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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 For The Fiscal Year Ended December 31, 1998
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 000-23463
.................
PHILIPS INTERNATIONAL REALTY CORP.
(Exact Name Of Registrant As Specified In Its Charter)
Maryland 13-3963667
(State Or Other Jurisdiction Of (IRS Employer
Incorporation Or Organization) Identification No.)
417 Fifth Avenue, New York, New York 10016
(Address Of Principal Executive Offices) (Zip Code)
(212) 545-1100
(Registrant's Telephone Number, Including Area Code)
----------------------------
Securities registered pursuant to Section 12(b) of the Act:
(Title of Each Class) (Name of Each Exchange on Which Registered)
Common Stock, $0.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. [X]
As of March 15, 1999, the aggregate market value of voting stock held
by non-affiliates of the registrant was approximately $93.8 million. The
aggregate market value was computed with reference to the closing price on the
New York Stock Exchange on such date. The calculation does not reflect a
determination that persons are non-affiliates for any other purpose.
As of March 15, 1999, 7,340,474 shares of common stock, $.01 par value,
of the Company (the "Common Stock") were outstanding.
LOCATION OF EXHIBIT INDEX: The index of exhibits is contained in Part
IV herein on page number 27.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registrant's
definitive proxy statement to be issued in conjunction with registrant's annual
meeting of shareholders to be held on May 20, 1999 are incorporated by reference
in Part III of this Form 10-K.
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TABLE OF CONTENTS
FORM 10-K
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PART I
Item 1. Business............................................................................................... 1
Item 2. Properties............................................................................................. 12
Item 3. Legal Proceedings...................................................................................... 20
Item 4. Submission of Matters to a Vote of Security Holders.................................................... 20
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters................................... 20
Item 6. Selected Financial Data................................................................................ 21
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................. 22
Item 7A. Quantitative and Qualitative Disclosures About Market Risk............................................. 27
Item 8. Financial Statements and Supplementary Data............................................................ 27
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................... 28
PART III
Item 10. Directors and Executive Officers of the Registrant..................................................... 28
Item 11. Executive Compensation................................................................................. 28
Item 12. Security Ownership of Certain Beneficial Owners and Management......................................... 28
Item 13. Certain Relationships and Related Transactions......................................................... 28
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K...................................... 29
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PART I
ITEM 1. BUSINESS
GENERAL
Philips International Realty Corp. (the "Company") is a self-advised
real estate investment trust ("REIT") formed to continue and expand the shopping
center business of certain affiliated companies owned or controlled by Philip
Pilevsky (the "Philips Group"). For more than 15 years, the Philips Group has
been engaged in the ownership, development and acquisition for redevelopment of
neighborhood and community shopping centers predominantly concentrated in two
major, densely populated, East Coast metropolitan regions: (i) the New York,
Northern New Jersey, Long Island and Connecticut consolidated metropolitan
statistical area (the "New York CMSA") and (ii) the Miami-Fort Lauderdale
consolidated metropolitan statistical area (the "Miami CMSA"). As of December
31, 1998, the Company's portfolio consisted of interests in 26 retail properties
(each a "Property," and collectively, the "Properties"), plus 2 development
sites, encompassing 3.8 million square feet of gross leasable area ("GLA").
Twenty-one (21) of the Properties are anchored by national or regional
supermarkets or discount department stores such as Publix Supermarkets, Inc.,
Winn-Dixie Stores, Inc., Waldbaums/APW Supermarkets, Inc. and K-Mart. The
Company believes the strength of these discount department stores and grocery
retailers, as well as other key anchor tenants, provide the Properties with
consistent consumer traffic and enables the Company to attract additional
quality anchor retailers, as well as quality national, regional and local
non-anchor retailers. As of December 31, 1998, the Properties were 94% leased to
392 tenants.
The Company's strategy is to develop and acquire for redevelopment
quality neighborhood and community shopping centers, located in demographically
strong, under-stored markets which serve the daily needs of the surrounding
community. The Company will continue this strategy by focusing its activities
primarily in the New York CMSA, and secondarily in the Miami CMSA. Management
believes its extensive experience, market knowledge and network of industry
contacts within these regions gives the Company a competitive advantage and
enhances its ability to identify and capitalize on development and acquisition
for redevelopment opportunities. The Company believes that the New York CMSA and
Miami CMSA are both attractive regions in which to own and develop retail
properties for long-term investment.
The Company's day-to-day operations are strategically directed by its
executive officers and implemented through a management agreement (the
"Management Agreement") with a property management company affiliated with the
Philips Group (the "Management Company"). The Management Agreement provides for
the payment of fees, not to exceed prevailing market rates, and can be canceled,
in whole or in part, at any time by the Company as it internalizes property
management services. This agreement enables the Company to utilize the Philips
Group's infrastructure on a cost-effective basis. Going forward, the Company is
committed to internalize property management functions as its portfolio grows.
Based on its current business plan, the Company expects to become a fully
integrated, self-managed operation by May, 2000.
Philip Pilevsky, Chairman of the Board of Directors and Chief Executive
Officer, leads a management team whose executive officers have an average of
approximately 16 years experience in acquiring, redeveloping and developing
retail properties. Philips International Realty Corp. and the Philips Group have
acquired, redeveloped and/or developed more than 70 retail properties
encompassing over 5.4 million square feet within the New York CMSA and Miami
CMSA markets. Mr. Pilevsky and the other executive officers and directors
beneficially owned in the aggregate approximately 22.6% of the outstanding
Common Stock (or units redeemable therefor).
The Company was incorporated in Maryland on July 16, 1997. Its
executive offices are located at 417 Fifth Avenue, New York, New York 10016, and
its telephone number is (212) 545-1100.
STRATEGIES FOR GROWTH
The Company's objective is to maximize shareholder value through
aggressive growth of its cash flow per share and through the appreciation of the
value of its portfolio. The Company will seek to accomplish this objective by
continuing its multi-faceted strategy of: (i) acquisition for redevelopment of
retail properties in demographically strong, under-stored markets and where
supply is constrained; (ii) development of retail properties in similar markets;
(iii) expansion of properties within its portfolio; and (iv) aggressive asset
management of its portfolio.
Management expects that a significant part of the Company's growth will
be achieved through continuing its program of acquiring an optimal,
risk-adjusted mix of additional shopping centers for redevelopment at attractive
initial returns, including: (i) well established, stable properties which the
Company believes are currently leased at below market rents; (ii)
underperforming, poorly managed properties; and (iii) properties with additional
land for new development or expansion. The Company seeks to
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acquire shopping centers at below replacement cost in markets with strong
demographics, emphasizing locations where retail demand exceeds supply and the
creation of new supply is constrained. The Company believes there are
significant opportunities within the markets in which it currently operates to
acquire such properties, including opportunities to acquire property portfolios.
The Company further believes that the markets in which it operates are mature,
established markets in which property owners may have low tax bases, and
therefore exposure to significant taxable gains upon sale. Management believes
that, over time, the Company's ability to acquire properties for Units enabling
such sellers to defer taxable gain, coupled with its extensive market expertise
and contacts, as well as its access to capital as a public company, will enable
the Company to successfully execute its business plan.
The Company balances its acquisition activities through its selective
development of additional quality neighborhood and community shopping centers,
primarily in the New York CMSA markets. The Company capitalizes on management's
extensive development experience, market knowledge, network of industry contacts
and relationships and its proven track record. In order to minimize the risk and
the commitment of capital for prolonged periods usually associated with
development, the Company will continue to focus on two strategies to secure its
development projects: (i) pursuing requests for proposal ("RFPs") or similar
municipally sponsored development opportunities; and (ii) entering into land
purchase contracts which are subject to the satisfactory resolution of key
development contingencies, such as obtaining approvals and permits.
The Company also will continue to utilize its long-standing asset and
property management practices to maximize cash flow from its existing Properties
and enhance their long-term value through its extensive knowledge of the retail
industry and shopping center operations. During the past five years, the Company
has increased the occupancy rate of the Properties from 88% as of December 31,
1993 to 94% as of December 31, 1998, while also increasing the total annualized
contractual base rent in those shopping centers comprising the Company's
consolidated core portfolio from $8.93 to $11.38 per leased square foot.
As of December 31, 1998, the Company's debt to total capitalization
ratio was approximately 48%, based on the closing stock price in trading on the
New York Stock Exchange ("NYSE") on such day of $15.375 per share. The Company
intends to maintain a ratio of debt to total market capitalization (defined as
the market value of the outstanding Common Stock, including interests redeemable
therefor, plus the total debt of the Company) of not more than 50%. However,
such percentage may be temporarily exceeded or altered without the consent of
the Company's shareholders. The Company's organizational documents do not limit
the amount of indebtedness that the Company may incur.
EMPLOYEES
As of December 31, 1998, the Company had 27 employees, 21 of whom are
maintenance, security and clerical personnel at the Properties located in
Hialeah, Florida. The Company believes that relations with its employees are
good. None of the employees are unionized.
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.
REGULATIONS
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 the 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.
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
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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 (which involves general inspections without soil sampling or ground
water analysis) completed within the last two years 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 material environmental liability.
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.
INDUSTRY SEGMENTS
The Company operates in only one industry segment. The Company does not
have any foreign operations and its business is not seasonal. All of the
Company's Properties are retail shopping center properties. As of December 31,
1998, the total annualized contractual base rents due under leases with tenants
at the Company's twelve Properties located in the New York CMSA or Miami CMSA
markets represented 83% of the total annualized contractual base rents due under
all of the Company's leases.
RECENT DEVELOPMENTS
Formation Transactions.
On December 31, 1997, the Company and certain members of the Philips
Group completed the formation transactions (the "Formation Transactions"),
pursuant to which the Properties, or partnership or membership interests in the
Properties, were contributed to Philips International Realty, L.P., a Delaware
limited partnership (the "Operating Partnership") of which the Company is the
general partner, in exchange for limited partnership interests in the Operating
Partnership (the "Units"). The Units are redeemable at the Unitholder's request;
such Units will be redeemed, at the Company's option and in its sole discretion,
either for shares of Common Stock on a one-for-one basis (subject to certain
anti-dilution adjustments and exceptions) and/or cash (based upon the fair
market value of an equivalent number of shares of Common Stock at the time of
redemption). In connection with the Formation Transactions, the Company entered
into: (i) employment agreements with each of Messrs. Petra and Gallagher and Ms.
Levine; (ii) the Management Agreement with the Management Company; and (iii) a
non-competition agreement (the "Non-Competition Agreement") with Mr. Pilevsky,
Ms. Levine and the Management Company. See "Item 11. Executive Compensation" and
"Item 13. Certain Relationships and Related Transactions."
Public Stock Offering.
On May 13, 1998, the Company completed a primary public stock offering
of 7,200,000 shares of Common Stock at $17.50 per share (the "Offering"). The
net proceeds totaling approximately $113,000,000 have been used primarily to (i)
repay certain mortgage loans and other indebtedness (including accrued expenses
incurred in connection with the Formation Transactions and the Offering) of the
Operating Partnership and the partnerships or limited liability companies
holding fee title to the Properties (collectively the "Property Partnerships"),
and (ii) to redeem the Series A Convertible Redeemed Preferred Stock outstanding
at December 31, 1997. The ownership of the Operating Partnership is now
comprised of a 74.8% general partner interest held by the Company and 25.2%
limited partner interest held by the Unit holders. A total 9,812,869 shares of
Common Stock (7,340,474) and Units (2,472,395) were outstanding effective as of
the completion of the stock offering.
Real Estate Investments.
During the third quarter of 1998, the Company acquired (i) a 77,000
square foot shopping center property located in Munsey Park, NY for
approximately $21,500,000 in cash and assumed indebtedness, (ii) a 50% joint
venture interest in a retail/ residential site located at the corner of Third
Avenue and East 86th Street in New York City for approximately $3,400,000 in
cash, and (iii) a 28.6% interest in a limited partnership, controlled by a
significant shareholder of the Company, which owns nine K-Mart anchored shopping
centers for $12,700,000 in cash.
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The Munsey Park shopping center ("Munsey Park") is located on Long
Island in an affluent, densely populated community approximately 20 miles from
New York City. Munsey Park is situated at the intersection of Northern Boulevard
and Searingtown Road, directly across from the Americana "Miracle Mile" shopping
corridor, one of the premier retail markets on Long Island. The fully-occupied
center encompasses 77,000 square feet of leasable space and is anchored by Bed
Bath & Beyond and Fresh Fields, a national specialty grocery chain.
The Company also acquired a 50% joint venture interest in a
retail/residential site located at the corner of Third Avenue and East 86th
Street in New York City. The Company considers the property to be a prime
retail/residential redevelopment opportunity in the heart of Manhattan's
affluent Upper East Side and is currently evaluating alternatives concerning the
renovation and/or redevelopment of the site. In addition, the Company acquired a
28.6% interest in a portfolio of nine K-Mart anchored shopping centers located
in six states and comprising 1.1 million square feet of leasable space.
These three transactions were financed with approximately $23,500,000
drawn under the Company's line of credit, and assumed property indebtedness of
approximately $14,100,000.
During the fourth quarter of 1998, the Company entered into several
additional investments, representing a total capital commitment of approximately
$30.3 million: (i) a 75% interest in a retail development site fully approved
for construction in Glen Cove, Long Island, on which the Company intends to
develop a 50,000 square foot shopping center, (ii) a 75% interest in a 54,000
square foot shopping center fronting Central Avenue in Westchester County which
the Company intends to redevelop, (iii) an additional 14.3% interest in the
portfolio of nine, unencumbered K-Mart-anchored shopping centers at a cost of
$6.4 million, and (iv) interests in two additional retail development sites for
approximately $3 million in cash. Subsequent to December 31, 1998, the Company
acquired an additional 14.2% (bringing to a total current ownership of 57.1%)
interest in the K-Mart portfolio for $6.4 million in cash. Purchase of the
interests in the portfolio of K-Mart anchored shopping centers was unanimously
approved by the independent members of the Company's Board of Directors.
Both the Glen Cove and Westchester County projects are located in
densely-populated neighborhoods with each being well-situated in the heart of
the communities' premier commercial corridor. The Glen Cove project will be
anchored by a Staples office supply superstore and is expected to be completed
by the Fall of 1999. Acquisition of the Westchester property occurred
simultaneously with termination of an existing, below-market anchor tenant
lease. The Company has executed a new lease with Staples for the recaptured
34,000 square feet at a rental level well above that being paid by the existing
anchor at the time of acquisition. The capital committed to these projects is
expected to total $14.5 million.
The initial capital investments in these various transactions totaling
approximately $24.9 million was financed with borrowings under the Company's
credit facility.
During March 1999, the Company acquired full ownership of a 200,000
square foot shopping center in Palm Beach County, Florida. A venture in which
the Company had previously been a 50% partner acquired the property for
redevelopment in September, 1998 at a price of approximately $33 per square
foot. The Company plans to redevelop the property around an
entertainment-related use. A letter of intent has been executed with a
nationally recognized tenant and lease negotiations are in process. The total
$6.6 million invested in this project to date has been financed with borrowings
under the Company's credit facility.
Leasing and Construction Activities.
The Company has completed transactions involving the lease up of
available space in the portfolio and the recapture of below-market leases and
re-tenanting at higher levels which are expected to generate annualized internal
FFO growth. Specifically the Company has (i) substantially completed
reconstruction of 35,000 square feet leased to TJ Maxx at its Palm Springs
Village property in Hialeah, FL, (ii) executed a market-rate lease with National
Wholesale Liquidators to occupy 34,000 square feet at its Forest Avenue Shoppers
Town center in Staten Island, NY previously rented at a rate significantly below
market, (iii) signed a lease with a state agency to occupy 15,000 square feet of
space at its Mall on the Mile shopping center in Hialeah, FL and (iv)
substantially completed construction of a 14,000 square foot, free-standing
facility for Walgreens in conjunction with the recapture of this tenant's
prominent, below-market end-cap space at the Company's Meadowbrook Commons
shopping center in Freeport, Long Island.
Financing Activities.
Mortgage Financing. As of December 31, 1998, there was a total of approximately
$137.5 million of debt outstanding encumbering certain Properties. This total
includes approximately $52.5 million in borrowings under the revolving credit
facility described below. The Company had approximately $85 million of secured
fixed rate debt with a weighted average interest rate of 7.7% and a weighted
average maturity of 5.3 years. See Note 7 to the Notes to Financial Statements
for a discussion of the debt encumbering the
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Company's Properties at December 31, 1998.
Credit Facility. The Company maintains a $100 million senior revolving credit
facility (the "Credit Facility") with a financial services institution. The
availability of funds under the Credit Facility is subject to the Company's
compliance with a number of customary financial and other covenants. The Credit
Facility may be used to finance the Company's acquisition and redevelopment
activities and, within limitations, for working capital and general corporate
purposes. Borrowings under the Credit Facility are secured by certain Properties
with recourse to the Company and the Operating Partnership.
The Initial Public Offering ("Offering"). On May 13, 1998, the Company filed a
Form S-11 Registration Statement with the SEC pursuant to which the Company sold
7,200,000 shares of Common Stock at $17.50 per share.
Shareholder Rights Plan
On February 22, 1999, the Board of Directors of the Company authorized
a dividend distribution (the "Distribution") of one preferred share purchase
right (a "Right") for each outstanding share of Common Stock of the Company. The
dividend is payable on March 31, 1999 (the "Record Date"), to the stockholders
of record on that date. Each Right entitles the registered holder to purchase
from the Company one one-thousandth of a share of Series A Junior Participating
Preferred Stock, par value $.01 per share (the "Preferred Shares"), of the
Company at a price of $55.00 per one one-thousandth (1/1000) of a Preferred
Share (the "Purchase Price"), subject to adjustment. The description and terms
of the Rights are set forth in a Shareholder Rights Agreement (the "Rights
Agreement") by and between the Company and BankBoston, N.A., as rights agent
(the "Rights Agent").
Initially, the Rights will be attached to all Common Stock certificates
representing shares then outstanding, and no separate Rights certificates will
be distributed. The Rights will separate from the Common Stock and a
Distribution Date will occur upon the earlier of (i) ten calendar days following
the date (the "Shares Acquisition Date") of public announcement that a person or
group of affiliated or associated persons (an "Acquiring Person") have acquired,
or obtained the right to acquire, beneficial ownership of fifteen percent (15%)
or more of the outstanding Common Stock (the "Share Acquisition Date") or (ii)
ten calendar days (or such later date as may be determined by action of the
Board of Directors prior to the time any person or group of affiliated persons
becomes an Acquiring Person) following the commencement of, or public
announcement of an intent to commence, a tender offer or exchange offer the
consummation of which would result in the beneficial ownership by a person or
group of fifteen percent (15%) or more of the outstanding Common Stock (the
earlier of such dates being called the "Distribution Date"). Until the
Distribution Date, the Rights will be evidenced by the Common Stock certificates
and will be transferred with and only with such Common Stock certificates. New
Common Stock certificates issued after the Record Date will contain a notation
incorporating the Rights Agreement by reference. Until the Distribution Date,
the surrender or transfer of any certificates representing outstanding Common
Stock also will transfer the Rights associated with the Common Stock represented
by such certificate. Any person or group owning in excess of 15% of the
outstanding Common Stock as of March 31, 1999, shall only trigger the effects
referred to above if such person increases its ownership of Common Stock by 10%
or more above the beneficial ownership of Common Stock of such Person on such
date.
As soon as practicable following the Distribution Date, separate
certificates representing the Rights ("Right Certificates") will be mailed to
holders of record of the Common Stock as of the close of business on the
Distribution Date and such separate Right Certificates alone will represent the
Rights.
The Rights are not exercisable until the Distribution Date. The Rights
will expire at the close of business on March 31, 2009 (the "Final Expiration
Date"), unless the Final Expiration Date is extended or the Right Certificates
are earlier redeemed or exchanged by the Company, as described below. Each Right
generally will entitle the holder to purchase one one-thousandth (1/1,000th) of
a Preferred Share of the Company at a price of $55.00.
In the event that, following the Distribution Date, any person or group
becomes an Acquiring Person, each holder of a Right will thereafter have the
right to receive, upon exercise, Common Stock having a market value equal to two
times the Purchase Price of the Right. Notwithstanding any of the foregoing,
once any person or group becomes an Acquiring Person, all Rights that are or
were beneficially owned by any such Acquiring Person will be null and void.
For example, at an exercise price of $55.00 per Right, each Right not
owned by an Acquiring Person would entitle its holder to purchase $110.00 worth
of Common Stock for $55.00. Assuming that the Common Stock had a per share value
of $27.50 on the date upon which such person or group became an Acquiring
Person, the holder of each valid right would be entitled to purchase four (4)
shares of Common Stock for $55.00.
In the event that, following the Distribution Date, (i) the Company is
acquired in a merger or other business combination transaction in which the
Company is not the surviving corporation, or (ii) 50% or more of the Company's
consolidated assets or
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earning power is sold or transferred, then each holder of a Right (except Rights
which previously have been voided as set forth in the preceding paragraph) shall
thereafter have the right to receive, upon exercise, common stock of the
acquiring company having a value equal to two times the Purchase Price of the
Right.
The Purchase Price payable, and the number of Preferred Shares (or
Common Stock) issuable, upon exercise of the Rights are subject to adjustment
from time to time to prevent dilution (i) in the event of a stock dividend on,
or a subdivision, combination or reclassification of, the Preferred Shares, (ii)
upon the grant to holders of the Preferred Shares of certain rights or warrants
to subscribe for the purchase of Preferred Shares or convertible securities at
less than the current market price of the Preferred Shares or (iii) upon the
distribution to holders of the Preferred Shares of evidences of indebtedness or
assets (excluding regular quarterly cash dividends or dividends payable in
Preferred Shares) or of subscription rights or warrants (other than those
referred to above).
With certain exceptions, no adjustment in the Purchase Price will be
required until the time at which cumulative adjustments require an adjustment of
at least 1% in such Purchase Price. No fractional Preferred Shares will be
issued (other than fractional shares which are integral multiples of one
one-thousandth of a Preferred Share) and, in lieu thereof, an adjustment in cash
will be made based on the market price of the Preferred Shares on the last
trading date prior to the date of exercise.
At any time after any person or group becomes an Acquiring Person, the
Board of Directors may cause the Company to exchange the Rights (other than
Rights owned by the Acquiring Person which shall have become void), in whole or
in part, at an exchange ratio of one Common Stock per Right (subject to
adjustment).
At any time prior to the earlier of (i) the close of business on the
tenth calendar day following the Shares Acquisition Date (or if the Shares
Acquisition Date shall have occurred prior to the Record Date, the close of
business on the tenth day following the Record Date) or (ii) the Final
Expiration Date, the Board of Directors of the Company may cause the Company to
redeem the Rights in whole, but not in part, at a price of $.0l per Right (the
"Redemption Price"). Immediately upon the action of the Board of Directors of
the Company electing to redeem the Rights, the Company shall make announcement
thereof, and upon such action, the right to exercise the Rights will terminate
and the only right of the holders of Rights will be to receive the Redemption
Price.
Until a Right is exercised or exchanged, the holder thereof, as such,
will have no rights as a stockholder of the Company, including, without
limitation, the right to vote or to receive dividends.
The terms of the Rights may be amended by the Board of Directors of the
Company without the consent of the holders of the Rights, including an amendment
to lower certain thresholds described above to not less than the greater of (i)
the sum of one one-thousandth percent (.001%) and the largest percentage of the
outstanding Common Stock then known to the Company to be beneficially owned by
any person or group (other than Acquiring Persons) and (ii) ten percent (10%),
except that from and after such time as any person or group becomes an Acquiring
Person no such amendment may adversely affect the interest of the holders of the
Rights.
The foregoing description of the Rights is qualified in its entirety by
reference to the Rights Agreement which is attached as an exhibit to this Form
10-K.
RISK FACTORS
Our results from operations and ability to pay dividends may be
affected by the risk factors set forth below. All investors should consider the
following risk factors before deciding to purchase securities of the Company.
The Company refers to itself as "we" or "our" in the following risk factors.
We are dependent upon the economics in our markets and of shopping centers
generally.
Dependence on certain market regions. Twelve of our property
interests are located in either of the following major east coast metropolitan
regions: (1) the New York, northern New Jersey, Long Island and Connecticut
metropolitan market area or (2) the Miami-Fort Lauderdale metropolitan market
area. As of December 31, 1998, the total weighted average annualized base rent
due under leases with tenants at properties located in such areas represented
83% of our total annualized base rents due under all of our leases. Adverse
economic developments in these states could adversely impact the operations of
our properties and, therefore, our profitability. Since our portfolio consists
primarily of retail properties (as compared to a more diversified portfolio), a
decline in the economy or a decline in the demand for retail space may adversely
affect our ability to make distributions.
Dependence on certain properties. As of December 31, 1998, the total
annualized base rent due under leases with tenants at four of our properties
located in Hialeah, Florida represented 35% of our total annualized base rents
due under all of our leases. Adverse
6
<PAGE>
economic developments or a decline in consumer demand for shopping centers in
this area or at these four properties could disproportionately and adversely
affect our ability to make distributions.
Conflicts of interest could adversely affect our operations.
Potential conflicts with management. Our executive officers, including
Mr. Philip Pilevsky and Ms. Sheila Levine, direct our day-to-day operations.
Philips International Holding Corp., a corporation that Mr. Pilevsky and Ms.
Levine own, manages such day-to-day operations pursuant to a management
agreement dated December 31, 1997 among us, Philips International Realty. L.P.
and Philips International Holding Corp. Mr. Pilevsky also has several other real
estate holdings and activities that are not part of our company. A limited
number of such holdings are retail properties that may compete with our
properties. Personnel of Philips International Holding Corp. will spend some of
their time managing the holdings of Mr. Pilevsky. This will prevent such
personnel from devoting their efforts full-time to managing our properties. The
failure of the such personnel to adequately serve us could adversely affect our
business.
Potential conflicts with other real estate activities. In connection
with our and Philip International Realty, L.P.'s formation in December 1997, we
acquired twelve of our thirteen properties we then owned from holders of units
of the Philips International Realty, L.P. Certain of these holders, including
Mr. Pilevsky and Ms. Levine, continue to hold significant interests in real
properties (including retail properties that may compete with our properties)
that they owned but did not transfer to us at such time. While an Amended and
Restated Non-Competition Agreement dated as of December 31, 1997 among us,
Philips International Realty, L.P., Philips International Holding Co., Mr.
Pilevsky and Ms. Levine prevents Mr. Pilevsky, Ms. Levine and Philips
International Holding Corp. from acquiring, operating and managing or developing
certain retail shopping center properties other than through us, it does not
restrict their activities with respect to retail properties they owned but did
not transfer to us at the time of our formation. As a result, Mr. Pilevsky will
devote his professional time to overseeing the management of our properties as
well as overseeing the management of other properties. The failure of Mr.
Pilevsky to adequately serve us could adversely affect our business.
Potential conflicts with holders of units of Philips International
Realty, L.P. Holders of units of Philips International Realty, L.P., including
Mr. Pilevsky and Ms. Levine, may have interests that conflict with our and our
shareholders' interests. If we (1) sell or refinance certain properties or (2)
reduce indebtedness encumbering such properties, holders of units (particularly
Mr. Pilevsky and Ms. Levine who previously held interests in our properties) may
suffer worse tax consequences than we or our shareholders may suffer. To avoid
such consequences, Mr. Pilevsky and Ms. Levine, as executive officers and
directors of our company, could (1) influence our board of directors not to sell
or refinance a property even though such sale or refinancing might otherwise
benefit us or (2) cause us to refinance a property at a higher level of debt
than would be in our best interest.
Our performance is subject to risks associated with the real estate industry.
General. Our ability to make distributions to our shareholders depends
on the ability of our properties to generate funds (including earned income and
capital appreciation) in excess of operating expenses (including scheduled
principal payments on debt and capital expenditure requirements). Events or
conditions that are beyond our control may adversely affect funds from
operations and the value of our properties. Such events or conditions could
include:
o changes in the general economic climate;
o material and adverse changes in capital market availability of debt
and/or equity;
o changes in local conditions such as oversupply of space or a reduction
in demand for rental space;
o decreased attractiveness of our properties to potential tenants;
o competition from other available space;
o our inability to provide adequate maintenance;
o increased operating costs, including insurance premiums and real
estate taxes, due to inflation and other factors
o which may not necessarily be offset by increased rents;
o changes in laws and regulations (including tax, environmental and
housing laws and regulations) and agency or court interpretations of
such laws and regulations and the related costs of compliance;
o changes in interest rate levels and the availability of financing;
o the inability of a significant number of tenants to pay rent;
o our inability to rent space on favorable terms; and
o civil unrest, earthquakes and other natural disasters that may
result in uninsured losses.
Financially distressed tenants may be unable to pay rent. A tenant may
default or file for bankruptcy at any time. If a tenant defaults, we may
experience delays and incur substantial costs in enforcing our rights as
landlord and protecting our investments. If a tenant files for bankruptcy, a
potential court judgment rejecting and terminating such tenant's lease could
reduce our cash flow available for distribution. Two of our anchor tenants,
Caldor Inc. and Bradlees Stores Inc., currently operate under the protection of
the bankruptcy
7
<PAGE>
laws. Caldor Inc. leases 94,393 square feet at Elm Plaza Shopping Center and
86,830 square feet at Branhaven Plaza and Bradlees Stores Inc. leases 60,000
square feet at Foxboro Plaza. Termination of any of such leases could
temporarily interrupt our rental income from (1) the tenant of the affected
space and (2) other tenants at the property whose income depends upon the
tenant's presence as an anchor store at such property.
Illiquidity of real estate limits our ability to act quickly. Real
estate investments are relatively illiquid. Such illiquidity may limit our
ability to vary our portfolio quickly in response to changes in economic and
other conditions. If we want to sell a property, we might not be able to dispose
of such property in the time period we desire, and the sales price of such
property might not recoup or exceed the amount of our investment. The
prohibition in the Internal Revenue Code of 1986, as amended, and related
regulations on a real estate investment trust holding property for sale also may
restrict our ability to sell property. Such limitations on our ability to sell
our investments could adversely affect our ability to make distributions.
Americans With Disabilities Act compliance could be costly. Under the
Americans with Disabilities Act of 1990, all public accommodations and
commercial facilities must meet certain federal requirements related to access
and use by disabled persons. Compliance with the ADA requirements could involve
removal of structural barriers to certain disabled persons' accesses. Other
federal, state and local laws may require modifications to or restrict further
renovations of our properties with respect to such accesses. Although we believe
that our properties are substantially in compliance with present requirements,
noncompliance with the ADA or related laws or regulations could result in the
United States government imposing fines or private litigants being awarded
damages against us. Such costs may adversely affect our ability to make
distributions.
Environmental problems are possible and may be costly. Various federal,
state and local laws and regulations subject property owners or operators to
liability for the costs of removal or remediation of certain hazardous or toxic
substances located on or in the property. These laws often impose liability
without regard to whether the owner or operator was responsible for or even knew
of the presence of such substances. The presence of or failure to properly
remediate hazardous or toxic substances may adversely affect our ability to
rent, sell or borrow against contaminated property. Various laws and regulations
also impose on persons who arrange for the disposal or treatment of hazardous or
toxic substances at another location liability for the costs of removal or
remediation of such substances at the disposal or treatment facility. These laws
often impose liability whether or not the person arranging for such disposal
ever owned or operated the disposal facility. Certain other environmental laws
and regulations impose liability on owners or operators of property for injuries
relating to the release of asbestos-containing materials into the air. As owners
and operators of property and as potential arrangers for hazardous substance
disposal, we may be liable under such laws and regulations for removal or
remediation costs, governmental penalties, property damage, personal injuries
and related expenses. Payment of such costs and expenses could adversely affect
our ability to make distributions.
Within the last two years, independent environmental consultants
completed a "Phase I" environmental assessment of our properties. Although this
environmental assessment did not reveal any environmental liability that could
materially affect our financial condition or results of operations, you should
consider that (1) such assessment involved general inspections without soil
sampling or ground water analysis and may not have revealed all environmental
liabilities, (2) future laws, ordinances or regulations could impose material
environmental liability on us and (3) acts by tenants or other third parties and
the condition of land near our properties (such as the presence of underground
storage tanks) could adversely affect the condition of our properties and
subject us to environmental liability.
Competition for acquisitions may result in increased prices for
properties. Retailers at our properties face increasing competition from other
forms of retailing such as catalogues, discount shopping clubs and
telemarketing. We face increasing competition for prospective tenants with
landlords of shopping center properties that may be newer in appearance, better
located or better maintained than our properties. Such competition may reduce
our cash flow and adversely affect our ability to make distributions by:
o interfering with our ability to attract and retain tenants in our
properties or in properties we develop or acquire;
o increasing vacancies which lowers market rental rates and limits
our ability to negotiate rental rates;
o and adversely affecting our ability to minimize expenses of
operation.
Redevelopment and development of real estate could be costly. As part
of our strategy, we actively pursue (1) redevelopment projects and (2)
development projects. In addition to the risks involved in the ownership and
operation of established retail properties, included among the risks of
redevelopment or development projects that may adversely affect our cash
available for distribution are the following:
o failure to complete construction on schedule or within budget may
increase debt service expense and construction costs;
o we may incur predevelopment costs for projects we do not
complete;
o inadequate occupancy or rental rates of a completed project may
affect our ability to pay operating expenses or earn our targeted
rate of return on our investment;
8
<PAGE>
o an unsuccessful project could cause our losses to exceed our
investment in such project;
o financing for redevelopment and newly developed projects may not
be available to us on favorable terms;
o long-term financing may not be available upon completion of
construction; and
o our distribution of 95% of our real estate investment trust
taxable income (to maintain our qualification as a real estate
investment trust) will limit our ability
o to finance acquisitions or new developments with income or cash
flow from operations.
Uninsured losses may adversely affect our cash flow. We carry
comprehensive liability, fire, flood, extended coverage and rental loss
insurance. Our insurance policies contain specifications, limits and deductibles
comparable to those typically contained in policies covering similar properties.
We also carry owner's title insurance policies on all of our properties for
amounts that may be less than the full value of our properties. If an uninsured
loss or a loss from a title defect to a property in excess of insured limits
occurs, we could lose all or part of our investment in and anticipated profits
and cash flows from such property. In the case of a title defect, we could
remain obligated for any recourse mortgage indebtedness or other financial
obligations related to such property. Any of such losses could adversely affect
our ability to make distributions.
Debt financing could adversely affect our economic performance.
Scheduled debt payments and refinancing could adversely affect our
financial condition. We are subject to the risks normally associated with debt
financing, including the following:
o our cash flow may be insufficient to meet required payments of
principal and interest;
o payments of principal and interest on borrowings may leave us
with insufficient cash resources to pay operating expenses;
o we may not be able to refinance indebtedness on our properties at
maturity;
o the terms of refinancing may not be as favorable as the terms of
the related indebtedness; and
o we could become more highly leveraged (because our policies and
organizational documents do not limit the amount of debt, ratio
of debt to total market capitalization or percentage of
indebtedness we may incur) and, therefore, default on our
obligations and debt service requirements.
As of December 31, 1998, we had outstanding an aggregate of
approximately $137.5 million of primarily mortgage indebtedness (including
approximately $52.5 million in borrowings under our revolving credit facility).
Because we may not be able to pay all of our mortgage indebtedness
prior to maturity with our internally generated cash, we may need to repay such
debt through refinancings and/or equity offerings. If we are unable to refinance
our indebtedness on acceptable terms, or at all, events or conditions that may
adversely affect our cash flow and ability to make distributions include the
following:
o we may need to dispose of one or more of our properties upon
disadvantageous terms;
o prevailing interest rates or other factors at the time of
refinancing could increase interest rates and, therefore, our
interest expense;
o if we mortgage property to secure payment of indebtedness and are
unable to meet mortgage payments, the mortgagee could foreclose
upon such property or appoint a receiver to receive an assignment
of our rents and leases;
o certain of our mortgages encumbering properties have "cross
default" or "cross collateralization" provisions that entitle the
secured lender to certain remedies (including foreclosure)
against more than one property; and
o foreclosures upon mortgaged property could create taxable income
without accompanying cash proceeds and, therefore, hinder our
ability to meet the real estate investment trust distribution
requirements of the Internal Revenue Code.
Rising interest rates may adversely affect our cash flow. Advances
under our $100 million senior revolving credit facility bear interest at rates
ranging from 1.25% to 1.75% over the 30-day London Interbank Offered Rate, based
on the level of borrowings outstanding relative to collateral value. We may
incur additional debt in the future that also bears interest at variable rates.
Variable rate debt creates higher debt service requirements if market interest
rates increase. Higher debt service requirements could adversely affect our cash
flow and ability to make distributions or cause us to default under certain debt
covenants.
We are dependent upon our key personnel whose continued service is not
guaranteed.
We are dependent upon our executive officers for strategic business
direction and real estate experience. While we believe that we could find
replacements for these key personnel, loss of their services could adversely
affect our operations. We cannot assure you that any of our executive officers
will remain with us. We have entered into employment agreements with Louis J.
Petra, Sheila Levine and Brian J. Gallagher. Although we do not expect to enter
into an employment agreement with Philip Pilevsky, Mr. Pilevsky has a
significant ownership interest in our company. We also have entered into a
non-competition agreement with each of Mr. Pilevsky and Ms. Levine that prevents
them from engaging in certain retail real estate activities.
9
<PAGE>
A year 2000 failure could disrupt our operations.
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.
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect our results of
operations, liquidity and financial condition. Due to the general uncertainty
inherent in the Year 2000 problem, resulting in part from the uncertainty of the
Year 2000 readiness of third parties, we are unable to determine at this time
whether the consequences of failing to adequately address all Year 2000 concerns
will have a material impact on our results of operations, liquidity or financial
condition. However, we expect our Year 2000 program will significantly reduce
our level of uncertainty about the Year 2000 problem. We anticipate that, with
appropriate modification of our information and operating systems and completion
of the program as scheduled, the possibility of significant interruptions of
normal operations should be reduced. We are not in a position to assess or
evaluate the impact of a worst case scenario. See "Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Inability to make required distributions to shareholders could affect our real
estate investment trust status.
For the Internal Revenue Service to treat us as a real estate
investment trust under the Internal Revenue Code, we must distribute to our
shareholders at least 95% of our real estate investment trust taxable income
each year. We cannot assure you that we will satisfy the annual distribution
requirement to qualify as a real estate investment trust.
Reliance on board of directors to determine distributions. Much of our
income will consist of our allocable share of the income of Philips
International Realty, L.P. and much of our cash flow will consist of
distributions from Philips International Realty, L.P. Our board of directors
will determine distributions by Philips International Realty, L.P. In making
such determination, the board of directors may consider many factors, including
the following:
o the amount of cash available for distribution;
o Philips International Realty, L.P.'s financial condition;
o Philips International Realty, L.P.'s capital expenditure
requirements;
o the annual distribution requirement under the real estate
investment trust provisions of the Internal Revenue Code; and
o such other factors as our board of directors deems relevant.
Risk of borrowing funds to meet distribution requirements. We may need
to borrow funds on a short-term or long-term basis to meet the distribution
requirements for real estate investment trust qualification even if the then
prevailing market conditions are not favorable for borrowings. Our need to
borrow such funds depends on (1) differences in timing between the receipt of
income and the payment of expenses in arriving at taxable income (of us or
Philips International Realty, L.P.) and (2) the effect of nondeductible capital
expenditures, the creation of reserves or required debt amortization payments.
Consequences of failure to qualify as a real estate investment trust could
adversely affect our financial condition.
Our failure to qualify as a real estate investment trust for federal
income tax purposes could adversely affect our financial and other conditions.
Tax liabilities as a consequence of failure to qualify as a real estate
investment trust. We have operated so as to qualify as a real estate investment
trust for federal income tax purposes since our taxable year ended December 31,
1997. Although we believe we will continue to operate in such manner, we cannot
guarantee you that we will. Qualification as a real estate investment trust
depends on our meeting various requirements (some on an annual and quarterly
basis) established under highly technical and complex tax provisions of the
Internal Revenue Code. Because few judicial or administrative interpretations of
such provisions exist and qualification determinations are fact sensitive, we
cannot assure you that we will qualify as a real estate investment trust for any
taxable year.
If we fail to qualify as a real estate investment trust in any taxable
year, we will be subject to the following:
o we will not be allowed a deduction for distributions to
shareholders;
o we will be subject to federal income tax at regular corporate
rates, including any alternative minimum tax, if applicable; and
o unless we are entitled to relief under certain statutory
provisions, we will not be permitted to qualify as a real estate
investment trust for the four taxable years following the year
during which we were disqualified.
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A loss of real estate investment trust status would reduce our net earnings
available for investment or distribution to our shareholders. Failure to qualify
as a real estate investment trust also would eliminate the requirement that
distributions to our shareholders be made.
Other tax liabilities. Even if we qualify as a real estate investment
trust, we are subject to certain federal, state and local taxes on our income
and property and, in some circumstances, certain other state taxes.
Risk of changes in the tax law applicable to real estate investment
trusts. Since the Internal Revenue Service, the United States Treasury
Department and Congress frequently review federal income tax legislation, we
cannot predict whether, when or to what extent new federal tax laws,
regulations, interpretations or rulings will be adopted. Any of such legislative
action may prospectively or retroactively modify our tax treatment and,
therefore, may adversely affect taxation of us or our shareholders.
Certain provisions of law may inhibit changes in control.
Certain provisions of the Maryland General Corporation Law, our
articles of incorporation, our by-laws and Philips International Realty, L.P.'s
partnership agreement may (1) inhibit a change in control of our company, (2)
inhibit the removal of existing management or (3) prevent us from paying you a
premium for your shares of our common stock over the then-prevailing market
prices.
Staggered board of directors. We divide our board of directors into
three classes serving staggered three-year terms. This may inhibit a change in
control of our company.
New classes and series. Under our articles of incorporation, our board
of directors may create new classes and series of securities and establish
preferences and rights of such classes and series. Our issuance of additional
classes or series of our capital stock may inhibit a change of control of our
company.
Ownership limit. Under our articles of incorporation and certain
resolutions of our board of directors, no one may acquire or own more than 8% of
the outstanding shares of our capital stock (except for Mr. Pilevsky who may own
up to 17.5% of such shares) and no one may own or acquire shares of any class of
our capital stock that would (1) cause five or fewer persons to own more than
50% in value of our shares of capital stock or (2) otherwise cause us to fail to
qualify as a real estate investment trust. Such ownership limit may:
o discourage a change of control of our company;
o deter tender offers for our capital stock that you may find
attractive; or
o limit your opportunity to receive a premium for your capital
stock that might otherwise exist if an investor attempted to
assemble a block of capital stock in excess of the ownership
limit or to effect a change in control of our company.
Rights of Limited Partners. Under Philips International Realty, L.P.'s
partnership agreement, we may not engage in any of the following transactions
unless all limited partners of Philips International Realty, L.P. will receive
(or have the right to receive) for each unit an amount of cash, securities or
other property equal to the product of (1) the number of shares of our common
stock for which each unit is redeemable and (2) the greatest amount of cash,
securities or other property paid to the holder of shares of common stock
pursuant to the terms of such transaction:
o a merger, consolidation or other combination with or into another
person;
o a sale of all or substantially all of our assets; or
o any reclassification, recapitalization or change of our
outstanding equity interests.
If, in connection with any of the above transactions, the holders of outstanding
shares of our common stock accepts a purchase, tender or exchange offer, each
holder of units of Philips International Realty L.P. will receive (or have the
right to receive) the greatest amount of cash, securities or other property
which such holder would have received had it (1) exercised its right to
redemption and (2) received shares of common stock in exchange for its units
immediately prior to the expiration of such purchase, tender or exchange offer
and then accepted such purchase, tender or exchange offer.
Our board of directors may change investment and financing policies without your
vote.
General. Our board of directors determines (1) our investment and
financing policies, (2) our growth strategy, and (3) our debt, capitalization,
distribution and operating policies. At any time and without your approval, the
board of directors may revise or amend these policies and strategies. Such
changes could adversely affect our financial condition or results of operations,
and, therefore, our ability to make distributions.
11
<PAGE>
Issuance of additional securities. You do not have any preemptive right
to acquire any common stock or other equity or debt securities we may offer. Any
such issuance of securities could dilute your investment.
Risks involved in acquisitions through partnerships or joint ventures.
We may invest in properties through partnerships or joint ventures. Partnership
or joint venture investments may involve risks not involved with direct
acquisitions that include the following:
o a co-venturer or partner in an investment may become bankrupt;
o a co-venturer's or partner's economic or business interests or
goals may conflict with our interests or goals;
o a co-venturer or partner may act contrarily to our instructions,
requests, policies or objectives; and
o our articles of incorporation do not limit the amount we may
invest in such joint ventures or partnerships.
Risks of investing in securities of entities owning real estate. We may
acquire securities of entities that own real estate. Because of ownership limits
and gross income requirements we must meet to maintain our real estate
investment trust qualification, we may not be able to control (1) the ownership,
operation and management of the underlying real estate or (2) the distributions
with respect to such securities. Our lack of control could adversely affect our
ability to make required distributions.
Risks of investing in mortgages. We may invest in mortgages.
Investments in mortgages may include the following risks that may adversely
affect our ability to make distributions:
o borrowers may be unable to make debt service payments or pay
principal when due;
o the principal of the mortgage note securing a property may exceed
the value of the mortgaged property; and
o interest rates payable on the mortgages may be lower than our
cost of funds to acquire such mortgages.
Adverse effect of increasing market interest rate levels on price of common
stock.
The annual distribution rate on the price paid for shares of our common
stock (compared to rates on alternative investments) may influence the public
market price of our common stock. An increase in general interest rate levels
may lead purchasers of our common stock to demand a higher annual distribution
rate. Such demands could adversely affect the market price of our common stock.
Disclosure regarding forward-looking statements.
The Company considers portions of this information to be
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Although the
Company believes that the expectations reflected in such forward-looking
statements are based upon reasonable assumptions, it can give no assurance that
expectations will be achieved.
ITEM 2. PROPERTIES
GENERAL
As of December 31, 1998, the Company held interests in 26 retail
properties, plus 2 development sites, encompassing 3.8 million square feet of
GLA. Information concerning the 26 operating properties is set forth in the
following Property Summary Data chart.
The Company's neighborhood and community shopping centers usually are
anchored by national or regional retailers. As long-time participants in the
shopping center industry, management has established close relationships with a
large number of major national and regional retailers. As of December 31, 1998,
the Properties were 94% leased to 392 tenants with 78% of the total GLA leased
to national and regional retailers. Twenty-one (21) of the Properties are
anchored by national or regional supermarkets or discount department stores such
as Publix Supermarkets, Inc., Winn-Dixie Stores Inc., Waldbaums/APW
Supermarkets, Inc. and K-Mart. The Company believes the strength of these
discount department stores and grocery retailers, as well as other key anchor
tenants, provide the Properties with consistent consumer traffic and enable the
Company to attract additional quality anchor retailers, as well as quality
national, regional and local non-anchor retailers.
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PROPERTY SUMMARY DATA
The following table sets forth certain information relating to each of the
Properties at December 31, 1998.
<TABLE>
<CAPTION>
Annualized Contractual
Base Rent At 12/31/98(1)
------------------------
Year Built/
Renovated
--------- Total % Leased % Of Base
% GLA At Base Portfolio Rent/Sq. Ft.
Property And Location Owned Yr. Acquired (Sq. Ft.) 12/31/98 Rent ($000) Base Rent (2) ($)
- --------------------- ----- ------------ --------- -------- ------------ --------- -------
<S> <C> <C> <C> <C> <C> <C>
NEW YORK CMSA
Forest Avenue
Shoppers Town 100.0 1957/1996 177,002 100.0 3,557 11.4 20.10
Forest Avenue 1984
Staten Island, New York
Meadowbrook Commons 100.0 1990(3) 173,027 100.0 3,030 9.7 17.51
Sunrise Highway
Freeport, New York
Merrick Commons 100.0 1960/1994 108,444 99.5 1,682 5.4 15.59
Merrick Road 1985
Merrick, New York
Mill Basin Plaza 100.0 1991(3) 80,708 100.0 2,104 6.7 26.07
Avenue U
Brooklyn, New York
Branhaven Plaza 100.0 1971/1996 191,496 96.6 1,288 4.1 6.97
U.S. 1 1985
Branford, Connecticut
Munsey Park S.C. 100.00 1979/1995 78,035 100.00 2,246 7.2 28.78
Northern Blvd. 1998
Munsey Park, NY
TOTAL/WEIGHTED AVERAGE 100.0 808,712 99.1 13,907 44.5 17.35
NEW YORK CMSA-
JOINT VENTURES
1517-25 Third Ave. 50.0 Development 10,552* 100.0 566** 1.8 107.18
New York, NY Project
1703 Central Park Ave. 75.0 Redevelopment 54,819* 100.0 505** 1.6 12.28
Yonkers, NY Project
TOTAL/WEIGHTED AVERAGE -- -- 65,371* 100.0 1,071* 3.4 28.24
MIAMI CMSA
Mall on the Mile 100.0 1985(4) 591,369 96.9 4,172 13.4 7.28
Palm Springs Mile
Hialeah, Florida
Palm Springs Village 100.0 1985(4) 309,359 90.5 2,982 9.6 10.65
Palm Springs Mile
Hialeah, Florida
The Shops on 49th Street 100.0 1985(4) 167,009 97.2 2,865 9.2 17.65
Palm Springs Mile
Hialeah, Florida
Philips Plaza 100.0 1985(4) 109,263 86.1 1,006 3.2 10.70
Palm Springs Mile
Hialeah, Florida
TOTAL/WEIGHTED AVERAGE 1,177,000 94.3 11,025 35.4 9.95
</TABLE>
13
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<TABLE>
<S> <C> <C> <C> <C> <C> <C>
FLORIDA -
JOINT VENTURES
Palm Springs Plaza 50.0 1962 195,786 36.4 199** 0.7 5.57
Palm Beach County, FL 1998
Tradewinds Shopping 42.9 1987 209,404 98.9 494** 1.6 5.57
Overseas Highway 1998
Key Largo, FL
Bayhill Plaza 42.9 1987 179,065 100.0 540** 1.7 7.03
7705 Turkey Lake Road 1998
Orlando, FL
TOTAL/WEIGHTED AVERAGE -- -- 584,255 76.1 1,233** 4.0 6.14
NEIGHBORING MARKETS
Elm Plaza 100.0 1973/1995 168,852 97.6 587 1.9 3.56
Rte. 220/I-91 1986
Enfield, Connecticut
Millside Plaza 100.0 1977 161,128 100.0 802 2.5 4.98
U.S. 130 1986
Delran, New Jersey
Foxboro Plaza 100.0 1982 117,831 100.0 581 1.9 4.93
Rte. 140/I-95 1986
Foxborough, Massachusetts
The Shoppes at Lake Mary 100.0 1985 36,725 100.0 322 1.0 8.77
Country Club Road 1997
Lake Mary, Florida
TOTAL/WEIGHTED AVERAGE 484,536 99.2 2,292 7.3 4.77
NEIGHBORING MARKETS -
JOINT VENTURES
North Star Shopping Center 42.9 1987 127,986 100.0 208** 0.7 3.81
Alexandria, MN 1988
1105 Bellvue Road 42.9 1986 109,698 99.4 301** 1.0 6.49
Atwater, CA 1988
Northgate Shopping Center 42.9 1987 105,063 100.0 296** 1.0 6.59
Northgate Blvd. 1998
Sacramento, CA
McHenry Commons, S.C. 42.9 1987 100,408 99.4 233** 0.7 5.48
North Richmond Road 1998
McHenry, IL
Pennyrile Marketplace, S.C. 42.9 1986 90,077 100.0 195** 0.6 5.04
3010 Fort Campbell Road 1998
Hopkinsville, KY
Highway 101 42.9 1988 89,128 97.0 241** 0.8 6.78
Port Angeles, WA 1998
Manning Avenue 42.9 1986 72,655 100.0 201** 0.6 6.44
Reedley, CA 1998
TOTAL/WEIGHTED AVERAGE -- -- 695,015 99.4 1,675** 5.4 5.70
--------- ----- ------- ----- ----
PORTFOLIO TOTAL/WEIGHTED AVERAGE 3,814,889 94.4 31,203 100.0 9.93
========= ===== ======= ===== ====
</TABLE>
14
<PAGE>
Property and Location Key Tenants
- --------------------- -----------
NEW YORK CMSA
Forest Avenue Shoppers Town TJ Maxx (The TJX Companies,
Forest Avenue Inc.); National Wholesale Liquidators
Staten Island, New York
Meadowbrook Commons Giant Food Stores, Inc.;
Sunrise Highway Toys 'R' Us, Inc.;
Freeport, New York Marshall's of MA, Inc.
Merrick Commons APW Supermarkets, Inc.
Merrick Road (Waldbaum, Inc.)
Merrick, New York
Mill Basin Plaza Pergament Home Centers, Inc.
Avenue U Walgreens Co.
Brooklyn, New York
Branhaven Plaza Caldor, Inc.; APW
U.S. 1 Supermarkets, Inc. (Waldbaum,
Branford, Connecticut Inc.); CVS
Munsey Park, S.C. Bed, Bath & Beyond
Northern Blvd.
Munsey Park, NY
1517-25 Third Avenue
New York, NY
1703 Central Park Avenue Staples, Inc.
Yonkers, NY
MIAMI CMSA
Mall on the Mile Builders Square; RTG Furniture; U/A Theaters;
Palm Springs Mile Mervyn's; Toys 'R'
Hialeah, Florida Us, Inc.; Publix
Supermarkets, Inc.
Palm Springs Village Winn-Dixie Stores, Inc.;
Palm Springs Mile Upton, Inc.;
Hialeah, Florida Fabulous Diamonds
of Hialeah, Inc.
The Shops on 49th Street Smart & Final Stores
Palm Springs Mile Corporation; Pier
Hialeah, Florida One Imports (U.S.) Inc.
Philips Plaza Luria & Son
Palm Springs Mile
Hialeah, Florida
Palm Springs Plaza Acquired for Redevelopment
Palm Beach County, FL
Tradewinds Shopping Center Kmart; Publix
Overseas Highway
Key Largo, FL
Bayhill Plaza Kmart; Publix
7705 Turkey Lake Road
Orlando, FL
NEIGHBORING MARKETS
Elm Plaza Caldor Inc.; APW
Rte. 220/I-91 Supermarkets, Inc. (Waldbaum,
Enfield, Connecticut Inc.)
Millside Plaza Kmart Corporation;
U.S. 130 Shop Rite (Delran Supermarket,
Delran, New Jersey Inc.)
Foxboro Plaza Bradlees Stores, Inc.
Rte. 140/I-95
Foxborough, Massachusetts
The Shoppes at Lake Mary
Country Club Road
Lake Mary, Florida
NEIGHBORING MARKETS -
JOINT VENTURES
North Star Shopping Center Kmart
Alexandria, MN
1105 Bellvue Road Kmart
Atwater, CA
Northgate Shopping Center Kmart
15
<PAGE>
Northgate Blvd.
Sacramento, CA
McHenry Commons, S.C. Kmart
North Richmond Road
McHenry, IL
Pennyrile Marketplace, S.C. Kmart
3010 Fort Campbell Road
Hopkinsville, KY
Highway 101 Kmart
Port Angeles, WA
Manning Avenue Kmart
Reedley, CA
(1) Total annualized contractual base rent for all leases in place at
December 31, 1998. Amount excludes (i) future contractual rent escalations
and cost of living increases; (ii) percentage rent and (iii) additional
rent payable by tenants such as common area maintenance, real estate taxes
and other expense reimbursements.
(2) Total annualized contractual base rent divided by total GLA leased at
December 31, 1998.
(3) Property was developed by the Company.
(4) Development of the Properties commenced in 1958. Substantial
redevelopment and expansion has been ongoing since 1985, when the
Properties were acquired by the Philips Group.
* Retail GLA only (excludes residential premises under redevelopment).
** Weighted by the Company's share of ownership.
OCCUPANCY
During the past five years the Company has increased the portfolio occupancy and
total annualized contractual base rent per square foot for its wholly-owned
shopping center properties, as indicated in the table below:
<TABLE>
<CAPTION>
TOTAL ANNUALIZED
NUMBER OF CONTRACTUAL BASE RENT PER
Year Ended December 31 PROPERTIES % LEASED LEASED SQUARE FOOT ($)(1)
- ---------------------- ---------- -------- -------------------------
<S> <C> <C> <C>
1998.............................................................. 14 96.8 11.38
1997.............................................................. 13 96.3 10.44
1996.............................................................. 13 95.4 10.26
1995.............................................................. 13 90.7 9.94
1994.............................................................. 13 88.2 9.64
</TABLE>
(1) Total annualized contractual base rent for all leases in place at
December 31 for the respective years indicated, divided by total GLA leased
at such dates. Amount excludes (i) future contractual rent escalations and
cost of living increases, (ii) percentage rent and (iii) additional rent
payable by tenants such as common area maintenance, real estate taxes and
other expense reimbursements.
LEASE EXPIRATIONS
The following table sets forth all scheduled lease expirations for the
Properties beginning January 1, 1999, assuming that none of the tenants
exercises renewal options or termination rights:
<TABLE>
<CAPTION>
ANNUALIZED CONTRACTUAL
BASE RENT AT 12/31/98(1)
------------------------
LEASE EXPIRATION NUMBER OF TOTAL GLA UNDER % OF TOTAL BASE RENT % OF
YEAR LEASES EXPIRING LEASES EXPIRING GLA ($000) PORTFOLIO BASE RENT/
---- EXPIRING (SQ. FT.) ------------ ------ BASE RENT SQ. FT.
-------- --------- --------- (2)($)
------
<S> <C> <C> <C> <C> <C> <C>
1999 81 278,368 7.7 3,413 9.5 12.26
2000 44 156,831 4.4 2,550 7.1 16.26
2001 52 366,025 10.2 4,180 11.7 11.42
2002 56 556,239 15.5 3,044 8.5 5.47
2003 47 136,062 3.8 1,841 5.1 13.53
2004 12 70,501 2.0 790 2.2 11.20
2005 13 140,007 3.9 1,545 4.3 11.04
</TABLE>
16
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
2006 17 84,440 2.3 1,502 4.2 17.78
2007 11 113,199 3.1 2,172 6.1 19.19
2008 13 91,524 2.5 1,331 3.8 14.54
2009 and thereafter 46 1,606,755 44.6 13,376 37.5 8.33
--- --------- ----- ------ ----- -----
TOTAL/WEIGHTED
AVERAGE 392 3,599,951 100.0 35,743 100.0 9.93
=== ========= ===== ====== ===== =====
</TABLE>
(1) Total annualized contractual base rent for all leases in place at
December 31, 1998. Amount excludes (i) future contractual rent escalation
and cost of living increases, (ii) percentage rent and (iii) additional
rent payable by tenants such as common area maintenance, real estate taxes
and other expense reimbursement.
(2) Total annualized contractual base rent divided by total GLA leased at
December 31, 1998.
TAX BASIS AND REAL ESTATE TAXES
The aggregate cost basis of depreciable real property for federal
income tax purposes in the Properties as of December 31, 1998 was approximately
$116.4 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 on the Properties during the fiscal year ended December 31, 1998 was
approximately $6.8 million, or approximately $1.78 per square foot of GLA.
Virtually all of the Company's leases contain provisions requiring tenants to
pay as additional rent a proportionate share of real estate tax increases,
including real estate tax increases resulting from improvements.
SIGNIFICANT PROPERTIES
Since the 1998 gross revenues for each of (i) the Company's four
Properties located in Hialeah, Florida, aggregated, (ii) Forest Avenue Shoppers
Town, and (iii) Meadowbrook Commons shopping centers amounted to more than 10%
of the aggregate gross revenues for the Properties during such year, additional
information regarding these Properties is provided below.
Hialeah, Florida Properties. The Hialeah, Florida Properties consist of
four adjacent Properties, which include Mall on the Mile, Palm Springs Village,
The Shops on 49th Street, and Philips Plaza, with an aggregate of 1.2 million
square feet of GLA. Hialeah is situated in the greater Miami metropolitan area,
north of the Miami International Airport, west of the municipalities of Miami,
Miami Beach and Aventura, and south of Broward County and Fort Lauderdale. The
four Properties form a unique, one-mile retail shopping corridor that fronts
both sides of West 49th Street, locally known as "Palm Springs Mile." The
collective 90 acres of the four Properties facilitate the expansion or
reconfiguration of existing space, which has been regularly expanded by the
Company since 1985.
The following table sets forth the percent leased and total annualized
contractual base rent per leased square foot for Palm Springs Mile as of the
dates indicated:
<TABLE>
<CAPTION>
TOTAL ANNUALIZED CONTRACTUAL BASE
YEAR ENDED DECEMBER 31, % LEASED RENT PER LEASED SQUARE FOOT($)(1)
- ----------------------- -------- ---------------------------------
<S> <C> <C>
1998............................................................. 94.3 9.95
1997............................................................. 94.1 9.53
1996............................................................. 93.8 9.57
1995............................................................. 85.5 8.94
1994............................................................. 85.2 8.63
</TABLE>
(1) Total annualized contractual base rent for all leases in place at
December 31 for the respective years indicated, divided by total GLA leased
at such dates. Amount excludes (i) future contractual rent escalations and
cost of living increases, (ii) percentage rent and (iii) additional rent
payable by tenants such as common area maintenance, real estate taxes and
other expense reimbursements.
17
<PAGE>
The following table sets forth all scheduled lease expirations for Palm Springs
Mile beginning January 1, 1999, assuming that none of the tenants exercises
renewal options or termination rights:
<TABLE>
<CAPTION>
ANNUALIZED CONTRACTUAL
BASE RENT AT 12/31/98(1)
------------------------
LEASE NUMBER OF SQUARE % OF TOTAL BASE % OF PROPERTY
EXPIRATION YEAR LEASES FOOTAGE EXPIRING RENT BASE RENT BASE RENT/
--------------- EXPIRING UNDER GLA ($000) --------- SQ. FT. (2)($)
-------- EXPIRING --- ------ --------------
LEASES
------
<S> <C> <C> <C> <C> <C> <C>
1999 27 110,083 9.9 1,351 12.3 12.28
2000 14 60,086 5.4 627 5.7 10.44
2001 22 107,537 9.7 1,418 12.9 13.19
2002 16 226,186 20.4 1,051 9.5 4.65
2003 20 60,977 5.5 811 7.4 13.31
2004 8 53,943 4.9 631 5.7 11.71
2005 7 81,262 7.3 645 5.9 7.94
2006 3 33,415 3.0 526 4.8 15.73
2007 1 5,100 0.5 82 0.7 16.00
2008 6 13,787 1.2 366 3.3 26.53
2009 and thereafter 16 356,972 32.2 3,517 31.8 9.85
--- --------- ----- ------ ----- -----
TOTAL/WEIGHTED
AVERAGE............................ 140 1,109,348 100.0 11,025 100.0 9.95
=== ========= ===== ====== ===== =====
</TABLE>
(1) Total annualized contractual base rent for all leases in place at
December 31, 1998. Amount excludes (i) future contractual rent escalations
and cost of living increases, (ii) percentage rent and (iii) additional
rent payable by tenants such as common area maintenance, real estate taxes
and other expense reimbursements.
(2) Total annualized contractual base rent divided by total GLA leased at
December 31, 1998.
The aggregate cost basis of depreciable real property for federal
income tax purposes for Palm Springs Mile at December 31, 1998 was approximately
$30.1 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, 1998
was approximately $1.6 million, or approximately $1.34 per square foot of GLA.
Forest Avenue Shoppers Town. Forest Avenue Shoppers Town is a
grocery-anchored neighborhood shopping center encompassing 177,002 square feet
of GLA, and is located along Forest Avenue in north central Staten Island, New
York. The Company believes that Forest Avenue Shoppers Town is one of the
dominant shopping centers in northern Staten Island, a densely populated
residential area in New York City, which functions as a bedroom community for
Manhattan.
The following table sets forth the percent leased and total annualized
contractual base rent per leased square foot for Forest Avenue Shoppers Town as
of the dates indicated:
<TABLE>
<CAPTION>
TOTAL ANNUALIZED CONTRACTUAL BASE
YEAR ENDED DECEMBER 31, % LEASED RENT PER LEASED SQUARE FOOT($)(1)
- ----------------------- -------- ---------------------------------
<S> <C> <C>
1998............................................................ 100.0 20.10
1997............................................................ 99.1 17.51
1996............................................................ 98.6 16.73
1995............................................................ 95.0 16.71
1994............................................................ 86.7 16.91
</TABLE>
(1) Total annualized contractual base rent for all leases in place at
December 31 for the respective years indicated, divided by total GLA leased
at such dates. Amount excludes (i) future contractual rent escalations and
cost of living increases, (ii) percentage rent and (iii) additional rent
payable by tenants such as common area maintenance, real estate taxes and
other expense reimbursements.
The following table sets forth all scheduled lease expirations for
Forest Avenue Shoppers Town beginning January 1, 1999, assuming that none
of the tenants exercises renewal options or termination rights:
18
<PAGE>
<TABLE>
<CAPTION>
ANNUALIZED CONTRACTUAL
BASE RENT AT 12/31/98(1)
------------------------
LEASE NUMBER OF SQUARE FOOTAGE % OF TOTAL BASE RENT % OF
EXPIRATION YEAR LEASES UNDER PROPERTY ($000) PROPERTY BASE RENT/
--------------- EXPIRING EXPIRING LEASES EXPIRING GLA ------ BASE RENT SQ. FT.
-------- --------------- ------------ --------- (2)($)
------
<S> <C> <C> <C> <C> <C> <C>
1999 6 19,190 10.8 588 16.5 30.64
2000 2 9,975 5.6 228 6.4 22.91
2001 3 10,963 6.2 328 9.2 29.87
2002 2 4,198 2.4 131 3.7 31.09
2003 1 3,000 1.7 75 2.1 25.00
2004 1 900 0.5 27 0.7 29.51
2005 2 40,578 22.9 581 16.3 14.32
2006 3 22,888 12.9 336 9.4 14.66
2007 3 16,927 9.6 368 10.4 21.78
2008 1 34,000 19.2 612 17.2 18.00
2009 and thereafter 2 14,383 8.2 283 8.1 19.70
-- ------ --- --- --- -----
TOTAL/WEIGHTED
AVERAGE.......................... 26 177,002 100.0 3,557 100.0 20.10
== ======= ===== ===== ===== =====
</TABLE>
(1) Total annualized contractual base rent for all leases in place at
December 31, 1998. Amount excludes (i) future contractual rent escalations
and cost of living increases, (ii) percentage rent and (iii) additional
rent payable by tenants such as common area maintenance, real estate taxes
and other expense reimbursements. (2) Total annualized contractual base
rent divided by total GLA leased at December 31, 1998.
The aggregate cost basis of depreciable real property for federal
income tax purposes for Forest Avenue Shoppers Town at December 31, 1998 was
approximately $6.4 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, 1998 was approximately $.9 million, or approximately $4.87 per
square foot of GLA.
Meadowbrook Commons. Meadowbrook Commons is a grocery-anchored
neighborhood shopping center, encompassing 173,027 square feet of GLA, located
in Nassau County, Long Island, one of the most densely populated suburbs in the
New York CMSA. The shopping center is situated on Sunrise Highway, a major
east-west thoroughfare along the south shore of Long Island.
The following table sets forth the percent leased and total annualized
contractual base rent per leased square foot for Meadowbrook Commons as of the
dates indicated:
<TABLE>
<CAPTION>
TOTAL ANNUALIZED CONTRACTUAL BASE
YEAR ENDED DECEMBER 31, % LEASED RENT PER LEASED SQUARE FOOT($)(1)
- ----------------------- -------- ---------------------------------
<S> <C> <C>
1998............................................................ 100.0 17.51
1997............................................................ 100.0 17.50
1996............................................................ 100.0 17.40
1995............................................................ 100.0 17.27
1994............................................................ 100.0 16.81
</TABLE>
(1) Total annualized contractual base rent for all leases in place at
December 31 for the respective years indicated, divided by total GLA
leased at such dates. Amount excludes (i) future contractual rent
escalations and cost of living increases, (ii) percentage rent and (iii)
additional rent payable by tenants such as common area maintenance, real
estate taxes and other expense reimbursements.
19
<PAGE>
The following table sets forth all scheduled lease expirations for
Meadowbrook Commons beginning January 1, 1999, assuming that none of the tenants
exercises renewal options or termination rights:
<TABLE>
<CAPTION>
ANNUALIZED CONTRACTUAL
BASE RENT AT 12/31/98(1)
------------------------
LEASE EXPIRATION NUMBER OF SQUARE FOOTAGE % OF TOTAL BASE RENT % OF
YEAR LEASES UNDER PROPERTY ($000) PROPERTY BASE RENT/
---- EXPIRING EXPIRING LEASES EXPIRING GLA ------ BASE RENT SQ. FT.
-------- --------------- ------------ -------- (2)($)
------
<S> <C> <C> <C> <C> <C> <C>
1999 1 1,950 1.1 48 1.6 25.00
2000 2 19,539 11.3 455 15.0 23.31
2001 3 44,765 25.9 837 27.6 18.69
2002 2 6,747 3.9 175 5.8 25.94
2003 0 0 0.0 0 0.0 0.00
2004 0 0 0.0 0 0.0 0.00
2005 0 0 0.0 0 0.0 0.00
2006 0 0 0.0 0 0.0 0.00
2007 2 7,908 4.6 174 5.7 21.95
2008 0 0 0.0 0 0 0
2009 and thereafter 3 92,118 53.2 1,341 44.3 14.56
- ------ ---- ----- ---- -----
TOTAL/WEIGHTED
AVERAGE............................ 13 173,027 100.0 3,030 100.0 17.51
== ======= ===== ===== ===== =====
</TABLE>
(1) Total annualized contractual base rent for all leases in place at
December 31, 1998. Amount excludes (i) future contractual rent escalations
and cost of living increases, (ii) percentage rent and (iii) additional
rent payable by tenants such as common area maintenance, real estate taxes
and other expense reimbursements.
(2) Total annualized contractual base rent divided by total GLA leased at
December 31, 1998.
The aggregate cost basis of depreciable real property for federal
income tax purposes for Meadowbrook Commons at December 31, 1998 was
approximately $17.7 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, 1998 was approximately $.8 million, or approximately $4.76 per square foot
of GLA.
ITEM 3. LEGAL PROCEEDINGS
The Company is not presently involved in any litigation nor to its
knowledge is any litigation threatened against the Company or its subsidiaries
that, in management's opinion, would result in any material adverse effect on
the Company's ownership, management or operation of its properties, or which is
not covered by the Company's liability insurance.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of security holders in
the fourth quarter of the year ended December 31, 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is listed on the NYSE under the ticker
symbol "PHR".
Market Information
The following table sets forth the quarterly high, low and closing
price per share of Common Stock reported on the NYSE for the period May 8, 1998
through December 31, 1998:
20
<PAGE>
For the Year Ended December 31, 1998:
<TABLE>
<CAPTION>
High Low Close
---- --- -----
<S> <C> <C> <C>
First Quarter NA NA NA
Second Quarter $17.75 $16.50 $16.50
Third Quarter $17.50 $13.875 $15.312
Fourth Quarter $15.812 $14.188 $15.375
</TABLE>
On March 15, 1999, the closing Common Stock sales price on the NYSE was
$13.69 per share.
Holders
On March 15, 1999, the Company had 1,267 common shareholders of record.
Recent Sales of Unregistered Securities
In connection with the Formation Transactions, the Properties or
partnership or membership interests in the Properties were contributed to the
Operating Partnership in exchange for 2,472,395 Units. All of such equity
issuances were issued to the holders directly by the Company without use of an
underwriter or placement agent and without registration under the Securities Act
of 1933, as amended, pursuant to the private placement exemption contained in
Section 4(2) of such Act. The Units are redeemable, at the Unitholder's request;
such Units will be redeemed, at the Company's option and in its sole discretion,
either for shares of Common Stock on a one-for-one basis (subject to certain
anti-dilution adjustments and exceptions) and/or cash (based upon the fair
market value of an equivalent number of shares of Common Stock at the time of
redemption).
Dividends and Distributions
The Company intends to make regular quarterly distributions to holders
of the Common Stock. Since completion of the Offering on May 13, 1998, the
Company has paid distributions on its Common Stock as follows:
<TABLE>
<CAPTION>
Date of Record Date of Amount Annualized
Declaration Date Payment Per Share Amount Per
- ----------- ---- ------- --------- Share
-----
<S> <C> <C> <C> <C>
6/15/98 6/30/98 7/15/98 $.1812 $1.35
9/15/98 9/30/98 10/15/98 $.3375 $1.35
12/15/98 12/31/98 1/15/99 $.3375 $1.35
</TABLE>
On March 1, 1999, the Company's Board of Directors authorized an 11.9%
increase in the annual rate of distribution commencing with the payment for the
first quarter of 1999. The distribution of $.3775 per share will be paid April
15, 1999 to shareholders of record on March 31, 1999.
Future distributions by the Company will be determined by the Board of
Directors and will be dependent upon a number of factors. In addition, in order
to maintain its qualification as a REIT under the Internal Revenue Code of 1986,
as amended (the "Code"), the Company is, in general, required to distribute
currently 95% of its taxable income.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial and operating
information for: (i) Philips International Realty Corp. as of and for the year
ended December 31, 1998 (see Footnote 1 to the following table); and (ii) for
The Philips Company (consisting of ten Properties accounted for on a combined
basis and two Properties accounted for on an equity basis) on a combined basis
as of December 31, 1996, 1995 and 1994 and for each of the four years in the
period ended December 31, 1997. This information should be read in conjunction
with all of the financial statements and the notes thereto appearing elsewhere
in this Form 10-K. The audited financial information for The Philips Company as
of December 31, 1996 and 1995 and for the years ended December 31, 1995 and 1994
presented herein is derived from the audited combined financial statements of
The Philips Company and the notes thereto which do not appear in this Form 10-K.
21
<PAGE>
THE COMPANY AND THE PHILIPS COMPANY (COMBINED)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Philips
International
Realty Corp(1) The Philips Company
---------------------------------------------------------
Year Ended December 31,
------------------- ---------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
OPERATING DATA: (In thousands, except per share and property data)
<S> <C> <C> <C> <C> <C>
Revenues from rental property $22,625 $26,968 $25,947 $23,187 $22,192
Income before extraordinary items $4,521 $1,336 $1,888 $307 $1,045
Income before extraordinary items, per
common share:
Basic $.94 __ __ __ __
Diluted $.94 __ __ __ __
BALANCE SHEET DATA:
Rental properties, at cost $208,914 __(2) $137,399 $124,892 $118,307
Investments in real estate joint ventures $34,664 __(2) __ __ __
Total assets $264,347 __(2) $129,841 $116,856 $108,188
Mortgages and notes payable $137,487 __(2) $133,609 $131,740 $131,187
Shareholders' equity (deficit) $89,398 __(2) ($11,166) ($22,091) ($24,611)
OTHER DATA:
Funds from operations (3) $15,533(4) __ $5,574 $3,590 $4,050
Net cash provided by operating activities $6,494 __ $3,567 $3,535 $3,639
Net cash used in investing activities $(47,300) __ ($9,359) ($6,604) ($3,354)
Net cash provided by (used in) financing $49,922 __ $6,086 $2,160 ($876)
activities
Cash dividends declared per share $.86 __ __ __ __
GLA (sq. ft. @ end of period) 3,814,889 2,391,856 2,348,117 2,348,117 2,348,117
Occupancy of Properties owned
(% @ end of period) 94.4 96.3 95.4 90.7 88.2
</TABLE>
(1) The Company was formed in July 1997 and incurred general and administrative
expenses of $543 for the period ended December 31, 1997. However, it did not
commence operations until the consummation of the Formation Transactions as of
the close of business on December 31, 1997. Therefore, separate summary data for
the Company is not presented above for this period. As of December 31, 1997, the
Company had total assets of $2.3 million and shareholders' equity of $2.2
million.
(2) No 1997 balance sheet or other data is presented for The Philips Company as
of December 31, 1997 because the Formation Transactions were consummated as of
the close of business on such date and the Properties were transferred to the
Property Partnerships.
(3) 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.
(4) Pro forma giving retroactive effect to the Offering as if it had occurred
January 1, 1998.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
22
<PAGE>
The following discussion should be read in conjunction with the
accompanying Philips International Realty Corp. Consolidated Financial
Statements, The Philips Company (Predecessor) Combined Financial Statements, and
Notes thereto, and the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997.
When used in this Annual Report on Form 10-K, the words "may", "will",
"expect", "anticipate", "continue", "estimate", "project", "intend" and similar
expressions are intended to identify forward-looking statements regarding
events, conditions and financial trends that may affect the Company's future
plans of operations, business strategy, results of operations and financial
position. Such forward-looking statements are not guarantees of future
performance and are subject to risks and uncertainties. Actual results may
differ materially from those included within the forward-looking statements as a
result of various factors.
Prior to completion of the public stock offering referred to in Note 2
to the accompanying Consolidated Financial Statements, the Company and its
subsidiaries held a 6.1% non-managing general partnership interest in the
Operating Partnership (which held a 99.989% limited partner or member interest
in each of the Property Partnerships) and .01% non-managing general
partner/member interests in the Property Partnerships, respectively.
Accordingly, the Company accounted for its investments in the Operating
Partnership and the Property Partnerships on the equity method from January 1
through May 12, 1998.
The following discussion compares (i) the results of property
operations of the Company as if the Property Partnerships had been consolidated
for the full year ended December 31, 1998, with the results of property
operations of The Philips Company and the Merrick Commons and Mill Basin Plaza
properties for the year ended December, 1997 and (ii) the results of operations
of The Philips Company (including the results of operations of the Merrick
Commons and Mill Basin Plaza properties on an equity method) for the years ended
December 31, 1997 and 1996. A comparison of the Company's reported results of
operations for calendar year 1998 and 1997 would not be meaningful since
operations did not commence until consummation of the Formation Transactions on
December 31, 1997.
RESULTS OF OPERATIONS
Comparison Of Year Ended December 31, 1998 To Year Ended December 31,
1997.
Revenues from rental property increased $2,912,000 or 9.1% to
$34,849,000 for the year ended December 31, 1998, as compared with $31,937,000
for the year ended December 31, 1997. This net increase is largely due to growth
in base rental revenues associated with the leasing of available premises in the
portfolio, higher rent levels achieved on new and renewal leases and the
acquisition of the Lake Mary, Florida, and Munsey Park, New York, properties.
Property operating expenses increased $212,000 from $5,557,000 for the
year ended December 31, 1997, to $5,769,000 for the year ended December 31,
1998. This net increase reflects moderate increases in certain seasonal
operating expenses and increased expenses associated with the acquisition of the
Lake Mary, Florida, and Munsey Park, New York properties, offset by a reduction
in property management expenses reflecting the economies of scale achieved in
conjunction with the Offering. Property real estate taxes increased by
approximately $368,000 or 7.9% between the corresponding periods, reflecting the
acquisition of the Lake Mary, Florida, and Munsey Park, New York properties and
the effect of increased assessments associated with property expansions and
renovations, offset by management's continuing efforts to secure property tax
reductions.
Interest charges decreased $5,429,000 or 36.2% to $9,582,000 for the
year ended December 31, 1998, as compared with $15,011,000 for the year ended
December 31, 1997, primarily due to the repayment of indebtedness with proceeds
of the Offering as discussed in Note 2 to the accompanying financial statements.
Depreciation and amortization expenses increased $884,000 or 17.9% to
$5,830,000 for the year ended December 31, 1998, as compared with $4,946,000 for
the year ended December 31, 1997. This increase reflects the depreciation and
amortization of (i) capital expenditures associated with the renovation and
retenanting of properties in the portfolio, (ii) increased carrying values
related to the acquisition of non-sponsor interests in the Company's properties,
and (iii) the acquisition of the Lake Mary, Florida, and Munsey Park, New York
properties.
Comparison of Year Ended December 31, 1997 to Year Ended December 31,
1996. Total revenue increased $944,000 or 3.6% to $26,891,000 for the year ended
December 31, 1997, as compared with $25,947,000 for the year ended December 31,
1996. This net increase is primarily attributable to growth in base rental
revenues associated with the expansion and leasing of available premises
primarily at the Properties in Hialeah, Florida. Overall occupancy increased
approximately 1% from 95.4% at December 31, 1996 to 96.3% at December 31, 1997.
23
<PAGE>
Property operating expenses decreased $117,000 or 2.3% from $5,054,000
for the year ended December 31, 1996 to $4,937,000 for the year ended December
31, 1997. This decrease is primarily attributable to a reduction in snow removal
costs incurred with respect to Properties located in the northeastern part of
the country during the respective periods. Property real estate taxes increased
by approximately 4% between the corresponding periods, reflecting the effect of
increased assessments associated with property expansions and renovations,
offset by management's continuing efforts to secure property tax reductions.
Depreciation and amortization expenses increased $598,000 or 17.5% to
$4,015,000 for the year ended December 31, 1997, as compared with $3,417,000 for
the year ended December 31, 1996. This increase reflects the depreciation and
amortization of (i) capital expenditures associated with the recent expansion,
renovation and retenanting of Properties in Hialeah, Florida, Branford and
Enfield, Connecticut, and Staten Island, New York and (ii) costs related to the
acquisition of non-sponsor interests in the Staten Island, Branford and Hialeah
properties.
Interest charges increased $1,238,000 or 10.6% to $12,966,000 for the
year ended December 31, 1997, as compared with $11,728,000 for the year ended
December 31, 1996, primarily representing financing costs on amounts borrowed to
fund The Philips Company's property expansion and renovation programs and the
purchase of certain partnership interests.
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 $95,000 for
the year ended December 31, 1996 to $339,000 for the year ended December 31,
1997.
Income before extraordinary items decreased $522,000 to $1,366,000 for
the year ended December 31, 1997, as compared with $1,888,000 for the year ended
December 31, 1996. This decrease reflects increased interest costs associated
with property refinancings, partially offset by higher rents related to
retenanting and leasing efforts and the equity participation in a joint venture
property acquired during 1996.
The extraordinary income of $671,000 for the year ended December 31,
1997 reflects a gain related to the restructuring of a loan encumbering three
Properties in connection with the Formation Transactions. The gain is net of an
extraordinary loss of approximately $265,000 representing the write-off of
deferred financing costs related to the refinancing of debt on certain
properties. The extraordinary income of $2,881,000 for the year ended December
31, 1996 reflects gains related to the settlement of debt obligations on three
of the Properties.
LIQUIDITY AND CAPITAL RESOURCES
The Philips Company historically relied on fixed and floating rate
mortgage financing to fund acquisitions and refinance maturing debt. Working
capital and funds required for distributions, debt service and capital
expenditures were generally 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 was 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
were generally made based upon 100% of excess cash over identified, near-term
requirements.
The Company believes that the Offering improved its financial position,
principally through enabling the Company to substantially delver its shopping
center portfolio. In connection with this offering, the Company utilized
approximately $109.3 million of the net proceeds to repay all of its then
outstanding floating-rate debt and certain secured, fixed-rate obligations. The
secured, fixed-rate debt then remaining, totaling approximately $71.5 million,
had a weighted average interest rate and term to maturity of 7.6% and 5.2 years,
respectively. The significant reduction in the Company's overall debt served to
reduce annual mortgage interest expense as a percentage of total revenue and the
cash from operations required to fund debt service requirements.
As described in Note 15 to the accompanying Consolidated Financial
Statements, the Company has financed the acquisition of $59.1 million in real
estate interests during the year ended December 31, 1998, with approximately $45
million drawn under the Company's line of credit, and property indebtedness of
approximately $14.1 million.
As of December 31, 1998, based upon the closing price for the Company's
Common Stock in trading on the NYSE of $15.375 per share, the Company's ratio of
total debt to total debt and equity market capitalization was 48%. The Company
considers the availability of funds under its revolving credit facility
described below and its access to other sources of debt and equity capital
sufficient to pursue its identified growth strategies.
The Company intends to make regular quarterly distributions to the
holders of its Common Stock. See "Item 5 Market for Registrant's Common Stock
and Related Stockholder Matters."
24
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The Company expects to invest temporarily available cash in short-term,
investment-grade interest bearing securities, such as securities of the United
States government or its agencies, high-grade commercial paper and bank
deposits.
The Company expects to meet its short-term liquidity requirements
generally through net cash provided by operations. The Company believes that its
net cash provided by operations will be sufficient to allow the Company to make
distributions necessary to enable the Company to continue to qualify as a REIT.
The Company also believes that the foregoing sources of liquidity will be
sufficient to fund its short-term liquidity needs for the foreseeable future.
The Company expects to meet its long-term liquidity requirements, such
as property acquisition and development, scheduled debt maturities, renovations,
expansions and other non-recurring capital improvements through long-term
secured and unsecured indebtedness and the issuance of additional equity or debt
securities. The Company also expects to use funds available under its credit
facility to finance acquisition and development activities and capital
improvements on an interim basis.
Upon consummation of the Offering, the Company entered into a $100
million senior revolving credit facility with a financial services institution
to finance acquisition, redevelopment and development activities and for general
corporate purposes. Borrowings under the credit facility bear interest at rates
ranging from 1.25% to 1.75% over the 30-day London Interbank Offered Rate
("LIBOR") based on the Company's total indebtedness outstanding relative to
total assets, as defined. The availability of funds under the credit facility
will be subject to the Company's compliance with a number of customary financial
and other covenants. Borrowings under the credit facility, totaling
approximately $52.5 million at December 31, 1998, are secured by certain
shopping center properties with recourse to the Company. The credit facility
matures in May, 2000, subject to extension upon mutual agreement of the parties.
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 requirements. 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 requirements, including its ability to make cash
distributions.
Pro forma Funds from Operations for the year ended December 31, 1998,
totaled approximately $15,533,000. This calendar year pro forma figure give
retroactive effect as of January 1, 1998, to the Offering completed May 13,
1998, and reflect adjustments consistent with those noted in the Company's
Registration Statement on Form S-11. Funds from Operations has been determined
as follows:
Calculation of Funds From Operations
(In thousands)
Year Ended
12/31/98
Net income applicable to
common shares $4,392
Extraordinary items 65 (1)
Minority interests in
Operating Partnerships 1,506
Depreciation and amortization 3,809
25
<PAGE>
Adjustment for unconsolidated
joint ventures
289 (2)
Pro forma adjustments 5,472 (3)
-----
Funds from Operations $15,533
=======
(1) Company share of write off of deferred financing costs and prepayment
penalties incurred in connection with the satisfaction of mortgages and other
loans with proceeds of the Offering.
(2) Company share of depreciation and amortization charges in unconsolidated
real estate joint ventures.
(3) Non-recurring adjustments consistent with those noted in Form S-11
Registration Statement necessary to give effect to completion of the May, 1998
Offering as of January 1, 1998.
CASH FLOWS
Comparison Of Year Ended December 31, 1998 To Year Ended December 31,
1997.
As discussed in Notes 1 and 2 to the accompanying Consolidated
Financial Statements, the Company was required to account for its interests in
the Operating Partnership and the Property Partnerships on the equity method
prior to the completion of the Offering. The Operating Partnership and the
Property Partnerships had no business operations during 1997. Consequently, a
comparison of cash flows for the years ended December 31, 1998 and 1997 would
not be meaningful. Net cash flows provided by operating and financing activities
totaled $6,494,000 and $49,922,000, respectively, during the calendar year 1998.
Such cash flows were used to fund $47,300,000 in real estate investments and
to increase cash reserves to $9,100,000.
Comparison of Year Ended December 31, 1997 to Year Ended December 31,
1996. Net cash provided by operating activities decreased $729,000 to $2,838,000
for the year ended December 31, 1997, as compared to $3,567,000 for the year
ended December 31, 1996. This net decrease reflects changes in operating assets
and liabilities. Net cash used in investing activities increased $9,827,000 to
$19,186,000 for the year ended December 31, 1997, as compared to $9,359,000 for
the year ended December 31, 1996. This increase is primarily attributable to the
acquisition of non-sponsor partner interests in certain Properties in connection
with the Formation Transactions. Net cash provided by financing activities
increased $9,766,000 to $15,852,000 for the ended December 31, 1997, as compared
to $6,086,000 for the year ended December 31, 1996. This increase reflects debt
incurred in connection with the purchase of the aforementioned non-sponsor
interests.
COMPUTER SYSTEMS AND YEAR 2000 ISSUES
Potential Disruption in Operations Due To Year 2000 Problems. 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. The Company recognizes the
importance of minimizing the frequency and significance of any disruptions in
its business and financial affairs that may occur as a result of Year 2000, and
has adopted a comprehensive compliance program designed to achieve this
objective.
The Company program encompasses the following:
o the assessment and modification, as necessary, of its internal
information technology systems that may be affected by the Year
2000 problem;
o the identification and interrogation of third parties, including
tenants, vendors, contractors and joint venture partners, to
enable the Company to evaluate and appropriately respond to the
state of preparedness by such parties to address Year 2000
problems; and
o the assessment of property operating systems to avert operational
malfunctions associated with Year 2000.
Internal Information Technology. We have completed a review of key
computer hardware and software and other equipment, and have modified, upgraded
or replaced all identified hardware and equipment in our offices that we believe
may be affected by problems associated with Year 2000. Such hardware includes
desktop and laptop computers, servers, printers, telecopier machines and
telephones. We, as part of our routine modernization efforts, have also
completed necessary upgrades to identified secondary software systems, such as
word processing, spreadsheet applications, telephone voicemail systems and
computer calendar programs. Consequently, we believe we have adequately
addressed Year 2000 concerns as they related to our internal information
technology and systems and we anticipate minimal, if any, disruption in the
future in this regard.
26
<PAGE>
Third Party Preparedness. While we believe the foregoing initiatives
will minimize Year 2000 problems as pertaining to our internal operations, we
may still be adversely impacted by Year 2000 issues as a result of problems
relating to the state of preparedness of third parties outside our control, such
as the inability of tenants to pay rent when due. In order to assess such risk,
we sent questionnaires to each of our tenants to determine their Year 2000
compliance status. The responses to these questionnaires continue to be
received, reviewed and evaluated. Based on the responses received, we do not
anticipate any material adverse impact on the orderly payment of monthly rent.
Therefore, while there can be no assurance that Year 2000 problems of tenants
will not have a material adverse effect on our operating results or financial
condition, the information available to us indicates such an occurrence is not
likely.
The Company's principal property management systems are licensed from
and maintained by a third party software development company which has modified
its real estate products to address the Year 2000 issue.
Property Compliance. Our property managers are completing a building by
building survey of all of our properties to determine whether building support
systems such as heat, power, light, security and elevators will be affected by
the advent of the Year 2000. Most of such systems either are already Year 2000
compliant or contain no computerized parts. However, our property managers plan
to timely modify, upgrade or replace non-compliant building systems as may be
required.
We have communicated with vendors of building systems or other services
to our building regarding their Year 2000 compliance. We intend to rely on
representations from these vendors regarding the Year 2000 compliance of their
product or service. We are also relying on assurances requested from utility
providers of their Year 2000 compliance and their continued ability to provide
uninterrupted service to our buildings.
Compliance Costs. The Company's expenditures on its Year 2000 program
initiatives to date have been nominal, and the Company does not anticipate any
significant future costs with becoming Year 2000 compliant.
Risks. The failure to correct material Year 2000 problems could result
in an interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third parties, the Company is unable
to determine at this time whether the consequences of failing to adequately
address all Year 2000 concerns will have a material impact on the Company's
results of operations, liquidity or financial condition. However, the Company
expects that its Year 2000 program will significantly reduce its level of
uncertainty about the Year 2000 problem. The Company anticipates that, with
appropriate modification of its information and operating systems and completion
of the program as scheduled, the possibility of significant interruptions of
normal operations should be reduced. The Company is not in a position to assess
or evaluate the impact of a worst case scenario.
Certain statements in this Year 2000 issue discussion regarding the
Company's efforts to become Year 2000 compliant, the timing thereof and costs
associated therewith are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Although the Company believes
the statements and projections are based upon reasonable assumptions, actual
results may differ from those that the Company has projected.
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
See Note 8 to Notes to Consolidated Financial Statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and supplementary data required by Regulation
S-X are included in this Annual Report on Form 10-K commencing on page F-1.
27
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 is incorporated by reference from
the Company's definitive proxy statement relating to its annual meeting of
shareholders to be held on May 20, 1999.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated by reference from
the Company's definitive proxy statement relating to its annual meeting of
shareholders to be held on May 20, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated by reference from
the Company's definitive proxy statement relating to its annual meeting of
shareholders to be held on May 20, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated by reference from
the Company's definitive proxy statement relating to its annual meeting of
shareholders to be held on May 20, 1999.
28
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(A) 1. FINANCIAL STATEMENTS AND REPORTS OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
<TABLE>
<CAPTION>
PAGE(S)
IN
FORM 10-K
---------
PHILIPS INTERNATIONAL REALTY CORP.
<S> <C>
Report of Independent Auditors........................................................................ 32
Consolidated Balance Sheet as of December 31, 1998.................................................... 33
Consolidated Statement of Income for the Year Ended December 31, 1998................................. 34
Consolidated Statement of Shareholders' Equity for the Year Ended
December 31,1998...................................................................................... 35
Consolidated Statement of Cash Flows for the Year Ended December 31, 1998............................. 36
Balance Sheet as of December 31, 1997................................................................. 37
Statement of Operations for the Period July 16, 1997 (Incorporation)
to December 31, 1997.................................................................................. 38
Statement of Shareholders' Equity for the Period July 16, 1997 (Incorporation)
to December 31, 1997.................................................................................. 39
Statement of Cash Flows for the Period July 16, 1997 (Incorporation)
to December 31, 1997.................................................................................. 40
Notes to Consolidated Financial Statements............................................................ 41
THE PHILIPS COMPANY
Report of Independent Auditors........................................................................ 53
Combined Statements of Income for the Years Ended December 31, 1997 and 1996.......................... 54
Combined Statements of Owners' Deficit for the Years Ended December 31, 1997 and 1996................. 55
Combined Statements of Cash Flows for the Years Ended December 31, 1997 and 1996...................... 56
Notes to Combined Financial Statements................................................................ 57
(A) 2. FINANCIAL STATEMENT SCHEDULES
Schedule III--Real Estate and Accumulated Depreciation as of December 31, 1998............................... 51
All other schedules are omitted because they are not
required or the required information is shown in the
financial statements or notes thereto.
</TABLE>
29
<PAGE>
(A) 3. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
3.1 Amended and Restated Articles of Incorporation of the
Company (filed as Exhibit 3.1 to the Company's Current
Report on Form 8-K dated December 31, 1997 and incorporated
herein by reference)
3.2 Second Amended and Restated By-Laws of the Company
(filed as Exhibit 3.3 to the Company's Registration
Statement on Form S-11, Registration No. 333-47975, and
incorporated herein by reference)
3.3 Articles Supplementary of Series A Preferred Stock
(filed as Exhibit 3.2 to the Company's Form 8-K dated
December 31, 1997 and incorporated herein by reference)
3.4 Form of Certificate of Common Stock (filed as Exhibit
3.4 to the Company's Registration Statement on Form
S-11, Registration No. 333-47975, and incorporated
herein by reference)
4.1* Shareholder Rights Agreement, dated as of March 31, 1999
between the Company and BankBoston, N.A.
4.2 * Articles Supplementary for Series A Junior
Participating Preferred Stock
10.1 Amended and Restated Agreement of Limited Partnership
of the Operating Partnership (filed as Exhibit 10.1 to
the Company's Registration Statement on Form S-11,
Registration No. 333-47975, and incorporated herein by
reference)
10.2* First Amendment to the Amended and Restated Agreement
of Limited Partnership of the Operating Partnership
10.3 Form of 1997 Stock Option and Long-Term Incentive
Plan of the Company (filed as Exhibit 10.2 to the
Company's Registration Statement on Form S-4,
Registration No. 333-41431, and incorporated herein by
reference)
10.4 Form of Agreement of Limited Partnership for Property
Partnerships (filed as Exhibit 10.3 to the Company's
Registration Statement on Form S-4, Registration No.
333-41431, and incorporated herein by reference)
10.5 Form of Articles of Incorporation of Philips Subs
(filed as Exhibit 10.4 to the Company's Registration
Statement on Form S-4, Registration No. 333-41431, and
incorporation herein by reference)
10.6 Form of Bylaws of Phillips Subs (filed as Exhibit 10.5
to the Company's Registration Statement on Form S-4,
Registration No. 333-41431, and incorporated herein by
reference)
10.7 Contribution and Exchange Agreement, dated August 11,
1997, among National Properties Investment Trust, 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 (filed as Exhibit
10.6 to the Company's Registration Statement on Form
S-4, Registration No. 333-41431, and incorporated
herein by reference)
10.8 Form of Registration Rights Agreement among the Company
and certain holders of limited partnership interests in
the Operating Partnership ) filed as Exhibit 10.7 to
the Company's Registration Statement on Form S-4,
Registration No. 333-41431, and incorporated herein by
reference)
10.9 Amended and Restated Management Agreement, dated as of
March 30, 1998, among the Company, the Operating
Partnership and Philips International Management Corp.
(filed as Exhibit 10-8 to the Company's Form 10-K for
the year ended December 31, 1997 and incorporated herein by
reference)
10.10 Amended and Restated Non-Competition Agreement, dated
as of March 30, 1998, among the Company, the Operating
Partnership, Philip Pilevsky and Sheila Levine. (filed
as Exhibit 10.9 to the Company's Form 10-K for the year
ended December 31, 1997 and incorporated herein by
reference)
10.11 Employment Agreement between the Company and Louis J.
Petra (filed as Exhibit 10.1 to the Company's Form 8-K
dated December 31, 1997 and incorporated herein by
reference)
10.12 Employment Agreement between the Company and Sheila
Levine (filed as Exhibit 10.2 to the Company's Form 8-K
dated December 31, 1997 and incorporated herein by
reference)
10.13 Form of Warrant (filed as Exhibit 10.12 to the Company'
Registration Statement on Form S-4, Registration No.
333-41431, and incorporated herein by reference)
10.14 Amendment No. 1 to Contribution and Exchange Agreement,
dated as of December 29, 1997 (filed as Exhibit 10.13
to the Company's Form 8-K dated December 31, 1997 and
incorporated herein by reference)
10.15 Non-Recourse Secured Promissory Note of National
Properties Trust (filed as Exhibit 10.14 to Company's
Form 8-K dated December 31, 1997 and incorporated
herein by reference)
10.16 Form of Amended and Restated Mortgage, Assignment of
Leases, Security Agreement and Spreader Agreement and
Renewal Promissory Note for Mall on the Mile and Palm
Springs Village (filed as Exhibit 10.15 to the
Company's Form 10-K for the year ended December 31,
1999 and incorporated herein by reference)
10.17 Employment Agreement between the Company and Brian J.
Gallagher (filed as Exhibit 10.12 to the Company's
Registration Statement on Form S-11, Registration No.
333-47975, and incorporated herein by reference)
10.18 Credit Agreement among the Operating Partnership and
Prudential Securities Credit Corporation (filed as
Exhibit 10.18
30
<PAGE>
to the Company's Report on Form 10-Q for the period
ended March 31, 1998 and incorporated herein by reference.)
21.1 List of Subsidiaries of the Company (filed as Exhibit
21.1 to the Company's Form 10-K for the year ended
December 31, 1998 and incorporated herein by reference)
22.1* News Release of the Company dated March 31, 1999
23.1* Consent of Ernst & Young LLP
27.1* Financial Data Schedule
*filed herewith
(B) REPORTS ON FORM 8-K
The Company did not file a Current Report on Form 8-K in the fourth quarter of
1998.
31
<PAGE>
Report of Independent Auditors
The Board of Directors
Philips International Realty Corp.
We have audited the accompanying balance sheets of Philips International Realty
Corp. as of December 31, 1998, and 1997 and the related statements of
income/operations, shareholders' equity and cash flows for the year ended
December 31, 1998, and the period July 16, 1997, (Incorporation) to December 31,
1997. We have also audited the financial statement schedule listed on the Index
at Item 14(a). 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 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 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Philips International Realty
Corp. as of December 31, 1998, and 1997 and the results of its operations and
its cash flows for the year ended December 31, 1998, and the period July 16,
1997, to December 31, 1997, 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 set forth
therein.
Ernst & Young LLP
New York, New York
March 1, 1999
32
<PAGE>
<PAGE>
PHILIPS INTERNATIONAL REALTY CORP.
CONSOLIDATED BALANCE SHEET
December 31, 1998
<TABLE>
ASSETS
<S> <C>
Rental properties, at cost
Land and improvements $ 55,500,352
Building and improvements 173,395,836
-------------
228,896,188
Less: Accumulated depreciation 19,981,802
-------------
Rental properties, net 208,914,386
Investments in real estate joint ventures 34,663,524
Cash and cash equivalents 9,116,070
Accounts receivable 5,986,763
Deferred charges and prepaid expenses 3,879,574
Other assets 1,786,903
-------------
Total Assets $ 264,347,220
=============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgages and notes payable $ 137,486,668
Accounts payable and accrued expenses 2,350,799
Dividends payable 2,477,412
Other liabilities 1,715,335
-------------
Total Liabilities 144,030,214
-------------
Minority interests in Operating Partnership 30,919,150
-------------
Commitments and contingencies
Shareholders' Equity
Preferred Stock, $.01 par value; 30,000,000 shares authorized; -
no shares issued and outstanding
Common Stock, $.01 par value; 150,000,000 shares authorized; 73,405
7,340,474 shares issued and outstanding
Additional paid in capital 92,668,007
Cumulative distributions in excess of net income (2,435,222)
-------------
90,306,190
Stock purchase loans receivable (908,334)
-------------
Total Shareholders' Equity 89,397,856
-------------
Total Liabilities and Shareholders' Equity $ 264,347,220
=============
</TABLE>
See accompanying notes.
33
<PAGE>
PHILIPS INTERNATIONAL REALTY CORP.
CONSOLIDATED STATEMENT OF INCOME
For the Year Ended December 31, 1998
Revenues from rental property $ 22,625,029
------------
Expenses:
Operating expenses 3,213,285
Real estate taxes 3,258,543
Management fees to affiliates 687,779
Interest expense 4,243,152
Depreciation and amortization 3,809,142
General and administrative expenses 1,607,924
------------
16,819,825
------------
Operating income 5,805,204
Equity in net income of real estate joint ventures 683,222
Minority interests in income of Operating Partnership (1,505,678)
Preferred units income allocation from Operating Partnership 63,143
Equity in net income of Operating Partnership, as
adjusted for the allocation of income to preferred units 6,823
Other income (expense), net (531,792)
------------
Income before extraordinary items 4,520,922
Extraordinary items (65,361)
------------
Net income $ 4,455,561
============
Net income applicable to common shares $ 4,392,418
============
Basic and diluted net income per common share
Income before extraordinary items $ 0.94
Extraordinary items (0.01)
------------
Net income $ 0.93
============
See accompanying notes.
34
<PAGE>
PHILIPS INTERNATIONAL REALTY CORP.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
For The Year Ended December 31, 1998
<TABLE>
<CAPTION>
Preferred Common
Stock Stock Additional
--------------------------------- --------------------------------- Paid-In
Shares Amount Shares Amount Capital
---------------- --------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997 1,940 $1,940,000 $806,000
Net income
Issuance of common stock 7,340,474 $73,405 114,003,623
Redemption of preferred
stock (1,940) (1,940,000)
Dividends on preferred stock
Dividends on common stock
Amortization of stock
purchase loan
Reallocation of equity
to minority partners
in Operating Partnership (22,141,616)
---------------- --------------- ---------------- --------------- ----------------
Balance, December 31, 1998 0 $0 7,340,474 $73,405 $92,668,007
================ =============== ================ =============== ================
<CAPTION>
Cumulative
Distributions
Stock in Excess Total
Purchase of Net Shareholders'
Loans Income Equity
---------------- ---------------- ----------------
<S> <C> <C> <C>
Balance, December 31, 1997 $ (542,723) $2,203,277
Net income 4,455,561 4,455,561
Issuance of common stock $ (1,050,000) 113,027,028
Redemption of preferred
stock (1,940,000)
Dividends on preferred stock (63,143) (63,143)
Dividends on common stock (6,284,917) (6,284,917)
Amortization of stock
purchase loan 141,666 141,666
Reallocation of equity
to minority partners
in Operating Partnership (22,141,616)
---------------- ---------------- ----------------
Balance, December 31, 1998 $ (908,334) $(2,435,222) $89,397,856
================ ================ ================
</TABLE>
See accompanying notes
35
<PAGE>
PHILIPS INTERNATIONAL REALTY CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
Operating activities:
<S> <C>
Net income $ 4,455,561
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 3,809,142
Extraordinary items 65,361
Equity in net income of real estate joint ventures (683,222)
Minority interests in income of Operating Partnership 1,505,678
Preferred units income allocation from Operating Partnership (63,143)
Equity in net income of Operating Partnership (6,823)
Amortization of stock purchase loans 141,666
Changes in operating assets and liabilities:
Accounts receivable (566,067)
Deferred charges (1,045,036)
Other assets 8,289
Accounts payable and accrued expenses (711,323)
Other payables (416,083)
---------------------
Net cash provided by operating activities 6,494,000
---------------------
Investing activities:
Additions to land, buildings and improvements (14,325,307)
Investments in real estate joint ventures (32,974,286)
---------------------
Net cash used in investing activities (47,299,593)
---------------------
Financing activities:
Repayment of mortgage notes payable, exclusive of scheduled
principal amortization (109,303,875)
Principal amortization of mortgage notes payable (483,411)
Proceeds from debt financing 53,775,000
Distributions to minority interests (1,282,431)
Redemption of preferred stock (1,940,000)
Proceeds from sale of common stock 113,027,028
Dividends paid on common stock (3,807,505)
Dividends paid on preferred stock (63,143)
---------------------
Net cash provided by financing activities 49,921,663
---------------------
Net increase in cash and cash equivalents 9,116,070
Cash and cash equivalents, beginning of year 0
---------------------
Cash and cash equivalents, end of the year $ 9,116,070
=====================
Acquisition of land, building and improvements with assumed indebtedness $ 196,863,763
=====================
Dividends declared and paid in succeeding period $ 2,477,412
=====================
</TABLE>
See accompanying notes.
36
<PAGE>
<PAGE>
PHILIPS INTERNATIONAL REALTY CORP.
BALANCE SHEET
December 31, 1997
(In thousands, except per share data)
ASSETS
<TABLE>
<CAPTION>
<S> <C>
Investment in partnerships $2,286
---------
Total Assets $2,286
=========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C>
Liabilities:
Related party payables $83
---------
Total Liabilities $83
---------
Shareholders' Equity:
Series A Convertible Redeemable Preferred Stock, 1,940
.$01 par value; $1,000 stated value; 30,000,000 shares authorized and
1,940 shares issued and outstanding
Common Stock, $.01 par value; 150,000,000 shares authorized; -
no shares issued and outstanding
Additional paid in capital 806
Accumulated deficit (543)
---------
Total Shareholders' Equity 2,203
---------
Total Liabilities and Shareholders' Equity $2,286
=========
</TABLE>
See accompanying notes
37
<PAGE>
PHILIPS INTERNATIONAL REALTY CORP.
STATEMENT OF OPERATIONS
For the period July 16, 1997 (Incorporation) to December 31, 1997
(In thousands)
<TABLE>
<CAPTION>
<S> <C>
Revenue $ --
General and administrative expenses 543
---------
Net loss $ (543)
=========
</TABLE>
See accompanying notes.
38
<PAGE>
PHILIPS INTERNATIONAL REALTY CORP.
STATEMENT OF SHAREHOLDERS' EQUITY
For the period July 16, 1997 (Incorporation) to December 31, 1997
(In thousands, except per share data)
<TABLE>
<CAPTION>
Preferred Common
Stock Stock and Warrants
--------------------------------- ---------------------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net loss
Issuance of preferred stock 1,940 $1,940
Issuance of common stock and warrants 47,660 $0
Reallocation of equity to minority partners in
the Operating Partnership
---------------- ---------------- ---------------- ---------------
Balance, December 31, 1997 1,940 $1,940 47,660 $0
================ ================ ================ ===============
</TABLE>
<TABLE>
<CAPTION>
Cumulative
Distributions
Additional in Excess Total
Paid-In of Net Shareholders'
Capital Income Equity
------- ------ ------
<S> <C> <C> <C>
Net loss $(543) $(543)
Issuance of preferred stock 1,940
Issuance of common stock and warrants $2,594 2,594
Reallocation of equity to minority partners in
the Operating Partnership (1,788) (1,788)
---------------- ---------------- ----------------
Balance, December 31, 1997 $806 $(543) $2,203
================ ================ ================
</TABLE>
See accompanying notes.
39
<PAGE>
PHILIPS INTERNATIONAL REALTY CORP.
STATEMENT OF CASH FLOWS
For the period July 16, 1997 (Incorporation) to December 31, 1997
(In thousands)
<TABLE>
<CAPTION>
Operating activities:
<S> <C>
Net loss $ (543)
Adjustments to reconcile net loss to net cash provided by operating activities:
Non-cash compensation 461
Changes in operating assets and liabilities:
Due to related parties 82
------------
Net cash provided by operating activities --
Investing activities:
Investment in Philips International Realty, L.P., representing net cash
used in investing activities (533)
------------
Financing activities:
Proceeds from issuance of common stock, representing net cash
provided by financing activities 533
------------
Net increase in cash and cash equivalents --
Cash and cash equivalents, beginning of period --
------------
Cash and cash equivalents, end of period $ --
============
Non-cash investing and financing activities:
Issuance of Preferred Stock in payment of advisory fee $1,940
============
Acquisition of real estate in exchange for issuance of Common Stock and assumption of debt $2,142
============
Reallocation of equity in Operating Partnership $1,788
============
</TABLE>
See accompanying notes
40
<PAGE>
PHILIPS INTERNATIONAL REALTY CORP,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
1. Formation Transactions
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
were owned by partnerships and limited liability companies (the "Contributing
Companies") in which Philip Pilevsky ("Mr. Pilevsky"), a substantial shareholder
of the Company, owned an interest.
On December 31, 1997, the partners and members of the Contributing
Companies transferred 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 (the "Property
Partnerships") as designated by the Operating Partnership in exchange for
limited partnership interests ("Units") therein. Simultaneously, the Company
contributed its fee title interest in another shopping center property plus $533
in cash to the Operating Partnership in exchange for a non-managing general
partnership interest therein. Philips International Realty, LLC (the "Interim
Managing General Partner"), a Delaware limited liability company whose sole
member was Mr. Pilevsky, made pro rata contributions to the Operating
Partnership and to each of the Property Partnerships in exchange for managing
general partner/member interests therein. Additionally, the Company capitalized
various wholly-owned subsidiaries so as to enable such entities to similarly
obtain general partner or managing member interests in each of the Property
Partnerships. The resultant effect of the foregoing, together with certain other
events constituting the Formation Transactions, was that the ownership of (A)
the Operating Partnership was comprised (I) .001% by a managing general partner
interest held by the Interim Managing General Partner (ii) 6.1% by a
non-managing general partner interest held by the Company, and (iii) 93.899% by
limited partner interests held by the Unit holders and (B) the Property
Partnerships were each comprised (I) .001% by a managing general partner/member
interest held by the Interim Managing General Partner (ii) .01% by a
non-managing general partner/member interest held by subsidiaries of the
Company, and (iii) 99.989% by a limited partner or member interest held by the
Operating Partnership.
Upon completion of the public stock offering discussed in Note 2, the
Interim Managing General Partner withdrew from the Operating Partnership and
each of the Property Partnerships and the Company (directly or through its
subsidiaries) assumed in full the rights and responsibilities associated with
the management of the business and affairs of the Operating Partnership and each
of the Property Partnerships as sole general partner/managing member. Prior to
this time, the Company was required to account for its interests in the
Operating Partnership and the Property Partnerships on the equity method. The
Operating Partnership and the Property Partnerships had no business operations
during 1997.
Reference should be made to the Company's Annual Report on Form 10-K
for the year ended December 31, 1997, for further information with regard to the
Formation Transactions.
2. Stock Split and Public Stock Offering
On April 14, 1998 the Company authorized a 1.7051 for 1 split of its
Common Stock which was effected immediately prior to the consummation of the
stock offering referred to below. As a result, the number of outstanding shares
of Common Stock prior to the stock offering increased to 81,265 shares from
47,660 shares.
On May 13, 1998, the Company completed a primary public stock offering
(the "IPO") of 7,200,000 shares of Common Stock at $17.50 per share. The
proceeds from this sale of Common Stock, net of related transaction costs of
approximately $13,000, totaling approximately $113,000, were used primarily to
(I) repay certain mortgage loans and other indebtedness (including accrued
expenses incurred in connection with the Formation Transactions) of the
Operating Partnership and the Property Partnerships, and (ii) to redeem the
Series A Convertible Redeemed Preferred Stock. As a consequence of this use of
proceeds, the ownership of the Operating Partnership is now comprised of a 74.8%
general partner interest held by the Company and a 25.2% limited partner
interest held by the Unit holders. Accordingly, the Company has accounted for
its interests in the Operating Partnership and the Property Partnerships on a
consolidated basis effective as of the completion of the IPO. A total 9,812,869
shares of Common Stock (7,340,474) and Units (2,472,395) are outstanding
effective as of the completion of the IPO.
41
<PAGE>
PHILIPS INTERNATIONAL REALTY CORP,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
3. Significant Accounting Policies
Business Information and Segments
The Company, its subsidiaries, affiliates and related real estate joint ventures
are engaged principally in the ownership, development and acquisition for
redevelopment of neighborhood and community shopping centers predominantly
located in the greater New York, N.Y. and Miami, Fl. metropolitan areas. These
shopping centers are anchored generally by discount stores, supermarkets,
drugstores and other retailers offering day to day shopping necessities.
Management considers the Company's various operating, investing, and financing
activities to comprise a single business segment and evaluates real estate
performance and allocates resources on net income.
The Company's results of operations are significantly
dependent on the overall health of the retail industry. The Company's tenant
base is comprised almost exclusively of merchants in the retail industry. The
retail industry is subject to external factors such as inflation, consumer
confidence, unemployment rates and consumer tastes and preferences. A decline in
the retail industry could reduce merchant sales, which could adversely affect
the operating results of the Company. A number of retailers occupy space in more
than one of the Company's shopping centers; however, no single tenant accounts
for more than 5.4% of the Company's revenues. Approximately 40.5% of total
revenue for the year ended December 31, 1998 was derived from the Company's four
shopping center properties in Hialeah, Florida. Any adverse change in the
operating profitability of these properties may have a material adverse effect
on the Company.
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and its subsidiaries, all of which are wholly-owned, and
the Operating Partnership and the Property Partnerships effective as of May 13,
1998. See Notes 1 and 2. All significant intercompany accounts and balances have
been eliminated in consolidation.
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.
Real Estate Properties
Building and improvements are depreciated on the straight-line
method over the estimated useful lives of the assets which range from fifteen to
thirty-nine years, and tenant improvements (included in buildings and
improvements in the accompanying balance sheet) are amortized over the lives of
the respective leases using the straight-line method.
In accordance with 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, the Company reviews 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. No impairment losses have been
recorded.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid investments
with an original maturity of three months or less from date of purchase.
Banking relationships are maintained with major financial
institutions. The properties are operated through multiple bank
42
<PAGE>
PHILIPS INTERNATIONAL REALTY CORP,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
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. Percentage rents, representing
the Company's participation in tenants' gross sales in excess of predetermined
thresholds, are recognized upon verification that such rents are due for any
given lease year.
Deferred Charges
Costs incurred to obtain tenant leases and long term
financing, included in deferred charges and prepaid expenses in the accompanying
Consolidated Balance Sheet, are amortized over the terms of the related leases
or debt agreements, as applicable.
Income Taxes
The Company operates so as to qualify as a REIT under section
856(C) of the Internal Revenue Code of 1986, as amended. As a REIT, the Company
generally will not be subject to federal income tax to the extent it distributes
its REIT taxable income to its shareholders and meets certain other
requirements. If the Company fails to qualify as a REIT in any taxable year, the
Company will be subject to federal income tax on its taxable income at regular
corporate rates. As a REIT, the Company may be subject to certain state and
local taxes on its income and property and federal income and excise taxes on
any undistributed taxable income.
Income(loss) per share
Basic net income (loss) per share excludes the dilutive
effects of any outstanding options and warrants. Diluted net income (loss) per
share includes the dilutive (but not any anti-diliutive) effect of outstanding
options and warrants calculated under the treasury stock method.
Basic and diluted net income per common share in the
accompanying Consolidated Statement of Income for the year ended December 31,
1998 is based upon a weighted average number 4,715,226 shares of Common Stock
outstanding for the year.
The Company and the Operating Partnership received their
interest in the Properties at the close of business on December 31, 1997 and had
no operations as a public entity; therefore, the Company has not presented
income (loss) per share for this period. If the 47,660 shares had been
outstanding since the Company's incorporation, the Company's basic and diluted
loss per share (as calculated pursuant to FASB No. 128) would have been $11.39.
The Company authorized a Common Stock split of 1.7051 to 1 effective immediately
prior to the completion of the IPO. Had this stock split occurred, basic and
diluted loss per share would have been $6.68.
Interest Capitalization
Interest costs incurred during the development and major
redevelopment of shopping center properties are capitalized and amortized on the
same basis as related depreciation. Total interest costs incurred, paid and
capitalized during the year ended December 31, 1998 totaled $5,360, $4,572 and
$50, respectively.
43
<PAGE>
PHILIPS INTERNATIONAL REALTY CORP,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
4. Investments in Real Estate Joint Ventures
The Company and its subsidiaries have investments in various
real estate joint ventures which are accounted for on the equity method. These
joint ventures are engaged in the operation of shopping centers which are either
owned or held under a long-term ground lease. Summarized financial information
regarding the financial position and operations of these real estate joint
ventures is as follows:
December 31, 1998
-----------------
Assets:
Real estate, net $87,223
Other assets 4,459
------------
$91,682
============
Liabilities and Partners' Capital
Mortgages payable $10,000
Other liabilities 1,211
Partners' Capital 80,471
------------
$91,682
============
Year Ended December 31,
-----------------------
1998
----
Revenues from rental property $9,417
Operating expenses (2,456)
Mortgage interest (394)
Depreciation and amortization (1,505)
Other, net (665)
------------
$4,397
============
PHILIPS INTERNATIONAL REALTY CORP,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
5. Investment in Operating Partnership and Property Partnerships
Prior to completion of the IPO, the Company and its
subsidiaries held a 6.1% non-managing general partnership interest in the
Operating Partnership (which held a 99.989% limited partner or member interest
in each of the Property Partnerships) and .01% non-managing general
partner/member interests in the Property Partnerships, respectively.
Accordingly, the Company accounted for its investments in the Operating
Partnership and the Property Partnerships on the equity method.
Condensed financial information for (i) the Company as if its
property operations had been consolidated as of January 1, 1998 for (a) the
period January 1, 1998 to May 12, 1998 and, (b) for the year ended December 31,
1998, and (ii) the Property Partnerships, which consisted of The Philips Company
(comprising ten shopping center properties) and Merrick Commons and Mill Basin
Plaza (two shopping center properties), for the year ended December 31, 1997,
follows.
<TABLE>
<CAPTION>
Period Year Ended December 31,
January 1, 1998 to -----------------------
May 12, 1998 1998 1997
------------ ---- ----
<S> <C> <C> <C>
Operating Data:
Revenues from rental property $12,224 $34,849 $31,937
----------- ----------- -----------
Expenses:
Operating expenses 1,505 4,718 4,316
Real estate taxes 1,749 5,007 4,639
Management fees to affiliates 363 1,051 1,241
Interest expense 5,337 9,582 15,011
Depreciation and amortization 2,021 5,829 4,946
General and administrative expenses 52 62 188
----------- ----------- -----------
11,027 26,249 30,341
----------- ----------- -----------
Operating income $1,197 $8,600 $1,596
=========== =========== ===========
<CAPTION>
December 31, 1997
-----------------
<S> <C>
Balance Sheet Data:
Rental properties, at cost $199,428
Total assets $195,616
Mortgage notes payable $176,602
Owner's Equity $13,869
</TABLE>
44
<PAGE>
PHILIPS INTERNATIONAL REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
6. Deferred Charges, Prepaid Expenses and Other Assets
Deferred Charges and Prepaid Expenses:
Deferred charges and prepaid expenses included in the accompanying
Consolidated Balance Sheet as of December 31, 1998 are comprised as
follows:
Deferred financing $1,315
Deferred leasing 2,802
Other deferred charges 438
Prepaid expenses 333
-----------
4,888
Less, accumulated amortization 1,008
-----------
$3,880
===========
Other Assets:
Other assets in the accompanying Consolidated Balance Sheet as of
December 31, 1998 consists of restricted real estate tax escrows,
capital improvement escrows and tenant security deposits totaling
$1,787.
7. Mortgages and Notes Payable
As of December 31, 1998, mortgage notes payable aggregated $137,487 and
were collateralized by the shopping center properties. Mortgage payments
are due in monthly installments of principal and/or interest and mature on
various dates through 2007. The loan agreements contain customary
representations, covenants and events of default.
The following table summarizes the mortgages and notes payable outstanding as of
December 31, 1998:
<TABLE>
<CAPTION>
Property
<S> <C> <C>
Millside Plaza First mortgage notes with fixed interest rate of 7.48% due December $12,061
Elm Plaza 2002. The notes are cross-defaulted and cross-collateralized.
Foxboro Plaza Monthly payments of principle and interest total $85.
Mall on the Mile First mortgage notes with a life insurance company with a fixed interest 33,384
Palm Springs Village rate of 7.83% due February, 2004. The notes are cross-defaulted and
cross-collateralized. Monthly payments of principal and interest total
$260.
Merrick Commons First mortgage note payable to a bank with a fixed interest rate of 7.38% 25,540
and Mill Basin Plaza due January, 2003. The note is collateralized by mortgages on both
properties. Monthly payments of principal and interest total $178.
</TABLE>
45
<PAGE>
PHILIPS INTERNATIONAL REALTY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
7. Mortgages and Notes Payable --(Continued)
<TABLE>
<CAPTION>
Property
<S> <C> <C>
Munsey Park S. C. First mortgage note payable to a bank with a fixed interest rate of 12,727
8.125% due October, 2007. Monthly payments of principal and
interest total $95.
Unsecured promissory note with a fixed interest rate of 5.00% due July, 2001. 1,250
-------------
Total Fixed Rate Obligations 84,962
Forest Ave. Revolving line of credit with a variable interest rate of LIBOR 52,525
Branhaven Plaza plus 1.25% (6.3141% at December 31, 1998), matures in May, 2000.
Meadowbrook Commons Monthly interest payment at December 31, 1998 was $273.
Shops on 49th Street
Philips Plaza
-------------
Total Variable Rate Obligations 52,525
-------------
Total Mortgages and Notes Payable $137,487
=============
Credit Facility
The Company established a revolving credit facility of $100,000 upon the
consummation of the IPO. The availability of funds under the credit
facility is subject to the Company's compliance with a number of customary
financial and other covenants on an on-going basis. The credit facility has
been used primarily to finance its acquisition and redevelopment
activities. Borrowings under the credit facility are collateralized by
certain shopping center properties with recourse to the Company.
The combined aggregate principal maturities of mortgages and notes payable
outstanding as of December 31, 1998 are as follows:
</TABLE>
<TABLE>
<CAPTION>
Fixed Rate Obligations Variable Rate Obligations
--------------------------------- ---------------------------------
Rate Amount Rate Amount
<S> <C> <C> <C> <C>
1999 7.71% $1,019 -- $ --
2000 7.71% 1,100 6.31% 52,525
2001 6.32% 2,438 -- --
2002 7.50% 12,803 -- --
2003 7.40% 25,249 -- --
Thereafter 7.91% 42,353 -- --
</TABLE>
46
<PAGE>
PHILIPS INTERNATIONAL REALTY CORP,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
8. Fair Value of Financial Instruments
Estimated fair values for the financial instruments were
determined by management using market information available as of December 31,
1998 and appropriate valuation methodologies which included, in the case of debt
instruments, consideration of interest rates available 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 estimates are not necessarily indicative
of the amounts that could be realized on disposition of the 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, 1998.
Cash equivalents, accounts receivable and mortgages and notes
payable are reflected in the accompanying Consolidated Balance Sheet as of
December 31, 1998 at amounts which reasonably approximate their fair values.
9. Related Party Transactions
Management Agreement
The Company has entered into a management agreement with
Philips International Holding Corp. ("PIHC"), a related party, which provides
for day-to-day management, leasing and construction supervisory services. Fees
payable for such services are (i) a management fee equal to 3% of gross rental
collections, (ii) leasing commissions in amounts not to exceed local current
market rates, and (iii) construction supervisory fees up to 10% of the costs of
a project. In addition, PIHC is reimbursed for certain direct out-of-pocket
expenses. Fees paid for such services totaled $1,441 for the year ended December
31, 1998.
10. Commitments and Contingencies
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.
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,
1998 are as follows:
1999............................................................... $25,334
2000............................................................... 24,269
2001............................................................... 24,720
2002............................................................... 19,026
2003............................................................... 17,455
Thereafter......................................................... 123,805
--------
$234,609
========
47
<PAGE>
PHILIPS INTERNATIONAL REALTY CORP,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
Legal Proceedings
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.
11. Stock Option Plan
The Company maintains a stock option plan (the "Plan")
pursuant to which a maximum 852,550 shares of the Company's Common Stock may be
issued for qualified and non-qualified options. Options granted under the Plan
generally vest ratably over a three-year term, expire ten years from the date of
grant and are exercisable at the market price on the date of grant, unless
otherwise determined by the Board in its sole discretion. A total 654,000
options to acquire shares of Common Stock at $17.50 per share were granted to
directors, officers and employees of the Company and PIHC in conjunction with
the IPO. An additional 5,000 options were granted to employees of the Company
and PIHC at a weighted average exercise price of $14.94 per share during the
remainder of 1998. All such options (184,667 of which were excerisable at
December 31, 1998 at an exercise price of $17.50) were outstanding at December
31, 1998.
The Company applies Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" in accounting for stock-based
employee compensation arrangements whereby no compensation cost related to stock
options is deducted in determining net income. Had compensation cost for the
Company's stock option plans been determined pursuant to Financial Accounting
Standards Board Statement No. 123 ("SFAS No. 123"), "Accounting for Stock-Based
Compensation'" the Company's pro forma net income and net income per share would
have differed. The Black-Scholes option pricing model estimates fair value of
options using subjective assumptions which can materially effect fair value
estimates and, therefore, do not necessarily provide a single measure of fair
value of options. Using the Black-Scholes option pricing model for all options
granted and assuming (i) a risk-free interest rate of 5.11%, (ii) a dividend
yield on the Company's common stock of 7.71%, (iii) a volatility factor for the
market price of the Company's Common Stock of 21.62% and (iv) a weighted-average
expected life of options of approximately 9.0 years, the Company's pro forma net
income, basic pro forma net income per share and diluted pro forma net income
per share would have been $4,043, $0.86, and $0.86, respectively, for the year
ended December 31, 1998. For purposes of these pro forma disclosures, the
estimated fair value of options is amortized over the options' vesting period.
Since the number of options granted and the fair value thereof may vary
significantly from year to year, the pro forma compensation expense in future
years may be materially different.
12. Supplemental Financial Information
The following summary represents the results of operations for each
quarter during the year ended December 31, 1998. The income before
extraordinary items per share on a basic and diluted basis for the
respective quarters does not total the amount reflected in the
accompanying Consolidated Statement of Income due to the significant
number of common shares issued in conjunction with the May 1998
Offering.
<TABLE>
<CAPTION>
1998 (Unaudited)
- --------------------------------------------------------------------------------------------------------------------------
Mar. 31 June 30 Sept. 30 Dec. 31
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues from rental property $ -- $4,528 $8,769 $9,328
Income before extraordinary items 28 1,015 1,748 1,730
Income before extraordinary items per common share
Basic $(0.20) $0.25 $0.24 $0.24
Diluted $(0.20) $0.25 $0.24 $0.24
</TABLE>
48
<PAGE>
PHILIPS INTERNATIONAL REALTY CORP,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
13. Extraordinary Items
The accompanying Consolidated Statement of Income for the year
ended December 31, 1998, includes $65 in extraordinary losses representing the
Company's share of prepayment penalties incurred and deferred financing costs
written-off in connection with the repayment of certain mortgage loans with
proceeds of the IPO.
14. Stock Dividends
On June 15, September 15, and December 15, 1998, the Board of
Directors declared common stock dividends of $.1812, $.3375 and $.3375 per
share, respectively, which amounts were paid on July 15 and October 15, 1998,
and January 15, 1999 to common shareholders of record on July 1, October 1, and
December 15, respectively. The $.3375 rate of dividend (representing a full
quarterly dividend payment), if annualized, would equal $1.35 per share.
During March and May 1998 the Board of Directors of the
Company declared dividends on the Series A Convertible Redeemable Preferred
Stock at the rates of $22.50 and $10.04 per share, respectively. These dividends
were paid on March 31 and May 13, 1998, respectively.
15. Acquisition of Real Estate Interests
During the year ended December 31, 1998 the Company acquired
(i) a 77,000 square foot shopping center property located in Munsey Park, NY for
approximately $21,500 in cash, (ii) a 50% joint venture interest in a
retail/residential site located in New York City, N.Y. for approximately $3,400
in cash, (iii) a 43% interest in a limited partnership affiliated with the
Company which owns nine K-Mart anchored shopping centers for approximately
$19,100 in cash, (iv) a 50% joint venture interest in a retail, redevelopment
site in Palm Beach County, Florida, for approximately $3,100 in cash, (v) a 75%
joint venture interest in a 54,000 square foot shopping center in Yonkers, N.Y.
which the Company intends to redevelop, for approximately $6,300 in cash, (vi) a
75% interest in a retail development site in Glen Cove, N.Y., for approximately
$2,700 in cash, and (vii) interests in two additional retail development sites
for approximately $3,000 in cash. Subsequent to year end, the Company acquired
an additional 14% interest in the portfolio of K-Mart anchored shopping centers
for approximately $6,400 in cash. Purchase of the interests in the portfolio of
K-Mart anchored shopping centers was unanimously approved by the independent
members of the Company's Board of Directors. Mr. Pilevsky is a 1% general
partner in the limited partnership which holds title to the K-Mart portfolio.
These various transactions were financed with approximately $51,400 drawn under
the Company's line of credit, and property indebtedness of approximately
$14,100.
16. Pro Forma Financial Information
As discussed in Note 15, the Company acquired a shopping
center property located in Munsey Park, New York, during the year ended December
31, 1998. The pro forma information set forth below is based upon the Company's
Consolidated Statement of Income for the year ended December 31, 1998, adjusted
to give effect to this property acquisition as of January 1, 1998.
This pro forma financial information is presented for
informational purposes only and may not be indicative of what actual results of
operations would have been, had the property acquisition occurred as of January
1, 1998, nor does it purport to represent the results of future operations.
Year
Ended 12/31/98
--------------
Revenues from rental property $24,452
Income before extraordinary items $ 4,492
Income before extraordinary items,
basic and diluted per common share $ 0.94
49
<PAGE>
PHILIPS INTERNATIONAL REALTY CORP,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
17. Subsequent Events
Subsequent to December 31, 1998, the Company adopted a
Shareholder Rights Plan. Under the Shareholder Rights Plan, rights to purchase
shares of newly issued Philips International Realty Corp. Series A Junior
Participating Preferred Stock will be distributed to shareholders as a non-cash
dividend at the rate of one right for each share of Common Stock held as of the
close of business on March 31, 1999. Each of the rights, which expire on March
31, 2009, will entitle shareholders to buy one one-thousandth of a share of
Preferred Stock at an exercise price of $55.00 if any person or group becomes
the beneficial owner of 15% or more of the Company's Common stock. Each
Preferred Stock interest, excluding Preferred Stock interests owned by such
person or group, will entitle its holder to purchase shares of the Company's
Common Stock having a value of twice the right's then current exercise price.
During March 1999, the Company acquired the remaining 50%
interest it did not own in a retail development site in Palm Beach County,
Florida for approximately $3,600 in cash. See Note 15.
50
<PAGE>
PHILIPS INTERNATIONAL REALTY CORP.
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
Cost Capitalized Subsequent
Initial Cost to Acquisition
-------------------------------------------------------- -------------------------------------
Land and Buildings and Land and Buildings and
Description Encumbrances Improvements Improvements Improvements Improvements
----------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Millside Plaza $4,439 $960 $5,443 $297 $719
Delran, NJ
Elm Plaza 3,372 709 4,968 17 (38)
Enfield, CT
Branhaven Plaza -- 1,883 7,646 594 1,036
Branford, CT
Forest Avenue -- 1,984 8,428 1,955 9,373
Shoppers Town
Staten Island, NY
Meadowbrook -- 6,284 -- 2,115 21,384
Commons
Freeport, NY
Foxboro Plaza 4,250 655 6,055 194 (558)
Foxborough, MA
Palm Springs Mile(1) 85,909 13,137 26,861 8,787 37,338
Hialeah, FL (5
properties)
Mill Basin Plaza 13,135 5,107 8,696 1,795 2,682
Brooklyn, NY
The Shoppes at -- 362 2,052 3 17
Lake Mary
Lake Mary, FL
Merrick Commons 12,405 2,257 4,191 2,023 8,058
Merrick, NY
Munsey Park 13,977 4,382 17,543 -- --
Munsey Park, NY
Balance of Portfolio -- -- -- -- 1,502
-------------- -------------- ------------- -------------- --------------
$137,487 $37,720 $91,883 $17,780 $81,513
============== ============== ============= ============== ==============
<CAPTION>
Gross Amounts at Which
Carried at Close of Period Life on Which
---------------------------------------------------------------------- Depreciation
Land and Buildings and Accumulated Date is
Description Improvements Improvements Total Depreciation Acquired Computed
----------- ------------ ------------ ----- ------------ -------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Millside Plaza $1,257 $6,162 $7,419 $987 12/26/86 31.5 - 39 years
Delran, NJ
Elm Plaza 726 4,930 5,656 897 12/24/86 15 - 39 years
Enfield, CT
Branhaven Plaza 2,477 8,682 11,159 1,597 12/31/85 15 - 39 years
Branford, CT
Forest Avenue 3,939 17,801 21,740 2,264 11/16/84 15 - 39 years
Shoppers Town
Staten Island, NY
Meadowbrook 8,399 21,384 29,783 1,746 11/9/89 15 - 39 years
Commons
Freeport, NY
Foxboro Plaza 849 5,497 6,346 1,040 11/24/86 15 - 39 years
Foxborough, MA
Palm Springs Mile(1) 21,924 64,199 86,123 9,368 4/1/85 15 - 39 years
Hialeah, FL (5
properties)
Mill Basin Plaza 6,902 11,378 18,280 668 9/1/94 39 years
Brooklyn, NY
The Shoppes at 365 2,069 2,434 53 12/30/97 39 years
Lake Mary
Lake Mary, FL
Merrick Commons 4,280 12,249 16,529 1,156 1/1/86 15 - 39 years
Merrick, NY
Munsey Park 4,382 17,543 21,925 206 7/31/98 39 years
Munsey Park, NY
Balance of Portfolio -- 1,502 1,502 -- 10/29/98 N/A
------------ ------------ ------------- ------------
$55,500 $173,396 $228,896 $19,982
============ ============ ============= ============
</TABLE>
(1) Represents Credit Facility which is collateralized by five properties.
51
<PAGE>
Schedule III--Real Estate and Accumulated Depreciation--(Continued)
(Dollars in Thousands)
The changes in real estate for the three years ended December 31, 1998
are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year $199,428 (1) $137,399 $124,892
Property acquisitions and purchase accounting adjustment 24,576 (1) 20,789 --
Improvements 4,892 (1) 41,240 12,507
----------- ----------- -----------
Balance, end of year $228,896 $199,428 $137,399
=========== =========== ===========
</TABLE>
The aggregate cost of land, buildings and improvements for federal income
tax purposes at December 31, 1998 was $154,178.
The changes in accumulated depreciation for the three years ended
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year $14,556 (1) $24,277 $21,315
Purchase accounting adjustments. -- (15,318) --
Depreciation for period. 5,426 (1) 5,597 2,962
----------- ----------- -----------
Balance, end of year $19,982 $14,556 $24,277
=========== =========== ===========
</TABLE>
(1) Includes amounts for property partnerships which were accounted for under
the equity method prior to May 13, 1998.
52
<PAGE>
Report of Independent Auditors
The Board of Directors
Philips International Realty Corp.
We have audited the combined statements of income, owners' deficit and cash
flows of The Philips Company for the years ended December 31, 1997 and 1996.
These financial statements are the responsibility of The Philips Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with 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 of The Philips Company
referred to above present fairly, in all material respects, the combined results
of its operations and its cash flows for years ended December 31, 1997 and 1996
in conformity with generally accepted accounting principles.
Ernst & Young LLP
New York, New York
March 6, 1998
53
<PAGE>
THE PHILIPS COMPANY
(PREDECESSOR)
COMBINED STATEMENTS OF INCOME
For the Years ended December 31, 1997 and 1996
(Dollars in thousands)
1997 1996
---- ----
Revenues from rental properties $26,968 $25,947
------------ -------------
Expenses
Operating expenses 3,936 4,176
Real estate taxes 3,819 3,671
Management fees to affiliates 1,001 878
Interest expense 12,966 11,728
Depreciation and amortization 4,122 3,417
General and administrative expenses 165 306
------------ -------------
26,009 24,176
------------ -------------
959 1,771
Equity in income of investees 339 95
Other income, net 38 22
------------ -------------
Income before extraordinary items 1,336 1,888
Extraordinary items 671 2,881
------------ -------------
Net income $2,007 $4,769
============ =============
See accompanying notes.
54
<PAGE>
THE PHILIPS COMPANY
(PREDECESSOR)
COMBINED STATEMENTS OF OWNERS' DEFICIT
For the Years Ended December, 31, 1997 and 1996
(Dollars in thousands)
Balance, December 31, 1995 $ (22,091)
Distributions (1,101)
Contributions 7,257
Net income 4,769
-------------
Balance, December 31, 1996 (11,166)
Distributions (21,489)
Contributions 24,202
Net income 2,007
-------------
Balance, December 31, 1997 $ (6,446)
=============
See accompanying notes.
55
<PAGE>
THE PHILIPS COMPANY
(PREDECESSOR)
COMBINED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1997 and 1996
(Dollars In Thousands)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $2,007 $4,769
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 4,122 3,417
Amortization of mortgage discount 32 59
Extraordinary items (671) (2,881)
Equity in income of investees (339) (95)
Changes in operating assets and liabilities:
Accounts receivable (665) (574)
Related party receivables 3 (357)
Deferred charges. (1,055) (2,957)
Other assets. 1,041 432
Accounts payable and accrued expenses (161) (793)
Related party payables. (1,179) 1,997
Other liabilities (297) 550
----------- ----------
Net cash provided by operating activities. 2,838 3,567
----------- ----------
INVESTING ACTIVITIES:
Additions to land, buildings and improvements. (19,186) (9,359)
----------- ----------
Net cash used in investing activities. (19,186) (9,359)
----------- ----------
FINANCING ACTIVITIES:
Proceeds from debt financing 79,400 14,835
Establish minority interest (61,792) (10,742)
Contributions from owners. 18,421 2,635
Distributions to owners. (20,177) (642)
----------- ----------
Net cash provided by financing activities. 15,852 6,086
----------- ----------
Net increase (decrease) in cash and cash equivalents (496) 294
Cash and cash equivalents at beginning of period 785 491
----------- ----------
Cash and cash equivalents at the end of the period $289 $785
=========== ==========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Loans to and from affiliates reclassified as capital contributions and/or
distributions:
Contributions. $1,009 $2,524
Distributions. 1,312 459
Non cash adjustments relating to purchase of partnership interests
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
=========== ==========
SUPPLEMENTARY INFORMATION:
Interest paid $11,357 $10,878
=========== ==========
Interest capitalized $-- $42
=========== ==========
</TABLE>
See accompanying notes.
56
<PAGE>
THE PHILIPS COMPANY
(PREDECESSOR)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
1. Description of Business and Significant Accounting Policies
The Philips Company (the "Company") was engaged in the ownership,
operation, leasing and development of seven neighborhood and community shopping
center properties (collectively, the "Properties") located in New York,
Connecticut, New Jersey, Massachusetts and Florida.
Principles of Combination
The Company was not a legal entity, but rather a combination of real
estate properties that were organized as general and limited partnerships and
limited liability companies and which were under the common management and
control of Philip Pilevsky, his family or entities controlled by such parties
(the 'Sponsors'). In addition, investments in certain non-controlled limited
partnerships were accounted for under the equity method (see Note 2). All
significant intercompany transactions and balances were eliminated in
combination.
The specific partnerships and limited liability companies included in the
accompanying combined financial statements are as follows:
ENTITY PROPERTY
- ------ --------
Branhaven Plaza L.L.C. Branhaven Plaza
Palm Springs Mile Associates, Ltd. Mall on the Mile, Palm Springs Village,
The Shops on 49th Street and Philips
Plaza
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
Formation Transactions
The partners and members of The Philips Company and the Merrick/Mill
Basin Properties (see note 2) transferred their shopping center assets or, in
certain instances, their partnership or membership interests in the entities
which held title to such shopping center assets, to certain newly-formed
entities effective December 31, 1997.
Reference should be made to Note 1 of the accompanying Notes to
Consolidated Financial Statements of Philips International Realty Corp. for
further information concerning the Formation Transactions.
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
Buildings and improvements were depreciated on the straight-line method
over the estimated useful lives of the assets which range from fifteen to
thirty-nine years, while tenant improvements were amortized over the lives of
the respective leases, using the straight-line method.
During 1996, the Company adopted Statement of Financial Accounting
Standards No. 121 ('SFAS No. 121'), Accounting for the
57
<PAGE>
THE PHILIPS COMPANY
(PREDECESSOR)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
1. Description of Business and Significant Accounting Policies--(Continued)
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.
Deferred Charges
Deferred charges are amortized over the terms of the related leases or
debt agreements, as applicable.
Revenue Recognition
Minimum revenues from rental property were recognized on a
straight-line basis over the terms of the respective tenant leases.
Income Taxes
The entities comprising the Company were 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.
Concentration of Revenue and Credit Risk
Approximately 54% and 51% of the Company's total revenue for the years
ended December 31, 1997, and 1996, 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.
2. Investment in Partnerships
The Philips Company had a limited partnership interest and a minority
general partnership interest in the following two partnerships (the
"Merrick/Mill Basin Properties") which also owned and operates neighborhood and
community shopping centers.
THE PHILIPS COMPANY'S
PARTNERSHIP PROPERTY PERCENTAGE OWNERSHIP
- ----------- -------- --------------------
Merrick Shopping Associates Merrick Commons 30%
SP Avenue U Associates, L.P. Mill Basin Plaza 49%
As a limited partner and minority general partner, the Company did not control
the activities of the partnerships. These investments, accounted for under the
equity method, were recorded initially at cost and subsequently adjusted for
equity in the net income or loss of investees and cash contributions and
distributions.
58
<PAGE>
THE PHILIPS COMPANY
(PREDECESSOR)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
2. Investment in Partnerships--Continued
Condensed operating information for these entities for the years ended
December 31, 1997 and 1996, was as follows:
1997 1996
------- -------
Revenues from rental property and other income $ 4,972 $ 4,959
Interest income from affiliates .............. -- 1,297
------- -------
Total revenue .......................... 4,972 6,256
Operating and other expenses ................. 1,463 1,492
Interest ..................................... 2,045 3,496
Depreciation and amortization ................ 824 576
------- -------
Total expenses ......................... 4,332 5,564
------- -------
Income before extraordinary item ....... 640 692
Extraordinary item ........................... -- (349)
------- -------
Net income ............................. $ 640 $ 343
======= =======
59
<PAGE>
THE PHILIPS COMPANY
(PREDECESSOR)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(Dollars in Thousands)
3. 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% and 95% of revenues
from rental properties for the years ended December 1997 and 1996, 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, 1997, are as follows:
1998 .................................................... $ 19,132
1999 .................................................... 18,016
2000 .................................................... 16,958
2001 .................................................... 14,594
2002 .................................................... 11,785
Thereafter................................................... 89,698
--------
$170,183
========
4. Related Party Transactions
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.
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 years ended December 31, 1997
and 1996 were $95 and $773, respectively.
5. 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.
6. Extraordinary Items
The Combined Statements of Income for the years ended December 31, 1997 and
1996 include extraordinary gains of approximately $671 and $2,881,
respectively, in connection with the settlement of debt obligations on the
Company's shopping center properties. The $671 gain for the year ended
December 31, 1997, is net of an extraordinary loss of approximately $265
representing the write-off of deferred financing costs related to the
refinancing of debt on a certain shopping center properties.
60
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ PHILIP PILEVSKY Chairman of the Board and Chief Executive Officer March 31, 1999
-------------------
Philip Pilevsky
/s/ LOUIS J. PETRA Director and President March 31, 1999
------------------
Louis J. Petra
/s/ SHEILA LEVINE Director, Chief Operating Officer, March 31, 1999
----------------- Executive Vice President and Secretary
Sheila Levine
/s/ BRIAN J. GALLAGHER Chief Financial Officer, Acquisitions March 31, 1999
---------------------- Director and Treasurer
Brian J. Gallagher
/s/ ARNOLD S. PENNER Director March 31, 1999
--------------------
Arnold S. Penner
/s/ A. F. PETROCELLI Director March 31, 1999
--------------------
A. F. Petrocelli
/s/ ELISE JAFFE Director March 31, 1999
---------------
Elise Jaffe
/s/ ROBERT GRIMES Director March 31, 1999
-----------------
Robert Grimes
</TABLE>
61
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
3.1 Amended and Restated Articles of Incorporation of the
Company (filed as Exhibit 3.1 to the Company's Current
Report on Form 8-K dated December 31, 1997 and incorporated
herein by reference)
3.2 Second Amended and Restated By-Laws of the Company
(filed as Exhibit 3.3 to the Company's Registration
Statement on Form S-11, Registration No. 333-47975, and
incorporated herein by reference)
3.3 Articles Supplementary of Series A Preferred Stock
(filed as Exhibit 3.2 to the Company's Form 8-K dated
December 31, 1997 and incorporated herein by reference)
3.4 Form of Certificate of Common Stock (filed as Exhibit
3.4 to the Company's Registration Statement on Form
S-11, Registration No. 333-47975, and incorporated
herein by reference)
4.1* Shareholder Rights Agreement, dated as of March 31, 1999
between the Company and BankBoston, N.A.
4.2 * Articles Supplementary for Series A Junior
Participating Preferred Stock
10.1 Amended and Restated Agreement of Limited Partnership
of the Operating Partnership (filed as Exhibit 10.1 to
the Company's Registration Statement on Form S-11,
Registration No. 333-47975, and incorporated herein by
reference)
10.2* First Amendment to the Amended and Restated Agreement
of Limited Partnership of the Operating Partnership
10.3 Form of 1997 Stock Option and Long-Term Incentive
Plan of the Company (filed as Exhibit 10.2 to the
Company's Registration Statement on Form S-4,
Registration No. 333-41431, and incorporated herein by
reference)
10.4 Form of Agreement of Limited Partnership for Property
Partnerships (filed as Exhibit 10.3 to the Company's
Registration Statement on Form S-4, Registration No.
333-41431, and incorporated herein by reference)
10.5 Form of Articles of Incorporation of Philips Subs
(filed as Exhibit 10.4 to the Company's Registration
Statement on Form S-4, Registration No. 333-41431, and
incorporation herein by reference)
10.6 Form of Bylaws of Phillips Subs (filed as Exhibit 10.5
to the Company's Registration Statement on Form S-4,
Registration No. 333-41431, and incorporated herein by
reference)
10.7 Contribution and Exchange Agreement, dated August 11,
1997, among National Properties Investment Trust, 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 (filed as Exhibit
10.6 to the Company's Registration Statement on Form
S-4, Registration No. 333-41431, and incorporated
herein by reference)
10.8 Form of Registration Rights Agreement among the Company
and certain holders of limited partnership interests in
the Operating Partnership ) filed as Exhibit 10.7 to
the Company's Registration Statement on Form S-4,
Registration No. 333-41431, and incorporated herein by
reference)
10.9 Amended and Restated Management Agreement, dated as of
March 30, 1998, among the Company, the Operating
Partnership and Philips International Management Corp.
(filed as Exhibit 10-8 to the Company's Form 10-K for
the year ended December 31, 1997 and incorporated herein by
reference)
10.10 Amended and Restated Non-Competition Agreement, dated
as of March 30, 1998, among the Company, the Operating
Partnership, Philip Pilevsky and Sheila Levine. (filed
as Exhibit 10.9 to the Company's Form 10-K for the year
ended December 31, 1997 and incorporated herein by
reference)
10.11 Employment Agreement between the Company and Louis J.
Petra (filed as Exhibit 10.1 to the Company's Form 8-K
dated December 31, 1997 and incorporated herein by
reference)
10.12 Employment Agreement between the Company and Sheila
Levine (filed as Exhibit 10.2 to the Company's Form 8-K
dated December 31, 1997 and incorporated herein by
reference)
10.13 Form of Warrant (filed as Exhibit 10.12 to the Company'
Registration Statement on Form S-4, Registration No.
333-41431, and incorporated herein by reference)
10.14 Amendment No. 1 to Contribution and Exchange Agreement,
dated as of December 29, 1997 (filed as Exhibit 10.13
to the Company's Form 8-K dated December 31, 1997 and
incorporated herein by reference)
10.15 Non-Recourse Secured Promissory Note of National
Properties Trust (filed as Exhibit 10.14 to Company's
Form 8-K dated December 31, 1997 and incorporated
herein by reference)
10.16 Form of Amended and Restated Mortgage, Assignment of
Leases, Security Agreement and Spreader Agreement and
Renewal Promissory Note for Mall on the Mile and Palm
Springs Village (filed as Exhibit 10.15 to the
Company's Form 10-K for the year ended December 31,
1999 and incorporated herein by reference)
10.17 Employment Agreement between the Company and Brian J.
Gallagher (filed as Exhibit 10.12 to the Company's
Registration Statement on Form S-11, Registration No.
333-47975, and incorporated herein by reference)
10.18 Credit Agreement among the Operating Partnership and
Prudential Securities Credit Corporation (filed as
Exhibit 10.18
30
<PAGE>
to the Company's Report on Form 10-Q for the period
ended March 31, 1998 and incorporated herein by reference.)
21.1 List of Subsidiaries of the Company (filed as Exhibit
21.1 to the Company's Form 10-K for the year ended
December 31, 1998 and incorporated herein by reference)
22.1* News Release of the Company dated March 31, 1999
23.1* Consent of Ernst & Young LLP
27.1* Financial Data Schedule
*filed herewith
<PAGE>
PHILIPS INTERNATIONAL REALTY CORP.
and
BANKBOSTON, N.A., as Rights Agent
SHAREHOLDER RIGHTS AGREEMENT
Dated as of
March 31, 1999
<PAGE>
TABLE OF CONTENTS
Page
Section 1. Certain Definitions.............................................1
Section 2. Appointment of Rights Agent.....................................5
Section 3. Issue of Right Certificates.....................................5
Section 4. Form of Right Certificates......................................7
Section 5. Countersignature and Registration...............................7
Section 6. Transfer, Split Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen
Right Certificates..............................................8
Section 7. Exercise of Rights; Purchase Price; Expiration
Date of Rights..................................................8
Section 8. Cancellation and Destruction of Right Certificates.............10
Section 9. Reservation and Availability of Shares of Stock................10
Section 10. Preferred Stock Record Date....................................12
Section 11. Adjustment of Purchase Price, Number of Shares or
Number of Rights...............................................12
Section 12. Certificate of Adjusted Purchase Price or Number of Shares.....19
Section 13. Consolidation, Merger or Sale or Transfer of Assets
or Earning Power...............................................19
Section 14. Fractional Rights and Fractional Shares........................20
Section 15. Rights of Action...............................................21
Section 16. Agreement of Right Holders.....................................22
Section 17. Right Certificate Holder Not Deemed a Stockholder..............22
Section 18. Concerning the Rights Agent....................................22
Section 19. Merger or Consolidation or Change of Name of Rights Agent......23
<PAGE>
Section 20. Duties of Rights Agent.........................................24
Section 21. Change of Rights Agent.........................................26
Section 22. Issuance of New Right Certificates.............................27
Section 23. Redemption and Termination.....................................27
Section 24. Exchange.......................................................28
Section 25. Notice of Certain Events.......................................29
Section 26. Notices........................................................30
Section 27. Supplements and Amendments.....................................30
Section 28. Successors.....................................................31
Section 29. Determinations and Actions by the Board of Directors...........31
Section 30. Benefits of this Agreement.....................................32
Section 31. Severability...................................................32
Section 32. Governing Law..................................................32
Section 33. Counterparts...................................................32
Section 34. Descriptive Headings...........................................32
EXHIBIT A Articles Supplementary, Description and Certain Terms of
Series A Participating Preferred Stock........................A-1
EXHIBIT B Form of Right Certificate.....................................B-1
EXHIBIT C Summary of Rights to Purchase Preferred Stock.................C-1
iii
<PAGE>
Shareholder Rights Agreement, dated as of March 31, 1999, between Philips
International Realty Corp., a Maryland corporation (the "Company"), and
BankBoston, N.A., a Massachussetts corporation, as Rights Agent (the "Rights
Agent").
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Company on February 22, 1999 (the
"Rights Dividend Authorization Date") authorized a dividend distribution (the
"Distribution") of one preferred share purchase right (a "Right") for each share
of Common Stock, par value $0.01 per share, of the Company (the "Common Stock")
outstanding at the close of business on March 31, 1999 (the "Record Date"), each
Right representing the right to purchase, under certain circumstances, one
one-thousandth of a share of Preferred Stock (as hereinafter defined) of the
Company, and has further authorized and directed the issuance of one Right (as
such number may hereinafter be adjusted pursuant to the provisions of Section
11(p) hereof) with respect to each share of Common Stock issued and outstanding
between the Record Date and the earliest of the Distribution Date, the
Redemption Date or the Final Expiration Date (as such terms are hereinafter
defined;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person (as such term is
hereinafter defined) who or which, together with all Affiliates and Associates
(as such terms are hereinafter defined) of such Person, shall be the
Beneficial Owner (as such term is hereinafter defined) of 15% or more of the
Common Stock of the Company then outstanding, but shall not include the
Company, any Subsidiary of the Company, any employee benefit plan of the
Company or of any Subsidiary of the Company or any entity holding shares of
Common Stock for or pursuant to the terms of any such plan. Notwithstanding
the foregoing, no person shall become an "Acquiring Person" solely by virtue
of its beneficial ownership, on the date hereof, of 15% or more of the shares
of Common Stock of the Company outstanding as of the date hereof; provided,
however, that if any Person that, on the date hereof, beneficially owns 15% or
more of the shares of Common Stock of the Company outstanding as of the date
hereof shall, after the date hereof, acquire any additional shares of Common
Stock of the Company such that such Person's beneficial ownership of shares of
Common Stock of the Company, expressed as a percentage of the total number of
shares of Common Stock of the Company then outstanding, shall be 10% or more
greater than the beneficial ownership of shares of Common Stock of the Company
of such Person on the date hereof (expressed as a percentage of the total
number of shares of Common Stock of the Company outstanding on the date
hereof), then such Person shall be deemed to be an "Acquiring Person."
Notwithstanding the foregoing, no Person shall become an "Acquiring Person" as
a result of (i) an acquisition of shares of Common Stock by the Company which,
by reducing the number of shares outstanding, increases the proportionate
number of shares
1
<PAGE>
beneficially owned by such Person to 15% or more of the shares of Common Stock
of the Company then outstanding; provided, however, that if a Person shall
become the Beneficial Owner of 15% or more of the shares of Common Stock of the
Company then outstanding by reason of shares purchased by the Company and shall,
after such share purchases by the Company, become the Beneficial Owner of an
additional 2% or more greater than the beneficial ownership of shares of Common
Stock of the Company of such Person on the date thereof (expressed as a
percentage of the total number of shares of Common Stock of the Company then
outstanding), then such Person shall be deemed to be an "Acquiring Person" or
(ii) the sale to such Person of any shares of Common Stock of the Company
pledged by a current shareholder resulting from the default of such shareholder
under the applicable pledge agreement. Notwithstanding the foregoing, if the
Board of Directors of the Company determines in good faith that a Person who
would otherwise be an "Acquiring Person", as defined pursuant to the foregoing
provisions of this paragraph (a), has become such inadvertently, and such Person
divests as promptly as practicable a sufficient number of shares of Common Stock
so that such Person would no longer be an "Acquiring Person," then such Person
shall not be deemed to be an "Acquiring Person" for any purposes of this
Agreement.
(b) "Act" shall mean the Securities Act of 1933, as amended.
(c) "Adjustment Shares" shall have the meaning set forth in Section
11(a)(ii) hereof.
(d) "Affiliate" and "Associate" shall have the respective meanings ascribed
to such terms in Rule 12b-2 of the General Rules and Regulations under the
Exchange Act, as in effect on the date of this Agreement.
(e) "Agreement" shall mean this Shareholder Rights Agreement, dated as of
March 31, 1999.
(f) A Person shall be deemed the "Beneficial Owner" of and shall be deemed
to "beneficially own" any securities:
(i) which such Person or any of such Person's Affiliates or Associates
beneficially owns, directly or indirectly;
(ii) which such Person or any of such Person's Affiliates or
Associates has, directly or indirectly, (A) the right to acquire (whether
such right is exercisable immediately or only after the passage of time or
upon the occurrence of an event) pursuant to any agreement, arrangement or
understanding (whether or not in writing and other than customary
agreements with and between underwriters and selling group members with
respect to a bona fide public offering of securities), or upon the exercise
of conversion rights, exchange rights, rights (other than these Rights),
warrants or options, or otherwise; provided, however, that a Person shall
not be deemed the "Beneficial Owner" of, or to "beneficially own,"
securities tendered pursuant to a tender or exchange offer made by such
Person or any of such Person's Affiliates or Associates until such tendered
securities are accepted for purchase or exchange or (B) the right to vote
pursuant
2
<PAGE>
to any agreement, arrangement or understanding; provided, however, that a
Person shall not be deemed the "Beneficial Owner" of, or to "beneficially
own," any security under this subparagraph (ii) if the agreement,
arrangement or understanding to vote such security (1) arises solely from a
revocable proxy or consent given to such Person in response to a public
proxy or consent solicitation made pursuant to, and in accordance with, the
applicable rules and regulations of the Exchange Act and (2) is not then
reportable on Schedule 13D under the Exchange Act (or any comparable or
successor report); or
(iii) which are beneficially owned, directly or indirectly, by any
other Person with which such Person or any of such Person's Affiliates or
Associates has any agreement, arrangement or understanding (whether or not
in writing and other than customary agreements with and between
underwriters and selling group members with respect to a bona fide public
offering of securities) for the purpose of acquiring, holding, voting
(except pursuant to a revocable proxy as described in the provision to
subparagraph (ii)(B) of this paragraph (f)) or disposing of any securities
of the Company.
Notwithstanding the foregoing, nothing contained in this definition of
Beneficial Ownership shall cause a Person ordinarily engaged in business as an
underwriter of securities to be the "Beneficial Owner" of, or to "beneficially
own," any securities acquired in a bona fide firm commitment underwriting
pursuant to an underwriting agreement with the Company.
(g) "Business Day" shall mean any day other than a Saturday, Sunday, or a
day on which banking institutions in the State of New York or the state in which
the principal office of the Rights Agent is located are authorized or obligated
by law or executive order to close.
(h) "Certification" shall mean the certification concerning beneficial
ownership appended to the Form of Assignment and Form of Election to Purchase
included as part of Exhibit B attached hereto.
(i) "close of business" on any given date shall mean 5:00 P.M., New York
City time, on such date; provided, however, that if such date is not a Business
Day it shall mean 5:00 P.M. New York City time on the next succeeding Business
Day.
(j) "Common Stock" when used with reference to the Company shall mean the
common stock, par value $0.01 per share, of the Company. "Common Stock" when
used with reference to any Person other than the Company shall mean the capital
stock (or equity interest) with the greatest voting power of such other Person
or, if such Person is a Subsidiary of another Person, the Person or Persons
which ultimately control such first-mentioned Person.
(k) "Company" shall mean Philips International Realty Corp., a Maryland
corporation.
(l) "Distribution" shall mean a dividend distribution of Rights authorized
by the Board of Directors of the Company.
3
<PAGE>
(m) "Distribution Date" shall have the meaning set forth in Section 3(a)
hereof.
(n) "Equivalent Preferred Stock" shall have the meaning set forth in
Section 11(b) hereof.
(o) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(p) "Exchange Ratio" shall have the meaning set forth in Section 24(a)
hereof .
(q) "Final Expiration Date" shall mean March 31, 2009.
(r) "Independent Director" shall mean any member of the Board of Directors
of the Company, while such person is a member of the Board, who is not an
Acquiring Person, or an Affiliate or Associate of an Acquiring Person, or a
representative or nominee of an Acquiring Person or of any such Affiliate or
Associate and either (i) was a member of the Board on the date hereof, or (ii)
was recommended or elected to succeed an Independent Director by a majority of
the Independent Directors.
(s) "Original Rights" shall have the meaning set forth in the definition of
"Beneficial Owner" above.
(t) "Person" shall mean any individual, firm, corporation, partnership or
other entity and shall include any successor (by merger or otherwise) of such
entity.
(u) "Preferred Stock" shall mean the shares of Series A Junior
Participating Preferred Stock, par value $0.01 per share, of the Company, having
the rights and preferences set forth in the Form of Articles Supplementary
attached hereto as Exhibit A.
(v) "Purchase Price" shall have the meaning set forth in Section 4 hereof.
(w) "Record Date" shall mean March 31, 1999.
(x) "Redemption Date" shall have the meaning set forth in Section 7(a)
hereof.
(y) "Redemption Price" shall have the meaning set forth in Section 23(a)
hereof.
(z) "Rights Agent" shall mean BankBoston, N.A., a Massachussetts
corporation.
(aa) "Right Certificate" shall have the meaning set forth in Section 3(a)
hereof.
(bb) "Rights Dividend Authorization Date" shall have the meaning set forth
in the recitals hereto.
4
<PAGE>
(cc) "Shares Acquisition Date" shall mean the first date of public
announcement (which, for purposes of this definition, includes a report filed
pursuant to Section 13(d) of the Exchange Act) by the Company or an Acquiring
Person that an Acquiring Person has become such.
(dd) "Subsidiary" shall mean, with reference to any Person, any corporation
or other entity of which a majority of the voting power of the voting equity
securities or equity interest is owned, directly or indirectly, by such Person.
(ee) "Summary of Rights" shall have the meaning set forth in Section 3(b)
hereof.
(ff) "Trading Day" shall have the meaning set forth in Section 11(d)(i)
hereof.
(gg) "Triggering Event" shall mean any event specified in Section 11(a)(ii)
or Section 13 hereof.
Section 2. Appointment of Rights Agent. The Company hereby appoints
the Rights Agent to act as agent for the Company and the holders of the Rights
(who, in accordance with Section 3 hereof, shall prior to the Distribution Date
also be the holders of the Common Stock) in accordance with the terms and
conditions hereof, and the Rights Agent hereby accepts such appointment. The
Company may from time to time appoint such other co-rights agents as it may deem
necessary or desirable upon ten days written notice to the Rights Agent. In no
event shall the Rights Agent have any duty to supervise or in any way be liable
for such co-rights agents.
Section 3. Issue of Right Certificates. (a) Until the earlier of (i) the
close of business on the tenth calendar day after the Shares Acquisition Date or
(ii) the close of business on the tenth calendar day (or such later date as may
be determined by action of the Board of Directors prior to such time as any
Person becomes an Acquiring Person) after the date of the commencement by, or
first public announcement of the intent of any Person (in each case other than
the Company, any Subsidiary of the Company, any employee benefit plan of the
Company or of any Subsidiary of the Company or any entity holding shares of
Common Stock of the Company for or pursuant to the terms of such plan) to
commence, a tender or exchange offer, the consummation of which would result in
any Person becoming an Acquiring Person (the earlier of the dates in subsections
(i) and (ii) hereof being herein referred to as the "Distribution Date"), (A)
the Rights will be evidenced (subject to the provisions of paragraph (b) of this
Section 3) by the certificates for the Common Stock registered in the names of
the holders thereof (which certificates also shall be deemed to be Right
Certificates) and not by separate Right Certificates, and (B) the right to
receive Right Certificates will be transferable only in connection with the
transfer of Common Stock. As soon as practicable after the Distribution Date,
the Company will prepare and execute and the Rights Agent will countersign, and
the Company will send or cause to be sent (and the Rights Agent will, if
requested, send) by first-class, postage pre-paid mail, to each record holder of
Common Stock as of the close of business on the Distribution Date, at the
address of such holder shown on the records of the Company, a Right certificate,
in substantially the form set forth in Exhibit B attached hereto (a "Right
Certificate"), representing one Right for
5
<PAGE>
each share of Common Stock so held, subject to adjustment as provided herein. As
of the Distribution Date, the Rights will be represented solely by such Right
Certificates.
(b) As soon as practicable following the Record Date, the Company will send
a copy of a Summary of Rights to Purchase Preferred Stock, in substantially the
form set forth in Exhibit C attached hereto (the "Summary of Rights"), by
first-class, postage pre-paid mail, to each record holder of Common Stock as of
the close of business on the Record Date, at the address of such holder shown on
the records of the Company. With respect to certificates for shares of Common
Stock outstanding as of the Record Date, until the Distribution Date, the Rights
will be represented by such certificates registered in the names of the holders
thereof, together with a copy of the Summary of Rights attached thereto. Until
the Distribution Date (or the earlier of the Redemption Date or the Final
Expiration Date), the surrender for transfer of any of the certificates for
Common Stock outstanding on the Record Date shall also constitute the transfer
of the Rights associated with the Common Stock represented by such certificate.
(c) Rights shall be issued in respect of all shares of Common Stock issued
after the Record Date but prior to the earlier of the Distribution Date, the
Redemption Date or the Final Expiration Date, or, in certain circumstances
provided in Section 22 hereof, after the Distribution Date. Certificates
representing such shares of Common Stock shall have impressed on, printed on,
written on or otherwise affixed to them the following legend:
"This certificate also evidences and entitles the holder hereof to certain
Rights as set forth in a Shareholder Rights Agreement between Philips
International Realty Corp. and BankBoston, N.A., dated as of March 31, 1999
(the "Rights Agreement"), the terms of which are hereby incorporated herein
by reference and a copy of which is on file at the principal executive
offices of Philips International Realty Corp.. Under certain circumstances
set forth in the Rights Agreement, such Rights will be evidenced by
separate certificates and will no longer be evidenced by this certificate.
Philips International Realty Corp. will mail to the holder of this
certificate a copy of the Rights Agreement as in effect on the date of
mailing without charge, after receipt of a written request therefor. Under
certain circumstances set forth in the Rights Agreement, Rights issued to
any Person who becomes an Acquiring Person (as defined in the Rights
Agreement) may become null and void."
After the due execution of any supplement or amendment to this Agreement in
accordance with the terms hereof, the reference to this Agreement in the
foregoing legend shall mean the Agreement as so supplemented or amended. Until
the Distribution Date, the Rights associated with the Common Stock represented
by certificates containing the foregoing legend shall be represented by such
certificates alone, and the surrender for transfer of any of such certificates
shall also constitute the transfer of the Rights associated with the Common
Stock represented thereby. In the event that the Company purchases or acquires
any shares of Common Stock after the Record Date but prior to the Distribution
Date, any Rights associated with such shares of Common Stock shall be deemed
canceled and retired so that the Company shall not be entitled to exercise any
Rights associated with the shares of Common Stock which are no longer
outstanding. The failure to print the foregoing legend on any such Common
Stock certificate or
6
<PAGE>
any other defect therein shall not affect in any manner whatsoever the
application or interpretation of the provisions of Section 7(e) hereof.
Section 4. Form of Right Certificates. The Right Certificates (and the
forms of election to purchase shares and of assignment to be printed on the
reverse thereof) shall be substantially as set forth in Exhibit B attached
hereto and may have such marks of identification or designation and such
legends, summaries or endorsements printed thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this Agreement,
or as may be required to comply with any applicable law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any stock
exchange on which the Rights may from time to time be listed, or to conform to
usage. Subject to the provisions of Section 11 and Section 22 hereof, the Right
Certificates, whenever distributed, shall entitle the holders thereof to
purchase such number of one one-thousandths of a share of Preferred Stock (or
following the occurrence of a Triggering Event, Common Stock) as shall be set
forth therein at the price per one one-thousandth of a share of Preferred Stock
set forth therein (the "Purchase Price"), but the number of such one
one-thousandths of a share of Preferred Stock and the Purchase Price shall be
subject to adjustment as provided herein.
Section 5. Countersignature and Registration. The Right Certificates shall
be executed on behalf of the Company by one of its authorized officers either
manually or by facsimile signature. The Right Certificates shall be
countersigned by an authorized signatory of the Rights Agent either manually or
by facsimile signature and shall not be valid for any purpose unless so
countersigned. In case any officer of the Company who shall have signed any of
the Right Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Right Certificates, nevertheless, may be countersigned by an authorized
signatory of the Rights Agent and issued and delivered by the Company with the
same force and effect as though the person who signed such Right Certificates
had not ceased to be such officer of the Company; and any Right Certificate may
be signed on behalf of the Company by any person who, at the actual date of the
execution of such Right Certificate, shall be a proper officer of the Company to
sign such Right Certificate, although at the date of the execution of this
Rights Agreement any such person was not such an officer.
In case any authorized signatory of the Rights Agent who shall have
countersigned any of the Right Certificates shall cease to be such signatory
before delivery by the Company, such Right Certificates, nevertheless, may be
issued and delivered by the Company with the same force and effect as though the
person who countersigned such Right Certificates had not ceased to be such
signatory; and any Right Certificate may be countersigned on behalf of the
Rights Agent by any person who, at the actual date of the countersignature of
such Right Certificate, shall be a proper signatory of the Rights Agent to
countersign such Right Certificate, although at the date of the execution of
this Rights Agreement any such person was not such a signatory.
Following the Distribution Date, the Rights Agent will keep or cause to be
kept, at its office designated for such purpose, books for registration and
transfer of the Right Certificates issued hereunder. Such books shall show the
names and addresses of the respective holders of the
7
<PAGE>
Right Certificates, the number of Rights represented on its face by each of the
Right Certificates, and the date of each of the Right Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates. Subject
to the provisions of Section 14 hereof, at any time after the close of business
on the Distribution Date, and at or prior to the close of business on the
earlier of the Redemption Date or the Final Expiration Date, any Right
Certificate or Right Certificates (other than Right Certificates representing
Rights that have become void pursuant to Section 11(a)(ii) hereof or that have
been exchanged pursuant to Section 24 hereof) may be transferred, split up,
combined or exchanged for another Right Certificate or Right Certificates,
entitling the registered holder to purchase a like number of one one-thousandths
of a share of Preferred Stock (or following the occurrence of a Triggering
Event, Common Stock) as the Right Certificate or Right Certificates surrendered
then entitled such holder to purchase. Any registered holder desiring to
transfer, split up, combine or exchange any Right Certificate or Right
Certificates shall make such request in writing delivered to the Rights Agent,
and shall surrender the Right Certificate or Right Certificates to be
transferred, split up, combined or exchanged at the office of the Rights Agent
designated for such purpose, along with a signature guarantee and such other and
further documentation as the Rights Agent may reasonably request. Neither the
Rights Agent nor the Company shall be obligated to take any action whatsoever
with respect to the transfer of any such surrendered Right Certificate until the
registered holder shall have completed and signed the certificate contained in
the form of assignment on the reverse side of such Right Certificate and shall
have provided such additional evidence, as the Company shall reasonably request,
of the identity of the Beneficial Owner, Affiliates or Associates thereof or of
the holder, or of any other Person with which such holder or any of such
holder's Affiliates or Associates has any agreement, arrangement or
understanding (whether or not in writing) for the purpose of acquiring, holding,
voting or disposing of securities of the Company. Thereupon the Rights Agent
shall countersign and deliver to the Person entitled thereto a Right Certificate
or Right Certificates, as the case may be, as so requested. The Company may
require payment from a Right Certificate holder of a sum sufficient to cover any
tax or governmental charge that may be imposed in connection with any transfer,
split up, combination or exchange of Right Certificates.
Upon receipt by the Company and the Rights Agent of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of a Right
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, along with a signature guarantee and
such other further documentation as the Rights Agent may reasonably request,
and, at the Company's request, reimbursement to the Company and the Rights Agent
of all reasonable expenses incidental thereto, and upon surrender to the Rights
Agent and cancellation of the Right Certificate if mutilated, the Company will
make and deliver a new Right Certificate of like tenor to the Rights Agent for
delivery to the registered owner in lieu of the Right Certificate so lost,
stolen, destroyed or mutilated .
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights.
(a) The registered holder of any Right Certificate may exercise the Rights
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evidenced thereby (except as otherwise provided herein) in whole or in part at
any time after the Distribution Date upon surrender of the Right Certificate,
with the form of election to purchase on the reverse side thereof duly executed,
to the Rights Agent at the designated office of the Rights Agent, together with
payment of the aggregate Purchase Price for the total number of one
one-thousandths of shares of Preferred Stock (or following the occurrence of a
Triggering Event, Common Stock) as to which the Rights are then being exercised,
at or prior to the earliest of (i) the close of business on March 31, 2009 (the
"Final Expiration Date"), (ii) the time at which the Rights are exchanged as
provided in Section 24 hereof, or (iii) the time at which the Rights are
redeemed as provided in Section 23 hereof (the "Redemption Date") .
(b) The Purchase Price for each one one-thousandth of a share of
Preferred Stock purchasable pursuant to the exercise of a Right shall initially
be $55.00, shall be subject to adjustment from time to time as provided in
Sections 11 and 13 hereof and shall be payable in accordance with paragraph (c)
below.
(c) Upon receipt of a Right Certificate representing exercisable
Rights, with the form of election to purchase duly executed, accompanied by
payment of the Purchase Price for the number of one one-thousandths of shares of
Preferred Stock (or following the occurrence of a Triggering Event, Common
Stock) to be purchased and an amount equal to any applicable transfer tax
required to be paid, the Rights Agent shall thereupon promptly (i) requisition
from any transfer agent of Preferred Stock certificates representing the number
of one one-thousandths of a share of Preferred Stock to be purchased, and the
Company hereby irrevocably authorizes its transfer agent to comply with all such
requests; (ii) if the Company shall have elected to deposit the total number of
shares of Preferred Stock issuable upon exercise of the Rights hereunder with a
depositary agent, requisition from the depositary agent depositary receipts
representing such number of one one-thousandths of a share of Preferred Stock as
are to be purchased (in which case certificates for the shares of Preferred
Stock represented by such receipts shall be deposited by the transfer agent with
the depositary agent), and the Company hereby directs the depositary agent to
comply with such request; (iii) when appropriate, requisition from any transfer
agent of the Common Stock of the Company certificates for the total number of
shares of Common Stock to be paid in accordance with Sections 11(a)(ii) and
11(a)(iii); (iv) when appropriate, requisition from the Company the amount of
cash to be paid in lieu of issuance of fractional shares in accordance with
Section 14 hereof; (v) promptly after receipt of such certificates or depositary
receipts, cause the same to be delivered to or upon the order of the registered
holder of such Right Certificate, registered in such name or names as may be
designated by such holder; and (vi) when appropriate, after receipt, promptly
deliver such cash to or upon the order of the registered holder of such Right
Certificate. The payment of the Purchase Price may be made in cash or by
certified bank check, bank draft or money order payable to the order of the
Company.
(d) In case the registered holder of any Right Certificate shall exercise
less than all the Rights represented thereby, a new Right Certificate
representing Rights equivalent to the Rights remaining unexercised shall be
issued by the Rights Agent to the registered holder of such Right Certificate or
to his duly authorized assigns, subject to the provisions of Section 14 hereof.
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(e) Notwithstanding anything in this Agreement to the contrary, from and
after the first occurrence of an event specified in Section 11(a)(ii) hereof,
any Rights beneficially owned by (i) an Acquiring Person or any Associate or
Affiliate of an Acquiring Person; (ii) a transferee of an Acquiring Person (or
of any such Associate or Affiliate) who becomes a transferee after the Acquiring
Person became such; or (iii) a transferee of an Acquiring Person (or of any such
Associate or Affiliate) who becomes a transferee prior to or concurrently with
the Acquiring Person becoming such and receives such Rights pursuant to either
(A) a transfer (whether or not for consideration) from the Acquiring Person to
holders of equity interests in such Acquiring Person or to any Person with whom
the Acquiring Person has any continuing agreement, arrangement or understanding
(whether or not in writing) regarding the transferred Rights or (B) a transfer
which the Board of Directors of the Company has determined is a part of a plan,
arrangement or understanding (whether or not in writing) which has as a primary
purpose or effect the avoidance of this Section 7(e), shall become null and void
without any further action, and no holder of such Rights shall have any rights
whatsoever with respect to such Rights, whether under any provision of this
Agreement or otherwise. The Company shall use all reasonable efforts to insure
that the provisions of this Section 7(e) are complied with, but shall have no
liability to any holder of Right Certificates or other Person as a result of its
failure to make any determinations with respect to an Acquiring Person or its
Affiliates, Associates or transferees hereunder.
(f) Notwithstanding anything in this Agreement to the contrary, neither the
Rights Agent nor the Company shall be obligated to undertake any action with
respect to a registered holder upon the occurrence of any purported exercise as
set forth in this Section 7 unless such registered holder shall have (i)
completed and signed the certificate contained in the form of election to
purchase set forth on the reverse side of the Right Certificate surrendered for
such exercise; and (ii) provided such additional evidence of the identity of the
Beneficial Owner, Affiliates or Associates thereof or of the holder, or of any
other Person with which such holder or any of such holder's Affiliates or
Associates has any agreement, arrangement or understanding (whether or not in
writing) for the purpose of acquiring, holding, voting or disposing of any
securities of the Company as the Company shall reasonably request.
Section 8. Cancellation and Destruction of Right Certificates. All
Right Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in canceled form,
or, if surrendered to the Rights Agent, shall be canceled by it, and no Right
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Agreement. The Company shall deliver to the Rights
Agent for cancellation and retirement, and the Rights Agent shall so cancel and
retire, any other Right Certificate purchased or acquired by the Company
otherwise than upon the exercise thereof. The Rights Agent shall deliver all
canceled Right Certificates to the Company or shall, at the written request of
the Company, destroy such canceled Right Certificates, and in such case shall
deliver a certificate of destruction thereof to the Company.
Section 9. Reservation and Availability of Shares of Stock. (a) The Company
covenants and agrees that it will cause to be reserved and kept available out of
its authorized and
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unissued shares of Preferred Stock (or following the occurrence of a Triggering
Event, Common Stock) or any shares of Preferred Stock (or following the
occurrence of a Triggering Event, Common Stock), the number of shares of
Preferred Stock (or following the occurrence of a Triggering Event, Common
Stock) that will be sufficient to permit the exercise in full of all outstanding
Rights (it being understood that any of the foregoing shares or securities may
also be reserved for other purposes) or will take such other steps as are
appropriate to assure that the number of such shares sufficient to permit the
exercise in full of all outstanding Rights will be available upon such exercise.
(b) So long as the shares of Preferred Stock (and, following the occurrence
of an event specified in Sections 11(a)(ii) or Section 13 hereof, Common Stock)
and/or other securities issuable upon the exercise of Rights may be listed on
any national securities exchange, the Company shall use its best efforts to
cause, from and after such time as the Rights become exercisable (but only to
the extent that it is reasonably likely that the Rights will be exercised), all
shares reserved for such issuance to be listed on such exchange upon official
notice of issuance upon such exercise.
(c) The Company shall use its best efforts (i) (A) to file, as soon as
practicable following the first occurrence of an event specified in Section
11(a)(ii) hereof, or as soon as required by law, as the case may be, a
registration statement under the Act, with respect to the securities purchasable
upon exercise of the Rights on an appropriate form, (B) to cause such
registration statement to become effective as soon as practicable after such
filing, and (C) to cause such registration statement to remain effective (with a
prospectus at all times meeting the requirements of the Act) until the earlier
of (i) the date as of which the Rights are no longer exercisable for such
securities, and (ii) the Expiration Date; and (ii) to (A) file appropriate
applications with any state or federal regulatory bodies having jurisdiction
over the issuance of the securities (or assets) purchasable upon exercise of the
Rights in order to obtain any approvals or orders of such bodies as may be
legally required, (B) cause such approvals to be obtained or orders to be issued
as soon as practicable after such filing and (C) cause such approvals or orders
to remain effective until the earlier of (1) the date as of which the Rights are
no longer exercisable for such securities (or assets), and (2) the Expiration
Date, to the extent not previously obtained. The Company also will take such
action as may be appropriate under the blue sky laws of the various states. The
Company may temporarily suspend, (i) for a period of time not to exceed ninety
(90) days after the date set forth in clause (i)(A) of the first sentence of
this Section 9(c), the exercisability of the Rights in order to prepare and file
such registration statement and permit it to become effective and (ii) for a
period of time not in excess of 180 days after such date (or for such longer
period as is required by any applicable law, rule or regulation of any
appropriate regulatory bodies ), the exercisability of the Rights in order to
obtain any such required regulatory body approvals or orders. Upon any such
suspension, the Company shall issue a public announcement and shall give
simultaneous written notice to the Rights Agent stating that the exercisabi1ity
of the Rights has been temporarily suspended, as well as a public announcement
and notice to the Rights Agent at such time as the suspension is no longer in
effect. Notwithstanding any provision of this Agreement to the contrary, the
Rights shall not be exercisable in any jurisdiction unless the requisite
qualifications in such jurisdiction shall have been obtained.
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(d) The Company covenants and agrees that it will take all such action as
may be necessary to ensure that all shares of the Preferred Stock (or following
the occurrence of a Triggering Event, Common Stock) delivered upon exercise of
Rights shall, at the time of delivery of the certificates for such shares
(subject to payment of the Purchase Price), be duly and validly authorized and
issued and fully paid and nonassessable.
(e) The Company further covenants and agrees that it will pay when due and
payable any and all federal and state transfer taxes and charges which may be
payable in respect of the issuance or delivery of the Right Certificates or of
any shares of the Preferred Stock (or following the occurrence of a Triggering
Event, Common Stock) upon the exercise of Rights. The Company shall not,
however, be required (i) to pay any transfer tax which may be payable in respect
of any transfer or delivery of Right Certificates to a person other than, or the
issuance or delivery of certificates for the Preferred Stock (or following the
occurrence of a Triggering Event, Common Stock) in a name other than that of,
the registered holder of the Right Certificate representing Rights surrendered
for exercise or (ii) to issue or deliver any certificates for shares of the
Preferred Stock (or following the occurrence of a Triggering Event, Common
Stock) upon the exercise of any Rights until any such tax shall have been paid
(any such tax being payable by the holder of such Right Certificate at the time
of surrender) or until it has been established to the Company's satisfaction
that no such tax is due.
Section 10. Preferred Stock Record Date. Each person in whose name any
certificate for any number of shares of Preferred Stock (or following the
occurrence of a Triggering Event, Common Stock) is issued upon the exercise of
Rights shall for all purposes be deemed to have become the holder of record of
the shares of Preferred Stock (or following the occurrence of a Triggering
Event, Common Stock) represented thereby on, and such certificate shall be
dated, the date upon which the Right Certificate representing such Rights was
duly surrendered and payment of the Purchase Price (and any applicable transfer
taxes) was made; provided, however, that if the date of such surrender and
payment is a date upon which the Preferred Stock (or Common Stock) transfer
books of the Company are closed, such person shall be deemed to have become the
record holder of such shares on, and such certificate shall be dated, the next
succeeding Business Day on which the Preferred Stock (or Common Stock) transfer
books of the Company are open. Prior to the exercise of the Rights represented
thereby, the holder of a Right Certificate shall not be entitled to any rights
of a stockholder of the Company with respect to shares for which the Rights
shall be exercisable, including, without limitation, the right to vote, to
receive dividends or other distributions or to exercise any preemptive rights,
and shall not be entitled to receive any notice of any proceedings of the
Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number of Shares or Number of
Rights. The Purchase Price, the number of one one-thousandths of a share of
Preferred Stock covered by each Right and the number of Rights outstanding are
subject to adjustment from time to time as provided in this Section 11.
(a) (i) In the event the Company shall at any time after the date of this
Agreement (A) authorize a dividend on the Preferred Stock payable in shares of
the Preferred
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Stock, (B) subdivide the outstanding Preferred Stock, (C) combine the
outstanding Preferred Stock into a smaller number of shares or (D) issue any
shares of its stock in a reclassification of the Preferred Stock (including any
such reclassification in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation), except as otherwise
provided in this Section 11(a) and Section 7(e) hereof, the Purchase Price in
effect at the time of the record date for such dividend or of the effective date
of such subdivision, combination or reclassification, and the number and kind of
shares of Preferred Stock or stock, as the case may be, issuable on such date,
shall be proportionately adjusted so that the holder of any Right exercised
after such time shall be entitled to receive upon payment of the Purchase Price
then in effect the aggregate number and kind of shares of stock which, if such
Right had been exercised immediately prior to such date and at a time when the
Preferred Stock (or Common Stock) transfer books of the Company were open, he or
she would have owned upon such exercise and been entitled to receive by virtue
of such dividend, subdivision, combination or reclassification. If an event
occurs which would require an adjustment under both this Section 11(a)(i) and
Section 11(a)(ii), the adjustment provided for in this Section 11(a)(i) shall be
in addition to, and shall be made prior to, any adjustment required pursuant to
Section 11(a)(ii).
(ii) Subject to Section 24 of this Agreement, in the event any Person
becomes an Acquiring Person, each holder of a Right shall thereafter have a
right to receive, upon exercise thereof at a price equal to the then current
Purchase Price multiplied by the number of one one-thousandths of a share of
Preferred Stock for which such Right is then exercisable, in accordance with the
terms of this Agreement and in lieu of shares of Preferred Stock, such number of
shares of the Common Stock of the Company as shall equal the result obtained by
(1) multiplying the then current Purchase Price by the number of one
one-thousandths of a share of Preferred Stock for which a Right is then
exercisable and dividing that product by (2) 50% of the then current per share
market price of the Common Stock of the Company (determined pursuant to Section
11(d) hereof) on the date of the occurrence of such event (such number of shares
are hereinafter referred to as the "Adjustment Shares").
From and after the occurrence of such event, any Rights that are or were
acquired or beneficially owned by any Acquiring Person (or any Associate or
Affiliate of such Acquiring Person) shall be void, and any holder of such Rights
shall thereafter have no right to exercise such Rights under any provision of
this Agreement. No Right Certificate shall be issued pursuant to Section 3
hereof that represents Rights beneficially owned by an Acquiring Person whose
rights would be void pursuant to the preceding sentence or any Associate or
Affiliate thereof; No Right Certificate shall be issued at any time upon the
transfer of any Rights to an Acquiring Person whose Rights would be void
pursuant to the preceding sentence or any Associate or Affiliate thereof or to
any nominee of such Acquiring Person, Associate or Affiliate; Any Right
Certificate delivered to the Rights Agent for transfer to an Acquiring Person
whose Rights would be void pursuant to the preceding sentence shall be canceled.
(iii) In the event that the number of shares of Common Stock which are
authorized by the Company's charter but not outstanding or reserved for issuance
for purposes other than upon exercise of the Rights are not sufficient to permit
the exercise in full of the Rights in accordance with the foregoing subparagraph
(ii), the Company shall take all such action
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as may be necessary to authorize additional shares of Common Stock for issuance
upon exercise of the Rights, and the Company may, in the discretion of the Board
of Directors of the Company, and shall, in the event the Company shall be unable
to take all such action as may be necessary to authorize such additional shares
of Common Stock, substitute, for each share of Common Stock that would otherwise
be issuable upon exercise of a Right, a number of shares of Preferred Stock or
fraction thereof such that the current per share market price of one share of
Preferred Stock multiplied by such number or fraction is equal to the current
per share market price of one share of Common Stock as of the date of issuance
of such share of Preferred Stock or fraction thereof.
(b) In case the Company shall fix a record date for the issuance of rights,
options or warrants to all holders of Preferred Stock entitling them (for a
period expiring within 45 calendar days after such record date) to subscribe for
or purchase Preferred Stock (or securities having substantially the same rights,
privileges and preferences as the shares of Preferred Stock ("Equivalent
Preferred Stock")) or securities convertible into Preferred Stock or Equivalent
Preferred Stock at a price per share of Preferred Stock or Equivalent Preferred
Stock (or having a conversion price per share, if a security convertible into
Preferred Stock or Equivalent Preferred Stock) less than the then current per
share market price of the Preferred Stock or Equivalent Preferred Stock, as the
case may be, on such record date, the Purchase Price to be in effect after such
record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the number of shares of Preferred Stock outstanding on such record date
plus the number of shares of Preferred Stock or Equivalent Preferred Stock which
the aggregate offering price of the total number of shares of Preferred Stock
and/or Equivalent Preferred Stock so to be offered (and/or the aggregate initial
conversion price of the convertible securities so to be offered) would purchase
at such current market price and the denominator of which shall be the number of
shares of Preferred Stock outstanding on such record date plus the number of
additional shares of Preferred Stock and/or Equivalent Preferred Stock to be
offered for subscription or purchase (or into which the convertible securities
so to be offered are initially convertible); provided, however, that in no event
shall the consideration to be paid upon the exercise of one Right be less than
the aggregate par value of the shares of stock of the Company issuable upon
exercise of one Right. In case such subscription price may be paid by delivery
of consideration part or all of which shall be in a form other than cash, the
value of such consideration shall be as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a statement
filed with the Rights Agent and shall be binding on the Rights Agent and the
holders of the Rights. Shares of Preferred Stock owned by or held for the
account of the Company shall not be deemed outstanding for the purpose of any
such computation. Such adjustment shall be made successively whenever such a
record date is fixed; and in the event that such rights, options or warrants are
not so issued, the Purchase Price shall be adjusted to be the Purchase Price
which would then be in effect if such record date had not been fixed.
(c) In case the Company shall fix a record date for the making of a
distribution to all holders of Preferred Stock (including any such distribution
made in connection with a consolidation or merger in which the Company is the
continuing or surviving corporation) of evidences of indebtedness or assets
(other than a regular quarterly cash dividend or a dividend payable in Preferred
Stock) or subscription rights or warrants (excluding those referred to in
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Section 11 (b) hereof), the Purchase Price to be in effect after such record
date shall be determined by multiplying the Purchase Price in effect immediately
prior to such record date by a fraction, the numerator of which shall be the
then current per share market price of the Preferred Stock on such record date,
less the fair market value (as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a statement
filed with the Rights Agent) of the portion of the assets or evidences of
indebtedness so to be distributed or of such subscription rights or warrants
applicable to one share of Preferred Stock and the denominator of which shall be
such current per share market price of the Preferred Stock; provided, however,
that in no event shall the consideration to be paid upon the exercise of one
Right be less than the aggregate par value of the shares of capital stock to the
Company to be issued upon exercise of one Right. Such adjustments shall be made
successively whenever such a record date is fixed; and in the event that such
distribution is not so made, the Purchase Price shall again be adjusted to be
the Purchase Price which would then be in effect if such record date had not
been fixed.
(d) (i) For the purpose of any computation hereunder, the "current per
share market price" of any security (a "Security" for the purpose of this
Section 11(d)(i)) on any date shall be deemed to be the average of the daily
closing prices per share of such Security for the 30 consecutive Trading Days
(as such term is hereinafter defined) immediately prior to such date; provided,
however, that in the event that the current per share market price of the
Security is determined during the period following the announcement by the
issuer of such Security of (A) a dividend or distribution on such Security
payable in shares of such Security or securities convertible into such shares or
(B) any subdivision, combination or reclassification of such Security, and prior
to the expiration of the requisite 30 Trading Day period, after the ex-dividend
date for such dividend or distribution, or the record date for such subdivision,
combination or reclassification, then, and in each such case, the current per
share market price shall be appropriately adjusted to reflect the current per
share market price equivalent of such Security. The closing price for each day
shall be 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, 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 Security is not 1isted 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 Security is listed or admitted to trading or,
if the Security 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 Quotation System
("NASDAQ") or such other system then in use, or, if on any such date the
Security is not quoted by such organization, the average of the closing bid and
asked prices as furnished by a professional market maker making a market in the
Security selected by the Board of Directors of the Company. If on any such date
no market maker is making a market in the Common Stock, the fair value of such
shares on such date shall be as determined in good faith by the Independent
Directors if the Independent Directors constitute a majority of the Board of
Directors or, in the event the Independent Directors do not constitute a
majority of the Board of Directors, by an independent investment banking firm
selected by the Board of Directors, whose determination
15
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shall be described in a statement filed with the Rights Agent and shall be
conclusive for all purposes. The term "Trading Day" shall mean a day on which
the principal national securities exchange on which the Security is listed or
admitted to trading is open for the transaction of business or, if the Security
is not listed or admitted to trading on any national securities exchange, a
Business Day.
(ii) For the purpose of any computation hereunder, the "current per
share market price" of the Preferred Stock shall be determined in accordance
with the method set forth in Section 11(d)(i). If the Preferred Stock is not
publicly held or listed or traded in any manner described in clause (i) of this
Section 11(d), the "current per share market price" of the Preferred Stock shall
be conclusively deemed to be the current per share market price of the Common
Stock as determined pursuant to Section 11(d)(i), multiplied by 1,000. If
neither the Common Stock nor the Preferred Stock is publicly held or so listed
or traded, "current per share market price" of the Preferred Stock shall mean
the fair value per share as determined in good faith by the Board of Directors
of the Company, whose determination shall be described in a statement filed with
the Rights Agent and shall be conclusive for all purposes. For all purposes of
this Agreement, the "current per share market price" of one one-thousandths of a
share of Preferred Stock shall be equal to the "current per share market price "
of one share of Preferred Stock divided by 1,000.
(e) Anything herein to the contrary notwithstanding, no adjustment in the
Purchase Price shall be required unless such adjustment would require an
increase or decrease of at least 1% in the Purchase Price; provided, however,
that any adjustments which by reason of this Section 11(e) are not required to
be made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Section 11 shall be made to the nearest
cent or to the nearest one one-millionth of a share of Preferred Stock or one
ten-thousandth of a share of Common Stock, as the case may be. Notwithstanding
the first sentence of this Section 11(e), any adjustment required by this
Section 11 shall be made no later than the earlier of (i) three years from the
date of the transaction which mandates such adjustment or (ii) the Final
Expiration Date.
(f) If, as a result of an adjustment made pursuant to Section 11(a) hereof,
the holder of any Right thereafter exercised shall become entitled to receive
any shares of stock of the Company other than shares of Preferred Stock,
thereafter the number of such other shares so receivable upon exercise of any
Right and the Purchase Price thereof shall be subject to adjustment from time to
time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the shares contained in Section 11(a) through (c),
inclusive, and the provisions of Sections 7, 9, 10 and 13 with respect to the
Preferred Stock shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder share evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-thousandths of a
share of Preferred Stock purchasable from time to time hereunder upon exercise
of the Rights, all subject to further adjustment as provided herein.
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(h) Unless the Company shall have exercised its election as provided in
Section 11(i), upon each adjustment of the Purchase Price as a result of the
calculations made in Section 11(b) and (c), each Right outstanding immediately
prior to the making of such adjustment shall thereafter evidence the right to
purchase, at the adjusted Purchase Price, that number of shares (calculated to
the nearest one one-millionth) obtained by (i) multiplying (A) the number of
shares of Preferred Stock covered by a Right immediately prior to such
adjustment by (B) the Purchase Price in effect immediately prior to such
adjustment of the Purchase Price and (ii) dividing the product so obtained by
the Purchase Price in effect immediately after such adjustment of the Purchase
Price.
(i) The Company may elect on or after the date of any adjustment of the
Purchase Price to adjust the number of Rights, in substitution for any
adjustment in the number of shares of Preferred Stock purchasable upon the
exercise of a Right. Each of the Rights outstanding after such adjustment of the
number of Rights shall be exercisable for the number of shares of Preferred
Stock for which a Right was exercisable immediately prior to such adjustment.
Each Right held of record prior to such adjustment of the number of Rights shall
become that number of Rights (calculated to the nearest one ten-thousandth)
obtained by dividing the Purchase Price in effect immediately prior to
adjustment of the Purchase Price by the Purchase Price in effect immediately
after the adjustment of the Purchase Price. The Company shall make a public
announcement (and shall give simultaneous written notice to the Rights Agent) of
its election to adjust the number of Rights, indicating the record date for the
adjustment to be made. This record date may be the date on which the Purchase
Price is adjusted or any day thereafter, but, if the Right Certificates have
been issued, shall be at least 10 days later than the date of the public
announcement. If Right Certificates have been issued, upon each adjustment of
the number of Rights pursuant to this Section 11(i), the Company shall, as
promptly as practicable, cause to be distributed to holders of Right
Certificates on such record date Right Certificates representing, subject to
Section 14 hereof, the additional Rights to which such holders shall be entitled
as a result of such adjustment, or, at the option of the Company, shall cause to
be distributed to such holders of record in substitution and replacement for the
Right Certificates held by such holders prior to the date of adjustment, and
upon surrender thereof, if required by the Company, new Right Certificates
representing all the Rights to which such holders shall be entitled after such
adjustment. Right Certificates so to be distributed shall be issued, executed
and countersigned in the manner provided for herein and shall be registered in
the names of the holders of record of Right Certificates on the record date
specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or the
number of shares of Preferred Stock issuable upon the exercise of the Rights,
the Right Certificates theretofore and thereafter issued may continue to express
the Purchase Price per share and the number of shares of Preferred Stock which
were expressed in the initial Right Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment reducing the
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Purchase Price below one one-thousandth of the then par value, if any, of a
share of Preferred Stock issuable upon exercise of the Rights, the Company shall
take any corporate action which may, in the opinion of its counsel, be necessary
in order that the Company may validly and legally issue fully paid and
nonassessable shares of Preferred Stock at such adjusted Purchase Price.
(1) In any case in which this Section 11 shall require that an adjustment
in the Purchase Price be made effective as of a record date for a specified
event, the Company may elect to defer until the occurrence of such event the
issuance to the holder of any Right exercised after such record date the shares
of Preferred Stock and other stock or securities of the Company, if any issuable
upon such exercise over and above the shares of Preferred Stock and other stock
or securities of the Company, if any, issuable upon such exercise on the basis
of the Purchase Price in effect prior to such adjustment; provided, however,
that the Company shall deliver to such holder a due bill or other appropriate
instrument evidencing such holder's right to receive such additional shares upon
the occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that the Board of Directors of the Company, in its sole discretion,
shall determine to be advisable in order that any consolidation or subdivision
of shares of Preferred Stock, issuance wholly for cash of any of shares of
Preferred Stock at less than the current per share market price, issuance wholly
for cash of the Preferred Stock or securities which by their terms are
convertible into or exchangeable for Preferred Stock, dividends on Preferred
Stock payable in shares of Preferred Stock or issuance of rights, options or
warrants referred to hereinabove in Section 11(b), hereafter made by the Company
to holders of its Preferred Stock shall not be taxable to such stockholders.
(n) The Company covenants and agrees that, after the Distribution Date, it
will not, except as permitted by Sections 23, 24 and 27 hereof, take (nor will
it permit any of its Subsidiaries to take) any action if at the time such action
is taken it is reasonably foreseeable that such action will diminish
substantially or otherwise eliminate the benefits intended to be afforded by the
Rights .
(o) The Company covenants and agrees that it shall not, at any time after
the Distribution Date, (i) consolidate with any other Person (other than a
Subsidiary of the Company in a transaction which complies with Section 11(n)),
(ii) merge with or into any other Person (other than a Subsidiary of the Company
in a transaction which complies with Section 11(n)), or (iii) sell or transfer
(or permit any of its Subsidiaries to sell or transfer), in one or more
transactions, assets or earning power aggregating more than 50% of the assets or
earning power of the Company and its Subsidiaries (taken as a whole) to, any
other Person or Persons (other than the Company and/or any of its Subsidiaries
in one or more transactions each of which complies with Section 11(n)) if (x) at
the time of or immediately after such consolidation, merger or sale there are
any rights, warrants or other instruments or securities outstanding or
agreements in effect which would substantially diminish or otherwise eliminate
the benefits intended to be afforded by the Rights or (y) prior to,
simultaneously with or immediately after such
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consolidation, merger or sale, the stockholders of the Person specified in
Section 13(a) hereof shall have received a distribution of Rights previously
owned by such Person or any of its Affiliates and Associates.
(p) Anything in this Agreement to the contrary notwithstanding, in the
event that the Company shall at any time after the Record Date and prior to the
Distribution Date (i) authorize a dividend on the outstanding shares of Common
Stock payable in shares of Common Stock or (ii) effect a subdivision,
combination or consolidation of the outstanding shares of Common Stock into a
greater or lesser number of shares of Common Stock, then in any such case (A)
the number of one one-thousandths of a share of Preferred Stock purchasable
after such event upon proper exercise of each Right shall be determined by
multiplying the number of one one-thousandths of a Preferred Share so
purchasable immediately prior to such event by a fraction, the numerator of
which is the number of shares of Common Stock outstanding immediately prior to
such event and the denominator of which is the number of shares of Common Stock
outstanding immediately after such event, and (B) each share of Common Stock
outstanding immediately after such event shall have issued with respect to it
that number of Rights which each share of Common Stock outstanding immediately
prior to such event had issued with respect to it. The adjustments provided for
in this Section 11(p) shall be made successively whenever such a dividend is
authorized, declared or paid or such a subdivision, combination or consolidation
is effected.
(q) Notwithstanding anything in this Agreement to the contrary, prior to
the Distribution Date, the Company may, in lieu of making any adjustment to the
Purchase Price, the number of shares of Preferred Stock eligible for purchase on
exercise of each Right or the number of Rights outstanding, which adjustment
would otherwise be required by Section 11(a)(1), 11(b), 11(c), 11(h) or 11(i),
make such other equitable adjustment or adjustments thereto as the Board of
Directors (whose determination shall be conclusive) deems appropriate in the
circumstances and not inconsistent with the objectives of the Board of Directors
in adopting this Agreement and such Sections.
Section 12. Certificate of Adjusted Purchase Price or Number of Shares.
Whenever an adjustment is made as provided in Sections 11 or 13 hereof the
Company shall promptly (a) prepare a certificate setting forth such adjustment,
and a brief statement of the facts accounting for such adjustment, (b) file with
the Rights Agent and with each transfer agent for the Preferred Stock and the
Common Stock a copy of such certificate and (c) mail a brief summary thereof to
each holder of a Right Certificate in accordance with Section 26 hereof. The
Rights Agent shall be fully protected in relying on any such certificate and on
any adjustment therein contained, and shall not be obligated or responsible for
calculating any adjustment, nor shall it be deemed to have knowledge of such an
adjustment unless and until it shall have received such certificate.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning
Power. In the event that, following the Shares Acquisition Date, directly or
indirectly, (a) the Company shall consolidate with, or merge with and into, any
other Person and the Company shall not be the continuing or surviving
corporation of such consolidation or merger, (b) any Person shall consolidate
with, or merge with and into the Company and the Company shall be the continuing
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or surviving corporation of such consolidation or merger and, in connection with
such consolidation or merger, all or part of the Common Stock shall be changed
into or exchanged for stock or other securities of any other Person (or the
Company) or cash or any other property, or (c) the Company shall sell or
otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise
transfer), in one or more transactions, assets or earning power aggregating 50%
or more of the assets or earning power of the Company and its Subsidiaries
(taken as a whole) to any other Person or Persons (other than the Company or any
of its wholly-owned Subsidiaries, then, and in each such case proper provision
shall be made so that (i) each holder of a Right (except as otherwise provided
herein) shall thereafter have the right to receive, upon the exercise thereof at
the then current Purchase Price in accordance with the terms of this Agreement,
such number of validly issued, fully paid, non-assessable and freely tradable
shares of common stock of such other Person (including the Company as successor
thereto or as the surviving corporation) as shall be equal to the result
obtained by (A) multiplying the then current Purchase Price by the number of one
one-thousandths of a share of Preferred Stock for which a Right is then
exercisable by (B) 50% of the then current per share market price of the common
stock of such other Person (determined pursuant to Section 11(d) hereof) on the
date of consummation of such consolidation, merger, sale or transfer; (ii) the
issuer of such common stock shall thereafter be liable for, and shall assume, by
virtue of such consolidation, merger, sale or transfer, all the obligations and
duties of the Company pursuant to this Agreement; (iii) the term "Company" shall
thereafter be deemed to refer to such issuer; and (iv) such issuer shall take
such steps (including, but not limited to, the reservation of a sufficient
number of shares of its common stock in accordance with Section 9 hereof) in
connection with such consummation as may be necessary to assure that the
provisions hereof shall thereafter be applicable, as nearly as reasonably may
be, in relation to the shares of its common stock thereafter deliverable upon
the exercise of the Rights.
(b) The Company shall not consummate any such consolidation, merger, sale
or transfer unless prior thereto the Company and such issuer shall have executed
and delivered to the Rights Agent a supplemental agreement so providing.
The Company shall not enter into any transaction of the type referred to in
this Section 13 if at the time of such transaction there are any rights,
warrants, instruments or securities outstanding or any agreements or
arrangements which, as a result of the consummation of such transaction, would
eliminate or substantially diminish the benefits intended to be afforded by the
Rights. The provisions of this Section 13 shall similarly apply to successive
consolidations, mergers, sales or other transfers.
Section 14. Fractional Rights and Fractional Shares. (a) The Company shall
not be required to issue fractions of Rights or to distribute Right Certificates
which represent fractional Rights. In lieu of such fractional Rights, the
Company shall pay to the registered holders of the Right Certificates with
regard to which such fractional Rights would otherwise be issuable an amount in
cash equal to the same fraction of the current market value of a whole Right.
For the purposes of this Section 14(a), the current market value of a whole
Right shall be the closing price of the Rights for the Trading Day immediately
prior to the date on which such fractional Rights would have been otherwise
issuable. The closing price for any day shall be the last sale
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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, 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 Rights are 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 Rights are listed or admitted to trading or, if the Rights are 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 NASDAQ or such other
system then in use or, if on any such date the Rights are 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 Rights selected by the Board of
Directors of the Company. If on any such date no such market maker is making a
market in the Rights, the fair value of the Rights on such date as determined in
good faith by the Board of Directors of the Company shall be used.
(b) The Company shall not be required to issue fractions of shares of
Preferred Stock (other than fractions which are integral multiples of one
one-thousandth of a share of Preferred Stock) upon exercise of the Rights or to
distribute certificates which represent fractional shares of Preferred Stock
(other than fractions which are integral multiples of one one-thousandth of a
share of Preferred Stock). In lieu of fractional shares of Preferred Stock that
are not integral multiples of one one-thousandth of a share of Preferred Stock,
the Company shall pay to the registered holders of Right Certificates at the
time the Rights represented thereby are exercised as herein provided an amount
in cash equal the same fraction of the current market value of one
one-thousandth of a share of Preferred Stock. For purposes of this Section
14(b), the current market value one one-thousandth of a share of Preferred Stock
shall be one one-thousandth of the closing price of a share of Preferred Stock
(as determined pursuant to Section 11(d)(ii) hereof) for the Trading Day
immediately prior to the date of such exercise.
(c) The holder of a Right by the acceptance of the Right expressly waives
his right to receive any fractional Rights or any fractional shares upon
exercise of a Right, except as otherwise provided by this Section 14.
Section 15. Rights of Action. All rights of action in respect of this
Agreement, except for the rights of action given to the Rights Agent pursuant to
Section 18 hereof, are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Stock); and any registered holder of any Right Certificate (or, prior to
the Distribution Date, of the Common Stock), without the consent of the Rights
Agent or of the holder of any other Right Certificate (or, prior to the
Distribution Date, of the Common Stock), may, in his own behalf and for his own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Company to enforce, or otherwise act in respect of, his right to
exercise the Rights represented by such Right Certificate in the manner provided
in such Right Certificate and in this Agreement. Without limiting the foregoing
or any remedies available to the holders of Rights, it is specifically
acknowledged that the holders of Rights would not have an adequate remedy at law
for any breach of this Agreement and will be entitled to specific performance of
the obligations hereunder and injunctive relief against actual or threatened
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violations of the obligations hereunder of any Person subject to this Agreement.
Section 16. Agreement of Right Holders. Every holder of a Right, by
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable only in
connection with the transfer of the shares of Common Stock;
(b) after the Distribution Date, the Right Certificates are transferable
only on the registry books of the Rights Agent if surrendered at the office of
the Rights Agent designated for such purpose, duly endorsed and accompanied by a
proper instrument of transfer, along with a signature guarantee and such other
and further documentation as the Rights Agent may reasonably request;
(c) the Company and the Rights Agent may deem and treat the Person in whose
name the Right Certificate (or, prior to the Distribution Date, the associated
Common Stock certificate) is registered as the absolute owner thereof and of the
Rights represented thereby (notwithstanding any notations of ownership or
writing on the Right Certificates or the associated Common Stock certificate
made by anyone other than the Company or the Rights Agent) for all purposes
whatsoever, and neither the Company nor the Rights Agent shall be affected by
any notice to the contrary;
(d) notwithstanding anything in this Agreement to the contrary, neither the
Company nor the Rights Agent shall have any liability to any holder of a Right
or other Person as a result of its inability to perform any of its obligations
under this Agreement by reason of any preliminary or permanent injunction or
other order, decree or ruling issued by a court of competent jurisdiction or by
a governmental, regulatory or administrative agency or commission, or any
statute, rule, regulation or executive order promulgated or enacted by any
governmental authority, prohibiting or otherwise restraining performance of such
obligation; provided, however, the Company must use its reasonable efforts to
have any such order, decree or ruling lifted or otherwise overturned as soon as
possible.
Section 17. Right Certificate Holder Not Deemed a Stockholder. No holder,
as such, of any Right Certificate shall be entitled to vote, receive dividends
or be deemed for any purpose the holder of the number of shares of Preferred
Stock or any other securities of the Company which may at any time be issuable
on the exercise of the Rights represented thereby, nor shall anything contained
herein or in any Right Certificate be construed to confer upon the holder of any
Right Certificate, as such, any of the rights of a stockholder of the Company or
any right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 25 hereof), or to receive dividends
or subscription rights, or otherwise, until the Right or Rights represented by
such Right Certificate shall have been exercised in accordance with the
provisions hereof.
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Section 18. Concerning the Rights Agent. The Company agrees to pay to the
Rights Agent reasonable compensation for all services rendered by it hereunder
and, from time to time, on demand of the Rights Agent, its reasonable expenses
and counsel fees and other disbursements incurred in the administration and
execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent for, and to
hold it harmless against, any loss, liability, or expense, incurred without
gross negligence, bad faith or willful misconduct on the part of the Rights
Agent, for anything done or omitted by the Rights Agent in connection with the
acceptance and administration of this Agreement or the exercise or performance
of its duties hereunder, including the costs and expenses of defending against
any claim of 1iability in the premises.
The Rights Agent shall be protected and shall incur no liability for or in
respect of any action taken, suffered or omitted by it in connection with its
administration of this Agreement or the exercise or performance of its duties
hereunder, in reliance upon any Right Certificate or certificate for shares of
Preferred Stock or Common Stock or for other securities of the Company,
instrument of assignment or transfer, power of attorney, endorsement, affidavit,
letter, notice, direction, consent, instruction, adjustment notice, certificate,
statement, or other paper or document believed by it to be genuine and to be
signed, executed and, where necessary, verified or acknowledged, by the proper
Person or Persons.
Notwithstanding anything in this Agreement to the contrary, in no event
shall the Rights Agent be liable for special, indirect or consequential loss or
damage of any kind whatsoever (Including but not limited to lost profits), even
if the Rights Agent has been advised of the likelihood of such loss or damage
and regardless of the form of the action.
The indemnity provided for in this Section 18 shall survive the expiration
of the Rights, the termination of this Agreement, and the resignation or removal
of the Rights Agent. The costs and expenses of enforcing this right of
indemnification also shall be paid by the Company.
Section 19. Merger or Consolidation or Change of Name of Rights Agent. Any
corporation into which the Rights Agent or any successor Rights Agent may be
merged or with which it may be consolidated, or any corporation resulting from
any merger or consolidation to which the Rights Agent or any successor Rights
Agent shall be a party, or any corporation, succeeding to the stock transfer or
corporate trust powers of the Rights Agent or any successor Rights Agent, shall
be the successor to the Rights Agent under this Agreement without the execution
or filing of any paper or any further act on the part of any of the parties
hereto; provided that such corporation would be eligible for appointment as a
successor Rights Agent under the provisions of Section 21 hereof. In case, at
the time such successor Rights Agent shall succeed to the agency created by this
Agreement, any of the Right Certificates shall have been countersigned but not
delivered, any such successor Rights Agent may adopt the countersignature of the
predecessor so countersigned and deliver such Right Certificates so
countersigned; and in case at that time any of the Right Certificates shall not
have been countersigned, any successor Rights Agent may countersign such Right
Certificates either in the name of the predecessor Rights Agent or in the name
of the successor Rights Agent; and in all such cases such Right Certificates
shall have the full force provided in the Right Certificates and in this
Agreement.
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In case, at any time the name of the Rights Agent shall be changed and at
such time any of the Right Certificates shall have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior name
and deliver the Right Certificates so countersigned; and in case at that time
any of the Right Certificates shall not have been countersigned, the Rights
Agent may countersign such Right Certificates either in its prior name or in its
changed name; and in all such cases such Right Certificates shall have the full
force provided in the Right Certificates and in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes the duties
and obligations imposed by this Agreement (and no implied duties or obligations
shall be read into this Agreement against the Rights Agent) upon the following
terms and conditions, by all of which the Company and the holders of Right
Certificates, by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company), and the written opinion of such counsel shall be full
and complete authorization and protection to the Rights Agent as to any action
taken or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement the
Rights Agent shall deem it necessary or desirable that any fact or matter be
proved or established by the Company prior to taking or suffering any action
hereunder, such fact or matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by any one of the Chairman of the Board, the
Chief Executive Officer, the President, any Executive Vice President or Vice
President, the Treasurer or the Secretary of the Company and delivered to the
Rights Agent; and such certificate shall be full authorization to the Rights
Agent for any action taken or suffered in good faith by it under the provisions
of this Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder to the Company and any other
Person only for its own negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the Right
Certificates (except its countersignature thereof) or be required to verify the
same, but all such statements and recitals are and shall be deemed to have been
made by the Company only.
(e) The Rights Agent shall not be under any responsibility in respect of
the validity of this Agreement or the execution and delivery hereof (except the
due execution hereof by the Rights Agent) or in respect of the validity or
execution of any Right Certificate (except its countersignature thereof); nor
shall it be responsible for any breach by the Company of any covenant or
condition contained in this Agreement or in any Right Certificate; nor shall it
be responsible for any change in the exercisability of the Rights or any
adjustment in the terms of the Rights (including the manner, method or amount of
any such adjustment), or for ascertaining
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the existence of facts that would require any such change or adjustment (except
with respect to the exercise of Rights represented by Right Certificates after
actual notice that such change or adjustment is required); nor shall it by any
act hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any shares of Preferred Stock to be issued
pursuant to this Agreement or any Right Certificate or as to whether any shares
of Preferred Stock will, when issued, be validly authorized and issued, fully
paid and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performing by the Rights Agent of
the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder and
certificates delivered pursuant to any provision hereof from any one of the
Chairman of the Board, the Chief Executive Officer, the President, any Executive
Vice President or Vice President, the Secretary or the Treasurer of the Company,
and is authorized to apply to such officers for advice or instructions in
connection with its duties, and it shall not be liable for any action taken or
suffered by it in good faith in accordance with instructions of any such
officer. An application by the Rights Agent for written instructions by the
Company may set forth in writing any action proposed to be taken or omitted by
the Rights Agent with respect to its duties and obligations under this Agreement
and the date on or after which such action shall be taken or such commission
shall be effective. The Rights Agent shall not be liable for any action taken or
omitted in accordance with a proposal included in any such application on or
after the date specified therein (which date shall not be less than five
Business Days after the Company receives such application) without the consent
of the Company unless, prior to taking or omitting such action, the Rights Agent
has received written instructions in response to application specifying the
actions to be taken or omitted, as the case may be.
(h) The Rights Agent and any stockholder, director, officer or employee of
the Rights Agent may buy, sell or deal in any of the Rights or any other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights Agent from acting
in any other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or powers
hereby vested in it or perform any duty hereunder either itself or by or through
its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct, so long as the Rights Agent was not grossly negligent.
(j) No provision of this Agreement shall require the Rights Agent to expend
or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of its rights if
there shall be reasonable grounds for believing
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<PAGE>
that repayment of such funds or adequate indemnification against such risk or
liability is not reasonably assured to it.
(k) If, with respect to any Right Certificate surrendered to the Rights
Agent for exercise or transfer, the certificate attached to the form of
assignment or form of election to purchase, as the case may be, has either not
been completed or indicates an affirmative response, the Rights Agent shall not
take any further action with respect to such requested exercise or transfer
without first consulting the Company. The Company shall give the Rights Agent
prompt written instructions as to the action to be taken regarding the Right
Certificates involved. The Rights Agent shall not be liable for acting in
accordance with such instructions.
(1) The Rights Agent shall not be required to take notice or be deemed to
have notice of any fact, event or determination (including, without limitation,
any dates or events defined in this Agreement or the designation of any Person
as an Acquiring Person, Affiliate or Associate) under this Agreement unless and
until the Rights Agent shall be specifically notified in writing by the Company
of such fact, event or determination.
Section 21. Change of Rights Agent. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon thirty (30) days' written notice mailed to the Company and to each transfer
agent of the Preferred Stock and the Common Stock by registered or certified
mail, and, at the Company's expense, to the holders of the Right Certificates by
first class mail. The Company may remove the Rights Agent or any successor
Rights Agent upon thirty (30) days' written notice, mailed to the Rights Agent
or successor Rights Agent, as the case may be, and to each transfer agent of the
Preferred Stock and the Common Stock by registered or certified mail, and to the
holders of the Right Certificates by first-class mail. If the Rights Agent shall
resign or be removed or otherwise shall become incapable of acting, the Company
shall appoint a successor to the Rights Agent. If the Company shall fail to make
such appointment within a period of thirty (30) days after giving notice of such
removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Rights Agent or by the holder of a
Right Certificate (who shall, with such notice, submit his Right Certificate for
inspection by the Company), then the registered holder of any Right Certificate
may apply to any court of competent jurisdiction for the appointment of a new
Rights Agent. Any successor Rights Agent, whether appointed by the Company or by
such a court, shall be a corporation organized and doing business under the laws
of the United States, in good standing, which is authorized under such laws to
exercise stock transfer or corporate trust powers and is subject to supervision
or examination by federal or state authority or which has at the time of its
appointment as Rights Agent a combined capital and surplus of at least $25
million. After appointment, the successor Rights Agent shall be vested with the
same powers, rights, duties and responsibilities as if it had been originally
named as Rights Agent without further act or deed; but the predecessor Rights
Agent shall deliver and transfer to the successor Rights Agent any property at
the time held by it hereunder, and execute and deliver any further assurance,
conveyance, act or deed necessary for the purpose. Not later than the effective
date of any such appointment, the Company shall file written notice thereof with
the predecessor Rights Agent and each transfer agent of the Preferred Stock and
the Common Stock, and mail a written notice thereof to the registered holders of
the Right Certificates. Failure to give any notice
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provided for in this Section 21, however, or any defect therein, shall not
affect the legality or validity of the resignation or removal of the Rights
Agent or the appointment of the successor Rights Agent, as the case may be.
Section 22. Issuance of New Right Certificates. Notwithstanding any of the
provisions of this Agreement or of the Rights to the contrary, the Company may,
at its option, issue new Right Certificates representing Rights in such form as
may be approved by its Board of Directors to reflect any adjustment or change in
the Purchase Price and the number or kind or class of shares or other securities
or property purchasable under the Right Certificates made in accordance with the
provisions of this Agreement. In addition, in connection with the issuance or
sale of shares of Common Stock following the Distribution Date and prior to the
redemption or expiration the Rights, the Company (a) shall, with respect to
shares of Common Stock so issued or sold pursuant to the exercise of stock
options or under any employee plan or arrangement, or upon the exercise,
conversion or exchange of securities hereinafter issued by the Company, and (b)
may, in any other case, if deemed necessary or appropriate by the Board of
Directors of the Company, issue Right Certificates representing the appropriate
number of Rights In connection with such issuance or sale; provided, however,
that (i) no such Right Certificate shall be issued if, and to the extent that,
the Company shall be advised by counsel that such issuance would create a
significant risk of material adverse tax consequences to the Company or the
Person to whom such Right Certificate would be issued, and (ii) no such Right
Certificate shall be Issued if, and to the extent that, appropriate adjustment
shall otherwise have been made in lieu of the issuance thereof .
Section 23. Redemption and Termination. (a) The Board of Directors of the
Company may, at its option, at any time prior to the earlier of (i) the close of
business on the tenth calendar day following the Shares Acquisition Date (or if
the Shares Acquisition Date shall have occurred prior to the Record Date, the
close of business on the tenth day following the Record Date) or (ii) the Final
Expiration Date, redeem all but not less than all of the then outstanding Rights
at a redemption price of $.0l per Right, appropriately adjusted to reflect any
stock split, stock dividend or similar transaction occurring after the date
hereof (such redemption price being hereinafter referred to as the "Redemption
Price"). Subject to the terms hereof and to the immediately preceding sentence,
the redemption of the Rights by the Board of Directors may be made effective at
such time, on such basis and on such conditions as the Board of Directors in its
sole discretion may establish. The Company may, at its option, pay the
Redemption Price either in shares of its Common Stock (valued at their then
current per share market price as defined in Section 11(d)(i) on the date of the
redemption), other securities, cash or other assets.
(b) Immediately upon the action of the Board of Directors of the Company
ordering the redemption of the Rights pursuant to paragraph (a) of this Section
23, and without any further action and without any notice, the right to exercise
the Rights will terminate and the only right thereafter of the holders of Rights
shall be to receive the Redemption Price for each Right held. The Company shall
promptly give public notice of any such redemption; provided, however, that the
failure to give, or any defect in, such notice shall not affect the validity of
such redemption. The Company shall give notice of such redemption to the holders
of the then outstanding Rights by mailing such notice to the Rights Agent and to
all such holders at their last
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addresses as they appear upon the registry books of the Rights Agent or, prior
to the Distribution Date, on the registry books of the transfer agent for the
Common Stock. Any notice which is mailed in the manner herein provided shall
be deemed given, whether or not the holder receives the notice. Each such
notice of redemption will state the method by which the payment of the
Redemption Price will be made. Neither the Company nor any of its Affiliates
or Associates may redeem, acquire or purchase for value any Rights at any time
in any manner other than that specifically set forth in this Section 23 or in
Section 24 hereof, and other than in connection with the repurchase of Common
Stock prior to the Distribution Date.
Section 24. Exchange. (a) The Board of Directors of the Company may, at its
option, by resolution adopted at any time after any Person becomes an Acquiring
Person, provide that the Company shall exchange all or part of the then
outstanding and exercisable Rights (which shall not include Rights that have
become void pursuant to the provisions of Section 7(e) hereof) for shares of
Common Stock at an exchange ratio of one share of Common Stock per Right,
appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof (such exchange ratio being
hereinafter referred to as the "Exchange Ratio").
(b) Immediately upon the action of the Board of Directors of the Company
ordering the exchange of any Rights pursuant to paragraph (a) of this Section 24
and without any further action and without any notice, the right to exercise
such Rights shall terminate and the only right thereafter of a holder of such
Rights shall be to receive that number of shares of Common Stock equal to the
number of such Rights held by such holder multiplied by the Exchange Ratio. The
Company shall promptly give notice of any such exchange; provided, however, that
the failure to give, or any defect in, such notice shall not affect the validity
of such exchange. Promptly after the action of the Board of Directors ordering
an exchange of the Rights, the Company shall give notice of any such exchange to
the Rights Agent and the holders of the then outstanding Rights by mailing such
notice to all such holders at each holder's last address as it appears upon the
registry books of the Rights Agent. Any notice which is mailed in the manner
herein provided shall be deemed given, whether or not the holder receives the
notice. Each such notice of exchange will state the method by which the exchange
of the shares of Common Stock for Rights will be effected and, in the event of
any partial exchange, the number of Rights which will be exchanged. Any partial
exchange shall be effected pro rata based on the number of Rights (other than
Rights which have become void pursuant to the provisions of Section 7(e) hereof)
held by each holder of Rights.
(c) In any exchange pursuant to this Section 24, the Company, at its
option, may substitute shares of Preferred Stock (or Equivalent Preferred Stock,
as such term is defined in Section 11(b) hereof) for shares of Common Stock
exchangeable for the Rights, at the initial rate of one one-thousandth of a
share of Preferred Stock (or Equivalent Preferred Stock) for each share of
Common Stock, as appropriately adjusted to reflect adjustments in the dividend
rights of the Preferred Stock pursuant to the terms thereof.
(d) In the event that there shall not be sufficient shares of Common Stock
issued, but not outstanding, or authorized but unissued, to permit any exchange
of Rights as
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contemplated in accordance with this Section 24, the Company shall take all such
action as may be necessary to authorize additional Common Stock for issuance
upon exchange of the Rights, and the Company may, in the discretion of the Board
of Directors of the Company, and shall, in the event the Company shall be unable
to take all such action as may be necessary to authorize such additional shares
of Common Stock, substitute, for each share of Common Stock that would otherwise
be issuable upon exchange of a Right, a number of shares of Preferred Stock or
fraction thereof such that the current per share market price of one share of
Preferred Stock multiplied by such number or fraction is equal to the current
per share marker price of one share of Common Stock as of the date of issuance
of such shares of Preferred Stocks or fraction thereof.
(e) The Company shall not be required to issue fractional shares of Common
Stock or to distribute certificates which represent fractional shares of Common
Stock. In lieu of such fractional shares of Common Stock, the Company shall pay
to the registered holders of the Right Certificates with regard to which such
fractional shares of Common Stock would otherwise be issuable an amount in cash
equal to the same fraction of the current market value of a whole share of
Common Stock. For the purposes of this paragraph (e), the current market value
of a whole share of Common Stock shall be the closing price of a share of Common
Stock (as determined pursuant to the second sentence of Section 11(d)(i) hereof)
for the Trading Day immediately prior to the date of exchange pursuant to this
Section 24.
(f) In any exchange pursuant to this Section 24, the Company, at its
option, may substitute for any share of Common Stock exchangeable for a Right
(i) equity securities of the Company deemed to have the same value as shares of
Common Stock, (ii) cash, (iii) debt securities of the Company, (iv) other
assets, or (v) any combination of the foregoing, having an aggregate value which
a majority of the Independent Directors and the Board of Directors of the
Company shall have determined in good faith to be equal to the then current per
share market price of Common Stock (determined pursuant to Section 11(d) hereof)
on the Trading Date immediately preceding the date of exchange pursuant to this
Section 24.
Section 25. Notice of Certain Events. In case the Company shall propose at
any time following the Distribution Date (a) to pay any dividend payable in
stock of any class to the holders of its Preferred Stock or to make any other
distribution to the holders of its Preferred Stock (other than a regular
quarterly cash dividend); (b) to offer to the holders of its Preferred Stock
rights or warrants to subscribe for or to purchase any additional shares of
Preferred Stock or shares of stock of any class or any other securities, rights
or options; (c) to effect any reclassification of Preferred Stock (other than a
reclassification involving only the subdivision of outstanding Preferred Stock);
(d) to effect any consolidation or merger into or with any other Person or to
effect any sale or other transfer (or to permit one or more of its Subsidiaries
to effect any sale or other transfer), in one or more transactions, of 50% or
more of the assets or earning power of the Company and its Subsidiaries (taken
as a whole) to, any other Person; (e) to effect the liquidation, dissolution or
winding up of the Company; or (f) to authorize, declare or pay any dividend on
the shares of Common Stock payable in shares of Common Stock or to effect a
subdivision, combination or consolidation of the shares of Common Stock (by
reclassification or otherwise than by payment of dividends in shares of Common
Stock), then, in each such case, the
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Company shall give to the Rights Agent and to each holder of a Right, in
accordance with Section 26 hereof, a notice of such proposed action, which shall
specify the record date for the purposes of such stock dividend or distribution
of rights or warrants, or the date on which such reclassification,
consolidation, merger, sale, transfer, liquidation, dissolution, or winding up
is to take place and the date of participation therein by the holders of the
Preferred Stock and/or Common Stock, if any such date is to be fixed, and such
notice shall be so given in the case of any action covered by clause (a) or (b)
above at least ten (10) days prior to the record date for determining holders of
the Preferred Stock for purposes of such action and, in the case of any such
other action, at least ten (10) days prior to the date of the taking of such
proposed action or the date of participation therein by the holders of the
Preferred Stock, whichever shall be the earlier.
In case an event set forth in Section 11(a)(ii) hereof shall occur, then,
in any such case, the Company shall as soon as practicable thereafter give to
the Rights Agent and to each holder of a Right, in accordance with Section 26
hereof, a notice of the occurrence of such event, which notice shall specify
such event and the consequences of such event to holders of Rights under Section
11(a)(ii) hereof.
Section 26. Notices. Notices or demands authorized by this Agreement to be
given or made by the Rights Agent or by the holder of any Right Certificate to
or on the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing with
the Rights Agent) as follows:
Philips International Realty Corp.
417 Fifth Avenue
New York, New York 10016
Attention: President
Subject to the provisions of Section 21 hereof, any notice or demand
authorized by this Agreement to be given or made by the Company or by the holder
of any Right Certificate to or on the Rights Agent shall be sufficiently given
or made if sent by first-class mail, postage prepaid and addressed (until
another address is filed in writing with the Company) as follows:
BankBoston, N.A.
150 Royal Street
Canton, MA 02021
Attention: Michael Connor
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
Section 27. Supplements and Amendments. Prior to the Distribution Date, the
Company may, and the Rights Agent shall, if the Company so directs, from time to
time
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supplement or amend any provision of this Agreement as the Company may deem
necessary or desirable without the approval of any holders of the Common Stock.
Without limiting the foregoing, the Company may, at any time prior to such time
as any Person becomes an Acquiring Person, amend this Agreement to lower the
thresholds set forth in Sections 1(a) and 3(a) hereof to not less than the
greater of (a) the sum of .001% and the largest percentage of the outstanding
shares of Common Stock then known by the Company to be beneficially owned by any
Person (other than any Person that, on the date hereof, beneficially owns 15% or
more of the shares of Common Stock of the Company outstanding as of the date
hereof and other than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or of any Subsidiary of the Company or any entity
holding shares of Common Stock for or pursuant to the terms of any such plan)
and (b) 10%. From and after the Distribution Date, the Company may, and the
Rights Agent shall, if the Company so directs, from time to time supplement or
amend any provision of this Agreement without the approval any holder of Right
Certificates in order (a) to cure any ambiguity, (b) to correct or supplement
any provision contained herein which may be defective or inconsistent with any
of other provisions herein, (c) to shorten or lengthen any time period
hereunder, or (d) to change or supplement the provisions hereunder in any manner
which the Company may deem necessary or desirable and which shall not adversely
affect the interests of the holders of Right Certificates (other than an
Acquiring Person or an Affiliate or Associate of an Acquiring Person); provided,
however, that from and after the Distribution Date, this Agreement may not be
supplemented or amended to lengthen, pursuant to clause (c) of this sentence,
(i) a time period relating to when the Rights may be redeemed at such time as
the Rights are not then redeemable or (ii) any other time period unless such
lengthening is for the purpose of protecting, enhancing or clarifying the rights
of, and the benefits to, the holders of Rights (other than an Acquiring Person
or any Affiliate or Associate of an Acquiring Person). Prior to the Distribution
Date, the interests of the holders of Rights shall be coincident with the
interests of the holders of shares of Common Stock of the Company. Upon the
delivery of a certificate from an appropriate officer of the Company or, so long
as any Person is an Acquiring Person, from the majority of the Company's Board
of Directors, which states that the proposed supplement or amendment is in
compliance with the terms of this Section 27, the Rights Agent shall execute
such supplement or amendment. Notwithstanding anything in this Agreement to the
contrary, no supplement or amendment to this Agreement that changes the rights
and duties of the Rights Agent under this Agreement will be effective without
the consent of the Rights Agent.
Section 28. Successors. All the covenants and provisions of this Agreement
by or for the benefit of the Company or the Rights Agent shall bind and inure to
the benefit of their respective successors and assigns hereunder.
Section 29. Determinations and Actions by the Board of Directors. For all
purposes of this Agreement, any calculation of the number of shares of Common
Stock outstanding at any particular time, including for purposes of determining
the particular percentage of such outstanding shares of Common Stock of which
any Person is the Beneficial Owner, shall be made in accordance with the
provisions of Rule 13d-3(d)(1)(i) of the General Rules and Regulations under the
Exchange Act. The Board of Directors of the Company (and, where specifically
provided for herein, the Continuing Directors or Independent Directors) shall
have
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the exclusive power and authority to administer this Agreement and to exercise
all rights and powers specifically granted to the Board of Directors or the
Company (or, as expressly provided, the Continuing Directors or Independent
Directors), or as may be necessary or advisable in the administration of this
Agreement, including, without limitation, the right and power to (i) interpret
the provisions of this Agreement, and (ii) make all determinations deemed
necessary or advisable for the administration of this Agreement (including a
determination to redeem or not redeem the Rights or to amend this Agreement) .
All such actions, calculations, interpretations and determinations (including,
for the purpose of clause (ii) below, all omissions with respect to the
foregoing) which are done or made by the Board of Directors (or, as provided
for, by the Continuing Directors or Independent Directors) in good faith (i)
shall be final, conclusive and binding on the Company, the Rights Agent, the
holders of the Right Certificates and all other parties, and (ii) shall not
subject the Board of Directors or the Continuing Directors or Independent
Directors to any liability to the holders of the Right Certificates.
Section 30. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any Person other than the Company, the Rights Agent and the
registered holders of the Right Certificates (and, prior to the Distribution
Date, the Common Stock) any legal or equitable right, remedy or claim under this
Agreement; but this Agreement shall be for the sole and exclusive benefit of the
Company, the Rights Agent and the registered holders of the Right Certificates
(and, prior to the Distribution Date, of the Common Stock).
Section 31. Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in full
force and effect and shall in no way be affected, impaired or invalidated;
provided, however, that notwithstanding anything in this Agreement to the
contrary, if any such term, provision, covenant or restriction is held by such
court or authority to be invalid, void or unenforceable and the Board of
Directors of the Company determines in its good faith judgment that severing the
invalid language from this Agreement would adversely affect the purpose or
effect of this Agreement, the right of redemption set forth in Section 23 hereof
shall be reinstated and shall not expire until the close of business on the
tenth day following the date of such determination by the Board of Directors.
Section 32. Governing Law. This Agreement and each Right Certificate issued
hereunder shall be deemed to be a contract made under the laws of the State of
Maryland and for all purposes shall be governed by and construed in accordance
with the laws of such State applicable to contracts to be made and performed
entirely within such State.
Section 33. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
Section 34. Descriptive Headings. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and attested, all as of the day and year first above written.
PHILIPS INTERNATIONAL REALTY CORP.
By: /s/ Louis J. Petra
Name: Louis J. Petra
Title: President
Attest:
By: /s/ Maureen Smith
Name: Maureen Smith
Title: Assistant to the President
BANKBOSTON, N.A.
By: /s/ Carol Mulvey-Eori
Name: Carol Mulvey-Eori
Title: Administration Manager
Attest:
By: /s/ Michael J. Connor
Name: Michael J. Connor
Title: Senior Account Manager
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EXHIBIT A
PHILIPS INTERNATIONAL REALTY CORP.
FORM OF
ARTICLES SUPPLEMENTARY
FOR
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
(Pursuant to Sections 2-105(a)(9) and 2-208(a)
of the Maryland General Corporation Law)
PHILIPS INTERNATIONAL REALTY CORP., a Maryland corporation (the "Company")
hereby certifies to the State Department of Assessments and Taxation of Maryland
that:
FIRST: Pursuant to authority conferred upon the Board of Directors by the
Amended and Restated Articles of Incorporation, as amended, of the Company (the
"Charter"), the Board of Directors, as required by Section 2-208 of the Maryland
General Corporation Law, pursuant to resolutions adopted at a meeting duly
called on February 22, 1999, classified and designated 100,000 shares (the
"Shares") of authorized but unissued Preferred Stock (as defined in the Charter)
as shares of Series A Junior Participating Preferred Stock, with the
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends and other distributions, qualifications and terms
and conditions of redemption as follows, which upon any restatement of the
Charter shall be made part of Article IV of the Charter, with any necessary or
appropriate changes to the enumeration or lettering of sections or subsections
hereof:
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
Section 1. Designation and Amount. This series of Preferred Stock shall be
designated the "Series A Junior Participating Preferred Stock" (the "Series A
Preferred Stock") and the number of shares which shall constitute the Series A
Preferred Stock shall be 100,000 shares. Such number of shares may be increased
or decreased by resolution of the Board of Directors; provided, that no decrease
shall reduce the number of shares of Series A Preferred Stock to a number less
than the number of shares then outstanding plus the number of shares reserved
for issuance upon the exercise of outstanding options, rights or warrants or
upon the conversion of any outstanding securities issued by the Company
convertible into Series A Preferred Stock.
Section 2. Dividend Rights. (a) Subject to the rights of holders of any
shares of any series of Preferred Stock (or any similar stock) ranking prior and
superior to the Series A Preferred Stock with respect to dividends, the holders
of shares of Series A Preferred Stock, in preference to the holders of Common
Stock, par value $0.01 per share (the "Common Stock"), of
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the Company and of any other junior stock, shall be entitled to receive, when,
as and if authorized by the Board of Directors out of assets legally available
for the purpose, quarterly dividends payable in cash on the first business day
of April, July, October and January in each year (each such date being referred
to herein as a "Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a share or fraction
of a share of Series A Preferred Stock, in an amount per share (rounded to the
nearest cent) equal to the greater of (i) $1.00 or (ii) subject to the provision
for adjustment hereinafter set forth, 1,000 times the aggregate per share amount
of all cash dividends, and 1,000 times the aggregate per share amount (payable
in kind) of all non-cash dividends or other distributions (other than a dividend
payable in shares of Common Stock) or a subdivision of the outstanding shares of
Common Stock (by reclassification or otherwise)) authorized on the Common Stock
since the immediately preceding Quarterly Dividend Payment Date or, with respect
to the first Quarterly Dividend Payment Date, since the first issuance of any
share or fraction of a share of Series A Preferred Stock. In the event the Board
of Directors of the Company shall at any time (A) authorize, declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or (ii) effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock into a greater or lesser number of shares of Common Stock, then in each
such case the amount to which holders of Series A Preferred Stock were entitled
immediately prior to such event under clause (ii) of the preceding sentence
shall be adjusted by multiplying such amount by a fraction, the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
(b) The Company shall declare a dividend or distribution on the Series A
Preferred Stock as provided in paragraph (a) of this Section 1 immediately after
it declares a dividend or distribution on the Common Stock (other than a
dividend payable in shares of Common Stock); provided that, in the event no
dividend or distribution shall have been declared on the Common Stock during the
period between any Quarterly Dividend Payment Date and the next subsequent
Quarterly Dividend Payment Date, a dividend of $1.00 per share on the Series A
Preferred Shares shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date.
(c) Dividends shall begin to accrue and be cumulative on outstanding Series
A Preferred Stock from the Quarterly Dividend Payment Date next preceding the
date of issue of such shares, unless the date of issue of such shares is prior
to the record date for the first Quarterly Dividend Payment Date, in which case
dividends on such shares shall begin to accrue from the date of issue of such
shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a
date after the record date for the determination of holders of shares of Series
A Preferred Stock entitled to receive a quarterly dividend and before such
Quarterly Dividend Payment Date, in either of which events such dividends shall
begin to accrue and be cumulative from such Quarterly Dividend Payment Date.
Accrued but unpaid dividends shall not bear interest. Dividends paid on the
shares of Series A Preferred Stock in an amount less than the total amount of
such dividends at the time accrued and payable on such shares shall be allocated
pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the determination
of holders of shares of Series A Preferred
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Stock entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be no more than 60 days prior to the date fixed
for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A Preferred Stock
shall have the following voting rights:
(a) Subject to the provision for adjustment hereinafter set forth, each
share of Series A Preferred Stock shall entitle the holder thereof to 1,000
votes on all matters submitted to a vote of the stockholders of the Company. In
the event the Company shall at any time (i) declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or (ii) effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock into a
greater or lesser number of shares of Common Stock, then in each such case the
number of votes per share to which holders of Series A Preferred Stock were
entitled immediately prior to such event shall be adjusted by multiplying such
number by a fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.
(b) Except as otherwise provided herein, in any other articles
supplementary creating a series of Preferred Stock or any similar stock, or by
law, the holders of shares of Series A Preferred Stock and the holders of shares
of Common Stock and any other stock of the Company having general voting rights
shall vote together as one class on all matters submitted to a vote of
stockholders of the Company.
(c) Except as set forth herein, holders of shares of Series A Preferred
Stock shall have no special voting rights and their consent shall not be
required (except to the extent they are entitled to vote with holders of Common
Stock as set forth herein) for taking any corporate action.
Section 4. Certain Restrictions.
(a) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not authorized or declared, on shares of Series A Preferred Stock outstanding
shall have been paid in full, the Company shall not:
(i) authorize, declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior (either as to dividends or
upon liquidation, dissolution or winding up) to the Series A Preferred Stock;
(ii) authorize, declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, except dividends paid ratably on the Series A Preferred Stock
and all such parity stock on which dividends are payable or in arrears in
proportion to the total amounts to which the holders of all such shares are then
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entitled;
(iii) redeem or purchase or otherwise acquire for consideration shares
of any stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Preferred Stock, provided that the
Company may at any time redeem, purchase or otherwise acquire shares of any such
junior stock in exchange for shares of any stock of the Company ranking junior
(either as to dividends or upon dissolution, liquidation or winding up) to the
Series A Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for consideration any
shares of Series A Preferred Stock or any shares of stock ranking on a parity
with the Series A Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the Board of Directors) to
all holders of such shares upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and other relative rights
and preferences of the respective series and classes, shall determine in good
faith will result in fair and equitable treatment among the respective series or
classes.
(b) The Company shall not permit any subsidiary of the Company to purchase
or otherwise acquire for consideration any shares of stock of the Company unless
the Company could, under paragraph (a) of this Section 4, purchase or otherwise
acquire such shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Company in any manner whatsoever shall be
retired and canceled promptly after the acquisition thereof. All such shares
shall upon their cancellation become authorized but unissued shares of Preferred
Stock and may be reissued as part of a new series of Preferred Stock, subject to
the conditions and restrictions on issuance set forth herein, in the Charter or
in any other articles supplementary creating a series of Preferred Stock or as
otherwise required by law.
Section 6. Liquidation, Dissolution or Winding Up. Upon any liquidation,
dissolution or winding up of the Company, no distribution shall be made (a) to
the holders of shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred Stock unless,
prior thereto, the holders of shares of Series A Preferred Stock shall have
received $55.00 per share, plus an amount equal to accrued and unpaid dividends
and distributions thereon, whether or not authorized or declared, to the date of
such payment, provided that the holders of shares of Series A Preferred Stock
shall be entitled to receive an aggregate amount per share, subject to the
provision for adjustment as hereinafter set forth, equal to 1,000 times the
aggregate amount to be distributed per share to holders of shares of Common
Stock, or (b) to the holders of shares of stock ranking on a parity (either as
to dividends or upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, except distributions made ratably on the Series A Preferred
Stock and all such parity stock in proportion to the total amounts to which the
holders of all such shares are entitled upon such liquidation, dissolution or
winding up. In the event the Board of Directors of the Company shall at any time
authorize, declare or pay any dividend on the combination or consolidation of
the outstanding shares of Common Stock payable in shares of Common Stock, or
effect a subdivision or combination or consolidation of the outstanding shares
of
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<PAGE>
Common Stock (by reclassification or otherwise than by payment of a dividend
in shares of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the aggregate amount to which holders of shares of
Series A Preferred Stock were entitled immediately prior to such event under the
proviso in clause (a) of the preceding sentence shall be adjusted by multiplying
such amount by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding immediately
prior to such event.
Section 7. Merger, Consolidation, Etc. In case the Company shall enter into
any merger, consolidation, combination or other transaction in which the shares
of Common Stock are exchanged for or changed into other stock or securities,
cash and/or any other property, then in any such case each share of Series A
Preferred Stock shall at the same time be similarly exchanged or changed into an
amount per share (subject to the provision for adjustment hereinafter set forth)
equal to 1,000 times the aggregate amount of stock, securities, cash and/or any
other property (payable in kind), as the case may be, into which or for which
each share of Common Stock is changed or exchanged. In the event the Board of
Directors of the Company shall at any time (a) authorize, declare or pay any
dividend on the Common Stock payable in shares of Common Stock or (b) effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common Stock, then
in each such case the amount set forth in the preceding sentence with respect to
the exchange or change of shares of Series A Preferred Stock shall be adjusted
by multiplying such amount by a fraction, the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series A Preferred Stock shall not
be redeemable.
Section 9. Ranking. The Series A Preferred Stock shall rank, with respect
to the payment of dividends and the distribution of assets upon liquidation,
dissolution, winding up or otherwise, junior to all series of the Company's
Preferred Stock, unless the terms of any such series shall provide otherwise.
Section 10. Amendment. The Charter, including these Articles Supplementary
establishing the rights and preferences of the Series A Preferred Stock, shall
not be amended in any manner which would materially alter or change the
preferences, voting powers or other rights or restrictions of the Series A
Preferred Stock, as set forth herein, so as to affect them adversely without the
affirmative vote of the holders of a majority of the outstanding shares of
Series A Preferred Stock, voting together as a single class.
Section 11. Restrictions and Limitations. Shares of Series A Preferred
Stock shall be subject to the restrictions and limitations set forth in Article
VI of the Charter.
5
<PAGE>
Section 12. Fractional Shares. Series A Preferred Stock may be issued in
fractions of a share that shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Series A Preferred Stock.
Section 13. No Conversion Rights. The holders of the Series A Preferred
Stock shall not have any rights to convert such shares into shares of any other
class or series of stock of the Company or into any other securities of, or
interest in, the Company.
Section 14. No Preemptive Rights. No holder of shares of Series A Preferred
Stock shall have any preemptive or preferential right to subscribe for, or to
purchase, any additional shares of stock of the Company of any class or series,
or any other security of the Company which the Company may issue or sell.
SECOND: The Shares have been classified and designated by the Board of
Directors under the authority contained in the Charter.
THIRD: These Articles Supplementary have been approved by the Board of
Directors in the manner and by the vote required by law.
FOURTH: The undersigned President of the Company acknowledges these
Articles Supplementary to be the corporate act of the Company and, as to all
matters or facts required to be verified under oath, the undersigned President
acknowledges that to the best of his knowledge, information and belief, these
matters and facts are true in all material respects and that this statement is
made under the penalties for perjury.
6
<PAGE>
IN WITNESS WHEREOF, the Company has caused these Articles Supplementary to be
executed under seal in its name and on its behalf by its President
Officer and attested to by its Assistant Secretary on this ______ day of
____________, 1999.
PHILIPS INTERNATIONAL REALTY CORP.
By: _______________________________
Name:
Title:
[SEAL]
Attest:
By: ____________________________
Name:
Title:
7
<PAGE>
EXHIBIT B
FORM OF RIGHT CERTIFICATE
Certificate No. R Rights
NOT EXERCISABLE AFTER March 31, 2009 OR EARLIER IF REDEMPTION OR EXCHANGE
OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION AT $.0l PER RIGHT AND TO EXCHANGE
ON THE TERMS SET FORTH IN THE RIGHT AGREEMENT.
PHILIPS INTERNATIONAL REALTY CORP.
Right Certificate
This certifies that ________________, or registered assigns, is the
registered owner of the number of Rights set forth above, each of which entitles
the owner thereof, subject to the terms, provisions and conditions of the
Shareholder Rights Agreement, dated as of March 31, 999 (the "Rights
Agreement"), between Philips International Realty Corp., a Maryland corporation
(the "Company"), and BankBoston, N.A., a Massachussetts corporation, as rights
agent (the "Rights Agent"), to purchase from the Company at any time after the
Distribution Date (as such term is defined in the Rights Agreement) and prior to
5:00 P.M. (New York City time) on March 31, 2009 at the designated office of the
Rights Agent, or its successors as Rights Agent, one one-thousandth of a fully
paid non-assessable share of Series A Junior Participating Preferred Stock, par
value $.0l per share (the "Preferred Shares"), of the Company, at a purchase
price of $55.00 per one one-thousandth of a Preferred Share (the "Purchase
Price"), upon presentation and surrender of this Right Certificate with the Form
of Election to Purchase duly executed. The number of Rights represented by this
Right Certificate (and the number of one one-thousandths of a Preferred Share
which may be purchased upon exercise hereof) set forth above, and the Purchase
Price per one one-thousandths of a Preferred Share set forth above, are the
number and Purchase Price as of ____________, 1999, based on the Preferred
Shares of the Company as constituted at such date. As provided in the Rights
Agreement, the Purchase Price and the number of one one-thousandths of a
Preferred Share which may be purchased upon the exercise of the Rights
represented by this Right Certificate are subject to modification and adjustment
upon the happening of certain events.
This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Right Certificates. Copies of
the Rights Agreement are on file at the above-mentioned office of the Rights
Agent and at the executive
1
<PAGE>
offices of the Company.
This Right Certificate, with or without other Right Certificates, upon
surrender at the designated office of the Rights Agent, may be exchanged for
another Right Certificate or Right Certificates of like tenor and date
representing Rights entitling the holder to purchase a like aggregate number of
one one-thousandths of a Preferred Share as the Rights evidenced by the Right
Certificate or Right Certificates surrendered shall have entitled such holder to
purchase. If this Right Certificate shall be exercised in part, the holder shall
be entitled to receive upon surrender hereof another Right Certificate or Right
Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights represented
by this Certificate (i) may be redeemed by the Company at a redemption price of
$.0l per Right or (ii) may be exchanged in whole or in part for shares of the
Company's Common S, par value $0.01 per share.
No fractional Preferred Shares will be issued upon the exercise of any
Right or Rights represented hereby (other than fractions which are integral
multiples of one one-thousandth of a Preferred Share), but in lieu thereof a
cash payment will be made, as provided in the Rights Agreement.
No holder of this Right Certificate shall be entitled to vote or receive
dividends or be deemed for any purpose the holder of the Preferred Shares or of
any other securities of the Company which may at any time be issuable on the
exercise hereof, nor shall anything contained in the Rights Agreement or herein
be construed to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action, or to receive notice of meetings or
other actions affecting stockholders (except as provided in the Rights
Agreement), or to receive dividends or subscription rights, or otherwise, until
the Right or Rights represented by this Right Certificate shall have been
exercised as provided in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
2
<PAGE>
WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal. This Right Certificate is dated as of ___________,
1999.
{SEAL}
ATTEST: PHILIPS INTERNATIONAL REALTY CORP.
By:________________________________ By:________________________________
Name: Name:
Title: Title:
Countersigned:
BANKBOSTON, N.A. as Rights Agent
By:________________________________
Authorized Signatory
Date:
3
<PAGE>
[Form of Reverse Side of Right Certificate]
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Right Certificate.)
FOR VALUE RECEIVED ________________________________________________________
hereby sells, assigns and transfers unto________________________________________
- -------------------------------------------------------------------------------
(please print name and address of transferee)
this Right Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint Attorney, to transfer the
within Right Certificate on the books of the with-in-named Company, with full
power of substitution.
Dated: _______________________
------------------------------
Signature
Signature Guaranteed:
(Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States.)
- --------------------------------------------------------------------------------
Certification:
The undersigned hereby certifies that the Rights evidenced by this Rights
Certificate are not beneficially owned by an Acquiring Person or an Affiliate
o Associate thereof (as defined in the Rights Agreement).
- --------------------------------------------------------------------------------
Signature
NOTICE
The signature to the foregoing Assignment and Certification must correspond to
the name as written upon the face of this Right Certificate in every
particular, without alteration or enlargement or any change whatsoever.
4
<PAGE>
[Form of Reverse Side of Right Certificate -- continued]
FORM OF ELECTION TO PURCHASE
(To be executed by holder if such holder desires to
exercise Rights represented by the Right Certificate.)
PHILIPS INTERNATIONAL REALTY CORP.:
The undersigned hereby irrevocably elects to exercise _________________ Rights
represented by this Right Certificate to purchase the Preferred Shares
issuable upon the exercise of such Rights and requests that certificates for
such Preferred Shares be issued in the name of:
Please insert social security or other taxpayer identifying number:
____________________
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please print name and address)
If such number of Rights shall not be all the Rights represented by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:
Please insert social security or other taxpayer identifying
number:_____________________
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please print name and address)
Dated: ________________________
------------------------------
Signature
Signature Guaranteed:
(Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States.)
- --------------------------------------------------------------------------------
5
<PAGE>
Certification:
The undersigned hereby certifies that the Rights evidenced by this Rights
Certificate are not beneficially owned by an Acquiring Person or an Affiliate
or Associate thereof (as defined in the Rights Agreement).
- --------------------------------------------------------------------------------
Signature
NOTICE
The signature to the foregoing Assignment and Certification must correspond to
the name as written upon the face of this Right Certificate in every
particular, without alteration or enlargement or any change whatsoever.
6
<PAGE>
EXHIBIT C
SUMMARY OF RIGHTS TO PURCHASE
PREFERRED STOCK
On February 22, 1999, the Board of Directors of Philips International
Realty Corp. (the "Company") authorized a dividend distribution (the
"Distribution") of one preferred share purchase right (a "Right") for each
outstanding share of common stock, par value $0.01 per share (the "Common
Shares"), of the Company. The dividend is payable on March 31, 1999 (the "Record
Date"), to the stockholders of record on that date. Each Right entitles the
registered holder to purchase from the Company one one-thousandth of a share of
Series A Junior Participating Preferred Stock, par value $.01 per share (the
"Preferred Shares"), of the Company at a price of $55.00 per one one-thousandth
of a Preferred Share (the "Purchase Price"), subject to adjustment. The
description and terms of the Rights are set forth in a Shareholder Rights
Agreement (the "Rights Agreement") by and between the Company and BankBoston,
N.A., as rights agent (the "Rights Agent").
Distribution Date; Transfer of Rights
- -------------------------------------
Initially, the Rights will be attached to all Common Stock certificates
representing shares then outstanding, and no separate Rights certificates will
be distributed. The Rights will separate from the Common Stock and a
Distribution Date will occur upon the earlier of (i) ten calendar days following
the date (the "Shares Acquisition Date") of public announcement that a person or
group of affiliated or associated persons (an "Acquiring Person") have acquired,
or obtained the right to acquire, beneficial ownership of fifteen percent (15%)
or more of the outstanding Common Shares (the "Share Acquisition Date") or (ii)
ten calendar days (or such later date as may be determined by action of the
Board of Directors prior to the time any person or group of affiliated persons
becomes an Acquiring Person) following the commencement of, or public
announcement of an intent to commence, a tender offer or exchange offer the
consummation of which would result in the beneficial ownership by a person or
group of fifteen percent (15%) or more of the outstanding Common Shares (the
earlier of such dates being called the "Distribution Date"). Until the
Distribution Date, the Rights will be evidenced by the Common Share certificates
and will be transferred with and only with such Common Share certificates. New
Common Share certificates issued after the Record Date will contain a notation
incorporating the Rights Agreement by reference. Until the Distribution Date,
the surrender for transfer of any certificates representing outstanding Common
Shares also will transfer the Rights associated with the Common Shares
represented by such certificate. Any person or group owning in excess of 15% of
the outstanding Common Shares as of March 31, 1999, shall only trigger the
effects referred to above if such person increases its ownership of Common
Shares to 10% or more greater than the beneficial ownership of Common Shares of
such Person on such date.
As soon as practicable following the Distribution Date, separate
certificates representing the Rights ("Right Certificates") will be mailed to
holders of record of the Common Shares as of
1
<PAGE>
the close of business on the Distribution Date and such separate Right
Certificates alone will represent the Rights.
The Rights are not exercisable until the Distribution Date. The Rights will
expire at the close of business on March 31, 2009 (the "Final Expiration Date"),
unless the Final Expiration Date is extended or the Right Certificates are
earlier redeemed or exchanged by the Company, as described below. Each Right
generally will entitle the holder to purchase one one-thousandth (1/1,000th) of
a Preferred Share of the Company at a price of $55.00.
Exercise of Rights for Common Stock of the Company ("Flip-In" Provision)
- ------------------------------------------------------------------------
In the event that, following the Distribution Date, any person or group
becomes an Acquiring Person, each holder of a Right will thereafter have the
right to receive, upon exercise, Common Shares having a market value equal to
two times the Purchase Price of the Right. Notwithstanding any of the foregoing,
once any person or group becomes an Acquiring Person, all Rights that are or
were beneficially owned by any such Acquiring Person will be null and void.
For example, at an exercise price of $55.00 per Right, each Right not owned
by an Acquiring Person would entitle its holder to purchase $110.00 worth of
Common Stock for $55.00. Assuming that the Common Stock had a per share value of
$27.50 on the date upon which such person or group became an Acquiring Person,
the holder of each valid right would be entitled to purchase four (4) shares of
Common Stock for $55.00.
Exercise of Rights for Shares of the Acquiring Company ("Flip-Over" Provision)
- ------------------------------------------------------------------------------
In the event that, following the Distribution Date, (i) the Company is
acquired in a merger or other business combination transaction in which the
Company is not the surviving corporation, or (ii) 50% or more of the Company's
consolidated assets or earning power is sold or transferred, then each holder of
a Right (except Rights which previously have been voided as set forth in the
preceding paragraph) shall thereafter have the right to receive, upon exercise,
common stock of the acquiring company having a value equal to two times the
Purchase Price of the Right.
Adjustments to Purchase Price
- -----------------------------
The Purchase Price payable, and the number of Preferred Shares (or Common
Shares) issuable, upon exercise of the Rights are subject to adjustment from
time to time to prevent dilution (i) in the event of a stock dividend on, or a
subdivision, combination or reclassification of, the Preferred Shares, (ii) upon
the grant to holders of the Preferred Shares of certain rights or warrants to
subscribe for pr purchase Preferred Shares or convertible securities at less
than the current market price of the Preferred Shares or (iii) upon the
distribution to holders of the Preferred Shares of evidences of indebtedness or
assets (excluding regular quarterly cash dividends or dividends payable in
Preferred Shares) or of subscription rights or warrants (other than those
referred to above).
2
<PAGE>
With certain exceptions, no adjustment in the Purchase Price will be
required until the time at which cumulative adjustments require an adjustment of
at least 1% in such Purchase Price. No fractional Preferred Shares will be
issued (other than fractional shares which are integral multiples of one
one-thousandth of a Preferred Share) and, in lieu thereof, an adjustment in cash
will be made based on the market price of the Preferred Shares on the last
trading date prior to the date of exercise.
Redemption and Exchange of Rights
- ---------------------------------
At any time after any person or group becomes an Acquiring Person, the
Board of Directors may cause the Company to exchange the Rights (other than
Rights owned by the Acquiring Person which shall have become void), in whole or
in part, at an exchange ratio of one Common Share per Right (subject to
adjustment).
At any time prior to the earlier of (i) the close of business on the tenth
calendar day following the Shares Acquisition Date (or if the Shares Acquisition
Date shall have occurred prior to the Record Date, the close of business on the
tenth day following the Record Date) or (ii) the Final Expiration Date, the
Board of Directors of the Company may cause the Company to redeem the Rights in
whole, but not in part, at a price of $.0l per Right (the "Redemption Price").
Immediately upon the action of the Board of Directors of the Company electing to
redeem the Rights, the Company shall make announcement thereof, and upon such
action, the right to exercise the Rights will terminate and the only right of
the holders of Rights will be to receive the Redemption Price.
Until a Right is exercised or exchanged, the holder thereof, as such, will
have no rights as a stockholder of the Company, including, without limitation,
the right to vote or to receive dividends.
Amendment
- ---------
The terms of the Rights may be amended by the Board of Directors of the
Company without the consent of the holders of the Rights, including an amendment
to lower certain thresholds described above to not less than the greater of (i)
the sum of one one-thousandth percent (.001%) and the largest percentage of the
outstanding Common Shares then known to the Company to be beneficially owned by
any person or group (other than Acquiring Persons) and (ii) ten percent (10%),
except that from and after such time as any person or group becomes an Acquiring
Person no such amendment may adversely affect the interest of the holders of the
Rights.
Other
- -----
A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an Exhibit to a Registration Statement on Form 8-A dated
March 31, 1999. A copy of the Rights Agreement is available free of charge from
the Company. This summary description of the Rights does not purport to be
complete and is qualified in its entirety by
3
<PAGE>
reference to the Rights Agreement, which is hereby incorporated herein by
reference.
4
<PAGE>
Exhibit 4.2
to Form 10-K
PHILIPS INTERNATIONAL REALTY CORP.
ARTICLES SUPPLEMENTARY
FOR
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
(Pursuant to Sections 2-105(a)(9) and 2-208(a)
of the Maryland General Corporation Law)
PHILIPS INTERNATIONAL REALTY CORP., a Maryland corporation (the
"Company"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: Pursuant to authority conferred upon the Board of Directors by
the Amended and Restated Articles of Incorporation, as amended, of the Company
(the "Charter"), the Board of Directors, as required by Section 2-208 of the
Maryland General Corporation Law, pursuant to resolutions adopted at a meeting
duly called on February 22, 1999, classified and designated 100,000 shares
(the "Shares") of authorized but unissued Preferred Stock (as defined in the
Charter) as shares of Series A Junior Participating Preferred Stock, with the
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends and other distributions, qualifications and terms
and conditions of redemption as follows, which upon any restatement of the
Charter shall be made part of Article IV of the Charter, with any necessary or
appropriate changes to the enumeration or lettering of sections or subsections
hereof:
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
Section 1. Designation and Amount. This series of Preferred Stock
shall be designated the "Series A Junior Participating Preferred Stock" (the
"Series A Preferred Stock") and the number of shares which shall constitute
the Series A Preferred Stock shall be 100,000 shares. Such number of shares
may be increased or decreased by resolution of the Board of Directors;
provided, that no decrease shall reduce the number of shares of Series A
Preferred Stock to a number less than the number of shares then outstanding
plus the number of shares reserved for issuance upon the exercise of
outstanding options, rights or warrants or upon the conversion of any
outstanding securities issued by the Company convertible into Series A
Preferred Stock.
Section 2. Dividend Rights. (a) Subject to the rights of holders of
any shares of any series of Preferred Stock (or any similar stock) ranking
prior and superior to the Series A Preferred Stock with respect to dividends,
the holders of shares of Series A Preferred Stock, in preference to the
holders of Common Stock, par value $0.01 per share
<PAGE>
(the "Common Stock"), of the Company and of any other junior stock, shall be
entitled to receive, when, as and if authorized by the Board of Directors out
of assets legally available for the purpose, quarterly dividends payable in
cash on the first business day of April, July, October and January in each
year (each such date being referred to herein as a "Quarterly Dividend Payment
Date"), commencing on the first Quarterly Dividend Payment Date after the
first issuance of a share or fraction of a share of Series A Preferred Stock,
in an amount per share (rounded to the nearest cent) equal to the greater of
(i) $1.00 or (ii) subject to the provision for adjustment hereinafter set
forth, 1,000 times the aggregate per share amount of all cash dividends, and
1,000 times the aggregate per share amount (payable in kind) of all non-cash
dividends or other distributions (other than a dividend payable in shares of
Common Stock) or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise)) authorized on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of any share
or fraction of a share of Series A Preferred Stock. In the event the Board of
Directors of the Company shall at any time (A) authorize, declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or (ii) effect
a subdivision or combination or consolidation of the outstanding shares of
Common Stock into a greater or lesser number of shares of Common Stock, then
in each such case the amount to which holders of Series A Preferred Stock were
entitled immediately prior to such event under clause (ii) of the preceding
sentence shall be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(b) The Company shall declare a dividend or distribution on
the Series A Preferred Stock as provided in paragraph (a) of this Section 1
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock); provided that, in
the event no dividend or distribution shall have been declared on the Common
Stock during the period between any Quarterly Dividend Payment Date and the
next subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per share
on the Series A Preferred Shares shall nevertheless be payable on such
subsequent Quarterly Dividend Payment Date.
(c) Dividends shall begin to accrue and be cumulative on
outstanding Series A Preferred Stock from the Quarterly Dividend Payment Date
next preceding the date of issue of such shares, unless the date of issue of
such shares is prior to the record date for the first Quarterly Dividend
Payment Date, in which case dividends on such shares shall begin to accrue
from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Series A Preferred Stock entitled to
receive a quarterly dividend and before such Quarterly Dividend Payment Date,
in either of which events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the shares of Series A
Preferred Stock in an amount less than the total amount of
<PAGE>
such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the
determination of holders of shares of Series A Preferred Stock entitled to
receive payment of a dividend or distribution declared thereon, which record
date shall be no more than 60 days prior to the date fixed for the payment
thereof.
Section 3. Voting Rights. The holders of shares of Series A Preferred
Stock shall have the following voting rights:
(a) Subject to the provision for adjustment hereinafter set
forth, each share of Series A Preferred Stock shall entitle the holder thereof
to 1,000 votes on all matters submitted to a vote of the stockholders of the
Company. In the event the Company shall at any time (i) declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or (ii) effect
a subdivision or combination or consolidation of the outstanding shares of
Common Stock into a greater or lesser number of shares of Common Stock, then
in each such case the number of votes per share to which holders of Series A
Preferred Stock were entitled immediately prior to such event shall be
adjusted by multiplying such number by a fraction, the numerator of which is
the number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(b) Except as otherwise provided herein, in any other
articles supplementary creating a series of Preferred Stock or any similar
stock, or by law, the holders of shares of Series A Preferred Stock and the
holders of shares of Common Stock and any other stock of the Company having
general voting rights shall vote together as one class on all matters
submitted to a vote of stockholders of the Company.
(c) Except as set forth herein, holders of shares of Series
A Preferred Stock shall have no special voting rights and their consent shall
not be required (except to the extent they are entitled to vote with holders
of Common Stock as set forth herein) for taking any corporate action.
Section 4. Certain Restrictions.
(a) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preferred Stock as provided in Section 2
are in arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not authorized or declared, on shares of Series A
Preferred Stock outstanding shall have been paid in full, the Company shall
not:
(i) authorize, declare or pay dividends, or make
any other distributions, on any shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series A
Preferred Stock;
<PAGE>
(ii) authorize, declare or pay dividends, or make
any other distributions, on any shares of stock ranking on a parity (either as
to dividends or upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, except dividends paid ratably on the Series A Preferred Stock
and all such parity stock on which dividends are payable or in arrears in
proportion to the total amounts to which the holders of all such shares are
then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A Preferred
Stock, provided that the Company may at any time redeem, purchase or otherwise
acquire shares of any such junior stock in exchange for shares of any stock of
the Company ranking junior (either as to dividends or upon dissolution,
liquidation or winding up) to the Series A Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for
consideration any shares of Series A Preferred Stock or any shares of stock
ranking on a parity with the Series A Preferred Stock, except in accordance
with a purchase offer made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such terms as the Board
of Directors, after consideration of the respective annual dividend rates and
other relative rights and preferences of the respective series and classes,
shall determine in good faith will result in fair and equitable treatment
among the respective series or classes.
(b) The Company shall not permit any subsidiary of the
Company to purchase or otherwise acquire for consideration any shares of stock
of the Company unless the Company could, under paragraph (a) of this Section
4, purchase or otherwise acquire such shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Company in any manner whatsoever shall
be retired and canceled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred
Stock, subject to the conditions and restrictions on issuance set forth
herein, in the Charter or in any other articles supplementary creating a
series of Preferred Stock or as otherwise required by law.
Section 6. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Company, no distribution shall
be made (a) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series A
Preferred Stock unless, prior thereto, the holders of shares of Series A
Preferred Stock shall have received $55.00 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not
authorized or declared, to the date of such payment, provided that the holders
of shares of Series A Preferred Stock shall be entitled to receive an
aggregate amount per
<PAGE>
share, subject to the provision for adjustment as hereinafter set forth, equal
to 1,000 times the aggregate amount to be distributed per share to holders of
shares of Common Stock, or (b) to the holders of shares of stock ranking on a
parity (either as to dividends or upon liquidation, dissolution or winding up)
with the Series A Preferred Stock, except distributions made ratably on the
Series A Preferred Stock and all such parity stock in proportion to the total
amounts to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up. In the event the Board of Directors of
the Company shall at any time authorize, declare or pay any dividend on the
combination or consolidation of the outstanding shares of Common Stock payable
in shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification
or otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case the
aggregate amount to which holders of shares of Series A Preferred Stock were
entitled immediately prior to such event under the proviso in clause (a) of
the preceding sentence shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to
such event.
Section 7. Merger, Consolidation, Etc. In case the Company shall
enter into any merger, consolidation, combination or other transaction in
which the shares of Common Stock are exchanged for or changed into other stock
or securities, cash and/or any other property, then in any such case each
share of Series A Preferred Stock shall at the same time be similarly
exchanged or changed into an amount per share (subject to the provision for
adjustment hereinafter set forth) equal to 1,000 times the aggregate amount of
stock, securities, cash and/or any other property (payable in kind), as the
case may be, into which or for which each share of Common Stock is changed or
exchanged. In the event the Board of Directors of the Company shall at any
time (a) authorize, declare or pay any dividend on the Common Stock payable in
shares of Common Stock or (b) effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification
or otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case the
amount set forth in the preceding sentence with respect to the exchange or
change of shares of Series A Preferred Stock shall be adjusted by multiplying
such amount by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
Section 8. No Redemption. The shares of Series A Preferred Stock
shall not be redeemable.
Section 9. Ranking. The Series A Preferred Stock shall rank, with
respect to the payment of dividends and the distribution of assets upon
liquidation, dissolution, winding up or otherwise, junior to all series of the
Company's Preferred Stock, unless the terms of any such series shall provide
otherwise.
<PAGE>
Section 10. Amendment. The Charter, including these Articles
Supplementary establishing the rights and preferences of the Series A
Preferred Stock, shall not be amended in any manner which would materially
alter or change the preferences, voting powers or other rights or restrictions
of the Series A Preferred Stock, as set forth herein, so as to affect them
adversely without the affirmative vote of the holders of a majority of the
outstanding shares of Series A Preferred Stock, voting together as a single
class.
Section 11. Restrictions and Limitations. Shares of Series A
Preferred Stock shall be subject to the restrictions and limitations set forth
in Article VI of the Charter.
Section 12. Fractional Shares. Series A Preferred Stock may be issued
in fractions of a share that shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Series A Preferred Stock.
Section 13. No Conversion Rights. The holders of the Series A
Preferred Stock shall not have any rights to convert such shares into shares
of any other class or series of stock of the Company or into any other
securities of, or interest in, the Company.
Section 14. No Preemptive Rights. No holder of shares of Series A
Preferred Stock shall have any preemptive or preferential right to subscribe
for, or to purchase, any additional shares of stock of the Company of any
class or series, or any other security of the Company which the Company may
issue or sell.
SECOND: The Shares have been classified and designated by the Board
of Directors under the authority contained in the Charter.
THIRD: These Articles Supplementary have been approved by the Board
of Directors in the manner and by the vote required by law.
FOURTH: The undersigned President of the Company acknowledges these
Articles Supplementary to be the corporate act of the Company and, as to all
matters or facts required to be verified under oath, the undersigned Chief
Executive Officer acknowledges that to the best of his knowledge, information
and belief, these matters and facts are true in all material respects and that
this statement is made under the penalties for perjury.
<PAGE>
IN WITNESS WHEREOF, the Company has caused these Articles Supplementary to be
executed under seal in its name and on its behalf by its President and
attested to by its Secretary on this 31st day of March, 1999.
PHILIPS INTERNATIONAL REALTY CORP.
By: /s/ Louis J. Petra
-------------------------------
Name: Louis J. Petra
Title: President
[SEAL]
Attest:
By: /s/ Sheila Levine
----------------------------
Name: Sheila Levine
Title: Secretary
<PAGE>
Exhibit 10.2 to
Form 10-K
FIRST AMENDMENT
TO THE AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
PHILIPS INTERNATIONAL REALTY, L.P.
THIS FIRST AMENDMENT TO THE AMENDED AND RESTATED AGREEMENT OF LIMITED
PARTNERSHIP (hereinafter "Amendment") is made as of March 31, 1999 by PHILIPS
INTERNATIONAL REALTY CORP., a Maryland corporation, as general partner (the
"General Partner") of PHILIPS INTERNATIONAL REALTY, L.P., a Delaware limited
partnership (the "Partnership"), for the purpose of amending the Amended and
Restated Agreement of Limited Partnership of the Partnership dated as of the
16th day of April, 1998, as amended to the date hereof (the "Partnership
Agreement").
WHEREAS, the General Partner has entered into a Rights Agreement as
of March 31, 1999 (the "Rights Agreement") pursuant to which the General
Partner will distribute to the holders of the General Partner's Common Stock,
Rights to purchase shares of a newly authorized class of preferred stock (the
"Rights Plan");
WHEREAS, in connection with the adoption of the Rights Plan, it is
necessary to amend the Partnership Agreement to provide for the equitable
treatment of Limited Partners under the terms of the Partnership Agreement
including, without limitation, in connection with the Limited Partners' Rights
of Redemption under Section 10.3 of the Partnership Agreement;
WHEREAS, pursuant to Section 10.3(j)(iii) of the Partnership
Agreement, in the event that the General Partner issues rights or warrants to
subscribe for or purchase shares
1
<PAGE>
of Common Stock at a price less than the Current Per Share Market Price, then
the General Partner shall have the obligation to issue to each Limited Partner
the number of rights as he would have been entitled to receive had the
Partnership redeemed the Partnership Units immediately prior to the record
date for such issuance by the General Partner;
WHEREAS, pursuant to Section 16.2 of the Partnership Agreement, the
General Partner has the right to amend the Partnership Agreement without the
consent of the Limited Partners 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 the Partnership Agreement not inconsistent with law or with other
provisions, or make other changes to matters arising under the Partnership
Agreement that will not be inconsistent with law or the provisions of the
Partnership Agreement;
WHEREAS the General Partner believes that none of the actions taken
pursuant to this Amendment will adversely affect the Limited Partners in any
material respect or be inconsistent with the law or other provisions of the
Partnership Agreement; and
WHEREAS the General Partner believes that the amendments set forth
herein effectuate the intent of Section 10.3(j)(iii) and do not, in any
matter, prohibit or restrict or have the effect of prohibiting or restricting
the ability of a Limited Partner to exercise its Redemption Rights in full;
and
WHEREAS the General Partner of the Partnership believes it is
desirable and in the best interest of the Partnership and the Limited Partners
to amend the Partnership Agreement as set forth herein.
2
<PAGE>
NOW THEREFORE, in consideration of the foregoing, the mutual promises
contained herein and for other good and valuable consideration, the receipt
and sufficiency which is hereby acknowledged, the General Partner on behalf of
itself and the Limited Partners, intending to be legally bound, hereby agrees
to make the following amendments to the Partnership Agreement in connection
with the execution of Rights Agreement, and to make certain technical
corrections to the Partnership Agreement, effective as of March 31, 1999:
Section 1 - Defined terms. Unless otherwise specifically provided for
herein, all capitalized terms shall have the same meaning given to such term
in the Partnership Agreement.
Section 2 - Amendments.
A. The definition of "Current Per Share Market Price" set forth in
Article 1 of the Partnership Agreement and is hereby deleted in its entirety
and amended and restated to read in its entirety as follows:
"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, provided that in the event that shares of
stock exchanged for Partnership Units include Rights that a holder of
such shares would be entitled to receive pursuant to the Rights
Agreement, such Rights shall be deemed to have no value unless a
"Triggering Event" (as defined in the Rights Agreement) shall have
occurred (i.e., if the Rights issued pursuant thereto are no longer
"attached" to the stock and are able to trade independently); and
provided further, that in the event that a Triggering Event shall
have occurred and any stock exchanged for Partnership
3
<PAGE>
Units includes Rights that the holder of such shares would be
entitled to receive pursuant to the Rights Agreement, then the
Current Per Share Market Price of such Rights shall be determined by
the General Partner acting in good faith on the basis of such
quotations and other information that it considers, in its reasonable
judgment, appropriate.
B. Article 1 of the Partnership Agreement is amended to add the
following terms as defined terms in the Partnership Agreement in appropriate
alphabetical order:
"Rights" means the rights issued to the stockholders of the General
Partner pursuant to the Rights Agreement.
"Rights Agreement" means that certain Rights Agreement dated
as of March 31, 1999, by and between the General Partner and BankBoston, N.A.
C. Section 6.4(b) of the Partnership Agreement entitled "Adjustments
to Partnership Units" is hereby deleted in its entirety and amended to read in
its entirety as follows:
(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 stock split or
subdivision, reverse stock split or combination, stock dividends, or
distribution of stock rights, warrants or options, 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, combined, issued or
distributed stock, stock rights, options or warrants in accordance
with the same ratio used to split, combine, issue or distribute the
stock, stock rights, options or warrants. For example, if the
4
<PAGE>
Common Stock undergoes a reverse two-for-one split, (i.e., every two
shares of old Common Stock are converted to 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 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. In addition, without limiting the generality of the foregoing,
in the event the number of shares of Common Stock, preferred stock or
any class of stock of the General Partner shall be adjusted for the
issuance or distribution of stock upon the exercisability of the
Rights governed by the Rights Agreement without the receipt of cash
by the General Partner (which adjustment may be satisfied by the
issuing of additional Common Stock or other stock in exchange for the
Rights) then, without further action or consent by the General
Partner or any Limited Partner, the corresponding classes of
Partnership Units shall be appropriately issued additional
Partnership Units or otherwise appropriately adjusted as necessary to
reflect equitably the dilution in the stock of the General Partner
resulting from the issuance of additional stock and the exchange of
stock for the Rights.
D. The Partnership Agreement is hereby amended by adding a new
section 6.3A to read as follows:
5
<PAGE>
6.3A Exercise of the Rights Pursuant to the Rights
Agreement. In the event that the General Partner has made
contributions of cash or other consideration to the
Partnership attributable to the General Partner's receipt of
cash or other consideration upon the exercise of the Rights
by the shareholders of the General Partner pursuant to the
Rights Agreement, the General Partner shall be issued a
number of Partnership Units as a result of such contribution
equal to the number of shares sold pursuant to such
exercise. In such event, the Limited Partners shall have the
right to purchase additional Partnership Units pursuant to
Section 6.4(e).
E. The Partnership Agreement is hereby amended by adding a new
Section 6.4(e) to read as follows:
(e) Issuance of Additional Units to the Limited Partners. In
the event that the holders of stock of the General Partners
are issued stock for cash or other consideration pursuant to
the Rights Agreement and the General Partner contributes
such cash or other consideration to the Partnership pursuant
to Section 6.3A, then, without further action or consent by
the General Partner or any Limited Partner, each Limited
Partner holding a class of Partnership Units that is
convertible into such stock shall have the right to acquire
additional Partnership Units on the same terms and
conditions as granted to the holders of stock pursuant to
the Rights Agreement, as if the Limited Partner had
converted its Partnership Units into stock immediately prior
to the exercise of the Rights.
6
<PAGE>
F. The second sentence of Section 7.4(d) of the Partnership Agreement
is amended to add the phrase "or will have" immediately after the word "has"
and immediately before the word "received".
G. Section 10.3(j)(v) of the Partnership Agreement is hereby amended
to delete the reference to "Section 10.3(i)(iv)" in the parenthetical clause
and replace it with "Sections 6.4(c) and 10.3(j)(iv)"; and the reference in
Section 10.3(j)(vi) to "Section 10.3(i)" is hereby deleted and is replaced
with "Section 10.3(j)".
Section 3 - Miscellaneous
A. Effect of Amendment. Except as specifically modified hereby, all
terms and provisions of the Partnership Agreement shall continue to remain in
full force and effect and, except as the context otherwise requires, each
reference to the Partnership Agreement in this Amendment shall be a reference
to the Partnership Agreement as amended hereby.
B. Successors and Assigns. This Amendment shall inure to the benefit
of and be binding upon the successors and assigns of each of the Partners.
C. Heading. The headings in this Amendment are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
D. Governing Law. This Amendment shall be governed by and construed
in accordance with the internal laws of the State of Delaware.
E. Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and
of the remaining provisions hereof shall not
7
<PAGE>
be in any way impaired or affected, it being intended that each party's rights
and privileges shall be enforceable to the fullest extent permitted by law.
IN WITNESS WHEREOF, the General Partner, on behalf of itself and the
Limited Partners, has executed this Amendment as of the 31st day of March,
1999.
PHILIPS INTERNATIONAL REALTY, L.P.
BY: PHILIPS INTERNATIONAL REALTY CORP.,
as its General Partner
By: /s/ Louis J. Petra
--------------------------------
Louis J. Petra
President
PHLIPS INTERNATIONAL REALTY CORP.,
in its individual legal capacity
By: /s/ Louis J. Petra
-----------------------------
Louis J. Petra
President
8
<PAGE>
NEWS PHILIPS INTERNATIONAL REALTY CORP.
RELEASE 417 Fifth Avenue, New York, NY 10016
- ------------------------------------------------------------------------------
For Immediate Release
March 31, 1999
PHILIPS INTERNATIONAL REALTY CORP.
ANNOUNCES $5 MILLION STOCK RE-PURCHASE PROGRAM,
SHAREHOLDER RIGHTS PLAN AND ANNUAL MEETING
- -------------------------------------------------------------------------
New York, N.Y. - March 31, 1999 - Philips International Realty Corp.
(NYSE-PHR), a real estate investment trust (REIT) specializing in the
ownership, acquisition for redevelopment and development of neighborhood and
community shopping centers predominantly located in the greater New York
metropolitan area, today reported that its Board of Directors has authorized a
discretionary common stock buy-back program. Under the program, the Company
will have the ability to repurchase up to $5 million of its outstanding shares
of common stock. Purchases may be made from time to time in open market
transactions at prevailing prices or through privately negotiated transactions
and are subject to compliance with applicable securities and tax regulations.
The Company also announced that its Board of Directors has adopted a
Shareholder Rights Plan. Under the Shareholder Rights Plan, rights to purchase
shares of newly issued Philips International Realty Corp. Series A Junior
Participating Preferred Stock will be distributed to shareholders as a
non-cash dividend at the rate of one right for each share of common stock held
as of the close of business on March 31, 1999. Each of the rights, which
expire on March 31, 2009, will entitle shareholders to buy one one-thousandth
of a share of Preferred Stock at an exercise price of $55.00 if any person or
group becomes the beneficial owner of 15% or more of the Company's common
stock. Each right not owned by such person or group will entitle its holder to
purchase shares of the Company's common stock having a value of twice the
right's then current exercise price. Further details of the Shareholder Rights
Plan are contained in the Company's Annual Report on Form 10-K filed today
with the Securities and Exchange Commission. The Shareholder Rights Plan is
intended to protect the interests of the Company's shareholders in the event
the Company is confronted with coercive or unfair takeover tactics. Management
emphasized that the Shareholder Rights Plan has not been implemented in
response to any present effort to acquire control of the Company, and the
Company is not aware of any such efforts.
The Company also reported that its Annual Meeting of Shareholders will be held
at Republic National Bank, 452 Fifth Avenue, New York, New York on May 20,
1999 at 2:00 p.m. All
<PAGE>
shareholders of record as of the close of business on March 31, 1999 are
entitled to vote at the Annual Meeting. The Company's Proxy Statement will be
mailed on or about April 15, 1999.
Contact: Brian J. Gallagher
Chief Financial Officer
Philips International Realty Corp.
(212) 951-3812
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement Form
S-8 (No. 333-72065) and Forms S-3 (Nos. 333-72067 and 333-72069) of Philips
International Realty Corp. and in the related Prospectus of our report dated
March 1, 1999, with respect to the consolidated financial statements and
schedule of Philips International Realty Corp. included in the Annual Report
(Form 10-K) for the year ended December 31, 1998.
Ernst & Young LLP
New York, New York
March 31, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE COMPANY'S
CONSOLIDATED FINANCIAL STATEMENTS FOR THE
YEAR ENDED DECEMBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 9,116
<SECURITIES> 0
<RECEIVABLES> 5,987
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 228,896
<DEPRECIATION> 19,982
<TOTAL-ASSETS> 264,347
<CURRENT-LIABILITIES> 4,828
<BONDS> 0
0
0
<COMMON> 73
<OTHER-SE> 89,325
<TOTAL-LIABILITY-AND-EQUITY> 264,347
<SALES> 0
<TOTAL-REVENUES> 22,625
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 12,577
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,243
<INCOME-PRETAX> 4,521
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,521
<DISCONTINUED> 0
<EXTRAORDINARY> (65)
<CHANGES> 0
<NET-INCOME> 4,456
<EPS-PRIMARY> 0.93
<EPS-DILUTED> 0.93
</TABLE>
