes and matters which may arise between the
Partnership and any other Person and to grant an extension of time for the
payment or satisfaction thereof on any terms, with or without security;
(j) To make arrangements for financing, including the taking
of all action deemed necessary or appropriate by the General Partner to cause
any approved loans to be closed;
(k) To take all reasonable measures necessary to insure
compliance by the Partnership with applicable arrangements, and other
contractual obligations and arrangements entered into by the Partnership from
time to including periodic reports as required to lenders and using all due
diligence to insure that the Partnership is in compliance with its contractual
obligations;
(l) To maintain the Partnership's books and records; and
(m) To prepare and deliver, or cause to be prepared and
delivered by the Partnership's Accountants, all financial and other reports with
respect to the operations of the Partnership, and preparation and filing of all
Federal and state tax returns and reports.
Except as otherwise provided herein, to the extent the duties of the General
Partner require expenditures of funds to be paid to third parties, the General
Partner shall not have any obligations
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hereunder except to the extent that Partnership funds are reasonably available
to it for the performance of such duties, and nothing herein contained shall be
deemed to authorize or require the General Partner, in its capacity as such, to
expend its individual funds for payment to third parties or to undertake any
individual liability or obligation on behalf of the Partnership.
9.3 Major Decisions. In addition to the requirements of Sections
12.6(a) and (b), if applicable, until such time prior to the first anniversary
date hereof as the General Partner owns sixty-seven percent (67%) of the
Partnership Units, and thereafter until such time as the General Partner owns
sixty percent (60%) of the Partnership Units, the General Partner shall not,
without the prior written consent of holders of at least fifty-one percent (51%)
of the Partnership Units held by the Limited Partners, taken as a single class,
on behalf of the Partnership, undertake any of the following actions:
(a) Engage in a Termination Transaction as defined in Section
12.6(a) hereof;
(b) Dissolve, liquidate or wind-up the Partnership;
(c) Change the nature of the business of the Partnership; or
(d) Admit, remove or retain a general partner.
9.4 Restrictions on General Partner's Authority.
(a) The General Partner may not take any action in
contravention of this Agreement, including, without limitation:
(i) Take any action that would make it impossible to
carry on the ordinary business of the Partnership, except as otherwise
provided in this Agreement;
(ii) Admit a Person as a Partner, except as otherwise
provided in this Agreement;
(iii) Perform any act that would subject a Limited
Partner to liability as a general partner in any jurisdiction or any
other liability except as provided herein or under the Act;
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(iv) Enter into any contract, mortgage, loan or other
agreement that prohibits or restricts, or has the effect of prohibiting
or restricting, the ability of a Limited Partner to exercise its
Redemption Rights in full, except with the written consent of such
Limited Partner; or
(v) Possess Partnership property, assign any rights
in specific Partnership property, for other than a Partnership purpose
except as otherwise provided in this Agreement.
(b) The General Partner may not, except as otherwise permitted
in Section 9.9 hereof, change its policy of holding its assets and conducting
its business substantially through the Partnership, nor may any transactions
described in Section 12.6(a) or 12.6(b), without the consent of all the Limited
Partners, be structured in a manner which will change the General Partner's
policy of holding its assets and conducting its business through the Partnership
(or the Surviving Partnership, if applicable) if the result of such transaction
is the recognition of gain by the Limited Partners.
9.5 Engagements by the Partnership. The General Partner may engage, on
behalf and at the expense of the Partnership, such professional persons, firms
or corporations as the General Partner in its reasonable judgment shall deem
advisable for the conduct and operation of the business of the Partnership,
including, without limitation, brokers, mortgage bankers, lawyers, accountants,
architects, engineers, consultants, contractors and purveyors of other such
services for the Partnership on such terms and for such compensation or costs as
the General Partner, in its reasonable judgment, shall determine.
9.6 Engagement of Affiliates. The General Partner may, on behalf and at
the expense of the Partnership, engage the General Partner or a firm in which
the General Partner, a Limited Partner, or a Partner, officer, director,
stockholder or Affiliate of any of them, has an interest, to render services to
the Partnership and/or the assets of the Partnership, provided that the fees or
other compensation payable for such services are specifically authorized by the
terms of this Agreement or are comparable to those prevailing in arm's-length
transactions for similar services and are approved by the Board of Directors.
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9.7 Liability of the General Partner. The General Partner and its
Affiliates, officers, directors, agents and employees shall not be liable,
responsible or accountable in damages or otherwise to the Partnership or any of
the Partners or their successors or assigns for any acts or omissions performed
or omitted within the scope of its authority as General Partner, or otherwise
conferred on the General Partner and such Affiliates, officers, directors,
agents and employees by this Agreement, provided that the General Partner or
such Affiliates, officers, directors, agents or employees shall act in good
faith and shall not be guilty of willful misconduct or gross negligence.
9.8 Reimbursement of Certain Expenses of the General Partner.
(a) Except as provided in this Section 9.8 and elsewhere in
this Agreement (including the provisions of Articles 7 and 8 regarding
distributions, payments and allocations to which it may be entitled), the
General Partner shall not be compensated for its services as general partner of
the Partnership.
(b) The Partnership shall be responsible for and shall pay all
expenses relating to the Partnership's organization, the ownership of its assets
and its operations. The General Partner shall be reimbursed on a monthly basis,
or such other basis as the General Partner may determine in its sole and
absolute discretion, for all expenses it incurs relating to the ownership and
operation of, or for the benefit of, the Partnership (including, without
limitation, expenses relating to the management and administration of any
Affiliates of the General Partner or the Partnership such as auditing expenses
and filing fees); provided that (1) the amount of any such reimbursement shall
be reduced by (i) any interest earned by the General Partner with respect to
bank accounts or other instruments or accounts held by it as permitted in
Section 9.9 below and (ii) any amount derived by the General Partner from any
investments permitted in Section 9.9 below and (2) any expenses that are
determined by the General Partner to be unrelated to the Partnership shall not
be treated as Partnership expenses for purposes of this Section 9.8(b). The
General Partner shall determine in good faith the amount of expenses incurred by
it related to the ownership and operation of, or for the benefit of, the
Partnership. In the event that certain expenses are incurred
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for the benefit of the Partnership and other entities (including the General
Partner), such expenses will be allocated to the Partnership and such other
entities in such a manner as the General Partner in it's sole and absolute
discretion deems fair and reasonable. All payments and reimbursements hereunder
shall be characterized for federal income tax purposes as expenses of the
Partnership incurred on its behalf, and not as expenses of the General Partner.
9.9 Outside Activities of the General Partner. Notwithstanding anything
to the contrary contained herein, except as set forth in this Section 9.9, the
General Partner shall not, directly or indirectly, without the consent of a
majority in interest of the Limited Partners (excluding the General Partner),
enter into or conduct any business other than in connection with the ownership,
acquisition and disposition of Partnership Interests as a General Partner or
Limited Partner and the management of the business of the Partnership in such
activities as are incidental to any of the foregoing. Without the consent of a
majority in interest of the Limited Partners (excluding the General Partner),
the assets of the General Partner shall be limited to Partnership Interests and
permitted debt obligations of the Partnership, so that Common Stock and OP Units
are completely fungible except as otherwise specifically provided herein;
provided, that the General Partner shall be permitted to hold (i) interests and
entities, including "Qualified REIT Subsidiaries"(which are defined in Section
856(i)(2) of the Code, as amended, as any corporation if 100% of the stock of
such corporation is held by the REIT at all times the corporation was in
existence), that hold no material assets; (ii) interests in Qualified REIT
Subsidiaries or other entities that are not taxed as corporations for federal
income tax purposes) that own only interests in the Partnership and/or interests
in other Qualified REIT Subsidiaries (or other entities that are not taxed as
corporations for federal income tax purposes) that either hold no assets or hold
only interests in the Partnership; (iii) assets and or interests in entities,
including Qualified REIT Subsidiaries, that hold assets having an aggregate
value not greater than five percent (5%) of the total market value of the
General Partner entity (determined by reference to the value of all outstanding
equity securities of the General Partner), provided that (X) the General Partner
entity will apply the net income from such assets (other than net income derived
as a result of a Qualified REIT Subsidiary ownership of an interest in the
Partnership) to offset REIT expenses before utilizing the
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distribution provisions of Section 8 hereof, (Y) the General Partner will
contribute all net income generated by such assets and or interests (other than
net income derived as a result of a Qualified REIT Subsidiary ownership of an
interest in the Partnership) to the Partnership (after taking into account REIT
expenses as described in clause (X) above, and (Z) the General Partner will use
commercially reasonable efforts to transfer such assets and interests (other
than interests in Qualified REIT Subsidiaries and the Partnerships) to the
Partnership or an entity controlled by the Partnership as soon as such transfer
can be made without causing the General Partner or the Partnership to incur any
material expenses in connection therewith; and (iv) such bank accounts or
similar instruments or accounts in its own name as it deems necessary to carry
out its responsibilities and purposes as contemplated under this Agreement and
its organizational documents; and, provided, further, that the General Partner
shall be permitted to acquire, directly or through a Qualified REIT Subsidiary
(or other entities that are not taxed as corporations for federal income tax
purposes), up to a one percent (1%) interest in any partnership or limited
liability company at least ninety-nine (99%) of the equity of which is owned
directly or indirectly by the Partnership. The General Partner and any of its
Affiliates may acquire Limited Partner Partnership Interests and shall be
entitled to exercise all rights of a Limited Partner relating to such
Partnership Interests.
9.10 Operation in Accordance with REIT Requirements. The Partners
acknowledge and agree that the Partnership shall be operated in a manner that
will enable the General Partner to (i) satisfy the REIT Requirements and (ii)
avoid the imposition of any federal income or excise tax liability. The
Partnership shall avoid taking any action which would result in the General
Partner ceasing to satisfy the REIT Requirements or would result in the
imposition of any federal income or excise tax liability on the General Partner.
9.11 Title Holder. To the extent allowable under applicable law, title
to all or any part of the properties of the Partnership may be held in the name
of the Partnership or any other individual, corporation, partnership, trust or
otherwise, 100% of the beneficial interest in which shall at all times be vested
in the Partnership except for de minimus interests held by qualified REIT
subsidiaries. Any such title holder shall perform any and all of its respective
functions to the extent and upon
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such terms and conditions as may be determined from time to time by the General
Partner.
ARTICLE 10
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
10.1 No Participation in Management of Partnership; Rights of Limited
Partners to Certain Documents.
(a) The Limited Partners shall have such rights as are
enumerated as rights of limited partners under the Act. The Limited Partners, in
such capacity, shall not take part in, or interfere in any manner, with the
conduct or control of the Partnership's business and shall have no right or
authority to act for or bind the Partnership, said powers being vested solely
and exclusively in the General Partner. Except as specifically set forth in
Section 9.3 or otherwise in this Agreement, the Limited Partners, in their
capacities as such, shall not have any right or power whatsoever to take any
action with respect to the conduct or control of the Partnership or its business
including, but not limited to, any right to vote on, or otherwise approve, any
matters or decisions, whether material, major or otherwise, in connection with
the business of the Partnership.
(b) In addition to any other rights provided in this Agreement
or by the Act, and except as limited by Section 10.1(c) below, each Limited
Partner shall have the right, for a purpose reasonably related to such Limited
Partner's interest as a limited partner in the Partnership, upon written demand
with a statement of the purpose of such demand and at such Limited Partner's own
expense:
(i) to obtain a copy of the most recent annual and
quarterly reports filed with the Securities and Exchange
Commission by the General Partner pursuant to the Securities
Exchange Act of 1934, as amended, and each report sent to the
stockholders of the General Partner;
(ii) to obtain a copy of the Partnership's federal,
state and local income tax returns for each fiscal year of the
Partnership;
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(iii) to obtain a current list of the name and last
known business, residence or mailing address of each Partner;
(iv) to obtain a copy of this Agreement and the
Certificate and all amendments thereto, together with executed
copies of all powers of attorney pursuant to which this
Agreement, the Certificate and all amendments thereto have
been executed; and
(v) to obtain true and full information regarding the
amount of cash and a description and statement of any other
property or services contributed by each Partner and which
each Partner has agreed to contribute in the future, and the
date on which each became a Partner.
(c) Notwithstanding any other provisions of Section 10.1(b)
hereof, the General Partner may keep confidential from the Limited Partners, for
such period of time as the General Partner determines in its sole and absolute
discretion to be reasonable, any information that (i) the General Partner
believes to be in the nature of trade secrets or other information the
disclosure of which the General Partner in good faith believes is not in the
best interests of the Partnership or the General Partner or (ii) the Partnership
or the General Partner is required by law or by agreements with unaffiliated
third parties to keep confidential.
10.2 Withdrawal, Retirement, Death, Incompetency, Insolvency or
Dissolution of a Limited Partner. A Limited Partner shall have no right to
withdraw, retire or resign from the Partnership. The death, incompetency,
insolvency or dissolution of a Limited Partner shall not terminate the
Partnership. Upon the death of a Limited Partner, his or her executor,
administrator or successor in interest shall have all of the rights and duties
of a Limited Partner for the purpose of settling his or her estate.
10.3 Redemption Rights.
(a) Grant of Rights. The General Partner does hereby grant to
the Limited Partners and the Limited Partners do hereby accept the right, but
not the obligation (such right shall be referred to hereinafter sometimes as the
"Redemption Rights"), to require the Partnership to redeem all or part of their
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Partnership Units for shares of Common Stock and/or cash, at any time or from
time to time after the date which is one (1) year after the date of the original
issuance by the Partnership to any Limited Partner of such Partnership Units, on
the terms and subject to the conditions and restrictions contained in this
Section 10.3.
(b) Delivery of Exercise Notices. Any one or more Limited
Partners ("Exercising Partners") may, subject to the limitations set forth in
this Section 10.3, deliver to the General Partner written notice in the form
attached to the Unit Certificate as Attachment 1 (the "Exercise Notice")
pursuant to which such Exercising Partners elect to exercise their Redemption
Rights with respect to all or any portion of their Partnership Units. The
Exercise Notice shall specify the specific number of Partnership Units which the
Limited Partner intends to require the Partnership to redeem for shares of
Common Stock and the specific number of Partnership Units which the Limited
Partner intends to require the Partnership to redeem for cash. Only whole
numbers of Partnership Units may be redeemed. Once delivered, the Exercise
Notice shall be irrevocable, subject to payment by the General Partner of shares
of Common Stock and/or cash in respect of such Partnership Units in accordance
with the terms hereof.
(c) Assumption by General Partner. Notwithstanding anything
contained herein to the contrary, the General Partner may, in its sole and
absolute discretion, assume directly the obligation with respect to and satisfy
an Exercising Partner's exercise of a Redemption Right by paying to the
Exercising Partner, at the General Partner's election, shares of Common Stock
and/or cash, as determined in accordance with the provisions of Section 10.3(e)
below, whereupon the General Partner shall acquire the Offered Units and shall
be treated for all purposes of this Agreement as the owner of such Offered
Units. In the event the General Partner shall exercise its right to satisfy the
Redemption Right in the manner described in the preceding sentence, the
Partnership shall have no obligation to pay any amount to the Exercising Partner
with respect to such Exercising Partner's exercise of the Redemption Right, and
each of the Exercising Partner, the Partnership and the General Partner shall
treat the transaction between the General Partner and the Exercising Partner as
a sale of the Offered Units to the General Partner for federal income tax
purposes. Moreover, in the event the General Partner shall exercise its right to
satisfy
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the Redemption Right, any such interests acquired by the General Partner shall
be automatically converted into General Partner Interests.
(d) Limitation on Exercise of Redemption Rights. Redemption
Rights may be exercised at any time and from time to time after the date which
is one (1) year after the date of the original issuance by the Partnership to
any Limited Partner of such Partnership Units, subject to the following
limitations:
(i) A Limited Partner may not exercise its Redemption
Rights pursuant to any one particular Exercise Notice for less
than One Thousand (1,000) Partnership Units or, if such
Limited Partner holds less than One Thousand (1,000)
Partnership Units, all of the Partnership Units held by such
Limited Partner;
(ii) A Limited Partner shall not have the right to
exercise its Redemption Rights hereunder if, in the opinion of
counsel selected by the General Partner, in its sole and
absolute discretion, such exercise and/or issuance of shares
of Common Stock may or would (A) violate the General Partner's
Articles of Incorporation, as amended from time to time, (B)
cause the General Partner to fail any one or more of the REIT
Requirements or (C) constitute a violation of applicable
securities laws; and
(iii) Each Limited Partner acknowledges and agrees
that the issuance of shares of Common Stock pursuant to the
Redemption Rights will not be registered under the Securities
Act or any state securities laws. Accordingly, shares of
Common Stock issued to such Limited Partner may be required to
be held indefinitely and the General Partner shall have no
obligation to register such shares under the Securities Act or
any state securities laws unless required to do so pursuant to
a separate written agreement entered into by the General
Partner at the time of the issuance. In addition, such Limited
Partner will be required to meet such other requirements and
to provide such other information and representations as the
General Partner may require, which are required in the opinion
of its counsel to lawfully allow it to issue such shares
without registration under the Securities
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Act and any applicable state securities laws. Each Limited
Partner acknowledges that the certificates representing shares
of Common Stock issued will also bear a legend with respect to
any restrictions on transfer required in the opinion of
counsel for the General Partner. The General Partner
acknowledges that the Limited Partners have been granted the
right, in certain circumstances and subject to certain
limitations, to require the registration under the Securities
Act of the shares of Common Stock issued pursuant to the
Redemption Rights.
(e) Computation of Number of Exchange Shares and/or Cash To Be
Paid. Each Partnership Unit which is to be redeemed for shares of Common Stock
shall be redeemed for one share of Common Stock, as adjusted from time to time
as provided in Section 10.3(i). Upon an election to redeem Partnership Units for
shares of Common Stock, the General Partner shall cause the Partnership to
purchase such Common Stock for the redemption either (i) from the General
Partner, or (ii) on the open market. Each Partnership Unit which is to be
redeemed for cash shall be redeemed for an amount of cash equal to the Current
Per Share Market Price (determined as of the Trading Day immediately preceding
the date upon which the closing of the redemption of Offered Units is to occur).
Notwithstanding anything contained herein to the contrary, the General Partner,
in its sole and absolute discretion, shall have the right either (i) to deliver
shares of Common Stock to each Exercising Partner in lieu of all or any portion
of the cash requested by such Exercising Partner, the number of which shares of
Common Stock shall be determined pursuant to the first sentence of this Section
10.3(e) or (ii) to cause the Partnership to pay cash to each Exercising Partner
in lieu of all or any portion of the number of shares of Common Stock requested
by such Exercising Partner, the amount of such cash per Partnership Unit shall
be determined pursuant to the second sentence of this Section 10.3(e). The
General Partner shall not be required to issue fractions of shares of Common
Stock in return for Partnership Units. If more than one Partnership Unit shall
be requested to be redeemed at the same time by the same Limited Partner, the
number of full shares of Common Stock that shall be issuable upon the redemption
thereof shall be computed on the basis of the aggregate number of shares of
Common Stock represented by the Partnership Units so presented. If any fraction
of a share of Common Stock would, except for the provisions of this Section
10.3(e), be issuable on
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the redemption of any Partnership Units (or specified portion thereof), the
General Partner shall pay an amount in cash equal to the Current Per Share
Market Price (determined as of the Trading Day immediately preceding the date
upon the closing of the Redemption of the Offered Units is to occur), multiplied
by such fraction.
(f) Closing; Delivery of Election Notice. The closing of the
redemption of Offered Units shall, unless otherwise mutually agreed, be held at
the principal offices of the General Partner, on the date agreed to by the
General Partner and the Exercising Partners, which date shall in no event be
later than: (i) ten (10) business days after the date of delivery of the
Exercise Notice to the General Partner or (ii) the first date upon which all
legal and other conditions with respect to such redemption have been satisfied
(which shall include the expiration or termination of any applicable waiting
periods).
(g) Closing Deliveries. At the closing of the redemption of
Offered Units, (i) the Exercising Partners shall execute and deliver (A) proper
instruments of transfer and assignment of the Offered Units, (B) a Unit
Certificate or Unit Certificates representing the number of Offered Units to be
so redeemed and (C) representations and warranties with respect to their due
authority to sell all of the right, title and interest in and to such Offered
Units to the General Partner and, with respect to the status of the Offered
Units, that such Offered Units are free and clear of all liens, claims and
encumbrances whatsoever, and (ii) the General Partner shall (A) if shares of
Common Stock are to be issued, execute and deliver representations and
warranties with respect to its due authority to issue the shares of Common Stock
to be received in the exchange; deliver an opinion of counsel for the General
Partner, reasonably satisfactory to the Exercising Partners, to the effect that
such shares of Common Stock have been duly authorized, are validly issued,
fully-paid and non-assessable; and deliver a stock certificate or certificates
evidencing the shares of Common Stock to be issued and registered in the name(s)
of the Exercising Partner(s) or its or their designee(s), and/or (B) if cash is
to be paid for Partnership Units, deliver a check in the amount of any cash due
to the Exercising Partner(s) at such closing. If any Exercising Partner shall
have delivered a Unit Certificate or Unit Certificates representing a number of
Partnership Units in excess of the number of Offered Units, the Partnership
shall issue to such Exercising Partner, at the
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expense of the Partnership, a new Unit Certificate covering the number of
Partnership Units representing the unredeemed portion of the Unit Certificate or
Unit Certificates so surrendered, which new Unit Certificate shall entitle the
holder thereof to such rights of ownership of Partnership Units to the same
extent as if the Unit Certificate covering such unredeemed Partnership Units had
not been surrendered for redemption.
(h) Term of Rights. Unless sooner terminated, the rights of
the parties with respect to the Redemption Rights shall commence as of the date
which is one (1) year after the date of this Agreement and lapse for all
purposes and in all respects upon the termination of the Partnership; provided,
however, that the parties hereto shall continue to be bound by an Exercise
Notice delivered to the General Partner prior to such termination.
(i) Covenants of the General Partner. To facilitate the
General Partner's ability to fully perform its obligations hereunder, the
General Partner covenants and agrees as follows:
(i) At all times during the pendency of the
Redemption Rights, the General Partner shall reserve for
issuance such number of shares of Common Stock as may be
necessary to enable the General Partner to issue such shares
in full exchange for all Partnership Units held by the Limited
Partners which are from time to time issued and outstanding;
(ii) During the pendency of the Redemption Rights,
each Limited Partner shall receive in a timely manner all
reports and/or other communications transmitted from time to
time by the General Partner to its stockholders generally; and
(iii) In case the General Partner shall issue rights
or warrants to all holders of shares of its Common Stock
entitling them to subscribe for or purchase shares of Common
Stock at a price per share less than the Current Per Share
Market Price as of the date immediately prior to the date of
such issuance, the General Partner shall also issue to each
holder of a Partnership Unit such number of rights or
warrants, as the case may be, as he would have been entitled
to receive had he required the Partnership to redeem his
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Partnership Units immediately prior to the record date for
such issuance by the General Partner.
(iv) In case the outstanding shares of Common Stock
shall be subdivided into a greater number of shares, the
number of shares of Common Stock for which each Partnership
Unit thereafter may be redeemed shall be increased
proportionately, and, conversely, in case outstanding shares
of Common Stock each shall be combined into a smaller number
of shares, the number of shares of Common Stock for which each
Partnership Unit thereafter may be redeemed shall be reduced
proportionately, such increase or reduction as the case may
be, to become effective immediately after the opening of
business on the Trading Day following the day upon which such
subdivision or combination becomes effective.
(v) In case shares of Common Stock shall be changed
into the same or a different number of shares of any class or
classes of shares of beneficial interest, whether by capital
reorganization, reclassification or otherwise (other than a
subdivision or combination of shares or a stock dividend
described in Section 10.3(i)(iv) above) then and in each such
event the Limited Partners shall have the right thereafter to
require the Partnership to redeem their Partnership Units for
the kind and amount of shares and other securities and
property which would have been received upon such
reorganization, reclassification or other change by holders of
the number of shares of Common Stock for which the Partnership
Units might have been redeemed immediately prior to such
reorganization, reclassification or change.
(vi) The General Partner may, but shall not be
required to, make such adjustments to the number of shares of
Common Stock issuable upon redemption of a Partnership Unit,
in addition to those required by paragraphs (iii), (iv) and
(v) of this Section 10.3(i), as the Board of Directors
considers to be advisable in order that any event treated for
Federal income tax purposes as a dividend of stock or stock
rights shall not be taxable to the recipients. The Board of
Directors shall have the power to resolve any ambiguity
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or correct any error in the adjustments made pursuant to this
Section 10.3(i) and its actions in so doing shall be final and
conclusive.
(j) Limited Partners' Covenant. Each Limited Partner covenants
and agrees with the General Partner that all Offered Units tendered to the
General Partner in accordance with the exercise of Redemption Rights herein
provided shall be delivered to the General Partner free and clear of all liens,
claims and encumbrances whatsoever and should any such liens, claims and/or
encumbrances exist or arise with respect to such Offered Units, the General
Partner shall be under no obligation to acquire the same. Each Limited Partner
further agrees that, in the event any state or local property transfer tax is
payable as a result of the transfer of its Offered Units to the General Partner
(or its designee), such Limited Partner shall assume and pay such transfer tax.
ARTICLE 11
BANKING, RECORDS AND TAX MATTERS
11.1 Partnership Funds. All funds of the Partnership shall be deposited
in its name in accounts (with banks, "money-market funds," or securities of the
United States government or like investment or depository media) designated by
the General Partner, and the General Partner or its designees shall have the
right to draw checks or other orders of withdrawal thereon and make, deliver,
accept and endorse negotiable instruments in connection with the Partnership
business.
11.2 Books and Records. The following books, records, and accounts
shall be maintained by the Partnership, showing its assets, liabilities,
transactions, and financial condition: a current list of the full name and last
known address of each Partner, separately identifying the General and Limited
Partners and set forth in alphabetical order and setting forth the amount of
cash or a description and statement of the Agreed Value of other property
contributed or agreed to be contributed by each partner; the date on which each
became a Partner; a copy of the Certificate and all amendments thereto; copies
of the Partnership's federal, state and local income tax returns and reports, if
any, for the six most recent years; copies of this Agreement and any amendments
thereto; and copies of any financial statements of the Partnership for the three
most recent years.
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The Partnership's books shall be maintained at the principal office of the
Partnership. Each Partner shall have the right to inspect and copy such
materials at all reasonable times and during ordinary business hours. The
General Partner is not required to deliver to any Limited Partner copies of the
Certificate or any amendments thereto, unless requested by such Limited Partner.
11.3 Financial Statements. Within ninety-five (95) days after the close
of each fiscal year of the Partnership, the General Partner shall cause to be
prepared (at the Partnership's expense) and furnished to each Person who was a
Partner during the fiscal year then ended, a balance sheet of the Partnership as
of the close of such fiscal year and statements of income or loss, and Net Cash
Flow, if any. Such statements shall be prepared in accordance with generally
accepted accounting principles and certified by the Accountants for the
Partnership, unless such certification is waived, in writing, by all of the
Partners.
11.4 Tax Returns. Within ninety (90) days following the close of each
fiscal year of the Partnership, the General Partner shall cause to be prepared
(at the Partnership's expense) a United States Partnership Return of Income and
cause to be furnished to each Person who was a Partner during the fiscal year a
schedule (a "K-1 Schedule") of each such Partner's share of income, credits, and
deductions on the form then prescribed by the IRS. All elections and options
available to, or determinations as to items of income or expense of, the
Partnership for federal or state income tax purposes shall be taken, rejected or
made by the Partnership in the sole discretion of the General Partner.
11.5 Section 754 Matters. The General Partner, on behalf of the
Partnership, shall file an election under Section 754 of the Code in accordance
with the procedures set forth in the applicable Regulations promulgated
thereunder, which shall be effective beginning with the first fiscal year of the
Partnership with respect to which the Partnership is eligible to make such
election, which election, for such fiscal year, may not be revoked for any
reason.
11.6 Tax Matter Partners. The General Partner is hereby appointed the
"tax matters partner" of the Partnership for all purposes pursuant to Sections
6221-6231 of the Code. The
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Partnership shall reimburse the tax matters partner for any and all
out-of-pocket costs and expenses (including attorneys' and accountants' fees)
incurred or sustained by it in its capacity as tax matters partner. The
Partnership shall indemnify, defend and hold the tax matters partner harmless
from and against any loss, liability, damage, cost or expense (including
attorneys' and accountants' fees) sustained or incurred as a result of any act
or decision concerning the Partnership tax matters and within the scope of its
responsibility as tax matters partner.
11.7 Other Reports. The General Partner shall deliver to each Limited
Partner, in a timely manner, all reports and/or other communications transmitted
from time to time by the General Partner to its stockholders.
ARTICLE 12
TRANSFER OF GENERAL PARTNER INTERESTS
12.1 Transfer of Interest of the General Partner. Except as provided in
Section 9.3 hereof, no General Partner may at any time sell, assign, transfer,
pledge or encumber any or all of its Partnership Interest in the Partnership or
withdraw or retire from the Partnership except as otherwise provided herein.
Retirement or withdrawal from the Partnership shall not relieve the General
Partner of any obligation theretofore incurred by it hereunder. Notwithstanding
anything contained herein to the contrary, the Limited Partners shall have no
right whatsoever to remove the General Partner from the Partnership.
12.2 Retirement of the General Partner. If a General Partner other than
the Interim Managing General Partner shall liquidate or dissolve, be adjudged
bankrupt, enter into an assignment for the benefit of creditors, have a receiver
appointed to administer its interest in the Partnership, be the subject of a
voluntary or involuntary petition for bankruptcy that is not dismissed or
vacated within ninety (90) days of filing, or have its interest in the
Partnership seized by a judgment creditor, or if there shall be an individual
general partner and he shall die, be adjudicated incompetent or become
permanently disabled (each of the foregoing events is referred to hereinafter as
an "Event of Retirement"), such General Partner, without further act or notice,
immediately shall be deemed to have retired as General Partner of the
Partnership. If the General Partner retires as General Partner of the
Partnership as
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aforesaid, (i) such General Partner (or its administrator, executor, personal
representative or successor) (a) shall become a nonparticipating Limited Partner
(a "Nonparticipating Limited Partner") retaining the General Partner's former
interest in the Profits, Losses and Net Cash Flow of the Partnership, but shall
not acquire any right or interest in any payment or distribution to the Limited
Partners, as such, pursuant hereto, (b) shall have no right to participate in
the management of the affairs of the Partnership, and (c) shall be disregarded
in determining whether any approval, consent, or other action has been given or
taken by the Limited Partners; and (ii) the surviving General Partner(s), if
any, shall remain as such and the Partners hereby agree and consent that the
Partnership shall continue in effect and shall not terminate, subject, however,
to the provisions of Section 12.5 hereof.
12.3 Transferee of the General Partner's Interest. Except for a
Termination Transaction within the meaning of Section 12.6 hereof, any Person,
other than the General Partner, who acquires, in any manner whatsoever (except
as herein otherwise provided) the interest, or any portion thereof, of the
General Partner, shall not be a General Partner, but shall be entitled to become
a Nonparticipating Limited Partner upon written acceptance and adoption of all
of the terms and provisions of this Agreement and compliance with the
requirements of Section 13.3 of this Agreement. Such Person shall, to the extent
of the interest acquired, be entitled only to the transferor General Partner's
rights, if any, in the Profits, Losses and Net Cash Flow of the Partnership, but
shall not acquire any right or interest in any payment or distribution to the
Limited Partners, as such, pursuant hereto. No such Person shall have any right
to participate in the management of the affairs of the Partnership, and the
interest acquired by such Person shall be disregarded in determining whether any
approval, consent or other action has been given or taken by the Limited
Partners.
12.4 Retirement of Last Remaining General Partner. If the last
remaining General Partner shall at any time withdraw or suffer an Event of
Retirement, the Limited Partners shall have the right, within ninety (90) days
thereafter, by a written consent executed and delivered by Limited Partners
owning a majority of the issued and outstanding Partnership Interests taken as a
single class, to appoint one or more new General Partners as replacement General
Partners, unless the Act requires a greater percentage of the Limited Partners
to consent to the
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continuation of the Partnership, in which case such higher percentage shall be
required for the continuation of the Partnership. In such event, the Limited
Partners shall create for such replacement General Partners such interest in the
Partnership Profits, Losses and Net Cash Flow as the Limited Partners may agree
upon from among their collective interests in the Partnership.
12.5 Continuation of Partnership. In the event of the timely
appointment of a replacement or new General Partner(s) pursuant to this Article
12, the relationship of the Partners shall be governed by the provisions of this
Agreement, the Partnership shall be continued, and the replacement or new
General Partner(s) shall have all of the management rights, duties,
responsibilities, authority and powers provided the General Partner in this
Agreement. If the Limited Partners fail to select a replacement or new General
Partner(s), whichever the case may be, within ninety (90) days following
retirement of the last remaining General Partner, the Partnership shall dissolve
and terminate.
12.6 Merger or Consolidation of the General Partner.
(a) Whether or not Section 9.3 hereof is applicable, the
General Partner shall not, unless Section 12.6(b) is applicable, engage in any
merger, consolidation or other combination with or into another person, sale of
all or substantially all of its assets or any reclassification, recapitalization
or similar transaction (each, a "Termination Transaction"), unless such
Termination Transaction is one in connection with which all Limited Partners
either will receive, or will have the right to elect to receive, for each
Partnership Unit, an amount of cash, securities, or other property equal to the
product of (i) the number shares of Common Stock into which each Partnership
Unit is convertible and (ii) the greatest amount of cash, securities or other
property paid to a holder of one share of Common Stock in consideration of one
share of Common Stock pursuant to the terms of the Termination Transaction;
provided that; if, in connection with the Termination Transaction, a purchase,
tender or exchange offer shall have been made to and accepted by the holders of
the outstanding Common Stock, each holder of Partnership Units shall receive, or
shall have the right to elect to receive, the greatest amount of cash,
securities, or other property which such holder would have received had it
exercised its right to Redemption (as set forth
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in Section 10.3) and received Common Stock in exchange for its Partnership Units
immediately prior to the expiration of such purchase, tender or exchange offer
and had thereupon accepted such purchase, tender or exchange offer and then such
Termination Transaction shall have been consummated.
(b) Whether or not Section 9.3 hereof is applicable, the
General Partner may merge, or otherwise combine its assets, with another entity
without satisfying the requirements of Section 12.6(a) hereof if: (i)
immediately after such merger or other combination, substantially all of the
assets directly or indirectly owned by the surviving entity, other than
Partnership Units held by such General Partner, are owned directly or indirectly
by the Partnership or another limited partnership or limited liability company
which is the survivor of a merger, consolidation or combination of assets with
the Partnership (in each case, the "Surviving Partnership"); (ii) the Limited
Partners own a percentage interest of the Surviving Partnership based on the
relative fair market value of the net assets of the Partnership (as determined
pursuant to Section 12.6(d)) and the relative fair market value of the other net
assets of the Surviving Partnership (as determined pursuant to Section 12.6(d))
immediately prior to the consummation of such transaction; (iii) the rights,
preferences and privileges of the Limited Partners in the Surviving Partnership
are at least as favorable as those in effect immediately prior to the
consummation of such transaction and as those applicable to any other limited
partners or non-managing members of the Surviving Partnership; and (iv) such
rights of the Limited Partners include the right to exchange their interests in
the Surviving Partnership for at least one of: (A) the consideration available
to such Limited Partners pursuant to Section 12.6(a), or (B) if the ultimate
controlling person of the Surviving Partnership has publicly traded common
equity securities, such common equity securities, with an exchange ration based
on the relative fair market value of such securities (as determined pursuant to
Section 12.6(d)) and the Common Stock.
(c) In connection with any transaction permitted by Section
12.6(a) or 12.6(b), the relative fair market values shall be reasonably
determined by the General Partner as of the time of such transaction and, to the
extent applicable, shall be no less favorable to the Limited Partners than the
relative values reflected in the terms of such transactions.
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ARTICLE 13
TRANSFER OF LIMITED PARTNER INTERESTS
13.1 Transfer of Interest of a Limited Partner. Except as otherwise
specifically provided in this Agreement, no Limited Partner may sell, assign,
transfer, pledge, encumber or in any manner dispose of all or any part of its
Partnership Interest without the prior written consent of the General Partner,
which consent may not be unreasonably withheld. Notwithstanding the foregoing,
each Limited Partner shall have the right to (i) pledge or otherwise encumber
all or any portion of its Partnership Interest to an unrelated lender as
security for a bona fide obligation (subject, however, to applicable securities
laws) and/or (ii) transfer all or any portion of its Partnership Interest to
members of the Immediate Family of such Limited Partner and to one or more
trusts for the benefit of one or more members of the Immediate Family of such
Limited Partner for estate and/or gift tax purposes, upon prior written notice
to the General Partner. Without limiting the generality of the foregoing, in no
event shall the General Partner consent to an assignment of all or any portion
of the Partnership Interest of a Limited Partner in the Partnership if, in the
opinion of the General Partner (or of counsel satisfactory to the General
Partner), such assignment (i) will result in a termination of the Partnership
for federal income tax purposes or otherwise result in adverse tax consequences
to the Partnership or any Partner, (ii) will result in the Partnership failing
to qualify for an exemption from the registration requirements of the federal or
any applicable state securities laws, (iii) will result in the imposition of
fiduciary responsibility on the Partnership or any Partner under the Employee
Retirement Income Security Act of 1974, as amended from time to time, (iv) will
result in a violation of any provision of any mortgage or trust deed (or the
note or bond secured thereby) constituting a lien against any assets of the
Partnership, or other instrument, document or agreement to which the Partnership
is a party or otherwise bound, (v) represents a transfer of any component
portion of a Partnership Interest, such as the Capital Account, or rights to Net
Cash Flow, separate and apart from all other components of a Partnership
Interest, or (vi) will cause the General Partner to cease to comply with any and
all REIT Requirements. Subject to satisfaction of the conditions therefor set
forth or referred to herein, each Limited Partner hereby consents to the
substitution or admission of any assignee of a Limited Partner. Any sale,
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assignment, transfer, pledge, encumbrance, hypothecation or other disposition by
a Limited Partner of all or any part of its Partnership Interest in violation of
the provisions hereof shall be void ab initio and of no force or effect
whatsoever.
13.2 Assignee and Substitute Limited Partners. No Person shall be
admitted as an assignee or substituted Limited Partner under this Agreement
unless and until:
(a) An assignment is made in writing, signed by the assigning
Partner and accepted in writing by the assignee, and a duplicate original of
such assignment has been delivered to and approved by the General Partner;
(b) The General Partner has received an opinion of counsel
favorably covering the matters described in clauses (i) through (vi) of Section
13.1 above, or waived all or any portion of this requirement;
(c) The prospective admittee executes and delivers to the
General Partner a written agreement in form reasonably satisfactory to the
General Partner pursuant to which said Person agrees to be bound by and confirms
the obligations, representations, warranties and power of attorney contained in
this Agreement; and
(d) An appropriate amendment to this Agreement is executed.
13.3 Assignment. In the event an assignment is made in accordance with
the terms hereof, unless otherwise required by the Code:
(a) The effective date of such assignment shall be the date
the written instrument of assignment is delivered to the Partnership and
approved by the General Partner;
(b) The Partnership and the General Partner shall be entitled
to treat the assignor of the assigned interest as the absolute owner thereof in
all respects and shall incur no liability for allocations of Profits or Losses
and distributions of Net Cash Flow made in good faith to such assignor until
such time as the written instrument of assignment has been actually received and
approved by the General Partner, and recorded in the books of the Partnership;
and
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(c) The division and allocation of Profits or Losses, other
than Profits or Losses arising from a Liquidation of the Partnership,
attributable to the applicable Partnership Interests between the assignor and
assignee during any fiscal year of the Partnership shall be based upon the
length of time during such fiscal year, as measured by the effective date of
such assignment, that the assigned Partnership Interest was owned by each of
them and shall not be based upon the date or dates during such fiscal year in
which income was earned or losses were sustained by the Partnership; provided,
however, that the division and allocation of Profits or Losses resulting from a
Liquidation of the Partnership shall be based upon the date or dates such income
was earned or losses were sustained.
13.4 Cost of Admission. The cost of processing and perfecting an
admission contemplated by this Article 13 (including reasonable attorney's fees
incurred by the Partnership) shall be borne by the party seeking admission as a
Partner to the Partnership.
ARTICLE 14
DISSOLUTION AND LIQUIDATION OF PARTNERSHIP
14.1 Dissolution of the Partnership. The Partnership shall be dissolved
upon the happening of any of the following:
(a) An election to dissolve and wind up the affairs of the
Partnership by the General Partner (subject to Section 9.3 hereof);
(b) The occurrence of an Event of Retirement to the last
remaining General Partner, unless the Limited Partners elect to continue the
business of the Partnership pursuant to the provisions of Sections 12.4 and 12.5
hereof;
(c) Any event that makes it unlawful for the Partnership
business to be continued;
(d) The sale, disposition, or abandonment of all or
substantially all of the assets of the Partnership unless the General Partner,
in compliance with Section 9.3 hereof, elects to continue the Partnership
business for the purpose of the receipt and the collection of indebtedness or
the collection of any other
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consideration to be received in exchange for the assets of the Partnership
(which activities shall be deemed to be part of the winding up of the affairs of
the Partnership);
(e) Dissolution required by operation of law; or
(f) December 31, 2097, unless a majority in interest of the
Partnership elects to continue the Partnership.
14.2 Winding Up of Affairs. In the event of the dissolution and
liquidation of the Partnership for any reason, the General Partner shall
commence to wind up the affairs of the Partnership and shall convert all of the
Partnership's assets to cash or cash equivalents within such reasonable period
of time as may be required to receive fair value therefor. All items of income,
gain, loss, deduction and credit during the period of liquidation shall be
allocated among the Partners in the same manner as before the dissolution. If
there is no General Partner to effect such Liquidation, then the Limited
Partners, pursuant to a vote of Limited Partners owning a majority of the issued
and outstanding Partnership Units owned by all Limited Partners, may designate
any person, firm or corporation, as a Liquidating Trustee, for that purpose who
shall have all of the rights, powers and authority of a General Partner stated
herein in connection therewith.
14.3 Accounting. In the case of the dissolution and termination of the
Partnership, prior to any distributions to Partners pursuant to Section 14.4(c)
below, a proper accounting shall be made of the Capital Accounts of the Partners
and of each item of income, gain, loss, deduction and credit of the Partnership
from the date of the last previous accounting to the date of dissolution. The
General Partner shall provide a copy of such accounting to all Partners.
14.4 Final Distribution of Partnership Property. Upon termination of
the Partnership, the General Partner shall apply and distribute the remaining
property of the Partnership, together with the proceeds of any sales of same, as
follows:
(a) first, all Partnership debts and liabilities shall be paid
and discharged, including debts owed to Partners and any Affiliates of Partners;
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(b) second, to establish any reserve for any contingent or
unforeseen liabilities or obligations of the Partnership. Such funds shall be
placed in escrow by the General Partner for the purposes of disbursing such
funds in payment of any of the contingencies, liabilities or obligations, and,
at the expiration of such period as the General Partner shall deem advisable,
the balance then remaining shall be distributed pursuant to subsection (c) of
this Section 14.4; and
(c) third, to distribute the balance to the Partners in the
manner and priority set forth in Article 8 hereof, with any and all Net Cash
Flow arising pursuant to the sale and/or other liquidation of Partnership
property being distributed pursuant to Section 8.1(b) hereof.
Distributions upon liquidation of the Partnership (or any
Partner's interest in the Partnership) and related adjustments shall be made by
the end of the taxable year of such liquidation (or, if later, within 90 days
after the date of such liquidation) or as otherwise permitted by the
Regulations.
14.5 Certificate of Cancellation. Upon completion of the liquidation of
the Partnership and the distribution of all Partnership property, the
Partnership shall terminate and the General Partner shall have the authority to
execute and record one or more Certificates of Cancellation of the Partnership
as well as any and all other documents required or considered advisable by the
General Partner to effectuate the dissolution and termination of the
Partnership.
ARTICLE 15
POWER OF ATTORNEY
15.1 Power of Attorney. Each Partner, by its execution hereof,
irrevocably constitutes and appoints the General Partner, or any substitute or
replacement General Partner, with full power of substitution, as such Partner's
true and lawful attorney-in-fact, in its name, place and stead to make, execute,
sign, acknowledge, certify, deliver, file and record on its behalf and on behalf
of the Partnership, the following:
(a) This Agreement, all Certificates of Limited Partnership,
Certificates of Doing Business under an Assumed Name, amendments to any or all
of the foregoing, and any other
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certificates or instruments which may be required to be filed by the Partnership
or the Partners under the laws of the State of Delaware or any other
jurisdiction;
(b) One or more Certificates of Cancellation of the
Partnership and such other instruments or documents as may be deemed necessary
or desirable by the General Partner upon termination of the Partnership
business;
(c) Any and all amendments to this Agreement and to the
instruments described in subsections (a) and (b) above, provided such amendments
are either required by law or have been authorized by the Partner(s) in
accordance with Article 16 and/or any other provision of this Agreement
(including, without limitation, any amendment to this Agreement and to the
Certificate to reflect the substitution or admission of a Limited Partner
pursuant to this Agreement); and
(d) Any and all such other documents and instruments as may be
deemed necessary or desirable by said attorney to carry out fully the provisions
of this Agreement in accordance with its terms.
15.2 Grant of Authority Irrevocable. The foregoing grant of authority
(a) is a special power of attorney coupled with an interest, is irrevocable and
shall survive the death or incapacity of a Partner who is a natural person or,
in the case of a Partner that is not a natural person, the merger, dissolution
or other termination of its existence of the Partner, (b) may be exercised by
the General Partner on behalf of each Partner, by a facsimile signature or by
listing all of the Partners executing any instrument with a single signature as
attorney-in-fact for all of them, and (c) shall survive the assignment by a
Partner of the whole or any portion of his or its interest in the Partnership.
ARTICLE 16
AMENDMENT OF PARTNERSHIP AGREEMENT
16.1 Amendments by Partners. Except as may be specifically provided
below in this Section 16.1 and in Section 16.2 hereof, this Agreement may only
be amended with the written concurrence of the General Partner and the written
consent of holders of at least fifty-one percent (51%) of the Partnership Units
held by
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the Limited Partners, taken as a single class; provided, that if at any time
prior to the first anniversary date hereof the General Partner owns sixty-seven
percent (67%) of the Partnership Units, and thereafter if at any time as the
General Partner owns sixty percent (60%) of the Partnership Units, then in
either case from such time and thereafter the amendment may be effectuated only
by the General Partner and the Limited Partners need not be solicited but shall
be informed of the amendment,; provided, further, however, that absent the
concurrence of the General Partner and the approval of all of the Limited
Partners no amendment shall:
(a) increase the obligation of any Limited Partner to make
contributions to the capital of the Partnership;
(b) modify the order of allocation of distributions of the Net
Cash Flow or liquidating distributions, or the allocation of Profits and Losses
among the Partners (other than as specifically provided for herein, including
without limitation, modifications pursuant to Section 6.4 hereof);
(c) change the Partnership to a general partnership;
(d) reduce the percentage of Limited Partners required to
consent to any matter in this Agreement; or
(e) amend Section 9.4(a)(iv) hereof or amend Section 10.3
hereof in any manner that prohibits or restricts, or has the effect of
prohibiting or restricting, the ability of a Limited Partner to exercise its
Redemption Rights in full; or
(f) amend Section 12.6(a), (b) or (c) hereof; or
(g) amend this Article 16.
16.2 Amendment by the General Partner. Notwithstanding anything
contained in this Agreement to the contrary, the General Partner shall have the
power, without the consent of the Limited Partners, to amend this Agreement as
may be required to facilitate or implement any of the following purposes:
(a) To add to the obligations of the General Partner or
surrender any right or power granted to the General Partner or any Affiliate of
the General Partner for the benefit of the Limited Partners;
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(b) To reflect the admission, substitution, termination or
withdrawal of Partners in accordance with this Agreement, including without
limitation, the issuance of additional classes of Partnership Units to Limited
Partners pursuant to Section 6.4 hereof;
(c) To reflect a change that is of an inconsequential nature
and does not adversely affect the Limited Partners in any material respect, or
to cure any ambiguity, correct or supplement any provision in this Agreement not
inconsistent with law or with other provisions, or make other changes with
respect to matters arising under this Agreement that will not be inconsistent
with law or with the provisions of this Agreement;
(d) To satisfy any requirements, conditions or guidelines
contained in any order, directive, opinion, ruling or regulation of a federal or
state agency or contained in federal or state law; and
(e) To amend the provisions of this Agreement that protect the
qualification of the General Partner as a REIT if such provisions are no longer
necessary because of a change in applicable law (or an authoritative
interpretation thereof), a ruling of the IRS, or if the General Partner has
determined to cease qualifying as a REIT.
The General Partner will provide notice to the Limited Partners when any action
under this Section 16.2 is taken.
16.3 Amendment of Certificate. If this Agreement shall be amended
pursuant to this Article 16, the General Partner shall cause the Certificate to
be amended, to the extent required by applicable law, to reflect such change.
The Partners shall be promptly notified of any amendments made under this
Article 16.
ARTICLE 17
INDEMNIFICATION
17.1 Indemnification.
(a) Except as provided in Section 17.1(c) hereof, the
Partnership shall indemnify, defend and hold harmless each Indemnitee from and
against any and all loss, damage, liability, cost or expense (including
reasonable attorneys' fees and
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expenses) sustained or incurred as a result of any act or omission concerning
the business or activities of the Partnership, the General Partner or the
Interim Managing General Partner; provided, that such act or omission of the
Indemnitee was not in violation of any term or provision of this Agreement or
any provision of law. Without limitation, the foregoing indemnity shall extend
to any liability of any Indemnitee, pursuant to a loan guaranty or otherwise for
any indebtedness of the Partnership or any Affiliate of the Partnership
(including without limitation, any indebtedness which the Partnership or any
Affiliate of the Partnership has assumed or taken subject to), and the General
Partner is hereby authorized and empowered, on behalf of the Partnership, to
enter into one or more indemnity agreements consistent with the provisions of
this Section 17.1 in favor of any Indemnitee having or potentially having
liability for any such indebtedness. Any indemnification pursuant to this
Section 17.1 shall be made only out of the assets of the Partnership, and
neither the General Partner nor any Limited Partner shall have any obligation to
contribute to the capital of the Partnership or otherwise provide funds, to
enable the Partnership to fund its obligations under this Section 17.1. The
foregoing indemnity shall not be enforceable against any Limited Partner
personally but solely from such Limited Partner's interest in the Partnership.
(b) The provisions of this Section 17.1 are for the benefit of
the Indemnitees, their heirs, successors, assigns and administrators and shall
not be deemed to create any rights for the benefit of any other Persons. Any
amendment, modification or repeal of this Section 17.1 or any provision hereof
shall be prospective only and shall not in any way affect the limitations on the
Partnership's liability to any Indemnitee under this Section 17.1 as in effect
immediately prior to such amendment, modification or repeal with respect to
claims arising from or relating to matters occurring, in whole or in part, prior
to such amendment, modification or repeal, regardless of when such claims may
arise or be asserted.
(c) The Partners hereby acknowledge that, in conjunction with
the financing and the refinancing of any of the property owned by the
Partnership, the General Partner may agree to guarantee part or all of such
debt. The Partners understand that, pursuant to Regulation Section
l.752-(2)(b)(3)(i), such guaranty obligation would, absent the indemnification
provided hereinafter, serve to increase the General Partner's share of
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such debt pursuant to Regulation Section 1.752-2(a). Inasmuch as,
notwithstanding such guaranty obligation, each of the Limited Partners desires
to increase his share of such debt and the General Partner desires to decrease
its share of such debt (for purposes of Regulations Section 1.752-2(a)), each of
the Limited Partners, to the extent provided in Exhibit __ attached hereto,
hereby agrees to indemnify the General Partner in the event and to the extent
that the General Partner both is required to make a payment to the lender under
any such guaranty obligation and is unable to sell any or all of the assets of
the Partnership for money or moneys worth to make the General Partner whole on
account of such payment. This indemnification is effective only at the time, in
the event and to the extent that upon a dissolution and liquidation of the
Partnership, the General Partner is a creditor of the Partnership due to its
guaranty of Partnership debt and the proceeds of sale in such dissolution and
liquidation are insufficient to reimburse the General Partner for any amounts
paid on such guaranty obligation as contemplated in this Section 17.1(c). As
provided in Exhibit __, this indemnification is limited on a per Unit basis to
Units owned by an indemnifying Limited Partner at the time an indemnification is
due to the General Partner as provided by this Section 17.1(c), such that each
Limited Partner's obligation is reduced upon a redemption of Units as provided
at Section 10.3 or upon any other transfer or disposition of Units. In addition,
any and all indemnification as provided by this Section 17.1(c) shall terminate
in full as to each and every Limited Partner in the event that both (i) the
General Partner receives from tax counsel an opinion that the Outside Limited
Partners will be allocated an amount of excess nonrecourse liabilities under the
provisions of Regulation Section 1.752-3(a)(3) equal to or greater than the
amount of the indemnification requirement indicated on Exhibit __, and (ii) upon
the Consent of the Outside Limited Partners to terminate the indemnification
required by this Section 17.1(c).
17.2 Partner Indemnification of Partnership. In the event the
Partnership is made a party to any litigation or otherwise incurs any loss or
expense as a result of or in connection with any Partner's personal obligations
or liabilities unrelated to Partnership business, such Partner shall indemnify
and reimburse the Partnership for all such loss and expense incurred, including
reasonable attorneys' fees, and the interest of such Partner in the Partnership
may be charged therefor. The liability of a Partner under this Section 17.2
shall not be limited to such
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Partner's interest in the Partnership, but shall be enforceable against such
Partner personally.
ARTICLE 18
MISCELLANEOUS PROVISIONS
18.1 Notices. All notices and demands required or permitted under this
Agreement shall be in writing and may be delivered personally to the Person to
whom it is authorized to be given, or sent by registered, certified or first
class mail, or by overnight delivery, postage prepaid, and if intended for the
Partnership, addressed to the Partnership at the principal office of the
Partnership, and if intended for a Partner, addressed to the Partner at its
address on the signature pages hereof, or to such other person or at such other
address designated by written notice given to the Partnership. Any notice or
demand mailed as aforesaid shall be deemed to have been delivered two (2) days
after the date that such notice or demand is deposited in the mails.
18.2 Severability. If any provision of this Agreement or the
application of such provision to any Person or circumstance shall be held
invalid, the remainder of this Agreement, or the application of such provision
to Persons or circumstances other than those as to which it is held invalid
shall not be affected.
18.3 Parties Bound. Any Person acquiring or claiming an interest in the
Partnership, in any manner whatsoever, shall be subject to and bound by all
terms, conditions and obligations of this Agreement to which his or its
predecessor in interest was subject or bound, without regard to whether such
Person has executed a counterpart hereof or any other document contemplated
hereby. No Person, including the legal representative, heir or legatee of a
deceased Partner, shall have any rights or obligations greater than those set
forth in this Agreement and no Person shall acquire an interest in the
Partnership or become a Partner thereof except as permitted by the terms of this
Agreement. This Agreement shall be binding upon the parties hereto, their
successors, heirs, devisees, assigns, legal representatives, executors and
administrators.
18.4 Applicable Law. The Partnership and this Agreement shall be
governed by the laws of the State of Delaware.
66
<PAGE>
18.5 Partition. Each Partner hereby irrevocably waives during the term
of the Partnership any right that he or it may have to maintain any action for
partition with respect to any property of the Partnership.
18.6 Computation of Accountants. Except with respect to matters as to
which the General Partner is granted discretion under this Agreement, the
opinion of the Accountants shall be final and binding with respect to all
allocations made under Article 7 or distributions made under Article 8 or
Section 14.4 hereof.
18.7 Headings. The headings in this Agreement are inserted for
convenience and identification only and are in no way intended to describe,
interpret, define or limit the scope, extent or intent of this Agreement or any
provision.
18.8 Counterparts. This Agreement may be executed in multiple
counterparts with separate signature pages, each such counterpart shall be
considered an original, but all of which together shall constitute one and the
same instrument.
IN WITNESS WHEREOF, each of the parties has executed this Agreement as
of the date first set forth above, confirms his or its agreement to become a
General Partner, Interim Managing General Partner or Limited Partner, as the
case may be, of the Partnership, agrees to be bound by this Agreement and
acknowledges the appointment of attorneys-in-fact as set forth herein, and
swears that the statements set forth herein are true and correct.
GENERAL PARTNER:
PHILIPS INTERNATIONAL REALTY CORP.
a Maryland corporation
By:_______________________________
Its:
67
<PAGE>
INTERIM MANAGING GENERAL PARTNER:
PHILIPS INTERNATIONAL REALTY, LLC
a Delaware limited liability company
By:_______________________________
Its:
LIMITED PARTNERS:
PALM SPRINGS MILE ASSOCIATES, LTD.
By:_______________________________
Its:
FOREST AVENUE SHOPPING ASSOCIATES
By:_______________________________
Its:
PHILIPS FREEPORT ASSOCIATES, L.P.
By:_______________________________
Its:
MERRICK SHOPPING ASSOCIATES
By:_______________________________
Its:
SP AVENUE U ASSOCIATES, L.P.
By:_______________________________
Its:
68
<PAGE>
FOXBOROUGH SHOPPING L.L.C.
By:_______________________________
Its:
ENFIELD SHOPPING L.L.C.
By:_______________________________
Its:
DELRAN SHOPPING L.L.C.
By:_______________________________
Its:
BRANHAVEN PLAZA LLC
By:_______________________________
Its:
69
<PAGE>
EXHIBIT A
---------
Partners and Partnership Units
------------------------------
Name and Address of Partner Partnership Units
- --------------------------- -----------------
General Partner:
- ----------------
Philips International Realty Corp.
417 Fifth Avenue
New York, New York 10016
Interim Managing General Partner:
- ---------------------------------
Philips International Realty, LLC
417 Fifth Avenue
New York, New York 10016
Limited Partners:
- -----------------
Palm Springs Mile Associates, Ltd.
Palm Springs Mile Shopping Center
Hialeah, Florida
Forest Avenue Shopping Associates
Forest & Barrett Avenues
Staten Island, New York
Philips Freeport Associates, L.P.
Fireman's Field
Sunrise Highway & Buffalo Avenue
Freeport, New York
Merrick Shopping Associates
1650-1706 Merrick Road
Merrick, New York
i
<PAGE>
SP Avenue U Associates, L.P.
5644 Avenue U
Brooklyn, New York
Foxborough Shopping L.L.C.
Foxboro Plaza Shopping Center
Commercial Street, Route 140
Foxborough, Mass
Enfield Shopping L.L.C.
Elm Plaza Shopping Center
95 Elm Street
Enfield, Connecticut
Delran Shopping L.L.C.
Millside Plaza Shopping Center
Route 130 at Hanes Mill Road
Delran, New Jersey
Branhaven Plaza LLC
1060 West Main Street
Branford, Connecticut
ii
<PAGE>
EXHIBIT B
---------
PHILIPS INTERNATIONAL REALTY, L.P. UNIT CERTIFICATE
---------------------------------------------------
* SEE RESTRICTIVE LEGENDS ON REVERSE *
PHILIPS INTERNATIONAL REALTY, L.P.
A DELAWARE LIMITED PARTNERSHIP
Number: ______ Units: ______
This is to certify that ____________________ is the owner of
______________________________________________________ fully paid limited
Partnership Units of Philips International Realty, L.P., a Delaware limited
partnership (the "Partnership"), transferable only on the books of the
Partnership by the holder hereof in person or by the duly authorized Attorney
upon surrender of this Certificate properly endorsed.
WITNESS, the seal of the General Partner of the Partnership
and the signatures of its duly authorized officers.
Dated: ______________
____________________ _____________________
President Secretary
- -SEAL-
REVERSE OF
PHILIPS INTERNATIONAL REALTY, L.P. UNIT CERTIFICATE
---------------------------------------------------
i
<PAGE>
THE UNITS REPRESENTED BY THIS CERTIFICATE OR INSTRUMENT MAY NOT BE
TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE
DISPOSED OF UNLESS SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE,
HYPOTHECATION OR OTHER DISPOSITION COMPLIES WITH THE PROVISIONS OF THE
AGREEMENT OF LIMITED PARTNERSHIP OF PHILIPS INTERNATIONAL REALTY, L.P.,
DATED AS OF JULY __, 1997 (A COPY OF WHICH IS ON FILE WITH THE
PARTNERSHIP). EXCEPT AS OTHERWISE PROVIDED IN SUCH AGREEMENT, NO
TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION
OF THE UNITS REPRESENTED BY THIS CERTIFICATE MAY BE MADE EXCEPT (A)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR (B) IF THE PARTNERSHIP HAS BEEN
FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER THAT
SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER
DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT AND
THE RULES AND REGULATIONS IN EFFECT THEREUNDER. IN ADDITION, THE UNITS
ARE SUBJECT TO THE PROVISIONS OF SECTION 19.1 OF A CERTAIN CONTRIBUTION
AND EXCHANGE AGREEMENT DATED AS OF August 11, 1997 (A COPY OF WHICH IS
ON FILE WITH THE PARTNERSHIP).
FOR VALUE RECEIVED, _________________ hereby sell, assign and transfer
unto __________________________________ _________________ limited Partnership
Units represented by the within Certificate, and do hereby irrevocably
constitute and appoint ________________________ Attorney to transfer the said
limited Partnership Units on the books of the within named Partnership with full
power of substitution in the premises.
Dated: ________________ ___________________________
In presence of:
________________________
ii
<PAGE>
Attachment 1 to Unit Certificate
--------------------------------
EXERCISE NOTICE
---------------
To:
Reference is made to that certain Agreement of Limited Partnership of
Philips International Realty, L.P. dated as of July ___, 1997 (the "Partnership
Agreement"), pursuant to which Philips International Realty Corporation, a
Maryland corporation, and certain other persons, including the undersigned,
continued the Delaware limited partnership known as Philips International
Realty, L.P. (the "Partnership"). Capitalized terms used but not defined herein
shall have the meanings set forth in the Partnership Agreement. Pursuant to
Section 10.3 of the Partnership Agreement, each of the undersigned, being a
limited partner of the Partnership (an "Exercising Partner"), hereby elects to
exercise its Redemption Rights as to a portion or portions of its Partnership
Units, as all specified opposite its signature below (notwithstanding the
foregoing, each of the undersigned hereby acknowledges and agrees that the
General Partner has the right, in its sole and absolute discretion, to deliver
shares of Common Stock to the undersigned in lieu of all or any portion of the
cash requested below by the undersigned, all in accordance with Section 10.3 of
the Partnership Agreement):
Dated:
==============================================================================
| | Number of | Number of |
| | Offered Units to | Offered Units to |
| Exercising | be Redeemed for | be Redeemed for |
| Partner | Shares | Cash |
|_________________________|__________________________|_______________________|
| | | |
| ---------------- | | |
| | | |
|_________________________|__________________________|_______________________|
| | | |
| ---------------- | | |
| | | |
|_________________________|__________________________|_______________________|
| | | |
| ---------------- | | |
| | | |
==============================================================================
<PAGE>
PHILIPS INTERNATIONAL REALTY CORP.
1997 STOCK OPTION AND
LONG-TERMINCENTIVE PLAN
Adopted and Effective as of_______ ___, 1997
<PAGE>
PHILIPS INTERNATIONAL REALTY CORP. 1997 STOCK
OPTION AND LONG-TERM INCENTIVE PLAN
1. Purpose of the Plan.
This Philips International Realty Corp. 1997 Stock Option and Long-Term
Incentive Plan is intended to promote the interests of Philips International
Realty Corp. ("the Company") and its shareholders by providing the Company's key
employees, on whose judgment, initiative, and efforts the successful conduct of
the business of the Company depends, and who are responsible for the management,
growth, and protection of the business, as well as Directors of the Company and
consultants to the Company with appropriate incentives and rewards to encourage
employees to continue in the employ of the Company and to maximize their
performance and to encourage Directors and consultants to maximize their efforts
on behalf of the Company.
2. Definitions.
As used in the Plan, the following definitions apply to the terms indicated
below:
(a) "Board of Directors" shall mean the Board of Directors of the Company.
(b) "Cause" shall mean, when used in connection with the termination of a
Participant's employment, the termination of the Participant's employment on
account of: (i) the willful and continued failure by the Participant
substantially to perform his or her duties and obligations to the Company (other
than any such failure resulting from incapacity due to physical or mental
illness), (ii) the willful violation by the Participant of (A) any federal or
state law or (B) any rule of the Company, which violation would materially
reflect on the Participant's character, competence, or integrity, (iii) a breach
by a Participant of the Participant's duty of loyalty to the Company such as
Participant's solicitation of customers or employees of the Company on behalf of
any other person, (iv) the Participant's unauthorized removal from the Company's
premises of any document (in any medium or form) relating to the Company, its
business, or its customers, provided, however, that no such removal shall be
deemed "unauthorized" if it is in furtherance of an individual's duties and
obligations to the Company and such removal is a common practice at the Company,
(v) the Participant's unauthorized disclosure to any person of any confidential
information regarding the Company, (vi) the willful engaging by the Participant
in any other misconduct which is
<PAGE>
materially injurious to the Company or (vii) any event that constitutes "cause"
(or any similar term that constitutes the basis on which the Company may
terminate the employee's employment with the Company) for purposes of an
employment agreement between the Participant and the Company. For purposes of
this Section 2(b), no act, or failure to act, on a Participant's part shall be
considered "willful" unless done, or omitted to be done, by the Participant in
bad faith and without reasonable belief that the action or omission was in the
best interests of the Company. Any rights the Company may have hereunder in
respect of the events giving rise to Cause shall be in addition to the rights
the Company may have under any other agreement with the Participant or at law or
in equity. If, subsequent to the termination of a Participant's employment
without Cause, it is determined by the Board of Directors that the Participant's
employment could have been terminated for Cause, such Participant's employment
shall, at the election of the Committee in its sole discretion, be deemed to
have been terminated for Cause.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(d) "Committee" shall mean the Compensation Committee of the Board;
provided, however, the Compensation Committee shall not take any action under
the Plan unless it is at all times composed solely of not less than three
"Non-Employee Directors" within the meaning of Rule 16b-3, as promulgated under
the Securities Exchange Act of 1934, as amended. In the event the Compensation
Committee is not composed of three Non-Employee Directors when the Company is
subject to the Securities Act, or, in the event the Committee is unable to act,
the Board shall take any and all actions required or permitted to be taken by
the Committee under the Plan and shall serve as the Committee.
(e) "Company" shall mean Philips International Realty Corp., a Maryland
corporation.
(f) "Common Stock" shall mean the common stock, par value $.01 per share,
of the Company.
(g) "Disability" shall mean any physical or mental condition as a result of
which a Participant is disabled within the meaning of Section 422(c)(6) of the
Code.
(h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
2
<PAGE>
(i) "Fair Market Value" with respect to a share of Common Stock on any
relevant date shall be determined in accordance with the following provisions:
(1) If the Common Stock is at the time traded on the Nasdaq National
Market, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question, as such price is reported by
the National Association of Securities Dealers on the Nasdaq National
Market or any successor system. If there is no closing selling price for
the Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which such
quotation exists.
(2) If the Common Stock is at the time listed on any Stock Exchange,
then the Fair Market Value shall be the closing selling price per share of
Common Stock on the date in question on the stock exchange determined by
the Committee to be the primary market for the Common Stock, as such price
is officially quoted in the composite tape of transactions on such
exchange. If there is no closing selling price for the Common Stock on the
date in question, then the Fair Market Value shall be the closing selling
price on the last preceding date for which such quotation exists.
(3) For purposes of any option grants made on the Underwriting Date,
the Fair Market Value shall be deemed to be equal to the price per share at
which the Common Stock is sold in the initial public offering pursuant to
the underwriting agreement.
(4) For purposes of any option grants made prior to the Underwriting
Date, the Fair Market Value shall be determined by the Committee after
taking into account such factors as the Committee may deem appropriate.
(j) "Incentive Award" shall mean an Option or a Restricted Stock Award
granted pursuant to the terms of the Plan.
(k) "Incentive Stock Option" shall mean an Option that is an "incentive
stock option" within the meaning of Section 422 of the Code and that is
identified as an Incentive Stock Option in the agreement by which it is
evidenced.
(l) "Issue Date" shall mean the date established by the Committee on which
certificates representing shares of Restricted Stock shall be issued by the
Company pursuant to the terms of Section 8(d) hereof.
(m) "Non-Qualified Stock Option" shall mean an Option that is not an
Incentive Stock Option.
(n) "Option" shall mean an option to purchase shares of Common Stock
granted pursuant to Section 6 hereof. Each Option, or portion thereof,
3
<PAGE>
shall be identified as either an Incentive Stock Option or a Non-Qualified Stock
Option in the agreement by which such Option is evidenced.
(o) "Participant" shall mean an employee, officer, director or outside
director of the Company or any subsidiary of the Company or a consultant to the
Company or any subsidiary of the Company (including any employees of a
consulting company designated to receive an Incentive Award by the consultant)
selected to participate in the Plan and to whom an Incentive Award is granted
pursuant to the Plan, and, upon his or her death, that person's successors,
heirs, executors, and administrators, as the case may be.
(p) "Person" shall mean a "person," such as term is used in Sections 13(d)
and 14(d) of the Exchange Act.
(q) "Plan" shall mean this Philips International Realty Corp. 1997 Stock
Option and Long-Term Incentive Plan, as it may be amended from time to time.
(r) "Restricted Stock" shall mean a share of Common Stock that is granted
pursuant to the terms of Section 8 hereof and that is subject to the
restrictions set forth in Section 8(c) hereof for as long as such restrictions
continue to apply to such share.
(s) "Retirement" shall mean a Participant's termination of employment
(other than by reason of death or Disability and other than a termination that
is (or is deemed to have been) for Cause) on or after the later of (i) the date
the Participant attains age 65 and (ii) the date the Participant has completed
five years of service with the Company.
(t) "Securities Act" shall mean the Securities Act of 1933, as amended.
(u) "Underwriting Date" shall mean the date on which the underwriting
agreement for the Company's initial public offering is executed and the initial
public offering price of the Common Stock is established.
(v) "Vesting Date" shall mean the date and/or dates established by the
Committee on which an Incentive Award may vest. In the absence of provisions in
an individual grant agreement or employment agreement to the contrary, Options
shall vest ratably over a five (5) year period, at twenty (20%) percent per
year.
4
<PAGE>
3. Stock Subject to the Plan.
(a) Plan Awards.
Under the Plan, the Committee may, in its sole and absolute discretion,
grant either or both of the following types of Incentive Awards to a
Participant: an Option or a Restricted Stock Award.
(b) Individual Awards.
Incentive Awards granted under the Plan may be made up entirely of one type
of Incentive Award or any combination of both types of Incentive Awards
available under the Plan, in the Committee's sole discretion.
(c) Aggregate Plan Share Reserve.
The total number of shares of Common Stock available for grants of
Incentive Awards under the Plan shall be 500,000, subject to adjustment in
accordance with Section 9 of the Plan. These shares may be either authorized
but unissued, newly issued shares, or reacquired shares of Common Stock. If an
Incentive Award or portion thereof shall expire or terminate for any reason
without having been exercised or vested in full, the underlying shares covered
by such Incentive Award shall be available for future grants of Incentive Awards
under the Plan.
4. Administration of the Plan.
The Plan shall be administered by the Committee. The Committee shall from
time to time designate the employees, officers, directors and outside directors
of the Company or any subsidiary of the Company or consultants to the Company or
any subsidiary of the Company who shall be granted Incentive Awards and the
amount and type of such Incentive Awards.
The Committee shall have the full authority and discretion to administer
the Plan, including authority to interpret and construe any provision of the
Plan and the terms of any Incentive Award issued under the Plan. The Committee
may also adopt any rules and regulations for administering the Plan as it may
deem necessary or appropriate. Decisions of the Committee shall be final and
binding on all parties.
The Committee may, in its absolute discretion, without amendment to the
Plan, (i) accelerate the date on which any Option granted under the Plan becomes
exercisable or otherwise adjust any of the terms of such Option (except that no
such adjustment shall, without the consent of a Participant, reduce the
5
<PAGE>
Participant's rights under any previously granted and outstanding Incentive
Award), (ii) accelerate the Vesting Date or Issue Date of any share of
Restricted Stock issued under the Plan, or waive any condition imposed
thereunder, and (iii) otherwise adjust or waive any condition imposed on any
Incentive Award made hereunder.
In addition, the Committee may, in its absolute discretion and without
amendment to the Plan, grant Incentive Awards of any type to Participants on the
condition that such Participants surrender to the Committee for cancellation
such other Incentive Awards of the same or any other type (including, without
limitation, Incentive Awards with higher exercise prices or values) as the
Committee specifies. Notwithstanding Section 3(c) herein, prior to the surrender
of such other Incentive Awards, Incentive Awards granted pursuant to the
preceding sentence of this Section 4 shall not count against the limit set forth
in such Section 3(c).
No member of the Committee shall be liable for any action, omission or
determination relating to the Plan, and the Company (and any affiliate that may
adopt the Plan), jointly and severally, shall indemnify and hold harmless each
member of the Committee and each other director or employee of the Company (or
affiliate) to whom any duty or power relating to the administration or
interpretation of the Plan has been delegated against any cost or expense
(including counsel fees) or liability (including any sum paid in settlement of a
claim with the approval of the Committee) arising out of any action, omission or
determination unless such action, omission or determination was taken or made by
such member, director or employee in bad faith and without reasonable belief
that it was in the best interests of the Company and its affiliates, as the case
may be.
5. Eligibility.
The persons who shall be eligible to receive Incentive Awards pursuant to
the Plan shall be those employees, officers, directors and outside directors of
the Company or consultants to the Company who are responsible for the
management, growth, and protection of the business of the Company; provided,
however, that only employees of the Company shall be eligible to receive
Incentive Awards consisting of Incentive Stock Options.
6. Stock Option Awards.
The Committee may grant Options pursuant to the Plan. Such Options shall be
evidenced by agreements in such form as the Committee shall from time
6
<PAGE>
to time approve. Options shall comply with and be subject to the following terms
and conditions:
(a) Identification of Options.
All Options granted under the Plan shall be clearly identified in the
agreement evidencing such Options as either Incentive Stock Options or as
Non-Qualified Stock Options or a combination of both.
(b) Exercise Price.
The exercise price of any Incentive Stock Option or any Non-Qualified Stock
Option granted under the Plan shall be not less than 100% of the Fair Market
Value of a share of Common Stock on the date on which such Option is granted.
(c) Term and Exercise of Options.
(i) Each Option shall be exercisable on such date or dates, during such
period, and for such number of shares of Common Stock as shall be determined by
the Committee on the day on which such Option is granted and set forth in the
Option agreement with respect to such Option; provided, however that no Option
shall be exercisable after the expiration of ten years from the date such Option
was granted; and, provided, further, that each Option shall be subject to
earlier termination, expiration or cancellation as provided in the Plan.
(ii) Each Option shall be exercisable in whole or in part. The partial
exercise of an Option shall not cause the expiration, termination or
cancellation of the remaining portion thereof. Upon the partial exercise of an
Option, the agreement evidencing such Option, marked with such notations as the
Committee may deem appropriate to evidence such partial exercise, shall be
returned to the Participant exercising such Option together with the delivery of
the certificates described in Section 6(e) hereof.
(iii) An Option shall be exercised by delivering a written notice to the
Company's principal office to the attention of its Secretary. Such notice shall
specify the number of shares of Common Stock with respect to which the Option is
being exercised, shall be signed by the Participant, and shall be accompanied by
the agreement (or agreements) evidencing the Option and payment in full of the
applicable exercise price for shares of Common Stock purchased in any
combination of the forms specified below:
(A) in cash, by certified check, bank cashier's check, or wire
transfer,
7
<PAGE>
(B) subject to the approval of the Committee, in shares of Common
Stock owned by the Participant and valued at their Fair Market Value on the
date of such exercise,
(C) subject to the approval of the Committee, pursuant to procedures
adopted by the Committee whereby the Participant, by a properly written
notice, directs (x) an immediate market sale or margin loan respecting all
or a part of the shares of Common Stock to which the Participant is
entitled upon exercise pursuant to an extension of credit by the Company to
the Participant of the exercise price, (y) the delivery of the shares of
the Common Stock from the Company directly to the brokerage firm, and (z)
the delivery of the exercise price from the sale or margin loan proceeds
from the brokerage firm directly to the Company, or
(D) such other methods as the Committee may approve, from time to
time.
Any payments in shares of Common Stock shall be effected by the delivery of such
shares to the Secretary of the Company, duly endorsed in blank or accompanied by
stock powers duly executed in blank, together with any other documents and
evidences as the Secretary of the Company shall require from time to time
(d) Nonassignability.
Other than a consultant, or except as provided in Section 16 below, during
the lifetime of a Participant, each Option granted to him or her shall be
exercisable only by him or her. No Option shall be assignable or transferable
otherwise than by will or by the laws of descent and distribution. A consulting
company which is awarded an Option hereunder may designate or assign all or a
portion of such Option to its employees who are employees of the consultant on
the date of the Incentive Award. The Committee may, in its discretion issue
agreements evidencing such Incentive Awards directly to employees of the
consultant. No Option issued to an employee of a consultant shall be assignable
or transferable by such employee otherwise than by will or by the laws of
descent and distribution.
(e) Issuance of Certificates.
Certificates for shares of Common Stock purchased upon the exercise of an
Option shall be issued in the name of the Participant or his or her beneficiary,
as the case may be, and delivered to the Participant or his or her beneficiary,
as the case may be, as soon as practicable following the date on which the
Option is exercised.
8
<PAGE>
(f) Limitations on Grant of Incentive Stock Options.
(i) The aggregate Fair Market Value of shares of Common Stock with
respect to which Incentive Stock Options granted hereunder are exercisable
for the first time by a Participant during any calendar year under the Plan
and any other stock option plan of the Company (or any "subsidiary
corporation" of the Company within the meaning of Section 424 of the Code)
shall not exceed $100,000. Such Fair Market Value shall be determined as of
the date on which each such Incentive Stock Option is granted. In the event
that the aggregate Fair Market Value of shares of Common Stock with respect
to such Incentive Stock Options exceeds $100,000, then Incentive Stock
Options granted hereunder to such Participant shall, to the extent and in
the order in which they were granted, automatically be deemed to be
Non-Qualified Stock Options, but all other terms and provisions of such
Incentive Stock Options shall remain unchanged.
(ii) No Incentive Stock Option may be granted to an individual if, at
the time of the proposed grant, such individual owns stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company or any of its "subsidiary corporations" (within the meaning of
Section 424 of the Code), unless (I) the exercise price of such Incentive
Stock Option is at least 110% of the Fair Market Value of a share of Common
Stock at the time such Incentive Stock Option is granted and (II) such
Incentive Stock Option is not exercisable after the expiration of five
years from the date such Incentive Stock Option is granted.
(iii) No Incentive Stock Option may be granted to an individual if, at
the time of the proposed grant, such individual is not an employee of the
Company.
(g) Effect of Termination of Employment.
(i) In the event the employment of a Participant with the Company shall
terminate (as determined by the Committee in its sole discretion) for any reason
other than Retirement, Disability, death or for Cause, (A) Options granted to
such Participant, to the extent that they were exercisable at the time of such
termination, shall remain exercisable until 90 days after the date of such
termination, on which date they shall expire, and (B) Options granted to such
Participant, to the extent that they were not exercisable at the time of such
termination, shall expire at the close of business on the date of such
termination; provided, however, that no Option shall be exercisable after the
expiration of its term.
(ii) In the event that the employment of a Participant with the Company
shall terminate on account of the Retirement, Disability or death of the
9
<PAGE>
Participant, (A) Options granted to such Participant, to the extent that they
were exercisable at the time of such termination, shall remain exercisable until
the expiration of their term and (B) Options granted to such Participant, to the
extent that they were not exercisable at the time of such termination, shall
expire at the close of business on the date of such termination. The effect of
exercising any Incentive Stock Option on a day that is more than 90 days after
the date of such termination (or, in the case of a termination of employment on
account of Disability, on a day that is more than one year after the date of
such termination) will be to cause such Incentive Stock Option to be treated as
a Non-Qualified Stock Option.
(iii) In the event of the termination of a Participant's employment for
Cause, all outstanding Options granted to such Participant shall automatically
expire at the commencement of business as of the date of such termination.
7. Other Agreements.
In the event of any conflict between the terms of the Plan, and a grant
agreement pursuant to which Options or Restricted Stock Awards have been granted
hereunder or the terms of an employment agreement pursuant to which an employee
of the Company who is a participant has been granted Options or Restricted Stock
Awards hereunder, the terms of the applicable employment agreement or related
grant agreement shall control. Notwithstanding the foregoing, no change in any
employment agreement or grant agreement shall cause any Incentive Stock Option
granted hereunder to be considered a Non-Qualified Stock Option.
8. Restricted Stock.
The Committee may grant shares of Restricted Stock pursuant to the Plan.
Each grant of shares of Restricted Stock shall be evidenced by an agreement in
such form as the Committee shall from time to time approve. Each grant of shares
of Restricted Stock shall comply with and be subject to the following terms and
conditions:
(a) Issue Date and Vesting Date.
At the time of the grant of shares of Restricted Stock, the Committee shall
establish an Issue Date or Issue Dates and a Vesting Date or Vesting Dates with
respect to such shares. The Committee may divide such shares into classes and
assign a different Issue Date and/or Vesting Date for each class. Except as
provided in Sections 8(c) and 8(f) hereof, upon the occurrence of the Issue Date
with respect to a share of Restricted Stock, a share
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<PAGE>
of Restricted Stock shall be issued in accordance with the provisions of Section
8(d) hereof. Provided that all conditions to the vesting of a share of
Restricted Stock imposed pursuant to Section 8(b) hereof are satisfied, and
except as provided in Sections 8(c) and 8(f) hereof, upon the occurrence of the
Vesting Date with respect to a share of Restricted Stock, such share shall vest
and the restrictions of Section 8(c) hereof shall cease to apply to such share.
(b) Conditions to Vesting.
At the time of the grant of shares of Restricted Stock, the Committee may
impose such restrictions or conditions, not inconsistent with the provisions
hereof, to the vesting of such shares as it, in its absolute discretion, deems
appropriate. By way of example and not by way of limitation, the Committee may
require, as a condition to the vesting of any shares of Restricted Stock, that
the Participant or the Company achieve such performance criteria as the
Committee may specify at the time of the grant of such shares.
(c) Restrictions on Transfer Prior to Vesting.
Prior to the vesting of a share of Restricted Stock, no transfer of a
Participant's rights to such share, whether voluntary or involuntary, by
operation of law or otherwise, shall vest the transferee with any interest, or
right in, or with respect to, such share, but immediately upon any attempt to
transfer such rights, such share, and all the rights related thereto, shall be
forfeited by the Participant and the transfer shall be of no force or effect.
(d) Issuance of Certificates.
(i) Except as provided in Sections 8(c) or 8(f) hereof, reasonably promptly
after the Issue Date with respect to shares of Restricted Stock, the Company
shall cause to be issued a stock certificate, registered in the name of the
Participant to whom such shares were granted, evidencing such shares, provided,
that the Company shall not cause to be issued such stock certificate unless it
has received a stock power duly endorsed in blank with respect to such shares.
Each such stock certificate shall bear the following legend:
THE TRANSFERABILITY OF THIS CERTIFICATE AND THE SHARES OF
STOCK REPRESENTED HEREBY ARE SUBJECT TO THE RESTRICTIONS,
TERMS, AND CONDITIONS (INCLUDING FORFEITURE PROVISIONS AND
RESTRICTIONS AGAINST TRANSFER) CONTAINED IN THE PHILIPS
INTERNATIONAL REALTY CORP. 1997 STOCK OPTION AND LONG-TERM
INCENTIVE PLAN AND INCENTIVE AWARD AGREEMENT ENTERED INTO
BETWEEN THE REGISTERED OWNER OF SUCH SHARES AND PHILIPS
INTERNATIONAL
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REALTY CORP. A COPY OF THE PLAN AND AGREEMENT IS ON FILE IN
THE OFFICE OF THE SECRETARY OF PHILIPS INTERNATIONAL REALTY
CORP. C/O PHILIPS INTERNATIONAL, 417 FIFTH AVENUE, NEW
YORK, NY 10016.
Such legend shall not be removed from the certificate evidencing such shares
until such shares vest pursuant to the terms hereof.
(ii) Each certificate issued pursuant to Section 8(d)(i) hereof, together
with the stock powers relating to the shares of Restricted Stock evidenced by
such certificate, shall be deposited by the Company with a custodian designated
by the Company. The Company shall cause such custodian to issue to the
Participant a receipt evidencing the certificates held by it which are
registered in the name of the Participant.
(e) Consequences Upon Vesting.
Upon the vesting of a share of Restricted Stock pursuant to the terms
hereof, the restrictions of Section 8(c) hereof shall cease to apply to such
share. Reasonably promptly after a share of Restricted Stock vests pursuant to
the terms hereof, the Company shall cause to be issued and delivered to the
Participant to whom such shares were granted, a certificate evidencing such
share, free of the legend set forth in Section 8(d)(i) hereof, together with any
other property of the Participant held by the custodian pursuant to Section
8(d)(ii) hereof.
(f) Effect of Termination of Employment.
(i) In the event that the employment of a Participant with the Company
shall terminate for any reason other than Cause prior to the vesting of shares
of Restricted Stock granted to such Participant, the shares of Restricted Stock
shall be forfeited on the date of such termination, provided however, that the
Committee may, in its sole and absolute discretion, vest the Participant in all
or any portion of shares of Restricted Stock which would otherwise be forfeited
pursuant to the provisions of this Section.
(ii) In the event of the termination of a Participant's employment for
Cause, all shares of Restricted Stock granted to such Participant which have not
vested as of the date of such termination shall immediately be forfeited.
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<PAGE>
9. Adjustment Upon Changes in Common Stock.
(a) Shares Available for Grants.
In the event of any change in the number of shares of Common Stock
outstanding by reason of any stock dividend or split, reverse stock split,
recapitalization, merger, consolidation, combination or exchange of shares or
similar corporate change, the maximum number of shares of Common Stock with
respect to which the Committee may grant Options and shares of Restricted Stock
under Section 3 hereof shall be appropriately adjusted by the Committee. In the
event of any change in the number of shares of Common Stock outstanding by
reason of any other event or transaction, the Committee may, but need not, make
such adjustments in the number of shares of Common Stock with respect to which
Options or shares of Restricted Stock may be granted under Section 3 hereof as
the Committee may deem appropriate.
(b) Outstanding Restricted Stock.
Unless the Committee in its absolute discretion otherwise determines, any
securities or other property (including dividends paid in cash) received by a
Participant with respect to a share of Restricted Stock, the Issue Date with
respect to which occurs prior to such event, but which has not vested as of the
date of such event, as a result of any dividend, stock split, reverse stock
split, recapitalization, merger, consolidation, combination, exchange of shares
or similar corporate exchange will not vest until such share of Restricted Stock
vests and shall be promptly deposited with the custodian designated pursuant to
Section 8(d)(ii) hereof.
The Committee may, in its absolute discretion, adjust any grant of shares
of Restricted Stock, the Issue Date with respect to which has not occurred as of
the date of the occurrence of any of the following events, to reflect any
dividend, stock split, reverse stock split, recapitalization, merger,
consolidation, combination, exchange of shares or similar corporate change as
the Committee may deem appropriate to prevent the enlargement or dilution of
rights of Participants under the grant.
(c) Outstanding Options - Increase or Decrease in Issued Shares Without
Consideration.
Subject to any required action by the shareholders of the Company, in the
event of any increase or decrease in the number of issued shares of Common Stock
resulting from a subdivision or consolidations of shares of Common Stock or the
payment of a stock dividend on the shares of Common Stock, or any other increase
or decrease in the number of such shares effected without receipt of
consideration by the Company, the Company shall
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<PAGE>
proportionally adjust the number of shares of Common Stock subject to each
outstanding Option, and the exercise price per share of Common Stock of each
such Option.
(d) Outstanding Options - Certain Mergers.
Subject to any required action by the shareholders of the Company, in the
event that the Company shall be the surviving corporation in any merger or
consolidation (except a merger or consolidation as a result of which the holders
of shares of Common Stock receive securities of another corporation), each
Option outstanding on the date of such merger or consolidation shall pertain to
and apply to the securities which a holder of the number of shares of Common
Stock subject to such Option would have received in such merger or
consolidation.
(e) Outstanding Options - Certain Other Transactions.
In the event of a dissolution or liquidation of the Company; a sale of
substantially all of the Company's assets, a merger or consolidation involving
the Company in which the Company is not the surviving corporation; or a merger
or consolidation involving the Company in which the Company is the surviving
corporation but the holders of shares of Common Stock receive securities of
another corporation and/or other property, including cash, the Committee shall,
in its absolute discretion, have the power to:
(i) cancel, effective immediately prior to the occurrence of such event,
each Option outstanding immediately prior to such event (whether or not then
exercisable), and, in full consideration of such cancellation, pay to the
Participant to whom such Option was granted an amount in cash, for each share of
Common Stock subject to such Option, respectively, equal to the excess of (A)
the value, as determined by the Committee in its absolute discretion, of the
property (including cash) received by the holder of a share of Common Stock as a
result of such event over (B) the exercise price of such Option (subject to
applicable withholding payment requirements); or
(ii) provide for the exchange of each Option outstanding immediately prior
to such event (whether or not then exercisable) for an option on some or all of
the property for which such Option is exchanged and, incident thereto, make an
equitable adjustment as determined by the Committee in its absolute discretion
in the exercise price of the option, or, if appropriate, provide for a cash
payment to the Participant to whom such Option was granted in partial
consideration for the exchange of the Option.
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<PAGE>
(f) Outstanding Options - Other Changes.
In the event of any change in the capitalization of the Company or a
corporate change other than those specifically referred to in Section 9(c),(d)
or (e) hereof, the Committee may in its absolute discretion, make such
adjustments in the number of shares subject to Options outstanding on the date
on which such change occurs and in the per share exercise price of each such
Option as the Committee may consider appropriate to prevent dilution or
enlargement of rights.
(g) No Other Rights.
Except as expressly provided in the Plan, no Participant shall have any
rights by reason of any subdivision or consolidation of Common Stock, the
payment of any dividend, any increase or decrease in the number of shares of
Common Stock or any dissolution, liquidation, merger or consolidation of the
Company or any other corporation. Except as expressly provided in the Plan, no
issuance by the Company of Common Stock, or securities convertible into shares
of Common Stock, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number of shares of Common Stock subject to an Incentive
Award or the exercise price of any Option.
10. Rights as a Stockholder.
(a) No Rights as a Stockholder.
No person shall have any rights as a stockholder with respect to any shares
of Common Stock covered by or relating to any Incentive Award granted pursuant
to the Plan until the date the person becomes the owner of record with respect
to such shares. Except as otherwise expressly provided in Section 9 hereof, no
adjustment to any Incentive Award shall be made for dividends or other rights
for which the record date occurs prior to the date such stock certificate is
issued.
(b) Accrual of Dividends.
Whenever Restricted Shares are paid to a Participant or beneficiary under
the Plan, such Participant or beneficiary shall also be entitled to receive,
with respect to each Restricted Share paid, an amount equal to any cash
dividends, and number of shares of Common Stock equal to any stock dividends,
declared and paid with respect to a share of Common Stock between the date the
relevant Restricted Share award was granted and the date the Restricted Shares
are being distributed. At the discretion of the Committee, interest may be paid
on the amount of cash dividends withheld, including cash
15
<PAGE>
dividends on stock dividends, at a rate and subject to such terms as determined
by the Committee.
11. No Special Employment Rights; No Rights to Incentive Award.
(a) No Special Employment Rights.
Nothing contained in the Plan or any Incentive Award shall confer upon any
Participant any right with respect to the continuation of his or her employment
by or service with the Company or any subsidiary of the Company or interfere in
any way with the right of the Company, subject to the terms of any separate
employment or consulting agreement to the contrary, at any time to terminate
such employment or service or to increase or decrease the compensation of the
Participant from the rate in existence at the time of the grant of an Incentive
Award.
(b) No Rights to Incentive Awards.
No person shall have any claim or right to receive an Incentive Award
hereunder. The Committee's granting of an Incentive Award to a Participant at
any time shall neither require the Committee to grant an Incentive Award to such
Participant or any other Participant or other person at any time nor preclude
the Committee from making subsequent grants to such Participant or any other
Participant or other person.
12. Securities Matters.
(a) The Company shall be under no obligation to effect the registration
pursuant to the Securities Act of any interests in the Plan or any shares of
Common Stock to be issued hereunder or to effect similar compliance under any
state laws. Notwithstanding anything herein to the contrary, the Company shall
not be obligated to cause to be issued or delivered any certificates evidencing
shares of Common Stock pursuant to the Plan unless and until the Company is
advised by its counsel that the issuance and delivery of such certificates is in
compliance with all applicable laws, regulations of governmental authority, and
the requirements of NASDAQ and any other securities exchange on which shares of
Common Stock are traded. The Committee may require, as a condition of the
issuance and delivery of certificates evidencing shares of Common Stock pursuant
to the terms hereof, that the recipient of such shares make such covenants,
agreements, and representations, and that such certificates bear such legends,
as the Committee, in its sole discretion, deems necessary or desirable.
16
<PAGE>
(b) The exercise of any Option granted hereunder shall be effective only at
such time as counsel to the Company shall have determined that the issuance and
delivery of shares of Common Stock pursuant to such exercise is in compliance
with all applicable laws, regulations of governmental authority, and the
requirements of NASDAQ and any other securities exchange on which shares of
Common Stock are traded. The Committee may, in its sole discretion, defer the
effectiveness of any exercise of an Option granted hereunder in order to allow
the issuance of shares of Common Stock pursuant thereto to be made pursuant to
registration or an exemption from registration or other methods for compliance
available under federal or state securities laws. The Committee shall inform the
Participant in writing of its decision to defer the effectiveness of the
exercise of an Option granted hereunder. During the period that the
effectiveness of the exercise of an Option has been deferred, the Participant
may, by written notice, withdraw such exercise and obtain a refund of any amount
paid with respect thereto.
(c) All Common Stock issued pursuant to the terms of the Plan shall
constitute "restricted securities," as that term is defined in Rule 144
promulgated pursuant to the Securities Act, and may not be transferred except in
compliance with the registration requirements of the Securities Act or an
exemption therefrom.
(d) Certificates for shares of Common Stock, when issued, may have
substantially the following legend, or statements of other applicable
restrictions, endorsed thereon, and may not be immediately transferable:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. THE SHARES MAY NOT BE
OFFERD FOR SALE, SOLD, PLEDGED, TRANSFERRED OR OTHERWISE
DISPOSED OF UNTIL THE HOLDER HEREOF PROVIDES EVIDENCE
STATISFACTORY TO THE ISSUER (WHICH, IN THE DISCRETION OF THE
ISSUER, MAY INCLUDE AN OPINION OF COUNSEL SATISFACTORY TO
THE ISSUER) THAT SUCH OFFER SALE, PLEDGE, TRANSFER OR OTHER
DISPOSITION WILL NOT VIOLATE APPLICATE FEDERAL OR STATE
LAWS.
This legend shall not be required for shares of Common Stock issued pursuant to
an effective registration statement under the Securities Act and in accordance
with applicable state securities laws.
17
<PAGE>
13. Withholding Taxes.
(a) Cash Remittance.
Whenever shares of Common Stock are to be issued upon the exercise of an
Option, the occurrence of the Issue Date or Vesting Date with respect to a share
of Restricted Stock, the Company shall have the right to require the Participant
to remit to the Company in cash an amount sufficient to satisfy federal, state,
and local withholding tax requirements, if any, attributable to such exercise,
occurrence or payment prior to the delivery of any certificate or certificates
for such shares.
(b) Stock Remittance.
Subject to Section 13(c) hereof, at the election of the Participant,
subject to the approval of the Committee, when shares of Common Stock are to be
issued upon the exercise of an Option, the occurrence of the Issue Date or the
Vesting Date with respect to a share of Restricted Stock, in lieu of the
remittance required by Section 13(a) hereof, the Participant may tender to the
Company a number of shares of Common Stock determined by such Participant, the
Fair Market Value of which at the tender date the Committee determines to be
sufficient to satisfy the minimum federal, state and local withholding tax
requirements, if any, attributable to such exercise, occurrence or grant and not
greater than the Participant's estimated total federal, state and local tax
obligations associated with such exercise, occurrence or grant.
(c) Stock Withholding.
The Company shall have the right, when shares of Common Stock are to be
issued upon the exercise of an Option, the occurrence of the Issue Date or the
Vesting Date with respect to a share of Restricted Stock, in lieu of requiring
the remittance required by Section 13(a) hereof, to withhold a number of such
shares, the Fair Market Value of which at the exercise date the Committee
determines to be sufficient to satisfy the federal, state and local withholding
tax requirements, if any, attributable to such exercise, occurrence or grant and
is not greater than the Participant's estimated total, federal, state and local
tax obligations associated with such exercise, occurrence or grant.
14. Amendment or Termination of the Plan.
The Board may at any time, or from time to time, suspend or terminate the
Plan in whole or in part, or amend it in such respects as the Board may deem
appropriate. No amendment, suspension or termination of the Plan shall, without
the Participant's consent, alter or impair any of the rights or obligations
under
18
<PAGE>
any Option theretofore granted to an Participant under the Plan. The Board may
amend the Plan, subject to the limitations cited above, in such manner as it
deems necessary or appropriate, including, without limitation, any amendment to
permit the granting of Incentive Awards meeting the requirements of future
amendments or issued regulations, if any, to the Code or to the Exchange Act. If
the rules of NASDAQ or such other exchange on which the securities of the
Company are traded would require Shareholder approval of any amendment to the
Plan, the amendment shall be presented to Shareholders for ratification.
15. No Obligation to Exercise.
The grant to a Participant of an Option shall impose no obligation upon
such Participant to exercise such Option.
16. Transfers.
(a) Upon Death.
Upon the death of a Participant, outstanding Incentive Awards granted to
such Participant may be exercised only by the executors or administrators of the
Participant's estate or by any person or persons who shall have acquired such
right to exercise by will or by the laws of descent and distribution. No
transfer by will or the laws of descent and distribution of any Incentive Award,
or the right to exercise any Incentive Award, shall be effective to bind the
Company unless the Committee shall have been furnished with (a) written notice
thereof and with a copy of the will and/or such evidence as the Committee may
deem necessary to establish the validity of the transfer and (b) an agreement by
the transferee to comply with all the terms and conditions of the Incentive
Award that are or would have been applicable to the Participant and to be bound
by the acknowledgments made by the Participant in connection with the grant of
the Incentive Award. Except as provided in Section 6(d) and this Section 16, no
Incentive Award shall be transferable, and shall be exercisable only by a
Participant during the Participant's lifetime.
(b) Non-Qualified Stock Option.
A Non-Qualified Stock Option may be transferred without consideration by a
Participant, subject to such rules as the Committee may adopt
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<PAGE>
to preserve the purposes of the Plan (including limiting such transfers to
transfers by Participants who are directors or senior executives), to
(A) a member of his or her immediate family,
(B) a trust solely for the benefit of the Participant and his or her
immediate family, or
(C) a partnership or limited liability company whose only partners or
shareholders are the Participant and his or her immediate family members,
(each transferee described in A or B above or this subsection is hereafter
referred to as a "Permitted Transferee"), provided that the Committee is
notified in advance in writing of the terms and conditions of any proposed
transfer intended to be described in A, B, or C and it determines that the
proposed transfer complies with the requirements of the Plan and the
applicable option agreement. Any purported assignment, alienation, pledge,
attachment, sale, transfer or encumbrance that does not qualify under A, B,
or C shall be void and unenforceable against the Company. For this purpose,
"immediate family" means, with respect to a particular Participant, the
Participant's spouse, children or grandchildren (including adopted and
stepchildren and grandchildren).
(c) Prohibition Against Further Transfers.
The terms of the Plan shall apply to the beneficiaries, executors and
administrators of the Participant and of the Permitted Transferees of the
Participant (including the beneficiaries, executors, administrators of the
Permitted Transferees), except that Permitted Transfers shall not transfer any
Non-Qualified Stock Option other than by will or by the laws of descent and
distribution.
17. Expenses and Receipts.
The expenses of the Plan shall be paid by the Company. Any proceeds
received by the Company in connection with any Incentive Award will be used for
general purposes.
18. Failure to Comply.
In addition to the remedies of the Company elsewhere provided for herein, a
failure by a Participant (or beneficiary) to comply with any of the terms and
conditions of the Plan or the agreement executed by such Participant (or
beneficiary) evidencing an Incentive Award, unless such failure is remedied by
such Participant (or beneficiary) within ten days after having been notified of
20
<PAGE>
such failure by the Committee, shall be grounds for the cancellation and
forfeiture of such Incentive Award, in whole or in part, as the Committee, in
its absolute discretion may determine.
19. Adoption and Effective Date of Plan.
The Plan was adopted by the Board of Directors of the Company, at a meeting
of the Board, effective as of ______ ___, 1997 subject to ratification and
approval of the Plan by the consent of the shareholders of the Company.
20. Term of the Plan.
The right to grant Incentive Awards under the Plan will terminate upon the
expiration of ten years from the date the Plan was initially adopted.
21. Applicable Law.
Except to the extent preempted by an applicable federal law, the Plan will
be construed and administered in accordance with the laws of the State of
Maryland, without reference to the principles of conflicts of law.
21
<PAGE>
PHILIPS PROPERTY HOLDINGS [ ], L.P.
LIMITED PARTNERSHIP AGREEMENT
<PAGE>
PHILIPS PROPERTY HOLDINGS [ ], L.P.
LIMITED PARTNERSHIP AGREEMENT
TABLE OF CONTENTS
Article/Section Page
- --------------- ----
I. Definitions
II. Organization, Offices, Purpose and Term
2.01 Formation
2.02 Name
2.03 Offices and Registered Agent
2.04 Purposes and Powers
2.05 Term
III. Partners and Capital
3.01 Partners
3.02 Capital Contributions of General Partner
3.03 Capital Contributions of Limited Partners
3.04 No Third Party Beneficiary
3.05 Capital Accounts
IV. Allocations of Profits and Losses
4.01 Allocation of Profits
4.02 Allocation of Losses
4.03 Allocation of Included and Excluded Items
4.04 Special Allocation Provisions
4.05 Curative Allocations
4.06 Allocations on Varying of Interests
4.07 Shares of Excess Nonrecourse Liabilities
in Determining Allocations of Profits
and Losses
V. Distributions and Withdrawals
5.01 Distributions
5.02 Application of Distributions
5.03 Withdrawals from Capital Accounts
VI. Management and Operations 6.01 Management of Partnership Affairs
6.02 Rights and Powers of the General Partner
6.03 Engagement of Affiliates
6.04 Restrictions on Partnership Operations
6.05 Reimbursement of Certain Expenses of the
General Partner
6.06 Operation in Accordance with REIT
requirements
6.07 Withdrawal or Resignation, Etc. of the
General Partner
i
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VII. Rights and Obligations of Limited Partners
7.01 Limited Liability
7.02 No Participation in Management
7.03 No Authority to Act
7.04 Right to Examine Books and Records
7.05 Right to Copy of Certificates
7.06 Limitation on Withdrawal, Etc.
7.07 Right to Return of Contributions
VIII. Transferability of Partners' Interests
8.01 Transfers of Partners' Interests
8.02 Requirements as to Costs and Acceptance
of Agreement
8.03 Admission of Substituted Limited Partners
8.04 Nonpermitted Attempted Transfers
IX. Dissolution and Termination
9.01 Events Causing Dissolution
9.02 Continuation By Action of the Partners
9.03 Liquidation
X. Books and Records; Accounting and Tax Matters
10.01 Books and Records
10.02 Tax Elections
10.03 Tax Matters Partner
XI. Amendments
11.01 General Amendment Requirements
11.02 Additional Restrictions
11.03 Corrective or Technical Amendments
XII. Miscellaneous
12.01 Exculpation and Indemnification
12.02 Power of Attorney
12.03 Notices
12.04 Section Headings
12.05 Severability
12.06 Governing Law
12.07 Counterparts
12.08 Partner in Interest
12.09 Words
12.10 Integrated Agreement
Exhibits
- --------
A. Limited Partners [ss.3.01]
B. Description of the Property [ss.2.04]
ii
<PAGE>
PHILIPS PROPERTY HOLDINGS [ ], L.P.
LIMITED PARTNERSHIP AGREEMENT
This Limited Partnership Agreement (the "Agreement"), made and entered into
as of ____, 199_ by and among PHILIPS SUB [ ], INC., a corporation organized
pursuant to the laws of the State of Delaware (the "General Partner") and
PHILIPS INTERNATIONAL REALTY, L.P., a limited partnership organized pursuant to
the laws of the State of Delaware (the "initial Limited Partner") and the
undersigned other parties hereto (together, the "Limited Partners").
The parties hereto agree as follows:
ARTICLE I
Definitions
1.01. Whenever used in this Agreement, the following terms shall have the
meanings set forth below:
(a) "Act" means the Delaware Revised Uniform Limited Partnership Act,
as from time to time amended.
(b) "Affiliate" means, with respect to any person (i) any member of
the immediate family (the spouse, parents, ancestors and descendants of the
person's parents (whether natural or adopted by the whole or half blood) or
the spouse's parents) of such or person if an individual; (ii) any trustee
or beneficiary of a person; (iii) any legal representative, successor or
assignee of any person referred to in the preceding clauses(i) and (ii);
(iv) any trustee or trust for the benefit of any person referred to in the
preceding clauses (i) through (iii); or (v) any entity directly or
indirectly controlling, controlled by, or under common control with, such
person. For such purpose, "control" (and similar words) means possessing
the ability to influence the management or policies of a corporation,
partnership or other entity.
(c) "Capital Account" means the account of each Partner established
and maintained on the books of the Partnership as provided in Section 3.05.
(d) "Capital Contribution" in respect of any Partner means the amount
of cash or cash equivalents or other consideration contributed by such
Partner to the capital of the Partnership pursuant to Sections 3.02 or
3.03.
(e) "Certificate" means the certificate of limited partnership of the
Partnership as filed on ___, 199_ with the
<PAGE>
Secretary of State of Delaware, as from time to time amended and filed
pursuant to the Act and the terms of this Agreement.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
(g) "Company" means Philips International Realty Corp., a corporation
organized pursuant to the laws of the State of Maryland (and which is the
general partner of Philips International Realty, L.P.)
(h) "Exchange Agreement" means the Contribution and Exchange Agreement
dated as of August 11, 1997, by and among Philips International Realty,
L.P., the Partnership, the Existing Partnership, and other persons and
entities listed as partners on Exhibit A thereto.
(i) "Existing Partnership" means ____________________.
(j) "General Partner" means Philips Sub [ ], Inc., a corporation
organized pursuant to the laws of the State of Delaware, and any other
person admitted as general partner of the Partnership, except that such
term shall not include any person after it has resigned, or otherwise
ceased to be, a general partner of the Partnership.
(k) "Limited Partner" means any limited partner admitted to the
Partnership pursuant to Section 3.01.
(l) "Losses" of the Partnership for any period means the net losses of
the Partnership for such period determined in accordance with the
accounting method followed by the Partnership for United States federal
income tax purposes.
(m) "Partner" means either (including, in the plural, both) a General
Partner or a Limited Partner in the Partnership.
(n) "Partnership" means the partnership formed pursuant to this
Agreement and the Act.
(o) "Partnership Interest" means the interest of a Partner in the
Profits and capital of the Partnership, including its Capital Account
balance.
(p) "Partnership Percentage" in respect of any Partner means that
fraction, expressed as a percentage, having as its numerator the Capital
Contribution of such Partner and having its denominator the aggregate
Capital Contributions of all Partners.
(q) "Profits" of the Partnership for any period means the net income
of the Partnership for such period determined in accordance with the
accounting method followed by the Partnership for United States federal
income tax purposes.
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(r) "Regulations" means the Treasury Regulations issued under the
Code, as amended.
(s) "REIT" means a real estate investment trust under Section 856 of
the Code.
ARTICLE II
Organization, Offices, Purpose and Term
2.01. Formation. The Partners hereby form the Partnership as a limited
partnership (the "Partnership") pursuant to the Act.
2.02. Name. The name of the Partnership shall be "Philips Property Holdings
[ ], L.P." The operations of the Partnership, however, may be conducted under
any other name deemed necessary or desirable by the Partners or as may be
necessary to comply with the requirements of any jurisdiction in which the
Partnership may conduct operations.
2.03. Offices and Registered Agent. The principal office of the Partnership
shall be at c/o the General Partner at 417 Fifth Avenue, New York, New York
10016, or such other place as the General Partner may designate by notice to the
Limited Partners. The initial registered office of the Partnership shall be at
c/o United Corporate Services, Inc., 15 East North Street Dover, Delaware 19901.
In addition, the Partnership may maintain such other offices as the General
Partner may deem advisable at any other place or places. The registered agent of
the Partnership for service of process shall be United Corporate Services, Inc.
The General Partner may from time to time designate another registered agent or
another location for the registered office of the Partnership upon notice to the
Limited Partners.
2.04. Purposes and Powers.
(a) Subject to Section 6.04, the nature and purposes of the business
to be conducted by the Partnership are to engage solely in the following:
(i) directly or indirectly to acquire, own, finance, construct, improve,
and operate the office property located at [insert address], as more
particularly described in Exhibit B); provided, however, that such business
shall be limited to and conducted in such a manner as to permit the Company
at all times to be classified as a REIT for federal income tax purposes,
unless the Company has determined to cease to qualify as a REIT, (ii) to
enter into any partnership, joint venture or other similar arrangements to
engage in any of the foregoing or the ownership of interests in any entity
engaged in any of the foregoing, and (iii) to do anything necessary or
incidental to the foregoing. In connection with the foregoing, and without
limiting the Company's right in its sole discretion
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to cease qualifying as a REIT, the Partners acknowledge that the Company's
status as a REIT inures to the benefit of all of the Partners and not
solely the Company.
(b) The Partnership is empowered to do any and all acts and things
necessary, appropriate, proper, advisable, incidental to or convenient for
the furtherance and accomplishment of the purposes and business described
herein and for the protection and benefit of the Partnership; provided,
that the Partnership shall not take, or shall refrain from taking, any
action which, (i) could adversely affect the ability of the Company to
continue to qualify as a REIT, or (ii) could subject the Company to any
additional taxes under Section 857 or Section 4981 of the Code or any
successor or newly enacted provisions of the Code imposing other additional
taxes or penalties on the Company.
2.05. Term. The Partnership commenced on the filing of a certificate of
limited partnership on ___, 199_. The Partnership shall continue until December
31, 209_, or until dissolved pursuant to Article IX, and for so long thereafter
as is reasonably necessary for the winding up and liquidation of Partnership
operations.
ARTICLE III
Partners and Capital
3.01. Partners.
(a) Philips Sub [ ], Inc. shall be the General Partner.
(b) Philips International Realty, L.P. shall be the initial Limited
Partner. Other Limited Partners shall be as admitted from time to time and
set forth in Exhibit A (as revised from time to time by the General
Partner). A person shall be deemed admitted as a Limited Partner when the
General Partner has accepted such person as a Limited Partner of the
Partnership, and the books and records reflect such person as admitted to
the Partnership as a Limited Partner.
(c) After the formation of the Partnership, new (as distinguished from
substituted) Limited Partners shall be admitted in the sole discretion of
the General Partner.
3.02. Capital Contributions of General Partner.
(a) The General Partner shall upon formation of the Partnership make
an initial Capital Contribution of $1,000 in cash or cash equivalents.
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(b) The General Partner, as Capital Contributions are received from
Limited Partners, shall make additional Capital Contributions consistent
with the maintenance at all times of aggregate General Partner Capital
Contributions at least equal to the lesser of (i) 1.01 percent of the
aggregate Capital Contributions of all Limited Partners or (ii) that amount
which will cause the General Partner's Capital Account balance to equal one
(1) percent of the aggregate Capital Account balances of all Partners if
positive (and otherwise, zero). The General Partner may also make
additional Capital Contributions from time to time as may be deemed
necessary for Partnership operations after taking into account other funds
available to the Partnership.
3.03. Capital Contributions of Limited Partners.
(a) The initial Limited Partner shall, upon formation of the
Partnership make an initial Capital Contribution of $1,000 in cash or cash
equivalents.
(b) The Limited Partners shall upon the Closing of the Exchange
Agreement (as therein defined) make Capital Contributions of their
interests in the Existing Partnership in exchange for Partnership Interests
as provided in the Exchange Agreement. The Limited Partners, upon request
of the General Partner, may from time to time (but shall not be obligated
to), make additional Capital Contributions as may be deemed necessary by
the General Partner for Partnership operations after taking into account
other funds available to the Partnership.
3.04. No Third Party Beneficiary. No creditor or other third party having
dealings with the Partnership shall have the right to enforce the right or
obligation of any Partner to make Capital Contributions or loans or to pursue
any other right or remedy hereunder or at law or in equity, it being understood
and agreed among the parties hereto that the provisions of this Agreement shall
be solely for the benefit of, and may be enforced solely by, the parties hereto
and their respective successors and assigns. None of the rights or obligations
of the Partners herein set forth to make Capital Contributions or loans to the
Partnership shall be deemed an asset of the Partnership for any purpose by any
creditor or other third party, nor may such rights or obligations be sold,
transferred or assigned by the Partnership or pledged or encumbered by the
Partnership to secure any debt or other obligation of the Partnership or of any
of the Partners.
3.05. Capital Accounts. A Capital Account shall be established and
maintained by the Partnership for each Partner, generally as set forth below and
specifically in accordance with Section 704 of the Code and Section
1.704-1(b)(2)(iv) of the Regulations.
(a) Each Partner's Capital Account shall be increased
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by (A) the amount of money contributed by it to the Partnership, including
Partnership liabilities assumed by such Partner, and (B) allocations to it
pursuant to Article IV of Partnership income and gain (or items thereof).
The Partnership shall also make appropriate adjustments with respect to (1)
any property contributed to the Partnership ("Contributed Property"), and
(2) any property revalued on the books of the Partnership and the Partners'
Capital Accounts ("Revalued Property"), in each instance as required or
permitted by the Regulations.
(b) Each Partner's Capital Account shall be decreased by (A) the
amount of money distributed to it by the Partnership, including liabilities
of such Partner assumed by the Partnership, and (B) allocations to it
pursuant to Article IV of Partnership loss and deduction (or items
thereof), including also allocations of Partnership expenditures which are
neither deductible nor properly capitalized. The Partnership shall also
make appropriate adjustments with respect to (1) any Contributed Property
or Revalued Property which may be distributed, and (2) any losses or other
adjustments appropriately attributable to Contributed Property or Revalued
Property, in each instance as required or permitted by the Regulations.
(c) Upon the transfer of all, or a part of, a Partner's interest in
the Partnership, the Capital Account of the transferor that is attributable
to the transferred interest will carry over to the transferee Partner,
giving effect to any and all charges, credits or adjustments to the Capital
Accounts of the Partners provided for in Section 1.704-1(b)(2)(iv) of the
Regulations, including any such charges, credits or adjustments resulting
from any elections under Section 754 of the Code or from a termination of
the Partnership under Section 708(b)(1)(B) of the Code.
ARTICLE IV
Allocations of Profits and Losses
4.01. Allocation of Profits. The Profits of the Partnership for any period
shall be credited to the respective Capital Accounts of the Partners as follows:
(a) First, Partnership Profits shall be allocated to each Partner in
the proportions and amounts necessary to restore Partnership Losses
previously allocated to Partners (and not previously restored by
allocations pursuant to this subsection), proceeding by reference to prior
periods in the reverse order in which the prior Partnership Losses were
allocated;
(b) Next, if there shall remain any amount of Profits to be allocated,
Partnership Profits shall be allocated to the Partners in accordance with
their respective Partnership
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Percentages.
4.02. Allocation of Losses. The Losses of the Partnership for any period
shall be debited to the respective Capital Accounts of the Partners in
accordance with their respective Partnership Percentages.
4.03. Allocation of Included and Excluded Items.
(a) Items of Partnership income, expenses, etc., offset against one
another in computing Profits or Losses for any taxable year of the
Partnership, shall be allocated in the same proportions as Profits or
Losses for such taxable year are allocated.
(b) Items not otherwise taken into account in computing Profits or
Losses shall be added thereto or subtracted therefrom as follows: (i)
income exempt from federal income taxation shall be added, and (ii)
nondeductible expenditures described in Section 705(a)(2)(B) of the Code or
treated as so described under Section 1.704-1(b)(2)(iv)(i) of the
Regulations shall be subtracted.
4.04. Special Allocation Provisions.
(a) Minimum Gain Chargeback. If there is a net decrease in the
Partnership Minimum Gain during a Partnership taxable year, each Partner
will be allocated, before any other allocation of Partnership items for
such taxable year is made under Section 704(b) of the Code, items of gain
from the disposition of any property subject to partner nonrecourse debt
and thereafter other items of income and gain for such year (and, if
necessary, subsequent years) equal to the amount of such decrease, to the
extent of such Partner's share of such net decrease (computed for this
purpose in the manner provided under Section 1.704-2(f) of the Regulations,
after giving appropriate effect to the exceptions and waivers therein
provided or authorized, including but not limited to the exceptions for
certain conversions, refinancings and capital contributions) of such
Partner at the end of such year. This provision relating to Minimum Gain
Chargebacks is intended to comply with Sections 1.704-1(b)(4)(iv) and
1.704-2 of the Regulations and shall be interpreted and applied in a manner
consistent with such Regulations.
(b) Notwithstanding anything to the contrary in this Agreement, if at
the end of any taxable year, the sum of the Partners' deficit Capital
Account balances exceeds the Partnership Minimum Gain, the Partners with
deficits in their Capital Accounts shall, to the extent possible, and as
rapidly as possible, be allocated Profits, if any, pro rata, in an amount
which will eliminate such excess.
(c) Qualified Income Offset. Notwithstanding anything
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contained in this Agreement to the contrary, if any Partner receives an
adjustment, allocation or distribution described in Sections
1.704-1(b)(2)(ii)(d)(4), (5) or (6) of the Regulations which unexpectedly
causes or increases a deficit in such Partner's Capital Account, such
Partner will be allocated items of income and gain in an amount and manner
sufficient to eliminate such deficit balance as quickly as possible. This
provision relating to Qualified Income offsets is intended to comply with
Section 1.704-1(b)(2)(ii)(d) of the Regulations and shall be interpreted
and applied in a manner consistent with such Regulations.
(d) For purposes of this section, the term "Partnership Minimum Gain"
means the aggregate gains (of whatever character) of the Partnership,
computed with respect to each nonrecourse debt of the Partnership, that
would be realized by the Partnership upon disposition in taxable
transactions of the Partnership properties subject to such debts in full
satisfaction thereof.
(e) For purposes of this section, the term "nonrecourse debt" means a
Partnership liability secured by Partnership property and with respect to
which none of the Partners has any personal liability as determined under
Section 1.752-1(a)(2) of the Regulations.
(f) (i) In accordance with Section 704(c) of the Code and the
Regulations thereunder, income, gain, loss, and deduction with respect to
any property contributed to the capital of the Partnership shall, solely
for tax purposes, be allocated among the Partners so as to take account of
any variation between the adjusted basis of such property to the
Partnership for federal income tax purposes and its fair market value at
the time of contribution.
(ii) In the event any Partnership property has been revalued on the
books of the Partnership and the Capital Accounts of the Partners under
Section 1.704-1(b)(2)(iv)(f) of the Regulations, subsequent allocations of
income, gain, loss, and deduction with respect to such asset shall take
account of any variation between the adjusted basis of such asset for
federal income tax purposes and its fair market value in the same manner as
under Section 704(c) of the Code and the Regulations thereunder.
(iii) Any elections or other decisions relating to allocations under
this Section 4.04 shall be made by the General Partner in any manner that
reasonably reflects the purposes and intentions of this Agreement.
Specifically, with respect to property contributed to the Partnership
pursuant to the Exchange Agreement, variations between basis and value of
Contributed Property shall be taken into account under the "traditional
method" as described in Section 1.704-3(b) of the Regulations, unless
otherwise determined by the General Partner and the
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contributing Partner.
4.05. Curative Allocations. If any allocation of gain, income, loss,
expense or any other item is made pursuant to Sections 4.04(a), 4.04(b) or
4.04(c) of this Agreement (the "Regulatory Allocations") with respect to one or
more Partners (the "Deficit Partners"), then the balance of such items for the
current and all subsequent fiscal years shall be allocated among the Partners
other than the Deficit Partners as if such items were allocated among all the
Partners (including the Deficit Partners) without regard to the Regulatory
Allocations and this section, until the amount of such items that would have
been allocated to the Deficit Partners but for the Regulatory Allocations equal
the amount allocated to the Deficit Partners pursuant to the Regulatory
Allocations.
4.06. Allocations on Varying of Interests.
(a) Unless otherwise required by the Code or the Regulations or as
agreed to by the General Partner, in its sole and absolute discretion,
Profits or Losses allocable to Partners in respect of varying interests in
the Partnership during any year shall be allocated in the manner described
in Section 4.06 (b) below.
(b) The allocation of Profits or Losses other than Profits or Losses
arising from a liquidation of the Partnership during any year of the
Partnership shall be based upon the length of time during such year, as
measured by the effective date of any assignment or other varying of
interests that the affected Partnership Interests were owned by each
Partner and shall not be based upon the date or dates during such fiscal
year in which income was earned or losses were sustained by the
Partnership; provided, however, that the allocation of Profits or Losses
resulting from a liquidation of the Partnership shall be based upon the
date or dates such income was earned or losses were sustained.
4.07. Shares of Excess Nonrecourse Liabilities in Determining Allocations
of Profits and Losses. For the purposes of determining the Partners' shares of
the excess nonrecourse liabilities of the Partnership (within the meaning of
Section 1.752-3(a)(3) of the Regulations), the interest of each Partner in
Partnership profits shall be the share of each Partner in Partnership Profits
provided in Section 4.01(b).
ARTICLE V
Distributions and Withdrawals
5.01. Distributions. The Partnership shall make distributions from time to
time to the Partners of such available funds as the Partnership reasonably
determines will not be
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necessary for the proper and beneficial conduct of Partnership operations.
Notwithstanding the foregoing, the General Partner shall take such reasonable
efforts, as determined by it in its sole and absolute discretion and consistent
with the Company's qualification as a REIT, to cause the Partnership to
distribute sufficient amounts to enable the Company to pay stockholder dividends
that will (i) satisfy the REIT requirements and (ii) avoid any federal income or
excise tax liability of the Company.
5.02. Application of Distributions. In making distributions pursuant to
Section 5.01, the Partnership shall apply available Partnership funds, after
payment or other adequate provision for all current liabilities of the
Partnership (including indebtedness against Partnership property and for
reasonable operating reserves), to distributions among all Partners in
accordance with their respective Partnership Percentages.
5.03. Withdrawals from Capital Accounts. Partners may not withdraw any
amount from their Partnership Capital Accounts except to the extent that
distributions authorized in this Agreement may for any purpose be deemed to
constitute withdrawals.
ARTICLE VI
Management and Operations
6.01. Management of Partnership Affairs. The management and control of the
Partnership and its operations and affairs shall rest exclusively with the
General Partner. The General Partner (subject to the limitations set forth in
this Agreement) shall have all the rights and powers which may be possessed by a
general partner under the Act, and such rights and powers as are otherwise
conferred by law or are necessary, advisable or convenient to the discharge of
its duties under this Agreement and the Act and to the management of the
operations and affairs of the Partnership. Persons dealing with the Partnership
shall be entitled to rely conclusively on the power and authority of the General
Partner as set forth in this Agreement.
6.02. Rights and Powers of the General Partner. Without limiting the
generality of the powers and rights of the General Partner set out in Section
6.01, but subject to the limitations set forth in Sections 2.04 and 6.04, it is
agreed that the General Partner shall have the following rights and powers which
it may exercise at the cost, expense and risk of the Partnership:
(a) the employment of the capital and Profits of the Partnership in
the exercise of any rights or powers possessed by the Partnership (or any
nominee of the Partnership) or General Partner hereunder, including
particularly in carrying out the purposes of the Partnership set out in
Section 2.04(a);
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(b) the making of all decisions relating to the acquisition, sale,
exchange, transfer, conveyance, assignment, encumbrance or other
disposition for cash, other property, or on terms, of all or any part of,
or interest in, real property, and the approval, rejection, execution and
modification of leases and subleases of, and options, concessions, licenses
and other agreements with respect to real property or any interest therein;
(c) the borrowing of money and the obtaining of loans, secured and
unsecured, for the Partnership and in connection therewith the issuance of
notes, and other debt instruments, and the securing of the same by
mortgaging, assigning for security purposes, pledging or hypothecating all
or part of any real property and other assets of the Partnership, and the
prepayment, in whole or in part, refinancing, recasting, modification,
consolidation or extension of any such mortgage, assignment, pledge or
other security instrument and, in connection therewith, the execution and
delivery, for and on behalf of the Partnership, of any extensions, renewals
or modifications thereof any new mortgages, assignments, pledges or other
security instruments in lieu thereof; and
(d) the placement of record title to real property, or any interest
therein, in the names of nominees, the direction of the actions of any such
nominee, the change or discontinuance of the use of any nominee, provided
that one hundred (100%) percent of the beneficial ownership of any such
nominee is vested in the Partnership, its General Partner or initial
Limited Partner or an Affiliate thereof; and
(e) the engagement, on behalf of the Partnership, of such professional
persons, firms or corporations as the General Partner in its reasonable
judgment shall deem advisable for the conduct and operation of the business
of the Partnership, including, without limitation, brokers, mortgage
bankers, lawyers, accountants, architects, engineers, consultants,
contractors and purveyors of other such services for the Partnership on
such terms and for such compensation or costs as the General Partner, in
its reasonable judgment, shall determine. Except as otherwise provided
herein, to the extent the duties of the General Partner require
expenditures of funds to be paid to third parties, the General Partner
shall not have any obligations hereunder except to the extent that
Partnership funds are reasonably available to it for the performance of
such duties, and nothing herein contained shall be deemed to authorize or
require the General Partner, in its capacity as such, to expend its
individual funds for payment to third parties or to undertake any
individual liability or obligation on behalf of the Partnership.
6.03. Engagement of Affiliates. The General Partner may, on behalf and at
the expense of the Partnership, engage the General Partner or a firm in which
the General Partner, a Limited Partner, or a Partner, officer, director,
stockholder or
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Affiliate of any of them, has an interest, to render services to
the Partnership and/or the assets of the Partnership, provided that the fees or
other compensation payable for such services are specifically authorized by the
terms of this Agreement or are comparable to those prevailing in arm's-length
transactions for similar services and are approved by the Company's Board of
Directors.
6.04. Restrictions on Partnership Operations. Notwithstanding anything to
the contrary in this Agreement:
(a) The Partnership shall not commingle its funds with those of any
Affiliate or any other entity. Funds and other assets of the Partnership
shall be separately identified and segregated. All of the Partnership's
assets shall at all times be held by or on behalf of the Partnership, and,
if held on behalf of the Partnership by another entity, shall at all times
be kept identifiable (in accordance with customary usage) as assets owned
by the Partnership. The Partnership shall maintain its own separate bank
accounts, payroll and books of account.
(b) The Partnership shall pay from its own assets all obligations of
any kind incurred by the Partnership (other than organizational expenses).
(c) The Partnership shall take all appropriate action necessary to
ensure its existence as a limited partnership in good standing under the
laws of the State of Delaware.
(d) All financial statements, accounting records and other partnership
documents of the Partnership shall be maintained at an office separate from
those of any Affiliate or any other entity.
(e) The annual financial statements of the Partnership shall disclose,
in accordance with and to the extent required under generally accepted
accounting principles, any transactions between the Partnership and any
Affiliate.
(f) The Partnership shall at all times hold itself out to the public
(including any Affiliate's creditors) as a separate and distinct entity
operating under the Partnership's own name, and the Partnership shall act
solely in its own name and through its own authorized officers and agents.
(g) The Partnership shall pay out of its own funds salaries, if any,
of its officers and employees, and shall reimburse any Affiliate for any
service provided to the Partnership by such Affiliate (including those to
be provided pursuant to any lease, administrative or management services
agreement or other contract between the Partnership and any Affiliate) in
accordance with the terms of any such lease, agreement or other contract.
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6.05. Reimbursement of Certain Expenses of the General Partner.
(a) Except as provided in this Section 6.05 and elsewhere in this
Agreement (including in Articles IV and V) the General Partner shall not be
compensated for its services as general partner of the Partnership.
(b) The General Partner shall be reimbursed on a monthly basis, or
such other basis as the General Partner may determine in its sole and
absolute discretion, for all expenses it incurs relating to the ownership
and operation of, or for the benefit of, the Partnership, including without
limitation, any expenses incurred by the General Partner in connection with
the management by the General Partner of any real property directly or
indirectly owned by the Partnership.
6.06. Operation in Accordance with REIT Requirements. The Partners
acknowledge and agree that the Partnership shall be operated in a manner that
will enable the Company to (i) satisfy the REIT requirements and (ii) avoid the
imposition of any federal income or excise tax liability. The Partnership shall
avoid taking any action which would result in the Company ceasing to satisfy
REIT requirements or which would result in the imposition of any federal income
or excise tax liability on the Company.
6.07. Withdrawal or Resignation, Etc. of General Partner.
(a) The General Partner shall not, without the prior written consent
or unanimous vote of all other Partners, voluntarily withdraw or resign as
a general partner of the Partnership or otherwise act with similar effect.
(b) If the General Partner withdraws, resigns or otherwise ceases to
be a General Partner pursuant to Section 9.01(a), its liability as a
general partner shall cease as provided in the Act, and the Partnership
shall promptly file an amendment to the Certificate and shall otherwise
take all steps reasonably necessary under the Act to cause such a cessation
of liability.
ARTICLE VII
Rights and Obligations of Limited Partners
7.01. Limited Liability. No Limited Partner shall be required to make
capital contributions to the Partnership in addition to those required under
Section 3.03. No Limited Partner shall be personally liable for any of the debts
of the Partnership or any of the losses thereof. However, the amount committed
by it to the capital of the Partnership and its
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interest in Partnership assets shall be subject to liability therefor.
7.02. No Participation in Management. A Limited Partner shall have no right
to control, and shall take no part in the management or control of, the
Partnership's activities or business, but may exercise the rights and powers of
a Limited Partner under this Agreement.
7.03. No Authority to Act. A Limited Partner shall have no power to
represent, act for, sign for or bind the General Partner or the Partnership. The
Limited Partners hereby consent to the exercise by the General Partner of the
powers conferred on it by the Act and this Agreement.
7.04. Right to Examine Books and Records. A Limited Partner shall have the
right to examine the books and records of the Partnership (including without
limitation the names and addresses of all Partners) as provided in Section
10.01, including the right to have such examination conducted without expense to
the Partnership by any reasonable number of persons designated by such Limited
Partner.
7.05. Right to Copy of Certificates. Upon specific written request of any
Limited Partner, the General Partner shall deliver or mail to such Limited
Partner a copy of the Certificate or any certificate of amendment or other
certificate required to be filed with the Secretary of State of the State of
Delaware or with any other state or province. The General Partner shall have no
obligation to deliver or mail any such certificate to a Limited Partner in the
absence of such specific written request.
7.06. Limitation on Withdrawal, Etc. A Limited Partner shall have no right
to withdraw from the Partnership or to institute an action for dissolution of
the Partnership, except in accordance with the provisions of the Act or except
as provided in this Agreement.
7.07. Right to Return of Contributions. No Limited Partner shall be
entitled to the return of any portion of its Capital Contributions except as
provided in Section 5.03 or to the extent, if any, that distributions made, or
deemed to be made, pursuant to this Agreement may be considered as such by law,
or by unanimous agreement of the Partners, or upon dissolution of the
Partnership.
ARTICLE VIII
Transferability of Partners' Interests
8.01. Transfers of Partners' Interest. No Partner's Partnership Interest
(including either any portion or the
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entirety thereof) shall be sold, transferred, assigned, pledged, hypothecated or
otherwise disposed of or encumbered, other than to another Partner.
8.02. Requirements as to Costs and Acceptance of Agreement. The General
Partner, as a condition to any sale, transfer or assignment of a Partnership
Interest, may require that any purchaser, transferee or assignee pay to the
Partnership such amount as is determined by the General Partner to be sufficient
to pay all costs, including a share of allocated overhead costs, and legal fees
and expenses, to be incurred in implementing any proposed transfer. Further,
Partnership Interests may only be sold, transferred or assigned if the proposed
purchaser, transferee or assignee agrees in written form satisfactory to the
General Partner to be bound by this Agreement as then in effect and gives notice
to the General Partner of the consummation of such sale, transfer or assignment.
The effective date of such sale, transfer or assignment shall be the date
determined by the General Partner, which shall in no event be later than the
last day of the calendar month in which the General Partner receives notice
thereof.
8.03. Admission of Substituted Limited Partners. Notwithstanding anything
in this Article to the contrary, any purchaser, transferee or assignee of a
Partnership Interest shall become a substituted Limited Partner only with the
consent of the General Partner, which consent may be granted or refused within
the General Partner's discretion, and only upon compliance with all applicable
provisions of law. No sale, transfer or assignment shall release the selling,
transferring or assigning Limited Partner from any of its obligations under this
Agreement unless its purchaser, transferee or assignee becomes a substituted
Limited Partner.
8.04. Nonpermitted Attempted Transfers. Any purported sale, transfer,
assignment, pledge, hypothecation or other disposition of a whole or any part of
a Partnership Interest which is not made in compliance with this Article shall
be null and void ab initio.
ARTICLE IX
Dissolution and Termination
9.01. Events Causing Dissolution. This Partnership shall be dissolved by
the occurrence of any of the following events:
(a) The bankruptcy or any other event of withdrawal of a general
partner within the meaning of the Act (including any retirement or transfer
described in Article VIII, in violation of the requirements of said
Article), or any other event which under the Act causes a dissolution of a
partnership; provided, however, that an event of withdrawal of a general
partner shall not be a
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dissolution event if there is a continuing general partner;
(b) Expiration of the term of the Partnership as set forth in Section
2.05;
(c) The completion of the sale or other disposition of all or
substantially all of the Partnership assets;
(d) The affirmative vote of all of the Partners adopting an amendment
to this Agreement providing for the dissolution of the Partnership.
9.02. Continuation by Action of the Partners. Notwithstanding Section
9.01(a), if any event of withdrawal of a general partner under the Act would
otherwise cause dissolution of the Partnership, such dissolution shall not occur
if all remaining Partners (or such lesser percentage of such Partners as may be
permitted by the Act, but in no event less than a majority in interest of the
Limited Partners) within ninety (90) days of the occurrence of such event, agree
in writing to the continuation of the Partnership and to the appointment of one
or more additional general partners as necessary or desired. If the Partnership
is so continued, the withdrawing or expelled General Partner may withdraw
capital contributions and other amounts to which it is properly entitled on such
terms as may be set in the reasonable discretion of the successor General
Partner.
9.03. Liquidation. Upon a dissolution of the Partnership, the General
Partner, or if there is no remaining General Partner, then an agent (the
"Liquidating Agent"), designated for such purpose by the Limited Partners
holding a majority in interest of the Limited Partners' interests hereunder,
shall wind up the operations of the Partnership as promptly as shall be
practicable. Thereafter, all the assets of the Partnership, or the proceeds
therefrom if it shall have been decided as part winding up of operations to
liquidate the same, to the extent sufficient therefor, shall be paid or applied
and distributed in the following order:
(a) To the payment and discharge (or the making of adequate provision
for) all of the Partnership's debts and liabilities to persons other than
Partners;
(b) To the payment and discharge of all of the Partnership's debts and
liabilities to Partners (other than in respect of their Partnership
Interests); and
(c) Finally, the balance of such assets or proceeds shall be
distributed on an asset by asset basis among the Partners in accordance
with the balances in their respective Capital Accounts (any distributions
in kind to be based upon their values as reasonably determined during the
winding up of Partnership operations). If the General Partner, at the time
of distributions pursuant to this paragraph, shall have a deficit
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Capital Account, it shall contribute to the Partnership an amount sufficient to
eliminate such deficit.
Distributions upon liquidation of the Partnership (or any Partner's
interest in the Partnership) and related adjustments shall be made by the end of
the taxable year of the liquidation (or, if later, within 90 days after the date
of such liquidation) or as otherwise permitted by the Regulations.
ARTICLE X
Books and Records; Accounting and Tax Matters
10.01. Books and Records. The books and records of the Partnership shall be
kept in accordance with tax accounting principles, reflecting all Partnership
transactions, and shall be appropriate for the Partnership's operations. Each
Partner shall have reasonable access to the Partnership's books and records at
the location or locations where such books and records are maintained.
10.02. Tax Elections. The Partnership shall make such tax elections as it
may deem appropriate, including, but not limited to, an election under Section
754 of the Code, in accordance with applicable procedures.
10.03. Tax Matters Partner. The General Partner is designated as the "Tax
Matters Partner" as that term is used in Section 6231(a)(7)(A) of the Code.
ARTICLE XI
Amendments
11.01. General Amendment Requirements. Except as otherwise set forth in
this Article, this Agreement may be amended in whole or in part upon the
unanimous vote or written consent of all Partners. A change in Exhibit A, made
by the General Partner in accordance with the provisions of this Agreement,
shall not be deemed an amendment.
11.02. Additional Restrictions. Notwithstanding anything to the contrary,
and in addition to the foregoing, no amendment to Section 8.01 or any portion of
this Section 11.02 relating to Section 8.01 shall become effective unless also
approved by the Company's Board of Directors.
11.03. Corrective or Technical Amendments. Notwithstanding Section 11.01,
and subject to the limitation set forth in Section 11.02, the General Partner is
authorized to amend this Agreement in any way deemed necessary or desirable by
it (a) for the purposes of curing any formal defect, omission, or
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inconsistency therein, or (b) to satisfy mandatory governmental requirements.
Notice of each such amendment shall be given to all other Partners no later than
sixty (60) days after the execution or the effective date thereof, whichever
shall be the later.
ARTICLE XII
Miscellaneous
12.01. Exculpation and Indemnification.
(a) Exculpation. The doing of any act or the failure to do any act by
the General Partner, its directors, officers, employees and agents, or the
Liquidating Agent, the effect of which may cause or result in loss or
damage to the Partnership, if done pursuant to advice of legal counsel
employed by or on behalf of the General Partner on behalf of the
Partnership, or if done to promote the best interests of the Partnership,
shall not subject any such person to any liability to the Partnership or
the Partners; provided, that the foregoing shall not relieve any person of
liability hereunder if it shall have been determined by a court of
competent jurisdiction that such person acted so as to be liable for actual
fraud, willful misfeasance, gross negligence or reckless disregard of the
duties involved in the conduct of its or his office, which liability shall
survive such person's ceasing to hold its or his office and any dissolution
of the Partnership.
(b) Indemnification. The Partnership shall indemnify any Partner who
was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that it is or was a
Partner against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually or reasonably incurred by it in
connection with such action, suit or proceeding if it acted in good faith
and in a manner it reasonably believed to be or not opposed to the best
interests of the Partnership.
12.02. Power of Attorney.
(a) Each Limited Partner does hereby make, constitute and appoint the
General Partner and any successor thereto, each with full power of
substitutions, as its true and lawful attorney with respect to affairs of
the Partnership, for it and in its name, place and stead and for its own
use and benefit to:
(i) Execute, swear to, acknowledge, deliver, file and record on
its behalf in the appropriate public offices and publish (1) the
Certificate; (2) all instruments which the General Partner deems
appropriate to reflect any amendment, change (including but not
limited to a change of membership) or
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modification of the Partnership in accordance with the terms of this
Agreement; (3) certificates of fictitious or assumed name; (4) all
certificates and other instruments and all amendments thereto which
the General Partner deems appropriate or necessary to qualify, or to
continue the qualification of, the Partnership as a limited
partnership wherein a limited partner has limited liability in any
jurisdiction in which the Partnership may conduct business; (5) all
conveyances and other instruments or documents which the General
Partner deems appropriate or necessary to reflect the dissolution and
termination of the Partnership pursuant to the terms of this
Agreement; and (6) consents to the withdrawal or reduction of a
Limited Partner's invested capital.
(ii) Take any actions, comparable to those set forth in Section
12.02(a)(i), with respect to any partnership or comparable
organization in which the Partnership owns an interest.
(b) The power of attorney granted under Section 12.02(a) by the
Limited Partners to the General Partner is a special power of attorney
coupled with an interest and is irrevocable. It may be exercised by said
General Partner for the Limited Partners by a facsimile signature of one of
the officers of the General Partner or by listing all of the Limited
Partners executing any instrument over the signature of one of the General
Partner's officers acting as Attorney in Fact for all of them. It will
survive the delivery of any assignment by a Limited Partner of the whole or
any portion of its Partnership Interest, except that in cases in which the
assignee thereof has been approved by the General Partner for admission to
the Partnership as a substituted Limited Partner, the power of attorney
shall survive the delivery of such assignment for the sole purpose of
enabling the General Partner to execute, acknowledge and file instruments
necessary to effect such substitution.
12.03. Notices. Any notice, payment, demand, or other communication
required to be given by any provision of this Agreement shall be made in writing
and shall be deemed to have been delivered and given for all purposes (i) if
delivered personally to the party to whom the same is directed, or (ii) whether
or not the same is actually received, if sent by facsimile, telex or by
registered or certified mail, return receipt requested, postage and charges
prepaid addressed to the last address of the relevant party provided upon
execution of this Agreement or by notice hereunder; and shall be deemed to be
given as the date delivered if delivered personally, or the first business day
following the date of transmission by facsimile or telex, or five (5) days after
the date on which the same was deposited in the mail, addressed and sent as
aforesaid.
12.04. Section Headings. Section and other headings contained in this
Agreement are for reference purposes only and are in no way intended to
describe, interpret, define or limit
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the scope, extent or intent of the Agreement or any provisions thereof.
12.05. Severability. Each provision of this Agreement is intended to be
severable. If any term or provision hereof is illegal or invalid for any reason
whatsoever, such illegality or invalidity shall not affect the validity of the
remainder of the Agreement.
12.06. Governing Law. The law of the State of Delaware shall govern the
validity of this Agreement, the construction of its terms and the interpretation
of the rights and duties of the parties hereto.
12.07. Counterparts. The Agreement may be executed in any number of
counterparts with separate signature pages, with the same effect as if all
parties hereto had signed the same document. All counterparts shall be construed
together and shall constitute one Agreement.
12.08. Parties in Interest. Subject to the provisions contained in Article
VIII hereof, each and every covenant, term, provision and agreement herein
contained shall be binding upon and inure to the benefit of the successors and
assigns of the respective parties hereto.
12.09. Words. Whenever the singular number is used herein, and required by
the context, the same shall include the plural, and vice versa. The masculine
gender, when used herein shall include the feminine and neuter genders, and vice
versa, and the word "person" shall include any corporation, firm, partnership or
other form of association.
12.10. Integrated Agreement. This Agreement constitutes the entire
understanding and agreement among the parties hereto with respect to the subject
matter hereof, and there are no agreements, understandings, restrictions,
representations or warranties among the parties other than those set forth
herein or herein provided for.
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IN WITNESS WHEREOF, this Agreement has been executed as of the date first
above written.
GENERAL PARTNER:
PHILIPS SUB [ ], INC.
By:
-----------------------------------
LIMITED PARTNER:
--------------------------------------
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EXHIBIT A
LIMITED PARTNERS
----------------
Capital
Name and Address Contribution
- ---------------- ------------
<PAGE>
EXHIBIT B
DESCRIPTION OF THE PROPERTY
---------------------------
<PAGE>
CERTIFICATE OF INCORPORATION
CALl SUB [ ], INC.
* * * * * * * *
First. The name of the corporation (the "Corporation") is: CALI SUB [ ],
INC.
Second. The address of the Corporation's registered office in the State of
Delaware is United Corporate Services, Inc., 15 East North Street, Dover, Kent
County, Delaware. The name of its registered agent at such address is United
Corporate Services, Inc.
Third. (A) Subject to the limitations set forth herein, the purpose for
which the Corporation is organized is to engage solely in the following
activities:
(1) to serve as the managing General Partner of (a) _______ a
_________ general partnership ("Partnership 1"), (b) _____________, a
_________ general partnership ("Partnership 2"), (c) _________________ , a
_________________________ general partnership ("Partnership 3"), (d)
Philips Property Holdings [ ], L.P., a Delaware limited partnership
("Holdings I"), (e) Philips Property Holdings [ ], L.P., a Delaware limited
partnership ("Holdings II"), and (f) Philips Property Holdings [ ], L.P., a
Delaware limited partnership ("Holdings III");
(2) to take any and all actions necessary under and pursuant to (a)
the Amended and Restated Partnership Agreement governing Partnership 1 (as
it may be amended from time to time) between Holdings I and the
Corporation, (b) the Amended and Restated Partnership Agreement governing
Partnership 2 (as it may be amended from time to time) between Holdings II
and the Corporation, (c) the Amended and Restated Partnership Agreement
governing Partnership 3 (as it may be amended from time to time) between
Holdings III and the Corporation, (d) the Amended and Restated Partnership
Agreement governing Holdings I between Philips International Realty, L.P.,
a Delaware limited partnership (the "UPREIT"), and the Corporation, (e) the
Amended and Restated Partnership Agreement governing Holdings II between
the UPREIT and the Corporation, and (f) the Amended and Restated
Partnership Agreement governing Holdings III between the UPREIT and the
Corporation;
(3) to execute and deliver, on behalf of Partnership 1, Partnership 2
and Partnership 3, any and all instruments, agreements, certificates,
documents, notices, papers or other writings as may be necessary or
advisable in connection with the acquisition by Partnership 1, Partnership
2 and Partnership 3 of
<PAGE>
certain office buildings and other properties (the "Properties");
(4) to execute and deliver, on behalf of Partnership 1, Partnership 2
and Partnership 3, mortgages or deeds of trust encumbering any of the
Properties, and any and all assignments, financing statements, security
agreements, certificates, documents, notices, papers or other writings in
connection therewith;
(5) to execute and deliver, on behalf of Partnership 1, Partnership 2
and Partnership 3, a placement, underwriting or similar agreement with any
underwriter that may be retained in connection with the securitization of
any notes or mortgages, and any instruments, agreements, certificates,
documents, notices, papers or other writings as may be necessary or
advisable in connection with such securitization;
(6) to engage, on behalf of Partnership 1, Partnership 2 and
Partnership 3, in any activities necessary to hold, receive, exchange,
otherwise dispose of and otherwise deal in and exercise all rights, powers,
privileges, and all other incidents of ownership or possession with respect
to all of the Properties and any property or interests which may be
acquired by Partnership 1, Partnership 2 and Partnership 3 as a result of
any sale or other disposition of any of the Properties;
(7) to engage in any activities necessary to authorize, execute and
deliver any other instrument, agreement, certificate, notice or document in
connection with the activities described above, including the filing of any
instrument, agreements, certificates, notices, applications and other
documents necessary or advisable to comply with any applicable laws,
statutes, rules and regulations or necessary or advisable to perfect or
protect the above-referenced security interests; and
(8) to engage in such lawful activities and to exercise such powers
permitted to corporations under the laws of the State of Delaware that are
necessarily incident to or connected with the foregoing or necessary or
convenient to accomplish the foregoing and which are consistent with the
limitations set forth in this Paragraph Third and the other Paragraphs
hereof.
(B) Except as set forth in the preceding sentence, the Corporation reserves
the right, at any time and from time to time, substantially to change its
purposes in the manner now or hereafter permitted by statute. Any change of the
purposes of the Corporation authorized or approved by the holders of shares
entitling them to exercise the proportion of the voting power of the Corporation
now or hereafter required by statute shall be binding and conclusive upon every
shareholder of the Corporation as fully as if such shareholder had voted
therefor; and no shareholder, notwithstanding that it may have voted against
such
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<PAGE>
change of purposes or may have objected in writing thereto, shall be entitled to
payment of the fair cash value of its shares.
Fourth. The total number of shares of stock which the Corporation has the
authority to issue is 1,000 shares of Common Stock, $.01 par value per share.
Fifth. The following provisions are inserted for the management of the
business and for the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and shareholders:
(1) The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors of the Corporation (the
"Board")
(2) As used herein, the term "Affiliate" shall mean any entity other
than the Corporation (i) which owns beneficially, directly or indirectly,
10% or more of the outstanding shares of the Corporation's common stock,
(ii) which is in control of the Corporation, as "control" is defined under
Section 230.405 of the Rules and Regulations of the Securities and Exchange
Commission, 17 C.F.R. ss. 230.405, as in effect on the date hereof, (iii)
of which 10% or more of the outstanding shares of such entity's common
stock is owned beneficially, directly or indirectly, by any entity
described in clause (i) or (ii) above, or (iv) which is controlled by any
entity described in clause (i) or (ii) above, as "controlled by" is defined
under such Section 230.405; provided, however, that Philips International
Realty Corp., a Maryland corporation, the UPREIT, Holdings I, Holdings II,
Holdings III and Partnership 1, Partnership 2 and Partnership 3 shall each
be considered an Affiliate.
(3) The Corporation shall not commingle its funds with those of any
Affiliate or any other entity. Funds and other assets of the Corporation
shall be separately identified and segregated. All of the Corporation's
assets shall at all times be held on behalf of the Corporation, and, if
held on behalf of the Corporation by another entity, shall at all times be
kept identifiable (in accordance with customary usages) as assets owned by
the Corporation. The Corporation shall maintain its own separate bank
accounts, payroll and books of account.
(4) The Corporation shall pay from its own assets all obligations of
any kind incurred by the Corporation (other than organizational expenses)
(5) The Corporation shall take all appropriate action necessary to
ensure its existence as a corporation in good standing under the laws of
the State of Delaware.
(6) The Corporation shall at all times maintain its principal
executive office separate from that of any other entity
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<PAGE>
and will identify such office as its office; provided, however, that,
subject to clause (9) below, the Corporation may lease office space from an
Affiliate. All financial statements, accounting records and other corporate
documents of the Corporation shall be maintained at such office separate
from those of any Affiliate or any other entity.
(7) The Corporation shall observe all legal and customary formalities
regarding its corporate existence, including holding regular meetings of
its Board and its shareholders and maintenance of current minute books.
Regular meetings of the Board shall be held at least quarterly. A quorum of
the Board must be present in person or by means of conference telephone or
similar communications equipment.
(8) The annual financial statements of the Corporation shall disclose,
in accordance with and to the extent required under generally accepted
accounting principles, any transactions between the Corporation and any
Affiliate.
(9) All business transactions entered into by the Corporation with any
Affiliate shall be on terms and conditions that are no less favorable to
the Corporation than the terms and conditions that would be expected to
have been obtained, at the time of such transaction and under similar
circumstances, from unaffiliated persons. In addition, all such
transactions shall be approved by the unanimous written consent of the
Board of Directors. The Corporation shall not guarantee any liabilities or
obligations of any Affiliate, nor shall it assume any indebtedness or other
liabilities or obligations of any Affiliate.
(10) The Corporation shall at all times hold itself out to the public
(including any Affiliate's creditors) as a separate and distinct corporate
entity operating under the Corporation's own name and the Corporation shall
act solely in its own corporate name and through its own authorized
officers and agents.
(11) The Corporation shall pay out of its own funds fees, if any, for
its directors and salaries, if any, of its officers and employees, and
shall reimburse any Affiliate for any service provided to the Corporation
by such Affiliate (including those to be provided pursuant to any lease,
administrative or management services agreement or other contract between
the Corporation and any Affiliate) in accordance with the terms of any such
lease, agreement or other contract.
(12) The Board shall have the power without the assent or vote of the
stockholders to make, alter, amend, change, add to or repeal the By-laws of
the Corporation.
Sixth. In the absence of fraud, no contract or other transaction between
this Corporation and any other corporation or
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<PAGE>
any firm, partnership, association or person shall be affected or invalidated by
the fact that any director or officer of this Corporation is pecuniarily or
otherwise interested in such contract or other transaction, or is a director,
member or officer of such other corporation or of such firm, association or
partnership or is a party to or is pecuniarily or otherwise interested in such
contract or other transaction or in any way connected with any person or
persons, firm, association, partnership or corporation pecuniarily or otherwise
interested therein; any director may be counted in determining the existence of
a quorum at any meeting of the Board of Directors of this Corporation for the
purpose of authorizing any such contract or transaction with like force and
effect as if he were not so interested, or were not a director, member or
officer of such other corporation, firm, association or partnership.
Seventh. The Corporation by action of its Board of Directors may purchase
or otherwise deal in any shares of the capital stock of the Corporation to the
extent not prohibited by law. The directors are authorized, from time to time,
in their discretion, to grant to such persons, for such periods and upon such
terms as the directors deem advisable, rights or options to purchase such number
of shares of the capital stock of the Corporation as the directors deem
advisable.
Eighth. No holder of shares of the Corporation of any class shall have any
pre-emptive, preferential or other right to purchase or subscribe for any
unissued shares of the Corporation.
Ninth. No holder of shares of any class of the Corporation shall have the
right to cumulate voting power in the election of directors, and the right to
cumulate voting powers described in Delaware General Corporation Law Section 214
is hereby specifically denied to holders of shares of any class of the
Corporation.
Tenth. No director shall be liable to the corporation or any of its
stockholders for monetary damages for breach of fiduciary duty as a director,
except with respect to (1) a breach of the director's duty of loyalty to the
Corporation or its stockholders, (2) acts or omissions not in good faith or
which involves intentional misconduct or a knowing violation of law, (3)
liability under Section 174 of the Delaware General Corporation Law or (4) a
transaction from which the director derived an improper personal benefit, it
being the intention of _the foregoing provision to eliminate the liability of
the Corporation's directors to the Corporation or its stockholders to the
fullest extent permitted by Section 102(b) (7) of the Delaware General
Corporation Law, as amended from time to time. The Corporation shall indemnify
to the fullest extent permitted by Sections 102(b) (7) and 145 of the Delaware
General Corporation Law, as amended from time to time, each person that such
Sections grant the Corporation the power to indemnify.
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<PAGE>
BY-LAWS
OF
PHILIPS SUB [ ], INC.
ARTICLE I
OFFICES
Section 1.1. The registered office shall be in the City of Dover, County of
Kent, State of Delaware.
Section 1.2. The corporation may also have offices at such other places
both within and without the State of Delaware as the board of directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 2.1. All meetings of the stockholders shall be held at such time
and place, within or without the State of Delaware, as shall be stated in the
notice of the meeting or in a duly executed waiver of notice thereof.
Section 2.2. A meeting of stockholders shall be held in each year for
the election of directors at such time and place as the board of directors shall
determine. Any other proper business, notice of which was given in the notice of
the meeting or in a duly executed waiver of notice thereof, may be transacted at
the annual meeting. Elections of directors shall be by written ballot, unless
otherwise provided in the certificate of incorporation.
Section 2.3. Unless otherwise provided by law, written notice of the annual
meeting shall be given to each stockholder entitled to vote thereat not less
than ten nor more than sixty days before the date of the meeting.
Section 2.4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every election of
directors, a complete list of the stockholders entitled to vote at said
election, arranged in alphabetical order, showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder during ordinary
business hours, for a period of at least ten days prior to the election, either
at a place within the city, town or village where the election is to be held and
which place shall be specified in the notice of the meeting, or, if not
specified, at the place where said meeting is to be held, and the list shall be
produced and kept at the time and place of election during the whole time
thereof, and subject to the inspection of any stockholder who may be present.
<PAGE>
Section 2.5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of stockholders owning a
majority in amount of the entire capital stock of the corporation issued and
outstanding and entitled to vote. Such request shall state the purpose or
purposes of the proposed meeting.
Section 2.6. Unless otherwise provided by law, written notice of a special
meeting of stockholders, stating the time, place and purpose or purposes
thereof, shall be given to each stockholder entitled to vote thereat, not less
than ten nor more than sixty days before the date fixed for the meeting.
Section 2.7. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 2.8. The holder of a majority of the stock issued and outstanding
and entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum shall not be present or represented at
any meeting of the stockholders, the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have the power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall he present or represented any business may be
transacted which might have been transacted at the meeting as originally
notified.
Section 2.9. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the certificate of incorporation, a different vote is required in which case
such express provision shall govern and control the decision of such question.
Section 2.10. Each stockholder shall at every meeting of the stockholders
be entitled to one vote in person or by proxy for each share of the capital
stock having voting power held by such stockholder, but no proxy shall be voted
on after three years from its date, unless the proxy provides for a longer
period, and, except where the transfer books of the corporation have been closed
or a date has been fixed as a record date for the determination of its
stockholders entitled to vote, no share of stock shall be voted at any election
for directors which has been transferred on the books of the corporation within
twenty days next preceding such election of directors.
Section 2.11. Any action required to be taken at any annual or special
meeting of stockholders, or any action which may be taken at any annual or
special meeting of such stockholders, may be taken without a meeting, without
prior notice and without a vote, if a consent in writing, setting forth the
action so taken, shall be signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were
present and voted. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
2
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ARTICLE III
DIRECTORS
Section 3.1. The number of directors which shall constitute the whole board
shall be such number as the board of directors may determine. Except as
hereinafter provided in Section 3.2 of this Article, the directors, other than
those constituting the first board of directors, shall be elected by the
stockholders, and each director shall hold office until his successor is elected
and duly qualified or until his earlier resignation or removal. Directors need
not be stockholders.
Section 3.2. Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, though less than a quorum, or by a sole remaining
director.
Section 3.3. The business and affairs of the corporation shall be managed
by or under the direction of its board of directors, which may exercise all such
powers of the corporation and do all such lawful acts and things as are not by
statute or by the certificate of incorporation or by these by-laws directed or
required to be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 3.4. The board of directors of the corporation may hold meetings,
both regular and special, either within or without the State of Delaware.
Section 3.5. The first meeting of each newly elected board of directors
shall be held immediately after and at the same place as the meeting of the
stockholders at which it was elected and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present.
Section 3.6. Regular meetings of the board of directors may be held without
notice at such time and at such place as shall from time to time be determined
by the board.
Section 3.7. Special meetings of the board may be called by the president
on two days notice to each director, either personally or by mail or by
telegram; special meetings shall be called by the president or secretary in like
manner and on like notice on the written request of two directors.
Section 3.8. At all meetings of the board a majority of directors shall
constitute a quorum for the transaction of business and the act of a majority of
the directors present at any meeting at which there is a quorum shall be the act
of the board of directors, except as may be otherwise specifically provided by
statute or by the certificate of incorporation. If a quorum shall not be present
at any meeting of the board of directors, the directors present thereat may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present.
Section 3.9. Unless otherwise restricted by the certificate of
incorporation or these by-laws, any action required or permitted to be taken at
any meeting of the board of directors or of any committee thereof may be taken
without a meeting, if all members of the board or of such committee, as the case
may be, consent thereto in writing, and the writing or writings are filed with
the minutes of proceedings of the board or committee.
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COMMITTEES OF DIRECTORS
Section 3.10. The board of directors may, by resolution passed by a
majority of the whole board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the board of
directors to act at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided in the resolutions of the
board of directors, shall have and may exercise all the powers and authority of
the board of directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the certificate of incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the corporation's property and
assets, recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution or amending the by-laws of the corporation; and,
unless the resolution expressly so provides, no such committee shall have the
power or authority to declare a dividend or to authorize the issuance of stock
or to adopt a certificate of ownership and merger.
Section 3.11. Each committee shall keep regular minutes of its meetings and
report the same to the board of directors when required.
COMPENSATION OF DIRECTORS
Section 3.12. The board of directors shall have the authority to fix the
compensation of directors.
PARTICIPATION IN MEETINGS BY TELEPHONE
Section 3.13. Members of the board of directors or any committee designated
by such board may participate in a meeting of the board or of a committee of the
board by means of conference telephone or similar communications equipment by
means of which all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this subsection shall constitute presence
in person at such meeting.
ARTICLE IV
NOTICES
Section 4.1. Notices to directors and stockholders shall be in writing and
delivered personally or mailed to the directors or stockholders at their
addresses appearing on the books of the corporation. Notice by mail shall be
deemed to be given at the time when the same shall be mailed. Notice to
directors may also be given by telegram.
Section 4.2. Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or by these
by-laws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business
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because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
stockholders, directors, or members of a committee of directors need be
specified in any written waiver of notice.
ARTICLE V
OFFICERS
Section 5.1. The officers of the corporation shall be chosen by the board
of directors and shall be a president, a vice-president, a secretary and a
treasurer. The board of directors may also choose additional vice-presidents,
and one or more assistant secretaries and assistant treasurers. Any number of
offices may be held by the same person, unless the certificate of incorporation
otherwise provides.
Section 5.2. The board of directors at its first meeting after each annual
meeting of stockholders shall choose a president, one or more vice-presidents, a
secretary and a treasurer.
Section 5.3. The board of directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board.
Section 5.4. The salaries of all officers and agents of the corporation
shall be fixed by the board of directors.
Section 5.5. The officers of the corporation shall hold office until their
successors are chosen and duly qualified. Any officer elected or appointed by
the board of directors may be removed at any time by the affirmative vote of a
majority of the board of directors. Any vacancy occurring in any office of the
corporation shall be filled by the board of directors.
THE PRESIDENT
Section 5.6. The president shall be the chief executive officer of the
corporation, shall preside at all meetings of the stockholders and the board of
directors, shall have general and active management of the business of the
corporation and shall see that all orders and resolutions of the board of
directors are carried into effect.
Section 5.7. The president shall execute bonds, mortgages and other
contracts requiring a seal, under the seal of the corporation, except where
required or permitted by law to be otherwise signed and executed and except
where the signing and execution thereof shall be expressly delegated by the
board of directors to some other officer or agent of the corporation.
THE VICE-PRESIDENTS
Section 5.8. The vice-president, or if there shall be more than one, the
vice-presidents in the order determined by the board of directors, shall, in the
absence or disability of the president, perform the duties and exercise the
powers of the president and shall perform such other duties and have such other
powers as the board of directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARIES
Section 5.9. The secretary shall attend all meetings of the board of
directors and all
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meetings of the stockholders and record all the proceedings of the meetings of
the corporation and of the board of directors in a book to be kept for that
purpose and shall perform like duties for the standing committees when required.
He shall give, or cause to be given, notice of all meetings of the stockholders
and special meetings of the board of directors, and shall perform such other
duties as may be prescribed by the board of directors or president, under whose
supervision he shall be. He shall have custody of the corporate seal of the
corporation and he or an assistant secretary shall have authority to affix the
same to any instrument requiring it and when so affixed, it may be attested by
his signature or by the signature of such assistant secretary. The board of
directors may give general authority to any other officer to affix the seal of
the corporation and to attest the affixing by his signature.
Section 5.10. The assistant secretary, or if there be more than one, the
assistant secretaries in the order determined by the board of directors, shall,
in the absence or disability of the secretary, perform the duties and exercise
the powers of the secretary and shall perform such other duties and have such
other powers as the board of directors may from time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 5.11. The treasurer shall have the custody of the corporate funds
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the board of directors.
Section 5.12. The treasurer shall disburse the funds of the corporation as
may be ordered by the board of directors, taking proper vouchers for such
disbursements, and shall render to the president and the board of directors, at
its regular meetings or when the board of directors so requires, an account of
all his transactions as treasurer and of the financial condition of the
corporation.
Section 5.13. If required by the board of directors, the treasurer shall
give the corporation a bond (which shall be renewed every six years) in such sum
and with such surety or sureties as shall be satisfactory to the board of
directors for the faithful performance of the duties of his office and for the
restoration to the corporation, in case of his death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the
corporation.
Section 5.14. The assistant treasurer, or if there shall be more than one,
the assistant treasurers in the order determined by the board of directors,
shall, in the absence or disability of the treasurer, perform the duties and
exercise the powers of the treasurer and shall perform such other duties and
have such other powers as the board of directors may from time to time
prescribe.
ARTICLE VI
CERTIFICATES OF STOCK
Section 6.1. Every holder of stock in the corporation shall be entitled to
have a certificate signed by, or in the name of the corporation by, the chairman
or vice-chairman of the board of directors, or the president or a vice-president
and the treasurer or an assistant treasurer, or the secretary or an assistant
secretary of the corporation, certifying the number of shares owned by
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him in the corporation.
Section 6.2. Where a certificate is signed (1) by a transfer agent or an
assistant transfer agent or (2) by a transfer clerk acting on behalf of the
corporation and a registrar, the signature of any such chairman or vice-chairman
of the board of directors, president, vice-president, treasurer, assistant
treasurer, secretary or assistant secretary may be facsimile. In case any
officer or officers who have signed, or whose facsimile signature or signatures
have been used on, any such certificate or certificates shall cease to be such
officer or officers of the corporation, whether because of death, resignation or
otherwise, before such certificate or certificates have been delivered by the
corporation, such certificate or certificates may nevertheless be adopted by the
corporation and be issued and delivered as though the person or persons who
signed such certificate or certificates or whose facsimile signature or
signatures have been used thereon had not ceased to be such officer or officers
of the corporation.
LOST CERTIFICATES
Section 6.3. The board of directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the board of directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to give the corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the corporation
with respect to the certificate alleged to have been lost, stolen or destroyed
upon the issuance of such new certificate.
TRANSFERS OF STOCK
Section 6.4. Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transactions upon its books,
unless the corporation has a duty to inquire as to adverse claims with respect
to such transfer which has not been discharged. The corporation shall have no
duty to inquire into adverse claims with respect to such transfer unless (a) the
corporation has received a written notification of an adverse claim at a time
and in a manner which affords the corporation a reasonable opportunity to act on
it prior to the issuance of a new, reissued or re-registered share certificate
and the notification identifies the claimant, the registered owner and the issue
of which the share or shares is a part and provides an address for
communications directed to the claimant; or (b) the corporation has required and
obtained, with respect to a fiduciary, a copy of a will, trust, indenture,
articles of co-partnership, by-laws or other controlling instruments, for a
purpose other than to obtain appropriate evidence of the appointment or
incumbency of the fiduciary, and such documents indicate, upon reasonable
inspection, the existence of an adverse claim.
Section 6.5. The corporation may discharge any duty of inquiry by any
reasonable means, including notifying an adverse claimant by registered or
certified mail at the address furnished by him or, if there be no such address,
at his residence or regular place of business that the security has been
presented for registration of transfer by a named person, and that the transfer
will be registered unless within thirty days from the date of mailing the
notification, either (a) an appropriate restraining order, injunction or other
process issues from a court of competent jurisdiction; or (b) an indemnity bond,
sufficient in the corporation's judgment to
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protect the corporation and any transfer agent, registrar or other agent of the
corporation involved from any loss which it or they may suffer by complying with
the adverse claim, is filed with the corporation.
FIXING RECORD DATE
Section 6.6. (a) In order that the corporation may determine the
stockholders entitled to notice or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the board of directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing the record is
adopted by the board of directors, and which record date shall not be more than
sixty nor less than ten days before the date of such meeting, nor more than ten
days after the date upon which the resolution fixing the record date of action
with a meeting is adopted by the board of directors, nor more than sixty days
prior to any other action.
(b) If no record date is fixed:
(1) The record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day
next preceding the day on which the meeting is held.
(2) The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when
no prior action by the board of directors is necessary, shall be the
first date on which a signed written consent is delivered to the
corporation.
(3) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the
board of directors adopts the resolution relating thereto.
(c) A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the board of directors may fixed a new
record date for the adjourned meeting.
REGISTERED STOCKHOLDERS
Section 6.7. Prior to due presentment for transfer of any share or shares,
the corporation shall treat the registered owner thereof as the person
exclusively entitled to vote, to receive notifications and to all other benefits
of ownership with respect to such share or shares, and shall not be bound to
recognize any equitable or other claim to or interest in such share or shares on
the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the laws of Delaware.
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ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 7.1. Dividends upon the capital stock of the corporation, subject
to the provisions of the certificate of incorporation, if any, may be declared
by the board of directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the certificate of incorporation.
Section 7.2. Before payment of any dividend, there may be set aside out of
any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
ANNUAL STATEMENT
Section 7.3. The board of directors shall present at each annual meeting,
and at any special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
corporation.
CHECKS
Section 7.4. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other persons as the board
of directors may from time to time designate.
FISCAL YEAR
Section 7.5. The fiscal year of the corporation shall be as determined by
the board of directors.
SEAL
Section 7.6. The corporate seal shall have inscribed thereon the name of
the corporation, the year of its organization and the words "Corporate Seal,
Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or in any manner reproduced.
ARTICLE VIII
AMENDMENTS
Section 8.1. These by-laws may be altered or repealed at any regular
meeting of the stockholders or of the board of directors or at any special
meeting of the stockholders or of the board of directors if notice of such
alteration or repeal be contained in the notice of such special meeting.
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ARTICLE IX
INDEMNIFICATION
Section 9.1. The corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
Section 9.2. The corporation shall indemnify any person who was or is a
party, or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation; provided, however, that no indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the Court of Chancery or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
Section 9.3. To the extent that a director, officer, employee or agent of
the corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in sections 9.1 or 9.2 of this Article,
or in defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection therewith.
Section 9.4. Any indemnification under sections 9.1 or 9.2 of this Article
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in such section. Such determination
shall be made:
(a) By the board of directors by a majority vote of a quorum
consisting of directors who were not parties to such action, suit or
proceeding, or
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(b) If such a quorum is not obtainable, or, even if obtainable a
quorum of disinterested directors so directs, by independent legal counsel
in a written opinion, or
(c) By the stockholders.
Section 9.5. Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the corporation as authorized in this section. Such expenses (including
attorneys' fees) incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the board of directors deems appropriate.
Section 9.6. The indemnification and advancement of expenses provided by,
or granted pursuant to the other sections of this Article shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
Section 9.7. The corporation shall have the power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the corporation would have the power to indemnify him
against such liability under the provisions of this Article.
Section 9.8. For purposes of this Article, references to "the corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, and employees
or agents, so that any person who is or was a director, officer employee or
agent of such constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under this Article with respect to the
resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
Section 9.9. For purposes of this Article, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to any employee
benefit plan; and references to "serving at the request of the corporation"
shall include any service as a director, officer, employee or agent of the
corporation which imposes duties on, or involves services by, such director,
officer, employee, or agent with respect to an employee benefit plan, its
participants or beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the corporation" as referred to in
this Article.
Section 9.10. The indemnification and advancement of expenses provided by,
or granted pursuant to, this Article shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the
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benefit of the heirs, executors and administrators of such a person.
Section 9.11. No director or officer of the corporation shall be personally
liable to the corporation or to any stockholder of the corporation for monetary
damages for breach of fiduciary duty as a director or officer, provided that
this provision shall not limit the liability of a director or officer (i) for
any breach of the director's or the officer's duty of loyalty to the corporation
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the General Corporation Law of Delaware, or (iv) for any
transaction from which the director or officer derived an improper personal
benefit.
* * * * *
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CONTRIBUTION AND EXCHANGE AGREEMENT
among
FOREST AVENUE SHOPPING LLC,
PHILIPS FREEPORT ASSOCIATES, L.P.,
MERRICK SHOPPING ASSOCIATES,
SP AVENUE U ASSOCIATES, L.P.,
ENFIELD SHOPPING L.L.C.,
BRANHAVEN PLAZA L.L.C.,
PALM SPRINGS MILE ASSOCIATES, LTD. AND ITS PARTNERS,
FOXBOROUGH SHOPPING L.L.C. AND ITS MEMBERS,
DELRAN SHOPPING L.L.C. AND ITS MEMBERS,
and
NATIONAL PROPERTIES INVESTMENT TRUST,
and
PETER STEIN, JAY GOLDMAN, ROBERT REIBSTEIN,
and
PHILIPS INTERNATIONAL REALTY, L.P.
and
PHILIPS INTERNATIONAL REALTY CORP.
Date: August 11, 1997
<PAGE>
TABLE OF CONTENTS
Page
----
INDEX OF DEFINED TERMS.............................................iii
INDEX OF SCHEDULES AND EXHIBITS....................................vii
CONTRIBUTION AND EXCHANGE AGREEMENT................................ 1
RECITALS........................................................... 2
1. SUBJECT OF CONVEYANCE.............................................. 2
2. CONTRIBUTION TERMS; UNITS.......................................... 6
3. RIGHTS OF INSPECTION............................................... 7
4. TITLE; MATTERS TO WHICH THIS SALE IS SUBJECT....................... 8
5. REPRESENTATIONS AND WARRANTIES OF THE
PROPERTY PARTNERSHIPS AND THE PARTNERS............................. 11
6. REPRESENTATIONS AND WARRANTIES OF
NATIONAL AND NEW REIT.............................................. 22
7. REPRESENTATIONS AND WARRANTIES OF PRLP............................. 33
8. COVENANTS OF THE PROPERTY PARTNERSHIPS,
THE PARTNERS AND NATIONAL.......................................... 35
9. INTENTIONALLY DELETED.............................................. 39
10. ESTOPPEL CERTIFICATES.............................................. 39
11. CLOSING............................................................ 39
12. ADJUSTMENTS........................................................ 49
13. CONDITIONS PRECEDENT TO CLOSING.................................... 50
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14. LEASING COMMISSIONS AND
TENANT IMPROVEMENT OBLIGATIONS..................................... 54
15. ASSIGNMENT......................................................... 55
16. BROKER............................................................. 55
17. CASUALTY LOSS...................................................... 56
18. CONDEMNATION....................................................... 56
19. TRANSFER RESTRICTIONS.............................................. 57
20. LIMITED GUARANTY................................................... 58
21. TAX MATTERS........................................................ 58
22. PUBLICATION........................................................ 59
23. TERMINATION........................................................ 60
24. REMEDIES........................................................... 60
25. NOTICE............................................................. 61
26. INDEMNITY.......................................................... 62
27. ANCILLARY AGREEMENTS............................................... 63
28. MISCELLANEOUS...................................................... 64
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INDEX OF DEFINED TERMS
Defined Term Section
- ------------ -------
Act............................................................ ss.5.2
Additional Rents............................................... ss.12.2
Agreement...................................................... Preface
Asset Contributing Property Partnership........................ Preface
Asset Contributing Property Partnerships....................... Preface
Building....................................................... ss.1.4(b)
Buildings...................................................... ss.1.4(b)
Casualty....................................................... ss.17.2
Casualty Notice................................................ ss.17.2
CERCLA......................................................... ss.5.1(t)(x)(A)
Closing........................................................ ss.11.1
Closing Date................................................... ss.11.1
Code........................................................... ss.5.1(q)(ii)
Common Stock................................................... ss.2.2(a)
Competing Offer................................................ ss.8.5
Contaminants................................................... ss.5.1(t)(x)(A)
Delran Member.................................................. Preface
Delran Members................................................. Preface
Discharge...................................................... ss.5.1(t)(x)(B)
Documents...................................................... ss.1.4(l)
Environmental Documents........................................ ss.5.1(t)(x)(C)
Environmental Laws............................................. ss.5.1(t)(x)(D)
ERISA.......................................................... ss.5.1(q)(ii)
Estoppel Certificates.......................................... ss.10.1
Exchange Act................................................... ss.5.2(b)
Expenses....................................................... ss.3.3
FIRPTA Affidavits.............................................. ss.5.3(e)
GAAP........................................................... ss.5.1(p)
Governmental Authorities....................................... ss.5.1(j)
Governmental Authorities....................................... ss.6.1(v)
Improvements................................................... ss.1.4(c)
Insurance Policies............................................. ss.17.1
Intangible Property............................................ ss.1.4(k)
Interest Assignment............................................ ss.1.3
Interest Contributing Property Partnership..................... Preface
Interest Contributing Property Partnerships.................... Preface
Land........................................................... ss.1.4(a)
Leases......................................................... ss.1.4(f)
Management Agreement........................................... ss.27.3
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Management Company............................................. ss.27.3
National....................................................... Preface
National Building.............................................. ss.1.2(a)
National Documents............................................. ss.1.2(g)
National Improvements.......................................... ss.1.2(a)
National Intangible Property................................... ss.1.2(f)
National Land.................................................. ss.1.2(a)
National Lease................................................. ss.1.4(f)
National Leases................................................ ss.1.2(d)
National Permits and Licenses.................................. ss.1.2(f)
National Personal Property..................................... ss.1.2(c)
National Plans................................................. ss.6.1(ee)
National Property.............................................. ss.1.2(h)
National Real Property......................................... ss.1.2(b)
National Rent Roll............................................. ss.6.1(p)
National Security Deposit...................................... ss.1.2(d)
National Service Contracts..................................... ss.1.2(f)
National Shares................................................ ss.2.2
National Shareholder Approval.................................. ss.6.1(c)
National Tradenames............................................ ss.1.2(e)
New Reit....................................................... Preface
Non-Competition Agreement...................................... ss.27.4
Palm Springs Partner........................................... Preface
Palm Springs Partners.......................................... Preface
Parties........................................................ ss.1.4(n)
Party.......................................................... ss.1.4(n)
Partner........................................................ Preface
Partners....................................................... Preface
Partnerships' Reports.......................................... ss.5.1(s)
PCB Items...................................................... ss.5.1(t)(vi)
PCBs........................................................... ss.5.1(t)(vi)
Permits........................................................ ss.5.1(t)(vii)
Permits and Licenses........................................... ss.1.4(i)
Permitted Assignee............................................. ss.15.1
Permitted Designees............................................ ss.26.1
Permitted Encumbrances......................................... ss.4.1
Personal Property.............................................. ss.1.4(e)
Phase I Reports................................................ ss.3.3
Phase II Reports............................................... ss.3.3
Preferred Stock................................................ ss.6.2(g)
PRLP........................................................... Preface
PRLP Agreement................................................. ss.5.2(a)
Property....................................................... ss.1.4(m)
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Property Financials............................................ ss.5.1(p)
Property Financials............................................ ss.6.1(dd)
Property Partnership........................................... Preface
Property Partnership Lease..................................... ss.1.4(f)
Property Partnerships.......................................... Preface
Property Partnerships' Building................................ ss.1.1(a)
Property Partnerships' Certificates............................ ss.2.3(a)
Property Partnerships' Deeds................................... ss.11.2(a)
Property Partnerships' Documents............................... ss.1.1(g)
Property Partnerships' Improvements............................ ss.1.1(a)
Property Partnerships' Intangible Property..................... ss.1.1(f)
Property Partnerships' Land.................................... ss.1.1(a)
Property Partnerships' Leases.................................. ss.1.1(d)
Property Partnerships' Permits and Licenses.................... ss.1.1(f)
Property Partnerships' Personal Property....................... ss.1.1(c)
Property Partnership's Plans................................... ss.5.1(q)(i)
Property Partnerships' Property................................ ss.1.1(h)
Property Partnerships' Real Property........................... ss.1.1(b)
Property Partnerships' Rent Roll............................... ss.5.1(d)
Property Partnerships' Security Deposit........................ ss.1.1(d)
Property Partnerships' Service Contracts....................... ss.1.1(f)
Property Partnerships' Tradenames.............................. ss.1.1(e)
Property Partnerships' Unit Holders............................ ss.2.1
Property Partnership's Units................................... ss.2.3(a)
Property Partnerships' Units................................... ss.2.3(a)
Prudential..................................................... ss.27.2(a)
Prudential Fee................................................. ss.27.2(a)
Prudential Note................................................ ss.27.2(a)
Real Property.................................................. ss.1.4(d)
Registration Rights Agreements................................. ss.27.5
Registration Statements........................................ ss.3.4
Reit........................................................... Preface
REIT........................................................... ss.6.1(l)(i)
Service Contracts.............................................. ss.1.4(j)
SEC Documents.................................................. ss.5.2(b)
Security Deposits.............................................. ss.1.4(g)
Taxes.......................................................... ss.21.5
Tenant......................................................... ss.4.1(b)
Tenants........................................................ ss.4.1(b)
Title Commitments.............................................. ss.4.2
Title Company.................................................. ss.4.2
Title Policy................................................... ss.4.2
Tradenames..................................................... ss.1.4(h)
v
<PAGE>
Transfer....................................................... ss.5.2(a)
Transferred.................................................... ss.19.1
Trustees....................................................... Preface
Trustees Shares................................................ ss.27.1(a)
Trustees Warrants.............................................. ss.27.1(b)
Units.......................................................... ss.2.3(a)
vi
<PAGE>
<TABLE>
<CAPTION>
SCHEDULES
<S> <C>
Schedule A Palm Springs Partners, Foxborough Members, Delran Members
Schedule 1.1(a) Property Partnerships' Land
Schedule 1.1(c) Property Partnerships' Personal Property
Schedule 1.1(e) Property Partnerships' Tradenames
Schedule 1.2(a) National Land
Schedule 1.2(c) National Personal Property
Schedule 2.3(a) Property Partnership's Units
Schedule 4.1(c) Property Partnership's Matters Affecting Title
Schedule 4.1(e) Property Partnership's Surveys of Real Property
Schedule 5.1(a) Property Partnership's Organizational Information
Schedule 5.1(c) Property Partnership's New Leases and Lease Renewals Currently out
for Signature
Schedule 5.1(d) Property Partnerships' Rent Roll
Schedule 5.1(e) Property Partnership's Tenants Work
Schedule 5.1(f) Property Partnership's Employment Agreements
Schedule 5.1(g) Property Partnership's Actions, Suits, Labor Disputes Currently Pending
Schedule 5.1(h) Property Partnership's Condemnation Proceedings
Schedule 5.1(i)-1 Property Partnership's Debt
Schedule 5.1(i)-2 Property Partnership's Indemnities and Guarantees
Schedule 5.1(j) Property Partnership's Violations affecting the Property
Schedule 5.1(k) Property Partnership's Leasing Commission Obligations
Schedule 5.1(m) Property Partnership's Encumbered Personal Property
Schedule 5.1(n) Property Partnership's Management Agreements that are Not
Terminable
Schedule 5.1(o) Property Partnership's Reprimands and Recommendations of Insurance
Companies or Fire Underwriters
Schedule 5.1(q)(i)-1 Property Partnership's Plans
Schedule 5.1(q)(i)-2 Palm Springs Mile Associates Ltd. Employees
Schedule 5.1(r) Property Partnership's Welfare and Pension Benefits
Schedule 5.1(s) Partnerships' Reports
Schedule 5.1(u) Property Partnership's Audits by Governmental Authorities
Schedule 5.3(a) Partner's Organization Information
Schedule 5.3(c) Encumbrances on Partnership Interests
Schedule 6.1(i) National Extraordinary Business
Schedule 6.1(j) National Material Liabilities or Obligations
Schedule 6.1(l)(ii) National Tax Audits or Proceedings
Schedule 6.1(l)(iv) National Individuals under I.R.C.
Schedule 6.1(o) National Schedule of Leases
Schedule 6.1(o)-2 National New Leases and Lease Renewals Currently out for Signature
Schedule 6.1(p) National Rent Roll
</TABLE>
vii
<PAGE>
<TABLE>
<S> <C>
Schedule 6.1(q) National Tenants Work
Schedule 6.1(r) National Service Contracts
Schedule 6.1(s) National Actions, Suits, Labor Disputes Currently Pending
Schedule 6.1(t) National Condemnation Proceedings
Schedule 6.1(u) National Third Party Reports
Schedule 6.1(v) National Violations Affecting the Real Property
Schedule 6.1(w) National Leasing Commission Obligations
Schedule 6.1(y) Security Interests on National Personal Property
Schedule 6.1(z) National Management Agreements that are Not Terminable
Schedule 6.1(aa)-1 National Debt
Schedule 6.1(aa)-2 National Indemnities and Guaranties
Schedule 6.1(bb) National Storage Tanks or Vessels
Schedule 6.1(ee)(i) National Plans
Schedule 6.1(ff) National Welfare and Pension Benefits
Schedule 6.1(gg)(ii) National Environmental Discharges
Schedule 6.1(gg)(iv) National Environmental Violations
Schedule 6.1(gg)(v) National Asbestos
Schedule 6.1(gg)(vi) National PCB Items
Schedule 6.1(gg)(vii) National Environmental Permit Violations
Schedule 6.1(hh) Adjusted Basis of National Real Property
Schedule 6.1(jj) National Record Owners
Schedule 12.5 Capital Improvements
Schedule 21.4 Reduction of Property Value Proceedings
</TABLE>
viii
<PAGE>
EXHIBITS
Exhibit 1.3 Partnership Interest Assignment and Assumption Agreement
Exhibit 5.2(a) PRLP Agreement
Exhibit 27.1 Trustees Warrants
Exhibit 27.3 Management Agreement
Exhibit 27.4 Non-Competition Agreement
Exhibit 27.5 Registration Rights Agreements
ix
<PAGE>
CONTRIBUTION AND EXCHANGE AGREEMENT
THIS CONTRIBUTION AND EXCHANGE AGREEMENT (the "Agreement") made as of this
11th day of August, 1997 among FOREST AVENUE SHOPPING LLC, a New York limited
liability company, having an address at 417 Fifth Avenue, Third Floor, New York,
New York 10016, PHILIPS FREEPORT ASSOCIATES, L.P., a Delaware limited
partnership, having an address at 417 Fifth Avenue, Third Floor, New York, New
York 10016, MERRICK SHOPPING ASSOCIATES, a New York general partnership, having
an address at 417 Fifth Avenue, Third Floor, New York, New York 10016, SP AVENUE
U ASSOCIATES, L.P., a New York limited partnership, having an address at 417
Fifth Avenue, Third Floor, New York, New York 10016, ENFIELD SHOPPING L.L.C., a
New York limited liability company, having an address at 417 Fifth Avenue, Third
Floor, New York, New York 10016, and BRANHAVEN PLAZA LLC, a New York limited
liability company, having an address at 417 Fifth Avenue, Third Floor, New York,
New York 10016 (collectively, the "Asset Contributing Property Partnerships" and
each individually an "Asset Contributing Property Partnership"), PALM SPRINGS
MILE ASSOCIATES, LTD., a Florida limited partnership, having an address at 417
Fifth Avenue, Third Floor, New York, New York 10016, and its Partners set forth
on Schedule A (collectively, the "Palm Springs Partners" and each individually a
"Palm Springs Partner"), FOXBOROUGH SHOPPING L.L.C., a New York limited
liability company, and its members set forth on Schedule A (collectively, the
"Foxborough Members" and each individually, a "Foxborough Member"), having an
address at 417 Fifth Avenue, Third Floor, New York, New York 10016, and DELRAN
SHOPPING L.L.C, a New York limited liability company, and its members set forth
on Schedule A (collectively, the "Delran Members" and each individually a
"Delran Member"), having an address at 417 Fifth Avenue, Third Floor, New York,
New York 10016 (collectively, the "Interest Contributing Property Partnerships"
and each individually an "Interest Contributing Property Partnership") (the
Asset Contributing Property Partnerships and the Interest Contributing Property
Partnerships are collectively referred to herein as the "Property Partnerships"
and each individually a "Property Partnership" and the Palm Springs Partners,
the Foxborough Members and the Delran Members are collectively referred to
herein as the "Partners" and each individually a "Partner"), NATIONAL PROPERTIES
INVESTMENT TRUST ("National"), a Massachusetts business trust electing to be
taxed as a real estate investment trust (a "Reit") under the Internal Revenue
Code of 1986, as amended (the "Code") and having an address at 32 Hanson Road,
Canton Center, CT 06020, PETER STEIN, having an address at 32 Hanson Road,
Canton Center, CT 06020, JAY GOLDMAN, having an address at 41 Vineyard Road,
Newton, Massachusetts, and ROBERT REIBSTEIN, having an address at 135 Dedham
Street, Newton, MA 02161 (collectively, the "Trustees") PHILIPS INTERNATIONAL
REALTY, L.P. ("PRLP"), a Delaware limited partnership having an address c/o
Philips International, 417 Fifth Avenue, New York, New York 10016 and PHILIPS
INTERNATIONAL REALTY CORP. ("New Reit"), a Maryland corporation which will elect
to be taxed as a Reit under the Code and which initially will be the
non-managing general partner of PRLP, and having an address c/o Philips
International, 417 Fifth Avenue, New York, New York 10016.
<PAGE>
RECITALS
A. The Property Partnerships own various retail shopping center properties
located throughout New York, New Jersey, Connecticut, Massachusetts and Florida.
National owns one retail shopping center property located in Florida.
B. The Property Partnerships, PRLP and National have determined that it is
in the best interests of the parties' long term strategic growth to combine
their respective properties and related assets. In order to effectuate this
combination, (i) the Asset Contributing Property Partnerships have agreed to
contribute certain properties and other assets owned or controlled by the Asset
Contributing Property Partnerships to PRLP; (ii) the Partners have agreed to
contribute to PRLP all of their rights, title and interests in the Interest
Contributing Property Partnerships; (iii) National has agreed to transfer the
property and other assets owned or controlled by National to New Reit; and (iv)
New Reit has agreed to transfer the property and other assets acquired from
National to PRLP.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth and of other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto, intending to be legally
bound hereby, do hereby agree as follows:
1. SUBJECT OF CONVEYANCE.
1.1 In accordance with the terms and conditions of this Agreement and
subject to PRLP's and National's performance and satisfaction of the conditions,
covenants and obligations contained herein, the Asset Contributing Property
Partnerships agree to contribute to PRLP at Closing the assets set forth in
paragraphs (a) through (h) of this Section 1.1 and the Partners have agreed to
contribute to PRLP at Closing the partnership or membership interests of the
Interest Contributing Property Partnership as set forth in Section 1.3:
(a) that certain real property situate, lying and being in the States
of New York, New Jersey, Connecticut, Massachusetts and Florida and being
more particularly described on Schedule 1.1(a) (the "Property Partnerships'
Land"), which Schedule 1.1(a) sets forth the property addresses and blocks
and lots for each parcel and all of the improvements located on the
Property Partnerships' Land (individually, the "Property Partnerships'
Building" and collectively, the "Property Partnerships' Improvements");
(b) all rights, privileges, grants and easements appurtenant to the
Property Partnerships' interest in the Property Partnerships' Land and the
Property Partnerships' Improvements, including without limitation, all of
the Property Partnerships' right, title and interest in and to all land
lying in the bed of any public street, road or alley, all mineral and water
rights and all easements, licenses, covenants and rights-of -way or other
appurtenances used in connection with the beneficial use and enjoyment of
the Property Partnerships' Land and the Property Partnerships' Improvements
(the Property Partnerships' Land, the Property
2
<PAGE>
Partnerships' Improvements and all such rights, privileges, easements,
grants and appurtenances are sometimes referred to herein as the "Property
Partnerships' Real Property");
(c) except as set forth on Schedule 1.1(c), all personal property,
fixtures, equipment, inventory and computer programming and software owned
or licensed by the Property Partnerships and located on any of the Property
Partnerships' Real Property or used at any of the management and corporate
offices of the Property Partnerships (the "Property Partnerships' Personal
Property");
(d) all leases and other agreements with respect to the use and
occupancy of the Property Partnerships' Real Property, together with all
amendments and modifications thereto and any guaranties provided thereunder
(the "Property Partnerships' Leases"), and rents, additional rents,
reimbursements, profits, income, receipts and the amount deposited (the
"Property Partnerships' Security Deposit") under any Lease in the nature of
security for the performance of the Tenant's obligations under such Lease;
(e) the tradenames set forth on Schedule 1.1(e), and any trademark
applicable thereto, and/or any name by which any of the Property
Partnerships' Real Property is commonly known, and all goodwill, if any,
related to said names (collectively, the "Property Partnerships'
Tradenames");
(f) all permits, licenses, guaranties, approvals, certificates and
warranties relating to the Property Partnerships' Real Property and the
Property Partnerships' Personal Property (collectively, the "Property
Partnerships' Permits and Licenses"), all of the Property Partnerships'
right, title and interest in and to those contracts and agreements for the
servicing, maintenance and operation of the Property Partnerships' Real
Property (the "Property Partnerships' Service Contracts") and telephone
numbers in use at any of the Property Partnerships' Real Property or the
management offices and corporate headquarters of the Property Partnerships'
(together with the Property Partnerships' Permits and Licenses and the
Property Partnerships' Service Contracts, the "Property Partnerships'
Intangible Property");
(g) all promotional material, tenant data, leasing material and forms,
current rent rolls, property files and statements, market studies, keys,
plans, specifications, reports, tests and other materials of any kind owned
by or in the possession of the Property Partnerships which are or may be
used by the Property Partnerships in the use and operation of the Property
Partnerships' Real Property or the Property Partnerships' Personal Property
(collectively, the "Property Partnerships' Documents"); and
(h) all other rights, privileges and appurtenances owned by the
Property Partnerships, if any, and in any way related to the rights and
interests described above in this Section.
The Property Partnerships' Real Property, the Property Partnerships'
Personal Property, the Property Partnerships' Leases, the Property Partnerships'
Tradenames, the Property Partnerships' Intangible Property, the Property
Partnerships' Documents and the other property
3
<PAGE>
interests being conveyed hereunder are hereinafter collectively referred to as
the "Property Partnerships' Property".
1.2 In accordance with the terms and conditions of this Agreement and
subject to New Reit's, PRLP's, the Partners' and the Property Partnerships'
performance and satisfaction of the conditions and obligations contained herein
and subject to the approval of the beneficial owners of National's interests as
contemplated by Sections 6.1(c), National agrees to transfer to New Reit at
Closing and New Reit agrees to transfer to PRLP the property and assets set
forth in paragraph (a) through (h) of this Section 1.2:
(a) that certain real property situate, lying and being in the State
of Florida and being more particularly described on Schedule 1.2(a) (the
"National Land"), which Schedule 1.2(a) sets forth the property address and
block and lot for each parcel and all of the improvements located on the
Land (individually, a "National Building" and collectively, the "National
Improvements");
(b) all rights, privileges, grants and easements appurtenant to
National's interest in the National Land and the National Improvements,
including without limitation, all of National's right, title and interest
in and to all land lying in the bed of any public street, road or alley,
all mineral and water rights and all easements, licenses, covenants and
rights-of -way or other appurtenances used in connection with the
beneficial use and enjoyment of the National Land and the National
Improvements (the National Land, National Improvements, and all such
rights, privileges, easements, grants and appurtenances are sometimes
referred to herein as the "National Real Property");
(c) except as set forth on Schedule 1.2(c), all personal property,
fixtures, equipment, inventory and computer programming and software owned
or licensed by National and located on any of the National Real Property or
used at any of the management and corporate offices of National (the
"National Personal Property");
(d) all leases and other agreements with respect to the use and
occupancy of the National Real Property, together with all amendments and
modifications thereto and any guaranties provided thereunder (the "National
Leases"), and rents, additional rents, reimbursements, profits, income,
receipts and the amount deposited (the "National Security Deposit") under
any Lease in the nature of security for the performance of the Tenant's
obligations under such Lease;
(e) any name by which any of the National Real Property is commonly
known, and all goodwill, if any, related to said names (collectively, the
"National Tradenames");
(f) all permits, licenses, guaranties, approvals, certificates and
warranties relating to the National Real Property and the National Personal
Property (collectively, the "National Permits and Licenses"), all of
National's right, title and interest in and to those contracts and
agreements for the servicing, maintenance and operation of the
4
<PAGE>
National Real Property ("National Service Contracts") (together with the
National Permits and Licenses and the National Service Contracts, the
"National Intangible Property");
(g) copies of all books, records, promotional material, tenant data,
leasing material and forms, current rent rolls, files, statements, tax
returns, market studies, keys, plans, specifications, reports, tests and
other materials of any kind owned by or in the possession of National which
are or may be used by National in the use and operation of the National
Real Property or National Personal Property (collectively, the "National
Documents"); provided, however, that National shall retain all originals of
same for a minimum of five (5) years after the Closing; and
(h) all other rights, privileges and appurtenances owned by National,
if any, and in any way related to the rights and interests described above
in this Section.
The National Real Property, the National Personal Property, the National
Leases, the National Tradenames, the National Intangible Property, the National
Documents and the other property interests being conveyed hereunder are
hereinafter collectively referred to as the "National Property".
1.3 The Partners shall contribute to PRLP all of their rights, title and
interests, including without limitation, all of their interests in the capital,
profits and losses of the Interest Contributing Property Partnership or any
property distributable therefrom, so as to transfer one hundred (100%) percent
of the entity. The Interest Contributing Property Partnership shall take such
action, obtain such consents and approvals, and cause the execution of such
documents as may be required by PRLP in furtherance of the exchange of the
entire interest of each Partner, including without limitation, the execution and
delivery of the Partnership Interest Assignment and Assumption Agreement (the
"Interest Assignment"), substantially in the form of Exhibit 1.3 annexed hereto
and made a part hereof.
1.4 (a) The Property Partnerships' Land and the National Land are
hereinafter collectively referred to as the "Land" and each individually, a
"Land."
(b) The Property Partnerships' Buildings and the National Buildings are
hereinafter collectively referred to as the "Buildings" and each individually, a
"Building."
(c) The Property Partnerships' Improvements and the National Improvements
are hereinafter collectively referred to as the "Improvements."
(d) The Property Partnerships' Real Property and the National Real Property
are hereinafter collectively referred to as the "Real Property" and each
individually, a "Real Property."
(e) The Property Partnerships' Personal Property and the National Personal
Property are hereinafter collectively referred to as the "Personal Property."
5
<PAGE>
(f) The Property Partnerships' Leases and the National Leases are
hereinafter collectively referred to as the "Leases" and each individually, a
"Property Partnership Lease" or a "National Lease."
(g) The Property Partnerships' Security Deposits and the National Security
Deposits are hereinafter collectively referred to as the "Security Deposits."
(h) The Property Partnerships' Tradenames and the National Tradenames are
hereinafter collectively referred to as the "Tradenames."
(i) The Property Partnerships' Permits and Licenses and the National
Permits and Licenses are hereinafter collectively referred to as the "Permits
and Licenses."
(j) The Property Partnerships' Service Contracts and the National Service
Contracts are hereinafter collectively referred to as the "Service Contracts."
(k) The Property Partnerships' Intangible Property and the National
Intangible Property are hereinafter collectively referred to as the "Intangible
Property."
(l) The Property Partnerships' Documents and the National Documents are
hereinafter collectively referred to as the "Documents."
(m) The Property Partnerships' Property and the National Property are
hereinafter collectively referred to as the "Property" and each individually, a
"Property."
(n) The Property Partnerships and National are from time to time
collectively referred to herein as the "Parties" and each a "Party."
2. CONTRIBUTION TERMS; UNITS.
At Closing, and upon satisfaction of the terms and conditions provided
herein, each Asset Contributing Property Partnership agrees to contribute the
Property Partnership's Property and each Partner agrees to contribute its entire
interest as set forth in Section 1.3, to PRLP or its Permitted Assignees and
PRLP agrees (a) to accept the Property Partnerships' Property or the assignments
of the Partner's interest in the Property Partnership, and (b) to issue the
Property Partnerships' Units (as hereinafter defined) to the Asset Contributing
Property Partnerships or Partners that contribute their interest in the Interest
Contributing Property Partnerships (collectively the "Property Partnerships'
Unit Holders" and each individually, the "Property Partnership's Unit Holders").
The Property Partnerships' Units shall initially constitute approximately 98% of
the outstanding Units in PRLP, and shall be as allocated to each Property
Partnership or Partner as set forth in Schedule 2.3(a).
6
<PAGE>
2.2 (a) At Closing, and upon satisfaction of the terms and conditions
provided herein, including without limitation, the receipt of the National
Shareholder Approval (as defined in Section 6.1(c)), National agrees to transfer
the National Property to New Reit or its designee and New Reit agrees (a) to
accept the National Property and (b) to issue 32,000 shares of common stock of
New Reit, $.01 par value per share (the "Common Stock") to National (the
"National Shares"), 3,744 shares of which will immediately be dividended to the
National Shareholders on a pro-rata basis in calendar year 1997 and 20,256
shares of which will be dividended to the National Shareholders on a pro-rata
basis in January 1998. Such shares of Common Stock of New Reit are based on the
assumption that there will be a pro forma net asset value of the Property of
$74,100,000 for which a total of 1,482,000 shares of the Common Stock (or
interests redeemable therefor) of New Reit will be issued.
(b) At Closing, New Reit agrees to transfer the National Property to PRLP
and, in consideration therefor and certain other cash consideration, PRLP agrees
to admit to PRLP, New Reit as a General Partner holding a 3.2 % ownership
interest in PRLP.
2.3 Simultaneous with PRLP accepting the Property Partnerships' Property or
the assignment of the Partners' interests, as the case may be, PRLP agrees to
issue to the Property Partnerships' Unit Holders units of limited partnership
interests in PRLP ("Units") in the aggregate amount of 1,450,000 (collectively,
the "Property Partnerships' Units"), which Property Partnerships' Units will be
evidenced by certificates (the "Property Partnerships' Certificates") containing
the legend set forth in Section 5.5 and which Property Partnerships' Units will
be allocated to each Property Partnership (or their respective Partners) as set
forth in Schedule 2.3(a) (the "Property Partnership's Units").
3. RIGHTS OF INSPECTION
3.1 PRLP, the Property Partnerships and National, at their sole cost and
expense, may perform, or cause to be performed, tests, investigations and
studies of or related to the National Property and the Property Partnerships'
Property, respectively, including, but not limited to, soil tests and borings,
ground water tests and investigations, percolator tests, surveys, architectural,
engineering, subdivision, environmental, access, financial, development studies
and other tests, investigations or studies as said party, in its sole
discretion, determines is necessary or desirable in connection with the Property
of the other Party and may inspect the physical (including environmental) and
financial condition of the Property of the other Party, including but not
limited to the other Party's Leases, Service Contracts, copies of the other
Party's tax returns and the other Party's Property Financials as of and for the
years ending December 31, 1994, 1995, 1996 and the interim statements to the
extent available, engineering and environmental reports, permits and approvals,
which inspection shall be satisfactory to each Party in its sole discretion. The
Parties agree to cooperate with each other and with PRLP in such review and
inspection and to the extent not yet delivered, shall deliver said documents and
information to each other.
7
<PAGE>
3.2 Each Party, PRLP, their agents and contractors, shall have reasonable
access to the other Party's Property and other information pertaining thereto in
the possession or within the control of the other Party for the purpose of
performing such studies, tests, borings, investigations and inspections for the
purposes described in Section 3.1 above. Such right of inspection and the
exercise of such right shall not constitute a waiver by any Party of the breach
of any representation or warranty of another Party which might, or should, have
been disclosed by such inspection. The Parties shall cooperate with each other
in facilitating each other's due diligence inquiry and shall obtain, and use
commercially reasonable efforts to obtain, any consents that may be necessary in
order for the other party to perform same. In addition, each Party shall notify
the other Party and PRLP of any dangerous conditions on its Real Property of
which said Party has knowledge, including, without limitation, conditions which
due to the nature of the borings, studies, investigations, inspections or
testing to be performed by or on behalf of the other party may pose a dangerous
condition to said party or its agents and contractors.
3.3 The Property Partnerships shall each bear the costs of Phase I
environmental studies (the "Phase I Reports"), Phase II environmental studies,
if necessary, (the "Phase II Reports") and all Expenses affecting its Real
Property. The Property Partnerships shall also bear the costs of Phase I
Reports, Phase II Reports and all Expenses of National, pari passu. "Expenses"
shall mean all reasonable costs of the Property Partnerships and National
(including legal fees, accounting fees, travel fees, filing fees, printing fees,
transfer taxes and due diligence costs), related to all matters contemplated by
this Agreement.
3.4 The Property Partnerships shall provide National with access to any of
its books, records, Property Partnerships' Documents and such other information
as is necessary and required for National to complete its proxy
statement/registration statement on Form S-4 (the "Registration Statement").
National agrees, and agrees to cause all parties who are required to have access
to the aforesaid documents to agree, to keep all such information strictly
confidential and not to disclose such information to third parties except to the
extent that disclosure is required pursuant to SEC rules and regulations.
4. TITLE; MATTERS TO WHICH THIS SALE IS SUBJECT.
4.1 The Property is to be contributed to PRLP subject to the following
(collectively, the "Permitted Encumbrances"):
(a) The liens of real estate taxes, personal property taxes, water
charges, and sewer charges provided same are not due and payable, but
subject to adjustment as provided herein;
(b) the rights of those parties occupying space at any of the
Improvements (collectively, "Tenants" and each a "Tenant"), as tenants
only;
8
<PAGE>
(c) those restrictions, covenants, agreements, easements, matters and
things affecting title to the Real Property as of the date hereof and more
particularly described in Schedule 4.1(c) annexed hereto and by this
reference made a part hereof and such other easements, covenants and
restrictions which are entered into with the consent of PRLP after the date
hereof, such consent not to be unreasonably withheld, delayed or
conditioned and any additional items not objected to by PRLP in accordance
with Section 4.2 below;
(d) any and all laws, statutes, ordinances, codes, rules, regulations,
requirements, or executive mandates affecting the Real Property including,
without limitation, those related to zoning and land use, as of the date
hereof;
(e) the state of facts shown on the surveys described on Schedule
4.1(e) for each of the individual properties comprising the Real Property,
and any other state of facts which a recent and accurate survey of the Real
Property would actually show, provided same do not impair the use of the
Real Property as it is currently being used and do not render title
uninsurable at standard rates;
(f) the Service Contracts;
(g) any installment not yet due and payable of assessments imposed
after the date hereof and affecting the Real Property or any portion
thereof;
(h) any utility company rights, easements and franchises to maintain
poles, lines, wires, cables, pipes, boxes and other fixtures and facilities
in, over, under or upon the Real Property, provided same do not impair in
other than a de minimus manner the present use of the Real Property;
(i) prohibition against the interference with the natural and
unobstructed flow of any applicable brook crossing the Real Property or
other riparian rights, provided same does not impair the use of the Real
Property as it is currently being used and do not render title uninsurable
at standard rates;
(j) such matters as the Title Company shall be willing, without
special premium, to omit as exceptions to coverage including minor
variations between record lines and tax lot lines; and
(k) the lien of any mortgage being assumed by PRLP on those parcels of
Real Property encumbered by such mortgage as of the date hereof (but on the
terms and conditions of this Agreement) which mortgages are set forth on
Schedules 5.1(i) and 6.1(aa).
4.2 PRLP has directed Royal Abstract Corporation or such other or
additional title insurance companies as may be selected by PRLP (collectively,
the "Title Company") to prepare title insurance searches and commitments for
owner's title insurance policies for the Real Property (the "Title
Commitments"). Subject to Section 1.3, it shall be a condition to Closing that
National and each of the Asset Contributing Property Partnerships convey, and
that the Title
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Company insure, title to each of its Real Property in an amount designated by
PRLP (at a standard rate for such insurance) in the name of PRLP or its
designee, after delivery of the Deeds, by a standard 1992 ALTA Owners Policy,
with such ALTA endorsements as are available in each applicable state where the
Real Property is located and as required by the other party attached, free and
clear of all liens, encumbrances and other matters, other than the Permitted
Encumbrances (the "Title Policy"). The Title Company shall provide affirmative
insurance that any (i) Permitted Encumbrances have not been violated, and that
any future violation thereof will not result in a forfeiture or reversion of
title; (ii) PRLP's contemplated use of the Real Property will not violate the
Permitted Encumbrances; and (iii) the exception for taxes shall apply only to
the current taxes not yet due and payable. Each Party shall provide such
affidavits and undertakings as the Title Company insuring title to said party's
Real Property may reasonably require. If any defects, objections or exceptions
in the title to the Real Property appear in the Title Policies (other than the
Permitted Encumbrances) which PRLP is not required to accept under the terms of
this Agreement, the party owning said Real Property may, at its election,
undertake to eliminate such unacceptable defects, objections or exceptions, it
being agreed that other than (i) judgments against the party owning said Real
Property, (ii) mortgages or other liens which can be satisfied by payment of a
liquidated amount, and (iii) defects, objections or exceptions which can be
removed by payments not to exceed Forty Thousand ($40,000.00) Dollars for each
Real Property, and except as provided below, the party owning said Real Property
shall have no obligation to incur any expense in connection with curing such
defects, objections or exceptions. Any party in its discretion, may adjourn the
Closing for up to sixty (60) days in order to eliminate unacceptable defects,
objections or exceptions on its Real Property. Other than the items described in
(i)-(iii) of the preceding sentence, which each Party agrees to cure at its sole
cost and expense without regard to the cost thereof (other than as expressly set
forth in item (iii)), if, after complying with the foregoing requirements, the
Party is unable to eliminate all unacceptable defects, objections or exceptions
in accordance with the terms of this Agreement on or before such adjourned date
for the Closing, PRLP shall elect either (w) to terminate this Agreement only
with respect to the obligations of the Party hereunder by notice given to the
owner of the Real Property in which event the provisions of Section 23 shall
apply, or (x) to accept title subject to such unacceptable defects, objections
or exceptions and receive no credit against or reduction of the consideration to
be given hereunder for the Property. The words "insurable title" and "insurable"
as used in this Agreement are hereby defined to mean title which is insurable at
standard rates (without special premium) by the Title Company without exception
other than the Permitted Encumbrances, and standard printed policy and survey
exceptions.
4.3 Any unpaid taxes, water charges, sewer rents and assessments, together
with the interest and penalties thereon to a date not less than seven (7)
business days following the Closing Date (in each case subject to any applicable
apportionment), and any mortgages or other liens created by a Party which said
Party is obligated to pay and discharge pursuant to the terms of this Agreement,
together with the cost of recording or filing of any instruments necessary to
discharge such liens and such judgments, shall be paid at the Closing by said
Party. Each Party shall deliver to PRLP, on the Closing Date, instruments in
recordable form sufficient to discharge any such mortgages or other liens which
said Party is obligated to pay and discharge pursuant to the terms of this
Agreement.
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4.4 If the Title Commitments disclose judgments, bankruptcies or other
returns against other persons having names the same as or similar to that of a
Party hereto or its Partners, said Party, on request, shall deliver to the Title
Company affidavits showing that such judgments, bankruptcies or other returns
are not against it, its Partners or any affiliates. Upon request by PRLP, a
Party shall deliver any affidavits and documentary evidence as are reasonably
required by the Title Company to eliminate the standard or general exceptions on
the ALTA form Owner's Policy.
5. REPRESENTATIONS AND WARRANTIES OF THE PROPERTY PARTNERSHIPS AND THE
PARTNERS.
5.1 In order to induce National, New Reit and PRLP to perform as required
hereunder, each Property Partnership hereby warrants and represents the
following only with respect to itself and its Property:
(a) The Property Partnership is a duly organized and validly existing
entity as set forth on Schedule 5.1 (a) annexed hereto, organized under the
laws of the State set forth opposite its name on Schedule 5.1 (a), is duly
authorized to transact business in said State, has all requisite power and
authority to execute and deliver this Agreement and all other documents and
instruments to be executed and delivered by it hereunder and to perform its
obligations hereunder and under such other documents and instruments in
order to contribute its Property in accordance with the terms and
conditions hereof. All necessary actions of the Property Partnership to
confer such power and authority upon the persons executing this Agreement
and all documents which are contemplated by this Agreement on its behalf
have been taken.
(b) This Agreement, when duly executed and delivered, will be the
legal, valid and binding obligation of the Property Partnership and
enforceable in accordance with its terms. The performance by the Property
Partnership and the Partner of its duties and obligations under this
Agreement and the documents and instruments to be executed and delivered by
it hereunder will not conflict with, or result in a breach of, or default
under, any provision of any of its organizational documents or any
agreements, instruments, decrees, judgments, injunctions, orders, writs,
laws, rules or regulations, or any determination or award of any court or
arbitrator, to which it is a party or by which its assets are or may be
bound.
(c) (i) The Property Partnerships' Leases as of June 30, 1997 are set
forth in the Property Partnership Rent Roll annexed hereto in Schedule
5.1(d). The Property Partnerships' Leases are valid and bona fide
obligations of the landlord of its Real Property and, to the Property
Partnership's knowledge, the tenants thereunder and are in full force and
effect. Annexed hereto as Schedule 5.1(c) is a true, complete and correct
schedule of all new leases and lease renewals currently out for signature
to tenants, which Schedule 5.1(c) sets forth the terms and conditions of
such new leases or renewals; true, complete and correct copies of such new
leases and renewals have been provided to PRLP.
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(ii) To the Property Partnership's knowledge, except as set forth on
Schedule 5.1(d): no defaults remain uncured pursuant to notices of default
sent to any Tenants and no condition exists which, solely with the passage
of time or the giving of notice or both, will become a default; the
Property Partnerships' Leases constitute all of the leases, tenancies or
occupancies affecting the Property Partnership's Real Property on the date
hereof; all Tenants have commenced occupancy; there are no agreements which
confer upon any Tenant or any other person or entity any rights with
respect to acquiring all or a portion of the Property Partnership's
Property, nor has any claim been asserted by any Tenant in writing for an
offset to its rent, nor is any Tenant currently asserting, in writing, a
concession, rebate, allowance or free rent.
(d) Annexed hereto as Schedule 5.1(d) is a listing (the "Property
Partnerships' Rent Roll") of the following as of June 30, 1997, which is
true, complete and correct in all material respects for the Property
Partnership's Buildings: (i) the name of each Tenant; (ii) the fixed rent
being billed; (iii) the expiration date or status of each Lease (including
all rights or options to renew); (iv) the Property Partnerships' Security
Deposits, if any; (v) whether there is any guaranty of a Tenant's
obligations from a third party; (vi) the base year(s) and base year amounts
for all items of rent or additional rent billed to each Tenant on that
basis; (vii) any arrearages of any Tenant beyond thirty (30) days; and
(viii) any exceptions to be set forth as required pursuant to Section
5.1(c)(ii).
(e) To the knowledge of the Property Partnership, it has performed all
of the material obligations and observed all of the covenants required of
each landlord under the terms of the Property Partnership's Lease with each
Tenant. Except as set forth on Schedule 5.1(e) annexed hereto, all work,
alterations, improvements or installations required to be made for or on
behalf of all Tenants by the Property Partnership pursuant to agreement
with Tenants have in all respects been carried out, performed and complied
with, and there is no agreement with any Tenant for the performance of any
work to be done in the future other than that which is required pursuant to
its lease. Except as set forth on Schedule 5.1(e), no work has been
performed at any of the Property Partnership's Buildings which would
require an amendment to the certificate of occupancy for such building for
which an amendment has not been obtained, and any and all work performed at
the Property Partnership's Real Property to the date hereof and to the
Closing Date has been and will be in accordance with the rules, laws and
regulations of all applicable authorities. All undisputed bills and claims
for labor performed and materials furnished to or for the benefit of the
Property Partnership's Property arising prior to the Closing Date will be
paid in full by the Property Partnership within customary time periods, not
to exceed ninety (90) days from the receipt of an invoice by the Property
Partnership. To the extent any bills and claims for labor performed and
materials furnished to or for the benefit of the Property Partnership's
Real Property prior to the Closing Date are disputed, the Property
Partnership shall commence any actions related to such bills and claims
promptly, such commencement being no later than ninety (90) days from the
receipt of an invoice by the Property Partnership, and shall diligently
prosecute same to its conclusion.
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(f) There are no service contracts, equipment leases, union contracts,
employment agreements or other agreements affecting the Property
Partnership's Property or the operation thereof, except the contracts set
forth on Schedule 5.1(f) annexed hereto. To the Property Partnership's
knowledge with respect to its Property, all of the Property Partnerships'
Service Contracts are and will on the Closing Date be unmodified (except in
the ordinary course of business) and in full force and effect without any
material default or claim of material default by the Property Partnership.
All sums presently due and payable by the Property Partnership under the
Property Partnerships' Service Contracts applicable to its Property have
been fully paid and all sums which become due and payable between the date
hereof and the Closing Date shall be fully paid by the Property Partnership
within customary time periods, not to exceed ninety (90) days from the
receipt of an invoice by the Property Partnership.
(g) Except as set forth on Schedule 5.1(g) annexed hereto and except
as covered by insurance, as of July 31, 1997 there are no actions, suits,
labor disputes, litigation or proceedings currently pending or, to the
knowledge of the Property Partnership, threatened against or related to the
Property Partnership (with respect to the Property Partnership's Property
being sold) or to all or any part of the Property Partnership's Property or
the environmental condition thereof, or the operation thereof nor has the
Property Partnership received any notices of default from a Tenant under a
Property Partnership Lease. The Property Partnership shall be permitted to
continue to prosecute suits set forth on Schedule 5.1(g) and may initiate
suits or actions against former or current tenants.
(h) Except as set forth on Schedule 5.1(h) annexed hereto, the
Property Partnership has received no written notice and has no knowledge of
(i) any pending or contemplated annexation or condemnation proceedings, or
private purchase in lieu thereof, affecting or which may affect the
Property Partnership's Real Property, or any part thereof, (ii) any
proposed or pending proceeding to change or redefine the zoning
classification of all or any part of the Property Partnership's Real
Property, (iii) any proposed or pending special assessments affecting the
Property Partnership's Real Property or any portion thereof, (iv) any
penalties or interest due with respect to real estate taxes assessed
against the Property Partnership's Real Property and (v) any proposed
change(s) in any road or grades with respect to the roads providing a means
of ingress and egress to the Property Partnership's Real Property. The
Property Partnership agrees to furnish PRLP with a copy of any such notice
received within two (2) business days after receipt.
(i) Annexed hereto as Schedule 5.1(i)-1 is a true and correct list of
the existing mortgage debt on the Property Partnership's Real Property
which will be assumed by PRLP. No other mortgage debt exists on the
Property Partnership's Real Property. Annexed hereto as Schedule 5.1(i)-2
is a true and correct list of the existing indemnities and guarantees made
in connection with the mortgage debt on the Property Partnership's Real
Property, which indemnities and guarantees will be assumed by PRLP. To the
extent that the beneficiary of any indemnity or guaranty does not release
an indemnitor or guarantor from its obligations thereunder, PRLP agrees to
indemnify said indemnitor or guarantor against any claims, damages, losses,
costs and expenses incurred by said indemnitor or guarantors in connection
with said indemnities and guarantees after the Closing Date.
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(j) Except as set forth on Schedule 5.1(j) annexed hereto, the
Property Partnership has no knowledge of any notices, suits, or judgments
relating to any violations (including environmental) of any laws,
ordinances or regulations affecting the Property Partnership's Real
Property, or any violations or conditions that may give rise thereto, and
has no reason to believe that any agency, board, bureau, commission,
department or body of any municipal, county, state or federal governmental
unit, or any subdivision thereof, having, asserting or acquiring
jurisdiction over all or any part of the Property Partnership's Real
Property or the management, operation, use or improvement thereof
(collectively, the "Governmental Authorities") contemplates the issuance
thereof, and there are no outstanding orders, judgments, injunctions,
decrees or writ of any Governmental Authorities against or involving the
Property Partnership or its Real Property.
(k) Annexed hereto as Schedule 5.1(k) is a schedule of all leasing
commission obligations affecting the Property Partnership's Property. The
respective obligations of the Property Partnership and PRLP with respect to
said commissions are set forth in Section 14.
(l) The Property Partnership has not currently: made a general
assignment for the benefit of creditors; filed any voluntary petition in
bankruptcy or suffered the filing of any involuntary petition by its
creditors; suffered the appointment of a receiver to take possession of
all, or substantially all, of its assets; suffered the attachment or other
judicial seizure of all, or substantially all, of its assets; admitted in
writing its inability to pay its debts as they come due; or made an offer
of settlement, extension or composition to its creditors generally.
(m) Except as set forth on Schedule 5.1(m), the Property Partnership's
Personal Property will on the Closing Date be owned by the Property
Partnership free and clear of any conditional bills of sale, chattel
mortgages, security agreements or financing statements or other security
interests of any kind, other than liens created by PRLP.
(n) Except as set forth on Schedule 5.1(n), all leasing and management
agreements as of the date hereof to which the Property Partnership is a
party are terminable by the Property Partnership upon thirty (30) days
notice.
(o) Except as set forth on Schedule 5.1(o), the Property Partnership
has no knowledge of outstanding requirements or recommendations by (i) the
insurance company(s) currently insuring the Property Partnership's
Property; (ii) any board of fire underwriters or other body exercising
similar functions, or (iii) the holder of any mortgage encumbering any of
the Property Partnership's Property, which require or recommend any repairs
or work to be done on the Property Partnership's Property of a material
nature.
(p) The combined financial statements including the income and expense
statements and the balance sheets of the Property Partnership, excluding
only those assets, liabilities and operations not contemplated to be
contributed pursuant to this Agreement
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relating to the ownership and operation of the Property Partnership's
Property and the related combined statement of income, partners' capital
and cash flows, including the footnotes thereto (the "Property Financials")
as of and for the years ending December 31, 1994, 1995 and 1996 and the
interim statement for the period ending March 31, 1997 fairly present the
combined financial position of the Property Partnership relating to the
Property Partnership's Property as at such dates and the combined results
of operations and combined cash flows of the Property Partnership relating
to the ownership and operation of the Property Partnership's Property for
such respective periods, and except as expressly provided otherwise, in
each case in accordance with generally accepted accounting principles
("GAAP") consistently applied for the periods covered thereby.
(q) (i) Annexed hereto as Schedule 5.1(q)(i)-1 is a true and complete
list of all collective bargaining agreements, employment and consulting
agreements, executive compensation plans, bonus plans, directors' fee
arrangements, deferred compensation agreements, employee pension plans or
retirement plans, employee profit sharing plans, 401(k) savings plans,
multiemployer plans, employee stock purchase and stock option plans,
employee welfare plans, severance plans, group life insurance,
hospitalization insurance or other similar plans or arrangements (either
written or oral, but only to the extent an oral plan provides material
benefits) providing for benefits to current employees of the Property
Partnership (the "Property Partnership's Plans"). Annexed hereto as
Schedule 5.1(q)(i)-2 is a true and complete list of all employees of Palm
Springs Mile Associates, Ltd. There are no other persons employed by any
other Property Partnership.
(ii) The Property Partnership has complied and currently is in
compliance in all material respects, both as to form and operation, with
the applicable provisions of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and the Internal Revenue Code of 1986, as
amended (the "Code"), with respect to each Property Partnership's Plan.
(iii) Notwithstanding anything else set forth herein, other than
routine claims for benefits (i) there are no pending claims, threatened
litigation (which has been communicated to the Property Partnership in
writing), administrative actions or proceedings involving any of the
Property Partnership's Plans by any participant in such plan or by any
other person, including, without limitation, any governmental agency, and
(ii) the Property Partnership has not incurred any material liability with
respect to any of the Property Partnership's Plans that is currently due
and owing and has not yet been satisfied, including, without limitation,
under ERISA, the Code or other applicable law, and no event has occurred,
and, to the knowledge of the Property Partnership, there exists no
condition or set of circumstances (other than liability for benefits under
the normal terms of any of the Property Partnership's Plans), that could
result in the imposition of any material liability on the Property
Partnership with respect to any of the Property Partnership's Plans,
including, without limitation, under ERISA, the Code or other applicable
law with respect to any of the Property Partnership's Plans or pursuant to
which PRLP may incur liability or have liability attributed to it under any
Federal, state or local law as a result of the transactions contemplated by
this Agreement. To the knowledge of the Property Partnership, there are no
facts or circumstances that could subject any of the Property
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Partnership's Plans, related trusts, trustees, administrators or
fiduciaries of any of the Property Partnership's Plans, or PRLP or any
person dealing with any of the Property Partnership's Plans to any
penalties or excise taxes under Section 4971 through 4980B (inclusive) of
the Code.
(r) Except as required by applicable law or provided in any insurance
policy listed in Schedule 5.1(r) hereto, the Property Partnership has not
committed itself, orally (but only to the extent an oral commitment has
been made to provide a material benefit) or in writing, (A) to provide or
cause to be provided to any employee of the Property Partnership any
payments or provision of any material "welfare" or "pension" benefits (as
defined in Sections 3(1) and 3(2) of ERISA) in addition to, or in lieu of,
those payments or benefits set forth under any of the Property
Partnership's Plans, (B) to continue the payment of, or accelerate the
payment of, benefits under any of the Property Partnership's Plans, except
as expressly set forth thereunder, or (C) to provide or cause to be
provided any severance or other post-employment benefit, salary
continuation, termination, disability, death, retirement, health or medical
benefit to any employee of the Property Partnership, except as set forth
under any of the Property Partnership's Plans or as may be required by law.
In addition, except as required by applicable law, the Property Partnership
does not have any obligations for post-retirement or post-employment
benefits under any of the Property Partnership's Plans that cannot be
terminated upon no more than sixty (60) days notice without incurring any
liability thereunder.
(s) To the knowledge of the Property Partnership, there are no
aboveground or underground storage tanks or vessels which contain any
Contaminants at the Property Partnership's Real Property regardless of
whether such tanks or vessels are regulated tanks or vessels or not, except
as set forth in the environmental reports listed on Schedule 5.1(s) (the
"Partnerships' Reports").
(t) (i) The Property Partnership does not own or operate any property
which must be remediated under Environmental Laws.
(ii) Except as set forth in the Partnerships' Reports, to the Property
Partnership's knowledge, there has not been any Discharge of Contaminants
at any of Property Partnership's Real Property.
(iii) To the knowledge of the Property Partnership, no information
request or notice of potential liability has been received by the Property
Partnership issued pursuant to CERCLA on comparable state law, with respect
to the Property Partnership's Real Property.
(iv) To the knowledge of the Property Partnership, all pre-existing
aboveground and underground storage tanks and vessels, if any, at the
Property Partnership's Real Property have been removed any associated
Discharge has been remediated in accordance with and pursuant to all
applicable Environmental Laws, except as set forth in the Partnerships'
Reports.
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(v) To the knowledge of the Property Partnership, there is no asbestos
or asbestos-containing material located at any of the Property
Partnership's Real Property, except as set forth in the Partnerships'
Reports.
(vi) Except as set forth in the Partnership Reports and to the
knowledge of the Property Partnership, there is no electrical equipment
containing polychlorinated biphenyls ("PCBs"), located on or affecting the
Property Partnership's Real Property.
(vii) To the knowledge of the Property Partnership, the Property
Partnership and the businesses operating on the Property Partnership's Real
Property, have obtained all certificates, licenses and permits (the
"Permits") required to operate the Property Partnership's Real Property
under Environmental Laws, except as set forth in the Partnerships' Reports.
To the Property Partnership's knowledge, there is no violation of any
Environmental Laws with respect to any Permits, all Permits are in full
force and effect, all permits issued to the Property Partnership are
transferable with the Property Partnership's Real Property, without
additional payment by PRLP, and shall, upon closing, be transferred to PRLP
by the Property Partnership.
(viii) Deleted prior to execution.
(ix) To the knowledge of the Property Partnership, the Property
Partnership's Real Property is in full compliance with Environmental Law.
The Property Partnership has not, and shall not knowingly permit any person
or entity to engage in any activity on the Property Partnership's Real
Property, in violation of Environmental Laws.
(x) For purposes of this Agreement, the following words shall have the
respective meaning set forth below:
(A) "Contaminants" shall include, without limitation, any
regulated substance, toxic substance, hazardous substance, hazardous
waste, pollutant or contaminant, as defined or referred to in the
Resource Conservation and Recovery Act, as amended, 42 U.S.C. ss.6901
et seq.; the Comprehensive Environmental Response, Compensation and
Liability Act, as amended, 42 U.S.C. ss.9601 et seq. ("CERCLA"); the
Water Pollution and Control Act, 33 U.S.C. ss.1251 et seq.; the Clean
Air Act, 42 U.S.C. 7401 et seq.; together with any amendments thereto,
regulations promulgated thereunder and all substitutions thereof, as
well as words of similar purport or meaning referred to in any other
applicable federal, state, county or municipal environmental statute,
ordinance, rule or regulation, including, without limitation,
asbestos, polychlorinated biphenyls, urea formaldehyde and petroleum
products and petroleum based derivatives.
(B) "Discharge" shall mean the releasing, spilling, leaking,
leaching, disposing, pumping, pouring, emitting, emptying, treating or
dumping of Contaminants at, into, onto or from the Property,
regardless of whether the result of an intentional or unintentional
action or omission.
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(C) "Environmental Documents" shall mean all environmental
documentation in the possession or under the control of a party hereto
concerning its Property, or their environs, including, without
limitation, all sampling plans, cleanup plans, preliminary assessment
plans and reports, site investigation plans and reports, remedial
investigation plans and reports, remedial action plans and reports, or
the equivalent, sampling results, sampling result reports, data,
diagrams, charts, maps, analysis, conclusions, quality
assurance/quality control documentation, correspondence to or from any
Governmental Authority, submissions to any Governmental Authority and
directives, orders, approvals and disapprovals issued by any
Governmental Authority.
(D) "Environmental Laws" means each and every applicable federal,
state, county or municipal statute, ordinance, rule, regulation,
order, code, directive or requirement of any Governmental Authority
which impose liability or establish standards of conduct for
protection of the environment.
(u) Each Property Partnership and its affiliated entities, if any, has
paid all Taxes due and payable prior to the Closing and timely filed all
returns and reports required to be filed prior to the Closing with respect
to the ownership and operation of the Property Partnership's Real Property
and (by it or any predecessor entity) for which PRLP could be held liable
or a claim made against the acquired property. Each such tax return or
report is true and correct in all material respects. Each Property
Partnership and its affiliated entities have paid or provided for a reserve
for all Taxes related to the period ending on the Closing Date but required
to be paid after the Closing Date with respect to the operation of the
Property Partnership's Real Property (by it or any predecessor entity) for
which PRLP could be held liable or a claim made against the acquired
property. Each Property Partnership has provided or will provide PRLP with
a copy of all returns and reports filed for its 1994, 1995 and 1996 taxable
year and, if any, returns or reports filed in 1997, prior to Closing.
Except as set forth in Schedule 5.1(u), there are no audits or other
proceedings by any Governmental Authorities pending or, to the knowledge of
the Property Partnership and each of its affiliated entities, threatened
with respect to the Taxes resulting from the ownership and operation of the
Property Partnership's Real Property (by it or any predecessor entities)
for which PRLP could be held liable or a claim made against the acquired
property and no agreement extending the period for assessment and
collection has been executed with respect thereto. To the knowledge of each
Property Partnership and its affiliated entities, no assessment of Taxes is
proposed against the Property Partnership (including any predecessor
entities) or the Property Partnership's Real Property. The Property
Partnership is not party to, and has no liability under (including
liability with respect to a predecessor entity), any indemnification,
allocation or sharing agreement with respect to Taxes. True and complete
copies of all federal, state and local income or franchise tax returns
filed by the Property Partnerships for 1993, 1994, 1995 and 1996 and all
communications thereto will be delivered to PRLP or have been or will
hereafter promptly be made available to representatives of PRLP.
(v) No representation or warranty made by the Property Partnership or
the Partner contained in this Agreement, and no statement contained in any
document, certificate, Schedule or Exhibit furnished or to be furnished by
or on behalf of the
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Property Partnership to National or PRLP or any of its designees or
affiliates pursuant to this Agreement contains or will contain any untrue
statement of a material fact (taking into account any knowledge,
materiality or other similar qualifiers contained therein) or omits or will
omit to state any material fact necessary, in light of the circumstances
under which it was or will be made, in order to make the statements herein
or therein not misleading or necessary in order to fully and fairly provide
the information required to be provided in any such document, certificate,
Schedule or Exhibit.
5.2 In order to induce PRLP to issue the Property Partnerships' Units, the
Property Partnerships and each Partner hereby acknowledge their understanding
that the issuance of the Property Partnerships' Units is intended to be exempt
from registration under the Securities Act of 1933, as amended (the "Act"), and
the rules and regulations in effect thereunder. In furtherance thereof, each
Property Partnership with respect to itself and its Property Partnership's Unit
Holders only and each Partner with respect to itself only, represents and
warrants to National, New Reit and to PRLP as follows:
(a) The Property Partnership and the Property Partnership's Unit
Holders are acquiring the Property Partnership's Units solely for their own
account for the purpose of investment and not as a nominee or agent for any
other person and not with a view to, or for offer or sale in connection
with, any distribution of any thereof other than to its Partners. The
Property Partnership and the Property Partnership's Unit Holders agrees and
acknowledges that it is not permitted to offer, transfer, sell, assign,
pledge, hypothecate or otherwise dispose of ("Transfer") any of the
Property Partnership's Units except as provided in this Agreement and the
Agreement of Limited Partnership of PRLP (the "PRLP Agreement"), a copy of
which is annexed hereto as Exhibit 5.2(a).
(b) The Property Partnership and the Property Partnership's Unit
Holders are knowledgeable, sophisticated and experienced in business and
financial matters; the Property Partnership and the Property Partnership's
Unit Holders fully understand the limitations on transfer described in this
Agreement and the PRLP Agreement. The Property Partnership and the Property
Partnership's Unit Holders are able to bear the economic risk of holding
the Property Partnership's Units for an indefinite period and are able to
afford the complete loss of their investment in the Property Partnership's
Units; the Property Partnership and the Property Partnership's Unit Holders
have received and reviewed the PRLP Agreement and copies of the documents
filed by National since its inception under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and all registration statements and
related prospectuses and supplements filed by National and declared
effective under the Act since its inception (collectively, the "SEC
Documents") and have been given the opportunity to obtain any additional
information or documents and to ask questions and receive answers about
such documents, National, New Reit and PRLP and the business and prospects
of New Reit and PRLP which the Property Partnership and the Property
Partnership's Unit Holders deem necessary to evaluate the merits and risks
related to its investment in the Property Partnership's Units; and the
Property Partnership and the Property Partnership's Unit Holders understand
and have taken cognizance of all risk factors related to the purchase of
the Property Partnership's Units.
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(c) The Property Partnership and the Property Partnership's Unit
Holders acknowledge that they have been advised that (i) the Property
Partnership's Units must be held indefinitely, and the Property Partnership
and the Property Partnership's Unit Holders will continue to bear the
economic risk of the investment in the Property Partnership's Units, unless
they are redeemed pursuant to the PRLP Agreement or are subsequently
registered under the Act or an exemption from such registration is
available, (ii) it is not anticipated that there will be any public market
for the Property Partnership's Units at anytime, (iii) Rule 144 promulgated
under the Act is not available with respect to the sale of any securities
of PRLP (and that upon redemption of the Property Partnership's Units in
PRLP for shares of Common Stock of New Reit a new holding period under Rule
144 may commence), and PRLP has made no covenant, and makes no covenant, to
make Rule 144 available with respect to the sale of any securities of PRLP
(although New Reit and PRLP have agreed to register the Common Stock
pursuant to the Registration Rights Agreement), (iv) a restrictive legend
as set forth in Section 5.4(a) below shall be placed on the certificates or
instruments representing the Property Partnership's Units, and (v) a
notation shall be made in the appropriate records of PRLP indicating that
the Property Partnership's Units are subject to restrictions on transfer.
(d) The Property Partnership and the Property Partnership's Unit
Holders also acknowledge that (i) the redemption of the Property
Partnership's Units for shares of Common Stock is subject to certain
restrictions contained in the PRLP Agreement; and (ii) the shares of said
Common Stock which may be received upon such a redemption may, under
certain circumstances, be restricted securities and be subject to
limitations as to transfer, and therefore subject to the risks referred to
in Section 5.2(c) above. Notwithstanding anything herein or in the PRLP
Agreement to the contrary, the Property Partnership hereby acknowledges and
agrees that it and all the Property Partnership's Unit Holders may not
exercise the Redemption Rights (as defined in the PRLP Agreement) until
after the date which is one year from the Closing Date.
(e) The Property Partnership and each of the Property Partnership's
Unit Holders is an "accredited investor" (as such term is defined in Rule
501 (a) of Regulation D under the Act).
5.3 In order to induce National, the Property Partnerships, New Reit and
PRLP to perform as required hereunder, each Partner hereby represents the
following only with respect to itself and its interest in the Interest
Contributing Property Partnership:
(a) The Partner, where applicable, is a duly organized and validly
existing entity as set forth on Schedule 5.3 (a) annexed hereto, organized
under the laws of the State set forth opposite its name on Schedule 5.3
(a), is duly authorized to transact business in said State, has all
requisite power and authority to execute and deliver this Agreement and all
other documents and instruments to be executed and delivered by it
hereunder and to perform its obligations hereunder and under such other
documents and instruments in order to contribute its interest in accordance
with the terms and conditions hereof. All necessary actions of the Partner
to confer such power and authority upon the persons executing this
Agreement and all documents which are contemplated by this Agreement on its
behalf have been taken.
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(b) This Agreement, when duly executed and delivered, will be the
legal, valid and binding obligation of the Partner and enforceable in
accordance with its terms. The performance by the Partner of its duties and
obligations under this Agreement and the documents and instruments to be
executed and delivered by it hereunder will not conflict with, or result in
a breach of, or default under, any provision of any of its organizational
documents, where applicable, or any agreements, instruments, decrees,
judgments, injunctions, orders, writs, laws, rules or regulations, or any
determination or award of any court or arbitrator, to which it is a party
or by which its assets are or may be bound.
(c) The Partner is, and immediately prior to the Closing will be, the
owner of all of its right, title and interest in the Interest Contributing
Property Partnership and at Closing said right, title and interest shall be
free and clear of any mortgage, pledge, lien, encumbrance, security
interest, option, charges, claim or right of interest of any third party of
any nature whatsoever, except as set forth on Schedule 5.3(c).
(d) The Partner's interest in the Interest Contributing Property
Partnership is validly issued and fully paid and has been issued in
compliance with applicable securities, partnership, limited liability
company and other law. There are no rights, subscriptions, warrants,
options, rights of first refusal, conversion rights, preemptive rights or
agreements of any kind outstanding to purchase or to otherwise acquire the
Partner's interest which have not been waived in connection with the
transactions contemplated hereby.
(e) The Partner is not a foreign corporation, foreign partnership,
foreign trust or foreign estate (as defined in the Code), and is,
therefore, not subject to the provisions of Sections 897(a) or 1445 of the
Code related to the withholding of sales proceeds to foreign persons. The
Partner shall execute at Closing such certificates or affidavits reasonably
necessary to document the inapplicability of the Code sections referred to
above ("FIRPTA Affidavits").
5.4 Except as expressly provided herein, the representations and warranties
made by the Property Partnerships and the Partners in this Agreement shall not
survive the Closing Date and shall be merged in the delivery of the Deed and the
Interest Assignment. Notwithstanding the foregoing, (a) to the extent that an
anchor Tenant shall not deliver an Estoppel Certificate, the representations and
warranties made in Section 5.1(d) of this Agreement by the Property Partnerships
having entered into a Lease with said anchor Tenant shall survive the Closing
Date for a period of six (6) months as to any matters contained in the form of
Estoppel Certificate agreed to by the parties and (b) the representations and
warranties made in Sections 5.2 and 5.3 shall survive the Closing. The Property
Partnership agrees to indemnify and defend PRLP, and to hold PRLP harmless from
and against any and all claims, liabilities, losses, deficiencies and damages as
well as reasonable expenses (including attorney's, consulting and engineering
fees), and interest and penalties related thereto, incurred by PRLP, by reason
of or resulting from any breach, of the representations and warranties of the
Property Partnership contained in Section 5.1(d) that survive the closing. The
foregoing notwithstanding, PRLP shall not have a right to bring a claim against
the Property Partnership or any Partner by virtue of any of the representations
or warranties being false or misleading unless (i) such claim is brought on
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or prior to the date through which such representation or warranty survives, and
(ii) until notice of the false or misleading representation or warranty has been
given to the Property Partnership or the Partner and the Property Partnership or
the Partner has had a reasonable opportunity to cure same. The Property
Partnerships and the Partners shall be severally liable for any damages
hereunder; provided, however, the liability of the Property Partnership and the
Property Partnerships' Unit Holders shall be limited to the Property
Partnership's Units only, and the Property Partnerships and the Property
Partnerships' Unit Holders shall have no liability for any sum exceeding such
Units and shall have no liability whatsoever for any money damages.
5.5 The Property Partnerships and the Partners hereby acknowledge that each
Certificate representing the Property Partnerships' Units shall bear the
following legend:
"THE UNITS REPRESENTED BY THIS CERTIFICATE OR INSTRUMENT MAY NOT BE TRANSFERRED,
SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH
TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION COMPLIES
WITH THE PROVISIONS OF THE PARTNERSHIP AGREEMENT DATED AS OF _____________, 1997
(A COPY OF WHICH IS ON FILE WITH THE PARTNERSHIP). EXCEPT AS OTHERWISE PROVIDED
IN SUCH AGREEMENT, NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER
DISPOSITION OF THE UNITS REPRESENTED BY THIS CERTIFICATE MAY BE MADE EXCEPT (A)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR (B) IF THE OPERATING PARTNERSHIP HAS BEEN
FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER THAT SUCH
TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT
FROM THE PROVISIONS OF SECTION 5 OF THE ACT AND THE RULES AND REGULATIONS IN
EFFECT THEREUNDER. IN ADDITION, THE UNITS ARE SUBJECT TO THE PROVISIONS OF
SECTION 19.1 OF A CERTAIN CONTRIBUTION AND EXCHANGE AGREEMENT DATED AUGUST 11,
1997 (A COPY OF WHICH IS ON FILE WITH THE PARTNERSHIP)."
6. REPRESENTATIONS AND WARRANTIES OF NATIONAL AND NEW REIT.
6.1 In order to induce the Property Partnerships, the Partners, New Reit
and PRLP to perform as required hereunder, National hereby warrants and
represents the following:
(a) National is a duly organized and validly existing business trust
organized and in good standing under the laws of the State of
Massachusetts, has all requisite power and authority to execute and deliver
this Agreement and all other documents and instruments to be executed and
delivered by it hereunder, and to perform its obligations hereunder and
under such other documents and instruments in order to permit PRLP to
acquire the National Property in accordance with the terms and conditions
hereof. All necessary actions of the trustees of National to confer such
power and authority upon the persons executing this
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Agreement have been taken and all documents which are contemplated by this
Agreement on its behalf have been taken or will be taken prior to Closing.
(b) This Agreement and the agreements and other documents to be
executed and delivered by National hereunder, when duly executed and
delivered, will be the legal, valid and binding obligation of National,
enforceable in accordance with the terms of this Agreement. The execution
and delivery of this Agreement and the performance by National of each of
its duties and obligations under this Agreement and the documents and
instruments to be executed and delivered by each of them hereunder will not
conflict with, or result in a breach of, or default under, any provision of
any of the organizational documents of National or any agreements,
instruments, decrees, judgments, injunctions, orders, writs, laws, rules or
regulations, or any determination or award of any court or arbitrator, to
which National is a party or by which each of its assets are or may be
bound.
(c) National shall use its best efforts to seek, obtain and deliver
the consent and approval to the transactions contemplated hereby, including
(i) the affirmative vote of the holders of a majority of the issued and
outstanding shares of beneficial interest of National entitled to vote,
(ii) the affirmative vote of a plurality of votes cast by unaffiliated
shareholders of National and (iii) the amendment of certain provisions of
the Restated Declaration of Trust of National to permit the transactions
contemplated hereby (collectively, the "National Shareholder Approval").
(d) National has caused to be delivered to PRLP copies of the SEC
Documents and will cause to be delivered to PRLP copies of such additional
documents as may be filed by National pursuant to the Act or the Exchange
Act on or prior to the Closing Date. The SEC Documents were, and those
additional documents filed between the date hereof and the Closing will be,
prepared and filed in compliance with the rules and regulations promulgated
by the SEC, and do not and will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein in order to make the statements contained therein, in light of the
circumstances under which they were made or will be made, not misleading.
(e) The consolidated financial statements included in the SEC
Documents have been prepared in accordance with GAAP applied on a
consistent basis during the period involved (except as may be indicated in
the notes thereto or, in the case of the unaudited statements, as permitted
by Form 10-Q) and present fairly (subject, in the case of the unaudited
statements, to normal, recurring year-end audit adjustments) the
consolidated financial position of National at the dates thereof and the
consolidated results of operations and cash flows for the periods then
ended.
(f) No action, suit, claim, investigation or proceeding, whether legal
or administrative or in mediation or arbitration, is pending or, to the
best of National's knowledge, threatened, at law or in equity, against
National before or by any court or federal, state, municipal or other
governmental department, commission, board, bureau, agency or
instrumentality which would prevent National from performing its
obligations pursuant to this Agreement. There are no judgments, decrees or
orders entered on a suit or proceeding against National, an adverse
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decision which might, or which judgment, decree or order does, adversely
affect National 's ability to perform its obligations pursuant to, or the
Property Partnerships' or PRLP's rights under, this Agreement, or which
seeks to restrain, prohibit, invalidate, set aside, rescind, prevent or
make unlawful this Agreement or the carrying out of this Agreement or the
transactions contemplated hereby.
(g) The execution and delivery of this Agreement and the performance
by National of its obligations hereunder do not and will not conflict with
or violate any law, rule, judgment, regulation, order, writ, injunction or
decree of any court or governmental or quasi-governmental entity with
jurisdiction over National, including, without limitation, the United
States of America, or any decision or ruling of any arbitrator to which
National is a party or by which National is bound or affected.
(h) National has no Subsidiaries and no interests or investments in
any partnership, trust or other entity or organization. For purposes of
this Agreement, the terms "Subsidiary" and "Subsidiaries" shall mean (i)
any entity of which National (or other specified entity) shall own directly
or indirectly through a subsidiary, a nominee arrangement or otherwise (x)
at least a majority of the outstanding capital stock (or other shares of
beneficial interest) or (y) at least a majority of the partnership, joint
venture or similar interests, and (ii) any entity in which National (or
another specified entity) is a general partner or joint partner.
(i) Except as disclosed in the SEC Documents filed with the SEC prior
to the date hereof or in Schedule 6.1(i), National has conducted its
business only in the ordinary course of such business and has not (i) sold
or acquired any real estate or (ii) leased all or substantially all of any
property or (iii) entered into any financing arrangements in connection
therewith or (iv) granted an option to purchase or lease all or
substantially all of any property or (v) entered into a contract, letter of
intent, term sheet or other similar instrument to do any of the foregoing
and there has not been any change, circumstance or event that has resulted
in a material adverse effect on the business properties, results of
operations or financial condition of National, taken as a whole.
(j) Except as set forth on Schedule 6.1(j), National does not have any
material liabilities or obligations of any nature (whether absolute,
accrued, contingent or otherwise) except for (i) liabilities or obligations
reflected or reserved against in its June 30, 1997 unaudited consolidated
balance sheet, (ii) liabilities and obligations relating to outstanding
leases that are not required to be disclosed under GAAP and (iii) current
liabilities incurred in the ordinary course of business since the date of
such balance sheet.
(k) As of the date hereof: (A) the authorized capital stock of
National consists of an unlimited number of shares, (B) all of the
outstanding shares of capital stock of National have been duly and validly
issued and are fully paid and non-assessable.
(l) (i) National (A) has filed its federal income tax return for the
tax year that ended on December 31, 1996 as a real estate investment trust
within the meaning of Sections 856 and 857 of the Code ("REIT"), (B) has
complied with all applicable provisions of
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the Code relating to a REIT for 1991, 1992, 1993, 1994, 1995 and 1996, (C)
has operated, and intends to continue to operate, in such a manner as to
qualify as a REIT through the Closing Date and (D) has not taken or omitted
to take any action which would reasonably be expected to result in a
challenge to its status as a REIT, and no such challenge is pending or, to
National's knowledge, threatened.
(ii) National has timely filed with the appropriate taxing authorities
all tax returns required to be filed by it or has timely requested
extensions and any such request has been granted and has not expired. Each
such tax return is complete and accurate in all material respects. All
Taxes shown as owed by National on any tax return have been paid or
accrued, except for taxes being contested in good faith and for which
adequate reserves have been taken. National has not executed or filed with
the Internal Revenue Service or any other taxing authority any agreement
now in effect extending the period for assessment or collection of any Tax.
Except as set forth in Schedule 6.1(l)(ii), National is not a party to any
audit, material pending action or proceedings by any taxing authority for
assessment or collection of any Tax, and no material claim for assessment
or collection of any Tax has been asserted against it. True and complete
copies of all federal, state and local income or franchise tax returns and
reports filed by National for 1993, 1994, 1995 and 1996 and all
communications relating thereto will be delivered to the Property
Partnerships and PRLP or have been or will hereafter promptly be made
available to representatives of the Property Partnerships and PRLP. No
claim has been made by an authority in a jurisdiction where National does
not file tax returns that it is or may be subject to taxation by the
jurisdiction. Except as set forth in Schedule 6.1(l)(ii), there is no
material dispute or claim concerning any Tax liability of National, (A)
claimed or raised by any taxing authority in writing or (B) as to which
National has knowledge, and National has not entered into nor intends to
enter into any agreements with any taxing authority, including but not
limited to closing, indemnification, allocation, sharing or similar
agreements.
(iii) To its knowledge, as of the date hereof, National is a
"domestically-controlled" REIT within the meaning of Code Section
897(h)(4)(B).
(iv) To its knowledge, except as set forth in Schedule 6.1(l)(iv), no
person or entity which would be treated as an "individual" for purposes of
Section 542(a)(2) of the Code (as modified by Section 856(h) of the Code)
owns or would be considered to own (taking into account the ownership
attribution rules under Section 544 of the Code, as modified by Section
856(h) of the Code) in excess of 9.8% of the value of the outstanding
equity interest in National.
(v) Each corporation or association which is taxable as a corporation
for federal income tax purposes and in which National has a direct or
indirect interest is either (i) a "qualified REIT subsidiary", as such term
is defined in Code Section 856(i), or (ii) a corporation of which less than
ten (10%) percent of the voting securities are owned by National and of
which the total securities owned by National represent less than five
percent of the value of the total assets of National, within the meaning of
Code Section 856(c)(5).
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(m) National is not in default under, or in violation of, any
provision of its organizational documents.
(n) All of National's real property and other material assets are
owned by National directly.
(o) Annexed hereto as Schedule 6.1(o) is a true, complete and correct
schedule of all of the National Leases as of June 30, 1997. The National
Leases are valid and bona fide obligations of the landlord and, to
National's knowledge, the tenants thereunder and are in full force and
effect. To National's knowledge, except as set forth on Schedule 6.1(o): no
defaults remain uncured pursuant to notices of default sent to any Tenants
and no condition exists which, solely with the passage of time or the
giving of notice or both, will become a default; National has not received
any notices of default under the National Leases; the National Leases
constitute all of the leases, tenancies or occupancies affecting the
National Real Property on the date hereof; all Tenants have commenced
occupancy; there are no agreements which confer upon any Tenant or any
other person or entity any rights with respect to acquiring all or a
portion of the National Property, nor has any claim been asserted by any
Tenant in writing for an offset to its rent, nor is any Tenant currently
asserting, in writing, a concession, rebate, allowance or free rent.
Annexed hereto as Schedule 6.1(o)-2 is a true, complete and correct
schedule of all new leases and lease renewals currently out for signature
to tenants, which Schedule 6.1(o)-2 sets forth the terms and conditions of
such new leases or renewals; true, complete and correct copies of such new
leases and renewals have been provided to the Property Partnerships.
(p) Annexed hereto as Schedule 6.1(p) is a listing (the "National Rent
Roll") of the following as of June 30, 1997, which is true, complete and
correct in all material respects for each National Building: (i) the name
of each Tenant; (ii) the fixed rent actually being billed; (iii) the
expiration date or status of each Lease (including all rights or options to
renew); (iv) the National Security Deposit, if any; (v) whether there is
any guaranty of a Tenant's obligations from a third party, and if so the
nature of said guaranty; (vi) arrangements under which any Tenant is
occupying space on the date hereof or will in the future, occupy such
space; (vii) any written notices given by any Tenant of an intention to
vacate space in the future; (viii) the base year(s) and base year amounts
for all items of rent or additional rent billed to each Tenant on that
basis; and (ix) any arrearages of any Tenant beyond thirty (30) days.
(q) To the knowledge of National, National has performed all of the
material obligations and observed all of the covenants required of the
landlord under the terms of the National Leases. Except as set forth on
Schedule 6.1(q) annexed hereto, all work, alterations, improvements or
installations required to be made for or on behalf of all Tenants under the
National Leases have in all respects been carried out, performed and
complied with, and there is no agreement with any Tenant for the
performance of any work to be done in the future other than that which is
required pursuant to its Lease. Except as set forth on Schedule 6.1(q), no
work has been performed at any National Building which would require an
amendment to the certificate of occupancy for such National Building for
which an amendment has not been obtained, and any and all work performed at
the National Real Property to the date hereof and to the Closing Date has
been and will be in accordance with the rules, laws and
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regulations of all applicable authorities. All undisputed bills and claims
for labor performed and materials furnished to or for the benefit of the
National Property arising prior to the Closing Date will be paid in full by
National within customary time periods, not to exceed ninety (90) days from
the receipt of an invoice by National. To the extent any bills and claims
for labor performed and materials furnished to or for the benefit of the
National Real Property prior to the Closing Date are disputed, National
shall commence any actions related to such bills and claims promptly, such
commencement being no later than ninety (90) days from the receipt of an
invoice by National, and shall diligently prosecute same to its conclusion.
(r) There are no service contracts, equipment leases, union contracts,
employment agreements or other agreements affecting the National Property
or the operation thereof, except the National Service Contracts and the
contracts set forth on Schedule 6.1(r) annexed hereto. To National 's
knowledge, all of the National Service Contracts are and will on the
Closing Date be unmodified (except in the ordinary course of business) and
in full force and effect without any material default or claim of material
default by National. All sums presently due and payable by National under
the Service Contracts have been fully paid and all sums which become due
and payable between the date hereof and the Closing Date shall be fully
paid by National within customary time periods, not to exceed ninety (90)
days from the receipt of an invoice by National.
(s) Except as set forth on Schedule 6.1(s) annexed hereto and except
as covered by insurance, there are no actions, suits, labor disputes,
litigation or proceedings currently pending or, to the knowledge of
National, threatened against or related to National (with respect to the
National Property being sold) or to all or any part of the National
Property or the environmental condition thereof, or the operation thereof.
National shall be permitted to continue to prosecute suits set forth on
Schedule 6.1(s) and may initiate suits or actions against former or current
tenants.
(t) Except as set forth on Schedule 6.1(t) annexed hereto, National
has received no written notice and has no knowledge of (i) any pending or
contemplated annexation or condemnation proceedings, or private purchase in
lieu thereof, affecting or which may affect the National Real Property, or
any part thereof, (ii) any proposed or pending proceeding to change or
redefine the zoning classification of all or any part of the National Real
Property, (iii) any proposed or pending special assessments affecting the
National Real Property or any portion thereof, (iv) any penalties or
interest due with respect to real estate taxes assessed against the
National Real Property and (v) any proposed change(s) in any road or grades
with respect to the roads providing a means of ingress and egress to the
National Real Property. National agrees to furnish the Property
Partnerships with a copy of any such notice received within two (2)
business days after receipt.
(u) National has provided PRLP with the reports set forth on Schedule
6.1(u) annexed hereto, which constitute all third-party reports in
National's possession or under its control related to the physical
condition of the National Real Property which have been prepared within the
last four (4) years.
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(v) Except as set forth on Schedule 6.1(v) annexed hereto, National
has no knowledge of any notices, suits, or judgments relating to any
violations (including environmental) of any laws, ordinances or regulations
affecting the National Real Property, or any violations or conditions that
may give rise thereto, and has no reason to believe that any agency, board,
bureau, commission, department or body of any municipal, county, state or
federal governmental unit, or any subdivision thereof, having, asserting or
acquiring jurisdiction over all or any part of the National Real Property
or the management, operation, use or improvement thereof (collectively, the
"Governmental Authorities") contemplates the issuance thereof, and there
are no outstanding orders, judgments, injunctions, decrees or writ of any
Governmental Authorities against or involving National or the National Real
Property.
(w) Annexed hereto as Schedule 6.1(w) is a schedule of all leasing
commission obligations affecting the National Property. The respective
obligations of National and the Property Partnerships with respect to said
commissions are set forth in Section 13.
(x) National has not made a general assignment for the benefit of
creditors, filed any voluntary petition in bankruptcy or suffered the
filing of any involuntary petition by National's creditors, suffered the
appointment of a receiver to take possession of all, or substantially all,
of such National's assets, suffered the attachment or other judicial
seizure of all, or substantially all, of such National's assets, admitted
in writing its inability to pay its debts as they come due or made an offer
of settlement, extension or composition to its creditors generally.
(y) Except as set forth on Schedule 6.1(y), the National Personal
Property will on the Closing Date be owned by National free and clear of
any conditional bills of sale, chattel mortgages, security agreements or
financing statements or other security interests of any kind, other than
liens created by PRLP.
(z) Except as set forth on Schedule 6.1(z), all leasing and management
agreements as of the date hereof to which National is a party are
terminable by National upon thirty (30) days notice.
(aa) Annexed hereto as Schedule 6.1(aa)-1 is a true and correct list
of the existing mortgage debt encumbering the National Real Property which
is to be assumed by PRLP. No other mortgage debt exists on the National
Real Property. Annexed hereto as Schedule 6.1(aa)-2 is a true and correct
list of the existing indemnities and guaranties made in connection with the
mortgage debt on the National Real Property, which indemnities and
guarantees will be assumed by PRLP. To the extent that the beneficiary of
any indemnity or guaranty does not release an indemnitor or guarantor from
its obligations thereunder, PRLP agrees to indemnify said indemnitor or
guarantor against any claims, damages, losses, costs and expenses incurred
by said indemnitor or guarantor in connection with said indemnities or
guarantees after the Closing Date.
(bb) To the knowledge of National, there are no aboveground or
underground storage tanks or vessels which contain any Contaminants at the
National Real
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Property regardless of whether such tanks or vessels are regulated tanks or
vessels or not, except as set forth on Schedule 6.1(bb).
(cc) National has no knowledge of outstanding requirements or
recommendations by (i) the insurance company(s) currently insuring the
National Property; (ii) any board of fire underwriters or other body
exercising similar functions, or (iii) the holder of any mortgage
encumbering any of the National Property, which require or recommend any
repairs or work to be done on the National Property of a material nature.
(dd) The combined financial statements, including the income and
expense statements and the balance sheets of National and its affiliates,
excluding only those assets, liabilities and operations not contemplated to
be contributed pursuant to this Agreement relating to the ownership and
operation of the National Property and the related combined statement of
income, partners' capital and cash flows, including the footnotes thereto
(the "Property Financials") as of and for the years ending December 31,
1994, 1995, 1996 and the interim for the period ending March 31, 1997,
which shall be reviewed by the Accountant, fairly present the combined
financial position of National relating to the National Property as at such
dates and the combined results of operations and combined cash flows of
National LLC relating to the ownership and operation of the National
Property for such respective periods, in each case, except as may be
expressly provided to the contrary, in accordance with GAAP consistently
applied for the periods covered thereby.
(ee) (i) Annexed hereto as Schedule 6.1(ee)(i) is a true and complete
list of all collective bargaining agreements, employment and consulting
agreements, executive compensation plans, bonus plans, directors' fee
arrangements, deferred compensation agreements, employee pension plans or
retirement plans, employee profit sharing plans, 401(k) savings plans,
multiemployer plans, employee stock purchase and stock option plans,
employee welfare plans, severance plans, group life insurance,
hospitalization insurance or other similar plans or arrangements (either
written or oral, but only to the extent an oral plan provides material
benefits) providing for benefits to current employees of National (the
"National Plans").
(ii) National has complied and currently is in compliance in all
material respects, both as to form and operation, with the applicable
provisions of ERISA and the Code with respect to each National Plan.
(iii) Notwithstanding anything else set forth herein, other than
routine claims for benefits (i) there are no pending claims, threatened
litigation (which has been communicated to National in writing),
administrative actions or proceedings involving any of the National Plans
by any participant in such plan or by any other person, including, without
limitation, any governmental agency, and (ii) National has not incurred any
material liability with respect to any of the National Plans that is
currently due and owing and has not yet been satisfied, including, without
limitation, under ERISA, the Code or other applicable law, and no event has
occurred and, to the knowledge of the current partners of National, there
exists no condition or set of circumstances (other than liability for
benefits under the normal terms of any of the National Plans) that could
result in the imposition of any material liability on National
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with respect to any of the National Plans, including, without limitation,
under ERISA, the Code or other applicable law with respect to any of the
National Plans or pursuant to which PRLP may incur liability or have
liability attributed to it under any Federal, state or local law as a
result of the transactions contemplated by this Agreement. To the knowledge
of National, there are no facts or circumstances that could subject any of
the National Plans, related trusts, trustees, administrators or fiduciaries
of any of the National Plans, or PRLP or any person dealing with any of the
National Plans to any penalties or excise taxes under Section 4971 through
4980B (inclusive) of the Code.
(ff) Except as required by applicable law or provided in any insurance
policy listed in Schedule 6.1(ff) hereto, National has not committed
itself, orally (but only to the extent an oral commitment has been made to
provide a material benefit) or in writing, (A) to provide or cause to be
provided to any employee of National any payments or provision of any
material "welfare" or "pension" benefits (as defined in Sections 3(l) and
3(2) of ERISA) in addition to, or in lieu of, those payments or benefits
set forth under any of the National Plans, (B) to continue the payment of,
or accelerate the payment of, benefits under any of the National Plans,
except as expressly set forth thereunder, or (C) to provide or cause to be
provided any severance or other post-employment benefit, salary
continuation, termination, disability, death, retirement, health or medical
benefit to any employee of National, except as set forth under any of the
National Plans or as may be required by law. In addition, except as
required by applicable law, National does not have any obligations for
post-retirement or post-employment benefits under any of the National Plans
that cannot be terminated upon no more than sixty (60) days notice without
incurring any liability thereunder.
(gg) (i) National does not own or operate any property which must be
remediated under Environmental Laws.
(ii) Except as disclosed in Schedule 6.1(gg)(ii), to National's
knowledge, there has not been any Discharge of Contaminants at the National
Real Property.
(iii) To the knowledge of National, no information request or notice
of potential liability has been received by National issued pursuant to
CERCLA or comparable state laws, with respect to the National Real
Property.
(iv) To the knowledge of National, all pre-existing aboveground and
underground storage tanks and vessels, if any, at the National Real
Property have been removed and any associated Discharge has been remediated
in accordance with and pursuant to all applicable Environmental Laws,
except as set forth on Schedule 6.1(gg)(iv).
(v) To the knowledge of National, there is no asbestos or asbestos
containing material located at any of the National Real Property except as
set forth on Schedule 6.1(gg)(v).
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(vi) Except as set forth in Schedule 6.1(gg)(vi), to the knowledge of
National, there is no electrical equipment containing PCBS located on or
affecting the National Real Property.
(vii) To the knowledge of National, National and all the businesses
operating on the National Real Property have obtained all Permits required
to operate the National Real Property under Environmental Laws, except as
set forth in Schedule 6.1(gg)(vii). To National's knowledge, there is no
violation of any Environmental Laws with respect to any Permits, all
Permits are in full force and effect, all Permits issued to National are
transferable with the National Real Property , without additional payment
by PRLP, and shall, upon closing, be transferred to PRLP by National.
(viii) Deleted prior to execution.
(ix) To the knowledge of National, The National Real Property is in
full compliance with Environmental Laws. National has not, and shall not
knowingly permit any person or entity to engage in any activity on the
National Real Property, in violation of Environmental Laws.
(hh) Annexed hereto as Schedule 6.1(hh) is a listing of the following,
which is true, complete and correct in all material aspects for each Real
Property contributed to PRLP: (i) its adjusted basis as of June 30, 1997;
(ii) the date placed in service; (iii) the depreciation method; and (iv)
the remaining useful life.
(ii) No representation or warranty made by National contained in this
Agreement, and no statement contained in any document, certificate,
Schedule or Exhibit furnished or to be furnished by or on behalf of
National to the Property Partnerships or PRLP or any of its designees or
affiliates pursuant to this Agreement contains or will contain any untrue
statement of a material fact (taking into account any knowledge,
materiality or other similar qualifiers contained therein) or, to
National's knowledge, omits or will omit to state any material fact
necessary, in light of the circumstances under which it was or will be
made, in order to make the statements herein or therein not misleading or
necessary in order to fully and fairly provide the information required to
be provided in any such document, certificate, Schedule or Exhibit.
(jj) Annexed hereto as Schedule 6.1(jj) is a true and accurate copy of
all the record owners of National and, except as set forth on said Schedule
6.1(jj), no individual owns more than five (5%) percent of the stock of
National.
The representation and warranties made by National in this Agreement shall
not survive the Closing Date.
6.2 In order to induce the Property Partnerships, the Partners, National
and PRLP to perform as required hereunder, New Reit represents and warrants to
the Property Partnerships, the Partners, National and PRLP as follows:
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(a) New Reit is a duly organized and validly existing corporation
organized and in good standing under the laws of the State of Maryland, has
all requisite powers and authority to execute and deliver this Agreement
and all other documents and instruments to be executed and delivered by it
hereunder, and to perform its obligations hereunder and under such other
documents and instruments. All necessary actions of the corporate offices
of New Reit to confer such power and authority upon the persons executing
this Agreement and all documents which are contemplated by this Agreement
on its behalf have been taken. New Reit is a newly formed corporation which
has not engaged in any activities other than in connection with the
transactions contemplated hereby.
(b) This Agreement and the agreements and other documents to be
executed and delivered by New Reit hereunder, when duly executed and
delivered, will be the legal, valid and binding obligation of New Reit,
enforceable in accordance with the terms of this Agreement. The execution
and delivery of this Agreement and the performance by New Reit of its
duties and obligations under this Agreement and the documents and
instruments to be executed and delivered by New Reit hereunder will not
conflict with, or result in a breach of , or default under, any provision
of any of the organizational documents of New Reit or any agreements,
instruments, decrees, judgments, injunctions, orders, writs, laws, rules or
regulations, or any determination or award of any court or arbitrator, to
which New Reit is a party or by which its assets are or may be bound.
(c) No action suit, claim, investigation or proceeding, whether legal
or administrative or in mediation or arbitration, is pending or, to the
best of New Reit's knowledge, threatened, at law or in equity, against New
Reit's before or by any court or federal, state, municipal or other
governmental department, commission, board, bureau, agency or
instrumentality which would prevent New Reit's from performing its
obligations pursuant to this Agreement. There are no judgments, decrees or
orders entered on a suit or proceeding against New Reit, an adverse
decision which might, or which judgment, decree or order does, adversely
affect New Reit's ability to perform its obligations pursuant to, or any
party's rights under, this Agreement, or which seeks to restrain, prohibit,
invalidate, set aside, rescind, prevent or make unlawful this Agreement or
the carrying out of this Agreement or the transactions contemplated hereby.
(d) The execution and delivery of this Agreement and the performance
by New Reit of its obligations hereunder do not and will not conflict with
or violate any law, rule, judgment, regulation, order, writ, injunction or
decree of any court or governmental or quasi-governmental entity with
jurisdiction over New Reit, including, without limitation, the United
States of America, the State of Maryland or any political subdivision of
any of the foregoing, or any decision or ruling of any arbitrator to which
New Reit is a party or by which it is bound or affected.
(e) New Reit has not made a general assignment for the benefit of
creditors, filed any voluntary petition in bankruptcy or suffered the
filing of any involuntary petition by its creditors, suffered the
appointment of a receiver to take possession of all, or substantially all,
of its assets, suffered the attachment or other judicial seizure of all, or
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substantially all, of its assets, admitted in writing its inability to pay
its debts as they come due or made an offer of settlement, extension or
composition to its creditors generally.
(f) The shares of Common Stock to be issued by New Reit upon
redemption of the Property Partnerships' Units are duly authorized and
reserved for issuance and upon issuance, will be validly issued, fully paid
and non-assessable, free and clear of any mortgage, pledge, lien,
encumbrance, security interest, claim or rights of interest of any third
party of any nature whatsoever.
(g) As of the date hereof: (A) the authorized capital stock of New
Reit consists of 100,000,000 shares of its Common Stock and 30,000,000
shares of preferred stock, par value $.01 per share (the "Preferred
Stock"); (B) the issued and outstanding shares of capital stock of New Reit
consists of 47,660 shares of Common Stock; (C) no shares of Preferred Stock
were outstanding; and (D) all the outstanding shares of capital stock of
New Reit have been duly and validly issued and are fully paid and
non-assessable. All of the outstanding capital stock of New Reit is owned
by National. No preferred stock will be issued at Closing.
(h) New Reit agrees to elect to be taxed as a REIT in its first
federal income tax return, and shall be in compliance with all applicable
laws, rules and regulations, including the Code, necessary to permit it to
be taxed as a REIT. The provisions of this Section 6.2(h) shall survive the
Closing.
The representations and warranties made by New Reit in this Agreement shall
not survive the Closing Date, except as otherwise set forth herein.
7. REPRESENTATIONS AND WARRANTIES OF PRLP.
7.1 In order to induce the Property Partnerships, the Partners and National
to perform as required hereunder, PRLP hereby warrants and represents the
following:
(a) PRLP is a duly organized and validly existing limited partnership
organized and in good standing under the laws of the State of Delaware, has
all requisite power and authority to execute and deliver this Agreement and
all other documents and instruments to be executed and delivered by it
hereunder, and to perform its obligations hereunder and under such other
documents and instruments in order to acquire the Property in accordance
with the terms and conditions hereof. All necessary actions of the partners
of PRLP to confer such power and authority upon the persons executing this
Agreement and all documents which are contemplated by this Agreement on its
behalf have been taken.
(b) This Agreement and the agreements and other documents to be
executed and delivered by PRLP hereunder, when duly executed and delivered,
will be the legal, valid and binding obligation of PRLP, enforceable in
accordance with the terms of this Agreement. The performance by PRLP of its
duties and obligations under this Agreement and
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the documents and instruments to be executed and delivered by PRLP
hereunder will not conflict with, or result in a breach of, or default
under, any provision of any of the organizational documents of PRLP or any
agreements, instruments, decrees, judgments, injunctions, orders, writs,
laws, rules or regulations, or any determination or award of any court or
arbitrator, to which PRLP is a party or by which its assets are or may be
bound.
(c) The Units to be issued hereunder are duly authorized and, when
issued by PRLP, will be fully paid and non-assessable, free and clear of
any mortgage, pledge, lien, encumbrance, security interest, claim or rights
of interest of any third party of any nature whatsoever, other than any
claim or rights of any third party resulting from the action or inaction of
the holder of the Units.
(d) PRLP has furnished to the Property Partnerships and National a
true and complete copy of the PRLP Agreement, as amended to date.
(e) No action, suit, claim, investigation or proceeding, whether legal
or administrative or in mediation or arbitration, is pending or, to the
best of PRLP's knowledge, threatened, at law or in equity, against PRLP
before or by any court or federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality which
would prevent PRLP from performing its obligations pursuant to this
Agreement. There are no judgments, decrees or orders entered on a suit or
proceeding against PRLP, an adverse decision which might, or which
judgment, decree or order does, adversely affect PRLP's ability to perform
its obligations pursuant to, or any party's rights under, this Agreement,
or which seeks to restrain, prohibit, invalidate, set aside, rescind,
prevent or make unlawful this Agreement or the carrying out of this
Agreement or the transactions contemplated hereby.
(f) The execution and delivery of this Agreement and the performance
by PRLP of its obligations hereunder do not and will not conflict with or
violate any law, rule, judgment, regulation, order, writ, injunction or
decree of any court or governmental or quasi-governmental entity with
jurisdiction over PRLP, including, without limitation, the United States of
America, the States of Delaware, New York, Florida, Massachusetts,
Connecticut and New Jersey or any political subdivision of any of the
foregoing, or any decision or ruling of any arbitrator to which PRLP is a
party or by which it is bound or affected.
(g) PRLP has not made a general assignment for the benefit of
creditors, filed any voluntary petition in bankruptcy or suffered the
filing of any involuntary petition by its creditors, suffered the
appointment of a receiver to take possession of all, or substantially all,
of its assets, suffered the attachment or other judicial seizure of all, or
substantially all, of its assets, admitted in writing its inability to pay
its debts as they come due or made an offer of settlement, extension or
composition to its creditors generally.
7.2 The representations and warranties made by PRLP in this Agreement shall
not survive the Closing Date.
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8. COVENANTS OF THE PROPERTY PARTNERSHIPS, THE PARTNERS AND NATIONAL.
8.1 Each of the Property Partnerships and National covenant and agree that
between the date hereof and the Closing Date each shall perform or observe the
following with respect to its Real Property only:
(a) Each Party will operate and maintain its Real Property in the
ordinary course of business and use reasonable efforts to reasonably
preserve for PLRP its relationships with each of its Tenants, suppliers,
managers, employees and others having on-going relationships with its Real
Property. The Parties will not defer taking any actions or spending any
funds, or otherwise manage their Real Property differently, due to the
transaction contemplated by this Agreement.
(b) The Parties as landlords, will not enter into any new leases with
respect to their Property, or renew or modify any Lease, without PRLP's
prior written consent; provided, however that the Parties shall be
permitted to enter into new leases, renewals or modifications upon prior
notice to, but without the prior written consent of, PRLP so long as such
lease, renewal or modification is on market terms and conditions with bona
fide third parties and is the type of transaction which the Party currently
enters into in the ordinary course of its business.
(c) None of the Parties shall:
(i) Enter into any agreement requiring it to do work for any
Tenant after the Closing Date without first obtaining the prior
written consent of PRLP unless such agreement, in the Party's
reasonable opinion, is on market terms and conditions with bona fide
third parties and is the type of agreement which the Party currently
enters into in the ordinary course of its business, in which case no
consent of PRLP will be required; or
(ii) Accept the surrender of any Service Contract or Lease, or
grant any concession, rebate, allowance or free rent, except in its
ordinary course of business on market terms, with bona fide third
parties and upon prior written notice to PRLP; or
(iii) Establish, adopt or amend any employee benefit plans
(severance or otherwise) or collective bargaining agreement, grant any
options, or increase in any manner the compensation or fringe benefits
of any director, officer or employee or other personnel (whether
employees or independent contractors) or pay any benefit not payable
under any existing agreement or plan, except (A) in the ordinary
course of business and consistent with past practices and as required
by law, provided that, before entering into any employment agreement
or increasing or agreeing to increase the compensation, bonuses or
other benefits of any employee in the ordinary course of business and
as required by law, said Party shall first have consulted in good
faith with PRLP with respect to the terms of any such employment
agreement or increase in compensation, bonuses or other benefits; or
(B) in connection with the transactions contemplated by this Agreement
for which PRLP would not have any liability.
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(d) The Parties shall not, between the date hereof and the Closing
Date, apply any Security Deposits with respect to any Tenant in occupancy
on the Closing Date, except in its ordinary course of business.
(e) Between the date hereof and the Closing Date, the Parties will not
renew, extend or modify any of the Service Contracts without the prior
written consent of PRLP unless such is done by in the ordinary course of
its business and such Service Contracts contain a right to terminate on
thirty (30) days' notice with no material cost to exercise such right, in
which case no consent of PRLP will be required.
(f) The Parties shall not remove any of their Personal Property
located in or on its Real Property, except as may be required for repair
and replacement. All replacements shall be free and clear of liens and
encumbrances except to the extent the original Personal Property was so
encumbered and shall be of quality at least equal to the replaced items and
shall be deemed included in this sale, without cost or expense to PRLP,
other than expressly provided herein.
(g) The Parties shall, upon request of PRLP at any time after the date
hereof, assist PRLP in its preparation of audited financial statements,
statements of income and expense, and such other documentation as PRLP may
reasonably request, covering the period of the Parties' ownership of the
Real Property.
(h) Between the date hereof and the Closing Date, the Parties will
make all required payments under any mortgage affecting their Real Property
(other than payments due at stated maturity) within any applicable grace
period, but without reimbursement by PRLP therefor. The parties shall also
comply with all other material terms covenants, and conditions of any
mortgage on the Real Property.
(i) The Parties shall not cause or permit their Real Property, or any
interest therein, to be alienated, mortgaged, licensed, encumbered or
otherwise be transferred without the consent of PRLP.
(j) The Parties agrees to maintain and keep in full force and effect
the hazard, liability and casualty insurance policies they are currently
maintaining.
(k) The Parties shall permit each other Party and PRLP and its and
their respective authorized representatives to inspect the Documents of its
operations at all reasonable times upon reasonable notice.
(l) Each Party shall:
(i) promptly notify PLRP of, and promptly deliver to PRLP, a
certified true and complete copy of any notice said Party may receive,
on or before the Closing
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Date, from any Governmental Authority, concerning a violation of
Environmental Laws or Discharge of Contaminants.
(ii) contemporaneously with the signing and delivery of this
Agreement, and subsequently promptly upon receipt by said Party or its
representatives, deliver to PRLP a certified true and complete copy of
all Environmental Documents.
(m) The Parties shall diligently pursue obtaining waivers of any
rights of first refusal for the Property presently held by any third
parties at no cost to PRLP, and shall provide PRLP with copies of all
requests for such waivers.
(n) Each Party at its sole cost and expense, shall complete all work
under construction at its Real Property, including the work shown on
Schedules 5.1(e) and 6.1(s), in accordance with the obligation giving rise
to such work having to be performed, and shall obtain and deliver to PRLP,
as soon as practical, all final certificates of completion and occupancy,
or other documentation reasonably satisfactory to PRLP, evidencing the
acceptance of said work by all appropriate governmental authorities having
jurisdiction thereover and the party for whom the work is being so
performed; said obligations shall survive Closing.
8.2 The Property Partnerships and National have each delivered to PRLP
Property Financials certified by Ernst & Young LLP and Bernardi, Alfin & Koos,
L.L.C., respectively, for the calendar years 1994, 1995 and 1996, and reviewed
by such accountants for any interim period during the period from January 1,
1997 through March 31, 1997, in all instances prepared in accordance with the
standards and presenting the type of information as described in Sections 5.1(p)
and 6.1(dd). The Property Partnerships and National shall each deliver to PRLP
unaudited Property Financials for the interim period from April 1, 1997 through
September 30, 1997, five (5) days prior to the Closing, or earlier if required
pursuant to the Registration Statement.
8.3 The Parties covenant and agree that they shall timely provide each
other with drafts of any pertinent documentation in connection with leasing
matters, Service Contracts and agreements for work to be done on behalf of
tenants and shall keep each other informed of all substantive negotiations and
discussions with respect to the foregoing matters on an on-going basis.
8.4 National covenants and agrees to take such action and execute and
deliver such other documents (including without limitation the filing of a proxy
statement and/or a registration statement with the Securities and Exchange
Commission) to effectuate the consummation of the transactions contemplated by
this Agreement. The Property Partnerships covenant and agree to cooperate and
provide such information as is reasonably necessary to assist National in its
delivery of the aforesaid documents.
8.5 National shall not, and National shall cause its trustees, advisors,
officers, employees, agents and affiliates, or any investment banker engaged by
it not to, directly or indirectly, solicit or initiate the submission of
proposals or offers from, or solicit, encourage,
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entertain or enter into any agreement, arrangement or understanding with, or
solicit or initiate any discussions with, or furnish any information to, any
corporation, partnership, person or other entity or group, other than the
Property Partnerships or a representative thereof, with respect to the transfer
of all or any part of the National Property, or with respect to a merger,
acquisition, tender offer, exchange offer, consolidation or similar transaction
involving any purchase of all or any significant portion of the assets or equity
securities of National; provided, however, that National may furnish information
concerning its business, properties or assets to a corporation, partnership,
person or other entity or group which has made an unsolicited bona fide offer to
National to acquire its assets and, following receipt of such an offer, may
negotiate and take any of the actions otherwise prohibited by this Section 8.5
with respect to such corporation, partnership, person or other entity or group
if counsel to National advises the Board of Trustees of National that the
failure to furnish such information or negotiate with such corporation,
partnership, person or other entity or group might subject National's trustees
to liability for breach of their fiduciary duties under applicable law. In the
event that National shall receive an offer of the type referred to in this
Section 8.5 (a "Competing Offer"), it shall promptly inform PRLP and the
Property Partnerships as to any such offer.
8.6 National shall remain in existence as a REIT and shall not adopt any
plan of liquidation or dissolution or revoke its REIT status (if such REIT
status is permitted or unless required as a result of the transactions
contemplated by this Agreement) for a minimum of one (1) year from the Closing.
8.7 Each of the Partners, with respect to itself only, covenant and agree
that between the date hereof and the Closing Date it shall not:
(a) Sell or transfer any portion of its interest in the Interest
Contributing Property Partnership; or
(b) Place any mortgage, pledge, lien, encumbrance, security interest,
option, charge, claim or right of interest in any third party of any nature
whatsoever on its interest in the Interest Contributing Property
Partnership.
8.8 National shall dividend a portion of the National Shares to the
National Shareholders on a pro-rata basis as follows: 3,744 shares in calendar
year 1997 and 20,256 shares in January 1998. The provisions of this Section 8.8
shall survive the Closing.
8.9 National covenants and agrees that it shall timely file income tax
returns from the date hereof through and including December 31, 1998.
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9. INTENTIONALLY DELETED.
10. ESTOPPEL CERTIFICATES.
10.1 Each Party agrees to deliver to each of the anchor Tenants at its Real
Property, no later than thirty (30) days after the date hereof, an estoppel
certificate in form reasonably satisfactory to the Parties for Tenant's
execution, completed to reflect the Tenant's particular Lease status. The
Parties agree to use commercially reasonable efforts to obtain from all anchor
Tenants the estoppel certificates in such form; provided, however, that (a)
estoppel certificates from Tenants dated on or after January 1, 1997 shall be
deemed acceptable for purposes of this Agreement and (b) if any anchor Tenant
shall refuse to execute an estoppel letter in such form, the Parties shall
nevertheless use commercially reasonable efforts to obtain estoppel certificates
in the form in which each anchor Tenant is obligated to deliver same as provided
in its Lease. The Parties agree to deliver to PRLP copies of all estoppel
letters received by Tenants in the form received by such Party. The estoppel
certificates required to be obtained pursuant to this Section 9 are collectively
referred to as the "Estoppel Certificates".
11. CLOSING.
11.1 The consummation of the transactions contemplated hereunder (the
"Closing") shall take place at the offices of Pryor, Cashman, Sherman & Flynn,
410 Park Avenue, New York, New York 10022 three (3) business days after the
receipt of the National Shareholder Approval (the "Closing Date").
11.2 On the Closing Date, the Property Partnerships, at their sole cost and
expense, will deliver or cause to be delivered to PRLP the following documents,
fully executed by all parties thereto other than PRLP or parties claiming by,
through or under PRLP:
(a) With respect to the Asset Contributing Property Partnerships,
Bargain and Sale Deeds or similar type deeds in the appropriate
jurisdictions (collectively, the "Property Partnerships' Deeds") with
covenant in proper statutory form for recording so as to convey to PRLP
good and marketable title to the Property Partnerships' Land, free and
clear of all liens and encumbrances, except the Permitted Encumbrances. The
delivery of each Property Partnerships' Deed shall also be deemed to
constitute a transfer of the Property Partnerships' Personal Property
associated with the Property Partnerships' Land conveyed by the Property
Partnerships' Deed; the delivery of all of the Property Partnerships' Deeds
shall be deemed to constitute a transfer of the balance of the Property
Partnerships' Personal Property to PRLP. No portion of the fair market
value is attributable to the Property Partnerships' Personal Property.
(b) All original Property Partnerships' Leases and all other documents
pertaining thereto, and certified copies of such the Property Partnerships'
Leases or other
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documents where the Property Partnership, using its best efforts, is unable
to deliver originals of same.
(c) All other original documents or instruments referred to herein,
including without limitation the Property Partnerships' Service Contracts,
the Property Partnerships' Licenses and Permits and the Property
Partnerships' Documents, and certified copies of same where the Property
Partnership, using its best efforts, is unable to deliver originals.
(d) A letter to Tenants advising the Tenants of the transaction
hereunder and directing that rent and other payments thereafter be sent to
PRLP or its designee, as PRLP shall so direct.
(e) Duly executed and acknowledged assignment and assumption of all
the Property Partnerships' Leases, the Property Partnerships' Rents and the
Property Partnerships' Security Deposits substantially in the form to be
agreed to by the Parties.
(f) Duly executed and acknowledged Omnibus Assignment.
(g) An affidavit, and such other document or instruments required by
the Title Company, executed by the Property Partnerships certifying (i)
against any work done or supplies delivered to the Property Partnerships'
Real Property which might be grounds for a materialman's or mechanic's lien
under or pursuant to applicable Lien Law, in form sufficient to enable the
Title Company to affirmatively insure PRLP against any such lien, (ii) that
the signatures on the Deed are sufficient to bind the Property Partnerships
and convey the Property Partnerships' Property to PRLP and (iii) the
Property Partnerships' Rent Roll.
(h) Affidavits and other instruments, including but not limited to all
organizational documents of the Property Partnerships and the Property
Partnerships' general partner or manager, as applicable, including
operating agreements, filed copies of limited liability certificates,
articles of organization, and good standing certificates, reasonably
requested by PRLP and the Title Company evidencing the power and authority
of the Property Partnerships to enter into this Agreement and any documents
to be delivered hereunder, and the enforceability of same.
(i) The original Estoppel Certificates required hereunder relating to
the Property Partnerships' Real Property.
(j) A list of all cash security deposits and all non-cash security
deposits (including letters of credit) delivered by Tenants under the
Property Partnerships' Leases, together with other instruments of
assignment, transfer or consent as may be necessary to permit PRLP to
realize upon same.
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(k) A certificate indicating that the representations and warranties
of the Property Partnerships made in this Agreement are true and correct in
all material respects as of the Closing Date, or if there have been any
changes, a description thereof.
(l) A Rent Roll for each Real Property, current as of the Closing
Date, certified by the Property Partnerships as being true and correct in
all material respects.
(m) All proper instruments as shall be reasonably required for the
conveyance to PRLP of all right, title and interest, if any, of the
Property Partnerships in and to any award or payment made, or to be made,
(i) for any taking in condemnation, eminent domain or agreement in lieu
thereof of land adjoining all or any part of the Property Partnerships'
Improvements, (ii) for damage to the Property Partnerships' Land or the
Property Partnerships' Improvements or any part thereof by reason of change
of grade or closing of any such street, road, highway or avenue, and (z)
for any taking in condemnation or eminent domain of any part of the
Property Partnerships' Land or the Property Partnerships' Improvements.
(n) In order to avoid the imposition of the withholding tax payment
pursuant to Section 1445 of the Code, a certificate signed by an officer of
the Property Partnerships to the effect that the Property Partnerships is
not a "foreign person" as that term is defined in Section 1445(f)(3) of the
Code.
(o) All such transfer and other tax declarations and returns and
information returns, duly executed and sworn to by the Property
Partnerships as may be required of the Property Partnerships by law in
connection with the conveyance of the Property Partnerships' Property to
PRLP, including but not limited to, Internal Revenue Service forms.
(p) A statement setting forth all adjustments and prorations.
(q) A Tradenames Assignment Agreement substantially in the form
previously agreed to by the parties.
(r) Deleted prior to execution.
(s) Deleted prior to execution.
(t) Waivers of rights of first refusal, or evidence of the lapse of
said rights, in form reasonable satisfactory to PRLP, with respect to any
of the Property Partnerships' Property which is subject to said rights.
(u) To the extent not previously delivered, the Property Financials
for the years ending December 31, 1994, 1995, 1996 and for the period
commencing January 1, 1997 to the Closing except to the extent a Property
was acquired after such date, certified by an officer, general partner or
member of the Property Partnerships.
(v) Evidence of compliance with the Connecticut Transfer Act.
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(w) Duly executed counterpart of the PRLP Agreement, executed by the
Property Partnerships' Unit Holders.
(x) Duly executed counterpart of the Registration Rights Agreements,
executed by the Property Partnerships' Unit Holders.
(y) Such other documents as may be reasonably required or appropriate
to effectuate the consummation of the transactions contemplated by this
Agreement.
11.3 On the Closing Date, National will deliver or cause to be delivered to
New Reit the following documents, fully executed by all parties thereto other
than New Reit or parties claiming by, through or under New Reit:
(a) Special Warranty Deed with covenant in proper statutory form for
recording so as to convey to New Reit or its designee good and marketable
title to the National Land, free and clear of all liens and encumbrances,
except the Permitted Encumbrances. The delivery of the Deed shall also be
deemed to constitute a transfer of the National Personal Property
associated with the National Land conveyed by the National Deed; the
delivery of the National Deed shall be deemed to constitute a transfer of
the balance of the National Personal Property to New Reit. No portion of
the fair market value is attributable to the National Personal Property.
(b) All original National Leases and all other documents pertaining
thereto, and certified copies of such National Leases or other documents
where National, using its best efforts, is unable to deliver originals of
same.
(c) All other original documents or instruments referred to herein,
including without limitation the National Service Contracts, National
Licenses and Permits and National Documents, and certified copies of same
where National, using its best efforts, is unable to deliver originals.
(d) A letter to Tenants advising the Tenants of the transaction
hereunder and directing that rent and other payments thereafter be sent to
New Reit or its designee, as New Reit shall so direct.
(e) Duly executed and acknowledged assignment and assumption of all
National Leases, National Rents and National Security Deposits
substantially in the form to be agreed to by the parties.
(f) Duly executed and acknowledged Omnibus Assignment.
(g) An affidavit, and such other document or instruments required by
the Title Company, executed by National certifying (i) against any work
done or supplies delivered to the National Real Property which might be
grounds for a materialman's or
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mechanic's lien under or pursuant to applicable Florida law, in form
sufficient to enable the Title Company to affirmatively insure PRLP against
any such lien, (ii) that the signatures on the Deed are sufficient to bind
National and convey the National Property to New Reit and (iii) the
National Rent Roll.
(h) Affidavits and other instruments, including but not limited to all
organizational documents of National, as applicable, including articles of
incorporation, by-laws, and good standing certificates, reasonably
requested by New Reit and the Title Company evidencing the power and
authority of National to enter into this Agreement and any documents to be
delivered hereunder, and the enforceability of same.
(i) The original Estoppel Certificates relating to the National Real
Property.
(j) A list of all cash security deposits and all non-cash security
deposits (including letters of credit) delivered by Tenants under the
National Leases, together with other instruments of assignment, transfer or
consent as may be necessary to permit New Reit to realize upon same.
(k) A certificate indicating that the representations and warranties
of National made in this Agreement are true and correct in all material
respects as of the Closing Date, or if there have been any changes, a
description thereof.
(l) A Rent Roll for each Real Property, current as of the Closing
Date, certified by National as being true and correct in all material
respects.
(m) All proper instruments as shall be reasonably required for the
conveyance to New Reit of all right, title and interest, if any, of
National in and to any award or payment made, or to be made, (i) for any
taking in condemnation, eminent domain or agreement in lieu thereof of land
adjoining all or any part of the National Improvements, (ii) for damage to
the National Land or the National Improvements or any part thereof by
reason of change of grade or closing of any such street, road, highway or
avenue, and (z) for any taking in condemnation or eminent domain of any
part of the National Land or National Improvements.
(n) In order to avoid the imposition of the withholding tax payment
pursuant to Section 1445 of the Code, a certificate signed by an officer of
National to the effect that National is not a "foreign person" as that term
is defined in Section 1445(f)(3) of the Code.
(o) All such transfer and other tax declarations and returns and
information returns, duly executed and sworn to by National as may be
required of National by law in connection with the conveyance of the
National Property to New Reit, including but not limited to, Internal
Revenue Service forms.
(p) A statement setting forth all adjustments and prorations.
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(q) A Tradenames Assignment Agreement substantially in the form
previously agreed to by the parties.
(r) Legal opinion of Bingham, Dana & Gould, counsel to National, in
form satisfactory to New Reit for the benefit of New Reit and PRLP.
(s) Deleted prior to execution.
(t) Waivers of rights of first refusal, or evidence of the lapse of
said rights, in form reasonable satisfactory to New Reit, with respect to
any of the National Property which is subject to said rights.
(u) To the extent not previously delivered, the Property Financials
for the years ending December 31, 1994, 1995, 1996 and for the period
commencing January 1, 1997 to the Closing, certified by the chief financial
officer of National.
(v) Such other documents as may be reasonably required or appropriate
to effectuate the consummation of the transactions contemplated by this
Agreement.
11.4 On the Closing Date, PRLP its sole cost and expense, will deliver or
cause to be delivered to the Parties the following documents, fully executed by
all parties thereto other than the Parties or parties claiming by, through or
under the Parties:
(a) The Property Partnership Certificates.
(b) Duly executed and acknowledged assignment and assumption of all
Leases, Rents and Security Deposits.
(c) Duly executed and acknowledged Omnibus Assignment.
(d) A certificate indicating that the representations and warranties
of PRLP made in this Agreement are true and correct as of the Closing Date,
or if there have been any changes, a description thereof.
(e) Affidavits and other instruments, including but not limited to all
organizational documents of PRLP including limited partnership agreements,
filed copies of limited partnership certificates, articles of organization,
and good standing certificates, reasonably requested by the Property
Partnerships and National evidencing the power and authority of PRLP to
enter into this Agreement and any documents to be delivered hereunder, and
the enforceability of same.
(f) Duly executed counterpart of PRLP Agreement.
(g) Duly executed counterpart of Management Agreement.
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(h) Duly executed counterpart of Non-Competition Agreement.
(i) Duly executed counterpart of Interest Assignments with respect to
each of the Partners.
(j) Such other documents as may be reasonably required or appropriate
to effectuate the consummation of the transactions contemplated by this
Agreement.
11.5 On the Closing Date, New Reit, at its sole cost and expense, will
deliver or cause to be delivered to PRLP the following documents, fully executed
by all parties thereto other than PRLP or parties claiming by, through or under
PRLP:
(a) Duly executed counterpart of the PRLP Agreement.
(b) Duly executed counterpart of the Registration Rights Agreements.
(c) Duly executed counterpart of Non-Competition Agreement.
(d) Duly executed counterpart of Management Agreement.
(e) Duly executed Prudential Note.
(f) Either the Special Warranty Deed set forth in Section 11.3(a)
designating PRLP as transferee or Quitclaim Deed in proper statutory form
for recording so as to convey to PRLP title to the National Land, free and
clear of all liens and encumbrances, except the Permitted Encumbrances. The
delivery of the Special Warranty Deed or Quitclaim Deed shall also be
deemed to constitute a transfer of the National Personal Property
associated with the National Land conveyed by the National Deed; the
delivery of the Special Warranty Deed or Quitclaim Deed shall be deemed to
constitute a transfer of the balance of the National Personal Property to
PRLP. No portion of the fair market value is attributable to the National
Personal Property.
(g) All original National Leases and all other documents pertaining
thereto, and certified copies of such National Leases or other documents
where National, using its best efforts, is unable to deliver originals of
same.
(h) All other original documents or instruments referred to herein,
including without limitation the National Service Contracts, National
Licenses and Permits and National Documents, and certified copies of same
where National, using its best efforts, is unable to deliver originals.
(i) A letter to Tenants advising the Tenants of the transaction
hereunder and directing that rent and other payments thereafter be sent to
PRLP or its designee, as PRLP shall so direct.
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(j) Duly executed and acknowledged assignment and assumption of all
National Leases, National Rents and National Security Deposits
substantially in the form to be agreed to by the parties.
(k) Duly executed and acknowledged Omnibus Assignment.
(l) An affidavit, and such other document or instruments required by
the Title Company, executed by New Reit certifying that the signatures on
the Deed are sufficient to bind New Reit and convey the National Property
to PRLP.
(m) Affidavits and other instruments, including but not limited to all
organizational documents of New Reit, as applicable, including articles of
incorporation, by-laws, and good standing certificates, reasonably
requested by PRLP and the Title Company evidencing the power and authority
of New Reit to enter into this Agreement and any documents to be delivered
hereunder, and the enforceability of same.
(n) The original Estoppel Certificates relating to the National Real
Property.
(o) A list of all cash security deposits and all non-cash security
deposits (including letters of credit) delivered by Tenants under the
National Leases, together with other instruments of assignment, transfer or
consent as may be necessary to permit PRLP to realize upon same.
(p) A Rent Roll for each Real Property, current as of the Closing
Date, certified by National as being true and correct in all material
respects.
(q) All proper instruments as shall be reasonably required for the
conveyance to PRLP of all right, title and interest, if any, of New Reit in
and to any award or payment made, or to be made, (i) for any taking in
condemnation, eminent domain or agreement in lieu thereof of land adjoining
all or any part of the National Improvements, (ii) for damage to the
National Land or the National Improvements or any part thereof by reason of
change of grade or closing of any such street, road, highway or avenue, and
(z) for any taking in condemnation or eminent domain of any part of the
National Land or National Improvements.
(r) In order to avoid the imposition of the withholding tax payment
pursuant to Section 1445 of the Code, a certificate signed by an officer of
New Reit to the effect that New Reit is not a "foreign person" as that term
is defined in Section 1445(f)(3) of the Code.
(s) All such transfer and other tax declarations and returns and
information returns, duly executed and sworn to by New Reit as may be
required of New Reit by law in connection with the conveyance of the
National Property to PRLP, including but not limited to, Internal Revenue
Service forms.
(t) A statement setting forth all adjustments and prorations.
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(u) A Tradenames Assignment Agreement substantially in the form
previously agreed to by the parties.
(v) Deleted prior to execution.
(w) Waivers of rights of first refusal, or evidence of the lapse of
said rights, in form reasonable satisfactory to PRLP, with respect to any
of the National Property which is subject to said rights.
(x) Such other documents as may be reasonably required or appropriate
to effectuate the consummation of the transactions contemplated by this
Agreement.
11.6 On the Closing Date, New Reit, at its sole cost and expense, will
deliver or cause to be delivered to National the following documents, fully
executed by all parties thereto other than National or parties claiming by,
through or under National:
(a) The Trustees Warrants.
(b) The National Shares.
(c) The Trustees Shares.
(d) Legal opinion of Pryor, Cashman, Sherman & Flynn, counsel to New
Reit, in form satisfactory to National for the benefit of National.
(e) The New Reit Indemnity.
(f) Such other documents as may be reasonably required or appropriate
to effectuate the consummation of the transactions contemplated by this
Agreement.
11.7 On the Closing Date, each of the Partners, at their sole cost and
expense, will deliver or cause to be delivered to PRLP the following documents,
fully executed by all parties thereto other than PRLP or parties claiming by,
through or under PRLP:
(a) A duly executed counterpart of its Interest Assignment.
(b) A FIRPTA Affidavit.
(c) A duly executed counterpart of its Registration Rights Agreement.
(d) Such other documents as may be reasonably required or appropriate
to effectuate the consummation of the transactions contemplated by this
Agreement.
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11.8 All transfer taxes and expenses on the Deeds and any state or county
documentary stamps or transfer taxes on the Deeds shall be paid by the party
transferring the Real Property which is the subject of each Deed. Said party
shall also pay all customary recordation charges, clerk's fees, taxes, transfer
and recording charges. PRLP shall pay all title insurance premiums, title
examination fees and survey costs. Each party shall be responsible for its own
attorney's fees, except as otherwise expressly provided herein. The provisions
of this Section 11.8 shall survive the Closing.
11.9 The Closing shall be consummated without compliance with bulk sales
laws. If by reason of any applicable bulk sales law, any claims are asserted by
creditors of any of the Parties related to periods prior to the Closing, such
claims shall be the responsibility of such Party, and such Party shall
indemnify, defend and hold harmless PRLP (and their respective directors,
officers, employees, affiliates, successors and assigns) from and against all
losses or liabilities, if any, based upon, arising out of or otherwise in
respect of the failure to comply with such bulk sales laws.
11.10 (a) PRLP acknowledges and agree that, except as set forth in this
Agreement, PRLP is acquiring the Property in its "as is" condition "subject to
all faults" and specifically and expressly without any warranties,
representations or guarantees, either express or implied, of any kind, nature,
or type whatsoever from or on behalf of the Property Partnerships or National.
PRLP acknowledges that, except as set forth in this Agreement, and except for
documents, reports and information related to the environmental integrity of the
Real Property, PRLP has not relied and is not relying on any information,
document, reports, sales brochure or other literature, maps or sketches,
financial information, projections, proformas or statements, that may have been
given by or made by or on behalf of the Property Partnerships or National. PRLP
further acknowledges that, except as otherwise set forth herein, all materials
relating to the Property which have been provided by the Property Partnerships
or National have been provided without any warranty or representation, expressed
or implied as to their content, suitability for any purpose, accuracy,
truthfulness or completeness and PRLP shall not have any recourse against the
Property Partnerships, National or their counsel, advisors, agents, officers,
directors or employees for any information in the event of any errors therein or
omissions therefrom.
(b) PRLP hereby acknowledges and agrees that, except as set forth herein,
it is not entitled to, and does not, rely on the Property Partnerships or
National or its agents as to (i) the quality, nature, adequacy or physical
condition, whether latent or patent, of the Property including, but not limited
to, the structural elements, foundation, roof, appurtenances, access,
landscaping parking facilities or the electrical, mechanical, HVAC, plumbing,
sewage or utility system, facilities or appliances at or in connection with the
Real Property, if any; (ii) the existence, quality, nature, adequacy, physical
condition, or location of any utilities serving the Real Property; (iii) the
development potential of the Real Property, its habitability, merchantability or
fitness, suitability or adequacy of the Property for any particular purpose;
(iv) the zoning or other legal status of the Real Property or the potential use
of the Property; (v) the Real Property's or its operations' compliance with any
applicable codes, laws, building codes, fire codes, regulations, statutes,
ordinances, covenants, conditions or restrictions of, or agreements with any
governmental or quasi-governmental entity or of any other person or
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entity; (vi) the quality of any labor or materials relating in any way to the
Real Property; or (vii) the condition of title to the Real Property or the
nature, status and extent of any right, encumbrance, license, reservation,
covenant, condition, restriction or any other matter affecting title to the Real
Property.
12. ADJUSTMENTS.
12.1 The following items under (a) through (g) with respect to the Real
Property are to be apportioned as of midnight on the date preceding the Closing:
(a) Rents, escalation charges and percentage rents payable by Tenants
as and when collected. All moneys received from Tenants from and after the
Closing shall belong to PRLP and shall be applied by PRLP to current rents
and other charges under the Leases. After application of such moneys to
current rents and charges, PRLP agrees to adjust the number of Units to be
received by the transferor of each Real Property to reflect any excess
amounts paid by a Tenant of such Real Property to the extent that such
Tenant was in arrears in the payment of rent prior to the Closing, but
subject to the provisions of Section 12.2 with respect to Additional Rents.
(b) Upon sufficient advance notice, a cashier's or certified check or
wire transfer to the order of PRLP in the amount of all cash Security
Deposits and any prepaid rents, together with interest required to be paid
thereon.
(c) Utility charges payable by the transferors of the Real Property,
including, without limitation, electricity, water charges and sewer
charges. If there are meters on the Real Property, the transferor of each
Real Property will cause readings of all said meters to be performed not
more than ten (10) days prior to the Closing Date. To the extent said
meters are not read prior to Closing, PRLP will cause same to be read
promptly thereafter and a pro-rata adjustment shall be made upon said
reading.
(d) Amounts payable under the Service Contracts other than those
Service Contracts which PRLP has elected not to assume.
(e) Real estate taxes due and payable for the calendar year or fiscal
year, as applicable. If the Closing Date shall occur before the tax rate is
fixed, the apportionment of real estate taxes shall be upon the basis of
the tax rate for the preceding year applied to the latest assessed
valuation. If subsequent to the Closing Date, real estate taxes (by reason
of change in either assessment or rate or for any other reason) for the
Real Property should be determined to be higher or lower than those that
are apportioned, a new computation shall be made, and the transferor of
each Real Property agrees to pay PRLP any increase shown by such
recomputation and vice versa.
(f) The value of fuel stored at any of the Real Property, at said Real
Property owner's most recent cost, including taxes, on the basis of a
reading made within fifteen
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(15) days prior to the Closing by said Real Property owner's supplier. To
the extent said reading is not made prior to Closing, PRLP will cause same
to be read promptly thereafter and a pro-rata adjustment shall be made upon
said reading.
(g) Such other items as may be agreed to by the parties.
12.2 Promptly following request by PRLP, each of the transferors shall
deliver to PRLP a list of additional rent, however characterized, under a Lease
at its Real Property, including without limitation, real estate taxes,
electrical charges, utility costs and operating expenses (collectively,
"Additional Rents") billed to Tenants and accruing after the Closing Date (both
on a monthly basis and in the aggregate), the basis for which the monthly
amounts are being billed and the amounts incurred by such transferor on account
of the components of Additional Rent for calendar year 1997. PRLP shall be
entitled to all monies and payments on account of Additional Rents accruing
after the Closing Date and same shall be reflected by an adjustment in the
number of Units to be received by each transferor.
12.3 If, on the Closing Date, any Property or any part thereof shall be or
shall have been affected by an assessment or assessments which are or may become
payable in annual installments, all the unpaid installments of any such
assessment due and payable on or prior to the Closing Date shall be paid and
discharged by the party transferring such Property.
12.4 Notwithstanding anything to the contrary contained herein, (a) any
amounts to be apportioned pursuant to this Section 12 in favor of National shall
be distributed among the Property Partnerships pari passu in reimbursement of
Expenses; and (b) any amounts to be apportioned pursuant to this Section 12
between the Property Partnerships and PRLP shall be reflected in the allocation
of Units to be held by the Property Partnerships' Unit Holders as set forth in
Schedule 2.3(a).
12.5 The Property Partnerships shall receive a cash reimbursement from PRLP
for certain capital expenditures made within the twenty-four (24) month period
prior to the Closing, which reimbursements as of July 31, 1997 are as set forth
on Schedule 12.5.
12.6 Except as otherwise provided in this Agreement, the adjustments shall
be made in accordance with the customs in respect to title closings in the State
of New York.
12.7 Any errors in calculations or adjustments shall be corrected or
adjusted as soon as practicable after the Closing.
12.8 The provisions of this Section 12 shall survive the Closing Date.
13. CONDITIONS PRECEDENT TO CLOSING.
13.1 The obligations of the Asset Contributing Property Partnerships to
deliver title to the Property Partnerships' Real Property and the obligations of
the Partners to contribute
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its interests in the Interest Contributing Property Partnerships as set forth in
Section 1.3, and to perform the other covenants and obligations to be performed
by the Property Partnerships or the Partners on the Closing Date shall be
subject to the following conditions (all or any of which may be waived, in whole
or in part, by the Property Partnerships or the Partners):
(a) The representations and warranties made by National, New Reit and
PRLP herein shall be true and correct in all material respects with the
same force and effect as though such representations and warranties had
been made on and as of the Closing Date; provided, however, that a failure
of any representations or warranties to be true and correct in all material
respects shall not give rise to a claim by the Property Partnerships
hereunder so long as such matters do not have a material adverse effect on
the transactions contemplated herein.
(b) National, New Reit and PRLP shall have executed and delivered to
the Property Partnerships all of the documents provided herein for said
delivery, including without limitation, the Registration Rights Agreement
and the PRLP Agreement.
(c) National, New Reit and PRLP shall have performed all covenants and
obligations undertaken by National, New Reit and PRLP herein in all
respects and complied with all conditions required by this Agreement to be
performed or complied with by them on or before the Closing Date.
(d) National shall have elected to be taxed as a REIT in its most
recent federal income tax return, and shall be in compliance with all
applicable laws, rules and regulations, including the Code, necessary to
permit it to be taxed as a REIT. National shall not have taken any action
or have failed to take any action which would reasonably be expected to,
alone or in conjunction with any other factors, result in the loss of its
status as a REIT for federal income tax purposes.
(e) The National Shareholder Approval shall have been obtained.
13.2 The obligations of National to deliver title to the National Real
Property and to perform the other covenants and obligations to be performed by
National on the Closing Date shall be subject to the following conditions (all
or any of which may be waived, in whole or in part, by National):
(a) The representations and warranties made by the Property
Partnerships, New Reit, the Partners and PRLP herein shall be true and
correct in all material respects with the same force and effect as though
such representations and warranties had been made on and as of the Closing
Date; provided, however, that a failure of any representations or
warranties to be true and correct in all material respects shall not give
rise to a claim by National hereunder so long as such matters do not have a
material adverse effect on the Property Partnerships as a whole.
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(b) The Property Partnerships, New Reit and PRLP shall have executed
and delivered to National all of the documents provided herein for said
delivery on or prior to Closing.
(c) The Property Partnerships, the Partners, New Reit and PRLP shall
have performed all covenants and obligations undertaken by the Property
Partnerships, New Reit, the Partners and PRLP herein in all material
respects and complied in all material respects with all conditions required
by this Agreement to be performed or complied with by them on or before the
Closing Date.
(d) The National Shareholder Approval shall have been obtained.
(e) No governmental entity or federal or state court shall have issued
any injunction or other order which restrains or prohibits the consummation
of the transactions contemplated hereby.
(f) The Registration Statement shall have been declared effective by
the Securities and Exchange Commission and no stop order suspending the
effectiveness of the Registration Statement shall have been issued under
the Act and no proceedings therefor shall have been initiated or threatened
by the Securities and Exchange Commission.
(g) Prudential Securities Incorporated, or another investment banking
firm reasonably acceptable to PRLP, shall have issued an opinion to the
effect that the consideration to be paid to National for the National
Property is fair to National from a financial point of view.
(h) The Expenses shall have been paid by the Property Partnerships.
13.3 The obligations of PRLP to accept title to the Property and PRLP's
obligation to perform the other covenants and obligations to be performed by
PRLP on the Closing Date shall be subject to the following conditions (all or
any of which may be waived, in whole or in part, by PRLP):
(a) The representations and warranties made by the Property
Partnerships, the Partners, New Reit and National herein shall be true and
correct in all material respects with the same force and effect as though
such representations and warranties had been made on and as of the Closing
Date; provided, however, that a failure of a representation or warranty to
be true and correct in all material respects shall not give rise to a claim
by PRLP hereunder so long as such matters do not have a material adverse
effect on the transactions contemplated herein.
(b) The Property Partnerships, the Partners, New Reit and National,
respectively, shall each have performed all covenants and obligations
undertaken by them herein in all material respects and complied in all
material respects with all conditions required by this Agreement to be
performed or complied with by it on or before the Closing Date.
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(c) The Title Company is unconditionally prepared to issue to New Reit
and PRLP a Title Policy meeting the requirements set forth in Section 4
hereof for an "insurable title".
(d) All rights of first refusals with respect to the Property shall
have been waived, either pursuant to a specific waiver executed by the
beneficiary thereof or by the lapse of time as provided in the instrument
setting forth such right. If the waiver is based upon the lapse of time,
the transferor of said Property shall certify compliance with the relevant
instrument.
(e) The Property Partnerships, the Partners and National shall have
executed and delivered to PRLP all of the documents, assignments, approvals
and consents provided for herein for said delivery.
(f) The National Shareholder Approval shall have been obtained.
(g) No governmental entity or federal or state court shall have issued
any injunction or other order which restrains or prohibits the consummation
of the transactions contemplated hereby.
(h) All authorizations, waivers or consents required to be obtained in
order to consummate the transactions contemplated hereby shall have been
obtained.
(i) The Registration Statement shall have been declared effective by
the Securities and Exchange Commission and no stop order suspending the
effectiveness of the Registration Statement shall have been issued under
the Act and no proceedings therefor shall have been initiated or threatened
by the Securities and Exchange Commission.
(j) Prudential Securities Incorporated, or another investment banking
firm reasonably acceptable to PRLP, shall have issued an opinion to the
effect that the consideration to be paid to National for the National
Property is fair to National from a financial point of view.
13.4 The obligations of New Reit to accept title to the National Property
and to perform the covenants and obligations to be performed by New Reit on the
Closing Date shall be subject to the following conditions (all or any of which
may be waived, in whole or in part, by New Reit):
(a) The National Shareholder Approval shall have been obtained.
(b) No governmental entity or federal or state court shall have issued
any injunction or other order which restrains or prohibits the consummation
of the transactions contemplated hereby.
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(c) All authorizations, waivers or consents required to be obtained in
order to consummate the transactions contemplated hereby shall have been
obtained.
(d) The Registration Statement shall have been declared effective by
the Securities and Exchange Commission and no stop order suspending the
effectiveness of the Registration Statement shall have been issued under
the Act and no proceedings therefor shall have been initiated or threatened
by the Securities and Exchange Commission.
(e) The representations and warranties made by the Property
Partnerships, the Partners, National and PRLP herein shall be true and
correct in all material respects with the same force and effect as though
such representations and warranties had been made on and as of the Closing
Date; provided, however, that a failure of any representations or
warranties to be true and correct in all material respects shall not give
rise to a claim by New Reit hereunder so long as such matters do not have a
material adverse effect on the transactions contemplated herein.
(f) The Property Partnerships, the Parties, National and PRLP,
respectively, shall each have performed all covenants and obligations
undertaken by them herein in all material respects and complied in all
material respects with all conditions required by this Agreement to be
performed or complied with by them on or before the Closing Date.
(g) Prudential Securities Incorporated, or another investment banking
firm reasonably acceptable to New Reit, shall have issued an opinion to the
effect that the consideration to be paid to National for the National
Property is fair to National from a financial point of view.
14. LEASING COMMISSIONS AND TENANT IMPROVEMENT OBLIGATIONS.
14.1 All leasing commissions and tenant improvement obligations for which
PRLP shall receive a credit at Closing (which shall be set forth on a schedule
to be annexed to the schedule of adjustments and prorations done at Closing),
and all leasing commissions and tenant improvement obligations on account of
extensions, renewals or amendments (including expansions) of Leases made after
the Closing (other than commissions and tenant improvement obligations due on
account of the leases described on Schedules 5.1(c) and 6.1(o)-2 for which PRLP
does not receive a credit at Closing) shall be the responsibility of PRLP. All
leasing commissions due on account of the original term of all Leases made
before the date of this Agreement and extensions and renewals which are
presently effective, tenant improvement obligations which were to have been
performed, completed or paid for prior to the Closing, and commissions and
tenant improvement obligations due on account of the leases described on
Schedules 5.1(c) and 6.1(o)-2, in each instance for which PRLP does not receive
a credit at Closing, shall be the obligation of the Party transferring title to
the related Real Property.
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14.2 The parties hereto agree to proceed in good faith in establishing all
of the amounts to be adjusted pursuant to Section 14.1, including the cost of
all tenant improvement obligations with respect to the Property which were to
have been performed, completed and paid for prior to the Closing and the cost of
the tenant improvement obligations for the leases described on Schedules 5.1(c)
and 6.1(o)-2.
14.3 The provisions of this Section 14 shall survive the Closing.
15. ASSIGNMENT.
This Agreement may not be assigned by PRLP except to a directly or
indirectly wholly-owned subsidiary or subsidiaries of PRLP, or to a partnership
in which any such wholly-owned subsidiary or subsidiaries owns, either directly
or indirectly, one hundred (100%) percent of the profits, losses and cash flow
thereof and controls the management of the affairs of such partnership (any such
entity, a "Permitted Assignee") and any other assignment or attempted assignment
by PRLP shall constitute a default by PRLP hereunder and shall be deemed null
and void and of no force and effect. Notwithstanding anything to the contrary
contained herein, PRLP may assign the right to purchase individual portions of
the Property to various entities provided that each of such entities is a
Permitted Assignee. A copy of any assignment permitted hereunder, together with
an agreement of the assignee assuming all of the terms and conditions of this
Agreement to be performed by PRLP with respect to the portion of the applicable
Real Property, in form reasonably satisfactory to counsel for the Property
Partnerships and National shall be delivered to the attorneys for the Property
Partnerships and National prior to the Closing, and in any event no such
assignment shall relieve PRLP from their obligations under this Agreement.
16. BROKER.
16.1 The Property Partnerships, National, New Reit and PRLP represent that
they have not dealt with any brokers, finders or salesmen, in connection with
this transaction, except that certain fees shall be payable by PRLP to
Prudential Securities Incorporated, as financial advisors to National at
Closing. The Property Partnerships, National, New Reit, and PRLP agree to
indemnify, defend and hold each other harmless from and against any and all
loss, cost, damage, liability or expense, including reasonable attorneys' fees,
which they may sustain, incur or be exposed to by reason of any claim for fees
or commissions, other than Prudential Securities Incorporated. The provisions of
this Section shall survive the Closing or other termination of this Agreement.
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17. CASUALTY LOSS.
17.1 Each Party shall continue to maintain, in all material respects, the
fire and extended coverage insurance policies with respect to its Property (the
"Insurance Policies") which are currently in effect, through the date that said
coverage currently expires or the Closing, whichever is later, which obligation
shall survive the Closing.
17.2 If at any time prior to the Closing Date all or any portion of its
Property is destroyed or damaged as a result of fire or any other casualty (a
"Casualty"), the Property Partnerships shall promptly give written notice
("Casualty Notice") thereof to National and PRLP. National and PRLP shall not
have the right to terminate this Agreement, unless (a) the Casualty gives rise
to a material adverse change in the Property Partnerships taken as a whole; and
(b) in the Property Partnerships' reasonable determination, the Casualty can not
be repaired prior to Closing.
17.3 If at any time prior to the Closing Date all or any portion of the
National Property is destroyed or damaged as a result of a Casualty, National
shall promptly give a Casualty Notice thereof to the Property Partnerships and
PRLP. The Property Partnerships and PRLP shall not have the right to terminate
this Agreement, provided that there is no liability to PRLP as a result of the
Casualty.
17.4 If a Property is the subject of a Casualty but this Agreement is not
terminated pursuant to the provisions of this Section, then the Party owning the
Property shall prior to the Closing Date cause all temporary repairs to be made
to the Property as shall be required to prevent further deterioration and damage
to the Property and to protect public health and safety, provided, the cost of
any such repairs shall not exceed the amount of proceeds made available to said
Party. Said Party shall have the right to be reimbursed from the proceeds of any
insurance with respect to the Property for the cost of such temporary repairs.
18. CONDEMNATION.
18.1 In the event that a material portion of the Property Partnerships'
Property is the subject of any proceedings, judicial, administrative or
otherwise, giving rise to a material adverse change in the Property Partnerships
taken as a whole, then PRLP or National shall have the right, at their sole
option, to either (a) terminate this Agreement by giving the Property
Partnerships written notice to such effect at any time after its receipt of
written notification of any such occurrence, or (b) accept title to the
remainder of the Property without reduction of any consideration given
hereunder. Should PRLP or National so terminate this Agreement in accordance
with this Section, the Parties and PRLP shall not have any further liability or
obligations to the other. In the event PRLP and National shall not elect to
cancel this Agreement, the owner of the subject Property shall, subject to the
rights of the holder of any existing mortgage, assign all proceeds of such
taking to PRLP, and same shall be PRLP's sole property, and PRLP shall have the
sole right to settle any claim in connection with the Property.
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18.2 In the event that the National Property is the subject of any
proceedings, judicial, administrative or otherwise, PRLP and the Property
Partnerships shall have the right, at their sole option, to either (a) terminate
this Agreement by giving the National written notice to such effect at any time
after its receipt of written notification of any such occurrence, or (b) accept
title to the remainder of the Property without reduction of any consideration
given hereunder. Should PRLP or the Property Partnerships so terminate this
Agreement in accordance with this Section, the Parties and PRLP shall have any
further liability or obligations to the other. In the event PRLP and the
Property Partnerships shall not elect to cancel this Agreement, the owner of the
subject Property shall, subject to the rights of the holder of any existing
mortgage, assign all proceeds of such taking to PRLP, and same shall be PRLP's
sole property, and PRLP shall have the sole right to settle any claim in
connection with the Property.
19. TRANSFER RESTRICTIONS
19.1 The Property Partnerships hereby agree that the Property Partnerships'
Units may not be sold, assigned, transferred, pledged, encumbered or in any
manner disposed of (collectively, "Transferred") or redeemed for shares of
Common Stock except in accordance with the terms of the PRLP Agreement.
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20. LIMITED GUARANTY
In order to allow Property Partnerships' Unit Holders to defer the
recognition of gain for Federal income tax purposes resulting from the
contribution of property to PRLP, at Closing, or at any time subsequent thereto
in accordance with the terms hereof, PRLP and its affiliates will permit the
Property Partnerships' Unit Holders to execute a deficit restoration obligation
with PRLP or to guarantee or indemnify PRLP or New Reit for, the "bottom
portion" (i.e., the least risky portion) of any debt incurred by PRLP, New Reit
and their Subsidiaries and affiliates (together with Permitted Assignees). The
individual members of the Property Partnerships' Unit Holders shall be entitled
to guarantee or indemnify a portion of the aggregate amount of liabilities of
PRLP, New Reit and their Subsidiaries and affiliates (together with Permitted
Assignees), to the extent that debt is available, pro rata, in pari passu, to
the aggregate amounts required by all of such members to defer recognition of
gain for federal income tax purposes resulting from the contribution of property
to PRLP. PRLP, New Reit and their Subsidiaries and affiliates (together with
Permitted Assignees) agree, to the extent possible, to maintain an amount of
liabilities of PRLP, New Reit and their Subsidiaries and affiliates (together
with Permitted Assignees) for the Property Partnerships' Unit Holders to
guarantee or indemnify, as the case may be, in order to allow the Property
Partnerships' Unit Holders to continue to defer recognition of gain for Federal
income tax purposes. Notwithstanding the foregoing, it is expressly understood
and agreed that PRLP, New Reit and their Subsidiaries and affiliates (together
with Permitted Assignees) are under no obligation to incur or maintain a
specific amount of liabilities. PRLP and New Reit agree to take any and all
action reasonably necessary so that the execution of each guarantee or indemnity
by the Property Partnerships' Unit Holders results in basis for the Property
Partnerships' Unit Holders for Federal income tax purposes.
21. TAX MATTERS.
21.1 The Property Partnerships and National will pay or provide for payment
of all Taxes due and payable on or after the Closing and will file all returns
and reports required to be filed on or after the Closing with respect to Taxes
imposed in connection with the ownership and operation of the Property for all
taxable periods (or portions thereof) ending on or prior to the Closing. The
Property Partnerships' Unit Holders and National shall provide PRLP with a copy
of all such returns at least thirty (30) days prior to the date for filing such
returns with the extensions.
21.2 The Property Partnerships and National shall pay any and all Taxes
including, without limitation, Taxes imposed with respect to the ownership or
operation of the Property for all taxable periods (or portions thereof) ending
on or prior to the Closing, imposed upon PRLP based, in whole or in part, upon
the failure to comply with the bulk sales laws.
21.3 PRLP will file any and all tax returns and reports required to be
filed after the Closing. However, in connection with Taxes for any taxable
period (or part thereof)
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beginning prior to Closing and ending after Closing, such Taxes shall be pro
rated between the parties for the period of time National, the Property
Partnerships and PRLP, as the case may be, owned the Property.
21.4 PRLP is hereby authorized to continue the proceeding or proceedings
now pending for the reduction of the assessed valuation of the Property as set
forth on Schedule 21.4 and to litigate or settle the same in PRLP's discretion.
PRLP is hereby authorized in PRLP's sole discretion, to file any applicable
proceeding for the 1997 tax roll for the reduction of the assessed valuation of
the Property. The net refund of taxes, if any, for any tax year for which the
Parties or PRLP shall be entitled to share in the refund shall be divided
between the Properties and PRLP in accordance with the apportionment of taxes
pursuant to the provisions hereof. All expenses in connection therewith,
including counsel fees, shall be borne by the Parties and PRLP in proportion to
their ownership period of the asset in question.
21.5 "Taxes" mean all federal, state, county, local, foreign and other
taxes of any kind whatsoever (including, without limitation, income, profits,
premium, estimated, excise, sales, use, occupancy, gross receipts, franchise, ad
valorem, severance, capital levy, production, transfer, license, stamp,
environmental, withholding, employment, unemployment compensation, payroll
related and property taxes, import duties and other governmental charges or
assessments), whether or not measured in whole or in part by net income, and
including deficiencies, interest, additions to tax or interest, and penalties
with respect thereto, and including expenses associated with contesting any
proposed adjustment related to any of the foregoing.
21.6 The general partner of PRLP, covenants and agrees that PRLP and its
affiliates will use the "traditional method" (as defined in Treas. Reg. Section
1.704-3(b)) of allocating income, gain, loss and deduction to account for the
variation between the fair market value and adjusted basis of the Property for
Federal income tax purposes with respect to (i) the contribution of the
Property, and (ii) any revaluation of the Property in accordance with the
provisions of Treas. Reg. Sections 1.704-1(b)(2)(iv)(f), 1.704-1(b)(2)(iv)(g)
and 1.704-3(a)(6).
21.7 The provisions of this Section shall survive the Closing Date.
22. PUBLICATION.
22.1 PRLP shall have the right to make such public announcements or filings
with respect to the transaction contemplated herein as it may deem reasonably
prudent. National shall be entitled only to make such filings or announcements
in connection with the transaction contemplated herein as may be necessary or
required by law upon advice by counsel.
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23. TERMINATION.
23.1 This Agreement may be terminated at any time prior to the Closing by
the mutual written consent of the Property Partnerships, New Reit, PRLP and
National.
23.2 This Agreement may be terminated by National, New Reit, PRLP or the
Property Partnerships in the event that (a) National's proxy statement is not
filed with the Securities and Exchange Commission by August 12, 1997 (provided,
however, that New Reit shall be entitled to extend said date to September 30,
1997, in its sole discretion); (b) the Closing has not occurred by December 31,
1997, or (c) the Closing has not occurred within fourteen (14) days of obtaining
the National Shareholder Approval; provided, however, that the party terminating
this Agreement pursuant to this Section 23.2 (i) shall not have been responsible
for delaying the occurrence of the event resulting in such termination, and (ii)
must exercise their right to terminate this Agreement within ten (10) days of
the occurrence of the event resulting in such termination.
23.3 This Agreement may be terminated by National in the event that (a) its
counsel advises its Board of Trustees in writing that National's failure to
transfer the National Property to another entity or group making a Competing
Offer as provided in Section 8.5 of this Agreement might subject National's
trustees to liability for breach of their fiduciary duties under applicable law,
or (b) New Reit, PRLP or the Property Partnerships are not ready, willing and
able to perform their obligations hereunder on the Closing Date, or PRLP, New
Reit or the Property Partnerships willfully default or willfully breach any
material representation, warranty, covenant or agreement set forth herein.
23.4 This Agreement may be terminated by New Reit, PRLP or the Property
Partnerships in the event that National is not ready, willing and able to
perform its obligations hereunder on the Closing Date or National willfully
defaults or willfully breaches any material representation, warranty, covenant
or agreement set forth herein.
23.5 Termination of this Agreement as set forth in this Section 23 shall be
subject to the provisions of Section 24 below.
24. REMEDIES.
24.1 In the event that this Agreement is terminated pursuant to Sections
23.1, 23.2, 23.3(b) or 23.4 (except is set forth in Section 24.3), the
terminating party shall give notice to the other parties hereto, following which
the parties shall thereafter have no further obligations under this Agreement.
However, except as provided in Sections 24.2 and 24.3, the Property Partnerships
shall pay the Expenses.
24.2 In the event that this Agreement is terminated pursuant to Section
23.3(a), National shall pay to the Property Partnerships a break-up fee in the
amount of $750,000,
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together with the payment by National of all Expenses, following which the
parties shall thereafter have no further obligations under this Agreement.
24.3 In the event that this Agreement is terminated pursuant to Section
23.4 and such termination resulted from the willful action after the date of
this Agreement of National and/or the Trustees, National shall pay to the
Property Partnerships a break-up fee in the amount of $500,000, together with
the payment by National of all Expenses, following which the parties shall
thereafter have no further obligations under this Agreement.
24.4 In the event that this Agreement is not terminated pursuant to Section
23.4, the Property Partnerships may, at the Property Partnerships' election,
seek specific performance against National (without National's obligation to
cure any willful breach or willful default referenced in Section 23.4),
provided, however, if specific performance is not granted, the Property
Partnerships shall be entitled to the remedy granted pursuant to Section 23.4
24.5 The acceptance of the Deeds by PRLP and New Reit shall be deemed a
full performance and discharge of every agreement and obligation of National,
New Reit and the Property Partnerships to be performed under this Agreement;
provided, however, that any agreements and obligations of National, PRLP, New
Reit and the Property Partnerships to each other which are specifically stated
in this Agreement to survive the Closing or which by their terms are to be, or
may only be, performed after the Closing, shall survive the Closing. The
provisions of this Section 24.4 shall survive Closing.
25. NOTICE.
All notices, demands, requests, or other writings in this Agreement
provided to be given or made or sent, or which may be given or made or sent, by
any party hereto to another, shall be in writing and shall be delivered by
depositing the same with any nationally recognized overnight delivery service,
or by telecopy or fax machine, in either event with all transmittal fees
prepaid, properly addressed, and sent to the following addresses:
If to the Property Partnerships: c/o Philips International Holding Corp.
417 Fifth Avenue
New York, New York 10016
Attn: Philip Pilevsky
(212) 951-3800 (tele.)
(212) 545-1355 (fax)
with a copy to: Pryor, Cashman, Sherman & Flynn
410 Park Avenue
New York, New York 10022
Attn: Jonathan A. Bernstein, Esq.
(212) 326-0425 (tele.)
(212) 326-0806 (fax)
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If to National: 32 Hanson Road
Canton Center, CT 06020
Attn.: Peter Stein
(888) 678-1109 (tele.)
(888) 678-7642 (fax)
with a copy to: Bingham, Dana & Gould LLP
150 Federal Street
Boston, MA 02110
Attn.: Edward A. Saxe, Esq.
(617) 951-8724 (tele.)
(617) 951-8736 (fax)
If to PRLP: c/o Philips International Holding Corp.
417 Fifth Avenue
New York, New York 10016
Attn: Philip Pilevsky
(212) 951-3800 (tele.)
(212) 545-1355 (fax)
with a copy to: Pryor, Cashman, Sherman & Flynn
410 Park Avenue
New York, New York 10022
Attn: Jonathan A. Bernstein, Esq.
(212) 326-0425 (tele.)
(212) 326-0806 (fax)
or to such other address as any party may from time to time designate by written
notice to the others. Notices given by (i) overnight delivery service as
aforesaid shall be deemed received and effective on the first business day
following such dispatch and (ii) telecopy or fax machine shall be deemed given
at the time and on the date of machine transmittal provided same is sent prior
to 4:00 p.m. on a business day (if sent later, then notice shall be deemed given
on the next business day) and if the sending party receives a written send
confirmation on its machine and forwards a copy thereof by regular mail
accompanied by such notice or communication. Notices may be given by counsel for
the parties described above, and such Notices shall be deemed given by said
party, for all purposes hereunder.
26. INDEMNITY
New Reit agrees to indemnify, defend and hold harmless the Trustees from
and against all actual claims, damages, losses, costs and expenses incurred by
the Trustees in connection with any litigation arising out of the transactions
contemplated hereby; provided, however, that in no event shall this indemnity
extend to, include or relate to actions or inactions on the part of Messrs.
Stein and Goldman taken or not taken, as the case may be, which are unrelated to
the
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negotiation and execution of this Agreement and the consummation of the
transactions contemplated hereby.
27. ANCILLARY AGREEMENTS
27.1 New Reit and National agree that in consideration of the assistance of
Messrs. Stein and Goldman in connection with, among other things, the execution
of this Agreement and the consummation of the transactions set forth herein,
their assistance in obtaining the National Shareholder Approval and their
agreement to vote their shares in favor of the transactions contemplated herein,
at the Closing, New Reit shall issue to Messrs. Stein and Goldman:
(a) an aggregate of 5,000 shares of Common Stock of New Reit (the
"Trustees Certificates") based upon the agreed upon pro forma net asset
value of Fifty ($50.00) Dollars per share of New Reit Common Stock and
assuming a total pro forma net asset value of $74,100,000 for the Property;
and
(b) warrants substantially in the form of Exhibit 27.1 (collectively,
the "Trustees Warrants") to purchase an aggregate of up to 8,000 shares of
Common Stock of New Reit at an exercise price equal to Twenty-five ($25.00)
Dollars per share, based also on the net asset value described in Section
27.1(a).
27.2 (a) At the Closing, New Reit shall pay to Prudential Securities
Incorporated ("Prudential") a fee for its services (the "Prudential Fee"), which
Prudential Fee shall be equal to One Million Nine Hundred and Forty Thousand
($1,940,000) Dollars. The Prudential Fee shall be payable by New Reit by its
delivery to Prudential, at Closing, of a promissory note (the "Prudential Note")
bearing interest at a rate of nine (9%) percent per annum and interest only
payable quarterly, and maturing on the earlier to occur of (i) the first
anniversary of the date of issuance of the Prudential Note and (ii) the closing
of New Reit's first equity offering, whether public or private. The Prudential
Note shall provide for other terms and conditions more particularly set forth
therein.
(b) New Reit further agrees that Prudential shall have the right to act as
lead manager of New Reit's first public offering or as exclusive sales agent for
New Reit's first private offering in excess of $25,000,000, upon terms and
conditions to be agreed upon by the parties.
(c) At the Closing, New Reit shall execute an agreement (the "New Reit
Indemnity"), providing that New Reit shall assume the indemnification
obligations between National and Prudential related to Prudential's capacity as
financial advisor in connection with the transactions contemplated hereby.
27.3 At Closing, PRLP shall enter into a management agreement with Philips
International Holding Corp., a New York corporation and an affiliate of certain
of the Property Partnerships (the "Management Company") substantially in the
form of Exhibit 27.2 (the "Management Agreement"), pursuant to which, among
other things, the Management Company
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shall be responsible for the day-to-day leasing, development, acquisition,
property and portfolio management and related administrative functions.
27.4 At Closing, Philip Pilevsky, Sheila Levine and the Management Company
shall enter into a non-competition agreement with PRLP and New Reit,
substantially in the form of Exhibit 27.4 (the "Non-Competition Agreement"),
pursuant to which, among other things, Mr. Pilevsky, Ms. Levine, the Management
Company and certain of their respective affiliates will agree that all future
acquisitions and/or development of retail shopping center properties will be
consummated through PRLP and/or New Reit.
27.5 At Closing, New Reit shall enter into a registration rights agreement
with each of the Property Partnerships' Unit Holders, substantially in the form
of Exhibit 27.5 (the "Registration Rights Agreements"), pursuant to which, among
other things, the Property Partnerships' Unit Holders shall be granted certain
customary demand and "piggyback" registration rights with respect to the shares
of Common Stock which underly the Units received in connection with the
transactions contemplated hereby.
28. MISCELLANEOUS
28.1 If any instrument or deposit is necessary in order to obviate a defect
in or objection or exception to title, the following shall apply: (i) any such
instrument shall be in such form and shall contain such terms and conditions as
may be required by the Title Company to omit any defect, objection or exception
to title, (ii) any such deposit shall be made with the Title Company, and (iii)
the Property Partnerships and National agree to acknowledge and deliver any such
instrument and to make any such deposit.
28.2 This Agreement constitutes the entire agreement between the parties
and incorporates and supersedes all prior negotiations and discussions between
the parties. This Agreement shall be binding upon and inure solely to the
benefit of each party hereto and their successors and assigns, and nothing in
the Agreement express or implied, is intended to confer upon any other person
any rights or remedies of any nature whatsoever under or by reason of this
Agreement.
28.3 This Agreement cannot be amended, waived or terminated orally, but
only by an agreement in writing signed by the party to be charged.
28.4 This Agreement shall be interpreted and governed by the laws of the
State of New York and shall be binding upon the parties hereto and their
respective successors and assigns.
28.5 The caption headings in this Agreement are for convenience only and
are not intended to be part of this Agreement and shall not be construed to
modify, explain or alter any of the terms, covenants or conditions herein
contained.
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28.6 If any term, covenant or condition of this Agreement is held to be
invalid, illegal or unenforceable in any respect, this Agreement shall be
construed without such provision.
28.7 Prior to and after the Closing, each party shall, from time to time,
execute, acknowledge and deliver such further instruments, in recordable form,
if necessary, and perform such additional acts, as the other party may
reasonably request in order to effectuate the intent of this Agreement, within
thirty (30) days of the request. Nothing contained in this Agreement shall be
deemed to create any rights or obligations of partnership, joint venture or
similar association between the parties. This Agreement shall be given a fair
and reasonable construction in accordance with the intentions of the parties
hereto, and without regard to or aid of canons requiring construction against
the parties or the party whose counsel drafted this Agreement. The provisions of
this Section 28.7 shall survive the Closing.
28.8 This Agreement shall not be effective or binding until such time as it
has been executed and delivered by all parties hereto. This Agreement may be
executed by the parties hereto in counterparts, all of which together shall
constitute a single Agreement.
28.9 All references herein to any Section or Exhibit shall be to the
Sections of this Agreement and to the Exhibits annexed hereto unless the context
clearly dictates otherwise. All of the Exhibits annexed hereto are, by this
reference, incorporated herein.
28.10 In the event of any litigation or alternative dispute resolution
between the parties hereto in connection with this Agreement or the transaction
contemplated herein, the non-prevailing party in such litigation or alternative
dispute resolution shall be responsible for payment of all expenses and
reasonable attorneys' fees incurred by the prevailing party. The provisions of
this Section 28.10 shall survive the Closing.
28.11 Whenever used herein, the singular number shall include the plural,
the plural shall include the singular, and the use of any gender shall be
applicable to all genders.
28.12 A copy of the Agreement and Declaration of Trust of National is on
file with the Secretary of State of The Commonwealth of Massachusetts and notice
is hereby given that this Agreement has been executed on behalf of National by a
trustee of National as a trustee and not individually and the obligations of
National arising out of this Agreement are not binding upon any of the trustees,
officers or shareholders of National individually but are binding only upon the
assets and property of National.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
FOREST AVENUE SHOPPING LLC
By: /s/ Philip Pilevsky
________________________________________________
Name: Philip Pilevsky
Title: Managing Member
PHILIPS FREEPORT ASSOCIATES, L.P.
By: Philips Freeport Development Corporation,
its general partner
By: /s/ Philip Pilevsky
__________________________________________
Name: Philip Pilevsky
Title: President
MERRICK SHOPPING ASSOCIATES
By: Merrick Holiday Limited Partnership,
a general partner
By: Merrick Holiday Corp., general partner
By: /s/ Philip Pilevsky
__________________________________________
Name: Philip Pilevsky
Title: President
By: Merrick Equities L.P., a general partner
By: The Merrick Corporation, general partner
By: /s/ Philip Pilevsky
__________________________________________
Name: Philip Pilevsky
Title: Attorney-in-Fact
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SP AVENUE U ASSOCIATES, L.P.
By: SP Avenue U Corp., its general partner
By: /s/ Philip Pilevsky
__________________________________________
Name: Philip Pilevsky
Title: Attorney-in-Fact
ENFIELD SHOPPING L.L.C.
By: /s/ Philip Pilevsky
________________________________________________
Name: Philip Pilevsky
Title: Managing Member
BRANHAVEN PLAZA L.L.C.
By: /s/ Philip Pilevsky
________________________________________________
Name: Philip Pilevsky
Title: Member
PALM SPRINGS MILE ASSOCIATES, LTD.
By: Palm Mile Corp., its General Partner
By: /s/ Sheila Levine
__________________________________________
Name: Sheila Levine
Title: President
PARTNERS OF PALM SPRINGS MILE
ASSOCIATES, LTD.:
PALM MILE CORP.
By: /s/ Sheila Levine
__________________________________________
Name: Sheila Levine
Title: President
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PL PALM SPRINGS L.P.
By: /s/ Philip Pilevsky
__________________________________________
Name: Philip Pilevsky
Title: General Partner
/s/ Philip Pilevsky
________________________________________________
Philip Pilevsky
FOXBOROUGH SHOPPING L.L.C.
By: /s/ Philip Pilevsky
_________________________________
Name: Philip Pilevsky
Title: Managing Member
MEMBERS OF FOXBOROUGH SHOPPING L.L.C.
/s/ Philip Pilevsky
________________________________________________
Philip Pilevsky
BARAKA REALTY CO.
By: /s/ Philip Pilevsky
__________________________________________
Name: Philip Pilevsky
Title: Attorney-in-Fact
CENTURY REALTY INC.
By: /s/ Philip Pilevsky
__________________________________________
Name: Philip Pilevsky
Title: Attorney-in-Fact
/s/ Philip Pilevsky
________________________________________________
Joseph Wilf, by Philip Pilevsky,
Attorney-in-Fact
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ESTATE OF HARRY WILF
By: /s/ Philip Pilevsky
__________________________________________
Name: Philip Pilevsky
Title: Attorney-in-Fact
DELRAN SHOPPING L.L.C.
By: /s/ Philip Pilevsky
________________________________________________
Name: Philip Pilevsky
Title: Managing Member
MEMBERS OF DELRAN SHOPPING L.L.C.
/s/ Philip Pilevsky
________________________________________________
Philip Pilevsky
BARAKA REALTY CO.
By: /s/ Philip Pilevsky
__________________________________________
Name: Philip Pilevsky
Title: Attorney-in-Fact
CENTURY REALTY INC.
By: /s/ Philip Pilevsky
__________________________________________
Name: Philip Pilevsky
Title: Attorney-in-Fact
/s/ Philip Pilevsky
________________________________________________
Joseph Wilf, by Philip Pilevsky,
Attorney-in-Fact
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<PAGE>
ESTATE OF HARRY WILF
By: /s/ Philip Pilevsky
________________________________________________
Name: Philip Pilevsky
Title: Attorney-in-Fact
NATIONAL PROPERTIES INVESTMENT TRUST
By: /s/ Peter Stein
________________________________________________
Name: Peter Stein
Title: Trustee
By: /s/ Jay Goldman
________________________________________________
Name: Jay Goldman
Title: Trustee
By: /s/ Robert Reibstein
________________________________________________
Name: Robert Reibstein
Title: Trustee
PHILIPS INTERNATIONAL REALTY, L.P.
By: Philips International Realty Corp.,
its General Partner
By: /s/ Philip Pilevsky
_________________________________________
Name: Philip Pilevsky
Title: Chief Executive Officer
PHILIPS INTERNATIONAL REALTY CORP.
By: /s/ Philip Pilevsky
_________________________________
Name: Philip Pilevsky
Title: Chief Executive Officer
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<PAGE>
With respect to Sections 26
and 27.1 only:
/s/ Peter Stein
________________________________________________
Peter Stein
/s/ Jay Goldman
________________________________________________
Jay Goldman
/s/ Robert Reibstein
________________________________________________
Robert Reibstein
71
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of
____________________,1997, is by and among PHILIPS INTERNATIONAL REALTY CORP., a
Maryland corporation (the "Company"), and the persons and entities listed on
Schedule I attached hereto and made a part hereof (such individuals and
entities, collectively the "Investors" and each individually an "Investor").
W I T N E S S E T H:
WHEREAS, the Company is a general partner of Philips International Realty,
L.P., a Delaware limited partnership (the "Operating Partnership"), which holds
certain properties and assets contributed to it pursuant to the Transaction
Agreements (as hereinafter defined);
WHEREAS, pursuant to the Transaction Agreements, the Operating Partnership
has issued units representing limited partnership interests in the Operating
Partnership (the "Units") to certain of the Investors;
WHEREAS, the Units are redeemable for unregistered shares of the Company's
common stock, par value $.01 per share (the "Common Stock"), in certain
circumstances; and
WHEREAS, the Company has agreed to provide the Investors with certain
registration rights as set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and obligations
hereinafter set forth, and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto, intending
to be legally bound, hereby agree as follows:
1. Definitions. For purposes of this Agreement, capitalized terms used
herein shall have the meanings set forth in the preambles hereto, and in this
Section 1 and the other sections hereto.
1.1 "Commission" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.
1.2 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
1.3 "Formation Transactions" shall mean the transactions contemplated
by the Transaction Agreements.
1.4 "Holder" shall mean any registered holder, from time to time, of
Regjstrable Securities.
<PAGE>
1.5 "Initial Public Offering" shall mean the sale of shares of Common
Stock pursuant to the Company's first effective registration statement for
such shares filed under the Securities Act following the date hereof.
1.6 "Initiating Holders" shall mean any Holder or Holders who, in the
aggregate, are Holders of Registrable Securities representing at least
fifty percent (50%) of the Registrable Securities then outstanding, and who
initiate a request pursuant to Section 2.1 below for the registration of
all or part of such Holder or Holders' Registrable Securities.
1.7 "Lock-up Period" shall mean the period of time, as specified in
the underwriting agreement or related lock-up agreements entered into in
connection with the Initial Public Offering, during which there are
restrictions on transfers of shares of Common Stock by the Company or any
of the Investors.
1.8 "National" shall mean National Properties Investment Trust.
1.9 "Person" shall mean any individual, firm, corporation,
partnership, trust, incorporated or unincorporated association, joint
venture, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind.
1.10 "Register", "registered" and "registration" shall, except with
respect to Section 1.4 hereof, refer to a registration effected by
preparing and filing a registration statement with the Commission in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement by the Commission.
1.11 "Registrable Securities" shall mean any of the following which
are held by any Holder: (a) shares of Common Stock which are acquired upon
the redemption of Units held by any Holder, (b) shares of Common Stock then
outstanding which were issued as, or upon the conversion or exercise of
other securities issued as, a dividend or other distribution with respect
to or in replacement of Units or other Registrable Securities, (c) shares
of Common Stock then issuable upon the conversion or exercise of other
securities which were issued as a dividend or other distribution with
respect to or in replacement of Units or other Registrable Securities, and
(d) any equity securities of the Company issued or issuable with respect to
the securities referred to in clauses (a) through (c) by way of a stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization; provided,
however, that any such Registrable Securities shall cease to be Registrable
Securities when (i) a registration statement with respect to the sale of
such securities shall have become effective under the Securities Act and
such securities have been disposed of in accordance with such registration
statement (ii) they shall have been sold as permitted by Rule 144 (or any
successor provision) under the Securities Act, (iii) they shall be eligible
for sale pursuant to Rule 144(k) (or any successor provision) under the
Securities Act as confirmed in a written opinion of counsel to the Company
addressed to the Ho1ders, (iv) they shall have been otherwise transferred,
new certificates for them not bearing a legend restricting further transfer
shall have been delivered by
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<PAGE>
the Company and subsequent public distribution of them shall not require
registration of them under the Securities Act, or (v) they shall have
ceased to be outstanding. For purposes of this Agreement, a Person will be
deemed to be a holder of Registrable Securities whenever such person has
the unqualified right to acquire such Registrable Securities (by
conversion, redemption or otherwise, but disregarding any legal
restrictions upon the exercise of such right) whether or not such
acquisition has actually been effected.
1.12 "Registration Expenses" shall mean all expenses incurred by the
Company in compliance with this Agreement, exc1uding underwriters'
discounts and commissions but including, without limitation, all
registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company, and the fees and expenses of one counsel for all
Holders, all blue sky fees and expenses, and the expense of any special
audits incident to or required by any such registration (but excluding the
compensation of regular employees of the Company, which shall be paid in
any event by the Company).
1.13 "Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute enacted hereafter, and the rules
and regulations of the Commission thereunder, all as the same shall be in
effect from time to time.
1.14 "Selling Expenses" shall mean all underwriting discounts and
commissions applicable to the sale of Registrable Securities; provided,
however, that if Company Shares, Additional Shares or Other Securities are
sold in the same registration statement as Registrable Securities, the
Selling Expenses shall equal the product of (A) the underwriting discounts
and commissions applicable to the offering pursuant to such registration
statement multiplied by (B), a fraction, the numerator of which is the fair
market value of the Registrable Securities being sold thereunder and the
denominator of which is the fair market value of the Registrable
Securities, Company Shares, Additional Shares and Other Securities being
sold thereunder.
1.15. "Transaction Agreements" shall mean the Contribution and
Exchange Agreement, dated August 11, 1997, by and among the Company, the
Operating Partnership, National, its trustees and the Investors and all
exhibits and schedules attached thereto.
1.16. Certain Other Defined Terms. The following terms shall have the
meanings ascribed to them in the sections indicated below:
Defined Term Section
------------ -------
Additional Shares 2.2
Company Offering 2.1
Company Share 2.2
Demand Registration Notice 2.1
Indemnified Party 6.3
Indemnifying Party 6.3
Defined Term Section
------------ -------
3
<PAGE>
Other Securities 3.1
Other Shareholders 2.5
2. Requested Registration.
2.1 Request for Registration. At any time commencing one year after
the consummation of the Formation Transactions, so long as no Lock-up
Period is then in effect, upon written notice from Initiating Holders
requesting that the Company effect any registration with respect to all or
part of the Registrable Securities held by such Initiating Holders, the
Company shall (a) promptly give written notice of the proposed registration
to all other Holders (the "Demand Registration Notice") and (b) as soon as
practicable but not later than sixty (60) days after receipt of the request
from the Initiating Holders, use its best efforts and take all appropriate
action to effect such registration (including, without limitation, the
execution of an undertaking to file post-effective amendments, appropriate
qualification under the blue sky or other state securities laws requested
by Initiating Holders and appropriate compliance with applicable
regulations issued under the Securities Act) as may be so requested and as
would permit or facilitate the sale and distribution of all or such portion
of such Registrable Securities as are specified in such request, together
with all or such portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a written request given
within thirty (30) days after receipt of the Demand Registration Notice;
provided, however, that:
(i) in no event shall the Company be required to effect, or to
take any action to effect, any such registration pursuant to this
Section 2 after the third such registration pursuant to this Section 2
has been declared or ordered effective;
(ii) if the Company shall have previously effected a registration
with respect to Registrable Securities owned by any Holder pursuant to
this Section 2, the Company shall not be required to effect a
registration pursuant to this Section 2 until a period of six (6)
months shall have elapsed from the effective date of the most recent
such previous registration; provided, however, that no registration of
Registrable Securities under this Section 2 shall relieve the Company
of its obligation (if any) to effect registrations of Registrable
Securities pursuant to Section 3 below;
(iii) if, upon receipt of a registration request pursuant to this
Section 2, the Company is advised in writing by a nationally
recognized independent investment banking firm selected by the Company
to act as lead underwriter in connection with a public offering of
securities by the Company (a "Company Offering") that, in such firm's
opinion, a registration at the time and on the terms requested would
materially adversely affect such Company Offering that had been
contemplated by the Company prior to the notice of the Initiating
Holders, the Company shall not be required to effect a registration
pursuant to this Section 2 until the earliest of (A) three months
after the completion of such Company Offering, (B) the termination of
any "black out" period, if any, required by the underwriters to be
applicable to any Holder who has requested to have any Registrable
Securities registered in connection with such registration, (C)
promptly after
4
<PAGE>
abandonment of such Company Offering or (D) four months after the date
of written notice from the Initiating Holders demanding registration
pursuant to this Section 2;
(iv) if, while a registration request is pending pursuant to this
Section 2, the Company determines, in the good faith judgment of the
Board of Directors of the Company, with the advice of counsel, that
the filing of a registration statement would require the disclosure of
nonpublic material information the disclosure of which would have a
material adverse effect on the Company or would otherwise adversely
affect a material financing, acquisition, disposition, merger or other
significant transaction, the Company shall deliver a certificate to
such effect signed by its President or any Vice President to the
proposed selling Holders and the Company shall not be required to
effect a registration pursuant to this Section 2 until the earlier of
(A) the date upon which such material information is disclosed to the
public or ceases to be material or (B) 90 days after the Company makes
such good faith determination; and
(v) the provisions of this Section 2.1 shall not be applicable if
a shelf registration under Section 3.6 hereof is then in effect.
2.2 Additional Shares to be Included. The registration statement filed
pursuant to the request of the Initiating Holders may, subject to the
provisions of Section 2.5 below, include (a) other securities of the
Company (the "Additional Shares") which are held by officers or directors
of the Company or which are held by Persons who, by virtue of agreements
with the Company, are entitled to include their securities with the Holders
referred to in Section 2.1 above, and (b) securities of the Company being
sold for the account of the Company (the "Company Shares").
2.3 Withdrawal of Registration. If the Initiating Holders inform the
Company by written notice that they are withdrawing their registration
request made pursuant to Section 2.1 above and the Initiating Holders pay
all of the Company's out-of-pocket expenses with respect to such
registration incurred to the date of such notice, then the registration
statement need not be filed and all efforts pursuant to this Agreement will
not count as a registration (or an exercise of rights) under this Section
2; provided, however, that if the Company decides to go forward with the
registration on its own behalf, or on behalf of any other shareholders,
then the Initiating Holders shall not be required to pay any of the
Company's out-of-pocket expenses and such registration will not count as a
registration (or an exercise of rights) under this Section 2.
2.4 Underwriting.
(a) If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Company as a part of their
request made pursuant to this Section 2 and the Company shall include
such information in the Demand Registration Notice, and such Demand
Registration Notice shall also state that inclusion of each Holder's
Registrable Securities in the
5
<PAGE>
registration to which such Demand Registration Notice applies shall be
conditioned upon such Holder's participation in such underwriting and
the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein and subject to the
limitations provided herein. A Holder may elect to include in such
underwriting all or a part of such Holder's Registrable Securities.
(b) If the Registrable Securities are to be distributed by means
of an underwriting, the Company shall (together with all Holders,
officers, directors and Other Shareholders proposing to distribute
their securities through such underwriting) enter into an underwriting
agreement in customary form with the representative of the underwriter
or underwriters selected for such underwriting by a majority in
interest of the Initiating Holders.
2.5 Limitations on Shares to be Included.
(a) Notwithstanding any other provision of this Section 2, if the
representative of the underwriters advises the Company or the
Initiating Holders in writing that marketing factors require a
limitation on the number of shares to be underwritten or that the
inclusion of Additional Shares or Company Shares may adversely affect
the sale price (of the shares to be registered) that may be obtained,
first the Additional Shares shall be excluded from such registration
to the extent so required by such limitation, then the Company Shares
shall be excluded from such registration to the extent so required by
such limitation, and if a limitation of the number of shares is still
required, the number of shares that may be included in the
registration and underwriting shall be allocated among all Holders in
proportion, as nearly as practicable, to the respective amounts of
Registrable Securities which they have requested to be included in
such registration statement.
(b) If the Company or any Holder of Registrable Securities, or
holder of Additional Shares (collectively, the "Other Shareholders")
who has requested inclusion in such registration as provided above
disapproves of the terms of any such underwriting, such Person may
elect to withdraw such Person's Registrable Securities, Additional
Shares or Company Shares therefrom by written notice to the Company,
the underwriter and the Initiating Holders. If the withdrawal of any
Registrable Securities, Additional Shares or Company Shares would
allow, within the marketing limitations set forth above, the inclusion
in the underwriting of a greater number of shares of Registrable
Securities, Company Shares, or Additional Shares, then, to the extent
practicable and without delaying the underwriting, the Company shall
offer first to the Holders and second to the Other Shareholders an
opportunity to include additional shares of Registrable Securities,
Company Shares, or Additional Shares, as the case may be, in the
proportions discussed above.
3. Company Registration
3.1 If the Company shall determine to register any of its shares of
Common Stock or other securities ("Other Securities") issued by it having
terms substantially similar to the Common Stock, either for its own account
or the account of a security holder or holders exercising any demand
registration rights, other than a registration relating solely to employee
benefit plans or a registration relating solely to a Rule 145 (under the
Securities Act) transaction, the Company will:
6
<PAGE>
(a) promptly give to each Holder written notice thereof (which
shall include a list of the jurisdictions in which the Company intends
to attempt to qualify such securities under the applicable blue sky or
other state securities laws); and
(b) include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a
written request or requests made by any Holder within fifteen (15)
days after receipt of the written notice from the Company described in
clause (a) above, except as set forth in Section 3.3 below. Such
written request may specify all or a part of a Holder's Registrable
Securities.
Notwithstanding the foregoing the rights under this Section 3.1
shall not apply to any Holder if a shelf registration under Section
3.6 hereof is then in effect.
3.2 Underwriting. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 3.1(a). The right of any Holder to require registration
pursuant to this Section 3 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein.
All Holders proposing to distribute their securities through such
underwriting shall (together with the Company and any officers, directors
or Other Shareholders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with
the representative of the underwriter or underwriters selected by the
Company.
3.3 Limitations on Shares to be Included. With respect to Company
registrations, notwithstanding any other provision of this Section 3, if
the representative of the underwriters advises the Company in writing that
marketing factors require a limitation or elimination on the number of
shares to be underwritten, the representative may (subject to the
allocation priority set forth below) limit the number of Registrable
Securities to be included in the registration and underwriting. The Company
shall so advise all Holders of securities requesting registration, and the
number of shares of securities that are entitled to be included in the
registration and underwriting shall be allocated as follows: first, to the
Company for securities being sold for its own account or to the security
holder or holders exercising any demand registration rights on such
security holder or holders' account, second, among all such Holders
requesting registration, and third, among all Other Shareholders requesting
registration pursuant to the exercise of piggyback registration rights, in
each case in proportion, as nearly as practicable, to the respective
amounts of Registrable Securities or Additional Shares which they had
requested to be included in such registration at the time of filing the
registration statement. If any Holder of Registrable Securities or any
Other Shareholder disapproves of the terms of any such underwriting, he may
elect to withdraw therefrom by written notice to the Company and the
underwriter.
7
<PAGE>
3.4 Withdrawal from Registration. Any Holder requesting inclusion of
Registrable Securities pursuant to this Section 3 may, at any time prior to
the effective date of the registration statement relating to such
registration, revoke such request by delivering written notice of such
revocation to the Company; provided, however, that if the Company, in
consultation with its financial and legal advisors, determines that such
revocation would materially delay the registration or otherwise require a
recirculation of the prospectus contained in the registration statement,
then such Holder shall have no such right to revoke its request. If the
withdrawal of any Registrable Securities or Additional Shares would allow,
within the marketing limitations set forth above, the inclusion in the
underwriting of a greater number of shares of Registrable Securities or
Additional Shares, then, to the extent practicable and without delaying the
underwriting, the Company shall offer to the Holders and to the Other
Shareholders an opportunity to include additional shares of Registrable
Securities or Additional Shares, as the case may be, in the proportions
discussed in Section 3.3 above.
3.5 Termination or Withdrawal by Company. The Company shall have the
right to terminate or withdraw any registration initiated by it under this
Section 3 prior to the effectiveness of such registration whether or not
any Holder has elected to include securities in such registration.
3.6 Certain Shelf Registrations. The foregoing notwithstanding on
_______, 1998 (the "Anniversary Date"), or as soon thereafter as is
reasonably practicable, the Company shall, at its expense, register the
Registrable Securities through a shelf registration statement pursuant to
Rule 415 under the Securities Act, which shelf registration statement shall
cover only the Registrable Securities. The Company shall, at its expense,
use its best efforts to maintain the effectiveness of such registration
statement until the earlier of (i) such time as when all of the Registrable
Securities have been disposed of or (ii) three (3) years after the
redemption of all of the Units into Common Stock. Notwithstanding anything
in this Section 3.6 to the contrary, if at the Anniversary Date the Company
determines, in the good faith judgment of the Board of Directors of the
Company, with the advice of counsel, that the filing of such shelf
registration statement would require the disclosure of non-public material
information the disclosure of which would have a material adverse effect on
the Company or would otherwise adversely affect a material financing,
acquisition, disposition, merger or other significant transaction, the
Company shall deliver a certificate to such effect signed by its President
or any Vice President to the Holders and the Company shall not be required
to effect a registration pursuant to this Section 3.6 until the earlier of
(A) the date upon which such material information is disclosed to the
public or ceases to be material or (b) 90 days after the Company makes such
good faith determination.
4. Expenses of Registration. All Registration Expenses incurred in
connection with the registration or qualification of, or compliance with, any
registration statement under Sections 2 and 3 of this Agreement shall be borne
by the Company. All Selling Expenses shall be borne pro rata by each Holder in
accordance with the number of shares sold.
5. Registration Procedures.
8
<PAGE>
5.1 In the case of each registration to be effected by Company
pursuant to this Agreement, the Company will keep each Holder advised in
writing as to the initiation of each registration and all amendments
thereto and as to the completion thereof, advise any such Holder, upon
request, of the progress of such proceedings, use its best efforts to
effect the registration of any Registrable Securities under the Securities
Act, and will, at its expense:
(a) Prepare and file with the Commission a registration statement
covering such Registrable Securities and use its best efforts to cause
such registration statement to be declared effective by the Commission
and to keep such registration effective for a period of three hundred
sixty-five (365) days or until the Holder or Holders have completed
the distribution described in the registration statement relating
thereto, whichever first occurs; provided, however, that the Company
shall keep such registration effective for longer than three hundred
sixty-five (365) days if the costs and expenses associated with such
extended registration are borne entirely by the selling Holders;
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the
Securities Act with respect to the disposition of all Registrable
Securities covered by such registration statement until such time as
all of such Registrable Securities have been disposed of in accordance
with the intended methods of disposition by the seller or sellers
thereof set forth in such registration statement;
(c) Furnish to each seller of Registrable Securities covered by
such registration statement and each Holder two conformed copies of
such registration statement and of each such amendment and supplement
thereto (in each case including all exhibits), such number of copies
of the prospectus contained in such registration statement (including
each preliminary prospectus and any summary prospectus) and any other
prospectus filed under Rule 424 under the Securities Act, in
conformity with the requirements of the Securities Act, and such other
documents, as such seller or Holder, as the case may be, may
reasonably request;
(d) Promptly notify each seller of Registrable Securities covered
by such registration statement and each Holder at any time when a
prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading or incomplete in the light of the
circumstances then existing, and at the request of any such seller,
prepare and furnish to such seller a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary
so that, as thereafter delivered to the purchasers of such shares,
such prospectus shall not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or incomplete
in the light of the circumstances then existing;
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<PAGE>
(e) Use its best efforts (i) to register or qualify all
Registrable Securities and other securities covered by such
registration statement under such other securities or blue sky laws of
such states of the United States of America where an exemption is not
available and as the sellers of Registrable Securities covered by such
registration statement shall reasonably request, (ii) to keep such
registration or qualification in effect for so long as such
registration statement remains in effect and (iii) to take any other
action which may be reasonably necessary or advisable to enable such
sellers to consummate the disposition in such jurisdictions of the
securities to be sold by such sellers; provided, however, that the
Company shall not for any such purpose be required to (x) qualify
generally to do business as a foreign corporation in any jurisdiction
wherein it would not but for the requirements of this clause (e) be
obligated to be so qualified, (y) subject itself to taxation in any
such jurisdiction or (z) consent to general service of process in any
such jurisdiction; and provided, further, however, that the Company
shall not be required to register or qualify Registrable Securities
covered by a registration statement pursuant to Section 3 hereof in
any jurisdiction that is not included in the list provided as part of
the written notice given pursuant to Section 3.1(a) unless the Company
is registering other securities covered by such registration statement
in such jurisidiction;
(f) Use its best efforts to cause all Registrable Securities
covered by such registration statement to be registered with or
approved by such other federal or state governmental agencies or
authorities as may be necessary in the opinion of counsel to the
Company and counsel to the seller or sellers of Registrable Securities
to enable the seller or sellers thereof to consummate the disposition
of such Registrable Securities;
(g) Use its best efforts to list all such Registrable Securities
registered in such registration on each securities exchange or
automated quotation system on which the Common Stock of the Company is
then listed;
(h) Provide and cause to be maintained a transfer agent and
registrar for all Registrable Securities and a CUSIP number for all
such Registrable Securities, in each case not later than the effective
date of such registration;
(i) Make available for inspection by any seller of Registrable
Securities and each Holder, any underwriter participating in any
disposition pursuant to such registration statement, and any attorney
or accountant retained by any such seller, Holder or underwriter, all
financial and other records, pertinent corporate documents and
properties of the Company, and cause the Company's officers,
directors, employees and independent accountants to supply all
information reasonably requested by any such seller, Holder,
underwriter, attorney or accountant in connection with such
registration statement, which information shall be subject to
reasonable restrictions concerning confidentiality and non-disclosure;
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<PAGE>
(j) Furnish to each selling Holder upon request a signed
counterpart, addressed to the selling Holder, of
i) an opinion of counsel for the Company, dated the
effective date of the registration statement and in form
reasonably acceptable to the Company and such Holder, and
(ii) "comfort" letters signed by the Company's independent
public accountants who have examined and reported on the
Company's financial statements included in the registration
statement, to the extent permitted by the standards of the
American Institute of Certified Public Accountants,
in the case of (i) and (ii) covering substantially the same
matters with respect to the registration statement (and the
prospectus included therein) and in the case of the accountants'
"comfort" letters with respect to events subsequent to the date
of the financial statements, as are customarily covered in
opinions of issuer's counsel and in accountants' "comfort"
letters delivered to the underwriters in underwritten public
offerings of securities;
(k) Furnish to each selling Holder a copy of all correspondence
from or to the Commission in connection with any such offering;
(1) In the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending
or preventing the use of any related prospectus or suspending the
qualification of any Registrable Securities included in such
registration statement for sale in any jurisdiction, the Company will
use its reasonable best efforts promptly to obtain the withdrawal of
such order; and
(m) Otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and, if required, make
available to its security holders, as soon as reasonably practicable,
an earnings statement covering the period of at least twelve months,
but not more than eighteen months, beginning with the first month
after the effective date of the registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder.
5.2 It shall be a condition precedent to the obligations of the
Company to take any action pursuant to this agreement that the Holders
proposing to register Registrable Securities shall furnish to the Company
such information regarding them, the Registrable Securities held by them,
and the intended method of distribution of such Registrable Securities as
the Company shall reasonably request and as shall be required in connection
with the action to be taken by the Company.
5.3 In connection with the preparation and filing of each registration
statement under this Agreement, the Company will give the Holders on whose
behalf such Registrable Securities are to be registered and their
underwriters, if any, and their respective counsel and
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accountants, the opportunity to participate in the preparation of such
registration statement, each prospectus included therein or filed with the
Commission, and each amendment thereof or supplement thereto, and will give
each such Holder such access to the Company's books and records and such
opportunities to discuss the business of the Company with its officers, its
counsel and the independent public accountants who have certified the
Company's financial statements, as shall be necessary, in the opinion of
such Holders or such underwriters or their respective counsel, in order to
conduct a reasonable and diligent investigation within the meaning of the
Securities Act. Without limiting the foregoing, each registration
statement, prospectus, amendment, supplement or any other document filed
with respect to a registration under this Agreement shall be subject to
review and reasonable approval by the Holders registering Registrable
Securities in such registration and by their counsel.
6. Indemnification.
6.1 Indemnification by the Company. In the event of any registration
of any securities of the Company under the Securities Act, the Company will
indemnify and hold harmless each Holder, each of its officers, directors,
partners, employees, agents, attorneys and consultants and each Person
controlling such Holder, and each underwriter, if any, and each Person who
controls any underwriter, against all claims, losses, damages and
liabilities, joint and several (or actions, proceedings or settlements in
respect thereof) arising out of or based upon any untrue statement (or
alleged untrue statement) of a material fact contained in any prospectus,
offering circular or other document (including any related registration
statement, notification or the like) incident to any such registration,
qualification or compliance, or based upon any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation
by the Company of the Securities Act or any rule or regulation thereunder
applicable to the Company and relating to action or inaction required of
the Company in connection with any such registration, qualification or
compliance, and will reimburse each such Holder, each of its officers,
directors and partners, and each Person controlling such Holder, each such
underwriter and each Person who controls any such underwriter, for any
legal and any other expenses reasonably incurred in connection with
investigating and defending or settling any such claim, loss, damage,
liability or action; provided, however, that the Company will not be liable
in any such case to the extent that any such claim, loss, damage, liability
or expense arises out of or is based on any untrue statement or omission
made in reliance upon and based upon written information furnished to the
Company by such Holder or underwriter and expressly stated to be
specifically for use therein.
6.2 Indemnification by the Holders. Each Holder will, if Registrable
Securities held by such Holder are included in the securities as to which
such registration, qualification or compliance is being effected, severally
and not jointly, indemnify the Company, each of its directors and officers
and each underwriter, if any, of the Company's securities covered by such a
registration statement, each Person who controls the Company (other than
such Holder) or such underwriter within the meaning of the Securities Act
and the rules and regulations thereunder, each other such Holder and each
of their officers, directors and partners, and each Person controlling such
Holder or other stockholder, against all claims, losses,
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damages, expenses and liabilities (or actions in respect thereof) arising
out of or based upon any untrue statement (or alleged untrue statement) of
a material fact contained in any such registration statement, prospectus,
offering circular or other document, or any omission (or alleged omission)
to state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, and will reimburse the
Company, each of its directors and officers, each underwriter or control
Person, each other Holder and each of their officers, directors and
partners and each Person controlling such Holder or other shareholder for
any legal or any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or
action, in each case to the extent, but only to the extent, that such
untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering
circular or other document in reliance upon and in conformity with written
information furnished to the Company by such Holder and expressly stated to
be specifically for use therein; provided, however, that the liability of
any such Holder under this Section 6.2 shall be limited to the amount of
proceeds received by such Holder in the offering giving rise to such
liability.
6.3 Notices of Claims, Procedures etc.Each party entitled to
indemnification under this Section 6 (the "Indemnified Party") shall give
notice to the party required to provide indemnification (the "Indemnifying
Party") promptly after such Indemnified Party has actual knowledge of any
claim as to which indemnity may be sought, and shall permit the
Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided, that counsel for the Indemnifying
Party who shall conduct the defense of such claim or any litigation
resulting therefrom shall be approved by the Indemnified Party (whose
approval shall not unreasonably be withheld), and the Indemnified Party may
participate in such defense at the Indemnified Party's sole expense;
provided, further, that the failure of any Indemnified Party to give notice
as provided herein shall not relieve the Indemnifying Party of its
obligations under this Section 6 unless such failure is prejudicial to the
ability of the Indemnifying Party to defend such claim or action.
Notwithstanding the foregoing, such Indemnified Party shall have the right
to employ its own counsel in any such litigation, proceeding or other
action if (i) the employment of such counsel has been authorized by the
Indemnifying Party, in its sole and absolute discretion, or (ii) the named
parties in any such claims (including any impleaded parties) include any
such Indemnified Party and the Indemnified Party and the Indemnifying Party
shall have been advised in writing (in suitable detail) by counsel to the
Indemnified Party either (A) that there may be one or more legal defenses
available to such Indemnified Party which are different from or additional
to those available to the Indemnifying Party, or (B) that there is a
conflict of interest by virtue of the Indemnified Party and the
Indemnifying Party having common counsel, in any of which events, the legal
fees and expenses of a single counsel for all Indemnified Parties with
respect to each such claim, defense thereof, or counterclaims thereto,
shall be borne by the Indemnifying Party. No Indemnifying Party, in the
defense of any such claim or litigation, shall, except with the consent of
each Indemnified Party, consent to entry of any judgment or enter into any
settlement (x) which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release
from all liability in respect to such claim or litigation, or (y) which
requires action other than the payment of money by the Indemnifying Party.
Each Indemnified Party shall cooperate to the extent reasonably required
and furnish such
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information regarding itself or the claim in question as an Indemnifying
Party may reasonably request in writing and as shall be reasonably required
in connection with defense of such claim and litigation resulting
therefrom.
6.4 Contribution. If the indemnification provided for in this Section
6 shall for any reason be held by a court to be unavailable to an
Indemnified Party under Section 6.1 or 6.2 hereof in respect of any loss,
claim, damage or liability, or any action in respect thereof, then, in lieu
of the amount paid or payable under Section 6.1 or 6.2, the Indemnified
Party and the Indemnifying Party under Section 6.1 or 6.2 shall contribute
to the aggregate losses, claims, damages and liabilities (including legal
or other expenses reasonably incurred in connection with investigating the
same), (i) in such proportion as is appropriate to reflect the relative
fault of the Company and the prospective sellers of Registrable Securities
covered by the registration statement which resulted in such loss, claim,
damage or liability, or action or proceeding in respect thereof, with
respect to the statements or omissions which resulted in such loss, claim,
damage or liability, or action or proceeding in respect thereof, as well as
any other relevant equitable considerations or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as shall be appropriate to reflect the relative benefits
received by the Company and such prospective sellers from the offering of
the securities covered by such registration statement; provided, that for
purposes of this clause (ii), the relative benefits received by the
prospective sellers shall be deemed not to exceed the amount of proceeds
received by such prospective sellers. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities
Act) shall be entitled to contribution from any Person who was not guilty
of such fraudulent misrepresentation. Such prospective sellers' obligations
to contribute as provided in this Section 6.4 are several in proportion to
the relative value of their respective Registrable Securities covered by
such registration statement and not joint. In addition, no Person shall be
obligated to contribute hereunder any amounts in payment for any settlement
of any action or claim effected without such Person's consent, which
consent shall not be unreasonably withheld.
7. Information by Holder. Each Holder of Registrable Securities shall
furnish to the Company such information regarding such Holder and the
distribution proposed by such Holder as the Company may reasonably request in
writing and as shall be reasonably required in connection with any registration,
qualification or compliance referred to in this Agreement.
8. Transfer or Assignment of Registration Rights. The rights with respect
to any Registrable Securities to cause the Company to register such securities
granted to a Holder by the Company under this Agreement may be transferred or
assigned by a stockholder, in whole or in part, to a transferee or assignee of
any Registrable Securities and, in such case, the Company shall be given written
notice stating the name and address of said transferee or assignee and
identifying the securities with respect to which such registration rights are
being transferred or assigned.
9. Rule 144 and Rule 144A. At such time as the Company becomes subject to
the reporting requirements of the Exchange Act, the Company shall file the
reports required to be filed by it under the Securities Act and the Exchange Act
and the rules and regulations adopted
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by the Commission thereunder, and will take all actions reasonably necessary to
enable holders of Registrable Securities to sell such securities without
registration under the Securities Act within the limitation of the provisions of
(a) Rule 144 under the Securities Act, as such Rule may be amended from time to
time, (b) Rule 144A under the Securities Act, as such Rule may be amended from
time to time, if applicable or (c) any similar rules or regulations hereafter
adopted by the Commission. Upon the request of any holder of Registrable
Securities, the Company will deliver to such holder a written statement as to
whether it has complied with such requirements.
10. Specific Performance. Each holder of Registrable Securities, in
addition to being entitled to exercise all rights granted by law, including
recovery of damages, will be entitled to specific performance of its rights
under this Agreement. The Company agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of the
provisions of this Agreement and hereby agrees to waive the defense in any
action for specific performance that a remedy at law would be adequate.
11. No Inconsistent Agreements. The Company will not hereafter enter into
any agreement with respect to its securities which is inconsistent with the
rights granted to the holders of Registrable Securities in this Agreement.
Without limiting the generality of the foregoing, the Company will not hereafter
enter into any agreement with respect to its securities which grants, or modify
any existing agreement with respect to its securities to grant, to the holder of
its securities in connection with an incidental registration of such securities
equal or higher priority to the rights granted to the Investors under Section 3
of this Agreement.
12. Benefits of Agreement: Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors and permitted assigns, legal representatives and heirs; this
Agreement does not create, and shall not be construed as creating, any rights
enforceable by any other Person.
13. Complete Agreement. This Agreement constitutes the complete
understanding among the parties with respect to its subject matter and
supersedes all existing agreements and understandings whether oral or written,
among them. No alteration or modification of any provisions of this Agreement
shall be valid unless made in writing and signed by a majority in interest of
the Holders.
14. Section Headings. The section headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this agreement.
15. Notices. All notices, offers, acceptances and other communications
required or permitted to be given or to otherwise be made to any party to this
Agreement shall be deemed to be sufficient if contained in a written instrument
delivered by hand, first class mail (registered or certified, return receipt
requested), telex, telecopier or overnight air courier guaranteeing next day
delivery, if to the Corporation, to it at Philips International Realty Corp.,
417 Fifth Avenue, New York, New York 10016, Attention Mr. Philip Pilevsky, with
a copy to Pryor, Cashman, Sherman & Flynn, 410 Park Avenue, New York, New York
10022, Attention: Jonathan A.
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Bernstein, Esq., and if to any Holder, to the address of such Holder as set
forth in the stock transfer books of the Corporation.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt acknowledged, if telecopied; and the
next business day after timely delivery to the courier, if sent by overnight air
courier guaranteeing next day delivery. Any party may change the address to
which each such notice or communication shall be sent by giving written notice
to the other parties of such new address in the manner provided herein for
giving notice.
16. Governing Law. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of New York, without giving
effect to the provisions, policies or principles thereof respecting conflict or
choice of laws.
17. Counterparts. This Agreement may be executed in one or more
counterparts each of which shall be deemed an original but all of which taken
together shall constitute one and the same agreement.
18. Severability. Any provision of this Agreement which is determined to be
illegal, prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such illegality, prohibition or
unenforceability without invalidating the remaining provisions hereof which
shall be severable and enforceable according to their terms and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
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IN WITNESS WHEREOF, as of the date first set the parties have signed this
Agreement forth above.
PHILIPS INTERNATIONAL REALTY CORP.
By:
-------------------------------
Name:
Title:
INVESTORS:
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MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT ("Agreement") is made and entered into as of
_____________, 1997, by and between Philips International Realty, L.P. (the
"Partnership") and Philips International Realty Corp. (the "Company" and
together with the Partnership, the "Owner") and Philips International Holding
Corp. (the "Manager").
1. ENGAGEMENT: Owner hereby engages Manager, and Manager hereby accepts
such engagement from Owner, for the term, at the compensation, and upon all of
the other terms and conditions set forth herein as sole and exclusive manager of
its properties whether now owned or in the future owned (collectively, the
"Properties" and each a "Property").
2. TERM: The initial term of this Agreement ("Initial Term") shall commence
as of the date hereof and shall continue for three (3) years, provided, however,
that the term shall continue for consecutive periods of one (1) year each unless
terminated by any party to this Agreement within thirty (30) days prior to the
expiration of the Initial Term or any subsequent annual period.
3. MANAGEMENT FEES: During the term hereof, Manager shall receive, as
compensation for the performance of its services required hereunder ("Management
Fees"), a sum equal to 3% of gross rental income derived from the Properties for
the calendar year. Management Fees shall be payable on the first day of each
month, except that Management Fees for the first month of the Initial Term shall
be payable on the last day of the first calendar month in which this Agreement
is executed and shall be based upon actual receipts obtained during such
calendar month with an adjustment being made if such calendar month is less that
thirty (30) days. Actual receipts for the first calendar month shall be utilized
for purposes of fixing monthly
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installments for the first quarterly period of the Initial Term, which monthly
installments shall be reconciled quarterly thereafter based upon actual receipts
for the prior quarterly period. In addition, Manager shall be entitled to
reimbursement of all reasonable out-of-pocket expenses. The monthly installments
may be deducted by Manager from receipts.
3A. LEASING COMMISSIONS: Manager shall also be entitled to customary
market level leasing commissions ("Leasing Commissions") for space that it
leases at the Properties whether or not Manager is the procuring broker, it
being understood that Manager shall be the exclusive agent for the
Property. Manager shall also be entitled to Leasing Commissions on all
renewal leases, including but not limited to, a tenant's exercise of a
renewal option at customary market level commissions.
3B. CONSTRUCTION SUPERVISORY FEE: Manager shall also be entitled to a
construction supervisory fee at the customary market level with regard to
any tenant improvements and construction matters relating to the
Properties.
4. MANAGEMENT SERVICES AND POWERS: In consideration of the Management Fees
to be paid by Owner hereunder, Manager agrees as follows:
4.1 Under the supervision of the executive officers of the Owner, Manager
shall manage the business and affairs of the Owner and shall be responsible for
the day-to-day operations of the Properties. Manager shall furnish the services
of its organization and exert its reasonable efforts in operating, maintaining
and managing the Properties. Everything done by Manager in the performance of
its obligations hereunder and all expenses incurred shall be for and on behalf
of Owner and for Owner's account, except as expressly otherwise provided herein,
and Owner agrees to reimburse Manager for all such expenses which are properly
incurred hereunder in the performance of Manager's duties.
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4.2 Notwithstanding the authority granted herein, Manager shall confer
fully and freely with Owner in the performance of its duties, and shall keep
Owner informed regarding the Properties. After consultation with and approval by
Owner, Manager shall use its reasonable efforts to enforce the collection of all
rentals and receipts and shall give receipts for all services or income of any
nature from the operation of the Properties.
4.3 Manager shall, after consultation with and approval by Owner, construct
improvements and additions to the Properties.
4.4 Manager shall market the space at the Properties, including vacant
space, and after consultation and approval by Owner, shall make all decisions
regarding leasing such spaces, including renewing and terminating leases for
such spaces.
4.5 Manager shall enforce all warranties, if any, on the Properties and/or
the manufactured items thereon.
4.6 Except as may be designated by the Owner in writing from time to time,
Manager shall hire, train, discharge, and supervise all labor and employees
necessary to properly maintain and operate the Properties. The selection, terms
of employment and termination thereof, including rates of employment, and the
supervision, direction, training and assignment of duties of all such employees
shall be the duty and responsibility of and shall be determined by Manager after
consultation with Owner. Subject to Paragraph 5 herein, all costs and expenses
of any persons who are part-time or full-time employees of Manager shall be paid
for solely by Manager.
4.7 Manager, at the expense of Owner, shall cause the Properties, and their
respective appurtenances and grounds, to be operated, maintained and repaired
according to reasonable standards acceptable to Owner, including, but not
limited to, interior and exterior
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cleaning, painting, plumbing, heating and ventilating systems, carpentry,
masonry, decorating and such other normal maintenance and repair work as may be
necessary and proper. Furthermore, for an additional charge as agreed upon
between Owner and Manager, Manager shall supervise any extraordinary services
with respect to the improvement of the Properties which Owner may request from
time to time.
4.8 In fulfillment of its duties hereunder, Manager, at the expense of
Owner, shall purchase such supplies, equipment and services as are necessary for
the proper operation, maintenance, and repair of the Properties, and any
discounts or rebates received by Manager shall be returned to Owner; provided,
however, that no contract or agreement for this purpose shall be made in excess
of $25,000 for any one item without the consent of Owner, except monthly or
recurring operating charges or as set forth in the budget referred to in Section
4.21 hereof. Emergency repairs, involving manifest danger to life or property,
or immediately necessary for the preservation and safety of the Properties, or
for the safety of it tenants or occupants, or required to avoid the suspension
of any necessary service of the Properties, may be made by Manager irrespective
of the cost limitation imposed by this subparagraph. Notwithstanding this
authority as to emergency repairs, it is understood and agreed that Manager
will, if at all possible, confer with Owner regarding such expenditure before
proceeding and in any event, promptly notify Owner of such emergency repair.
4.9 Pursuant to the budget approved by Owner, Manager, on behalf of Owner,
shall contract on favorable terms, quality and service considered, in the name
of Owner, for all services and utilities necessary for the efficient operation
and maintenance of the Properties, including, but not limited to, security,
water, electricity, gas, fuel, telephone, vermin extermination, rubbish hauling,
parking lot sweeping and maintenance, roof maintenance,
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landscape maintenance and lighting maintenance. However, any such contract which
is non-cancellable having a term longer than 5 years or requiring payments in
excess of $50,000 per annum must be authorized by Owner.
4.10 Manager shall take such action as may be necessary or desirable to
comply promptly with any and all orders or requirements affecting the Properties
placed thereon by any federal, state, county, or municipal authority having
jurisdiction thereover, subject to the same limitation contained in Subparagraph
4.8 regarding maximum amounts which may be disbursed without Owner's written
consent. Owner shall execute any and all applications and other documents
necessary for Manager to obtain and maintain in the name of Owner all licenses
and permits required of Owner or Manager in connection with the operation and/or
management of the Properties. Manager, however, so long as Manager is not
subject to civil or criminal penalty or liability, shall not take any action
under this Section so long as Owner is contesting, or has, after prompt
notification of the facts by Manager, affirmed its intention to contest any such
order or requirement. In such event, the Owner agrees to indemnify the Manager
from any claims, liability and expenses, including reasonable legal fees and
disbursements, resulting from such failure to comply. Manager shall promptly
notify Owner of all such orders and notices or requirement.
4.11 Manager shall, after consultation with and approval by Owner and at
the expense of Owner, cause to be placed and kept in force all forms of
insurance needed to adequately protect Owner and as required by law and the
underlying mortgages affecting the Properties, including, where appropriate, but
not limited to, worker's compensation insurance, public liability insurance,
auto, flood, plate glass, office equipment and personal property insurance,
boiler insurance, fire and extended coverage insurance, and burglary and theft
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insurance. All of the various types of insurance coverages required for the
benefit of Owner shall be placed in such amounts, with such companies and with
such beneficial interests appearing therein as shall be acceptable to Owner;
provided, however, that Manager shall be named as a named insured in all
policies related to public liability insurance. Proof of all such insurance
shall be delivered to Owner in a form acceptable to Owner. Manager agrees to
cooperate with any independent insurance broker or consultant that Owner may
designate or approve and engage for the purposes of effecting insurance. Manager
shall promptly investigate and make a full written report as to all accidents or
claims for damage relating to the ownership, operation, and maintenance of the
Properties, including any damage or destruction to the Properties, the estimated
cost of repair, and shall cooperate and make any and all reports required by any
insurance company in connection therewith.
4.12 Manager shall establish and maintain, in a bank of Owner's selection,
a bank account for each Property for the deposit of the monies collected from
the Properties ("Bank Account"). Manager shall have the authority to draw on the
Bank Account consistent with the requirements of Owner for any payments which
Manager must make to discharge any liabilities or obligations incurred pursuant
to this Agreement, all of which payments shall be subject to the limitations of
this Agreement.
4.13 From the funds collected and deposited in the Bank Account, Manager
shall cause to be disbursed regularly and punctually all expenses authorized in
this Agreement.
4.14 Manager shall keep accurate, complete and separate books and records
in accordance with accepted accounting standards and procedures, showing income
and expenditures in connection with the operation and maintenance of the
Properties and Owner's
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business, such that any accounts payable, other obligations, cash, accounts
receivable, and other assets pertaining thereto can be identified and the amount
determined at all times. Owner shall have the right at any time, through its
representatives, to inspect any books and records of Manager which in its
opinion may verify the financial or monthly reports, including, but not limited
to, all checks, bills, vouchers, statements, cash receipts, correspondence,
leases, subleases and all other books and records in connection with the
management of the Properties.
4.15 Manager shall prepare and deliver to Owner (i) such financial reports
and statements as Owner may reasonably require and (ii) data and information
reasonably necessary for compliance with the requirements and requests of the
Securities and Exchange Commission. Notwithstanding the foregoing, Manager may
designate third party professionals to assist in the preparation of the
foregoing items at Owner's cost and expense, as Manager may deem necessary.
4.16 Manager shall provide Owner with such general support services as are
reasonably requested by Owner, including without limitation, general accounting,
bookkeeping and back office support services.
4.17 Manager shall, to the extent necessary, refer all matters requiring
legal or accounting services to qualified professionals approved by Owner;
4.18 Manager shall bill or cause to be billed all Tenants and occupants for
all rent and other charges and when and if directed by Owner, serve notices upon
tenants to quit and surrender their premises.
4.19 Manager shall maintain and submit to the Owner, a record of all
complaints of tenants and consider, and when reasonable and/or when directed by
Owner attend to such complaints.
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4.20 Manager shall cause to be prepared and filed when necessary forms for
unemployment insurance, withholding and social security taxes and all other tax
and other forms relating to employment and the maintenance and operation of the
Properties and Owner's business required by and federal, state or municipal
authority.
4.21 Manager shall prepare and submit annually to Owner for its approval an
operating budget setting forth anticipated income and expenses for the ensuing
fiscal year.
4.22 Manager shall ascertain the assessed valuation for the Properties and
after consultation with and approval by Owner, institute and prosecute with
attorneys approved by Owner, tax certiorari proceedings.
4.23 Manager shall use its reasonable efforts to keep the space rented to
desirable tenants on such terms as may be approved by Owner. The Manager is
authorized to enlist the services of outside brokers on behalf of the Owner in
connection with the rental of such space; provided, however, that any fees due
such outside brokers shall be paid by Owner and the use of such outside brokers
shall not affect Manager's right to receive Leasing Commissions pursuant to
Section 3A of this Agreement.
4.24 Manager may generally do such other acts, not contrary to the intent
of the provisions hereof, as it deems necessary or desirable for the proper
performance of its duties hereunder.
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5. COSTS AND EXPENSES:
5.1 Owner shall pay for all ordinary and necessary expenses of the
Properties, including, without limitation, the following:
(i) all direct payroll and benefits for on-site Owner employees;
(ii) all maintenance repairs to the Properties;
(iii) all utilities;
(iv) all taxes, principal and interest on all loans secured by the
Properties,
(v) insurance, professional services; and
(vi) all independent contractors (e.g., carpenters, electricians,
landscaping etc.) who are employed to render services at the
Properties.
5.2 Subject to Section 10 hereof, Manager shall not be liable to any third
parties for debts, liabilities or obligations of the Properties or arising in
the course of business of the Properties or by virtue of its management,
supervision, control or operation of the Properties.
6. RELATIONSHIP OF THE PARTIES: All duties to be performed by the Manager
under this Agreement shall be for and on behalf of Owner, in the name of Owner
and for Owner's account. In taking any action pursuant to this Agreement,
Manager shall be acting as Owner's agent. This Agreement shall not be construed
to create a partnership, joint venture, employer-employee, or any other
relationship by and between Owner and Manager other than that of principal and
agent. Manager shall not bear any portion of the losses, costs or expenses from
the operation of the Properties nor shall it be entitled to any of the profits
therefrom.
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7. TERMINATION:
7.1 This Agreement shall immediately terminate, at Owner's option, upon
delivery of written notice thereof to Manager, at any time after: (a) all or
substantially all of the Properties are sold, condemned or the improvements
thereon are destroyed (if destroyed, the termination shall occur only if Owner
decides not to rebuild), (b) Manager is dissolved, becomes insolvent or is
adjudicated bankrupt or makes a general assignment of its assets for the benefit
of its creditors, or (c) Manager commits gross negligence or willful misconduct
in the performance or nonperformance of its duties hereunder. In addition, Owner
shall have the right to terminate this Agreement at any time upon thirty (30)
days written notice to the Manager in the event that Owner elects to have the
services performed by the Manager pursuant to this Agreement performed by the
Owner's own employees (i.e., to perform such management functions on an
"in-house" basis). In the alternative, Owner may elect to have certain services
performed by the Manager pursuant to this Agreement performed on an "in-house"
basis without termination of this Agreement but rather with an adjustment of the
Management Fees payable hereunder.
7.2 Upon termination of this Agreement, it is agreed that: (a) all of the
books and records in the possession of Manager pertaining to the operation of
the Properties, together with any other property of the Owner in Manager's
possession, shall be immediately delivered to Owner, and (b) the agency created
hereby shall immediately cease, and Manager shall have no further right to act
for Owner.
8. GRANT OF OPTIONS: In connection with the services to be provided
hereunder, the Company agrees to grant to the Manager or its designee or
designees options issued pursuant to the Company's 1997 Stock Option and
Long-Term Incentive Plan (the "Option Plan") to purchase 54,400 shares of the
Company's Common Stock, par value $.01 per
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share, at an exercise price of $50.00 per share, subject to re-pricing in the
event of a public offering or certain private offerings of the Company's Common
Stock at the per share offering price. The options will be granted pursuant to
the terms and conditions of the Option Plan and shall expire ten (10) years from
the date of the grant. The options shall vest and become immediately exercisable
over three (3) years with one-third (1/3) of the shares vesting on each of the
first, second and third anniversaries of the date of the grant. In the event
that any option or a portion thereof expires or terminates for any reason
without having been exercised or vested in full, the underlying shares covered
by such option shall be available for future grants under the Option Plan.
9. ASSIGNMENT: Except as herein provided, neither this Agreement nor any
right pursuant hereto or interest herein shall be assignable by Manager or
Owner.
10. INDEMNIFICATION: Owner agrees to indemnify, defend and save Manager
harmless from any loss, cost, damages, liability, penalties or expenses,
statutory or otherwise arising from third party claims (including reasonable
attorney fees and costs incurred by Manager in the defense or prosecution
thereof) in connection with or arising from this Agreement or with the operation
and management of the premises, and from liability for injuries suffered by
Owner's officers, directors, agents and employees or any other persons on or
about the premises, excluding Manager's employees or Manager,; provided,
however, that the indemnification provisions set forth in this Section 10 shall
not apply to any such loss, cost, damage, liability, penalty or expense to the
extent it is found in a final judgment by a court of competent jurisdiction to
have resulted directly from the gross negligence or willful misconduct of
Manager. Owner agrees that Manager shall not be liable for any error of judgment
or for any mistake of fact or of law, or for anything which it may do or refrain
from doing hereunder,
11
<PAGE>
except in cases of willful misconduct, gross negligence, or willful failure to
comply with the terms of this Agreement. Owner shall cause Manager to be named
as a named insured under all policies of liability insurance maintained by Owner
against claims arising at the Properties.
If any action, proceeding, or investigation is commenced, as to which
Manager proposes to demand such indemnification, it shall notify Owner with
reasonable promptness; provided, however, that any failure by Manager to notify
Owner shall not relieve Owner from its obligations hereunder except to the
extent that the Owner's ability to defend itself against such action,
proceeding, or investigation is actually, materially prejudiced as a result of
such lack of reasonably prompt notification. If Manager shall seek
indemnification under this Section 10, Owner, in the case of a third party claim
brought against Manager, shall be entitled to participate therein and, to the
extent that it wishes, to assume and direct the defense and settlement thereof
with counsel reasonably satisfactory to Manager. After notice from Owner to
Manager of its election to assume and direct the defense and settlement of a
third party claim brought against Manager, Owner shall not be liable to Manager
(or any of its affiliates) under this Section 10 for any legal or other expenses
subsequently incurred by Manager in connection with the defense thereof other
than reasonable costs of investigation; except that Manager shall have the right
to employ counsel to represent it if, in its reasonable judgment, it is
advisable for Manager to be represented by separate counsel, and in that event
the fees and expenses of such separate counsel shall be paid by Manager.
Notwithstanding the foregoing provisions of this Section 10, the Owner shall
not, without the prior written consent of Manager, effect any settlement of any
pending or threatened proceeding in respect of which Manager is, or with
reasonable foreseeability, could have been a party and indemnity could have been
sought hereunder by
12
<PAGE>
Manager for a third party claim brought against Manager, unless such settlement
includes an unconditional release of Manager from all liability arising out of
such proceeding.
11. NON-SOLICITATION: Manager agrees that during the Initial Term and for
an additional one (1) year commencing immediately thereafter, Manager shall not,
directly or indirectly, solicit any of the non-clerical employees, agents or
independent contractors of Owner, its subsidiaries or its affiliates to end
their relationship with Owner, its subsidiaries or its affiliates, it being
understood that Owner shall have the right to hire employees of Manager.
12. BINDING: This Agreement shall inure to and be binding on all the
parties, their estates, heirs, personal representatives and assigns.
13. HEADINGS: The article and section headings in no way define, limit,
extend or interpret the scope of this Agreement, or any particular article or
section.
14. NUMBER: When the context in which the words are used in this Agreement
indicates that such is the intent, word in singular number shall include the
plural and vice-versa.
15. VALIDITY: If any provision of this Agreement is held to be invalid, the
same shall not affect in any respect whatsoever the validity of the remainder of
this Agreement.
16. AMENDMENTS: This Agreement may be amended only by a written instrument
signed by all parties hereto.
17. ENTIRE AGREEMENT: This Agreement contains the entire agreement between
the parties hereto with respect to the matters covered hereby, and supersedes
all prior and contemporaneous oral and written arrangements and understandings
between the parties with respect to such matters. No other agreement, statement,
or promise made by either
13
<PAGE>
party hereto with respect to the matters covered hereby which is not contained
herein shall be binding or valid.
18. GOVERNING LAW: This Agreement shall be construed in accordance with the
laws of the State of New York without giving effect to the principles of
conflicts of laws thereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first written above.
MANAGER: Philips International Holding Corp.
By: _____________________________
Name:
Title:
OWNER: Philips International Realty, L.P.
By: _____________________________
Name:
Title:
Philips International Realty Corp.
By: _____________________________
Name:
Title:
14
<PAGE>
NON-COMPETITION AGREEMENT
THIS NON-COMPETITION AGREEMENT (this "Agreement") is made and entered into
as of the _____ day of _______, 1997, by and among Philips International Realty,
L.P. (the "Partnership"), Philips International Realty Corp., a general partner
of the Partnership (the "Corporation" and together with the Partnership, the
"Owner"), Philips International Holding Corp. (the "Managing Company"), Philip
Pilevsky, the Chairman of the Board of Directors and Chief Executive Officer of
the Corporation and the sole member of the managing general partner of the
Partnership ("Mr. Pilevsky"), and Sheila Levine, a director and executive
officer of the Corporation ("Ms. Levine," and together with the Managing Company
and Mr. Pilevsky, the "Managers").
WHEREAS, pursuant to a Management Agreement by and between the Managing
Company and Owner dated as of the date hereof (the "Management Agreement"), the
Managing Company provides certain management services to Owner and the
properties of Owner (the "Owner's Properties") and, in such capacity, is engaged
in, among other things, the acquisition, ownership, management, leasing,
renovation, development and redevelopment of commercial real estate in the
United States.
WHEREAS, the Managing Company acknowledges that its engagement by Owner
creates a relationship of confidence and trust and it will obtain confidential
information with regard to the business of Owner and its affiliates and clients;
WHEREAS, the Managing Company acknowledges that, as a result of its
obtaining confidential information as to Owner and its affiliates and clients,
Owner and its affiliates will suffer substantial damage, which would be
difficult to ascertain if the Managing
<PAGE>
Company enters into competition with Owner or any affiliate and that it is
necessary for Owner to be protected by the prohibition against competition and
the confidentiality restrictions set forth herein;
WHEREAS, Mr. Pilevsky and Ms. Levine acknowledge that their position with
the Corporation creates a relationship of confidence and trust and they will
obtain confidential information with regard to the business of Owner, and its
affiliates and clients;
WHEREAS, Mr. Pilevsky and Ms. Levine acknowledge that, as a result of their
obtaining confidential information as to Owner and its affiliates and clients,
Owner and its affiliates will suffer substantial damage, which would be
difficult to ascertain, if Mr. Pilevsky or Ms. Levine enters into competition
with Owner or any affiliate and that it is necessary for Owner to be protected
by the prohibition against competition and the confidentiality restrictions set
forth herein;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
herein set forth, and for other good and valuable consideration, the Managers
and Owner agree as follows:
1. Non-competition.
1(a) Non-competition. Except as expressly provided herein, each of the
Managers agrees that during the period commencing on the date hereof and
terminating on the later of (i) one year after such time as the Management
Agreement is terminated and neither Mr. Pilevsky nor Ms. Levine is a director or
executive officer of the Corporation, or (ii) the date on which neither Mr.
Pilevsky nor Ms. Levine beneficially owns more than fifteen (15%) percent of the
outstanding shares of common stock of the Corporation on a fully diluted basis
(including Partnership units redeemable for shares of common stock of the
Corporation (the "Non-
2
<PAGE>
Competition Period"), neither Mr. Pilevsky, Ms. Levine, the Managing Company nor
any affiliate of the Managing Company (within the meaning of Rule 12(b)-2 of the
Securities Exchange Act of 1934) (an "Affiliate" and together with Mr. Pilevsky,
Ms. Levine and the Managing Company, the "Managing Group") shall engage in any
way, directly or indirectly, in the acquisition, ownership, operation,
development, management, renovation or leasing of any retail shopping center
properties (or mixed properties which are primarily known as retail shopping
center properties based upon the relative square footage of each use) or any
improvements thereof located in the United States, except for (i) the Managing
Company in its capacity as a manager of the Owner's Properties, (ii) Mr.
Pilevsky or Ms. Levine in his or her capacity as a director, officer or employee
of the Managing Company but solely in the Managing Company's capacity as manager
of the Owner's Properties, or (iii) Mr. Pilevsky or Ms. Levine in his or her
capacity as an employee, director, trustee, officer or equity owner of the
Corporation; provided, however, that this Section 1(a) shall not apply to (i)
the activities of the Managing Group with respect to any property listed in
Exhibit A (the "Excluded Properties") attached hereto; (ii) the expansion of the
Excluded Properties which expansion is contiguous to such property and (a) will
not increase the existing gross leaseable area of the property by more than 10%;
or (b) is the result of the exercise of the fiduciary duty of Mr. Pilevsky or
Ms. Levine after discussion with their partners or members, as the case may be;
(iii) the acquisition, operation, development, management or leasing of any
retail shopping center property located anywhere in the Continental United
States by the Managing Group provided that the retail shopping center portion of
such property shall not exceed twenty thousand (20,000) square feet; (iv) the
acquisition by Mr. Pilevsky, Ms. Levine, their spouses and their issue of any
property or any interest in any property by inheritance; (v) Mr. Pilevsky or Ms.
Levine providing advice or
3
<PAGE>
financial assistance involving the acquisition, operation, development,
management or leasing of any retail shopping center property located anywhere in
New York City or outside the New York City area provided such property is not
within a two mile radius of property owned by the Corporation or the Partnership
(a "Non-Competitive Property"), to any of their children with regard to projects
that are Non-Competitive Properties initiated by such children, provided that
(x) at the time such child initially approaches such member of the Managing
Group, such member has no knowledge (following appropriate due diligence) that
the Partnership or Corporation is involved in or considering such a project and
(y) if such member of the Managing Group thereafter obtains knowledge that the
Partnership or Corporation is considering such a project, such member of the
Managing Group shall promptly inform the Partnership or Corporation , as the
case may be, of such member's involvement with his child and excuse himself from
any involvement with such project on behalf of the Partnership or Corporation,
as the case may be. In the event five (5) years from the date hereof Ms. Levine
has ceased being a director and an executive officer of the Corporation for at
least one year and beneficially owns less than five (5%) percent of the
outstanding shares of common stock of the Corporation on a fully diluted basis
(including Partnership units redeemable for shares of common stock of the
Corporation), then notwithstanding anything to the contrary herein, with respect
to Ms. Levine only, this Agreement shall be deemed terminated and of no further
force or effect.
Nothing contained in this Agreement shall in any way be construed as a
restriction or limitation, now or in the future, on the ability of Mr.
Pilevsky's father, Fred Pilevsky, or brother, Allen Pilevsky, to own, develop,
operate or manage retail shopping centers.
1(b) Reasonable and Necessary Restrictions. Each of the Managers
acknowledges that the restrictions, prohibitions and other provisions of this
Section 1 are
4
<PAGE>
reasonable, fair and equitable in scope, terms and duration, are necessary to
protect the legitimate business interests of Owner, and are a material
inducement to Owner's engagement of the Managing Company and the Corporation's
retention of Mr. Pilevsky and Ms. Levine.
1(c) Non-Solicitation. Each of the Managers agrees that during the
Non-Competition Period, none of the members of the Managing Group will directly
or indirectly solicit any of Owner's or its affiliates' non-clerical employees,
agents or independent contractors to end their relationship with Owner or its
affiliates.
1(d) Confidential Information. Each of the members of the Managing Group
shall hold in a fiduciary capacity for the benefit of the Partnership and the
Corporation all trade secrets and confidential information, knowledge or data
relating to Owner and its business and investments, which shall have been
obtained by the Managing Company during its engagement by Owner or Mr. Pilevsky
or Ms. Levine during his or her service as a director or officer of the
Corporation, and which is not generally available public knowledge (other than
by acts by members of the Managing Group in violation or this Agreement). Each
member of the Managing Group shall not, without the prior written consent of the
Partnership or Corporation or as may otherwise be required by law or any legal
process, or as is necessary in connection with any adversarial proceeding
against the Partnership or Corporation (in which case the members of the
Managing Group shall cooperate with the Partnership and/or Corporation, at the
expense of the Partnership and/or Corporation, in the Partnership and/or
Corporation seeking to obtain a protective order against disclosure by a court
of competent jurisdiction), communicate or divulge any such trade secrets,
information, knowledge or data to anyone other than the Partnership and/or
Corporation in furtherance of its or his business or to perform duties
hereunder.
5
<PAGE>
1(e) Removal of Documents. All records, files, drawings, documents, models,
equipment, and the like relating to the business of the Partnership or
Corporation which any member of the Managing Group has control over shall not be
removed from the premises of the Partnership or Corporation without the written
consent of the Partnership or Corporation, as the case may be, unless such
removal is in the furtherance of the business of the Partnership or Corporation
and, if so removed, shall be returned to the Partnership or Corporation, as the
case may be, promptly after termination of the employment of Mr. Pilevsky or Ms.
Levine or engagement of the Managing Company by the Partnership and/or
Corporation, as the case may be, or otherwise promptly after removal if such
removal occurs following termination of employment or engagement. Rolodexes,
telephone directories and similar type items, and furniture, art works and
property owned by members of the Managing Group or otherwise not owned by the
Partnership or Corporation shall not be deemed property of the Partnership or
Corporation and shall not be covered by this Section 1(e). The Partnership
and/or Corporation shall be the owner of all trade secrets and other products
relating to the Partnership's and/or Corporation's business developed by members
of the Managing Group alone or in conjunction with others as part of the
Managing Company serving as manager for Owner.
1(f) Specific Performance. Each of the Managers acknowledges that the
Partnership and Corporation will have no adequate remedy at law if any of the
Managers shall fail to perform any of its or his obligations hereunder, and each
of the Managers therefore confirms that the right of the Partnership and
Corporation to specific performance of the terms of this Section 1 is essential
to protect the rights and interests of the Partnership and Corporation.
Accordingly, in addition to any other remedies that the Partnership and
Corporation may have at law or in equity, the Partnership and Corporation shall
have the right to have all obligations,
6
<PAGE>
agreements and other provisions of this Section 1 specifically performed by the
Managers, and the Partnership and Corporation shall have the right to obtain
preliminary injunctive relief to secure specific performance and to prevent a
breach of this Section 1 by the Managers without a requirement to post any bond.
1(g) If, at the time of enforcement of this Section 1, a court shall hold
that the duration, scope, area or other restriction stated herein is
unreasonable, the parties hereto agree that reasonable maximum duration, scope,
area or other restriction may be substituted by such court for the stated
duration, scope, area or other restriction.
2. Miscellaneous.
2(a) Integration; Amendment. This Agreement supersedes and renders of no
force and effect all prior understandings and agreements with respect to the
matters set forth herein. No amendments or additions to this Agreement shall be
binding unless in writing and signed by all of the parties.
2(b) Assignment. No rights or obligations of the Partnership or Corporation
under this Agreement may be assigned or transferred, except in connection with a
merger, consolidation or sale of all or substantially all of the assets of the
Partnership or Corporation, as the case may be, where the successor of the
Partnership or Corporation, as the case may be, expressly assumes and agrees to
perform this Agreement in the same manner and to the same extent that the
Partnership or Corporation, as the case may be, would be required to perform it
if no such succession had taken place; provided that the forgoing shall not
serve as a release of the Partnership or Corporation, as the case may be. None
of the Managers may assign this Agreement or any right or interest therein,
whether by operation of law or otherwise, without the prior written consent of
the Partnership and/or Corporation, as the case may be.
7
<PAGE>
2(c) Severability. Whenever possible, each provision and term of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision or term of this Agreement shall be held to
be prohibited by or invalid under such applicable law, then, subject to the
provisions of Section 1(g) above, such provision or term shall be ineffective
only to the extent of such prohibition or invalidity, without invalidating or
affecting in any manner whatsoever the remainder of such provision or term or
the remaining provisions or terms of this Agreement. In addition, in place of
such invalid or unenforceable provision, there shall automatically be added
hereto a provision as similar to such invalid or unenforceable provision as may
be possible and still be valid and enforceable.
2(d) Waivers.The failure or delay of any party at any time to require
performance by any other party of any provision of this Agreement, even if
known, shall not affect the right of such party to require performance of that
provision or to exercise any right, power, or remedy hereunder, and any waiver
by any party of any breach of any provision of this Agreement shall not be
construed as a waiver of any continuing or succeeding breach of such provision,
a waiver of the provision itself, or a waiver of any right, power or remedy
under this Agreement. No notice to or demand on any party in any case shall, of
itself, entitle such party to other or further notice or demand in similar or
the circumstances.
2(e) Burden and Benefit. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, executors,
personal and legal representatives, successors and, subject to Section 2(b)
above, assigns.
2(f) Governing Law; Headings. This Agreement and its construction,
performance, and enforceability shall be governed by, and construed in
accordance with, the laws of the State of New York without regard to provisions
of conflict of laws. Headings and titles
8
<PAGE>
herein are included solely for convenience and shall not affect, or be used in
connection with, the interpretation of this Agreement.
2(g) Notices. All notices called for under this Agreement shall be in
writing and shall be deemed to be sufficient if contained in a written
instrument delivered (i) in person, (ii) by first class registered or certified
mail, postage prepaid and return receipt requested, (iii) by overnight delivery
by a recognized courier service providing a receipt, or (iv) by facsimile
transmission confirmed by transmission report, addressed to the intended
recipient at the address set forth on the signature page hereof (or at such
other address for a party as shall be specified by like notice). Any notice
delivered to the party hereto to whom it is addressed shall be deemed to have
been given on the day it was received; provided, however, that if such day is
not a business day, then the notice shall be deemed to have been given and
received on the business day next following such day. If the other party is
aware that the intended recipient is not at the notice location, either
permanently or temporarily, notice also shall be sent to such location as the
notifying party becomes aware (after reasonable inquiry) that the intended
recipient is then located.
2(h) Counterparts. This Agreement may be executed in one or more
counterparts, each of which counterparts shall be deemed to be an original, and
all such counterparts shall constitute one and the same instrument.
2(i) Number and Gender. When the context in which the words are used in
this Agreement indicates that such is the intent, words in singular number shall
include the plural and vice-versa. All terms and words used in this Agreement,
regardless of the sex or gender in which they are used shall be deemed to
include each other sex and gender unless the context requires otherwise.
9
<PAGE>
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK
10
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this
Agreement, or caused this Agreement to be duly executed on their behalf, as of
the date first above written.
PHILIPS INTERNATIONAL REALTY CORP.
By: _______________________________________
Name:
Title:
Address:
PHILIPS INTERNATIONAL REALTY, L.P.
By: PHILIPS INTERNATIONAL REALTY CORP
a general partner
By: _______________________________________
Name:
Title:
Address:
PHILIPS INTERNATIONAL HOLDING CORP.
By: _______________________________________
Name:
Title:
Address:
_______________________________________
Philip Pilevsky, individually
Address:
_______________________________________
Sheila Levine, individually
Address:
11
<PAGE>
================================================================================
EMPLOYMENT AGREEMENT
FOR
LOUIS J. PETRA
================================================================================
<PAGE>
TABLE OF CONTENTS
PAGE
1. EMPLOYMENT. 2
2. SERVICES. 3
3. COMPENSATION AND BENEFITS. 3
4. TERMINATION OF EMPLOYMENT. 7
5. CONFIDENTIAL INFORMATION AND NON-SOLICITATION. 16
6. RETURN OF DOCUMENTS. 17
7. NONCOMPETE. 18
8. REMEDIES. 19
9. SUCCESSORS AND ASSIGNS. 19
10. TIMING OF AND NO DUPLICATION OF PAYMENTS. 20
11. MODIFICATION OR WAIVER. 21
12. NOTICES. 21
13. EXECUTIVE REPRESENTATION. 21
14. TAX LIABILITY. 22
15. GOVERNING LAW. 22
16. SEVERABILITY. 22
17. COUNTERPARTS. 23
18. HEADINGS. 23
19. ENTIRE AGREEMENT. 23
20. SURVIVAL OF AGREEMENTS. 23
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of
September 2, 1997 by and between Louis J. Petra, an individual residing at 4
Pembroke Drive, North Massapequa, New York 11758 ("Executive"), and Philips
International Realty Corp., a Maryland corporation with offices at c/o Philips
International, 417 Fifth Avenue, New York, New York 10016 ("New Reit").
RECITALS
WHEREAS, as set forth in the Contribution and Exchange Agreement by and
between the Property Partnerships (as defined therein), National Properties
Investment Trust, a Massachusetts business trust ("National"), Philips
International Realty, L.P., a Delaware limited partnership ("PRLP") and New Reit
dated August 11, 1997, the Property Partnerships, National and PRLP have
determined that it is in the best interests of the parties' long term strategic
growth to combine their respective properties and related assets;
WHEREAS, in order to effectuate this combination, the Property
Partnerships and National have agreed to contribute certain properties and other
assets located throughout the States of New York, New Jersey, Connecticut,
Massachusetts and Florida and owned or controlled by the Property Partnerships
or National (the "Property") to New Reit and New Reit has agreed to contribute
such Property to PRLP in exchange for a general partnership interest therein,
all as of the closing (the "Closing");
<PAGE>
WHEREAS, it is anticipated that the Closing shall occur and New Reit
shall begin operations in December 1997; and
WHEREAS, it is anticipated that New Reit will raise $100,000,000 in
equity on or before June 1, 1998, through the initial sale to the public of its
Common Stock par value $.01 per share (the "New Reit Common Stock") for cash,
with such level, timing and manner of equity raise collectively considered for
purposes of this Agreement to constitute and hereinafter are referred to as, the
initial public offering (the "IPO"); and
WHEREAS, New Reit desires to employ Executive, and Executive desires to
be employed by New Reit, pursuant to the terms set forth herein.
NOW, THEREFORE, in consideration of the promises and the mutual
covenants and agreements set forth herein and for other good and valuable
consideration, the adequacy and receipt of which are hereby acknowledged, the
parties hereto agree as follows:
1. Employment.
New Reit hereby agrees to employ Executive, and Executive
hereby agrees to be employed by New Reit, on a full-time basis for a term
commencing September 2, 1997 and expiring on December 31, 2002, unless this
Agreement shall be either (i) extended thereafter by mutual agreement of the
parties, or (ii) terminated earlier pursuant to the terms hereof. The term of
this Agreement during which Executive shall be employed on a full-time basis is
referred to herein as the "Employment Period."
2
<PAGE>
2. Services.
During the Employment Period, Executive shall hold the
position of President and shall serve as a member of the Board of Directors of
New Reit (the "Board"). Executive shall devote his best efforts and
substantially all of his business time, skill and attention to the business of
New Reit, and shall perform such duties as are customarily performed by similar
executive officers and as may be more specifically enumerated from time to time
by the Board or the Executive Committee of the Board, if any; provided, however,
that the foregoing is not intended to preclude Executive from (a) owning and
managing personal investments, including real estate investments, subject to the
restrictions set forth in Paragraph 7 hereof or (b) engaging in charitable
activities and community affairs, provided that the performance of these
activities referred to in clauses (a) and (b) does not prevent Executive from
devoting substantially all of his business time to New Reit.
Executive shall be based in New York, New York, subject to
reasonable travel requirements.
3. Compensation and Benefits.
During the Employment Period, New Reit shall pay Executive the
following annual base salary which shall be payable in accordance with New
Reit's normal payroll practices ("Annual Base Salary): $175,000 beginning
September 2, 1997 through December 31, 2000; $200,000 beginning on January 1,
2001 through December 31, 2001; and $225,000 beginning on January 1, 2002
through December 31, 2002 and thereafter, if applicable, as may be mutually
agreed by the parties.
3
<PAGE>
Executive shall be eligible to participate in the annual bonus
program for key executives pursuant to which Executive shall receive a bonus
based upon a formula and subject to certain performance goals having been
achieved, with such formula and performance goals to be determined by the Board,
in its sole discretion, by the end of the first quarter of each year. It is
anticipated, but not guaranteed, that the bonus program hurdle will be a fifteen
(15%) percent year-to-year increase in the Funds from Operations of New Reit.
New Reit shall deduct and withhold from compensation payments
all social security and other federal, state and local taxes and charges in the
minimum amounts (or such greater amounts as the Executive may from time to time
request) which currently are or which hereafter may be required by law to be so
deducted and withheld, including withholding pursuant to bonus withholding
rates, as applicable. In addition to the compensation specified above, Executive
shall be entitled to the following benefits:
(a) health and hospitalization (family), life insurance,
disability, business travel accident, paid vacation
and any other compensated absences and any other
plans made generally available to other executive
officers of New Reit; provided, however that during
the months of August, 1997 through February, 1998 (or
such later month during which Executive first becomes
eligible for enrollment in New Reit's health and
hospitalization programs), Executive shall be
reimbursed for the cost of his COBRA premium;
(b) a $500 monthly reimbursement for local travel
expenses; and
(c) reimbursement for substantiated reasonable business
expenses including out-of-town travel expenses
incurred by Executive in furtherance of the interests
of New Reit.
In addition, the Board, in its sole discretion, may (i) grant Executive
restricted share awards and options to purchase shares of New Reit Common Stock,
in addition to the
4
<PAGE>
Options discussed hereinafter and (ii) offer Executive participation in any
other bonus, stock based compensation or other executive compensation plans or
programs made generally available to executives of New Reit.
As further consideration for Executive agreeing to serve as
President and entering into this Agreement upon the terms set forth herein,
including, without limitation, the terms relating to non-competition set forth
in Paragraph 7 below, New Reit shall:
(a) at the Closing issue to Executive options to
purchase 40,000 shares of Common Stock pursuant to
he New Reit 1997 Stock Option and Long-Term
Incentive Plan (the "Plan") which Plan will be
adopted by New Reit and approved by shareholders
concurrently with the Closing) at an exercise price
equal to the price of Common Stock at the Closing
(the "Options") provided, however, that after
taking into account the Options and any dilution
which may occur as a result of the IPO with respect
to the underlying shares of Common Stock, upon the
consummation of the IPO, Executive shall have an
option to purchase 100,000 shares of New Reit
Common Stock at an exercise price equal to the price
to the public for shares of New Reit Common Stock
sold in the IPO. Executive's Options shall be
evidenced by an option grant agreement dated as of
the date of the Closing which agreement shall
include, but not be limited to, the following
provisions: vesting, subject to Executive's continued
employment with New Reit and the provision of
Paragraphs 4(c), 4(e) and 4(f) below, over a five (5)
year period with 10,000 of the Options vesting on
each of December 31, 1999, December 31, 2000,
December 31, 2001 and December 31, 2002 (unless
vesting is otherwise accelerated pursuant to the
terms and conditions of this Agreement or the
option grant agreement); non-transferability and
anti-dilution provisions; and, provisions relating
to the use of the Options together with the
underlying stock to collateralize any funds
necessary for exercise; and
(b) concurrently with the IPO or as soon as practicable
thereafter, loan on a non-recourse basis to Executive
$1,000,000 (the "Stock Acquisition Loan"), with the
loan proceeds to be used by Executive simultaneously
to purchase as many newly issued shares of New Reit
Common Stock, at the price to the public for shares
of New Reit Common Stock sold in the IPO, as such
Stock Acquisition Loan amount will permit. Interest
shall accrue on the Stock Acquisition Loan at six
(6%) percent per annum and shall be payable, on the
outstanding balance thereof from time to time,
quarterly in arrears. Dividends on the New Reit
Common Stock
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acquired by Executive, subject to reduction for
interest repayment, shall be payable to Executive at
such times and in such amounts as may generally be
declared by the Board with respect to all shares of
New Reit Common Stock then outstanding without regard
to whether the Stock Acquisition Loan has been repaid
or forgiven. The Stock Acquisition Loan is being
granted and secured pursuant to the terms and
conditions of this Agreement, with the New Reit
Common Stock purchased with the proceeds of the Stock
Acquisition Loan and a Secured Non-Recourse
Promissory Note and Stock Pledge Agreement evidencing
and securing such Stock Acquisition Loan as executed
between New Reit and Executive. In the event of a
conflict between the aforementioned documents and
this Agreement, the terms of this Agreement shall
control.
It is the intention of the parties that the dividends
received by Executive on the New Reit Common Stock
purchased with the proceeds of the Stock Acquisition
Loan will equal or exceed the interest payable
thereon. Accordingly, New Reit hereby agrees to
timely pay Executive such additional cash
compensation as may be necessary for Executive to
maintain cash neutrality, giving appropriate
consideration to the taxability of any such
additional cash compensation, should the timing
and/or amount of dividends received by the Executive
be insufficient to fund interest payable on the Stock
Acquisition Loan.
The Stock Acquisition Loan shall be forgiven as
follows: subject to the provisions of either
Paragraph 4(e) or 4(f) below, $500,000 of the
principal shall be forgiven on December 31, 2000
provided Executive is employed by New Reit on the day
immediately preceding that date, and the other
$500,000 of the principal shall be forgiven ratably
pursuant to the provisions of Paragraph 4(c) below,
and subject to the provisions of Paragraph 4(f)
below, with the entire outstanding balance forgiven
as of December 31, 2002 (the "Forgiven Amount")
provided Executive is employed by New Reit on the day
immediately preceding that date.
The Stock Acquisition Loan shall be initially secured
by the shares of New Reit Common Stock purchased by
Executive from New Reit with the proceeds of the
Stock Acquisition Loan. On December 31, 2000, the
outstanding balance of the Stock Acquisition Loan
shall be secured only by shares of New Reit Common
Stock having a Fair Market Value of one hundred
twenty-five (125%) percent of the outstanding
principal amount of the Stock Acquisition Loan. On
December 31, 2000 (the "Determination Date"), New
Reit shall reasonably determine the aggregate Fair
Market Value of the collateral (the "Collateral
Value") being held. If on such Determination Date the
Collateral Value exceeds one hundred
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twenty-five (125%) percent of the outstanding balance
of the Stock Acquisition Loan on such Determination
Date after giving effect to any loan forgiveness, as
applicable (the "Secured Loan Amount"), New Reit
shall automatically release to Executive such portion
of the collateral the aggregate Fair Market Value of
which equals the Collateral Value less the Secured
Loan Amount, free and clear of any and all
encumbrances under the Stock Pledge Agreement.
Executive shall be required to execute the
aforementioned Stock Pledge Agreement and Secured
Non-Recourse Promissory Note. New Reit shall then
issue shares of New Reit Common Stock to Executive in
exchange for the Stock Acquisition Loan. New Reit
shall, upon receipt from Executive of the Stock
Pledge Agreement and Secured Non-Recourse Promissory
Note for New Reit Common Stock purchased with the
proceeds of the Stock Acquisition Loan, make prompt
delivery of the certificates evidencing ownership of
the shares of New Reit Common Stock to Executive,
subject to any requirements set forth in the Stock
Pledge Agreement; provided, however, that if any law
or regulation requires New Reit to take any action
with respect to such shares prior to the delivery
thereof, then the date of the delivery of the shares
shall be extended for the period necessary to
complete such action. As soon as practicable
following such time as New Reit is eligible to use
Form S-3 (or any successor form thereof) to register
such shares of New Reit Common Stock, New Reit shall
use its reasonable best efforts to register the
resale of such shares through a shelf registration
statement under the Securities Act of 1933, as
amended (the "Act"). The Company agrees that if at
any time after the IPO and prior to such
registration, the Company authorizes the filing of a
registration statement under the Act in connection
with the proposed offer of any of its securities by
the Company or any of its shareholders ("Subsequent
Registration Statement"), New Reit shall use its
reasonable best efforts to register the shares of New
Reit Common Stock purchased by Executive with the
proceeds of the Stock Acquisition Loan via the
Subsequent Registration Statement. Certificates for
shares of New Reit Common Stock, when released to
Executive, shall have restrictive legends applicable
to the Stock Pledge Agreement and any statements of
other applicable restrictions with respect thereto
removed.
4. Termination of Employment.
(a) Either New Reit or Executive may terminate this Agreement
after June 1, 1998 and before September 1, 1998 if the IPO has not occurred,
provided,
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however, that if New Reit is currently marketing a preliminary prospectus or
"red herring" with respect to a public offering by June 1, 1998, the June 1,
1998 termination date shall be extended to July 1, 1998 for purposes of this
Paragraph. Regardless of the party electing termination of this Agreement, New
Reit shall pay Executive a single-sum payment on date of termination equal to
the product of $7,500 multiplied by each month which has elapsed from August 1,
1997 through the date of termination, pro-rated for any portion of a month. In
the event of a termination of Executive's employment under this Paragraph,
neither New Reit nor Executive shall have any further obligations under this
Agreement or otherwise.
(b) In the event New Reit terminates Executive's employment
for any reason other than Cause, prior to June 1, 1998 and the IPO occurs prior
to June 1, 1998, in lieu of any payment under Paragraph 4(a) above, New Reit
shall pay Executive a single sum payment of $350,000 on June 1, 1998. In the
event Executive's employment terminates prior to June 1, 1998 for any reason
described in the preceding sentence of this Paragraph 4(b), and the IPO does not
occur prior to June 1, 1998, New Reit shall pay Executive the amount to which
Executive would be entitled had termination occurred pursuant to Paragraph 4(a)
above. In the event of a termination of Executive's employment under this
paragraph, neither New Reit nor Executive shall have any further obligation
under this Agreement or otherwise.
(c) Either New Reit or Executive may terminate this Agreement
effective December 31, 2000 or at any time thereafter. Regardless of the party
electing termination, the balance of the Options issued hereunder shall
immediately vest. In the event this Agreement is terminated at any time after
December 31, 2000 and prior to December 31, 2002, an additional principal amount
of the Stock Acquisition Loan shall
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<PAGE>
be forgiven, which amount will be equal to the outstanding principal balance of
the Stock Acquisition Loan multiplied by a fraction, the numerator of which
shall be the number of days Executive is employed by New Reit after December 31,
2000 and the denominator of which shall be 730. The balance of the Stock
Acquisition Loan shall be accelerated and all amounts outstanding thereunder
(both principal and interest) shall become due and owing on Executive's date of
termination. In the event Executive does not pay the full balance due under the
Stock Acquisition Loan on date of termination of this Agreement, and the
Collateral Value equals or exceeds the unpaid balance due, that portion of the
collateral necessary to repay the Stock Acquisition Loan shall be sold by New
Reit and the proceeds of such sales shall be used to satisfy the balance due
thereon. Any remaining shares of New Reit Common Stock ("the Excess Collateral")
shall be released to Executive as soon as practicable after Executive's date of
termination and such sales. New Reit shall pay Executive any unpaid salary
accrued through and including the date of termination (the "Accrued Amount"). In
addition, Executive shall be entitled (i) to exercise any warrants and options,
including the Options granted hereunder, which have vested and are exercisable
in accordance with the terms of this Agreement, any applicable stock option plan
or agreement, or warrant agreement, and (ii) to retain any shares awarded to
Executive which are fully vested on the date of termination. Except for any
rights Executive may have under this Paragraph 4(c), New Reit shall have no
further obligations hereunder following such termination.
(d) In the event after June 1, 1998 but before December 31,
2000 (i) New Reit terminates Executive's employment for Cause (as hereinafter
defined) or (ii) Executive terminates his employment without Good Reason (as
hereinafter defined), New Reit shall pay Executive the Accrued Amount
immediately upon termination of
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<PAGE>
employment. In addition, in such event, Executive shall be entitled (i) to
exercise any warrants and options, including the Options granted hereunder,
which have vested and are exercisable in accordance with the terms of this
Agreement, any applicable stock option plan or agreement, or warrant agreement,
and (ii) to retain any shares awarded to Executive which are fully vested on the
date of termination. Except as provided in Paragraph 4(f) below, the Stock
Acquisition Loan shall be accelerated and all amounts outstanding thereunder
(both principal and interest) shall become due and owing on Executive's date of
termination. In the event Executive does not pay the full balance due under the
Stock Acquisition Loan on date of termination of this Agreement, and the
Collateral Value equals or exceeds the unpaid balance due, that portion of the
collateral necessary to pay the Stock Acquisition Loan shall be sold by New Reit
and the proceeds of such sales shall be used to satisfy the balance due thereon.
Any Excess Collateral shall be released to Executive as soon as practicable
following the Executive's date of termination and such sales. Except for any
rights which Executive may have under this Paragraph 4(d), New Reit shall have
no further obligations hereunder following such termination.
(e) In the event of termination of Executive's employment
after June 1, 1998 but before December 31, 2000 as a result of either (i)
Executive's death or Disability (as hereinafter defined), (ii) termination by
New Reit for any reason other than Cause or (iii) termination by Executive of
his employment for Good Reason, New Reit shall pay to Executive (A) the Accrued
Amount (B) any unpaid salary, at the rate then in effect without reduction, from
the date of termination through December 31, 2000 (as if no such termination
occurred) and (C) a pro-rata portion, based upon the number of days of
employment in the period beginning with January 1 of the calendar
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<PAGE>
year in which such termination occurred divided by the full calendar year
multiplied by the case bonus payments paid to Executive for the immediately
preceding calendar year (the "Pro-Rata Bonus"). The aforesaid amounts shall be
payable in full immediately upon such termination. In addition, Executive shall
have a fully-vested non-forfeitable right to the Options , and any options or
restricted stock awards previously granted to him as of the date the applicable
event listed in the first sentence of this Paragraph 4(e) occurs. Furthermore,
and except as provided in Paragraph 4(f) below, $500,000 of the principal of the
Stock Acquisition Loan shall be forgiven on the date of termination and all
other amounts outstanding under the Stock Acquisition Loan shall become due and
owing on the date of termination. In the event Executive does not pay the full
balance due under the Stock Acquisition Loan on date of termination of this
Agreement, and the Collateral Value equals or exceeds the unpaid balance due,
that portion of the collateral necessary to repay the Stock Acquisition Loan
shall be sold by New Reit and the proceeds of such sales shall be used to
satisfy the balance due thereon. Any Excess Collateral shall be released to
Executive as soon as practicable following the Executive's date of termination
and such sales. Executive shall be entitled, at the option of Executive, his
estate or his personal representative, within ninety (90) days (one (1) year in
the case of termination as a result of Executive's death or Disability) of the
date of such termination, (i) to exercise any options including the Options
granted herein, to purchase shares of New Reit Common Stock that have vested
(including, without limitation, by acceleration in accordance with the terms of
this Agreement) and are exercisable in accordance with the terms of either this
Agreement, any stock option plan or agreement, and (ii) to retain any shares of
New Reit Common Stock awarded to Executive which are vested on the date of
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<PAGE>
termination. Except for any rights which Executive may have under this Paragraph
4(e), New Reit shall have no further obligations hereunder following such
termination.
(f) In the event a Change in Control occurs during the
Employment Period, and the Executive is actively employed on the day immediately
preceding the date of a Change in Control, notwithstanding any other provision
of this Agreement the entire outstanding balance of the Stock Acquisition Loan
shall be forgiven, Executive shall have a fully vested non-forfeitable right
to the Options and any options or restricted stock awards previously granted to
him as of the date of the Change in Control and the Excise Tax Gross-Up, if
applicable, pursuant to the provisions of Paragraph 4(j) below. In addition,
the provisions of Paragraph 7 of this Agreement shall no longer apply to
Executive after the date of the Change in Control. In the event a Change in
Control occurs after June 1, 1998 but before December 31, 2000 and the
Executive's employment is terminated by New Reit or any successor thereto for
any reason on or after the date a Change in Control occurs, Executive shall also
be entitled to receive payment of (i) the Accrued Amount, (ii) any unpaid
salary, at the rate then in effect without reduction, through December 31, 2000,
if applicable (as if no such termination occurred) and (iii) the Pro-Rata
Bonus. The aforesaid amounts shall be payable in full immediately upon such
termination.
(g) For purposes of this Agreement:
(i) "Cause" shall mean (A) the willful and
continued failure by Executive to
substantially perform his duties hereunder
(other than any such failure resulting from
Executive's incapacity due to physical or
mental illness) for a period of thirty (30)
days after written demand for substantial
performance is delivered by New Reit
specifically identifying the manner in which
New Reit believes Executive has not
substantially performed his duties, or (B)
willful misconduct by Executive which is
materially injurious to New Reit,
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<PAGE>
monetarily or otherwise, or (C) the willful
violation by Executive of the provisions of
Paragraph 5 or 7 hereof. For purposes of
this Paragraph 4(e)(i), no act, or failure
to act, on Executive's part shall be
considered "willful" unless done, or omitted
to be done, by him not in good faith and
without reasonable belief that his action or
omission was in furtherance of the interests
of New Reit.
(ii) "Disability" shall mean the determination by
New Reit, upon the advice of an independent
qualified physician, reasonably acceptable
to Executive, that Executive has become
physically or mentally incapable of
performing his duties under this Agreement
and such disability has disabled Executive
for a cumulative period of one hundred
eighty (180) days within a twelve (12) month
period.
(iii) "Fair Market Value" shall mean the closing
price on the New York Stock Exchange of the
New Reit Common Stock (or such other
exchange on which the New Reit Common Stock
is traded) on the trading day immediately
preceding the date for which there is to be
a determination of value under this
Agreement;
(iv) "Good Reason" shall mean (A) any assignment
to Executive of any duties materially
different from those contemplated by
Paragraph 2 hereof, or any limitation on the
powers of Executive in any respect not
contemplated by Paragraph 2 hereof or other
material breach of this Agreement by New
Reit, (B) a reduction in Executive's Annual
Base Salary as in effect at the time in
question, or any other material failure by
New Reit to comply with Paragraph 3 hereof,
provided, however, that in the event
Executive is not awarded a bonus as a result
of the Board not approving a bonus pool for
a particular year or other discretionary
payment or discretionary award described in
Paragraph 3, it shall not be deemed a
failure, or (C) failure of New Reit to
obtain the assumption of the obligation to
perform this Agreement by any successor as
contemplated in Paragraph 9(a) hereof.
(v) "Change in Control" shall mean, exclusive of
the IPO that any of the following events has
occurred: (a) any "person" or "group" of
persons, as such terms are used in Sections
13 and 14 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), other
than any employee benefit plan sponsored by
New Reit, becomes the "beneficial owner", as
such term is used in Section 13 of the
Exchange Act, of thirty (30%) percent or
more of either (i) the New Reit
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Common Stock or (ii) the units of limited
partnership interests in PRLP ("Units")
issued and outstanding immediately prior to
such acquisition; (b) any New Reit Common
Stock is purchased pursuant to a tender or
exchange offer other than an offer by New
Reit; or (c) the dissolution or liquidation
of New Reit or the consummation of any
merger or consolidation of New Reit or any
sale or other disposition of all or
substantially all of its assets, if the
shareholders of New Reit immediately before
such transaction own, immediately after
consummation of such transaction, equity
securities (other than options and other
rights to acquire equity securities)
possessing less than thirty percent (30%) of
the voting power of the surviving or
acquiring company.
(h) In connection with any sale of New Reit Common Stock
necessary to satisfy the Stock Acquisition Loan, in the event the sale price
which New Reit can obtain is less than ninety-five (95%) percent of the average
closing price of the Common Stock for the ten (10) business days immediately
preceding Executive's termination of employment, New Reit shall not cause New
Reit Common Stock which serves as collateral for the Stock Acquisition Loan with
an aggregate market value in excess of $50,000 to be sold on any one (1) day.
(i) Any termination of Executive's employment by New Reit or
any such termination by Executive (other than on account of death) shall be
communicated by written Notice of Termination to the other party hereto. Prior
to the IPO, for purposes of this Agreement, a "Notice of Termination" shall mean
a notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of Executive's
employment under the provision so indicated. After the IPO, (i) New Reit must
give Executive thirty (30) days advance notice in writing of his termination and
(ii) Executive must give New Reit ninety (90) days advance notice in
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<PAGE>
writing of his termination. Upon receipt of notice from Executive under (ii)
above, New Reit, in its sole discretion, may establish an earlier date of
termination which shall not be less than thirty (30) days after the date of
Executive's notice. New Reit must pay Executive for the applicable thirty (30)
day period, but, in its sole discretion, may require that Executive no longer
actively work, provided however, that for purposes of this Agreement the date of
termination under (i) or (ii) above shall be the thirtieth (30th) day
immediately following the date of notice.
(j) Excise Tax Gross Up. In addition, if it is determined by an
independent accountant mutually acceptable to New Reit and Executive that as a
result of any payment in the nature of compensation made by New Reit to (or for
the benefit of) Executive pursuant to this Agreement or otherwise, an excise tax
may be imposed on Executive pursuant to Section 4999 of the Code (or any
successor provisions), New Reit shall pay Executive in cash an amount equal to X
determined under the following formula: (the "Excise Tax Gross Up"):
E x P
X = -----------------------------------
1-[(FI x (1-SLI)) + SLI + E + M]
where
E = the rate at which the excise tax is assessed
under Section 4999 of the Code (or any
successor provisions);
P = the amount with respect to which such excise
tax is assessed, determined without regard
to the Excise Tax Gross Up;
FI = the highest effective marginal rate of
income tax applicable to Executive under the
Code for the taxable year in question
(taking into account any phase-out or loss
of deductions, personal exemptions or other
similar adjustments);
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SLI = the sum of the highest effective marginal
rates of income tax applicable to Executive
under all applicable state and local laws
for the taxable year in question (taking
into account any phase-out or loss of
deductions, personal exemptions and other
similar adjustments); and
M = the highest marginal rate of Medicare tax
applicable to Executive under the Code for
the taxable year in question.
With respect to any payment in the nature of compensation that is made to (or
for the benefit of) Executive under the terms of this Agreement or otherwise and
on which an excise tax under Section 4999 of the Code (or any successor
provisions) may be assessed, the payment determined under this Paragraph 4(j)
shall be paid to Executive at the time of the Change in Control but prior to the
consummation of the transaction with any successor. It is the intention of the
parties that New Reit provide Executive with a full tax gross-up under the
provisions of this Paragraph, so that on a net after-tax basis, the result to
Executive shall be the same as if the excise tax under Section 4999 of the Code
(or any successor provisions) had not been imposed. The Excise Tax Gross Up may
be adjusted if alternative minimum tax rules are applicable to Executive.
5. Confidential Information and Non-Solicitation.
(a) Executive understands and acknowledges that during his
employment with New Reit, he will be exposed to Confidential Information (as
defined below), all of which is proprietary and which will rightfully belong to
New Reit. Executive shall hold in a fiduciary capacity for the benefit of New
Reit such Confidential Information obtained by Executive during his employment
with New Reit and shall not, directly or indirectly, at any time, either during
or after his employment with New Reit, without New Reit's prior written consent,
use any of such Confidential Information or
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disclose any of such Confidential Information to any individual or entity other
than New Reit or its employees, except as required in the performance of his
duties for New Reit or as otherwise required by law. Executive shall take all
reasonable steps to safeguard such Confidential Information and to protect such
Confidential Information against disclosure, misuse, loss or theft.
(b) The term "Confidential Information" shall mean any
information not generally known in the relevant trade or industry or otherwise
not generally available to the public, which was obtained from New Reit, the
Partnership Properties, National or PRLP, or which was learned, discovered,
developed, conceived, originated or prepared during or as a result of the
performance of any services by Executive on behalf of New Reit. For purposes of
this Paragraph 5, New Reit shall be deemed to include any entity which is
controlled, directly or indirectly, by New Reit and any entity of which a
majority of the economic interest is owned, directly or indirectly, by New Reit.
(c) The Executives agrees that for a period of two (2) years
following his termination of employment with New Reit, the Executive will not
directly or indirectly, solicit, recruit, hire or cause to be hired for
employment, any individual or individuals who are employed by New Reit or its
subsidiaries/affiliates on or after his date of termination.
6. Return of Documents.
Except for such items which are of a personal nature to
Executive (e.g., daily business planner), all writings, records, and other
documents and things containing any Confidential Information shall be the
exclusive property of New
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Reit, shall not be copied, summarized, extracted from, or removed from the
premises of New Reit, except in pursuit of the business of New Reit or at the
direction of New Reit, and shall be delivered to New Reit, without retaining any
copies, upon the termination of Executive's employment or at any time as
requested by New Reit.
7. Noncompete.
Executive agrees that:
(a) During the Employment Period and in the event (i) New Reit
terminates Executive's employment for Cause, or (ii) Executive terminates his
employment hereunder without Good Reason, for a one (1) year period thereafter,
Executive shall not, directly or indirectly, within the States of New York, New
Jersey, Connecticut, Massachusetts or Florida engage in, or own, invest in,
manage, control, derive any compensation, or provide consulting services either
directly or indirectly with respect to any venture or enterprise engaged in any
development, acquisition or management activities with respect to retail
shopping center properties, without regard to whether or not such activities
compete with New Reit. Nothing herein shall prohibit Executive from being a
passive owner of not more than one (1%) percent of the outstanding stock of any
class of securities of a corporation or other entity engaged in such business
which is publicly traded, so long as he has no active participation in the
business of such corporation or other entity.
(b) If, at the time of enforcement of this Paragraph 7, a
court shall hold that the duration, scope, area or other restrictions stated
herein are unreasonable, the parties agree that without further action on their
parts reasonable maximum duration, scope, area or other restrictions shall be
substituted by such court for the stated duration, scope, area or other
restrictions.
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(c) For purposes of this Paragraph 7, New Reit shall be deemed
to include any entity which is controlled, directly or indirectly, by New Reit
and any entity of which a majority of the economic interest is owned, directly
or indirectly, by New Reit.
8. Remedies.
The parties hereto agree that New Reit would suffer
irreparable harm from a breach by Executive of any of the covenants or
agreements contained in Paragraph 5, 6 or 7 of this Agreement. Therefore, in the
event of the actual or threatened breach by Executive of any of the provisions
of Paragraph 5, 6 or 7 of this Agreement, New Reit may, in addition and
supplementary to other rights and remedies existing in its favor, apply to any
court of law or equity of competent jurisdiction for specific performance and/or
injunctive or other relief in order to enforce or prevent any violation of the
provisions thereof.
9. Successors and Assigns.
(a) Prior to December 31, 2000, New Reit shall require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of New
Reit, by agreement in form and substance reasonably satisfactory to Executive,
to expressly assume and agree to perform this Agreement in the same manner and
to the same extent that New Reit would be required to perform it if no such
succession had taken place. Failure of New Reit to obtain such agreement prior
to the effectiveness of a succession shall be a breach of this Agreement and
shall entitle Executive to compensation from New Reit in the same amount and on
the same terms as he would be entitled to hereunder if he terminated his
employment for Good Reason, except that for purposes of implementing
19
<PAGE>
the foregoing, the date on which any such succession becomes effective shall be
deemed the date of termination. In the event of such a breach of this Agreement,
the Notice of Termination shall specify such date as the date of termination. As
used in this Paragraph, "New Reit" shall mean New Reit as hereinbefore defined
and any successor to all or substantially all of its business and/or its assets
as aforesaid which executes and delivers the agreement provided for in this
Paragraph 9 or which otherwise becomes bound by all the terms and provisions of
this Agreement by operation of law. Any cash payments owed to Executive pursuant
to this Paragraph 9 shall be paid to Executive in a single sum, without discount
for early payment, immediately prior to the consummation of the transaction
with such successor.
(b) This Agreement and all rights of Executive hereunder shall
inure to the benefit of and be enforceable by Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If Executive should die while any amounts would still be
payable to him hereunder if he had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to Executive's devisee, legatee, or other designee or, if there be no
such designee, to Executive's estate.
10. Timing of and No Duplication of Payments.
All payments payable to Executive pursuant to this Agreement
shall be paid as soon as practicable after such amounts have become fully vested
and determinable. In addition, Executive shall not be entitled to receive
duplicate payments under any of the provisions of this Agreement.
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11. Modification or Waiver.
No amendment, modification, waiver, termination or
cancellation of this Agreement shall be binding or effective for any purpose
unless it is made in a writing signed by the party against whom enforcement of
such amendment, modification, waiver, termination or cancellation is sought. No
course of dealing between or among the parties to this Agreement shall be deemed
to affect or to modify, amend or discharge any provision or term of this
Agreement. No delay on the part of New Reit or Executive in the exercise of any
of their respective rights or remedies shall operate as a waiver thereof, and no
single or partial exercise by New Reit or Executive of any such right or remedy
shall preclude other or further exercise thereof. A waiver of right or remedy on
any one occasion shall not be construed as a bar to or waiver of any such right
or remedy on any other occasion.
12. Notices.
All notices or other communications required or permitted
hereunder shall be made in writing and shall be deemed to have been duly given
if delivered by hand or delivered by a recognized delivery service or mailed,
postage prepaid, by express, certified or registered mail, return receipt
requested, and addressed to New Reit or Executive, as applicable, at the address
set forth above (or to such other address as shall have been previously provided
in accordance with this Paragraph 12).
13. Executive Representation.
By executing this Agreement, Executive hereby warrants and
represents that he is not bound by any other agreement or subject to any other
restriction which
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would either prevent him from entering into this Agreement or from performing
his duties as contemplated hereunder.
14. Tax Liability.
Each party to this Agreement shall be responsible for their
own tax liability with respect to any payments made, forgiveness of debt or
otherwise pursuant to the terms of this Agreement.
15. Governing Law.
This agreement will be governed by and construed in accordance
with the laws of the State of New York, without regard to principles of
conflicts of laws thereunder.
16. Severability.
Whenever possible, each provision and term of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision or term of this Agreement shall be held to
be prohibited by or invalid under such applicable law, then, subject to the
provisions of Paragraph 7(b) above, such provision or term shall be ineffective
only to the extent of such prohibition or invalidity, without invalidating or
affecting in any manner whatsoever the remainder of such provisions or term or
the remaining provisions or terms of this Agreement.
22
<PAGE>
17. Counterparts.
This Agreement may be executed in separate counterparts, each
of which is deemed to be an original and both of which taken together shall
constitute one and the same agreement.
18. Headings.
The headings of the Paragraphs of this Agreement are inserted
for convenience only and shall not be deemed to constitute a part hereof and
shall not affect the construction or interpretation of this Agreement.
19. Entire Agreement.
This Agreement constitutes the entire agreement of the parties
with respect to the subject matter hereof and supersedes all other prior
agreements and undertakings, both written and oral, among the parties with
respect to the subject matter hereof.
20. Survival of Agreements.
The covenants made in Paragraphs 4, 5, 6 and 7 each shall
survive the termination of this Agreement.
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.
23
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
PHILIPS INTERNATIONAL REALTY CORP.
By:
---------------------------------
Name:
Title:
EXECUTIVE
---------------------------------
Louis J. Petra
24
<PAGE>
EMPLOYMENT AGREEMENT
FOR
SHEILA LEVINE
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
1. EMPLOYMENT. 2
2. SERVICES. 2
3. COMPENSATION AND BENEFITS. 3
4. TERMINATION OF EMPLOYMENT / CHANGE IN CONTROL. 5
5. CONFIDENTIAL INFORMATION / RETURN OF DOCUMENTS / NONCOMPETE. 11
6. SUCCESSORS AND ASSIGNS. 11
7. TIMING OF AND NO DUPLICATION OF PAYMENTS. 12
8. MODIFICATION OR WAIVER. 13
9. NOTICES. 13
10. GOVERNING LAW. 14
11. SEVERABILITY. 14
12. COUNTERPARTS. 14
13. HEADINGS. 14
14. ENTIRE AGREEMENT. 15
15. SURVIVAL OF AGREEMENTS. 15
</TABLE>
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of ,
1997 by and between Sheila Levine, an individual residing at
("Executive"), and Philips International Realty Corp., a Maryland corporation
with offices at c/o Philips International, 417 Fifth Avenue, New York, New York
10016 ("New Reit").
RECITALS
WHEREAS, as set forth in the Contribution and Exchange Agreement by and
between the Property Partnerships (as defined therein), National Properties
Investment Trust, a Massachusetts business trust ("National"), Philips
International Realty, L.P., a Delaware limited partnership ("PRLP") and New Reit
dated August 11, 1997 (the "Contribution and Exchange Agreement"), the Property
Partnerships, National and PRLP have determined that it is in the best interests
of the parties' long term strategic growth to combine their respective
properties and related assets;
WHEREAS, in order to effectuate this combination, the Property
Partnerships and National have agreed to contribute certain properties and other
assets located throughout the States of New York, New Jersey, Connecticut,
Massachusetts and Florida and owned or controlled by the Property Partnerships
or National (the "Property") to New Reit and New Reit has agreed to contribute
such Property to PRLP, all as of the closing (the "Closing Date");
<PAGE>
WHEREAS, Executive has served as a key executive of Philips
International and, through such service, has acquired special and unique
knowledge, abilities and expertise; and
WHEREAS, New Reit desires to employ Executive, and Executive desires to
be employed by New Reit, pursuant to the terms set forth herein.
NOW, THEREFORE, in consideration of the promises and the mutual
covenants and agreements set forth herein and for other good and valuable
consideration, the adequacy and receipt of which are hereby acknowledged, the
parties hereto agree as follows:
1. Employment.
New Reit hereby agrees to employ Executive, and Executive
hereby agrees to be employed by New Reit, for a term commencing on the date
hereof and expiring on _____________ ____,2000; provided, however, that
commencing on _____________ ____,2000, and each anniversary of that date
thereafter, the term of this Agreement shall be extended automatically for one
(1) additional year unless at least ninety (90) days prior to the applicable
expiration date either New Reit or Executive shall have given written notice
that such party does not wish to extend this Agreement. The term of this
Agreement, as it may be extended from time to time in accordance with this
Paragraph 1, is referred to herein as the "Employment Period."
2. Services.
During the Employment Period, Executive shall hold the
position of Chief Operating Officer and shall serve as a member of the Board of
Directors of New Reit
2
<PAGE>
(the "Board"). Executive shall devote her best efforts and substantially all of
her business time, skill and attention to the business of New Reit, and shall
perform such duties as are customarily performed by similar executive officers
and as may be more specifically enumerated from time to time by the Board or the
Executive Committee of the Board, if any; provided, however, that the foregoing
is not intended to preclude Executive from (a) owning and managing personal
investments, including real estate investments, subject to the restrictions set
forth in the Non-Competition Agreement by and among PRLP, New Reit, Philips
International Holding Corp., Philip Pilevsky and Executive dated , 1997 (the
"Non-Competition Agreement"), including without limitation conducting the real
estate development, acquisition or management activities related to the
properties listed in Exhibit A attached to the Non-Competition Agreement (the
"Excluded Properties") or (b) engaging in charitable activities and community
affairs, provided that the performance of these activities referred to in
clauses (a) and (b) does not prevent Executive from devoting substantially all
of her business time to New Reit.
Executive shall be based in New York, NY, subject to
reasonable travel requirements, in an office comparable to the office previously
provided to Executive by Philips International.
3. Compensation and Benefits.
During the Employment Period, New Reit shall pay Executive a
minimum annual base salary in the amount of $175,000 (which may be increased but
not decreased from time to time, (the "Annual Base Salary")), payable in
accordance with New Reit's normal payroll practices. In addition, Executive
shall receive a minimum of
3
<PAGE>
twenty-five (25%) percent of the annual bonus pool, with the annual bonus pool
to be determined by the Board each year. Executive's Annual Base Salary shall be
reviewed annually in accordance with the policy of New Reit from time to time
and may be increased based on, among other things, Executive's performance, as
determined in the sole discretion of the Board or compensation committee of the
Board ("Compensation Committee"), as applicable. New Reit shall have the right
to deduct and withhold from such compensation all social security and other
federal, state and local taxes and charges which currently are or which
hereafter may be required by law to be so deducted and withheld. In addition to
the compensation specified above, Executive shall be entitled to the following
benefits:
(a) participation in the any bonus, stock based
compensation or other executive compensation plans or
programs made generally available to executives of
New Reit;
(b) medical, life insurance, disability, business travel
accident, paid vacation and any other compensated
absences and any other plans made generally available
to employees of New Reit;
(c) use of a car; and
(d) reimbursement for reasonable business expenses
incurred by Executive in furtherance of the interests
of New Reit.
In addition, Executive shall be entitled to receive restricted share awards and
options to purchase shares of common stock, par value $0.01 per share, of New
Reit (the "Common Stock") as the Board shall approve, in its sole discretion.
As further consideration for Executive agreeing to serve as an
officer and entering into this Agreement upon the terms set forth herein,
including, without limitation, the terms relating to non-competition set forth
in the Non-Competition Agreement, subject to shareholder approval of the New
Reit 1997 Stock Option Plan and Long-Term Incentive Plan (the
4
<PAGE>
"Plan") New Reit is issuing to Executive options to purchase 40,000 shares of
Common Stock at a purchase price equal to fair market value on the Closing Date
("Options") provided, however, that after taking into account the Options and
any dilution which may occur with respect to the underlying shares of Common
Stock, as a result of the initial sale to the public of Common Stock for cash,
with such level, timing, and manner of equity raise collectively considered for
purposes of this Agreement to constitute an initial public offering (the "IPO"),
upon the consummation of the IPO, Executive shall have an option to purchase
100,000 shares of Common Stock at an exercise price equal to the price paid for
shares of Common Stock by the public in the IPO. Executive's Options shall be
evidenced by the option agreement dated as of the Closing Date which shall
include, but not be limited to, the following provisions: vesting over a three
year period, subject to Executive's continued employment with New Reit and the
provisions of Paragraphs 4(b) and 4(c) below, with one third (1/3) of the
Options vesting on each of the first, second and third anniversaries of the
date hereof and non-transferability and anti-dilution provisions.
4. Termination of Employment / Change in Control.
(a) In the event (i) New Reit terminates Executive's
employment for Cause (as hereinafter defined) or (ii) Executive terminates her
employment without Good Reason (as hereinafter defined), New Reit shall pay
Executive any unpaid salary accrued through and including the date of
termination (the "Accrued Amount"). In addition, in such event, Executive shall
be entitled (i) to exercise any options, including the Options granted
hereunder, which have vested and are exercisable in accordance with the terms of
this Agreement, the applicable stock option agreement or the Plan, and (ii) to
retain any shares awarded to Executive which are fully vested on the date of
5
<PAGE>
termination. Except for any rights which Executive may have to the Accrued
Amount, vested options and vested share awards, New Reit shall have no further
obligations hereunder following such termination.
(b) In the event of termination of Executive's employment as a
result of either (i) Executive's death or Disability (as hereinafter defined),
(ii) termination by New Reit for any reason other than Cause or (iii)
termination by Executive of her employment for Good Reason, New Reit shall pay
to Executive (A) the Accrued Amount, (B) the unpaid salary, at the rate then in
effect without reduction, from the date of termination through the end of the
Employment Period remaining (assuming no such termination occurred) and (C) a
pro-rata portion, based upon the number of days in the period beginning with
January 1 of the calendar year in which such termination occurred and ending
with the date the Employment Period ends (assuming such termination did not
occur), of the average annual amount of bonus pool payments paid to Executive
during each year of Executive's employment hereunder. In the event the Executive
is terminated in the first year of employment, Executive shall receive her
pro-rata portion of the amount that would have otherwise been payable to
Executive in such year had her employment not terminated. The aforesaid amount
shall be payable, at the option of Executive, her estate or her personal
representative, either (i) in full immediately upon such termination without
discount for early payment or (ii) monthly over the remainder of the Employment
Period. In addition, Executive shall have a fully-vested non-forfeitable right
to the Options and any other options or restricted stock awards previously
granted to her as of the date the applicable event listed in the first sentence
of this Paragraph 4(b) occurs. Executive shall be entitled, at the option of
Executive, her estate or her personal representative, within ninety (90) days
(one (1) year in the case of termination
6
<PAGE>
as a result of Executive's death or Disability) of the date of such termination,
(i) to exercise any options to purchase shares of Common Stock that have vested
(including, without limitation, by acceleration in accordance with the terms of
this Agreement) and are exercisable in accordance with the terms of either this
Agreement, any stock option agreement or the Plan, (ii) to retain any shares of
Common Stock awarded to Executive which are vested on the date of termination,
and (iii) to require New Reit (upon written notice delivered within one hundred
eighty (180) days following the date of Executive's termination) to repurchase
all or any portion of Executive's vested options (including without limitation
options, if any, which have vested by acceleration in accordance with the terms
of this Agreement the Plan or stock option agreement) to purchase shares of
Common Stock at a price equal to the difference between the Fair Market Value
(as hereinafter defined) of the shares of Common Stock for which the options to
be repurchased are exercisable and the exercise price of such option as of the
date of Executive's termination of employment.
(c) (i) In the event of a Change in Control (as hereinafter
defined) and irrespective of whether Executive's employment terminates in
connection with such Change in Control, New Reit shall pay Executive and
Executive shall be entitled to all the payments and rights Executive would have
had if Executive's employment had been terminated on the date of the Change in
Control due to Disability as set forth in sub-paragraph 4(b) (including vesting
in the Options and all other options and restricted stock awards and all
benefits under this Agreement) except that Executive must exercise any options
which have vested within ninety (90) days (one (1) year in the case of
termination as a result of Executive's death or Disability) of her actual
termination of employment. Furthermore, all cash payments owed to Executive
pursuant to this Paragraph 4(c)(i)
7
<PAGE>
shall be paid to Executive in a single sum without discount for early payment on
or immediately prior to the date of the Change in Control but prior to the
consummation of the transaction with any successor.
(ii) If the Change in Control is a change
"in the ownership or effective control" of New Reit or "in the ownership of a
substantial portion of the assets" of New Reit within the meaning of Section
280G of the Internal Revenue Code of 1986, as amended, (the "Code") and the
Executive is then, in any taxable year, liable for the payment of an excise tax
under Section 4999 of the Code (or successor provision thereto), with respect
to any payment in the nature of compensation made by New Reit to (or for the
benefit of) Executive, New Reit shall pay Executive an amount equal to X
determined under the following formula:
X = E x P
------------------------------------------
1 - [(FI x (1 - SLI)) + SLI + E + M]
where
E = the rate at which the excise tax is assessed under
Section 4999 of the Code
P = the amount with respect to which such
excise tax is assessed, determined without
regard to this Section 4(c)(ii)
FI = the highest effective marginal rate of
income tax applicable to Executive under the
Code for the taxable year in question (taking
into account any phase-out or loss of
deductions, personal exemptions and other
similar adjustments);
SLI = the sum of the highest marginal rates of
income tax applicable to Executive under all
applicable state and local laws for the
taxable year in question (taking into account
any phase-out or loss of deductions, personal
exemptions and other similar adjustments);
and
M = the highest marginal rate of Medicare Tax
applicable to Executive under the Code for
the taxable year in question.
8
<PAGE>
With respect to any payment in the nature of compensation that is made to (or
for the benefit of) Executive under the terms of this Agreement or otherwise and
on which an excise tax under Section 4999 of the Code will be assessed, the
payment determined under this Section 4(c)(ii) shall be made of the earlier of
the date New Reit is required to withhold such tax, or the date the tax is
required to be paid by Executive. It is the intention of the parties that New
Reit provide Executive with a full tax gross-up under the provisions of this
Paragraph, so that on a net after-tax basis, the result to Executive shall be
the same as if the excise tax under Section 4999 of the Code (or any successor
provisions) had not been imposed. The Excise Tax Gross Up may be adjusted if
alternative minimum tax rules are applicable to Executive.
(d) For purposes of this Agreement:
(i) "Cause" shall mean (A) the willful and
continued failure by Executive to
substantially perform her duties hereunder
(other than any such failure resulting from
Executive's incapacity due to physical or
mental illness) for a period of thirty (30)
days after written demand for substantial
performance is delivered by New Reit
specifically identifying the manner in which
New Reit believes Executive has not
substantially performed her duties, or (B)
willful misconduct by Executive which is
materially injurious to New Reit, monetarily
or otherwise, or (C) the willful violation by
Executive of the provisions of the
Non-Competition Agreement. For purposes of
this Paragraph 4(d)(i), no act, or failure to
act, on Executive's part shall be considered
"willful" unless done, or omitted to be done,
by her not in good faith and without
reasonable belief that her action or omission
was in furtherance of the interests of New
Reit.
(ii) "Disability" shall mean the determination by
New Reit, upon the advice of an independent
qualified physician, reasonably acceptable to
Executive, that Executive has become
physically or mentally incapable of performing
her duties under this Agreement and such
disability has disabled Executive for a
cumulative period of one hundred eighty (180)
days within a twelve (12) month period.
9
<PAGE>
(iii) "Fair Market Value" shall mean the average of
the closing price on the New York Stock
Exchange of the Common Stock on each of the
trading days within the thirty (30) days
immediately preceding the date of termination
of Executive's employment;
(iv) "Good Reason" shall mean (A) any assignment to
Executive of any duties materially different
from those contemplated by Paragraph 2 hereof,
or any limitation of the powers of Executive
in any respect not contemplated by Paragraph 2
hereof or other material breach of this
Agreement by New Reit, (B) a reduction in
Executive's Annual Base Salary as in effect at
the time in question, or any other material
failure by New Reit to comply with Paragraph 3
hereof, provided, however, that in the event
Executive is not awarded a bonus as a result
of the Board not approving a bonus pool for a
particular year or other discretionary payment
or discretionary award described in Paragraph
3, it shall not be deemed a failure, (C) New
Reit shall have given notice pursuant to
Paragraph 1 hereof that it does not wish to
extend this Agreement, except in connection
with termination of Executive's employment for
Cause or by reason of death or Disability, or
(D) failure of New Reit to obtain the
assumption of the obligation to perform this
Agreement by any successor as contemplated in
Paragraph 6(a) hereof.
(v) "Change in Control" shall mean, exclusive of
the IPO, that any of the following events has
occurred: (a) any "person" or "group" of
persons, as such terms are used in Sections 13
and 14 of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), other than
any employee benefit plan sponsored by New
Reit, becomes the "beneficial owner", as such
term is used in Section 13 of the Exchange
Act, of thirty (30%) percent or more of either
(i) the Common Stock or (ii) the units of
limited partnership interests in PRLP
("Units") issued and outstanding immediately
prior to such acquisition; (b) any Common
Stock is purchased pursuant to a tender or
exchange offer other than an offer by New
Reit; or (c) the dissolution or liquidation
of New Reit or the consummation of any merger
or consolidation of New Reit or any sale or
other disposition of all or substantially all
of its assets, if the shareholders of New Reit
immediately before such transaction own,
immediately after consummation of such
transaction, equity securities (other than
options and other rights to acquire equity
securities) possessing less
10
<PAGE>
than thirty (30%) percent of the voting power
of the surviving or acquiring company.
(e) Any termination of Executive's employment by New Reit or
any such termination by Executive (other than on account of death) shall be
communicated by written Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
5. Confidential Information / Return of Documents / Noncompete.
The Non-Competition Agreement is hereby incorporated by
reference and made a part hereof. The provisions of the Non-Competition
Agreement including without limitation those related to confidential
information, return of documents, non-competition and non-solicitation shall
apply as if fully set forth herein.
6. Successors and Assigns.
(a) New Reit shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of New Reit, by agreement in
form and substance satisfactory to Executive, to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that New Reit
would be required to perform it if no such succession had taken place. Failure
of New Reit to obtain such agreement prior to the effectiveness of a succession
shall be a breach of this Agreement and shall entitle Executive to compensation
from New Reit in the same amount and on the same terms
11
<PAGE>
as she would be entitled to hereunder if she terminated her employment for Good
Reason, except that for purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the date of
termination. In the event of such a breach of this Agreement, the Notice of
Termination shall specify such date as the date of termination. As used in this
Paragraph, "New Reit" shall mean New Reit as hereinbefore defined and any
successor to all or substantially all of its business and/or its assets as
aforesaid which executes and delivers the agreement provided for in this
Paragraph 6 or which otherwise becomes bound by all the terms and provisions of
this Agreement by operation of law. Any cash payments owed to Executive pursuant
to this Paragraph 6 shall be paid to Executive in a single sum, without
discount for early payment, immediately prior to the consummation of the
transaction with such successor.
(b) This Agreement and all rights of Executive hereunder shall
inure to the benefit of and be enforceable by Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If Executive should die while any amounts would still be
payable to her hereunder if she had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to Executive's devisee, legatee, or other designee or, if there be no
such designee, to Executive's estate.
7. Timing of and No Duplication of Payments.
All payments payable to Executive pursuant to this Agreement
shall be paid as soon as practicable after such amounts have become fully vested
and determinable. In addition, Executive shall not be entitled to receive
duplicate payments under any of the provisions of this Agreement.
12
<PAGE>
8. Modification or Waiver.
No amendment, modification, waiver, termination or
cancellation of this Agreement shall be binding or effective for any purpose
unless it is made in a writing signed by the party against whom enforcement of
such amendment, modification, waiver, termination or cancellation is sought. No
course of dealing between or among the parties to this Agreement shall be deemed
to affect or to modify, amend or discharge any provision or term of this
Agreement. No delay on the part of New Reit or Executive in the exercise of any
of their respective rights or remedies shall operate as a waiver thereof, and no
single or partial exercise by New Reit or Executive of any such right or remedy
shall preclude other or further exercise thereof. A waiver of right or remedy on
any one occasion shall not be construed as a bar to or waiver of any such right
or remedy on any other occasion.
9. Notices.
All notices or other communications required or permitted
hereunder shall be made in writing and shall be deemed to have been duly given
if delivered by hand or delivered by a recognized delivery service or mailed,
postage prepaid, by express, certified or registered mail, return receipt
requested, and addressed to New Reit or Executive, as applicable, at the address
set forth above (or to such other address as shall have been previously provided
in accordance with this Paragraph 9).
13
<PAGE>
10. Governing Law.
This agreement will be governed by and construed in accordance
with the laws of the State of New York, without regard to principles of
conflicts of laws thereunder.
11. Severability.
Whenever possible, each provision and term of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision or term of this Agreement shall be held to
be prohibited by or invalid under such applicable law, then such provision or
term shall be ineffective only to the extent of such prohibition or invalidity,
without invalidating or affecting in any manner whatsoever the remainder of such
provisions or term or the remaining provisions or terms of this Agreement.
12. Counterparts.
This Agreement may be executed in separate counterparts, each
of which is deemed to be an original and both of which taken together shall
constitute one and the same agreement.
13. Headings.
The headings of the Paragraphs of this Agreement are inserted
for convenience only and shall not be deemed to constitute a part hereof and
shall not affect the construction or interpretation of this Agreement.
14
<PAGE>
14. Entire Agreement.
This Agreement constitutes the entire agreement of the parties
with respect to the subject matter hereof and supersedes all other prior
agreements and undertakings, both written and oral, among the parties with
respect to the subject matter hereof.
15. Survival of Agreements.
The covenants made in Paragraph 4 and those made in the
Non-Competition Agreement shall survive the termination of this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date first above written.
PHILIPS INTERNATIONAL REALTY CORP.
By:
----------------------------------
Name:
Title:
EXECUTIVE
----------------------------------
Sheila Levine
<PAGE>
Right to Purchase 4,000 Shares of Common Stock
of Philips International Realty Corp. (the "REIT")
This Warrant and any shares acquired upon the exercise of this Warrant have
not been registered under the Securities Act of 1933, as amended (the "Act"),
and may not be sold or transferred in the absence of such registration or an
exemption therefrom under such Act or any applicable state securities laws and
then only in compliance with the conditions specified in Section 13 of this
Agreement.
No. W-1
--------------
Common Stock Purchase Warrant
The REIT hereby certifies that, for value received, Jay W. Goldman [Peter
Stein], or his heirs or assigns (the "holder"), is entitled, subject to the
terms set forth below, to purchase from the REIT at any time or from time to
time after the date hereof, subject to the provisions of Section 2.5 hereof,
4,000 (subject to adjustment as hereinafter provided) fully paid and
non-assessable shares of Common Stock (as defined in Section 11 hereof), at an
initial purchase price per share of $25.00 (such price per share as adjusted
from time to time as provided herein is referred to herein as the "Exercise
Price"). The number and character of such shares of Common Stock and the
Exercise Price are subject to adjustment as provided herein.
1. DEFINITIONS. This Warrant is issued pursuant to the Contribution and Exchange
Agreement dated as of August __, 1997 (the "Agreement") among the REIT, the
holder and other persons and entities, a copy of which is on file at the
principal office of the REIT. Capitalized terms used herein without definition
shall have the meanings assigned to such terms in the Agreement. Certain terms
used in this Warrant are specifically defined in Section 11 hereof.
<PAGE>
-2-
2. EXERCISE OF WARRANT.
2.1. Exercise. This Warrant may be exercised prior to its expiration
pursuant to Section 2.5 hereof by the holder hereof at any time or from time to
time after the date hereof, by surrender of this Warrant, with the form of
subscription at the end hereof duly executed by such holder, to the REIT at its
principal office, accompanied by payment, by certified or official bank check
payable to the order of the REIT or by wire transfer to its account, in the
amount obtained by multiplying the number of shares of Common Stock for which
this Warrant is then being exercised by the Exercise Price then in effect. In
the event the Warrant is not exercised in full, the REIT, at its expense, will
forthwith issue and deliver to or upon the order of the holder hereof a new
Warrant or Warrants of like tenor, in the name of the holder hereof or as such
holder (upon payment by such holder of any applicable transfer taxes) may
request, calling in the aggregate on the face or faces thereof for the number of
shares of Common Stock equal (without giving effect to any adjustment therein)
to the number of such shares called for on the face of this Warrant minus the
number of such shares (without giving effect to any adjustment therein) for
which this Warrant shall have been exercised.
2.2. Cashless Exercise. The holder hereof may, at its option, elect to pay
some or all of the purchase price payable upon an exercise of this Warrant by
canceling a portion of this Warrant exercisable for such number of shares of
Common Stock as is determined by dividing (i) the total purchase price payable
in respect of the number of the shares of Common Stock being purchased upon such
exercise by (ii) the excess of the "Fair Market Value" (as hereinafter defined)
per share of Common Stock as of the effective date of exercise, as determined
pursuant to Section 2.1 above (the "Exercise Date") over the purchase price per
share. The Fair Market Value per share of Common Stock shall be determined as
follows:
(i) If the Common Stock is listed on a national securities exchange, the
NASDAQ National Market System, the NASDAQ system, or another nationally
recognized exchange or trading system as of the Exercise Date, the Fair Market
Value per share of Common Stock shall be deemed to be the last reported sale
price per share of Common Stock thereon on the Exercise Date or, if no such
price is reported on such date, such price on the next preceding business day
(provided that if no such price is reported on the next preceding business day,
the Fair Market Value per share of Common Stock shall be determined pursuant to
clause (ii) below).
(ii) If the Common Stock is not listed on a national securities exchange,
the NASDAQ National Market System, the NASDAQ system, or another nationally
recognized exchange or trading system as of the Exercise Date, the Fair Market
Value per share of Common Stock shall be deemed to be the amount most recently
<PAGE>
-3-
determined by the Board of Directors of the Company to represent the fair market
value per share of the Common Stock (including without limitation a
determination for purposes of granting Common Stock options or issuing Common
Stock under an employee benefit plan of the Company); and, upon request of the
holder hereof, the Board of Directors (or a representative thereof) shall
promptly notify the holder hereof of the Fair Market Value per share of Common
Stock. Notwithstanding the foregoing, if the Board of Directors has not made
such a determination within the three-month period prior to the Exercise Date,
then (A) the Fair Market Value per share of Common Stock shall be the amount
next determined by the Board of Directors to represent the fair market value per
share of the Common Stock (including without limitation a determination for
purposes of granting Common Stock options or issuing Common Stock under an
employee benefit plan of the Company), (B) the Board of Directors shall make
such a determination within 15 days of a request by the holder hereof that it do
so, and (C) the exercise of this Warrant pursuant to this Section 2.2 shall be
delayed until such determination is made.
2.3. Conflict With Other Laws. Any other provisions hereof to the contrary
notwithstanding, no Bank Affiliate (as defined in Section 11) or small business
investment company, as defined in the Small Business Investment Act of 1958, as
amended, shall be entitled to exercise the right under this Warrant to purchase
any share or shares of Common Stock if, under any law or under any regulation,
rule or other requirement of any governmental authority at any time applicable
to such Bank Affiliate or small business investment company, (a) as a result of
such purchase, such Bank Affiliate or small business investment company would
own, control or have power to vote a greater quantity of securities of any kind
than the Bank Affiliate or small business investment company shall be permitted
to own, control or have power to vote, or (b) such purchase would not be
permitted. For purposes of this Section 2.3, a written statement of the Bank
Affiliate or small business investment company exercising this Warrant,
delivered upon surrender of the Warrant pursuant to the Agreement, to the effect
that the Bank Affiliate or small business investment company is legally entitled
to exercise its right under this Warrant to purchase securities and that such
purchase will not violate the prohibitions set forth in the preceding sentence,
shall be conclusive and binding upon the REIT, shall obligate the REIT to
deliver certificates representing the shares of Common Stock so purchased in
accordance with the other provisions hereof and shall relieve the REIT of any
liability under this Section 2.3.
2.4. Warrant Agent. In the event that a bank or trust REIT shall have been
appointed as trustee for the holder of the Warrant pursuant to Section 5.2
hereof, such bank or trust REIT shall have all the powers and duties of a
warrant agent appointed pursuant to Section 14 hereof and shall accept, in its
own name for the account of the REIT or such successor entity as may be entitled
thereto, all
<PAGE>
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amounts otherwise payable to the REIT or such successor, as the case may be, on
exercise of this Warrant pursuant to this Section 2.
2.5. Termination. This Warrant shall terminate upon the earlier to occur of
(i) exercise in full or (ii) ___________, 2003.
3. DELIVERY OF STOCK CERTIFICATES ON EXERCISE.
3.1 Delivery. As soon as practicable after the exercise of this Warrant in
full or in part, and in any event within ten (10) days thereafter, the REIT, at
its expense (including the payment by it of any applicable issue taxes), will
cause to be issued in the name of and delivered to the holder hereof, or as such
holder (upon payment by such holder of any applicable transfer taxes) may
direct, a certificate or certificates for the number of fully paid and
non-assessable shares of Common Stock (or Other Securities) to which such holder
shall be entitled on such exercise, together with any other stock or other
securities and property (including cash, where applicable) to which such holder
is entitled upon such exercise.
3.2. Fractional Shares. In the event that the exercise of this Warrant, in
full or in part, results in the issuance of any fractional share of Common
Stock, then in such event the holder of this Warrant shall be entitled to cash
equal to the fair market value of such fractional share as determined in good
faith by the REIT's Board of Directors.
4. ADJUSTMENT FOR DIVIDENDS, DISTRIBUTIONS AND RECLASSIFICATIONS. In case at any
time or from time to time, the holders of shares of Common Stock shall have
received, or (on or after the record date fixed for the determination of
shareholders eligible to receive) shall have become entitled to receive, without
payment therefor:
(a) other or additional shares of Common Stock or securities convertible
into shares of Common Stock or Other Securities by way of dividend; or
(b) other or additional (or less) shares or Other Securities or property
(including cash) by way of spin-off, split-up, reclassification,
recapitalization, combination of shares or similar corporate restructuring;
other than additional shares of Common Stock issued as a dividend or in a
stock-split (adjustments in respect of which are provided for in Section 6
hereof), then and in each such case the holder of this Warrant, on the exercise
hereof (unless previously paid to the holder hereof) as provided in Section 2
hereof, shall be entitled to receive the amount of shares and other securities,
cash and property which such holder would have received prior to or would have
held on the date of such exercise if on the date hereof he had been the holder
of record of the number
<PAGE>
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of shares of Common Stock called for on the face of this Warrant and had
thereafter, during the period from the date hereof to and including the date of
such exercise, retained such shares and all such other or additional stock and
other securities, cash and property receivable by such holder as aforesaid
during such period, giving effect to all further adjustments called for during
such period by Sections 5 and 6 hereof.
5. ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER, ETC.
5.1. Certain Adjustments. In case at any time or from time to time, the
REIT shall (i) effect a capital reorganization, reclassification or
recapitalization, (ii) consolidate with or merge into any other person, or (iii)
transfer all or substantially all of its properties or assets to any other
person under any plan or arrangement contemplating the dissolution of the REIT,
then in each such case, the holder of this Warrant, on the exercise hereof as
provided in Section 2 hereof at any time after the consummation of such
reorganization, recapitalization, consolidation or merger or the effective date
of such dissolution, as the case may be, shall receive, in lieu of the shares of
Common Stock (or Other Securities) issuable on such exercise prior to such
consummation or effective date, the stock and other securities and property
(including cash) to which such holder would have been entitled upon such
consummation or in connection with such dissolution, as the case may be, if such
holder had so exercised this Warrant immediately prior thereto, all subject to
further adjustment thereafter as provided in Sections 4 and 6 hereof.
5.2. Appointment of Trustee for Warrant Holders Upon Dissolution. In the
event of any dissolution of the REIT following the transfer of all or
substantially all of its properties or assets, the REIT, prior to such
dissolution, shall, at its expense, deliver or cause to be delivered the stock
and other securities and property (including cash, where applicable) receivable
by the holders of the Warrant after the effective date of such dissolution
pursuant to this Section 6 to a bank or trust REIT having its principal office
in New York, New York, as trustee for the holder or holders of the Warrant.
5.3. Continuation of Terms. Upon any reorganization, consolidation, merger
or transfer (and any dissolution following any transfer) referred to in this
Section 5, this Warrant shall continue in full force and effect and the terms
hereof shall be applicable to the shares of stock and other securities and
property receivable on the exercise of this Warrant after the consummation of
such reorganization, consolidation or merger or the effective date of
dissolution following any such transfer, as the case may be, and shall be
binding upon the issuer of any such stock or other securities, including, in the
case of any such transfer, the person acquiring all or substantially all of the
properties or assets of
<PAGE>
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the REIT, whether or not such person shall have expressly assumed the terms of
this Warrant as provided in Section 7 hereof.
6. ADJUSTMENTS FOR ISSUANCE OF SHARES OF COMMON STOCK AND AMOUNT OF OUTSTANDING
SHARES OF COMMON STOCK.
6.1. General. (a) If at any time there shall occur any stock split, stock
dividend, reverse stock split or other subdivision of the REIT's shares of
Common Stock ("Stock Event"), then the number of shares of Common Stock to be
received by the holder of this Warrant shall be appropriately adjusted such that
the proportion of the number of shares issuable hereunder to the total number of
shares of the REIT (on a fully-diluted basis) prior to such Stock Event is equal
to the proportion of the number of shares issuable hereunder after such Stock
Event to the total number of shares of the REIT (on a fully-diluted basis) after
such Stock Event. In each such Stock Event, the Exercise Price in effect
immediately prior to such Stock Event shall, simultaneously with the happening
of such Stock Event, be adjusted by multiplying the Exercise Price in effect
immediately prior to such Stock Event by a fraction, the numerator of which
shall be the number of shares of Common Stock outstanding immediately prior to
such Stock Event and the denominator of which shall be the number of shares of
Common Stock outstanding immediately after such Stock Event, and the product so
obtained shall be the Exercise Price in effect immediately after such Stock
Event; provided that in no event will the Exercise Price be less than the par
value of the shares of Common Stock.
(b) In case the REIT shall take a record of the holders of its shares of
Common Stock for the purpose of entitling them (i) to receive a dividend or
other distribution payable in shares of Common Stock or in Convertible
Securities (as hereinafter defined), or (ii) to subscribe for or purchase shares
of Common Stock or Convertible Securities, then such record date chosen by the
REIT shall be deemed to be the date of the issue of the shares of Common Stock
issued upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
6.2. Other Issuances of Shares of Common Stock. (a) If the REIT shall at
any time or from time to time issue or sell any additional shares of Common
Stock without consideration or for a consideration per share less than the Fair
Market Value in effect immediately prior to such issuance, then the Exercise
Price shall be adjusted by multiplying the Exercise Price by a fraction (A) the
numerator of which is an amount equal to the sum of (i) the number of shares of
Common Stock outstanding immediately prior to such issue or sale and (ii) the
number of shares of Common
<PAGE>
-7-
Stock which the aggregate consideration received for the issuance or sale of
such securities would purchase at the then Fair Market Value of the Common Stock
and (B) the denominator of which is the total number of shares of Common Stock
outstanding immediately after such issue or sale.
(b) In case the REIT shall at any time or from time to time in any manner
grant any rights to subscribe for or to purchase any options for the purchase of
shares of or any stock or other securities convertible into or exchangeable for
shares of Common Stock (such convertible or exchangeable stock or securities
being herein called "Convertible Securities") and the price per share for which
shares of Common Stock are issuable upon the exercise of such rights or options
or upon conversion or exchange of such Convertible Securities (determined by
dividing (a) the sum of (i) the total amount, if any, received or receivable by
the REIT as consideration for the granting of such rights or options, plus (ii)
the minimum aggregate amount of additional consideration payable to the REIT
upon the exercise of such rights or options, plus, (iii) in the case of such
Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable upon the conversion or exchange thereof, by (b)
the maximum number of shares of Common Stock issuable upon the exercise of such
rights or options or upon the conversion or exchange of all such Convertible
Securities issuable upon the exercise of such rights or options) shall be less
than the Fair Market Value of the Common Stock in effect immediately prior to
the time of the granting of such rights or options, then the maximum number of
shares of Common Stock issuable upon the exercise of such rights or options or
upon conversion or exchange of the maximum amount of such Convertible Securities
issuable upon the exercise of such rights or options shall (as of the date of
granting of such rights or options) be deemed to be outstanding and to have been
issued for said price per share as so determined; provided, that no further
adjustment of the Exercise Price shall be made upon the actual issue of such
Common Stock or of such Convertible Securities, upon exercise of such rights or
options or upon the actual issue of such shares of Common Stock or upon
conversion or exchange of such Convertible Securities; and provided, further,
that upon the expiration of such rights or options, if any, thereof shall not
have been exercised, (x) the number of shares of Common Stock deemed to be
issued and outstanding by reason of the fact that they were issuable upon the
exercise of such rights or options or upon conversion or exchange of Convertible
Securities so issuable, which rights or options were not exercised, shall no
longer be deemed to be issued and outstanding, and (y) the Exercise Price shall
forthwith be readjusted and thereafter the Exercise Price shall be the price
which it would have been had adjustment been made on the basis of the issue only
of the shares of Common Stock or of the Convertible Securities actually issued
upon the exercise of such rights or options.
(c) In case the REIT shall in any manner issue or sell any Convertible
Securities and the price per share for which shares of Common Stock are issuable
upon such conversion or exchange (determined by dividing (a) the sum of (i) the
total amount received or receivable by the REIT as consideration for the issue
or
<PAGE>
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sale of such Convertible Securities, plus (ii) the minimum aggregate amount of
additional consideration, if any, payable to the REIT upon the conversion or
exchange thereof, by (b) the maximum number of shares of Common Stock issuable
upon the conversion or exchange of all such Convertible Securities) shall be
less than the Fair Market Value of the Common Stock in effect immediately prior
to the time of such issue or sale, then the maximum number of shares of Common
Stock issuable upon conversion or exchange of all such Convertible Securities
shall (as of the date of the issue or sale of such Convertible Securities) be
deemed to be outstanding and to have been issued for said price per share as so
determined; provided, that if any such issue or sale of such Convertible
Securities is made upon exercise of any rights to subscribe for or to purchase
or any option to purchase any such Convertible Securities for which an
adjustment of the Exercise Price has been or is to be made pursuant to other
provisions of this Section 6.2 no further adjustment of the Exercise Price shall
be made by reason of such issue or sale; and provided, further, that upon the
termination of the right to convert or to exchange such Convertible Securities
for shares of Common Stock (x) the number of shares of Common Stock deemed to be
issued and outstanding by reason of the fact that they were issuable upon
conversion or exchange of any such Convertible Securities, which were not so
converted or exchanged, shall no longer be deemed to be issued and outstanding
and (y) the Exercise Price shall be forthwith readjusted and thereafter the
Exercise Price shall be the price which it would have been had adjustment been
made on the basis of the issue only of the number of shares of Common Stock
actually issued upon conversion or exchange of such Convertible Securities.
(d) In case the REIT shall declare a dividend or make any other
distribution upon any shares of the REIT payable in shares of Common Stock or in
Convertible Securities (other than Stock Events which are provided in Section
6.1), the aggregate number of shares of Common Stock issuable in payment of such
dividend or distribution or upon conversion of or in exchange for such
Convertible Securities issuable in payment of such dividend or distribution,
shall, for purposes of determining the Exercise Price, be deemed for the
purposes of this Section 6.2 to have been issued or sold without consideration.
(e) In case any shares of Common Stock or Convertible Securities or any
rights or options to purchase any such stock or securities shall be issued for
cash, the consideration received therefor shall be deemed to be the amount
received by the REIT therefor, before deduction therefrom of any expenses
incurred and any underwriting commissions or concessions paid or allowed by the
REIT in connection therewith. In case any shares of Common Stock or Convertible
Securities or any rights or options to purchase any such stock or securities
shall be issued for a consideration other than cash (or a consideration which
includes cash, if such cash constitutes a part of the assets of a corporation or
business substantially all the assets of which are being received as such
consideration), then,
<PAGE>
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for the purposes of this Section 6.2, the Board of Directors of the REIT shall
determine in good faith the fair value of such consideration, and such shares of
Common Stock, rights, options or Convertible Securities shall be deemed to have
been issued for an amount of cash equal to the value so determined by the Board
of Directors. In case any shares of Common Stock or Convertible Securities or
any rights or options to purchase any such stock or securities are issued in
connection with the sale of other assets of the REIT for a consideration which
includes both, the Board of Directors shall determine in good faith what part of
the consideration so received is to be deemed to be consideration for the issue
of such shares of Common Stock or Convertible Securities or rights or options to
purchase such stock or securities and what part is properly allocable to such
other assets.
(f) Upon each adjustment of the Exercise Price pursuant to this Section
6.2, the holder of this Warrant shall thereafter (until another such adjustment)
be entitled to purchase upon exercise of this Warrant the number of shares
obtained by multiplying the number of shares of Common Stock which were issuable
upon exercise hereof, immediately prior to such adjustment by the Exercise Price
in effect immediately prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Price. The Exercise Price shall be readjusted
in the foregoing manner upon the happening of any successive event or events
described herein in this Section 6.2, and the adjustments or readjustments
required by this Section 6.2 shall be calculated in the order in which the
events giving rise thereto occur.
(g) The provisions of this Section 6.2 shall not apply to any issuance of
additional shares of Common Stock for which an adjustment is provided under
Section 6.1 hereof.
6.3. Other Securities. In case any Other Securities shall have been issued,
or shall then be subject to issue upon the conversion or exchange of any stock
(or Other Securities) of the REIT (or any other issuer of Other Securities or
any other entity referred to in Section 5 hereof) or to subscription, purchase
or other acquisition pursuant to any rights or options granted by the REIT (or
such other issuer or entity), the holder hereof shall be entitled to receive
upon exercise hereof such amount of Other Securities (in lieu of or in addition
to shares of Common Stock) as is determined in accordance with the terms hereof,
treating all references to shares of Common Stock herein as references to Other
Securities to the extent applicable, and the computations, adjustments and
readjustments provided for in this Section 6 with respect to the number of
shares of Common Stock issuable upon exercise of this Warrant shall be made as
nearly as possible in the manner so provided and applied to determine the amount
of Other Securities from time to time receivable on the exercise of the Warrant,
so as to provide the holder of the Warrant with the benefits intended by this
Section 6 and the other provisions of this Warrant.
<PAGE>
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7. NO DILUTION OR IMPAIRMENT. The REIT will not, by amendment of its Articles of
Incorporation or bylaws or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of the Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the holder of the
Warrant against dilution. Without limiting the generality of the foregoing, the
REIT (i) will not increase the par value of any shares of stock receivable on
the exercise of the Warrant above the amount payable therefor on such exercise,
(ii) will take all such action as may be necessary or appropriate in order that
the REIT may validly and legally issue fully paid and non-assessable shares of
stock on the exercise of the Warrant from time to time outstanding and (iii)
will not transfer all or substantially all of its properties and assets to any
other entity (corporate or otherwise), or consolidate with or merge into any
other entity or permit any such entity to consolidate with or merge into the
REIT (if the REIT is not the surviving entity), unless such other entity shall
expressly assume in writing and will be bound by all the terms of this Warrant.
8. ACCOUNTANTS' CERTIFICATE AS TO ADJUSTMENTS. In each case of any event that
may require any adjustment or readjustment of the Exercise Price and the shares
of Common Stock issuable on the exercise of this Warrant, the REIT, at its
expense, will promptly prepare a certificate setting forth such adjustment or
readjustment, or stating the reasons why no adjustment or readjustment is being
made, and showing, in detail, the facts upon which any such adjustment or
readjustment is based, including a statement of (i) the new Exercise Price, (ii)
the number of shares of the REIT's shares of Common Stock then outstanding on a
fully diluted basis, and (iii) the number of shares of Common Stock to be
received upon exercise of this Warrant, in effect immediately prior to such
adjustment or readjustment and as adjusted and readjusted (if required by
Section 6) on account thereof. The REIT will forthwith mail a copy of each such
certificate to each holder of a Warrant, and will, on the written request at any
time of any holder of a Warrant, furnish to such holder a like certificate
setting forth the calculations used to determine such adjustment or
readjustment. At its option, the holder of a Warrant may confirm the adjustment
noted on the certificate by causing such adjustment to be computed by an
independent certified public accountant at the expense of the REIT.
9. NOTICES OF RECORD DATE. In the event of:
(a) any taking by the REIT of a record of the holders of any class of
securities for the purpose of determining the holders thereof who are entitled
to receive any dividend or other distribution, or any right to subscribe for,
purchase
<PAGE>
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or otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right; or
(b) any capital reorganization of the REIT, any reclassification or
recapitalization of the capital stock of the REIT or any transfer of all or
substantially all the assets of the REIT to or any consolidation or merger of
the REIT with or into any other person; or
(c) any voluntary or involuntary dissolution, liquidation or winding-up of
the REIT; or
(d) any proposed issue or grant by the REIT of any shares of stock of any
class or any other securities, or any right or option to subscribe for, purchase
or otherwise acquire any shares of stock of any class or any other securities
(other than the issue of shares of Common Stock on the exercise of this
Warrant),
then, and in each such event, the REIT will mail or cause to be mailed to the
holder of this Warrant a notice specifying (i) the date on which any such record
is to be taken for the purpose of such dividend, distribution or right, and
stating the amount and character of such dividend, distribution or right, (ii)
the date on which any such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up is
anticipated to take place, and the time, if any is to be fixed, as of which the
holders of record of shares of Common Stock (or Other Securities) shall be
entitled to exchange their shares of Common Stock (or Other Securities) for
securities or other property deliverable on such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up and (iii) the amount and character of any
stock or other securities, or rights or options with respect thereto, proposed
to be issued or granted, the date of such proposed issue or grant and the
persons or class of persons to whom such proposed issue or grant is to be
offered or made. Such notice shall be mailed at least thirty (30) days prior to
the date specified in such notice on which any such action is to be taken.
10. RESERVATION OF STOCK ISSUABLE ON EXERCISE OF WARRANT. The REIT will at all
times reserve and keep available, solely for issuance and delivery on the
exercise of the Warrant, a number of shares of Common Stock equal to the total
number of shares of Common Stock from time to time issuable upon exercise of the
Warrant and, from time to time, will take all steps necessary to amend its
Declaration of Trust of Incorporation to provide sufficient reserves of shares
of Common Stock issuable upon exercise of the Warrant.
11. DEFINITIONS. As used herein the following terms, unless the context
otherwise requires, have the following respective meanings:
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Bank Affiliate means, any person who is a bank holding company or a
subsidiary of a bank holding company as defined in the Bank Holding Company Act
of 1956, as amended, or other applicable banking laws of the United States and
the rules and regulations promulgated thereunder.
Common Stock means the shares of common stock authorized by the Articles of
Incorporation of the REIT.
Other Securities refers to any stock (other than shares of Common Stock)
and other securities of the REIT or any other entity (corporate or otherwise)
(i) which the holder of this Warrant at any time shall be entitled to receive,
or shall have received, on the exercise of this Warrant, in lieu of or in
addition to shares of Common Stock, or (ii) which at any time shall be issuable
or shall have been issued in exchange for or in replacement of shares of Common
Stock or Other Securities, in each case pursuant to Section 4 or 5 hereof.
REIT shall mean Philips International Realty Corp. and any entity which
shall succeed to or assume the obligations of the REIT hereunder.
12. INVESTMENT REPRESENTATIONS.
12.1 Purchase for Investment. Each Warrant holder represents and warrants
that it is acquiring the Warrant, and upon exercise will hold the Shares of
Common Stock, solely for its account for investment and not with a view to or
for sale or distribution of said shares or any part thereof. Each holder also
represents that the entire legal and beneficial interests of the Warrant and
shares the holder is acquiring is being acquired for, and will be held for, its
account only.
12.2 Securities Not Registered. Each Warrant holder understands that the
Shares of Common Stock have not been registered under the Act. Each holder
realizes the basis for the exemption may not be present if, notwithstanding its
representations, it has in mind merely acquiring shares of Common Stock for a
fixed or determinable period in the future, or for a market rise, or for sale if
the market does not rise. Each holder has no such intention.
12.3 Securities to be Held Indefinitely. Each holder recognizes that any
Shares of Common Stock being acquired by it must be held indefinitely unless
they are subsequently registered under the Act or an exemption from such
registration is available. Each holder recognizes that the REIT has no
obligation to register the shares of Common Stock, or to comply with any
exemption from such registration.
12.4 Rule 144. Each holder is aware that the shares of Common Stock may not
be sold pursuant to Rule 144 adopted under the Act unless certain
<PAGE>
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conditions are met and until the holder has held the shares of Common Stock for
at least one (1) year.
13. TRANSFER, EXCHANGE, ASSIGNMENT OF LOSS OF WARRANT.
13.1 Restrictions on Transfer. This Warrant may not be transferred by the
Option Holder except that any Warrant holder may assign its rights in whole or
in part hereunder only to one or more of its Affiliates (as defined below) or by
will or the laws of descent and distribution. Any purported assignment made in
violation of this Section 13 shall be void and of no force and effect.
For purposes of this Section 13 Affiliates shall mean (i) in all cases, any
person or entity controlling or, controlled by such person and (ii) in the case
of any Warrant holder his spouse, his or his spouse's issue (including any by
adoption), his estate and any trust for the benefit of any one or more of
himself, his estate, his spouse and his or his spouse's issue (including any by
adoption).
13.2 Lost, Stolen or Destroyed Warrant. Upon receipt by REIT of evidence
satisfactory to it of loss, theft, destruction or mutilation of any holder's
Warrant and, in the case of loss, theft or destruction, of reasonably
satisfactory indemnification, or, in the case of mutilation, upon surrender of
this Warrant, REIT will execute and deliver, a new Warrant for such holder of
like tenor and date, and any such lost, stolen or destroyed Warrant thereupon
shall become void.
13.3 Warrant Binding Upon Assignee or Successor. The terms and conditions
of this Warrant shall be binding upon any permitted assignee and successor of a
holder. Any such successor or assignee shall be obligated to and shall
immediately execute an instrument which provides that such party is bound under
the terms of this Warrant. Any transfer, assignment or other disposition without
such execution by the proposed transferee, assignee or successor shall be null
and void.
14. WARRANT AGENT. The REIT may, by written notice to the holder of this
Warrant, appoint an agent having an office in Maryland for the purpose of
issuing shares of Common Stock on the exercise of this Warrant pursuant to
Section 2 hereof, and exchanging or replacing this Warrant, or any of the
foregoing, and thereafter any such issuance, exchange or replacement, as the
case may be, shall be made at such office by such agent.
15. REMEDIES. The REIT stipulates that the remedies at law of the holder of this
Warrant in the event of any default or threatened default by the REIT in the
performance of or compliance with any of the terms of this Warrant are not and
will not be adequate, and that such terms may be specifically enforced by a
decree
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for the specific performance of any agreement contained herein or by an
injunction against a violation of any of the terms hereof or otherwise.
16. NOTICES. All notices and other communications from the REIT to the holder of
this Warrant shall be mailed by first class registered or certified mail,
postage prepaid, or sent by overnight courier (or sent in the form of a telex or
telecopy) at such address as may have been furnished to the REIT in writing by
such holder or, until any such holder furnishes to the REIT an address, then to,
and at the address of, the last holder of this Warrant who has so furnished an
address to the REIT.
17. MISCELLANEOUS. In case any provision of this Warrant shall be invalid,
illegal or unenforceable, or partially invalid, illegal or unenforceable, the
provision shall be enforced to the extent, if any, that it may legally be
enforced and the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby. This Warrant
and any term hereof may be changed, waived, discharged or terminated only by a
statement in writing signed by the party against which enforcement of such
change, waiver, discharge or termination is sought. This Warrant shall be
governed by and construed in accordance with the domestic substantive laws (and
not the conflict of law rules) of the State of Maryland. The headings in this
Warrant are for purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof. This Warrant shall take effect as an instrument
under seal.
IN WITNESS WHEREOF, the REIT has caused this Warrant to be executed by its
duly authorized officer and its corporate seal to be impressed hereon and
attested by its Secretary.
Dated as of _________
________________________________
(Corporate Seal) By: ____________________________
Title:
Attest:
_____________________________________
Secretary
<PAGE>
-15-
FORM OF SUBSCRIPTION
(To be signed only on exercise
of Common Stock Purchase Warrant)
TO: _________
The undersigned, the holder of the within Common Stock Purchase Warrant,
hereby irrevocably elects to exercise this shares of Common Stock Purchase
Warrant for, and to purchase thereunder ___________ shares of Common Stock of
Philips International Realty Corp. and requests that the certificates for such
shares be issued in the name of, and delivered to ________________, whose
address is _____________________________. The undersigned herewith makes
payments of $_____________, representing the full purchase price for such shares
at the price per share provided for in such Warrant. Such payment takes the form
of (check applicable box or boxes):
|_| $______ in lawful money of the United States, and/or
|_| the cancellation of such portion of the attached amount as is
exercisable for a total of _____ shares of Common Stock (using a
Fair Market Value of $____ per share for purposes of this
calculation).
Dated: _______________________ ___________________________________
(Signature must conform in all
respects to name of the holder as
specified on the face of the
Warrant)
(Address)
<PAGE>
-16-
FORM OF ASSIGNMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers
unto _____ the right represented by the within Warrant to purchase _______
shares of Common Stock of Philips International Realty Corp., a Maryland
corporation, to which the within Warrant relates, and appoints ________ attorney
to transfer such right on the books of _________, with full power of
substitution in the premises.
[INSERT NAME OF HOLDER]
Dated: ____________________ By: _____________________________
Title: __________________________
[insert address of holder]
Signed in the presence of:
___________________________
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated (i) November 7, 1997 with respect to the Financial
Statements of Philips International Realty Corp. for the period August 31, 1997
(inception) to September 30, 1997; (ii) April 28, 1997 with respect to the
Financial Statements of The Philips Company for each of the three years in the
period ended December 31, 1996; and (iii) April 28, 1997 with respect to the
Statement of Revenues and certain expenses of Merrick Commons and Mill Basin
Plaza Properties for each of the three years ended December 31, 1996 included in
the Proxy Statement of National Properties Investment Trust that is made a part
of the Registration Statement Form S-4 dated December 3, 1997 and prospectus of
Philips International Realty Corp. for the Registration of 32,000 shares of its
common stock.
/s/ Ernst & Young
New York, New York
December 3, 1997
<PAGE>
CONSENT OF BERNARDI, ALFIN & KOOS, L.L.C.
The Board of Directors
Philips International Realty Corp.
We consent to the use of our reports included in the Proxy
Statement/Prospectus and to the reference to our firm under the heading
"Experts" in the Proxy Statement/Prospectus which is part of the Registration
Statement filed by Philips International Realty Corp. on Form S-4 with the
Securities and Exchange Commission, and any amendments thereto.
Dated: December 2, 1997
By: /s/ Bernardi, Alfin & Koos, L.L.C.
-----------------------------------
Bernardi, Alfin & Koos, L.L.C.
<PAGE>
[Letterhead of Kostin, Ruffkess & Company, LLC]
CONSENT TO INCLUDE REPORT ON STATEMENT OF OPERATIONS,
STOCKHOLDERS' EQUITY AND CASH FLOWS AND
SCHEDULES IN PROXY STATEMENT
We consent to the use in this Proxy Statement of National Properties Investment
Trust relating to the Contribution and Exchange Agreement, of our report dated
March 15, 1995 accompanying the statement of operations, stockholders' equity
and cash flows and schedules of National Properties Investment Trust contained
in such Proxy Statement, and to the use of our name, and the statements with
respect to us, as appearing under the heading "Experts" in the Proxy.
KOSTIN, RUFFKESS & COMPANY, LLC
/s/ Kostin, Ruffkess & Company, LLC
- -----------------------------------
West Hartford, Connecticut
December 2, 1997
<PAGE>
CONSENT OF A.F. PETROCELLI
I hereby consent to being named a proposed director of Philips
International Realty Corp., and to the use of my name under the heading
"Management" in the Proxy Statement/Prospectus which is a part of the
Registration Statement filed by Philips International Realty Corp. on Form S-4,
and to the use of my name wherever appearing in the Registration Statement and
the related Proxy Statement/Prospectus, and any amendments thereto.
Dated: November 20, 1997
By: /s/ A.F. Petrocelli
_______________________
A.F. Petrocelli
<PAGE>
CONSENT OF ELISE JAFFE
I hereby consent to being named a proposed director of Philips
International Realty Corp., and to the use of my name under the heading
"Management" in the Proxy Statement/Prospectus which is a part of the
Registration Statement filed by Philips International Realty Corp. on Form S-4,
and to the use of my name wherever appearing in the Registration Statement and
the related Proxy Statement/Prospectus, and any amendments thereto.
Dated: November 20, 1997
By: /s/ Elise Jaffe
-------------------------
Elise Jaffe
<PAGE>
CONSENT OF ROBERT GRIMES
I hereby consent to being named a proposed director of Philips
International Realty Corp., and to the use of my name under the heading
"Management" in the Proxy Statement/Prospectus which is a part of the
Registration Statement filed by Philips International Realty Corp. on Form S-4,
and to the use of my name wherever appearing in the Registration Statement and
the related Proxy Statement/Prospectus, and any amendments thereto.
Dated: November 21, 1997
By: /s/ Robert Grimes
-------------------------
Robert Grimes
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> AUG-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 171
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1995
<CURRENT-LIABILITIES> 15000
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (13005)
<TOTAL-LIABILITY-AND-EQUITY> 1995
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 14005
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14005)
<EPS-PRIMARY> 0.000
<EPS-DILUTED> 0.000
</TABLE>
